Finance Committee on May 10th, 2016

[The Chair, Liberal, Wayne Easter]

Yes.

[Trevor McGowan]

Part 1 implements certain income tax measures that were proposed in the March 22, 2016, federal budget. I'll go through each in order, as I'm aware of the time constraints.

It would eliminate the education and textbook tax credits.

It would exempt from taxable income amounts received as rate assistance under the Ontario electricity support program.

It would maintain the small business tax rate at 10.5% for the 2016 and subsequent taxation years, and make consequential amendments to the dividend gross-up factor and dividend tax credit rates.

It would increase the maximum deduction available under the northern residents deduction as well as eliminate the children's arts tax credit, and eliminate the family tax cut credit. It replaces the Canada child tax benefit and universal child care benefit with the new Canada child benefit. It would eliminate the children's fitness tax credit and introduce a new school supplies tax credit.

It would extend for one year the mineral exploration tax credit.

It would restore the labour-sponsored venture capital corporations tax credit for purchases of shares of provincially registered labour-sponsored venture capital corporations for the 2016 and subsequent taxation years.

It would introduce changes consequential to the introduction of the new 33% individual tax rate that's in Bill C-2 currently.

Part 1 also implements other income tax measures that were announced by the previous government, but had not been enacted. The current government's intention to proceed with these was announced as well in the March 22, 2016, budget.

These include: amendments to the anti-avoidance rule in the Income Tax Act that prevents the conversion of capital gains into tax-deductible intercorporate dividends; a measure qualifying certain costs associated with undertaking environmental studies and community consultations as Canadian exploration expenses; rules ensuring that profits from the insurance of Canadian risks remain taxable in Canada; amendments ensuring that the dividend rental arrangement rules under the Income Tax Act apply where there's a synthetic equity arrangement in place; rules providing specific tax rules in respect of the commercialization of the Canadian Wheat Board, mainly including a tax deferral for eligible farmers; a measure permitting registered charities and registered Canadian amateur athletic associations to hold limited partnership interests; rules providing an exemption to the withholding tax requirements for payments by qualifying non-resident employers to qualifying non-resident employees; rules limiting the circumstances in which the repeat failure to report income penalty will apply; amendments permitting the sharing of taxpayer information within the Canada Revenue Agency to facilitate the collection of certain non-tax debts; and lastly, amendments permitting the sharing of taxpayer information with the office of the chief actuary.

[The Chair, Liberal, Wayne Easter]

Do any members have any questions on those sections in part 1? We will go through each section.

Ms. Raitt.

[Lisa Raitt, Conservative, Milton, ON]

Was an analysis done by the department on the effect for a family where the children would be eligible for fitness credits, arts credits, and tuition credits in the family tax cut? What would the total cost be to a family that fit that description, offsetting it with the child care benefit?

[The Chair, Liberal, Wayne Easter]

Mr. LeBlanc.

[Pierre LeBlanc, Senior Chief, Quantitative Analysis, Personal Income Tax Division, Tax Policy Branch, Department of Finance]

There is a stat that nine out of 10 families will be better off under the Canada child benefit than under the current system of benefits.

If you were to take other measures, the middle-class tax cut that was introduced on December 7, in Bill C-2, the elimination of income splitting for families with at least one child, the elimination of the children's fitness tax credit, and the children's arts tax credit, and took those together, you'd still be better off. One piece of analysis we did do is that about nine out of 10 families would be better off, so it's the net of all those measures.

[Lisa Raitt, Conservative, Milton, ON]

Can you provide that for the committee to see?

[Pierre LeBlanc]

Yes, we can follow up.

[Lisa Raitt, Conservative, Milton, ON]

Thank you very much. As you know, in the budget it says specifically in the examples that are given on page 63 that the education tax credit, the book tax credit, the income splitting, the children's fitness tax credit, and the children's arts tax credit are not included in those examples. I'm looking for the more holistic effect on families.

[Pierre LeBlanc]

Okay.

[Lisa Raitt, Conservative, Milton, ON]

Just one more thing—

[The Chair, Liberal, Wayne Easter]

Ms. Raitt, the information will be provided.

Go ahead.

[Lisa Raitt, Conservative, Milton, ON]

I wanted to let you know that right now in my riding, since it's tax time, I'm getting a lot of calls from constituents trying to understand specifically what it's looking like for them for next year. We're not able to provide them with that analysis, so if you can give us some comfort, as members of Parliament, we would feel a lot better than saying “9 out of 10 families”. Everyone wants to know if they're the one out of 10 who doesn't do better. That would be helpful for us as well. Thank you very much.

I have another question. In the calculator that's provided for the child care benefit, if you plug in a certain number, you're able to see what the benefit is going to be for the family. In the calculation of income that will be used as the means test, would that include all sources of income, including social assistance or any other monies that are provided?

[Pierre LeBlanc]

Sure, if you look at current child benefits, let's say the Canada child tax benefit or the new proposed Canada child benefit, what the Canada Revenue Agency uses to calculate entitlement is a measure of income known as “adjusted family net income”.

Basically, if you think of your tax form, it's all the different sources of income that you include when you arrive at the total income, such as earnings, investment income, and social assistance. In that case, they would be included. Then you take away certain deductions. Examples of those deductions would be contributions to registered pension plans, contributions to registered retirement savings plans, child care expenses, and union dues. There's also an adjustment, since the universal child care benefit is currently being paid, that's also taken out. Then you arrive at a measure known as “adjusted family net income”. That's what's used currently for child benefits, and that's what will continue to be used for calculating entitlement to the new Canada child benefit.

[Lisa Raitt, Conservative, Milton, ON]

I have one last question. It's a bit technical, but very important.

With the child care benefit, will it be taken into the calculation under the Canada federal guidelines with respect to payments of support from one family member to another family member? Here is an example. Right now, in a lot of cases of joint and shared custody, you'll have one salary of one individual taken, then the other salary is taken, and you do a set-off. One parent pays so much to the other parent. Will this amount, in the hands of the parent who qualifies, be added into the income, thereby decreasing the level of support payment that needs to be paid from the support parent to the other parent?

[Pierre LeBlanc]

I don't know. It's the Department of Justice that looks after the calculation of the child support guidelines.

[Lisa Raitt, Conservative, Milton, ON]

From a technical point of view, will the child care benefit, although it's not taxable, be considered income, and will that income be grossed up for the purposes of determining what the true level of income is for the parent?

[Pierre LeBlanc]

For the purposes of child support, I don't know.

[Lisa Raitt, Conservative, Milton, ON]

Who can tell us that? I think it's relevant.

[The Chair, Liberal, Wayne Easter]

I wonder if we can somehow find out. We all deal with that issue in our constituency offices for sure.

[Lisa Raitt, Conservative, Milton, ON]

Absolutely, this is the real deal here.

[The Chair, Liberal, Wayne Easter]

People come to our offices over concerns about that. If you could just get back to the clerk with who we could call to answer that question, we could do that.

[Pierre LeBlanc]

Yes, we'll do that.

[Lisa Raitt, Conservative, Milton, ON]

I'll tell you why, so that you understand what we're talking about. If you have a zero income, you're going to receive a certain amount of child support. If you receive this child care benefit, on a grossed-up basis the maximum amount is a $24,000 salary. That's what it becomes. Therefore, of course there's going to be an adjustment to child support payments that are made from one parent to another.

This is a valid concern. A lot of Canadians are divorced. A lot of Canadians have settlement agreements that are going to be severely affected by this one single change. A hundred bucks a month doesn't change things, but $6,000 a year grossed-up to $24,000 a year does. We should know the answer to the question.

[The Chair, Liberal, Wayne Easter]

We'll try to find some answer to that.

Mr. Caron.