Finance Committee on May 13th, 2021

[Dave Beaulne]

I don't think it's about real investment. This is purely an integrity measure. This is about multinationals that are dumping foreign affiliates into Canada for really no economic benefit. It's just a tax play, as far as this particular measure goes.

As Trevor said, we're expanding the scope of it so that it goes beyond the more classic situation where there are foreign corporations that are controlling the Canadian subsidiaries, and extending it to individuals and trusts that are controlling the Canadian corporations.

[The Chair, Liberal, Wayne Easter]

Okay.

Next we have Annie Koutrakis.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

Does the government foresee any difficulty in the adoption of these amendments? Is it going to be difficult to adopt them?

[Trevor McGowan]

If the question is whether the amendments could be easily administered by the Canada Revenue Agency, as was noted, what they do is extend an existing set of rules that have been around for a number of years. Tax advisers and their clients are well accustomed to them, in addition to our Canada Revenue Agency.

Our rules, as I said, have been around for a number of years. They have been revised a few times since their initial announcement in response to stakeholder feedback. They're fairly well understood by both the tax community and the Canada Revenue Agency.

[Annie Koutrakis, Liberal, Vimy, QC]

Therefore, we don't foresee any difficulties.

[Trevor McGowan]

No. It's largely an extension of an existing set of rules that has been administered and functioning for some years.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, then.

There are no further questions on that section.

Turning to the summary of part 1(e), it says, “providing change in use rules for multi-unit residential properties”. Are there any questions on that one from members?

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

I would just like you to run through those provisions, those changes, so that we can completely understand the impacts.

[Trevor McGowan]

Thanks. I'd be happy to give an overview of the amendments in the bill.

[The Chair, Liberal, Wayne Easter]

Okay.

[Trevor McGowan]

They relate to the change in use of properties. Currently, for example, if you own a rental property and you make it your principal residence, there is a deemed disposition of the rental property. The value that it increased while it was a rental property is taxable, and the value that it increased while it was your principal residence is eligible for the principal residence exemption.

Currently there is a deferral available when stand-alone property is changed from, say, rental to personal use, possibly qualifying for the principal residence exemption. However, that election is not currently available in respect of changes of use of multi-unit residential properties. If you have a duplex, for example, and you're renting out both units but decide to change one into your principal residence, that election to defer the accrued gain is currently not available. It's sort of a technical hole in the rules. There's no reason it should be available for a stand-alone property and not for a semi-detached or a duplex.

This would help align the rules for multi-unit properties with those that currently exist for single-unit properties, and it would provide for a more coherent set of tax rules.

[The Chair, Liberal, Wayne Easter]

We'll move on. I see no one else.

There is no one up on part 1(f), “establishing rules for advanced life deferred annuities”.

Are there any members on part 1(g), “providing for an option to deduct repaid emergency benefit amounts in the year of benefit receipt and clarifying the tax treatment of non-resident beneficiaries”?

All right, Gabriel.

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

I would like an explanation regarding the part that concerns non-residents.

[Trevor McGowan]

Thank you. I'd be happy to do so.

Again, this is a highly technical change to the rules and a clarification. A lot of the programs listed have restrictions relating to whether non-residents can take part in them. However, they don't all use the same concept of non-residency as the income tax system does. This rule addresses incongruities or differences like these, where the tax rules treat somebody as a non-resident and the relevant rules that provide the benefit treat them as a resident. That can happen, for example—where residency-based tie-breakers apply—under one of Canada's tax treaties that say, for our tax purposes, somebody is treated as a non-resident of Canada.

What it does is ensure that the amounts received under these benefit programs are taxable in Canada, just as they would be if they were received as income by the individual.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Julie Dzerowicz.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you, Mr. Chair.

Mr. Ste-Marie stole my question, but I have a follow-up one. How is it that we're defining “non-resident”?

[Trevor McGowan]

I can speak to the tax definition of “residency”. The other programs might have different definitions of residency, perhaps based on citizenship rules or what have you. Under our domestic rules, tax residency—the concept of where you are resident, fundamentally—looks to where your ties are. That could be where your house is, where your family is, where your bank accounts are and things like that. It's a bit of a factual determination.

There are also rules in the Income Tax Act that can deem you resident in Canada, for example, if you sojourn in Canada for more than 183 days. Layered on that, there are rules in our tax treaties whereby you could be resident in Canada under Canada's law and resident in another country under its law. Our treaties often provide rules for tie-breakers to determine where somebody actually is resident. In the international context in particular, it can be a difficult determination. However, for tax purposes fundamentally, it looks to where your domestic ties are located.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Do you have further questions, Ted? Ted must have had the same question as Gabriel. His hand's down now.

We'll turn to part (h), “removing the time limitation for a registered disability savings plan to remain registered after the cessation of a beneficiary’s eligibility for the disability tax credit and modifying grant and bond repayment obligations”.

Peter Julian.

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

On an average basis each year, how many people who have a registered disability savings plan actually become ineligible over the course of a year? What are the impacts of removing the time limitation specifically, in terms of accrued benefits but also the government contributions to the registered disability savings plan?

[Trevor McGowan]

Pierre, do you have that?

[Pierre Leblanc]

Sure. Thank you for the question.

I don't have statistics handy on how many individuals in a given year who were eligible for the disability tax credit no longer become eligible. What I'm looking for here is our estimate.... Trevor mentioned that some of these measures come from budget 2019, and this is one of them. In budget 2019, we estimated that the impact of the measure—the additional cost—would be about $110 million over five years, starting in 2019-20 and going until 2023-24. That was our estimate at the time.

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

For quick follow-up, lead us through.... Currently, with the registered disability savings plan, if you cease to be eligible you have to pay back 10 years of grants and bond payments. How would the changes affect that same individual?

That includes estates, of course, as well.