Finance Committee on May 13th, 2021

[The Chair, Liberal, Wayne Easter]

I will call the meeting to order.

Welcome to meeting number 42 of the House of Commons Standing Committee on Finance. Pursuant to Standing Order 108(2) and the committee's motion adopted on Tuesday, April 27, 2021, the committee is meeting to study the subject matter of Bill C-30, an act to implement certain provisions of the budget tabled in Parliament on April 19 of this year and other measures.

I will forgo the other formalities, because everybody who's on this line has been through this enough times that we don't need to do that.

First of all, let me apologize to all the witnesses who came on time. We were dealing with a subcommittee meeting. I'll now go into the motion that came from it to see where the full committee stands, and then we'll go to witnesses.

As I said to members at the subcommittee, if I have part of this wrong don't be afraid to correct me. The motion that we passed at subcommittee, which we'll look for a vote on at full committee, is this:

That the committee continue its study of Bill C-30, the Budget Implementation Act, by:

1. Inviting witnesses to appear on the contents of Bill C-30 during meetings scheduled the week of May 17, 2021, and that;

a. Members of the Committee submit their prioritized witness lists for the study of Bill C-30 to the Clerk of the Committee by no later than Friday, May 14, 2021, at 6 p.m.—

That's a little bit of a change from the motion that's before you.

—and that these lists be distributed to members of the committee as soon as possible;

2. Moving to clause by clause review of Bill C-30 no later than Thursday, May 27, 2021, at 3:30 p.m., and that;

a. amendments be submitted to the Clerk of the Committee in both official languages no later than 12:00 p.m. (noon) on Tuesday, May 25, 2021;

b. the Clerk of the Committee write immediately to each Member....

That's the same. Part (b) is the same on the motion that's before you, and part 3 is the same on the motion before you. We've agreed that the finance committee will do three meetings on tax evasion, following the conclusion of the study on Bill C-30, and following that, the steering committee would meet as soon as possible to plan future business.

That's the motion. Is someone willing to move it? It's moved by Peter Julian.

Is there any discussion?

Mr. Clerk, what did I miss?

[The Clerk of the Committee, Mr. Alexandre Roger]

Wednesday next week....

[The Chair, Liberal, Wayne Easter]

Thank you.

Compared with our previous schedule, which had several meetings next week for three hours, we will not meet on Wednesday, May 19. We will meet on Monday for six hours, and then on the 17th, 18th, 20th and 21st.

Is there any discussion?

(Motion agreed to [See Minutes of Proceedings])

Then we will go to witnesses.

We're dealing with Bill C-30, parts 1, 2 and 3.

I'll go through the list of witnesses so that they're on the record, and we'll go from there.

We have Trevor McGowan, director general, tax legislation division, tax policy branch; Dave Beaulne, senior director, tax legislation division; Maude Lavoie, director general, business income tax division; Pierre Leblanc, director general, personal income tax division; Pierre Mercille, director general, sales tax legislation; Phil King, director general, sales tax division; François Beaulieu, expert adviser, sales tax division; Dominic DiFruscio, senior adviser, sales tax division; and Warren Light, expert adviser, sales tax division.

Just to committee members, I know members sent me a list for a regular lineup on questions. What we typically do on the budget implementation act—and if you have a concern about it, raise it—is that, rather than going through the five or six minute rounds, we just take, in order, whoever has questions on whatever division we're dealing with.

In part 1(a), if you have a question, I'll recognize you, and we'll take one supplementary. Then we'll go to the next questioner, and then we'll go to part 1(b).

If there are no problems with that, we will start.

On part 1, I believe it is Mr. Trevor McGowan.

Welcome.

[Trevor McGowan, Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance]

Thank you, Chair.

Owing to the time, and my understanding that a package of summary materials has been provided to the committee, I'll provide a brief overview instead of going through each of the measures in the bill, unless you would like me to do so.

Part 1 of Bill C-30 deals with the Income Tax Act and amendments related to it. It contains measures that were either announced or confirmed in the 2021 federal budget. The confirmed or previously announced measures include some from budget 2019 and some others that had already been announced but were referenced in the budget.

These would include, for example, an increase to the basic personal amount that essentially provides a tax-free amount for Canadians, gradually reduced for higher-income earners; extensions to various COVID-related subsidies, such as the Canada emergency wage subsidy and the rent subsidy; the introduction of a new hiring program; and the enhancement of the Canada workers benefit, a program that provides assistance to lower-income workers.

With that, we would be happy to take any questions you might have on part 1, or provide a more thorough overview, as I said at the opening.

[The Chair, Liberal, Wayne Easter]

What I will do, because I have to look at the part 1 divisions on my screen.... If people would just put up their hand using the “raise hand” function as we go along, I will go through part 1, and then (a), (b) and (c), if that's okay.

There are enough people here to answer those questions, I'm sure.

The summary for part 1(a) says it is “providing relieving measures in connection with COVID-19 in respect of the use by an employee of an employer-provided automobile for the 2020 and 2021 taxation years”.

Does anybody have any questions on that?

Seeing none, the summary for part 1(b) says it is “limiting the benefit of the employee stock option deduction for employees of certain employers”.

Mr. Ste-Marie, go ahead.

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

Good afternoon, everyone.

I would like a quick explanation regarding the purpose of this measure and what it entails.

[The Chair, Liberal, Wayne Easter]

Trevor, we'll turn it to you. You can direct it to whomever and we'll go from there.

[Trevor McGowan]

Thank you for the question.

I see that my colleague Pierre Leblanc has taken himself off mute, so I'll turn it over to Pierre.

[Pierre Leblanc, Director General, Personal Income Tax Division, Tax Policy Branch, Department of Finance]

Thanks, Trevor.

Thank you for your question.

The purpose of this measure is to further limit the stock option deduction for employees of certain employers.

We propose to apply an annual limit of $200,000 with option cash-out rights eligible for the deduction. This limit would be based on the fair market value of the underlying shares when the options are granted and would be designed to protect start-ups and emerging businesses.

Employees of private companies governed by Canadian regulations wouldn't be subject to the limit, nor would employees of companies with gross annual revenues of $500 million or less. That's the gist of the measure.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Do you have a supplementary there, Gabriel, or are you okay? Okay.

Go ahead, Tamara.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Thank you.

I have a general question. I think it would apply to this section, but somebody will have to correct me if it doesn't.

In 2018, CPA Canada put out a report that stated the following:

Canada needs to ensure we continue to create jobs, attract investment and remain competitive. But, on these vital measures, our current tax system is falling short, and Canadians and their businesses risk falling ever more behind their global peers.

Especially after the pandemic, more than ever we see a need to be an attractive place for investors and job creators. Do we see any serious attempts in this budget to tackle the problem of creating a competitive taxation environment that would attract businesses to Canada? I was also wondering how this would impact that.

[The Chair, Liberal, Wayne Easter]

Does anybody want to take that one on?

[Pierre Leblanc]

Thank you very much for the question. Maybe I can speak in the context of this clause for the stock option deduction.

As I was saying to Monsieur Ste-Marie, the government's really trying to balance two objectives here. One is noting that historically the stock option deduction has been disproportionately claimed by individuals with very high incomes—I mean, the government's overall concern about tax fairness. The other is recognizing that an important concern here is that stock options are used as an important recruitment tool for start-ups, scale-ups and emerging employers to maintain that ability, that competitiveness, as you say.

The idea here is that with this new limit of $200,000 annually, based on the value of the options, that grant would apply to only certain employers. It wouldn't apply if you're what we call a Canadian-controlled private corporation—a CCPC. It wouldn't apply if the annual revenues of the company for whom you work are $500 million or less. The idea is that these are the companies for which the stock option deduction remains quite a vital tool. I think the government's proposal you see here is designed with the balancing of those objectives in mind.

[The Chair, Liberal, Wayne Easter]

Thank you, Pierre.

Do you have a supplementary there, Tamara?

I'll go to Gabriel.

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

Thank you.

Did the department assess the amount of additional tax that it could collect with the implementation of this measure?

[Pierre Leblanc]

Thank you for your question.

We published our estimates in the 2020 fall economic statement.

According to our estimates, the additional tax revenue would be approximately $55 million for the 2025-26 fiscal year. It should be noted that this revenue would stem only from stock options granted after January 1, 2021. It takes some time for employees to qualify for these options. The results won't be apparent until 2025-26.

For the longer term, we estimate revenues of about $200 million. This constitutes a positive impact on federal revenues.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you all.

We'll turn to part 1(c). I might remind members that a document came out earlier in the week that has this information and some explanations there, if you want to refer to that as we go along.

For part 1(c), it says “providing an adjustment for payments or repayments of government assistance in determining capital cost allowance for certain zero-emission vehicles”.

Are there any questions on that one?

Peter Julian, did you have a question? I know. you're having trouble with your computer today.

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

Yes, I'm sorry.

Thank you, Mr. Chair.

My question doesn't concern the bill, but the impact of zero-emission vehicles. Are there any estimates of how many people would benefit from the bill in this area and the related costs?

[Maude Lavoie, Director General, Business Income Tax Division, Tax Policy Branch, Department of Finance]

I imagine that you're talking about the cost of the measure and not the amendment in this part of the bill.

The department estimates that government revenues will decline by $62 million in 2020-21 and 2024-25.

I don't know the exact number of companies that could take advantage of this measure. These are estimates, of course. There's always some uncertainty.

I can tell you that the mining sector, in particular, has expressed strong interest in this measure.

[The Chair, Liberal, Wayne Easter]

Does that satisfy your question there, Peter? Okay.

Is there nothing more on (c)? No.

The summary for part 1(d) says it is “expanding the scope of the foreign affiliate dumping rules to further their objectives”.

Are there any questions, anyone?

Ted Falk.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

I am just wondering what kinds of situations this would apply to.

[The Chair, Liberal, Wayne Easter]

Who wants to take it there, folks?

Go ahead, Trevor.

[Trevor McGowan]

The foreign affiliate dumping rules currently apply where a non-resident corporation, a multinational, owns a corporation resident in Canada or controls them. The corporation resident in Canada wants to avoid Canadian tax, so they engage in what is called a foreign affiliate dumping transaction. Those are generally used to extract earnings from Canada while reducing Canadian tax.

One example might be instead of paying $1 million dividend from the Canadian corporation up to the foreign parent, which could attract a 5% withholding tax, representing a tax cost of $50,000, they might instead purchase shares of another company within the group bringing them under Canada for $1 million, which does not attract a withholding tax. In that sense, the money is dumped in the foreign affiliate or in respect of the foreign affiliate.

That's how the rules currently work.

As I said before, the rules currently apply where a non-resident corporation controls a corporation resident in Canada but the same sorts of planning opportunities and risks arise where a non-resident individual or a trust owns the Canadian corporation. What this measure would do is that it would extent the existing anti-avoidance rules that are intended to address these types of foreign affiliate dumping transactions.

I just gave one example. There are numerous iterations. It expands them to apply also where the parent on top is an individual or a trust instead of just a foreign corporation.