Evidence of meeting #73 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was measure.
A recording is available from Parliament.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
The overall goal here, I think you're saying, is agreeable, in that we'd like to see this kind of training to go out because there's a social benefit to people. That's clearly in here. Even your report says that obviously there are incentives that work the opposite way, such as sin taxes on cigarettes, alcohol, etc.
I just really wanted to establish that there is an inequity between certain taxpayers and that there is a social positive benefit. Would you all agree with that?
Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance
As we've said, I don't think there has been any question about a social benefit—
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
I have nothing to add.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Thank you, Mr. Chair.
Thanks to all of you for being with us today to talk about this very important issue.
As I told Mr. May, the sponsor of the bill, at the outset, the government is reviewing all tax expenditures. I simply wanted to confirm that was indeed the case. Is the government reviewing tax expenditures?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Yes. As announced in the 2016 budget, the government and we finance department officials are undertaking a review of these measures and federal tax expenditures.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
How do you conduct your analysis of each of these tax expenditures? Do you evaluate-
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
I described the general framework. We evaluate the efficiency of a tax expenditure, its fairness, and compliance costs, that is to say its impact on the simplicity or complexity of the tax system. It is quite a general framework that can be used to evaluate any tax expenditure.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
So it is possible that certain tax expenditures may be withdrawn at the end of this process. That is indeed the purpose of the exercise, is it not?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
That is possible. The review is still under way. The government will make its decisions and they will be announced.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Suppose Bill C-240 is adopted by the House and Senate, that it receives royal assent, and that all that takes place before you have completed the tax expenditure review. Do you think this additional tax expenditure would survive the review you are conducting, considering its efficiency and fairness?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
I think that decision is up to the House, to you members.
The measures we are currently examining are tax expenditures that are in force. If there were a new measure, we would study it. For the moment, however, this measure is not within the scope of our analysis.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Do you think Bill C-240 can be considered as providing for an efficient and fair tax expenditure based on the criteria you submitted to the committee?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
That is interesting. In fact, we provide our analysis directly to the minister. What I can say is that the most important criterion for us is the measure's efficiency. We analyze the impact the measure has on people. That is to say we try to determine whether the measure will encourage people to take part in a certain activity. Let us say the average cost of this kind of course is $100. In that case, the person will receive $15, but not immediately. He or she will receive that amount perhaps nine or 10 months after incurring those expenses. In fact, we cannot predict exactly how people will react. I think you discussed that earlier.
We also have to try to determine what leads people to act in one way or another. It is important to determine the major obstacles that will be encountered by those who are interested in taking such a course but who have not yet done so. Is it a matter of cost? Is it for lack of time? Is it for practical reasons? For example, is it because the course is not being given near their home or at a suitable time for them? We do not have very good answers to those questions. We tried to answer them, but we did not see many analyses that provided relevant information.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
I have one final question.
At the end of your opening remarks, you said you have to ensure that drafting does not inadvertently undermine the operation of the measure. You also said that Mr. McGowan is an expert in this area.
Do you think the present text of the bill is drafted well enough to prevent it from being inadvertently abused?
Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance
Thank you for your question.
There are probably two components to the design of the measure or the drafting of the measure. There are purely technical considerations in the way they interact with other provisions of the act, in particular with developments that have come since its introduction. For example, the definition of “qualifying child” references section 122.8 of the Income Tax Act, which was repealed and no longer exists. That's where the child fitness tax credit was. There are things like that.
I could discuss those in more detail later, but the fundamental design of the rule is also a question.
There are different ways to design a tax credit. Many of them are based upon a taxpayer claiming a credit for a specific expense that they've incurred that is in accordance with the goals of the credit. Examples are things like the adoption tax credit, the public transit credit, home renovation tax credit, or the teachers' tax credit. All of those require a specific expense to be incurred; you claim against that, and they have rules preventing the multiplication of those deductions.
There are others, like the volunteer firefighter credit and the volunteer search and rescue credit, between which I think this proposal would be placed in the act, since they provide tax credits in response to a particular activity, not necessarily in respect of a particular expense incurred. If you look at the wording of the bill as drafted, it does not work from a specific expense incurred, so there are concerns that it could be multiplied or claimed even when your employer is paying for it.
Probably the best way to go through it is to look at a very simple example. Let's say my son, who's my qualifying child, takes a first aid course in 2018, after this credit has received royal assent and is in the Income Tax Act. For the purposes of the example, he's a smart kid who successfully completes the course in 2018, and I'm filling out my tax return and deciding if I can claim it. For the taxation year in which he successfully completed the course—so that's 2018—I can make a deduction against my tax payable, so I can take the tax credit. It would be deducted, multiplying the lesser of $200 or the cost of the program.
Let's say the cost of the program was $100, but his employer—let's say he's a lifeguard—reimbursed him for the cost of the expense. It says the cost of one such program, and not the cost to the individual of the tax program or the amount paid or the amount paid to the extent that it was not reimbursed. Then there's a concern that while the cost is $100, you can deduct it. That's why you see in the teachers' tax credit, the one for school supplies, a specific rule saying that you don't get the credit to the extent that you're reimbursed.
The concern is that in that case people would claim the credit. Maybe they wouldn't win in court, but there is still a concern that people would claim it.
Also, if you run through that same example for my spouse, my spouse would look at that and say, “Well, our child did it in that year; he passed, and the course cost $100, so I can claim it.”
If the credit is a reward for successful completion of the course, maybe that's in accordance with policy, and maybe that's how people would interpret it. That's why you have, for example, with the public transit tax credit in subsection 118.02(3), I think it is, an apportionment rule saying that if one spouse claims it, the other can't, even though their kid took the course.
There are concerns like that. In my example, maybe the child—although I think you'd have to be 15, so you wouldn't expect them to have much income—both parents would get a credit and the employer would get a deduction, as we discussed earlier.
There are those kinds of design concerns, and that's what my colleague Pierre was saying about the potential for inappropriate access.
Liberal
The Chair Liberal Wayne Easter
We're going to have to wrap it up there, since we're well over time.
Go ahead, Mr. Sorbara.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you, Mr. Chair, and again, welcome, officials.
I have a very simple question...or maybe not. Our tax system has over $100 billion of tax expenditures. I think that's roughly the number, if I'm correct on that.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Well, we say that you can't add them up, so there's no official number.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Okay, we'll just say we'll give a ballpark number there.
As a member of Parliament, my biggest privilege is representing my constituents and answering their concerns. Then it's doing the work here in Ottawa and sitting here on the Standing Committee on Finance.
I offer this question up to all three of you, or whichever of you cares to answer. What advice would you give to us as MPs in terms of what is an effective tax credit or tax expenditure and what is not? What are some guidelines about how we should look at tax expenditures, and not necessarily even the one we're considering today per se? What is a good one and what is a bad one? Perhaps the RSP tax deduction is a good one, as it encourages savings for people so they can prepare for retirement, and maybe others are not as effective. What is an effective tax credit or tax expenditure and what is not?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
I think what I would say is that there are different ways to analyze or consider them. We've laid out a particular framework, but when it comes down to it, you can consider effectiveness, fairness, compliance administration costs, possible effects on complexity. There are often trade-offs between measures, and what I certainly can't tell you is how to weigh those trade-offs. I think you, as members of the committee and as legislators, will decide for yourselves how to weigh those trade-offs.
Hopefully there might be other criteria that you also feel are important, criteria that I didn't outline as I went through a pretty quick presentation. I know that's a non-answer, but I think it really comes down to how people not only do the analysis of each criterion, but also—since there are very often trade-offs between them—where they come down on those trade-offs.
Liberal
The Chair Liberal Wayne Easter
I think that's fair, Mr. LeBlanc. We just expect you to tell us the implications, not to tell us what to do.
Go ahead, Mr. Sorbara.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
No, I would just add that the way I would look at it is how it impacts behaviour. With reference to the bill at hand, what's the impact on uptake?
Jenna Robbins Chief, Employment and Education Section, Personal Income Tax Division, Tax Policy Branch, Department of Finance
What kind of incentive effect a particular tax credit will have is certainly important, given the objective. In the context of a tax credit, as Pierre said earlier, you have to look at the factors that might influence somebody to take up a particular activity and where financial incentives fit within those factors. In addition, with the tax system, you're looking at people filing their taxes in the winter or the spring, so there may be a delay between when they undertake the activity and when they actually receive that financial incentive.
When you're looking at that cost, I think another important factor is the extent to which you're providing an incentive to people who were already going to undertake that activity to begin with. If you look at the full cost of the measure and then divide that over the incremental users, what is that per-user cost and how does that compare to other ways of addressing an objective?