Finance Committee on May 17th, 2021

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

I'm asking about the actual credit criteria.

A small business gets declined and its bank will not give it the commercial mortgage it needs to buy its premises. The BDC is already there as a Crown corporation involved in those kinds of lending transactions, charging fees and interest rates that are higher than the bank so as not to compete with the bank for that business. The BDC turns that small business down.

Is your program looking to meet that need there? Who comes to you for a commercial loan?

[Steve Watton]

A small business going into its financial institution would be an eligible business under this program. If the financial institution would turn down that business in and of itself, they have us as an option to register that loan under our program.

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

I'm sorry, of course.

[Steve Watton]

For real property lending, you can get loans for up to a million dollars. For equipment and leasehold improvements, it's currently $350,000, but as Frances mentioned, we're hoping to move that up to $500,000 because those amounts haven't changed over the last number of years.

In comparison to the BDC, the primary distinction there is that the BDC is the government small business bank. They do their own lending of their money. It's their advisory services, credit risk and they do assessing all on their own, whereas this program uses financial institutions as an intermediary. It leverages the funds of those financial institutions and their risk expertise, if you will, to determine if they would give a loan to these small businesses under this program or not.

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

The banks' lending criteria would be the same. They would follow their normal lending criteria. The fact that they have you as a guarantor doesn't alter their basic credit criteria. They would apply the same credit criteria and then they'd just make the decision that they would only make this loan if they could guarantee it under your program.

[Steve Watton]

Exactly. One of our conditions is basically that. They have to do the same due diligence under the conventional lending as they do for loans under this program.

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

Okay, thank you.

[The Chair, Liberal, Wayne Easter]

Ms. Dzerowicz, this is the last question on this division.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank Mr. Watton for his patience and for answering all of our very detailed questions.

My question relates to the intention of this program and these amendments, as it relates to to economic growth and creating jobs. Can you speak to that, please?

[Steve Watton]

Yes, this program is designed to increase access to financing for small business owners who would not otherwise be able to get this sort of financing. A lot of these small businesses are modernizing. We're in a bit of a digital economy. It is a knowledge-based economy, and a lot of the assets and financing, if you will, are softer sorts of costs like intangible assets, start-up costs, inventories, marketing, promotion and websites; those sorts of things. In the past, this program has been used for real property, equipment, leaseholds and improvements.

We're trying to modernize the program and make it possible for more small business owners to access the types of financing in the amounts they require to start up, scale up and modernize. As a result of these changes alone, the expectation is that we would facilitate an additional $560 million and help on the order of an additional 2,900 businesses over and above the $1 billion, and the 5,000 to 6,000 small businesses, that we already do. As a result of that, you would get additional employment, additional economic impacts, etc., and additional positive benefits to society.

[Julie Dzerowicz, Liberal, Davenport, ON]

That's excellent news.

[The Chair, Liberal, Wayne Easter]

Go ahead, Ms. McRae.

[Frances McRae]

I think Steve has really talked about the purpose of the changes. We're here today with proposed changes to make this program more accessible to more businesses, of more types for more uses. That's really what it is, so the purpose is to expand availability of the program for more companies to be able to access it.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mrs. Jansen.

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

Yes, I just have one more question.

I understand this is trying to get more small business owners to be able to participate. However, due to COVID and the programs that didn't work for many of those small businesses, most of your money the previous year went to small businesses that were at risk and impacted by COVID. Did I understand that correctly?

[Steve Watton]

They were not necessarily impacted by COVID. It would be just small business owners who were looking to get access to financing that the banks weren't willing to give them: financing from conventional products. That may have been, or may not have been, COVID-related.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you all. There are lots of questions on division 18. There are a lot of questions on that program.

We'll turn to division 19, which is the Customs Act, and amendments to that act.

Go ahead Mr. Vragovic.

[Goran Vragovic, Director General, Assessment and Revenue Management Portfolio, Canada Border Services Agency]

Thank you, Mr. Chairman.

Good afternoon, honourable members of the committee.

My name is Goran Vragovic. I'm the director general of the CBSA assessment and revenue management portfolio, with the commercial and trade branch.

Today I'm joined by colleague, Andrew Francis, our deputy chief financial officer and director general with the finance and corporate management branch; as well as Yannick Mondy, the director of tariff and trade policy with the international trade policy division of the Department of Finance.

We are here today to discuss Customs Act amendments that are being pursued via the budget implementation act, BIA, 2021, aimed at supporting modernized payment processes for commercial importers and ensuring fair and consistent valuation of imported goods by importers, and minimizing the risk of forgone revenue to the Government of Canada.

The agency is also pursuing changes in the 2020 annual regulatory modernization bill, ARMB, to authorize the electronic administration and enforcement of the act.

The combination of legislative changes being pursued via the ARMB and BIA will support the government's commitment to implement the CBSA assessment and revenue management, CARM, initiative, which will modernize accounting and payment processes for the benefit of importers, trade chain partners and the government.

The proposed changes to the Customs Act that are in the BIA will allow for harmonized payment due dates for importers; provide importers with the ability to make accounting corrections prior to a deadline without incurring potential penalties or interest; clarify the obligations of persons providing a deposit, bond or other security to abide by the terms and conditions; and ensure the fair and consistent valuation of imported goods.

On the matter of harmonized payment due dates, the proposed amendments would establish authorities in the Customs Act to facilitate the establishment of a single harmonized payment due date with respect to commercial goods for various amounts owing during a period, rather than separate due dates strictly based on a fixed number of days after the importation. The intent of these provisions is to make it simpler for commercial importers to manage the payment of various amounts owing during a single billing period.

On the issue of accounting corrections, the proposed amendments would allow for importers to make corrections before a deadline without triggering a redetermination that could generate penalties or interest. The intent is to encourage more accurate final accounting and to improve payment practices.

Regarding terms and conditions for financial security, the proposed amendments would also clarify the obligations of persons providing a deposit, bond or other form of security to allow for the release of goods prior to accounting, and to abide by the terms and conditions that accompany that deposit, bond or other security. These legislative amendments are necessary to allow the CBSA to pursue regulatory amendments relating to, among other things, electronic forms of financial security.

Finally, on the matter of “value for duty” calculations, the proposed amendments allow for the definition of “sold for export to Canada” to be established in regulations in order to ensure the fair and consistent valuation of imported goods. Establishing a definition of “sold for export to Canada” would ensure that imported goods are being valued in a fair and consistent manner, and it would address consequential...under collection of revenue. This would close a loophole and ensure that all importers would be required to value their goods on the same basis. It would result in increased duty revenues of approximately $150 million per year. This amendment would also ensure that Canada continues to adhere to its international obligations relating to the valuation of goods, which require that the goods be valued based on the transaction values set by the last sale to a purchaser in the country of import.

That concludes my remarks for today. I would be happy to take any of your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Vragovic.

Are there any questions? I know there was quite a discussion on this the night of the evening briefings.

Ms. Jansen.

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

First of all, it's great to make it a little bit easier on the payment end of things, because I remember that was a real nightmare for me back in the day.

Can you better explain to me why we need to redefine or better define “sold for export to Canada”? What is the spirit behind that?

[Goran Vragovic]

Certainly. The valuation methods for “sold for export to Canada” are aimed to ensure that the value for duty of imported goods determined under the transaction value method is based on the sale that causes the goods to be exported to Canada. For example, today a non-resident importer would declare the value of goods being exported to Canada based on the last purchase price of those goods prior to export, as opposed to the sale for export of those goods to a party in Canada for the purpose of import, creating a discrepancy between domestic importers and non-resident importers in the manner in which goods are being valued. This creates a valuation method that is consistent with international treaty obligations.

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

Sorry, I did not quite understand the explanation.

Is there a way to give me an example so that I might better understand what you're trying to get at?

[Goran Vragovic]

Sure. A business that is registered as a non-resident importer for the purpose of importing goods to Canada is generally a foreign company located outside of the country or a subsidiary of a Canadian multinational. If they were to purchase goods in that country of export for the purpose of having those goods imported into Canada, the declared value would be based on the last purchase price of the goods in the country of export as opposed to the purchase price of the sale of the goods to the country of export, being Canada, where the goods are being imported.

Somebody could have purchased goods in a foreign country where the last sale price they purchased those goods for would have been $100, but the sale price to the importer in Canada would be $150. They're declaring the value of $100, which is the last price paid, as opposed to the price paid for sale to export to Canada.

I'll defer to my colleague with the Department of Finance, Yannick Mondy. She could clarify whether I have that accurately or perhaps put it into a simpler explanation.