Finance Committee on Feb. 29th, 2024

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 130 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2), the committee is meeting only to discuss parts 1 to 4 of the subject matter of Bill C-59, an act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023. Part 5 will be studied at a future meeting of the committee. Just for members' sakes, we're doing parts 1 to 4 today, and we'll do part 5 at a future meeting.

Today's meeting is taking place in a hybrid format, pursuant to Standing Order 15.1. Members are attending in person in the room and remotely using the Zoom application.

I'd like to make a few comments for the benefit of the members. Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to interpreters, causing serious injuries. The most common cause of sound feedback is an earpiece worn too close to a microphone. Therefore, we ask all participants to exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on. In order to prevent incidents and to safeguard the hearing health of the interpreters, I invite participants to ensure that they speak into the microphone into which their headset is plugged and avoid manipulating the earbuds by placing them on the table, away from the microphone, when they are not in use.

I will remind you that all comments should be addressed through the chair. Members in the room, if you wish to speak, raise your hand. Members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can, and we appreciate your patience and understanding in this regard.

Now I'd like to welcome our witnesses today for the study of the subject matter of Bill C-59, an act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023. We have a number of officials from the Department of Finance who are joining us. Please note that all of these individuals will not be able to sit at the table. If questions arise for those individuals who are not at the table, they will be called and will exchange seats with those who are at the table to answer those questions.

I request that all officials clearly state their name and department before answering a question, please.

At the table, we do have a few individuals who will give us some opening remarks, and those will be on the different parts that we will be looking into today. We have Lindsay Gwyer, who will be addressing part 1; James Greene, who will be addressing part 2; and Amanda Riddell, who will be addressing parts 3 and 4.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I just have a brief point of order, Mr. Chair.

I do apologize to the witnesses, but I think it's important that we get a little bit of committee business done at the outset.

[The Chair, Liberal, Peter Fonseca]

Well, right now, we are allowing our witnesses to make their opening remarks. The witnesses are going to make their opening remarks.

Also, just so that you know, we have many officials with us today—we thank you all for being with us—and you will see them seated in the back. They will be able to address questions also if they pertain to their departments.

On that, I'm going to open it up and allow our officials to start.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

I guess, Ms. Lindsay—

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

—you'll start with part 1.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Mr. Chair, I have a point of order.

[The Chair, Liberal, Peter Fonseca]

Lindsay, please.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Mr. Chair, you have an obligation to recognize me.

[The Chair, Liberal, Peter Fonseca]

Ms. Gwyer, we'll start with opening remarks.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Mr. Chair, you have an obligation.

Please do not crosstalk. You're hurting the interpreters.

[The Chair, Liberal, Peter Fonseca]

We're allowing Ms. Gwyer to commence.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I have a point of order.

You have an obligation—

[The Chair, Liberal, Peter Fonseca]

What is the point of order?

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you.

You have an obligation to recognize a point of order. Do I need to post the rules here?

[The Chair, Liberal, Peter Fonseca]

Yes, I have to recognize a point of order.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

So, I have a point of order.

With respect to the motion that was passed earlier at this committee, it was noted that within the next meeting following the beginning of the previous study, we would have Chrystia Freeland, Minister of Finance. Could you please confirm that Ms. Freeland will be here for the next meeting?

[The Chair, Liberal, Peter Fonseca]

We don't have our PS here. I would look to the PS, but we will look to check on that for you.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Okay. I'll have more to say during the questioning period.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

Ms. Gwyer, please.

[Lindsay Gwyer, Director General, Legislation, Tax Legislation Division, Tax Policy Branch, Department of Finance]

Thank you, Mr. Chair.

I'm Lindsay Gwyer, director general, legislation, at the Department of Finance. I'm here to talk about part 1. A number of my colleagues are also here to answer questions on part 1.

Part 1 contains the income tax measures in the bill. There are about 20 measures, so I won't be able to describe them all, but I'll just do a very high-level summary of several of the key ones.

First, there are a number of integrity measures in part 1. The first two relate to recommendations from the OECD's base erosion and profit shifting project. The first would limit the deductibility of net interest and financing expenses by certain corporations and trusts to a fixed ratio, which in most cases would be equal to 30% of tax EBITDA. The second OECD-related measure would implement rules to deal with hybrid mismatch arrangements, which are cross-border tax avoidance structures that exploit differences in income tax laws between two countries.

The bill contains other integrity measures, including an anti-avoidance rule to prevent private corporations from avoiding the refundable tax on passive income, as well as new rules to facilitate true intergenerational transfers, stemming from Bill C-208. Bill C-59 also includes a change to deny the deduction for dividends received by Canadian financial institutions on certain shares held as mark-to-market property, as well as changes to strengthen the general anti-avoidance rules. In addition, the bill will introduce a 2% tax on the net value of equity redemptions by certain Canadian corporations, trusts and partnerships whose equity is listed on a designated stock exchange.

The bill also includes a number of incentives and changes to tax credits. First there are two new refundable investment tax credits. The first would be available to taxable Canadian corporations on investments in eligible equipment used in carbon capture, utilization and storage projects. The second is another refundable credit available to taxable Canadian corporations and real estate investment trusts for investments in certain clean technology.

Other incentives and credits in part 1 of the bill include changes to the flow-through share rules to allow expenditures incurred in the exploration and development of all forms of lithium to qualify for the critical mineral exploration tax credit, changes to extend the phase-out by three years and to expand eligible activities for the reduced tax rates for zero-emission technology manufacturers, and changes to facilitate the creation of employee ownership trusts. Part 1 would also double the rural supplement for the Canada carbon rebate tax credit.

Those are the major measures in part 1. There are also a number of other more technical measures.

My colleagues and I would be happy to provide more detail on those or any of the measures I mentioned.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Gwyer.

Now we'll hear from Mr. James Greene, on part 2.

[James Greene, Senior Executive Advisor, Tax Policy Branch, Department of Finance]

Thank you, Chair. Good morning.

Part 2 of the bill would enact the digital services tax—

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I have a point of order. The bells are ringing.