Finance Committee on April 24th, 2018

[Kathy Norrie]

There are a number of benefits that are contained in the pension for life proposal in the bill. There would be three different benefits that could be considered. The income replacement benefit would replace six benefits: the career impact allowance; the career impact allowance supplement; the supplementary retirement benefit; the retirement income security benefit; and the earnings loss benefit, both short and long term. It would be 90% of the veteran's pre-release salary and it's indexed annually to the time it's paid.

As part of the income replacement benefit, there's a recognition for lost career progression potential, which is a 1% annual increase to the pre-release salary until the age of 60 or 20 years of service for veterans with diminished earnings capacity. They'll be entitled to the career recognition aspect through the income replacement benefit. In addition, there's the additional pain and suffering compensation, which recognizes pain and suffering experienced by veterans and Canadian Armed Forces members with a disability due to service-related injury or illness. It has three grade levels: grade 1 is $1,500, grade 2 is $1,000, and grade 3 is $500, and it's based on the extent of the impairment of the veteran.

In addition to that there is the pain and suffering compensation, which will be replacing the disability award, and it has a maximum amount of $1,150.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I don't want to take too much time on this particular issue, but I guess what I'm asking is for you to lead us through what veterans are gaining, since we can see in the bill what they are losing. That may be something you could provide to the committee perhaps over the next few days, because I'm still not convinced that the veterans are better off, in reading through the elimination of the earning loss benefit, the career impact allocation supplementary retirement benefit, and the family income security benefit.

I think for the needs of this committee if you can lead us through, perhaps in writing, where veterans actually gain in terms of the overall income stream, that would be helpful. Looking through the budget implementation act, I see there seem to be a lot of take-aways from veterans, so I want to be sure—and I'm sure my colleagues do as well—that veterans are not getting less coming through this process rather than more. Is it possible that you could provide to the committee the financial spreadsheets and the model that allows us to see, given the take-aways, what veterans would actually be receiving?

[Kathy Norrie]

I can certainly provide additional information. I can also run through a scenario, if you will, that would show an example of what a veteran might receive through all the different benefits under pension for life, if that's helpful.

Just to clarify, the bill consolidates six benefits under the income replacement benefit. We're replacing six, including the career impact allowance, with one, and it has additional features, as I mentioned, the lost career progression potential. It also includes increased amounts for survivors and a $20,000 allowable earning. In addition, the additional pain and suffering compensation is non-taxable, so there's a gain there.

I'm not sure if it would be helpful, but I'm happy to run you through a scenario.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I think it would be helpful to the committee if you provided the modelling that comes through the ministry, how you constructed this. I'm sure you had a number of different scenarios and it would be helpful to have them. We do have veterans groups coming forward to committee, so having that information prior to their providing their testimony would be very helpful.

Thank you.

[Kathy Norrie]

Sure.

[The Vice-Chair, Conservative, Pierre Poilievre]

Thank you very much.

Mr. McLeod was next to have his hand up, and then we'll go to Mr. Albas, and I did see Mr. Fergus and Madam Dzerowicz.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair, and thank you to the presenters today.

I was pleased to see the extension of the mineral exploration tax credit in place. I think all jurisdictions that are trying to attract industry and exploration in their jurisdiction need a number of things. Of course, certainty is one of them. Whether it's through the regulatory process or through the land claims, the self-government process with the indigenous governments, industry wants to see there's stability and their investment is going to be safe.

There's also the cost factor. That's also a big one for us in the north. We are in a very remote part of the country and so we always conclude, whenever we talk to industry, the chamber of mines, the chamber of commerce, that we'd prefer to have investment in transportation infrastructure and airports and those types of big-ticket items that we need, rather than subsidies, but the subsidies to mining companies seem to help. However, we seem to extend it just before it expires, in the last while anyway.

I'm wondering if you could explain what the advantages or the disadvantages are of making the mineral exploration tax credit a permanent measure, instead of a temporary measure, which seems to get included at the last minute. I think maybe there's an impact to industry in how they move forward also, so I'm very curious to see why it's done this way.

[Maude Lavoie]

It's a bit difficult to talk about the government's motivation over time to make the credit temporary. The mineral exploration tax credit was first introduced in 2000, and was extended by governments since then on a temporary basis. The use of a temporary measure allows for an ongoing review of the economic conditions that this sector is facing. In particular, the mining sector is very cyclical in nature. I can only presume this factors into the decision to make this temporary, so it allows us to review on an ongoing basis whether the credit is still needed.

You were raising the issue of certainty for the industry. One thing I would note is that under the credit—and that's also under the flow-through shares system—the money that has been raised in the first three months of a year can be spent up until the end of the following calendar year. So it does provide a two-year window for corporations to spend on their exploration activity.

[Michael McLeod, Liberal, Northwest Territories, NT]

I'm assuming this is tracked and we're seeing positive results, so it gives us the comfort that we should do it again the following year and the following year. That kind of information is captured.

[Maude Lavoie]

Yes, that information about the economy more generally and the mining sector, the commodity prices, and so on.

[Michael McLeod, Liberal, Northwest Territories, NT]

My next question is about the increase in taxes on tobacco products. I'm curious as to why we're raising the taxes on tobacco products, whether it's so we can generate more revenues or so we can discourage the use of tobacco. The use of tobacco is a big problem in my riding. I think we probably have the worst statistics in the country when it comes to lung cancer and the number of people who are smoking. I'm curious, is this so we can have more revenues? If it is for generating more revenues, is the intention to reinvest some of these revenues into smoking prevention programs and into tobacco control? Is that what we're intending to do with some of the revenues that we generate?

[Gervais Coulombe]

The measure that was introduced in budget 2018 had two major components. The first was to ensure that inflationary adjustments are brought in every year. In doing so, the government maintains the real impacts of federal taxes on tobacco products. The federal excise duty is a fixed amount of tax that is charged at the production of each cigarette, so if these taxes are not increased over time, their effectiveness is reduced because of inflation. That was the first component of the measure.

The second component is an extra dollar increase that will help to support the health conservation goals that are attached to tobacco taxation.

Unfortunately I don't have the budget with me, but there were also amounts of money provided as part of the federal tobacco control strategy. The revenues associated with federal excise duty on tobacco products flow into the consolidated revenue funds and are used to finance all services and programs that Canadians enjoy, including providing some extra funding for health.

[Michael McLeod, Liberal, Northwest Territories, NT]

I have one last question. It's still on tobacco, because we had presentations here last week from people who were talking about the issue of tobacco smuggling. As we increase the costs of tobacco, how big is the concern that we're also going to increase the issue of smuggling tobacco?

[Gervais Coulombe]

With the proposed adjustment, basically, of one dollar—the other one being simply to recoup the inflation—this is a very small increase at this point compared to the cigarette retail sale price. We have information, for instance, from Statistics Canada that shows that the average retail price of a carton of 200 cigarettes was about $106 after all taxes and duties in 2017, so the increase that is being proposed in the budget is very small and would not be expected to put further pressure on contraband activities.

[The Vice-Chair, Conservative, Pierre Poilievre]

Thank you very much.

Next on our list is Mr. Albas.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair. I appreciate the work that our officials do here for Canadians; I thank them for their presence and expertise here today.

In regard to the mineral tax credit, I just want to say on record again that we heard from the Chamber of Mines when we were in Yellowknife, that they were seeking a three-year extension for that increased certainty. I applaud the efforts of the member across the way, because I actually think it should be five years. If we're going to see development of our minerals at some point, there needs to be more certainty in that area. I obviously don't need to broach that, but I just wanted to say that it's an important policy.

Following off Mr. Julian's comments in regard to Veterans Affairs, first of all, this committee member would certainly be in favour of seeing more information as to the benefits and programming that are going to be discontinued, and ensuring that there is an equal or net gain for our veterans. That's important, particularly when we have veterans groups coming to this committee.

I would just ask, through this budget implementation bill and the legislation it entails, is there an automatic enrolment for those who will be losing those subsidies in favour of the new subsidy?

[Kathy Norrie]

For the three new benefits, there are protections in place. Any veterans who currently, for example, are receiving a career impact allowance will automatically be eligible for the additional pain and suffering compensation, and will be protected at the same grade level. If they're receiving the career impact allowance at grade 2, which is currently about $1,200, it would automatically move over to the second grade level of the additional pain and suffering compensation.

For the pain and suffering compensation, any veteran who would have received a disability award previously will automatically be considered for an additional monthly amount. We'll go back and look at whether the individual would have been entitled to more, had this new pain and suffering compensation existed back when they received the disability award. We'll take this as far back as 2006, and we'll then automatically start a monthly payment recognizing the difference they would have been entitled to.

For the income replacement benefit, no veteran will receive less than they were receiving in the career impact allowance supplement, the retirement income security benefit, or the earnings lost benefit, whether extended or short-term. The protections are built into the transitional provisions of the bill.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you for mentioning those things.

Is there an appeal process for someone if they are switched to a different rate that they disagree with? Is there an appeal process within it, or is it through the regular appeal process?

[Kathy Norrie]

There are protections for the review rights and appeal rights. Anyone who was receiving benefits prior to the coming into force of these new benefits will continue to have the same appeal rights, and with the new benefits, the same review rights will exist.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Will they still receive those benefits while it's under appeal?

[Kathy Norrie]

Yes, if they were determined to be eligible, and, say, they're questioning a grade level, if it's a new applicant, a new veteran, yes, they would continue to receive what they were determined eligible for, while they seek a review.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, and I'd like to go to the TOSI rules briefly, if that's possible. On excluded businesses and excluded shares, could someone give an example of why certain companies are excluded from the provisions of TOSI under this new budget implementation act legislation?

[Trevor McGowan]

The excluded business definition is an exclusion from the tax on split income, or TOSI, and is intended to provide a bit more of bright-line exclusion than you have in the base reasonableness test. It applies where an individual makes significant labour contributions in support of a business, and if you work at least 20 hours per week during the portion of the year that that business is being carried on, as in a farming business, for example, that only operates through a portion of the year, then that test would only have to be met through that portion of the year, not the full 52 weeks.

That test is intended to provide an automatic exclusion from the tax on split income where you've made a significant labour contribution in support of a business. You can think of the excluded share concept as being the other side of that coin.

The reasonableness test just in general looks to your contributions of labour and capital in support of a business. The excluded business is a bright-line test for labour, and the excluded share test is a bright-line test that applies in respect of capital. So if you have a sufficient interest—more than 10%—in a corporation carrying on a business and that's determined by both votes and value, and that business earns less than 90% of its income from the provision of services, then you can be excluded from the tax on split income without having to go back and look to the reasonableness test. So it provides a much clearer bright-line test that is intended to ease compliance concerns for affected taxpayers.

Now you've asked why some businesses are affected and others are not. One of the questions we've received relates to the services business criterion, and so I could speak briefly on that if it's what you were thinking of.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

What problem are you trying to solve by outlining service businesses? Is it really because you don't want professionals using their professional corporations, setting up management companies, and then charging their professional corporation management a management fee, and then income splitting with their spouses? Is that what this is all about?

[Trevor McGowan]

In terms of the exclusion of professionals, again, going back to lawyers, an example is where you have a lawyer operating in a law firm and a spouse or an adult child who's not participating at all in the business, such that they can't avail themselves of the labour contribution exclusion. That would be the paradigm test. There are actually a couple of reasons why that service criterion was put in. As I said—