Evidence of meeting #85 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was budget.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Trevor McGowan  Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance
Pierre Mercille  Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance
Gervais Coulombe  Acting Chief, Excise Policy, Sales Tax Division, Department of Finance
James Greene  Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Pierre LeBlanc  Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Patrick Halley  Director, International Trade Policy Division, International Trade and Finance Branch, Department of Finance
Laura Bourns  Senior Economist, International Trade Policy Division, International Trade and Finance Branch, Department of Finance
Nicolas Moreau  Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
James Wu  Chief, Financial Institutions Analysis, Department of Finance

3:35 p.m.

Liberal

The Chair Liberal Wayne Easter

I will call the meeting to order. We are dealing with the budget implementation act, Bill C-44. We have with us today a number of individuals from Finance Canada.

Sometimes we deal with each part, and then go to questions. We'll have the presentations on part 1, then the presentations on part 2, then the presentations on part 3, and then we'll go to questioning of all of the witnesses.

Are people okay with that?

Starting with part 1, we have Mr. McGowan, Mr. LeBlanc, and Mr. Greene.

I don't know if in your opening statements you want to mention your areas of responsibility, because I don't have that information in my documents.

Oh, yes I do.

I'll give your title, Trevor. Mr. McGowan is the senior legislative chief, tax legislation division, tax policy branch. Mr. LeBlanc is the director, personal income tax division, tax policy branch. Mr. Greene is the director, tax policy branch.

Welcome. The floor is yours on part 1, amendments to the Income Tax Act and to related legislation.

3:35 p.m.

Trevor McGowan Senior Legislative Chief, Legislative Review, Tax Legislation Division, Tax Policy Branch, Department of Finance

Thank you.

As you said, I'll be providing the introductory remarks relating to part 1, the income tax amendments. My colleagues, Pierre and Gervais, will discuss part 2 and part 3 respectively.

To provide a brief overview of the measures, the first are some measures relating to veterans and veterans' benefits. They would ensure the non-taxability of the new caregiver recognition benefit, which replaces the previously non-taxable family caregiver relief benefit.

These amendments ensure that the new benefit has the same tax exempt character as the previous one. These substantive amendments are contained in the bill in division 12 of part 4. These are in the bill in clauses 2, 6, and 29.

Also, as a result of the tax expenditure review, it eliminates the investment tax credit for child care spaces. This is a 25% non-refundable tax credit for employers, with a maximum of up to $10,000 per eligible child care space created. This would be eliminated with regard to expenditures incurred after March 21, 2017. However, transitional relief is provided so that expenditures incurred under an agreement that was entered into before budget day would have until 2020 to conclude the work and obtain the credit. That can be found in clauses 3, 4, and 23 of the bill.

Next is the elimination of the deduction for eligible home relocation loans. Again, this is a part of the tax expenditure review. When an employee obtains a loan at below market interest rates, the difference between the market rate and what they pay is a taxable benefit. This deduction offsets that benefit for qualified employees up to a notional $25,000 loan.

Next is the elimination of the tax exemption for non-accountable allowances for members of legislative assemblies and certain municipal officers. To reiterate, that eliminates the non-accountable tax exemption for them. Of course, as with every employee, reimbursements that are accounted for would remain tax exempt. So if you have a taxi ride from an airport to the hotel on a business trip and you submit that and you get a reimbursement for it, that would, of course, be non-taxable. The non-taxability is being eliminated on the non-accountable allowances.

Next, again as part of the tax expenditure review, is the elimination of the tax exemption for insurers of farming and fishing property. This tax exemption is based on the premium income that qualifying insurance companies earn from insuring farming and fishing properties. That would be eliminated for the taxation years beginning after 2018—so, starting in 2019. That is in clauses 7, 24, and 33 of the bill.

Next is the elimination, again as part of the tax expenditure review, of the additional deduction available for corporations with regard to gifts of eligible medicines to a qualifying donee charity. This deduction is available in addition to the existing charitable tax credit or charitable deduction that's available with regard to gifts of medicine, which would apply to the fair market value of the medicine donated. That is in clauses 9, 25, and 32 of the bill.

Next is a simplification measure, again, in the context of the tax expenditure review. It replaces the existing caregiver credit, infirm dependant credit, and family caregiver tax credit with a new Canada caregiver credit. It's available for the 2017 and subsequent taxation years, and it can be found in clauses 11, 12, and 14 of the bill.

Next, as part of the tax expenditure review, is the elimination of the transit pass tax credit. It would eliminate the tax credit for public transit use, with regard to transit use after June, 2017—so, starting July 1, 2017. That is in clauses 13 and 23 of the bill.

Next is an amendment to the medical expense tax credit. It ensures that certain costs relating to the use of reproductive technologies to conceive a child are eligible for the medical expense tax credit, even though the underlying cause for the treatment is not related to an underlying medical condition. An example of that would be for same-sex couples needing this treatment to conceive a child. That can be found in clause 15 of the bill.

The next amendment relates to the disability tax credit. In order to qualify for the disability tax credit, a disability must be certified by a qualifying professional—for instance, doctors or certain enumerated specialists. This would extend the list of medical practitioners who can certify eligibility for the tax credit to include nurse practitioners, who, for many Canadians, are a significant point of contact in the health care system. That can be found in clauses 16 and 17 of the bill.

Next we have amendments to the tuition tax credit. These fill a gap in the currently existing tuition tax credit rules as they relate to fees paid for skills training courses. Currently, post-secondary courses taken out of post-secondary education are eligible for the tax credit. Job skills courses taken out of a qualifying educational institution, second-language skills, and things like that are also eligible for the tuition tax credit, but if you take one of those job skills courses at a post-secondary educational institution, like a university, there is a gap in the rules and you couldn't get a credit, even though one would expect it to be available. This amendment would fill that hole for the 2017 and subsequent taxation year. Those can be found in clauses 18 and 19 of the bill.

The next measure would extend for one year the mineral exploration tax credit in respect of certain grassroots mineral explorations. This extends the credit to be available in respect of so-called flow through share agreements entered into on or before March 31, 2018. This would support exploration for these qualifying minerals to the end of 2019. That is in clause 23 of the bill.

Next is the elimination of the tobacco manufacturers' surtax. This amendment to the Income Tax Act would eliminate the surtax that applies to Canadian producers. It's made in conjunction with amendments to the excise duty rates in part 3 of the bill, which are intended to maintain the intended tax burden on tobacco products.

Next are amendments permitting employers to distribute T4 slips to their employees without first having to obtain consent from the employee. That sets a new default for the distribution of T4s, subject to some important safeguards. First of all, appropriate privacy safeguards have to be in place. Second, it must be reasonable to expect that the employee would be able to have access to these T4 slips, and third, if the employees say they want paper slips they have to get paper slips. That is in clauses 28 and 31 of the bill.

Lastly is extension for one year of the repeal of the national child benefit supplement. That is found in the calculation of the Canada child benefit, even though it does not affect the calculation of the Canada child benefit. A number of provincial programs refer to the former national child benefit supplement for their calculation, and specifically to the variable in the Canada child benefit that contains the NCBS, so it was left in and scheduled to be repealed effective July 1, 2017. This repeal is being moved back to July 1, 2018 to give provinces additional time to update their rules.

That's the end of part 1.

3:45 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. LeBlanc or Mr. Greene, do you have anything else to add on part 1?

We now go to part 2, Mr. Mercille. Do you want to give us what your position is, Pierre, please?

3:45 p.m.

Pierre Mercille Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

Good afternoon. My name is Pierre Mercille. I am the Senior Legislative Chief in the sales tax division of the Department of Finance.

Part 2 of the bill implements measures involving the goods and services tax, as well as the harmonized sales tax.

There are three different GST and HST measures in part 2 of the bill.

The first GST/HST measures restore the GST/HST-free treatment of the drug naloxone when it is supplied without a prescription for emergency use to treat opioid overdose outside hospital settings. This amendment generally comes into effect on March 22, 2016.

The second measure amends the definition of “taxi business”. Under the GST/HST, all taxi operators or independent drivers are required to register for the GST/HST and charge tax on their fares, irrespective of the level of their sales. These rules have been put in place since the inception of the GST and ensure that all taxi operators are treated the same way.

Commercial ride-sharing services facilitated by web applications provide passenger transportation services that are similar to taxi services. However, such ride-sharing services may not be subject to the same GST/HST rules as taxi businesses because they may not fall under the current definition of “taxi business”. To ensure that the GST/HST rules apply consistently to taxi services and ride-sharing services, the definition of “taxi business” in the GST/HST legislation is amended to require the providers of ride-sharing services—we're talking here about independent drivers—to register for the GST/HST and charge tax on their fares in the same manner as taxi operators. The amendment will be effective as of July 1, 2017.

The last measure in part 2 of the bill repeals the GST/HST rebate available to non-resident individuals and tour operators for the GST/HST that is payable in respect of the Canadian accommodation portion of eligible tour packages. This rebate is complex, it's costly to administer, and it benefits only a narrow segment of the tourism industry. Therefore, it was considered an inefficient tax measure.

The repeal will generally apply in respect of supply of tour packages or accommodation made after March 22, 2017, which is the date of the budget. There is also a transitional measure, in that the rebate will continue to be available in respect of supply of tour packages and accommodation made after March 22, 2017 but before January 1, 2018, if all of the consideration for the supply of the tour package is paid before January 1, 2018.

That concludes the description of the measures in part 2 of the bill.

3:45 p.m.

Liberal

The Chair Liberal Wayne Easter

Turning to part 3, “Amendments to the...Excise Act, 2001 and the Economic Action Plan 2014 Act, No. 1”, we welcome Mr. Coulombe, who is chief in the sales tax division of the tax policy branch. Welcome, sir. The floor is yours.

3:50 p.m.

Gervais Coulombe Acting Chief, Excise Policy, Sales Tax Division, Department of Finance

Thank you, Mr. Chair.

I'm here today to discuss the two proposed excise measures that were included in budget 2017 regarding tobacco and alcohol taxation, which are included in part 3 of the bill in front of you.

The first measure deals with tobacco taxation. You will find it in the following clauses: clauses 45 to 48, clause 51,clause 54, clauses 58 to 63 and clause 66.

In order to maintain the intended total tax burden on tobacco products, and in conjunction with the repeal of the tobacco manufacturers' surtax, the first excise measure proposes to adjust the rate of tobacco excise duty to ensure that the peak level of revenues collected under the surtax in the early 2000s will be collected under the excise duty framework. For example, the excise duty rate on cigarettes will increase by 53¢ per carton of 200 cigarettes, rising from about $21.03 per carton to $21.56 per carton.

To ensure that the increase is applied in a consistent manner to all cigarettes at different trade levels, an equivalent inventory tax will also apply to inventories of more than 30,000 cigarettes held by manufacturers, importers, wholesalers, and retailers as of the end of the budget date.

All these measures generally apply as of March 23, 2017.

The proposed change to tobacco taxation should generate an additional $55 million in revenue in the 2017-2018 year.

The second measure that I am responsible for and that you are studying today is the federal excise duty on alcohol. You will find it in clauses 42 to 44, 49, 50, 52, 53, 55 to 57, 64 and 65.

It is proposed to increase the excise duty rates on alcohol products by 2% and to automatically adjust these rates to account for inflation on April 1 of every year, starting in 2018. The government generally applies an excise duty on alcohol products such as beer, wine, and spirits that enter into the Canadian duty-paid market. Alcohol excise duty rates were effectively last adjusted in the mid-eighties, so therefore, their effectiveness in real value has eroded over time.

In 2017 the proposed measure represents an increase in excise duty of 5¢ per case of 24 bottles of beer, less than 1¢ per bottle of wine, and about 7¢ for a typical bottle of spirits. The proposal is expected to generate about $30 million in additional revenue in 2017-18.

This measure also goes into effect generally on March 23, 2017, the day after the budget was tabled.

That completes my summary of part 3.

Thank you.

3:50 p.m.

Liberal

The Chair Liberal Wayne Easter

Thanks to all of you. We will go to questions.

Usually in this process we don't go to the normal rounds. We can go back and forth if you feel you have a question after you've heard another answer. We welcome going back to you. We're not under any specific time frame on this session.

First we have Mr. Grewal, then Mr. Liepert. Then we'll go to Mr. Dusseault and Mr. Deltell.

Mr. Grewal.

3:50 p.m.

Liberal

Raj Grewal Liberal Brampton East, ON

Thank you, Mr. Chair.

Thank you to the departmental officials for coming today.

I was really happy with the government's decision to change the definition of “taxi driver”. I'm the proud son of a taxi driver. A lot of my family was in the taxi business. As you know, the industry has been changing, and with the ride-sharing companies such as Uber, they've been put in a very difficult position. They know their business model and they work very hard at it, but then obviously we have a innovative economy and this new app comes out and totally changes the traditional taxi model.

One of the biggest complaints they had was that they work hard and pay their taxes, but Uber has an advantage when it's not charged HST. We've changed the definition. I just want to ask you guys, how is this going to work in practice? Will Uber be collecting the HST/GST portion through their app? Or will each individual driver be collecting it and remitting it to the government?

May 8th, 2017 / 3:55 p.m.

Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

Pierre Mercille

I'm not sure that at this point we have this information.

What we understand of the business model of those ride-sharing providers is that there has been no exchange of money between the driver in the application that facilitates the matching of the driver with the passenger. The rule here does enforce that a particular system be put in place. If Uber decides to collect the money, they will remit the money to the taxi driver. If they collect the tax, they would remit it through the taxi drivers, and the taxi drivers would have to remit the tax themselves. If the web operator doesn't collect it, then the taxi drivers will have to do it themselves.

3:55 p.m.

Liberal

Raj Grewal Liberal Brampton East, ON

In practice, it would probably be the web operator who has to collect it, because the payment form for ride-sharing is seamless. You register your credit card, you open up the app, you click “I'm going here”, a car shows up, and there's never any exchange of funds between you and the driver.

I wouldn't see in what scenario the driver would be able to collect it, because everything is operated centrally.

3:55 p.m.

Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

Pierre Mercille

I cannot answer in the name of those companies. These are often companies that are not located in Canada, so it's very difficult to force a business model on them. I guess they will let their drivers know what they intend to do.

3:55 p.m.

Liberal

Raj Grewal Liberal Brampton East, ON

You mentioned that a lot of these companies aren't based in Canada, but because they operate a business in Canada, they are obligated to pay Canadian taxes such as HST.

3:55 p.m.

Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

Pierre Mercille

Well, they're actually not located in Canada, and they argue that they're not making any supplies in Canada.

3:55 p.m.

Liberal

Raj Grewal Liberal Brampton East, ON

What they argue and what the reality is are two different things, right?

I'm saying that we've changed the definition of taxi business here, and now, to you as a member of the Department of Finance, the simple question is that after July 1, I would expect all Canadians who drive for Uber to be collecting HST.

3:55 p.m.

Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

Pierre Mercille

You can mention Uber, but there are many more companies. There's Lyft, and Facedrive, and all sorts of new companies that are coming on the market.

Some may be located in Canada, and some are not. For those that are not located in Canada, normally the way the system works is that if a driver receives a service from a foreign company of that nature, which is an intangible service, they would have to self-assess the tax and claim input tax credit, if they're allowed to do it.

By being registered, the taxi business would receive a service from the foreign company of providing a match from the driver to the passenger. This amendment doesn't force a foreign company to collect tax. It's legally very difficult to force a foreign company to collect tax, because you have no enforcement mechanism on them. They're not located in Canada.

3:55 p.m.

Liberal

Raj Grewal Liberal Brampton East, ON

Practically speaking, then, let's talk about this hypothetical situation.

On July 1, Uber, the headquarters company, decides not to implement HST on its fares. Are you saying that the interpretation of this provision puts the onus on the individual driver to collect it?

3:55 p.m.

Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

Pierre Mercille

They will have to collect from the passenger, if Uber or other companies have not collected for them.

3:55 p.m.

Liberal

Raj Grewal Liberal Brampton East, ON

If the driver does not have the ability to change the fare on the app, is the driver supposed to say, “Well, pull out your 14 cents per my calculator here, and give that to me in cash”?

Is that the interpretation of this law?

3:55 p.m.

Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

Pierre Mercille

The fare that is put on the app by Uber, in terms of legislation, is called the consideration for the supply. It's the price. The tax always applies, in addition to the consideration for the supply. So if only the consideration has been collected from the passenger, the driver will have to collect the tax.

In practice, I suspect it is highly improbable that the app operator will collect, because they will not want an exchange of money between the driver and passenger and because some clients may not do business with them if they cannot have the simplified payment mode.

However, this is a decision for the app operator to make.

4 p.m.

Liberal

Raj Grewal Liberal Brampton East, ON

Your previous statement was that the app operator may not be a business located in Canada, so they may decide to totally ignore the government's position on this.

4 p.m.

Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

Pierre Mercille

The amendment here is a law in Canada that applies to people in Canada, and, in this case, it applies mainly to the drivers.

As I said, with those app operators located in Netherlands or Barbados or places like that, it's very difficult to enforce any tax on them. However, the market pressure may be enough to obtain the result that you want.

4 p.m.

Liberal

Raj Grewal Liberal Brampton East, ON

I guess we'll both eagerly wait and see.

4 p.m.

Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance

4 p.m.

Liberal

Raj Grewal Liberal Brampton East, ON

Thank you so much.

That was really interesting. I didn't know that's how it was going to be interpreted, so I appreciate that.

How much time do I have left, Chair?

4 p.m.

Liberal

The Chair Liberal Wayne Easter

Well, if that is it for the taxi questions, we'll come back to you in another round.

Mr. Mercille, I'm wondering whether discussions have begun yet with Uber and others on the implementation of the HST.