Finance Committee on May 7th, 2024

[Maximilian Baylor]

When you go through the initial project, you have to submit your project plans based on the initial plans for the credit.

I'm just looking for the technical term here, but I'm not....

The project plans are submitted. You go through an Environment and Climate Change Canada fuel life cycle assessment. That allows you to establish the credit rate. That's verified by the government. On that basis, the credit is granted.

Then, after that, there's a five-year period when the carbon emissions are measured and then benchmarked against the actual emissions. If there's a deviation of more than 0.5, then there's effectively a recapture. That basically ensures that the actual performance matches the expected performance. If there are flaws, ultimately, in the actual performance, then there would be a recapture.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Weiler. That's your time.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Now we'll go to MP Ste-Marie, please.

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

Thank you, Mr. Chair.

I'd like to welcome all the witnesses and thank the senior officials once again for being here. I also want to join Mr. Chambers and Mr. Weiler in thanking them for the incredible quality of the document introducing Bill C‑69, which also includes a questions and answers section. That's very helpful, and we thank them for that.

My first questions will focus on part 2 of Bill C‑69. I am very pleased to finally see a budget implementation bill include the measures it contains. They will bring about significant economic changes by starting to address tax fairness and equity. I commend the government for putting that forward.

However, I'm disappointed to see that part 1(b), which deals with international shipping, seeks to exempt Canadian international shipping companies from this global minimum tax of 15%. I can come back to this question a little later, probably with the officials, to discuss this provision, which I will call “the Paul Martin and family clause”.

Let's go back to part 2, which is 300 pages long with amendments to the Income Tax Act and other acts. I'm not sure I understand all the intricacies that well.

Corporate income tax doesn't just go to the federal government because part of it goes to the provinces. Alberta and Quebec deal with corporate taxes themselves. However, in part 2, there do not seem to be any provisions for sharing the revenue resulting from this new tax between the federal government and the provinces, or even any mechanisms that would allow Quebec and Ottawa to coordinate their measures to achieve the 15% rate. Is my reading correct?

[Peter Repetto]

Thank you, Chair, and thank you to the member for those questions.

The member is correct in stating that the legislation for the new global minimum tax act in part 2 of the bill does not contain a mechanism for sharing the revenues from the pillar two global minimum tax between the federal government and provincial governments.

The government indicated in budget 2023 that it intended to share with the provinces some portion of the revenues from the pillar two international tax plan that has been led by the OECD's G20 inclusive framework and is being implemented in Canada.

We don't have any further information at this point in time as to sharing, but we anticipate that the government will be engaging with the provinces in due course on the question of the sharing of revenues from, again, the pillar two international tax reform, which consists of pillar one and the pillar two global minimum tax that is in part 2.

To be clear, pillar one is not in part 2 of this bill.

The other point that I would make in response to the member's question is that the pillar two global minimum tax does take into consideration taxes paid at both the federal and provincial levels by the large multinational enterprises that are within the scope of pillar two in determining the effective tax rate of the multinational in Canada for purposes of applying the global minimum tax.

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

Thank you very much. The answer is very complete and very clear.

The government has therefore committed to holding discussions with the provinces with a view to transferring at some point some of the revenue generated by this new tax on multinationals. However, there is no mechanism to do so in Bill C‑69.

If I understand correctly, Mr. Repetto expects the government to take steps with the provinces to reach an agreement. As long as it does not propose an allocation mechanism, Bill C‑69, as it currently stands, will see all the revenue generated by this new tax wind up in federal coffers, and the provinces will not receive any of this revenue, apart from the revenue they already receive. Is that correct?

[The Chair, Liberal, Peter Fonseca]

Go ahead, Mr. Repetto.

[Peter Repetto]

Thank you, Chair.

I'd like to begin by clarifying my previous response, because I want to make sure that there is no misunderstanding.

In budget 2023, the government indicated that it intended to share a portion of the revenues from the two-pillar international tax reform, which consists, again, of not only the pillar two global minimum tax that is in part 2 of this bill, but also pillar one. I just want to clarify that the government didn't indicate in budget 2023 a specific intention to share a portion of the pillar 2 global minimum tax revenues. It was a portion of the two pillars combined. I just want to clarify that.

In response to the member's last question, I can confirm that, once again, part 2 of the bill does not contain a mechanism for sharing the revenues from pillar two with the provinces.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

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

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Now we'll go to MP Davies, please.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chair.

Thank you to the witnesses for being here.

I'd like to start with division 3 of part 4, which authorizes the making of payments to the provinces respecting “a national program for providing food in schools”. Is there someone here who can answer that?

[Lindsay Gwyer]

We're here on parts 1 to 3.

[Don Davies, NDP, Vancouver Kingsway, BC]

All of you here are just...?

[Lindsay Gwyer]

I think there will be other people here at a later time on part 4.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay. Thank you. I'll leave it at that.

I'll turn, then, to the global minimum tax. Can you confirm how much additional revenue the global minimum tax is expected to generate in Canada?

[David Messier, Director, International Taxation Section, Business Income Tax Division, Department of Finance]

Yes. Budget 2024 presented updated estimates of the projected revenue that we expect will be raised from pillar two. Over the three-year period from 2026-27 to 2028-29, we estimate that the government will raise around $6.6 billion in revenues from pillar two.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

It's my understanding that U.S. Treasury Secretary Janet Yellen has announced that she is working to carve out an allowance for the U.S. research and development tax credit. Is Canada seeking any similar exemption, to your knowledge?

[David Messier]

To my knowledge, our legislation follows the legislation that has been developed at the OECD. We're participating in these discussions, but no agreement has been reached so far, so it's not part of the law.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Clause 16 in part 1 includes provisions to deny income tax deductions “for expenses incurred with respect to non-compliant short-term rentals”. I think you touched on that.

Do you have any estimate of the value of income tax deductions that are expected to be denied to non-compliant short-term rentals?

[Lindsay Gwyer]

We don't have that information at this time. The rules are designed to try to motivate people who are operating non-compliant short-term rentals—that's short-term rentals that are not compliant with the local laws in their province or municipality—to return those housing units to the long-term supply. It's not.... It's difficult at this point to say whether people will continue to operate those non-compliant short-term rentals—

[Don Davies, NDP, Vancouver Kingsway, BC]

It's a compliance-generating measure, not a revenue....

[Lindsay Gwyer]

Yes, that's right. It's not.... There's no specific revenue estimate.

[Don Davies, NDP, Vancouver Kingsway, BC]

Does the department have any estimate about the value of the tax credits for those that are non-compliant now?