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.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
The bill intends to eliminate that tax advantage for insurers working with agriculture and the fisheries. Is that correct?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
That's correct.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Can you tell us more about the reason why that tax advantage is being eliminated for those insurers, who say that it provides them with a profit? In their opinion, this is a measure that allows them to insure farmers or fishers who are sometimes located in remote regions where a full range of insurance services is not available.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
This tax exemption, which is a somewhat unusual measure, in the sense that it's an exemption for insurance companies who provide a particular line of insurance, was introduced in 1954 in an effort to encourage the provision of insurance in what was seen to be an under-serviced market, that for farming and fishing property and businesses.
The government examined this measure as part of its review of tax expenditures and came to the view that it was difficult to say that this measure is effective and appropriate in today's economy, which has changed very significantly over the past 60 years.
A provision that insurance companies don't have to pay tax on a particular line of business is unusual in today's economy. Certainly the view is that the insurance market is now well developed and mature, and that with the sophistication of the Canadian financial sector, a broad range of both share companies and mutual companies is well placed to effectively write policies in the farm and fishing business.
The provision was seen to raise fairness issues with respect to other sectors, so the budget proposes to eliminate the measure.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Do we know about how many insurance companies might be affected? How many insurance companies currently using this tax benefit will not be able to use it after the bill is passed? Has the impact of this measure been evaluated?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Mr. Chairman, in the past five years the exemption has benefited on average about 40 insurance companies each year.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
I gather that this is going to generate $10 million, according to your figures. Is that correct?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
That's correct, Mr. Chairman.
It's estimated to raise about $10 million per year.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Mr. Chair, that is all I had to say about point (e) of the summary of part 1.
I may speak about other parts later.
Liberal
The Chair Liberal Wayne Easter
Okay. We'll come back to you.
We'll turn to Mr. Ouellette and Mr. Dusseault.
Conservative
Ron Liepert Conservative Calgary Signal Hill, AB
Thank you very much. Tapwe.
It is good of you to be here so that you can tell us more about the budget.
I want to talk about clause 23, in part 1. It deals with tax credits for daycare spaces. In the old scheme, the credit was 25% up to a maximum of $10,000. If I am not mistaken, that means that one space for one child can cost $40,000. Is that correct?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Yes, that's correct. It was a 25% tax credit. The maximum credit per space is $10,000. In other words, $40,000 was the maximum amount of eligible expenses.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
That is a lot for each child. It is comparable to the costs of a private school. It's incredible.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
But I would just note that it covers a range of expenses. It covers capital costs—the cost of the building and furniture, equipment, materials—as well as—
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
Yes, that is it, for sure. That is extremely expensive.
We recently announced other investments in daycare spaces. Can you tell us a little more about them?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Mr. Chairman, I guess I could say that the budget proposes significant new investment. The budget announced that an additional $7 billion will be invested over 10 years, starting in 2018-19, to support and create more quality, affordable child care spaces across the country.
The aim will be to increase the number of spaces for low- and modest-income families by supporting up to 40,000 new subsidized child care spaces and to help make it more affordable for parents to return to work. This builds on the initial $500 million that was announced in budget 2016.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
That is excellent, thank you very much.
The next subject that I would like to bring up is about the additional deduction for gifts of medicines. That is the purpose of clause 9 of the bill, which rescinds section 110.1(1)(a.1) of the Income Tax Act.
How much exactly is the government saving with this measure?
We know that there are already similar measures, called stock options. People can make donations of medicines and then they are entitled to a larger deduction.
However, it may be that the medicines have expired when they arrive. In addition, these measures can cost a lot to enforce.
Are there other ways of encouraging pharmaceutical companies in Canada to donate medicines overseas, thereby allowing them to contribute to people's health around the world?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Mr. Chairman, I would just note that the budget, as the honourable member has indicated, proposes to eliminate an additional deduction for gifts of medicines made by companies out of their inventory of medicine. It's important to note that companies will continue to have access to the general charitable deduction that's available to all companies that make charitable gifts. It's only this additional incentive, which was specifically targeted at gifts of medicines, that is proposed to be eliminated.
Again, the basic rationale for this proposal is that the measure has not been very effective in its intended purpose. Between 2011 and 2015, an annual average of around 10 corporations claimed this additional deduction, and the average annual cost has been less than $250,000, which, when you consider the size of the companies involved and the pharmaceutical industry, is not really even a material amount.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
I guess the pharmaceutical companies weren't very generous.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Well, I can't say—
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
Hopefully in the future, maybe after hearing this, they will be.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
This data only applies to the additional deduction. It's possible that companies may have been making the donations, and not claiming the—
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
I only have a few more minutes left, maybe a minute and a half. Could we talk about the elimination of the tobacco manufacturers' surtax?
Will that make cigarettes less expensive?
Acting Chief, Excise Policy, Sales Tax Division, Department of Finance
The intent of the measure is to recover today the sums we were obtaining through the surtax at the beginning of this century.
I must tell you that there are companies that were still paying the surtax until recently, because they were still active in Canada. If those companies stop paying the surtax, but if the excise duty is increased, they could see their products sold for about the same price as in the current market.
That said, with some tobacco or cigarette importers that were not paying the surtax because their production activities were located outside the country, we could expect a potential increase in the price of their products. Thereafter, the decision to pass that increase onto their customers is a decision for each company.
As I said in my presentation, the increase of the excise duty is 53¢ per 200 cigarettes.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
Okay, thank you very much.
To finish, I would like to discuss T4 slips.
I know that people really like to use electronic ways of doing things. However, I think that a lot of people still do not have access to them. Even the army, at one point, assumed that all soldiers had access. I remember once when I was in the field, my employer assumed that I had access to a computer, but that was not so. Sometimes, I did not even have access to the orderly room on the base, the administration offices, that is, from which I could have made the proper requests.
Sometimes, the electronics are fine, but I still prefer the paper version because it is something concrete. It also reminds me that I have to do my tax return. We must not forget that. I hope that this measure will not have the long-term effect of increasing the number of people who do not fill in tax returns, especially those who more easily forget to do so.
That is just a comment about the T4s. The matter deserves a lot of attention.