Finance Committee on May 27th, 2021

[The Chair, Liberal, Wayne Easter]

Next is clause 39.

(On clause 39)

[Trevor McGowan]

Clause 39 provides amendments to section 149.1 of the act, which provides rules for registered charities as well as qualifying journalism organizations that are the types of not-for-profit journalism organizations that are allowed to issue tax receipts for donations received.

There are two measures. One is consequential amendments relating to journalism. Mainly, though, the amendments apply to charities, especially in the context of listed terrorist entities, ensuring that as soon as a charity becomes a listed terrorist entity, its charitable registration is revoked.

[The Chair, Liberal, Wayne Easter]

That's a wonderful idea.

[Trevor McGowan]

Shall clause 39 carry on division?

(Clause 39 agreed to on division)

[The Chair, Liberal, Wayne Easter]

We're on clause 40.

(On clause 40)

[Trevor McGowan]

Clause 40 has amendments to section 152 that provide for the normal reassessment periods. One provides references to the consequential amendments in respect of the wage and rent subsidies. Another amendment relates to one-half of the transfer pricing measures. In that case, the transfer pricing rules in section 247 of the act deal with transactions between Canadian residents and non-residents.

The concept of “transaction” is at the core of those rules: The rules that provide for the reassessment period in respect of transactions with non-residents that apply in the transfer pricing context use a different definition of “transaction”. This ensures that the terms used in section 152 line up with the subject matter in the transfer pricing rules in section 247.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Fast.

[Ed Fast, Conservative, Abbotsford, BC]

Mr. Chair, anybody watching this and listening to this discussion and that explanation would be scratching their heads. What are transfer pricing rules? Transfer pricing is another tax avoidance opportunity that our tax system tries to address.

I would appreciate it if Mr. McGowan explained with a bit more depth what transfer pricing is and why we have measures in the Income Tax Act to address it.

[Trevor McGowan]

I would be happy to do so, and I appreciate the question. As I said, I'm trying to balance brevity with the need to provide information.

This really is more of a technical change. The broader transfer pricing changes are to come later. However, I can speak to it right now.

Transfer pricing refers to the prices charged between non-arm's-length parties across borders. When a Canadian company transacts with a non-arm's-length foreign company, the transfer pricing rules essentially require their transactions to be on arm's-length terms, which prevents, as was suggested, the shifting of funds outside of Canada, in our case, in order to avoid tax.

Where the transfer pricing rules apply and require repricing or a recharacterization of the transaction, they can set the prices or the elements of the transaction to be what would be entered into between arm's-length parties. This essentially provides that in cross-border transactions between non-arm's-length parties, the non-arm's-length parties will enter into the transaction on arm's-length terms, reflecting ordinary commercial arrangements.

This amendment is a highly technical amendment and reflects a bit of an oddity in the rules that currently exist where the term “transaction” is used in section 152, which deals with normal reassessment periods and is about how long after the end of your year the Canada Revenue Agency has to assess you. Those rules talk about transactions. They use the word “transaction” in the context of setting when the CRA can assess transfer pricing transactions.

The transfer pricing rules have a very specific definition of “transaction”. What this amendment would do is ensure that when we're talking in the reassessment rules about transfer pricing, we're using the right terms and we're using the word “transaction” consistently.

[The Chair, Liberal, Wayne Easter]

Shall clause 40 carry on division?

(Clause 40 agreed to on division)

(On clause 41)

[Trevor McGowan]

Clause 41 is a consequential amendment relating to advanced life deferred annuities.

[The Chair, Liberal, Wayne Easter]

Shall clause 41 carry on division?

(Clause 41 agreed to on division)

(On clause 42)

[Trevor McGowan]

Clause 42 is a consequential amendment relating to the journalism measures, in particular the extension of the journalism labour tax credit to partnerships—I shouldn't say “the extension” of it. It's the provision of rules that clarify how the labour tax credit is intended to apply when a partnership is carrying on journalism activities. It relates to installments, but it's consequential to that change in the journalism rules.

[The Chair, Liberal, Wayne Easter]

Shall clause 42 carry on division?

(Clause 42 agreed to on division)

Sorry, Ed; I didn't see your hand.

[Ed Fast, Conservative, Abbotsford, BC]

I just want to make the point, Mr. Chair, that Mr. McGowan has been in the seat now for a fair bit of time. He is rendering yeoman service and providing excellent information. I very much appreciate that. He may want to have a break.

[The Chair, Liberal, Wayne Easter]

If he's going to take a break, we're going to move on to a section he is not responsible for. We're going to keep going for as long as we can.

Mr. McGowan, do you want to take a break? If you do, we'll go to part 4, division 1.

Are you okay?

[Trevor McGowan]

Thank you for the consideration and the offer, but I'm happy to continue.

[Ed Fast, Conservative, Abbotsford, BC]

All right.

[The Chair, Liberal, Wayne Easter]

Okay.

(On clause 43)

[Trevor McGowan]

Clause 43 is a consequential amendment relating to the introduction of the new Canada recovery hiring program. It provides penalties for false statements, omissions and non-compliance. It adds cross-references so that those penalties can apply where there is non-compliance with the new recovery benefit.

(Clause 43 agreed to on division)

[The Chair, Liberal, Wayne Easter]

I call clause 44.

(On clause 44)

[Trevor McGowan]

Clause 44 is another set of consequential amendments. They deal with refunds of taxes, which is relevant in the context of certain refundable tax credits, and they add new cross-references to measures under the Canada recovery hiring program that has been introduced, as well as to the new journalism measures. They provide needed cross-references in respect of other measures.

[The Chair, Liberal, Wayne Easter]

Shall clause 44 carry on division?

(Clause 44 agreed to on division)

(On clause 45)

[Trevor McGowan]

Clause 45 relates to the measure we discussed earlier, the revocation of qualified donee status from charities that become listed terrorist entities. It provides for the actual revocation mechanism.

[The Chair, Liberal, Wayne Easter]

Shall clause 45 carry on division?

(Clause 45 agreed to on division)

(On clause 46)