Finance Committee on April 30th, 2024

[The Chair, Liberal, Peter Fonseca]

MP Chambers, continue with your amendment, please.

[Adam Chambers, Conservative, Simcoe North, ON]

We don't have to do this for every single one, but I want to understand the rationale behind retroactive tax increases. My understanding is that previously they were almost unprecedented.

We're making these EIFEL changes, which are in this bill and are retroactive. The government changed the law based on a tax case and made a retroactive tax increase last year, going back 20 years, on financial institutions. The digital sales tax is also planned to be retroactive.

Is it because the government has already booked revenue for this tax year? Is that why it's retroactive?

[Lindsay Gwyer]

I'll speak about the EIFEL amendments specifically. It was first announced in budget 2021. The detailed legislation was first published at the beginning of 2022.

It is common for changes, especially tightening changes, to be announced and then made prospective from when they are announced. It would be less common to have changes that are retroactive relative to when they are actually first announced.

The EIFEL legislation has been released for consultation three times. It is very complex. The department did consult really extensively with stakeholders.

The initial date when it was supposed to come into force was earlier. I believe it was the beginning of 2023, and then it was pushed back to October. That really just reflects that ongoing consultation and the changes that were made to try to make sure that the rules work properly over the course from spring 2021 up until now, basically.

[Adam Chambers, Conservative, Simcoe North, ON]

That's a very acceptable answer.

Has the government booked revenue in its fiscal framework for these rules?

[Lindsay Gwyer]

Yes, the revenue has been booked for the rules. I would have to find.... It would be what was in the budget.

[Adam Chambers, Conservative, Simcoe North, ON]

That's okay. I don't need to know the amount.

The government has pre-booked the revenue, so any changes to these rules, such as the amendment we just did, would arguably affect the revenue that's been booked. Isn't that right?

[Lindsay Gwyer]

Yes. If there was an amendment that would effectively make the rules narrower, it would have costing implications, and, yes, that would require a change to the revenues that have been booked.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

The amendment that was just dispensed with would have affected the government's revenues, which is, I'm sure, not the reason the government members voted the amendment down. I'm happy to leave the amendment as it is if we can get to a vote pretty quickly.

You can move on to the next one, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Okay. I do see MP Ste-Marie's hand up.

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

Thank you, Mr. Chair.

I'd like two clarifications from the officials.

Firstly, it seems to me that prior to this Parliament, it was fairly common practice to pass a bill whose effects were retroactive, but whose intention had been announced previously. Can someone assure me that my understanding is correct?

Secondly, if we vote in favour of the amendment to replace “2023” with “2024” without having the precise figures, what effect might this have on the purpose of the bill? Could you explain this to us?

[Lindsay Gwyer]

I will respond to that. To ensure that my answer is clear, I'll respond in English.

With regard to the first question, yes, it is common to announce changes that are tightening, for them to apply on a perspective basis and for that to be before the legislation is ultimately introduced into Parliament and receives royal assent.

With regard to the second question, about the effect of the amendment, there are amendments, as I said before, on the EIFEL rules throughout the bill. The main rule that would implement the main EIFEL rules is in clause 7 of the bill. That has a coming-into-force date of October 1, 2023. This clause, clause 15, deals with a consequential amendment relating to the debt forgiveness rules, which are a different set of rules.

Basically, this amendment relates to ensuring that a debt that should be subject to the debt forgiveness rules is, in fact, subject to the debt forgiveness rules. Under the debt forgiveness rules, you look at whether interest is deductible on the debt. If interest is not deductible because of the EIFEL rules, you still apply the debt forgiveness rules to this debt, so this is really just a consequential amendment ensuring that a different set of rules works properly. If the date for that was changed to October 1, 2024, that could create situations in which the debt forgiveness rules don't work properly in that interim period from October 1, 2023 to October 1, 2024.

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

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

Thank you, Ms. Gwyer.

MP Lawrence.

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

Thank you.

I have just a couple of quick comments, and then hopefully we can move to a vote.

One is that I don't think I'd be doing my job if I didn't point out the fact that the retroactivity is completely at odds with the recent capital gains announcement, which is actually prospective. Where the government will likely receive additional revenue, they give taxpayers time. However, when the reverse is true, they don't do that.

The challenging part about retroactive taxation—this is not me talking about this; it's law professors and tax professors across the world—is that people need certainty with respect to legislation, particularly underneath the rule of law.

The way our system and most western democracies work is that what is written in the tax code, in our law books or what's codified is what people can rely on. It's like going into a hockey game and saying that these are the rules, but then after the game is over, we change the rules and say that, actually, the other team won.

This is particularly troublesome where you reverse course based on a court case that has gone the wrong way. Basically, a judge has said that the taxpayer is correct and their interpretation is correct. Then the government says that it's overruling that. It's a conflict of powers, because it's the judiciary's responsibility to interpret the law and our job to write the law.

What we're saying is that they don't actually get to interpret the law. We get to write it, and if it's interpreted in a way we don't like, we're going to take our ball and go home. I don't want to overstate this, but it undermines the entire democratic system if we just go back 20 years, as in the case that my colleague referenced, and say that, actually, those weren't the rules.

This is really causing tremendous uncertainty in capital markets in a time when Canada's productivity is near the bottom because we are having extreme difficulty attracting capital here in Canada. If you have any sort of care about prosperity and the standard of living of the most vulnerable in our society, stop this.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

Is there any discussion on the amendment?

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

We'd like a recorded vote.

(Amendment negatived: nays 7; yeas 4)

(Clause 15 agreed to: yeas 7; nays 3)

(On clause 16)

[The Chair, Liberal, Peter Fonseca]

Members, we have clauses 16 to 27. I don't believe we have any amendments on those, so do we have unanimous consent to group them?

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

We'll go clause by clause on this one. We'll have discussions going forward about how we organize things.

[The Chair, Liberal, Peter Fonseca]

Sure. Okay.

(Clause 16 agreed to: yeas 7; nays 4)

(Clause 17 agreed to: yeas 7; nays 4)

(Clauses 18 and 19 agreed to on division)

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

Clauses 20 to 24 are all about the EIFEL measures, so I think we should group those together.

(Clauses 20 to 27 inclusive agreed to on division)

(On clause 28)

[The Chair, Liberal, Peter Fonseca]

We're on clause 28 and G-1.

MP Baker will move this. Can you speak to it?

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Yes.

Mr. Chair, I've provided it to the clerk, and I believe it's been circulated to all members. Again, I just want to clarify that there's a revised version of G-1.

I'll just read it into the record. I move that Bill C-59, in clause 28, be amended by adding after line 23 on page 133, under “Insurance corporations—exemption”, the following:

(2.03) Subsection (2.01) does not apply to a dividend received by an insurance corporation in a taxation year that is

(a) either

(i) received on a share (other than a share described in subparagraph (2.02)(a)(i)) held by the corporation in connection with an insurance contract entered into, issued or acquired in the ordinary course of an insurance business of the corporation, or

(ii) deemed to be received by the corporation as a result of a designation by a mutual fund trust under subsection 104(19) in respect of a unit of the trust that is held by the corporation in connection with an insurance contract entered into, issued or acquired in the ordinary course of an insurance business of the corporation; and

(b) identified in the corporation’s return of income under this Part for the year.

That's the revised motion, Chair.

If I may, I will just add a few brief comments.

The purpose of the dividend received deduction changes in this part is to ensure that financial institutions pay their fair share. This amendment clarifies that Canadians with certain types of life insurance policies that offer variable returns, who are not the target of this change, are not affected by it.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Baker.

I see some hands up. I see MP Ste-Marie and then MP Chambers.

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

Thank you, Chair.

Unless I'm mistaken, we only received the amendment in English. So I want to make sure that it's not just the English version of the bill that would be amended, but that the French version would be as well, even though we weren't provided with a French version in writing.

I know that Mr. Baker is a francophile and always fights for the defence and promotion of both official languages, particularly French, whether in the House or anywhere else, but I am saddened by the fact that we have an amendment here—

[The Chair, Liberal, Peter Fonseca]

I'm just going to interject.

I apologize, MP Ste-Marie. We have the French version, and we will all receive it right now.