Finance Committee on Feb. 16th, 2021

[Sean Fraser, Liberal, Central Nova, NS]

Thank you, Mr. Chair. I will be splitting my time with my colleague Mr. Sorbara.

Before I get to the question I would like to hear from the officials on, I want to say that I'm sympathetic to the decentralization argument, as someone who knows that our federal staff in Ottawa are responsible for measuring the sea ice conditions between you and me, Wayne.

I do want to draw attention, though.... The biggest objection that I have—and I did vote in opposition to the motion when it was on the floor of the House—relates to the system of benefit delivery that we have in Canada. We're proposing now—and it was outlined in the most recent throne speech—to create an automatic tax filing system. I know some of the most dramatic cases that we have in our office come from families that have not filed their taxes and don't realize that they are eligible for sometimes $20,000 or $30,000 in back payments for the Canada child benefit.

I'm curious if officials would have commentary on the impact of the proposed bill on our ability to move to an automatic tax filing system or, more broadly, on the delivery of benefits through our tax system, whether it's the GIS or maybe some of the emergency benefits with regard to the pandemic. I'm curious how you think this bill will eventually impact our system of delivering benefits.

[The Chair, Liberal, Wayne Easter]

Ms. Laroche, go ahead.

[Mireille Laroche]

Thank you very much for your question.

Right now, for a number of benefits—we can think about the Canada child benefit or the guaranteed income supplement—all the income-based benefits that we have are usually based on tax data. A person will file and then will get their benefits.

In the event that Quebec would be doing the Quebec portion of it, there's going to be a need to rewire that whole relationship in terms of figuring out who does what in terms of the [Technical difficulty—Editor].

[The Chair, Liberal, Wayne Easter]

There you go. You're back on now again.

[Mireille Laroche]

I'm not sure how far I need to back up.

Basically, we would need to rewire the system, because the income information would not come from the same place. You would have two sources of data, potentially, from Quebec and from Ontario.

I would say that the other consideration to take into account is timeliness. If you look at COVID and everything where we had very little time, now we're talking about potentially changing two systems as opposed to one system and working with the province to institute or put together [Technical difficulty—Editor] federal benefits because there is some consideration that [Technical difficulty—Editor] those types of benefits.

In terms of the automated tax filing, I would say the same type of consideration applies. It doesn't impede us from actually being able to do it. Now we just need to coordinate and make sure we enhance...and that Revenu Québec, in this particular case, would be in accord with the approach we want to take because they would have an integrated system from a provincial and federal point of view.

[The Chair, Liberal, Wayne Easter]

We'll go to Mr. Sorbara.

If any of the other witnesses have something to add, just raise your hand or yell and I'll catch you.

Mr. Sorbara, go ahead.

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

Thank you, Chair.

Thank you to my honourable colleague from Nova Scotia for splitting his time.

I'm going to ask the question in French, because we're touching on a subject that impacts the residents of Quebec.

This is for the representatives from the CRA.

Despite opposition claims about the potential savings that would be generated by a single tax return administered by Quebec, the Robillard Commission released a report in 2015 and instead concluded that the province would save $400 million by transferring Revenu Québec's administration activities to the Canada Revenue Agency.

Are you aware of that report?

If so, what is the agency's position on it?

[Mireille Laroche]

Thank you very much for the question.

We are aware of the Robillard Commission report published several years ago. The agency did not do that kind of comparative analysis. Based on the current experience with Revenu Québec's administration of the GST/HST, the costs of the province administering federal income tax would be much higher than the agency's costs, particularly if the investments [Technical difficulty] and the critical size of economies of scale [Technical difficulty].

[The Chair, Liberal, Wayne Easter]

We are having some technical difficulties for sure.

We'll turn to Mr. Ste-Marie, followed by Mr. Julian, for a six-minute round.

Gabriel, go ahead.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

First, I would like to acknowledge the officials from the Canada Revenue Agency and from the Department of Finance, Ms. Laroche, Mr. Marsland and their colleagues.

Thank you, Mr. Marsland, for beginning your presentation in French. We're very grateful.

Ms. Laroche, as the Chair pointed out, it seems that you have a weak Internet connection. We can't always understand your answers very well. Nevertheless, I have two questions for you. First, however, I will make a brief comment.

The Robillard Commission was obviously very partisan. The Liberal government and the opposition parties dismissed that recommendation.

Ms. Laroche, in your presentation, you said: Convincing our partners to make changes to include other subnational tax administrations is not a given.

Let's take as an example the Canada-United States Convention with Respect to Taxes, which provides for the exchange of tax information between competent authorities.

Paragraph (g) and subparagraph (i) of article III state the following:

g) The term competent authority means: (i) In the case of Canada, the Minister of National Revenue or his authorized representative;

So with respect to agreements, the Minister of National Revenue decides to whom she gives authorization. The same goes for all tax treaties and tax information exchange agreements. All the minister has to do is inform the United States or other countries.

What would stop her from doing so? Does she have reason to believe that foreign countries would refuse to honour the treaty they signed because they do not like the person the minister authorized to speak?

[Mireille Laroche]

Thank you for the question.

I will respond, but I will also invite my colleague Mr. Marsland to comment, since the Department of Finance negotiates these treaties. Our role is to administer them. We each play a role in this area.

Our interaction with foreign authorities is governed by over 100 international agreements. With respect to your interpretation, I'm not in a position to say whether or not the United States would accept our delegation. That is a question we would have to ask them. Customs and traditions dictate that it usually remains at the national level. So these are national agreements, not subnational agreements.

If Mr. Marsland wishes to add something, I will give him the floor.

[The Chair, Liberal, Wayne Easter]

Mr. Marsland, go ahead.

[Miodrag Jovanovic, Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Maybe I can answer.

I will give you some context. I think it would be useful.

Canada is a signatory to approximately 120 international tax treaties and information exchange agreements. Close to a third of those agreements contain clauses that, in certain situations, may allow the federal competent authority—the Canada Revenue Agency, in this case—to exchange some information with a subnational authority, to the extent that determination of a basic change at the federal level has direct implications at the provincial level. Exceptions in some of the existing treaties permit such an exchange.

These exceptions were created and agreed to by the various parties, and were based on the way the current federal-provincial tax system is set up. In the event of a decentralization of the federal system that would give administrative power to one province, it's not clear whether the rules of the treaties would be interpreted in the same way. It could require further negotiations.

As I said before, this applies to about a third of our agreements. The other agreements contain no similar exceptions.

[The Chair, Liberal, Wayne Easter]

Mr. Ste-Marie, we'll go back to you. We'll give you a little more time, because those were long answers.

Go ahead.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much.

In my opinion, the solution is quite simple. Amendments are made by exchanging letters, as was done when Revenue Canada became the Canada Revenue Agency.

Ms. Laroche, you were saying that most benefit programs that the agency administers for other departments and agencies, such as the guaranteed income supplement, the GST rebate and the Canada child benefit, are based on the information in tax returns. You state that, since a return has to be produced to show eligibility for the benefits, it is not possible to administer those benefit programs without tax information.

If the agreement between Quebec and Canada allows Quebec to send to Ottawa a copy of the tax information for its taxpayers, will the agency have the information it needs about their previous years' income, which it uses as a basis for paying out the benefits? Does it have any reason to believe that Quebec would not be able to comply with an agreement between Quebec and Canada on exchanging information?

[Mireille Laroche]

Thank you for the question.

As I said in my answer to the previous question, the issue is one of procedure. Information is exchanged every day between various departments, including between the different levels of government. Technology allows that.

The modalities of the agreement, and where the administration would be done, must be clear. It must be clear when federal administration would come into play and where provincial administration would step back, and vice versa.

Then, if it turned out to be more of a technical modality, it would have to be clear how the exchanges would be made, in order to make sure that there were no interruptions. We also have to consider the ability to make changes quickly, if required. Just think of the situation we experienced during the COVID-19 pandemic when, in the space of a few weeks, amounts were increased in order to help Canadians. Naturally, it would involve additional costs, depending on the arrangement that is negotiated.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you all.

We'll turn, then, to Mr. Julian, followed by Mr. Lawrence.

Peter, go ahead.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you very much, Mr. Chair.

My thanks to the witnesses. We hope that they and their families will stay safe during this pandemic. We are very grateful to them for the service they are providing to our country.

Ms. Laroche, this discussion has been going on for a number of years. Clearly, the Canada Revenue Agency has had discussions in this regard. You mentioned job losses and possible implications on benefits.

What discussions have taken place internally on the ways to implement a single tax return?

[Mireille Laroche]

Thank you very much for the question.

Our conversations have been on two levels. We are continuing to work with all the provinces and territories to make sure that the forms used to administer the income tax system are as simple as possible. We have entered into discussions with Quebec with a view to simplifying some forms and determining the items that could possibly be blended in order to simplify the taxpayers' client experience.

You may say that it is not a single form. Actually, that work is the first step. I would like to emphasize once more that there are limits to the way the form can be simplified, given the differences. For example, even the basic definitions of income are not the same. That means additional data. That is the nature of the discussions that we have had up to now with a view to improving the client experience.

Naturally, as I mentioned in my remarks, we are working with software providers to integrate the experience of Quebec taxpayers as much as possible.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

So you have never done a study or held discussions on ways to create a single tax return. As I understand your explanation to us, you have had discussions with a view to simplifying the process, but not with a view to creating a single tax return.

You mentioned possible job losses. We also have a concern there. We are in favour of a single tax return, but we do not want hard-working public servants to lose their jobs. Has the Canada Revenue Agency planned for these possible job losses?

Are there scenarios that would allow all the jobs to be kept within the framework of an agreement with Quebec to create a single tax return?

[Mireille Laroche]

Thank you very much for the question.

The job losses that I mentioned in my introductory statement would be in the agency's operations that produce tax returns. There is the paper form, the integrated form, and there is the administration by means of which the Government of Quebec would collect the taxes that it would then send to the federal government, if I understand the bill correctly.

That second operation goes beyond the paper form. We are really talking about federal legislation being administered by a provincial entity. The income tax system is a continuum of activities, from producing tax returns to assessments and recovery.

Naturally, if those functions become the responsibility of Revenu Québec, the workload of the Canada Revenue Agency employees will be reduced. The consequences will vary with the terms of the agreements and the degree to which responsibilities are shared.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Does that mean that the Canada Revenue Agency has scenarios dealing with job losses as a result of potential agreements between Canada and Quebec?

If that is the case, can you share them with the committee?

[Mireille Laroche]

We do not have scenarios of that kind, given the current nature of the discussions.

We have estimates of the possible fixed costs of such a transition, basing ourselves specifically on the experience with Ontario. I can share that with you now, if you are interested. I can also include the current costs of administering the income tax system in the Quebec region.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Okay.

Can you send us that information?