Finance Committee on April 30th, 2024

[Lindsay Gwyer]

Yes, the department has been consulting with stakeholders. This is a request that has come from stakeholders. It's difficult to estimate how many businesses will be able to sell to an employee ownership trust and take advantage of these rules. If you just give me a second, I think I may have an estimate in my notes—I just need to find it. We anticipate there could be about 125 employee ownership trusts created by 2028-29, but that's obviously an estimate. These rules are new, so we don't necessarily know how businesses will react to them.

As I said, we've been consulting with stakeholder, and this is something that's been requested by stakeholders, so we know there's obviously an interest in it, but the take-up is still a rough estimate.

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

The initial proposal with respect to employee ownership trusts didn't have much in the way of tax relief. The new one in Bill C-59 does have substantial tax relief.

Thank you for sharing that answer, by the way. I appreciate that.

What is the amount of tax revenue that will be lost as a result of the employee house trust? Ms. Gwyer, you can just send it to me afterwards. I'm sure it's in the list, if you don't have it there. I'm not going to make you sweat it there.

[Lindsay Gwyer]

I can find the numbers that were in the budget, which would be the number in the 2023 budget that reflects the amendments in Bill C-59, and then there was the subsequent exemption on gains realized on the sale of an employee ownership trust, which was announced in budget 2024, so that has a separate costing. That's not in this bill, though. It's something that I believe is in the notice of ways and means motion that was tabled today.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

Could we have a recorded vote, Clerk?

(Clause 5 agreed to: yeas 7; nays 3)

(On clause 6)

MP Morantz, go ahead on clause 6.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I just want to get some clarity on this. I think this is the case, but limiting interest deductibility is a big thing in the business community. I just want to make sure that, if you're a Canadian-controlled private corporation that does business only in Canada, these rules do not apply to you. Is that correct?

[Lindsay Gwyer]

Yes, that's generally right. There are a few exceptions to the EIFEL rule. There is one for a Canadian-controlled private company that has less than $50 million of taxable capital employed in Canada, so that would exempt most small and medium-sized Canadian controlled private corporations.

There's also a separate exemption that could apply to larger corporations that have activities only in Canada. It looks at who the shareholders are, who are the related people receiving interest payments and where the business is. If that company has no material foreign investments and no significant foreign shareholders or non-arm's length people who they're paying interest to, then that exemption could apply to a larger CCPC that can't meet the $50-million threshold.

[The Chair, Liberal, Peter Fonseca]

Go ahead, MP Lawrence.

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

Thank you. I might be getting ahead of myself, but, of course, there is an amendment coming.

I believe that the last time you were here, Ms. Gwyer, I asked you about the economic impact on the EIFEL regulations, and I don't believe we received a response. Has your department done any type of calculation or analysis with respect to the economic impact of EIFEL in terms of additional costs for consumers, particularly with respect to utilities, but in any other sector as well?

[Lindsay Gwyer]

We don't expect there to be any material impact on costs, and that's not based on economic analysis per se. It's based on the scope of the rules and the exemptions that are available under the rules.

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

Ms. Gwyer, have you followed at all some of the press and news coverage with respect to EIFEL? There are a number of private sector organizations that would take issue with that claim, most notably the Nova Scotia utility, which said it was $50 million. That would have a material impact on every one of their clients and customers, who are already, of course, struggling with the high cost of energy.

[Lindsay Gwyer]

Yes, I am aware of that. I'm not sure if we've met with that specific stakeholder, but we have met with stakeholders on that issue.

We obviously can't say what a company will choose to do if they do have increased taxes as a result of this measure or any measure. They can pass that along. They can do what they choose with it. We can't say definitively what they will do with it.

Broadly speaking, there are a number of exemptions, including rules that relate to what's called the “group ratio rule”, which is a rule that said that if you do have a multinational company that is not able to benefit from one of the Canadian exemptions that I just discussed, you can look at the leverage ratios across that company's operations and look to what the leverage ratio is in other countries. If their Canadian leverage ratio is not materially higher than their leverage ratio in other countries, then they are able to have a higher leverage ratio in the 30% range.

Effectively, a company in an industry that is highly leveraged can be above the 30% ratio as long as it's not doing it in such a way that it is effectively eroding the Canadian tax base by having a significant leverage in Canada relative to its foreign operations. In those cases, including in the regulated energy sector, we would expect that exemption to allow those companies that are highly leveraged to have a higher leverage ratio, as long as they're not doing it effectively to fund their foreign operations at the expense of the Canadian tax base.

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

Thank you for that, Ms. Gwyer.

It's more of a political discussion, so I won't carry on too far, but in my review of it in Nova Scotia, they have publicized everything. They've got the numbers out there and it's clearly adding $50 million in additional costs and will cost consumers more at the end of the day, regardless of the intricacies of it, which we can debate in terms of leverage ratios and everything like that.

It's not just me saying that. It's actually the Liberal member from Kings—Hants who fully supports that as well, the opinion that it will increase the cost. This isn't a partisan thing. Liberal members as well, quite frankly, don't agree, and at the end of the day, regardless of whether it's because of leverage issues or how it's funded, the people of Nova Scotia will end up paying more because of Bill C-59.

That's not really a question; it's a statement, but thank you very much for your hard work.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

Shall clause 6 carry?

(Clause 6 agreed to: yeas 7, nays 4)

(On clause 7)

Now we are at clause 7 and CPC-1.

MP Lawrence, would you like to move that?

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

Yes, please. Thank you.

I believe it has all been included in your packages, and you have it in both English and French.

This is an exemption to the EIFEL legislation for publicly regulated utilities.

As we just heard from the exchange between Ms. Gwyer and me, it's my belief, and one also shared by Liberal member Kody Blois—and you can confirm, guys, that both he and I agree—that this will have a negative impact on the people of Nova Scotia. This is of particular importance because the impact of the carbon tax has already been driving Canadians into energy poverty, as this government continues to tax the farmers who grow the food and the truckers who move the food. In reality, they tax everyone, because everyone consumes food. In the same way here, when you're taxing the utility companies that provide the energy, you are increasing the cost for Canadians at a time when they are already in energy poverty. We see food bank usage going through the roof. We see unemployment steadily, but continuously, creeping up. GDP per capita hasn't grown in 10 years. We're facing a lost decade. A large portion of this can be ascribed to the cost of energy.

I'm not in a unique position. It's actually the position of most countries that have imposed these EIFEL restrictions, which can be helpful in reducing the tax base—I agree with Ms. Gwyer on that. Countries like the U.K., the United States and many of our other peer countries have exempted publicly regulated utilities.

The reason, specifically, is that the pricing and even the structure of these utilities are often regulated, meaning they have no control. That cost will immediately go downhill to the customer.

In addition to that, of course we have the real and present issue of climate change.

One of the goals of this government has been the electrification of the country, so just at this time we're going to increase the cost on electrical utilities. They need to engage, in accordance with their own government, in billions of dollars of investment to electrify our country, and we're going to put an additional cost on them at this time.

One, we are hindering our ability to fight climate change, and two, we are worsening the affordability crisis. This is something that internationally has been recognized as a good thing in the U.K., in the U.S.A. and by Liberal members such as the member for Kings—Hants.

This is a bipartisan plea to help the affordability crisis and to fight climate change.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Lawrence.

I have a speaking order here.

I have Ms. Thompson, then Mr. Ste-Marie, Mr. Chambers and Mr. Turnbull.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you, Mr. Chair.

I think for clarity I would ask if the financial officials could speak to this, particularly in light of the comments we've just heard and the allegations of taxpayers and consumers being impacted. If officials could provide clarity, that would be very helpful.

[Lindsay Gwyer]

I can speak to the amendment.

Following up on what I said earlier, the approach that's taken in this bill is to provide broad exemptions that are not sector-specific. As I mentioned earlier, our analysis is that the group ratio rule I discussed should in most cases provide the appropriate relief.

Beyond that, in terms of the technical aspects of the amendment, it would amend the bill, specifically the exemption that applies right now for P3 projects, so for public-private partnerships. Right now that's an exemption that requires four conditions to be met. As drafted, this amendment would add four additional conditions to that exemption.

Our interpretation is it would have the effect of making that exemption effectively unattainable. It would also require that a regulated industry meet those other four conditions that are already in the bill. Effectively, it would be eight conditions that need to be met in order for the exemption to apply.

Our interpretation of this is that it would probably not have the effect that we think was intended.

[The Chair, Liberal, Peter Fonseca]

Okay.

We have Mr. Ste-Marie, then Mr. Chambers and Mr. Turnbull.

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

Thank you, Mr. Chair.

I'd like to propose a subamendment to amendment CPC-1. It was distributed to you a little over an hour ago, along with amendment G-1, I believe.

Amendment CPC-1 proposes to modify clause 7 of Bill C‑59 by replacing line 37 on page 25. Through my subamendment, I move that the change proposed in this amendment be modified so that, in proposed paragraph (f), the passage referring to “electricity, natural gas or steam or any other input for the production of light, heat, cold or energy” be replaced by the following:

provision — with zero emissions — of electricity, steam or any other input, other than natural gas and nuclear energy

The criticism that my party and I have of the government's transition plan is that it supports industries that do not contribute enough to this transition. We know that the nuclear industry is very risky. From our point of view, it should not be supported. The same applies to the natural gas industry. Although a better choice than other energy sources, this industry should not benefit from the same level of support. This subamendment therefore aims to remove the mention of natural gas and exclude nuclear power from this provision.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Ste-Marie.

I believe the subamendment has been distributed to all members.

I have Mr. Chambers to speak now, and then it will be Mr. Turnbull.

[Adam Chambers, Conservative, Simcoe North, ON]

Thanks, Mr. Chair.

For the officials, there's a coming-into-force date for the EIFEL rules. Can we just confirm what clause that is in the bill? I couldn't find it. My understanding is that it's actually retroactive. Is that true?

[Lindsay Gwyer]

Yes, the rules apply generally to taxes beginning on or after October 1, 2023. A wide number of clauses in here deal with EIFEL rules, and at the end of each clause there's the coming-into-force provision.

The main clause that deals with EIFEL rules, or one of the larger ones, is clause 7, so at the end of clause 7 there's a coming-into-force rule, but again, throughout the bill there are a number of EIFEL amendments, and each has to have its own coming-into-force rule.

[Adam Chambers, Conservative, Simcoe North, ON]

Are most of them October 23 for the EIFEL rules, or...?

[Lindsay Gwyer]

Yes.

[Adam Chambers, Conservative, Simcoe North, ON]

Okay. Thank you.