Finance Committee on Feb. 16th, 2021

[The Chair, Liberal, Wayne Easter]

Okay. It's been moved.

Is there any discussion? I don't expect there's any opposition.

(Motion agreed to)

Welcome, Pat, as vice-chair.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you very much.

Wayne, I know you have a storm there. If your power goes out, don't worry. I will be right there to make sure the committee continues to function seamlessly, just as my predecessor did.

[The Chair, Liberal, Wayne Easter]

All right. That's good. It would depend on who the witness would be, I expect, Mr. Kelly, for sure.

That was a moment.

Do we need to suspend for a minute, Mr. Clerk?

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

Mr. Chairman, very quickly, I would like the committee to adopt a motion to thank and congratulate the previous vice-chair, Mr. Poilievre, for all the work he did on this committee and for the interesting debates he brought about.

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

I second this motion.

[The Chair, Liberal, Wayne Easter]

I think that's in order.

Do I see any opposition to that?

(Motion agreed to)

We'll send him a note.

Mr. Clerk, do we have to suspend to bring in the new witnesses, or can we just roll along? Okay.

We'll welcome our next witnesses. From the Department of Finance's tax policy branch, we have Mr. Marsland, senior assistant deputy minister, and Miodrag Jovanovic, associate assistant deputy minister. From the Canada Revenue Agency's service, innovation and integration branch, we have Wayne Lepine, director general of policy, and Mireille Laroche, assistant commissioner, chief data officer and chief service officer.

With that, I believe two folks have opening remarks.

Go ahead, Mr. Marsland.

[Andrew Marsland, Senior Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Thank you, Mr. Chair.

Thank you for inviting me to speak to private member’s Bill C-224. I am pleased to be here.

Bill C-224 proposes to authorize the Minister of Finance to enter into an agreement with the government of a province under which the government of the province would collect the federal personal and corporate income taxes on behalf of the Government of Canada.

It also requires that employment-related impacts be mitigated.

Within 90 days of the coming into force of the act, the Minister of Finance must undertake discussions with the Government of Quebec in order to enter into an agreement within one year.

Upon entering into an agreement with a provincial government, the Government of Canada must renegotiate its agreements with foreign tax authorities to give the province direct access to all international tax information.

Perhaps by way of context, I will say a few words about the administration of income taxes across Canada. As the committee will be aware, most provincial income taxes are collected on behalf of provinces by the Canada Revenue Agency, as established under the long-standing Tax Collection Agreements.

Under the tax collection agreements, the federal government agrees to collect and administer provincial taxes virtually free of charge in exchange for which the provinces agree to maintain a common tax base between the federal and provincial systems. This helps to ensure harmonization of the tax systems and reduces complexity, both in administration and in compliance. At the same time, provinces and territories have the flexibility to set tax rates and to introduce credits to reflect their particular policy choices.

Quebec, of course, does not have a tax collection agreement for personal income taxes or corporate taxes, and Quebec and Alberta don't have one for corporate income taxes. As such, these provinces administer their own provincial tax systems that are not required to adhere to a common tax base.

Over time, in the absence of adherence to a common tax base, different and reasonable policy choices have been made with respect to how various categories of income or expenditures are treated for income tax purposes. Consequently, it's important to consider how these differences in policy approaches contribute to the respective compliance burden faced by taxpayers in different provinces. In other words, the question of compliance burden goes beyond who is administering the law or the tax, but also, importantly, involves elements of the system itself.

Finally, as the committee is aware, while the focus of the bill is on tax administration, beyond the collection of taxes, the Canada Revenue Agency delivers benefits to Canadians, such as the Canada child benefit for individuals, and the scientific research and experimental development program for corporations. More immediately, over the past 12 months, the agency has played a critical role in the timely delivery of a range of emergency relief benefits to Canadians, individuals and businesses, leveraging the agency's role in tax administration across the country.

Along with our colleagues from the Canada Revenue Agency, we'd be very pleased to answer any questions that the committee may have.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Marsland.

Is Mr. Lepine next? Is there a second set of remarks, from the CRA?

[Mireille Laroche, Assistant Commissioner, Chief Data Officer, and Chief Service Officer, Service, Innovation and Integration Branch, Canada Revenue Agency]

I actually do have remarks, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Go ahead, Ms. Laroche.

[Mireille Laroche]

Thank you very much, Mr. Chair.

Thank you for the invitation to speak about Bill C-224.

As the chair said, with me is Mr. Wayne Lepine, the director general responsible for federal and provincial relationships at the Canada Revenue Agency.

Following my finance department colleague’s remarks, I would like to draw the committee’s attention to certain impacts relating to this bill. In particular, I would like to emphasize four impacts that I ask you to take into consideration.

First, uncertainty about jobs.

The agency employs close to 6,000 employees in Quebec in 13 different offices. The agency’s workloads are national, meaning that the work of a particular province can be done in several other provinces. Therefore, although the impact on jobs would be most significant in the province which would choose to repatriate tax operations, many jobs across the country could be impacted.

Secondly, there would be disruption of the agency’s activities not related to tax processing.

In addition to administering tax legislation, the agency administers benefit programs from which all Canadians may benefit. Most of these benefit programs that the agency administers, or administers on behalf of other departments or organizations, are based on tax returns.

Given that one must file a tax return to receive benefits, it is not possible to administer benefit programs without tax information. A transfer of administration to a province could impede the administrative effectiveness of these programs, which are crucial for the well-being of Canadians. Without tax information on hand, the Canada Emergency Response Benefit adopted in the COVID-19 pandemic context, which was crucial for the well-being of Canadians, could not have been implemented as quickly. This also applies, for instance, to the Guaranteed Income Supplement administered by Employment and Social Development Canada, for which eligibility is based in part on tax information.

If tax administration is transferred to the province whereas the agency continues administering benefits, taxpayers will continue interacting with both organizations, potentially creating confusion and dissatisfaction.

Thirdly, efficiency in international taxation would be affected.

The CRA must ensure tax compliance, in Canada and abroad.

Canada has signed many international tax treaties and tax information exchange agreements. These are critical to our effectiveness. Convincing our partners to make changes to include other subnational tax administrations is not a given.

Fourth, there would be cost increases and loss of economies of scale.

The required integration between both organizations’ processes and technology infrastructures would result in additional expenses. The fixed costs related to the functioning and significant investments in infrastructure by the agency to serve all Canadians will not decrease with such a transfer.

Based on the current experience with GST/HST administration by Quebec, the cost of administering federal tax by the province would be higher than what it costs the agency because of the economies of scale that the CRA can effect.

In conclusion, with respect to Quebec’s particular situation, it is important to highlight our efforts to collaborate with the province to reduce the administrative burden on Quebec taxpayers.

We have started discussions to simplify or combine some forms and to simplify the income tax return process by focusing first on vulnerable populations.

Other measures are also under consideration. Their implementation could facilitate the taxpayer experience with both tax authorities. We could, for example, work with tax software providers to facilitate the income tax return process, and coordinate the validation and audit actions between both organizations to avoid taxpayers being audited twice.

We'd be very happy to answer any questions you may have.

[The Chair, Liberal, Wayne Easter]

Thank you for that presentation.

We'll start with the Conservatives. Mr. Berthold is first, followed by Mr. Fraser.

Go ahead, Mr. Berthold.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Thank you very much, Mr. Chair.

My thanks to the representatives of the Department of Finance and the Canada Revenue Agency for their comments. I am flabbergasted by what I have just heard.

A majority of parliamentarians in the House of Commons adopted a resolution to move forward, through this committee, with the bill for a single tax return. I would have expected the Canada Revenue Agency to provide us with information on how to make that possible, not that it would do exactly the opposite and tell us all the harm the bill would do, when its purpose is to make life easier for Quebecers.

I partly agree with the section on international agreements. I see a small issue in that regard. We'll have an opportunity to talk to Mr. Ste-Marie a little later about the inclusion of the international agreements part, which may have a negative impact on the passage of the bill.

Ms. Laroche, you raised four points, and I'm really disappointed in what you presented to us. I would have liked you to show us a way to make it possible for Quebecers to file a single tax return, thereby making their lives easier.

Are you telling us that it's totally impossible at this time, based on the four points you raised, to adopt a single tax return for Quebecers that would be administered by the province of Quebec?

[Mireille Laroche]

Thank you very much for your question.

The agency is committed to providing the best possible services to taxpayers, both Quebecers and Canadians. That is why it has taken a number of steps to simplify the filing of tax returns and delivery of its services.

The points I have raised do not lead to the conclusion that it is impossible to do. They are considerations that I bring to the attention of the committee and lawmakers with respect to the complexity of the situation.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Ms. Laroche, it was possible to do it for the GST. Indeed, the goal is not necessarily to achieve economies of scale. The primary goal, at least the Conservative Party's goal, is to make life easier for Quebecers. You said yourself that you had initiated discussions to make life easier for Quebecers, but that they went nowhere.

In our view, a single tax return could be processed by both levels of government, and this would not take away from the Canada Revenue Agency's autonomy in its duty to collect taxes and provide services. In fact, I don't see the connection. The Canada Revenue Agency would still have just as much access to the information needed to deliver benefits to Canadians, such as the Canada emergency response benefit. An administrative agreement between the two levels of government would not result in any information being withheld, as far as I know.

Could the Canada Revenue Agency lay out a plan to show us how a single tax return administered by the Government of Quebec could be introduced?

[Mireille Laroche]

When you look at tax filing—

[The Chair, Liberal, Wayne Easter]

Could I come in for a minute, Ms. Laroche?

If this is passed by the House, Mr. Berthold, we would expect the CRA to carry that out, but what I expect from public servants is to give us the facts as they see them, based on their experience. We can agree or disagree, but I want to hear the facts that the public service has to lay out before us.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

If I may, Mr. Easter, I want to have the facts, but I want to have the facts on both sides. That's why I'm asking those questions. I have already read the speech. I saw the facts against, and I'm now looking for the facts in favour of this. What is motivating me is the well-being of Quebeckers, who have to fill two single tax returns.

[The Chair, Liberal, Wayne Easter]

Okay. We'll go to Ms. Laroche, and we won't take that time away from you for our discussion, Luc.

Go ahead, Ms. Laroche.

[Mireille Laroche]

Thank you, Mr. Chair.

Let's talk about the overall context in which it is done. For example, the Quebec government must be able to remit the tax revenue collected. We need to look at the full continuum of tax filing and tax collection in the same way we do for the GST.

With respect to tax filing, we have a national system. It means that Quebecers' tax returns, for example, are not processed by employees in Quebec only, but by people all across Canada. For instance, some employees in Summerside, Prince Edward Island, process Quebec business tax returns.

I want to demonstrate to you that it's a complex situation, especially with respect to the continuum I just mentioned. You have to consider not only the filing of tax returns, but also exercises such as audits, recovery, objections and appeals. In short, you have to consider how the system is set up.

In addition, I'd also like to bring up the point that Mr. Marsland raised earlier, the difference between the tax regimes. Basically, a hundred measures are different, so they don't ask for the same information. Having a single administrator won't make that information disappear. Combining the two—

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Ms. Laroche, I'm not talking about a single administrator, I'm talking about a single tax return.

[The Chair, Liberal, Wayne Easter]

You may have one question, Mr. Berthold. Go ahead.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Thank you.

I'm not talking about administering everything, collecting all taxes or the whole tax system. I'm talking about giving Quebecers the opportunity to fill out a single form, which could be sent to the Canada Revenue Agency and Revenu Québec, as needed.

Is that simple step possible, yes or no?

[Mireille Laroche]

It is possible because it's being done elsewhere, in other provinces and territories, where the two forms have been combined. The only caveat I'd like to bring to your attention is that, given how complex the two tax regimes are and the differences between them, it's going to be a long questionnaire.

When you look at tax filing software, a great deal of effort is made to assist people who file electronically. The software tries to fill out the various input fields to make filing the tax return as simple as possible.

We continue to work with Revenu Québec to improve the client experience, but the differences between the two systems still stand. Forms can be combined into a single form, but given the differences, the form will be complicated.

[The Chair, Liberal, Wayne Easter]

Thank you.

Now we'll turn to Mr. Fraser for six minutes, followed by Mr. Ste-Marie.

Mr. Fraser, go ahead.