Evidence of meeting #145 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was rate.
A video is available from Parliament.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
I have a few words to say.
As Mr. Albas just said, we usually get along and it works pretty well. If we find that a member of the committee takes too long to ask questions, we will give others a chance and the person will be able to speak later.
In two hours, we are usually able to have a number of discussions.
Conservative
Conservative
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you, Chair.
Trevor, you mentioned the section dealing with passive income. Can you just clarify the rules that will be put in place with the BIA legislation with regard to passive investments in terms of the step up between the small business tax rate and the corporate income tax rate?
Maude Lavoie Director General, Business Income Tax Division, Tax Policy Branch, Department of Finance
Under the proposed rule, the eligibility for the small business deduction will start to be reduced once a CCPC earns $50,000 of passive investment income, and it will be gradually reduced until it reaches $150,000 of passive income, at which point the eligibility for the small business deduction will be nil.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
What percentage of CCPCs may be impacted by that change?
Director General, Business Income Tax Division, Tax Policy Branch, Department of Finance
About 3% of corporations that are claiming the small business deduction would be impacted by the proposed change.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I think there are over one million CCPCs, so it will be a very small amount.
Director General, Business Income Tax Division, Tax Policy Branch, Department of Finance
For this specific measure, yes, it's about 3% of about 750,000 firms that are claiming the small business deduction.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
The second question is regarding the income sprinkling measure that Trevor spoke about. To me, that measure in the BIA legislation is about tax fairness for Canadians, and I wanted to see if you could align the broad strokes of how that will be implemented.
Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
Yes, of course. I would be happy to do so.
The current measure builds upon the existing tax on split income that applies to individuals under the age of 18, and it applies a top rate of taxation for income that is considered to have been split or diverted from a higher income earner to a particular individual. How it would apply is if certain split income, which can be dividends from private corporations generally, certain income from a trust, or passive income such as interest, gets paid to a certain individual and the amount is not what's called an “excluded amount”. For excluded amounts, there are a number of different categories. The catch-all category for those who are over the age of 25, which is the broadest class of affected individuals, would be amounts that are reasonable, having regard to the relative contributions of labour and capital of the individual who receives the income, as compared to all their relatives who have also contributed to the business. That formed the core of the rules announced in July 2017.
Then, in December 2017, a number of changes were made, simplifying and clarifying the draft legislation and providing a number of clear examples where, without having to test the reasonableness of a payment, it could be excluded from this tax on split income. This would include, for example, where you've put a significant labour contribution into the business, which would be considered to have been met if you've put in more than 20 hours a week during the portion of the year that the business is being carried on; or for non-services businesses, if you have a sufficient equity interest in the corporation carrying on the business, there would be an inclusion there. It would apply where an individual has a relative who is involved in a business, that individual receives income from that business, and that income, primarily for those aged 25 and over, is either unreasonable or none of the other exclusions are available.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
For someone who actually is contributing to the family business and family farm, someone who's involved in providing labour capital, I understand that the TOSI rules would really remain unchanged.
Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
That's correct. The idea is that those who are making substantial and significant, or real contributions to or in support of a family business, who are working in it, or who have provided financing—it's not just labour contributions—would be unaffected and they wouldn't be subject to the tax on split income. It's really intended to apply in situations where you have, in a classic case, a high-income earner who earns monies in their law practice, which I'll use as an example because that's my background, and they divert it through one or more corporations to, say, their adult children or somebody else who's not involved in the business but who would be paying tax at a lower rate and would be able to effect tax savings because of that differential.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Okay.
I'll stop there. I'll have more questions later.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
Thank you, Mr. Chair.
I just have two questions.
The first one is on clause 45, class 43.2, schedule II.
Mr. McGowan, before I begin that question, while you look around for the information on that, I'll just ask, where you mention sharing child benefit data with provinces to administer their provincial regimes, what type of data is going to be shared and what problem are you looking to resolve?
Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
Currently, the Income Tax Act permits sharing of information relating to the national Canada child benefit supplement with provinces solely for the purposes of them being able to put in their benefit systems, where they might need that information in order to do so. The issue is that with the replacement of the former system of child benefits, those being the national child benefit supplement, the Canada child tax benefit, and the universal child care benefit, with the Canada child benefit in 2016, the information relating to the national child benefit supplement will no longer be available. It currently exists as a vestigial component of the Canada child benefit formula, although that is legislated to be removed. With the elimination of the national Canada child benefit supplement, information relating to that program will no longer be available. The provinces would still need information relating to federal child benefits for the purpose of their programs; so along with the shift from the NCBS to the Canada child benefit, the information to be provided shifted.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
Does that mean when the government consolidated all these different programs, information that was being given to provinces stopped as of 2016, and now, in 2018, that's being fixed?
You said it was vestigial information. Was it information that wasn't being collected in a certain way to be passed on to the government, or was it just stopped from being passed on? What information is it—first name, last name, place of residence?
Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
Well, it relates to previous years.
Information has continued to be shared. If you look in the current Canada child benefit calculation, when I said there was a vestigial calculation, the variable that represents that former program, the national child benefit supplement, actually remains in the calculation. It's added and then immediately taken away, so that it doesn't impact the calculation of the Canada child benefit.
It's not operative; it doesn't really do anything anymore. It was left there for an additional two-year span to give provinces enough time to update their programs.
Pierre Leblanc Director General, Personal Income Tax Division, Tax Policy Branch, Department of Finance
To add, I will give you a sense of the reason why a province or territory might use that information. You could have a family with children just coming on social assistance. They might be eligible for certain transition payments. Let's say they've experienced a drop in income. It will be a while before the Canada child benefit catches up to that, because it's based on the prior year's income. Certain provinces have a system of bridging some of that until their Canada child benefit goes up.
Basically, they're using the information on eligible children. They'll have some information on the last year's income—basic information on the family.
That would be an example of how it's used.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thank you very much, Mr. Chair.
Ladies and gentlemen, thank you for joining us today. It is extremely important. Your expertise is solid.
I would like to make a brief but important comment. We live in a bilingual country. Many public servants are perfectly bilingual and able to deliver their presentations in both official languages. If those officials are bilingual, we would like their presentations to be in both languages, even before the Standing Committee on Finance, since, as we know, it is important for our country.
My first questions are about benefits to veterans. I would like to know more about this. Ms. Norrie and Mr. McGowan can probably answer me.
My understanding is that the bill eliminates the career impact allowance. Furthermore, I wonder what the additional pain and suffering compensation entails. I think the allowance is about $13,440 per year. However, we are talking about $1,000 per year for the compensation that will be set.
Do I have the exact numbers on the allowance that will be eliminated and the compensation that will come into effect?
Acting Senior Director, Policy Directorate, Strategic Policy and Commemoration, Department of Veterans Affairs
For the career impact allowance, the additional pain and suffering compensation will be partly replacing it. The career impact allowance recognizes the loss of career progression potential of a veteran who is injured. That aspect will be covered in the income replacement benefit. The rest of the additional pain and suffering compensation looks at recognizing and compensating for veterans experiencing barriers to re-establishment after service.
The additional pain and suffering compensation is non-taxable, with the maximum amount of $1,500. The career impact allowance amounts were taxable. The difference is comparable, if you will, after tax.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
In the case of the career impact allowance, the annual amount of $13,440 is being eliminated.
Can you give us further details on the other calculation? The budget figures and the provisions of the bill seem to indicate that the $13,440 allowance is eliminated and $1,000 or $1,500 is paid. What amounts are added to make the career impact allowance a fair compensation?
