Evidence of meeting #121 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was year.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Trevor McGowan  Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance
Pierre Leblanc  Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Randy Freda  Senior Tax Policy Officer, Business Income Tax Division, Tax Policy Branch, Department of Finance
Pierre Mercille  Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance
Carlos Achadinha  Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

4:05 p.m.

Liberal

The Chair Liberal Wayne Easter

Ms. O'Connell.

4:05 p.m.

Liberal

Jennifer O'Connell Liberal Pickering—Uxbridge, ON

Thank you, Mr. Chair, and thank you all for being here.

My question is in regard to the ecological gifts program, and specifically around the change currently proposed that the Minister of Environment and Climate Change must approve the recipient. If I'm reading this correctly, the act is to amend the requirement that municipalities and municipal public bodies can perform this function on behalf of the government.

Am I understanding that correctly, and if so, what is this process? How do the municipalities...? Do they request this or do they automatically receive this ability? What does this change look like in practice?

4:10 p.m.

Pierre Leblanc Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance

Many eco-gifts go to what are considered qualified donees, so charities, conservancy agencies. There's a process now, just to ensure the integrity of the program, that the Minister of Environment and Climate Change, or supported by her department, basically assesses the claims and makes sure that the gifts, the arrangements, are consistent with the goals of the program.

As the legislation currently stands, where it's a municipality, there's no such verification or assessment required. It's an automatic process, so the idea of this particular amendment is to basically level the playing field, or to have equal treatment, so that the due diligence that is performed will be performed for municipalities or other bodies performing a similar function, as it is for registered charities.

4:10 p.m.

Liberal

Jennifer O'Connell Liberal Pickering—Uxbridge, ON

I see. It's not the municipalities approving; it's that they have to go through the process if they're receiving.

4:10 p.m.

Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance

Pierre Leblanc

That's correct.

4:10 p.m.

Liberal

Jennifer O'Connell Liberal Pickering—Uxbridge, ON

Okay.

Then in regard to these changes as well, I guess there have been concerns or suggestions that, for example, when a charity is established for a sole purpose.... I know, at least in my area, that there are a few in terms of conservation groups that become stewards of various lands. Sometimes in doing so, there are costs associated with, let's say, the survey of the land or some of the acquisitions from it that the charity would pay. It's not coming from the estate, but then there are treatments of that funding, and it's not included in part of the gift.

Is there anything that deals with some of the costs associated with that transfer, that gift of the asset, or is this not part...?

4:10 p.m.

Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance

Pierre Leblanc

I think I can tell you that's not part of any of the amendments that are proposed here.

4:10 p.m.

Liberal

Jennifer O'Connell Liberal Pickering—Uxbridge, ON

Okay. Thank you.

4:10 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Gerretsen is next.

November 2nd, 2017 / 4:10 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

Thank you, Mr. Chair.

Mr. McGowan, I want to go back to the discussion you were having about billed-basis accounting.

I share some of the concern about how you're going to track what was in a previous year, and not necessarily with respect to pro bono, as Mr. Sorbara talked about, but more about those cases where the deal, so to speak, with the lawyers, is how it gets paid out afterwards. I'm not as concerned about the expenses, because I think that everybody, by default, is going to expense the costs as they're incurred in that year.

How do you know that you can accurately capture that after the fact? You don't know how much time you're going to put into a particular case. It might go on for several years. Are you suggesting that the individual amount of time billed should be captured in each year and then reconciled later on?

I'm just trying to wrap my head around that. I was trying to listen to the kind of weird explanation, and I didn't quite get it.

4:10 p.m.

Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

The amount captured in a particular year would just be the amount of income that's earned in that year, and—

4:10 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

Like an hourly rate, then?

A lot of those cases work on an amount that is garnered in a decision. A percentage of that, 20% or 30%, goes to the lawyer, or whatever it might be. It's going to be very difficult to capture that previous year when you don't know the outcome of what it will be.

4:10 p.m.

Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

Okay, so first, I thought you were getting at the end of the year when you're determining how much to include in your income and whether you take into consideration—

4:10 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

Right.

4:10 p.m.

Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

—your billings that are going to happen after the end of the year.

It really is your work in progress of the amount that has accrued until that point in time. Will you put in 10 hours and plan to bill it out on January 15, or is it a municipal board hearing that could go on for another 10 years?

If that doesn't factor into how much you've earned during the year, at the end of the year, you have to make a determination of how much your work in progress is worth. Let's say, you bill at $500 an hour, and you've put in—

4:15 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

I'm sorry to interrupt, but what if the arrangement with the client is a percentage of the yield as a result of the case?

I mean, a store quite often will sell services or goods for different amounts, and they have to assess a whole bunch of stuff into it. If I were a lawyer, if I'm going to assess what my value is in this particular case, my hourly rate might be more if I determine that my outcome of a success is less likely, because there's a greater risk to me to do that.

Are you suggesting that they just take their hourly rate times the number of hours they had, and then apply that?

4:15 p.m.

Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

I think that if you know that there won't be a premium billing and your recovery rate's at 100%, then that's probably what you would do to determine the fair market value of it, although there are other considerations.

However, that's not the situation you were talking about. You were talking about when you bill 100 hours, and maybe your recovery is higher than your normal billing rate—or lower, depending on the outcome of a case—or perhaps it's contingent, in the sense that you know that you'll bill x dollars per hour for the case, but there's some uncertainty about whether you'll be able to collect at the end of the day or will just take a writeoff. That's where you have to make a determination at the end of the year, based upon the facts, of the worth or the fair market value of the work you've done to that point.

It's difficult to put exact numbers on it, but let's say you have $10,000 of work in progress. You make a reasonable determination that you'll probably collect 80% of it, so then it would be worth $8,000. That's where the ability to come up with a fair value comes in. As I said earlier, if it is truly uncertain, if you just don't know whether or not you're going to win it or whether or not you're going to get paid, there is case law supporting the notion that you don't have to include anything.

Third, there is the ability to pick the lower of cost or fair market value, a method for inventory where you have that kind of file. Let's say you know that your costs are $6,000. You think your costs might be $10,000, or they might be up to $14,000, or they might be as low as zero. If you reasonably think that it probably will be $10,000, you can pick the lower of cost or fair market value to take the $6,000 of cost. So you're insulated from that, to some degree.

4:15 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

I want to state for the record that I am quite supportive of the elimination of billed-basis accounting as it relates to certain professionals, as you've indicated here, but I do share a concern that it will be hard to capture that. I think it's extremely important that CRA figure out how they will do that. To suggest that you'll have to weigh the likelihood of success.... I mean, who will be the judge of that? Will it be somebody at CRA? How will that all work? I'm throwing that out there as a concern.

Still in relation to this, is there a timeline, or a certain amount of time during which it needs to have taken place? For example, if an accountant starts work on December 29 and finishes it on January 3, do you expect them to also split that into two invoices? Is there a timeline for this? A lot of people outside of professionals, a lot of businesses, will quite often do that. Tradespeople or whoever will start some work that's maybe only a week long but happens to go over that period. How does the timing work on that?

4:15 p.m.

Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

I thought you were going to ask a different question, which I was happy about, because I'd forgotten to mention that this measure initially had a two-year phase-in period and after the consultation was extended to five. In terms of timing, that's worth noting. That came out as a result of the consultation, and in fact from comments we heard from the CBA and others.

4:20 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

I'm glad you were able to get that in there, but can you answer the question?

4:20 p.m.

Voices

Oh, oh!

4:20 p.m.

Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

Yes. Assuming you had a calendar year-end, which I'm sure was the case in your example, then for that year, the first year, you'd be taxed on your work in progress that accrued up to the end of the year. You wouldn't have to send out two invoices to the client, but the amount you earned, the amount of income that accrued to you in the first year, and the costs, would be taxable in the first year.

4:20 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

For your accounting purposes, it's two separate invoices...or not invoices, but it's separated so there is no timeline. If you start something on December 29 and you end it on January 3, then you're expected to properly distribute it between the two years.

4:20 p.m.

Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance

4:20 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

Okay. Thank you.