Finance Committee on May 10th, 2016

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much, Mr. Chair.

I would like to ask two questions.

Mr. Greene, have you had the opportunity to read the parliamentary budget officer's report on the impact of the deferral of tax reductions for SMEs? The report came out this morning.

[James Greene]

Yes, Mr. Chair, I can confirm that we have seen the report.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I would like your opinion on that.

Are the parliamentary budget officer's findings on the economic impact of deferring tax reductions for SMEs consistent with those of the Department of Finance?

[James Greene]

The Department of Finance has not done an analysis of the broader economic impacts of this individual measure, but I can say that the approach taken by the parliamentary budget office here is similar to the kind of analysis that is done by the department.

I'd just say that these kinds of studies rely on what we call fiscal multiplier effects to look at the broader economic impacts of a particular policy change. They're based on general relationships that you can observe from past economic studies.

There's a fair degree of uncertainty around those things but, generally speaking, this study finds that if the government had decided to go ahead with the previously announced small business rate reductions in future years, there would have been a modest impact on GDP and employment levels.

I guess, in fact, the budget presents an alternative program. The government is proposing not to go ahead with that particular policy change but to propose an alternative suite of policies, including relying on some measures that are associated with higher fiscal multipliers, things like investments in infrastructure support for modest and low-income households, and as a result of that, come up with a suite of policies that would have an overall very positive impact when you look at the suite of policies overall.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

I have a second question about the changes related to the Canadian Wheat Board.

Would I be wrong to say that this completes the cycle of privatizing the Canadian Wheat Board? The measures proposed in the bill affect farmers and people who transport and sell their grain, among other individuals. I am surprised to see that these provisions did not exist when the Canadian Wheat Board was a Crown corporation. Why do they need to be included now when they weren't in the past?

[Trevor McGowan]

The amendments in this bill relating to the Canadian Wheat Board are really based upon the privatization transaction of the Wheat Board and the tax consequences of the structure after that, so going into the future. What it does is that it effectively is intended to ensure that there is a tax deferral for the affected farmers who participate in the transaction.

If I may very quickly go through how it was structured, and then I can show, I think, probably in the clearest way possible, what these amendments are intended to provide.

When the Canadian Wheat Board was commercialized or privatized a series of deal steps was put in place. These tax rules effectively respond to those. What they did was establish a trust for the benefit of the affected farmers, and it would hold an interest in the Canadian Wheat Board corporation.

It was first provided with a promissory note, so a debt obligation by the corporation, and it used that to acquire shares of the corporation. Then afterwards when farmers delivered grain to the Wheat Board they could take back interests in the trust. I think they have a value of around $5 each as part of their compensation for selling their grain.

If these rules were not in place, just based upon the existing rules in the Income Tax Act.... The issuance of the debt obligation from the Canadian Wheat Board corporation to the trust I think was in the amount of around $230 million. It was a significant amount, in any event, and that would have been included in computing the income of the trust, and it would have had to pay tax on that at the top marginal rate, so that would have represented a significant tax liability.

These amendments say that this is not a taxable event. Likewise, for the exchange of the debt obligation for shares, there are rules in here providing that that's not taxable.

When farmers would deliver their grain to the Wheat Board in exchange for units, that would ordinarily, under the general rules in the Income Tax Act, be fully taxable, ordinary income, and they'd be taxed at the time that they received the trust units, even though they haven't received cash for those.

Many of the rest of the rules in this bill relating to the Canadian Wheat Board provided deferral for farmers on that, so they provide that when farmers get those trust units there's no income inclusion, and there will not be an income inclusion until the farmer ultimately disposes of them, except in the case where the farmer dies and they go to their estate, and go to their spouse, in which case another tax deferral is provided.

Really, it's about overriding what would have been the ordinary consequences of the commercialization transaction in order to provide a deferral and, let's say, more appropriate tax consequences for the affected farmers.

[The Vice-Chair, Conservative, Ron Liepert]

Mr. Caron, I'm going to recognize Mr. Sorbara for a bit, and if there's time and the chairman wants to come back to you he can.

Mr. Sorbara.

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

Thank you, Mr. Chair.

Good morning to everyone.

I'll keep my questions very quick and on one topic, the bank recapitalization regime. I want to make it clear to everyone out there, and I would like to hear from you that all deposits will be—

[Trevor McGowan]

That's capital markets. That's not in part 1.

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

Oh, it's not in part 1. I'm sorry. Then I'll have to change the question.

If we can talk about the education tax credits and the fitness tax credits, the one issue I've had for a long time with those tax credits is the difference between refundable and non-refundable tax credits. Is it correct that a lot of individuals won't qualify for those tax credits in the lower-income scales because of the nature of those tax credits?

[Pierre LeBlanc]

You mentioned fitness, arts, and education, and actually there are a variety of treatments if you look at those. The children's fitness tax credit is refundable. The children's arts tax credit is not refundable. The education and textbook tax credits are not refundable, but unused amounts can be transferred to a supporting family member up to a certain amount—$5,000—and they can also be carried forward to future years. A student might not have enough taxable income to use them in the current year when they're earned, but that doesn't mean they're lost forever. They can potentially be used in a future year, say, when the student starts working.

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

That's it, Mr. Chair, sweet and short.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Sorbara.

I had some questions on the Canadian Wheat Board not so much related to the taxation and I think I raised them the night of the technical briefing. Here we are, we're dealing with new arrangements for the new Canadian Wheat Board but we really still don't know about the disposal of assets under the old Canadian Wheat Board.

Can anybody tell me what happened to those assets? There was the building in Winnipeg. There are the hopper cars. There was something like $300 million or $400 million from the Government of Canada that went somewhere. I find it remarkably strange now. We're trying to make arrangements to invest in a new Canadian Wheat Board when farmers already had the benefit of the old Canadian Wheat Board, which is no more.

[Lisa Raitt, Conservative, Milton, ON]

Not now that you're there.

[The Chair, Liberal, Wayne Easter]

No we can't change it, Miss Raitt. Under international law you can't change it back.

In any event, do you have any answers on the question of the sale of assets?

[Trevor McGowan]

I think the officials at this table are only able to speak to the tax aspects, in particular to those limited to what's in the bill.

[The Chair, Liberal, Wayne Easter]

Is there anybody here in the room, officials who are from Agriculture, who can?

[Trevor McGowan]

I believe there's Mr. Meredith.

[The Chair, Liberal, Wayne Easter]

If you could just come to the table and state your name. I know we're getting lots of questions on what happened to the assets.

[Greg Meredith, Assistant Deputy Minister, Strategic Policy Branch, Department of Agriculture and Agri-Food]

Thanks, Mr. Chair. My name is Greg Meredith. I'm the assistant deputy minister for policy at Agriculture Canada and I was the policy lead on the removal of the single desk and the eventual commercialization of the CWB.

[The Chair, Liberal, Wayne Easter]

Do you have any answers on what happened to the assets of the old Canadian Wheat Board in terms of the sale of the building, the sale of the hopper cars or who owns them at the moment, and the monies that the federal government had invested? I believe it was in the range of $300 million for the transition.

[Greg Meredith]

Yes, one point of clarification I would just state for context, Mr. Chair, is that the government didn't own the Wheat Board and so didn't sell any assets. I'd also underscore that prior to commercialization the Canadian Wheat Board per se didn't have that much in the way of unencumbered assets. Its primary source of capitalization was debt and that debt in some cases was guaranteed by the Government of Canada and in some cases not.

For example, the building was encumbered to slightly more than $1 million or $2 million than its worth. The hopper cars likewise had debts secured against them; even though they were donated by the Government of Canada they used these as equity to build the corporation. So the monies you're referring to that were part of the transition fund were to enable the CWB to right-size itself from an organization in excess of about 400 employees to a much smaller organization while dealing with obligations that would have been well beyond its capacity to pay.

So, for example, the monies that we gave the Wheat Board helped pay out pension obligations for those in excess of 400 employees, obligations that the new smaller CWB would not have been able to pay for. We also helped the CWB deal with contracts of affreightment. Those were long-term contracts that they had entered into to transport grain that they could no longer guarantee in terms of volumes and there were certain penalties that had to be negotiated for those.

It was those kinds of costs largely derived from the decision of the government to remove the single desk coupled with the decision to ensure that the CWB remained a viable option for farmers in a post single desk world. So those policy objectives were supported by those transition monies.

[The Chair, Liberal, Wayne Easter]

I think there is a recommendation in the finance committee report that maybe you can have a look at where we were asking the government, which would include the Ministry of Agriculture, for some answers on these points and I expect the government will respond in kind.

On these measures, more related to the taxation trust area, would there be a Canadian residency requirement for preferential tax treatment as a participating farmer under the Canadian Wheat Board?

Is there anything related to Canadian residency requirement in order to utilize or be involved in the Canadian Wheat Board?

[Greg Meredith]

The only residency requirement, Mr. Chair, that I'm aware of was that G3 Canada indicated it would be headquartered in Winnipeg.

In terms of a farmer delivering grain to the Wheat Board, I don't believe it ever came up, but I defer to my Department of Finance tax colleagues on whether there is such a provision subsequent to the commercialization decision.

[Trevor McGowan]

I'm just double-checking, but I do believe there's a requirement that participating farmers, which is the defined term in the legislation, be resident in Canada in order to obtain the tax deferral.