Finance Committee on Nov. 1st, 2018

[Larry Maguire]

I just have a follow-up. All of these.... It goes back to 2008, as the chairman pointed out earlier. Will organizations, charitable organizations, be able to go back the 10 years and re-examine what's already occurred?

[Blaine Langdon]

I think the intent of the provisions, or the retroactive nature of the provisions, is to provide some fairness to organizations that were audited and have been determined to be offside in terms of political activity rules so that they have the ability to benefit from this change in policy. That's the reason why it goes back to 2008. There are audit years that are under consideration going back that far.

In terms of organizations that are not necessarily subject to an audit by the Canada Revenue Agency, I think they would be able, if they so determine, to go back and review their activities for those years. Certainly, there wouldn't be any bar to that.

[Larry Maguire]

Thank you.

[The Chair, Liberal, Wayne Easter]

Are we all done?

Ms. Rudd.

[Kim Rudd, Northumberland—Peterborough South, Lib.]

I just would like a quick clarification. Peter mentioned being uncomfortable with the CRA's being able to make the determination about what is and what isn't. However, the CRA does get to make those decisions now. That is within the scope. There's no real change here. It's always been able to make those decisions. Is that correct?

[Blaine Langdon]

Yes. There's no change to that portion of that rule. It is currently the case that the CRA is responsible for determining whether or not an organization provided direct or indirect support to a political party or a candidate for public office. This doesn't change that.

I would say that the CRA's general approach to an organization that is under audit is an education-first approach. It would generally advise the organization as to what activities are offside, and before it would proceed to anything harsher, it would give the organization an opportunity to correct any non-compliance.

[The Chair, Liberal, Wayne Easter]

Mr. Julian.

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

Thank you, Mr. Chair.

Given the fact that this week we're dealing with the CRA's ripping away of benefits from a variety of Canadians and Canadian families who actually have the right to those benefits but don't have the resources to fight the CRA, I would disagree with any assertion that the CRA is being kind to regular folks.

Given the number, size and scope of court cases that have resulted from concerns around the charitable sector, I think it's fair to say that we should be worried about this. This is a change. It does leave a second part. I understand and I appreciate the testimonies that say that. We will need, I think, Mr. Chair, to grill the CRA on both its past history in terms of definition around indirect so-called partisan behaviour and how it intends to act with the changes in this budget bill. That may be something.... We're already stretched in terms of witnesses, Mr. Chair, but it seems to me that in order to clarify this, it would be good to have the CRA come forward to explain how it defines this and why there have been so many problems with regard to this definition.

[The Chair, Liberal, Wayne Easter]

You'll have that opportunity if you so decide.

We'll hear your next point, Mr. McGowan.

[Trevor McGowan]

The next measure in the bill is found in clause 18. It relates to the reassessment period for non-resident and non-arm's-length persons. For this one, it might be helpful to add a bit more precision. It's found in subclauses 18(2), 18(4), 18(5), 18(7), 18(10) and 18(12). There is more than one measure in clause 18. That's because it deals with reassessment periods and there are a few different measures dealing with that. I just wanted to add a bit more precision there.

It deals with reassessment periods for non-resident and non-arm's-length persons. These you might think of as transfer pricing reassessments, where you have a transaction between a Canadian entity and a non-arm's-length non-resident and that gets reassessed. The current rules provide an additional three-year reassessment period in respect of these transactions. Another existing rule provides another additional three years where losses are carried back.

As I mentioned earlier in discussing part 4 taxes, losses in one year can be carried forward for up to 20 years and, germane to this point, could be carried back three years. If an assessment is made that affects the losses in a particular year, those losses are reduced, and if those losses had been carried back to a previous year, then the Canada Revenue Agency currently has the ability to reassess in that previous year, purely as consequential to the assessment within the normal reassessment period.

You have these two additional three-year reassessment periods. What this measure does is ensure that they interact appropriately, so that if a taxpayer is reassessed within the additional three years for transfer pricing—transactions with non-arm's-length non-residents, and had carried back that loss prior to the additional three-year reassessment period for transfer pricing, then the CRA would be able to make a consequential assessment relating to that reduction of a loss within the additional three years for transfer pricing. It ensures that the additional three-year period for non-arm's-length reassessment and for the assessment of a consequential assessment of a loss carried back apply consecutively instead of concurrently, but limited to those very specific circumstances.

The next measure—

[The Chair, Liberal, Wayne Easter]

What problem are you trying to address in the one you just read on the reassessment of non-residents and non-arm's-length persons? What's the problem area?

[Trevor McGowan]

It's a little complex, but I think a simple example might help.

If you have a transaction with a non-arm's-length non-resident, the Canada Revenue Agency currently has an additional three-year reassessment period. They can go back a little further to reassess. Let's say that the taxpayer claimed a loss of $100 and that as a result of this reassessment within the previous period it was reduced to a $40 loss, so that $60 of the loss had been denied. That entire loss had been carried back three years, as is permitted, to offset income by the taxpayer in an earlier taxation year.

Normally, the rule would say, okay, if your loss is reduced in a particular year and you had carried that back up to three years, even if that previous year you've carried it back to is outside of your normal reassessment period, you have an additional three years. The problem was that if you had an assessment that was within the extended period for transfer pricing assessment—it was already within an additional three-year period—and you carried it back to before the start of that additional three-year period, then the CRA would be out of time, even though the clear policy in the act is that, if in a particular year your loss is reduced and that's carried back to offset income in a previous year, then the CRA should be able to go back to that previous year and make the appropriate adjustments.

[The Chair, Liberal, Wayne Easter]

I understand what you're getting at.

Mr. Maguire had a question.

[Larry Maguire]

Thank you.

In regard to these other carry-backs, like the going back an additional three years, what is the normal reassessment period that they can go back? Is it seven?

[Trevor McGowan]

It depends on the type of corporation, but it's usually three or four years.

[Larry Maguire]

Okay, so this gives them another three plus three years, in some cases?

[Trevor McGowan]

That's right.

Again, it's limited only to the specific set. That's where it's been granted.

If you go back to an earlier year, that's only to deal with these loss carry-backs.

[The Chair, Liberal, Wayne Easter]

Yes.

[Trevor McGowan]

It's not generally opening up that previous year.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go to the next point.

[Trevor McGowan]

The next measure is found in clause 18 of the bill. More particularly, it's found in subclauses 18(3), 18(6) and 18(11). It relates to another reassessment period in respect of foreign affiliates of a taxpayer. As we just discussed, there is an extended three-year reassessment period where a Canadian taxpayer gets reassessed in respect of a transaction with non-arm's-length non-residents. A lot of the times transactions with foreign affiliates would be caught in that, but not every transaction involving foreign affiliates is subject to this extended reassessment period. The measure would extend the reassessment period in respect of all transactions involving foreign affiliates of a taxpayer by three years in order to align it with the currently existing reassessment period for transactions with non-residents.

The next measure is found in clauses 22—

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

I have a very quick question.

It extends it by three years to a total of...?

[Trevor McGowan]

Again, it depends on the type of corporation. If the normal reassessment period is three or four years, it would be six or seven years.

The next measure is found in clauses 22, 23 and 24 of the bill. It relates to reassessment periods and requirements for information and compliance orders. As we've discussed, the Canada Revenue Agency has a limited amount of time in which to provide a reassessment of a taxpayer. What this measure would do is essentially stop the clock on the computation of that period of time while a requirement for information or a compliance order is being contested. The stop-the-clock period would start at the point when the requirement or order is contested and finish when it's finally disposed of, so that the time spent in court with respect to these orders and requests does not reduce the amount of time that the Canada Revenue Agency has.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Trevor, I'm following along on both the document we were given here and also on the summary, from (a) to I think you're on (p) now. I didn't want to ask this individually for each one as there are a number of tax measures. Is there a cumulative tax expenditure outflow or inflow from all these changes as related to part 1? Is there something we're looking at that is material in terms of a change in a certain tax expenditure due to any of these enactments of these tax measures?

[Trevor McGowan]

Yes.

If you're asking for a table showing the impact on government revenues for each of these measures, it's found in the tax measures supplementary information that accompanied the budget on page 6.