Finance Committee on May 7th, 2024

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting 142 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2), the committee is meeting to discuss Bill C-69, an act to implement certain provisions of the budget tabled in Parliament on April 16, 2024.

Today's meeting is taking place in a hybrid format, pursuant to Standing Order 15.1.

Before we begin, I remind all members and other meeting participants in the room of the following important preventive measures.

To prevent disruptive and potentially harmful audio feedback incidents that can cause injuries, all in-person participants are reminded to keep their earpieces away from all microphones at all times.

As indicated in the communiqué from the Speaker to all members on Monday, April 29, the following measures have been taken to help prevent audio feedback incidents.

All earpieces have been replaced by a model that greatly reduces the probability of audio feedback. The new earpieces are black in colour, whereas the former earpieces were grey. Please use only the approved black earpieces. By default, all unused earpieces will be unplugged at the start of a meeting. When you are not using your earpiece, please place it face down in the middle of the sticker for this purpose, which you will find on the table as indicated.

Please consult the cards on the table for guidelines to prevent audio feedback incidents. The room layout has been adjusted to increase the distance between microphones to reduce the chance of feedback from an ambient earpiece. These measures are in place so that we can conduct our business without interruption and protect the health and safety of all participants, including the interpreters.

Thank you all for your co-operation.

I will make few comments for the benefit of the members and witnesses.

Please wait until I recognize you by name before speaking. For members in the room, please raise your hand. For members on Zoom, if you wish to speak please use the “raise hand” function. The clerk and I will manage the speaking order as best we can, and we appreciate your understanding in this regard.

I will remind everyone that all comments should be addressed through the chair.

With us today are officials from the Department of Finance as well as officials from the CRA.

We have a number of officials who will be providing opening remarks. We start with Lindsay Gwyer, who will be providing an opening statement, and then we'll move through a number of other officials. Then, when we get to members' questions, members will all have an opportunity to ask questions to whomever they like, and if someone is in the background, they'll make their way to the table.

Also, we have our clerk, Alexandre Roger, and Ariane Calvert is also joining Alexandre as we go through Bill C-69 here at the committee, so we have the resources and all the help we require.

With that, I will ask Ms. Gwyer to start our opening statements.

[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'll be speaking about part 1 of the bill.

Part 1 contains the income tax measures. There are 15 measures in part 1 of the bill, in addition to a number of technical amendments. Given the number of measures, I won't discuss them all. I'll just touch on some of the key measures. They're all summarized on the second page of the bill.

First, part 1 includes a measure to restrict deductions in respect of short-term rentals that are not compliant with applicable laws in the province or municipality in which the short-term rental is located. Part 1 also includes changes to the home buyers' plan, increasing the withdrawal limit from $35,000 to $60,000 and deferring by three years the start of the period during which individuals must repay their home buyers' plan withdrawals.

It also includes changes to certain existing tax credits. In particular, it doubles the volunteer firefighter and search and rescue tax credits, enhances the Canadian journalism labour tax credit and extends the mineral exploration tax credit by one year.

Part 1 would also implement the new Canada carbon rebate for small businesses. This measure would return a portion of federal fuel charge proceeds via a refundable tax credit directly to qualifying Canadian-controlled private corporations that have employees in provinces where the fuel charge applies.

Part 1 would also implement two new refundable investment tax credits. First, it would implement the clean hydrogen investment tax credit. The credit rate for hydrogen production would range from 15% to 40% of eligible project costs, with the cleanest hydrogen receiving the highest level of support. Ammonia production equipment that meets certain conditions would receive a 15% credit. To obtain these rates, projects would need to meet the labour requirements in Bill C‑59. The clean hydrogen credit would be available for equipment that is acquired after March 28, 2023, and would no longer be available after 2034.

The second investment tax credit is for clean technology manufacturing. It is a 30% credit that would be available for property that is acquired on or after January 1, 2024, and would no longer be available after 2034.

Part 1 would also implement significant changes to the existing alternative minimum tax. Key changes would include an increase in the rate from 15% to 20.5%, an increase in the exemption amount, a requirement to fully include most capital gains in income, and restrictions on the available tax credits and deductions.

Finally, contingent on Bill C-59 receiving royal assent, part 1 would implement a $10-million capital gains exemption available for qualifying shares of employee ownership trusts.

Those are some of the measures in part 1.

My colleagues and I would be happy to explain those or any other measures in part 1 in more detail.

[Peter Repetto, Senior Director, International Tax, Department of Finance]

Hello. I'm Peter Repetto, a senior director in the tax legislation division at the Department of Finance Canada, and I will be speaking about part 2 of the bill.

Part 2 is a proposed new act that would implement the global minimum tax, known as “pillar two”, in Canada.

By way of background, Canada is one of 139 members of the Organization for Economic Co-operation and Development's G20 inclusive framework on base erosion and profit shifting that joined a two-pillar plan for international tax reform in 2021. Pillar two of that plan is a framework for a global minimum tax regime.

The pillar two rules are designed to ensure that the profits of large multinational businesses, which are those with annual revenues of at least 750 million euros, are subject to an effective tax rate of at least 15% in each jurisdiction in which they operate. This is intended to reduce the incentive for multinational businesses to shift their profits into low-tax jurisdictions and to set a floor on tax competition among countries.

The government originally announced its intention to implement pillar two in budget 2022, and then, in budget 2023, set out the proposed implementation time frame, starting in 2024.

As noted, the new global minimum tax act in part 2 of the bill would implement pillar two in Canada. More specifically, it contains legislation that would implement the primary pillar two rule, known as the income inclusion rule, or IIR, with effect for 2024. Generally, under that rule, Canada would impose a top-up tax on a Canadian-headquartered multinational enterprise when its profits in a foreign country have an effective tax rate below the 15% minimum rate. This tax would bring the effective tax rate on those profits up to the 15% rate.

The legislation would also implement a domestic minimum top-up tax in Canada. It would impose a top-up tax on a multinational enterprise when its Canadian profits have an effective tax rate below 15%, and this would also be effective in 2024.

Thank you.

[Gervais Coulombe, Acting Director General, Sales Tax Division, Department of Finance]

Good afternoon, my name is Gervais Coulombe and I am acting director general of the Sales Tax Division at the Department of Finance.

Part 3 of Bill C‑69 contains various budget measures amending the Excise Tax Act, the Excise Act, the Excise Act, 2001, the Underused Housing Tax Act, part 1 of the Greenhouse Gas Pollution Pricing Act and other related texts.

The first measure under Division 1 would end the temporary GST/HST relief of certain face masks or respirators and certain face shields, which had been introduced in 2020 to support public health during the COVID-19 pandemic.

Division 2 of part 3 would implement, among other things, excise duty rate adjustments for tobacco, vaping and alcohol products. Specifically, it would implement the budget 2024 proposal to increase the tobacco excise duty rate by $4 per carton of 200 cigarettes, effective April 17, 2024. It would also implement the budget 2024 proposal to increase vaping product excise duty rates by 12%.

Finally, as announced on March 9, 2024, it would extend by two years the 2% cap on the inflation adjustment on beer, spirits and wine excise duties, and would also reduce by half, for two years, the excise duty rate for the first 15,000 hectolitres of beer brewed in Canada.

Division 3 of part 3 implements changes to the Underused Housing Tax, in response to suggestions from Canadians. The changes would facilitate compliance while ensuring that the tax continues to apply as intended. Among other things, the amendments would eliminate filing requirements for certain owners, reduce minimum penalties for failing to file a return and introduce a new exemption for residential properties held as a place of residence or lodging for employees.

Division 4 of part 3 implements a measure that would broaden the provisions allowing the disclosure of confidential information in respect of a provincial Crown or its agent that is non-compliant or has stated that it will not comply with the federal fuel charge under part 1 of the Greenhouse Gas Pollution Pricing Act.

Mr. Chair, this completes our opening remarks for parts 1, 2 and 3 of Bill C‑69.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Coulombe.

Thank you, Mr. Repetto and Ms. Gwyer, for your opening statements.

Now we're going to head to the members' questions. In the first round, each party will have up to six minutes to ask questions.

We are starting with MP Chambers for the first six minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thanks very much, Mr. Chair.

It's good to see everybody again.

I'll start with a couple of general questions, and then we'll get to some specifics.

Does anyone know how many full-time equivalents are going to be added, based on the measures in these parts?

I don't think there's anyone here from the economic and fiscal branch, is there?

[Lindsay Gwyer]

Yes, that's right. We're just from the tax policy branch, so I don't think we have those numbers handy. We could get them for you.

[Adam Chambers, Conservative, Simcoe North, ON]

That's fair. That's fine.

Since you are here, on the home buyers' plan, I was curious....

This was very helpful, by the way, for the questions and answers. Thank you to whoever put that together. It's very helpful.

Thirteen thousand households are expected to benefit from the proposed increase over the next five years. I'm curious—this is in part 1(m)—about what we know about the 13,000 households. Can you give me an idea, either in 30 seconds or in a written follow-up later, of who these 13,000 households are and, for example, their average income and how many assets they have in their RRSP account?

[Pierre Leblanc, Director General, Personal Income Tax Division, Tax Policy Branch, Department of Finance]

It's tough to describe exactly what this group will look like, because we have a sense now of who, let's say, in 2021 or 2022, has taken the maximum amount out of the home buyers' plan—the current limit of $35,000—but we can expect that group to change pretty significantly over the next couple of years. That's because of the introduction of the tax-free first home savings account.

In other words, given that the account started last year and so far has been quite a popular measure for prospective first-time home buyers, basically the number of people who would otherwise be constrained by the $35,000 limit will go down.

Our best estimate is 13,000. Exactly how the composition of that group changes once you bring in the first home savings account is a complicating factor. We can see what we can provide, but I just provide that note of caution.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much. That would be very helpful. I'm very interested in the expectations on the average median income of these individuals, and also we want to make sure who's getting these tax preferences, I think, as I'm sure my NDP colleague is always interested to see who is benefiting from changes to the tax code.

I think there are some officials from CRA here. I'm very interested in the measure with respect to a grace period for child care benefits for six months after an unfortunate death of a child. There is a fairly specific number of $15 million for the costing of this measure. I'm curious about how that number was arrived at.

Is the finance department relying on CRA data in order to provide a costing estimate of $15 million?

[The Chair, Liberal, Peter Fonseca]

Go ahead, Mr. Bowen.

[Christopher Bowen, Director General, Benefit Programs Directorate, Assessment, Benefit and Service Branch, Canada Revenue Agency]

Thank you, Mr. Chair, and thank you to the member for the question.

I will actually turn to Department of Finance colleagues to provide some clarity on where the $15 million has come from, so maybe I will cede it back to Pierre.

[Adam Chambers, Conservative, Simcoe North, ON]

Specifically, I want to know whether you received data from the CRA in order to come up with the $15-million estimate.

[Pierre Leblanc]

The answer is yes. We receive, as part of our ongoing responsibility of advising on policy on the Canada child benefit, detailed administrative data on who receives the Canada child benefit. One of the pieces of information we receive as part of that is the number of eligible children who have died during the year. That's where we get the number of about 1,500 children per year. It's basically by using an average Canada child benefit amount that we arrive at the $15 million over the five-year period.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much for that.

For the carbon rebate for businesses, how many people are going to be hired in CRA to carry out this work?

I think I'll have a little bit of....

[The Chair, Liberal, Peter Fonseca]

I'll build in time for the transitions that are happening, for sure.

[Adam Chambers, Conservative, Simcoe North, ON]

I appreciate that, Mr. Chair. Thanks for your indulgence.

[Adnan Khan, Director General, Business Returns Directorate; Assessment, Benefit and Service Branch, Canada Revenue Agency]

The funding required for the implementation and administration of the Canada carbon rebate will be part of a Treasury Board proposal that we'll be making in the coming month. Following the approval of the Treasury Board submission, current year funding will be sought through the upcoming supplementary estimates (B) and (C), so it's still too early, Mr. Chair, to estimate exactly how many full-time equivalents or resources we'll require to administer the Canada carbon rebate.

[Adam Chambers, Conservative, Simcoe North, ON]

I mean, $180 million is a fairly significant one-time number.

This is the sixth budget bill in this Parliament, and every time we get a budget bill, the question is always asked, “Well, how many people we are going to hire?”

When we do the projections, we have operating and program costs. I provided the clerk with a notice of motion. I don't intend to move it now because I'm in the spirit of collaboration, and it's not fair to my NDP colleague.

However, the deputy minister of finance and the Treasury Board deputy minister need to show up to this committee to talk about the people plan, because 25% of the government's savings targets are based on shrinking the public service, and yet every single year, when the departmental spending plans come out, they and show that, “Oops, we didn't shrink it. We grew it.” It's unclear to me who's actually looking at the people plan in government, so that's a motion that's put on notice, Mr. Chair.

I yield the floor back, but I look forward to collaborating with my colleagues on that issue.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers. I do understand from the clerk that members should have received it in their inboxes, so we will look for that.

Now we will go to MP Weiler for the next six minutes.

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

Thank you, Mr. Chair.

Thank you to all our witnesses for being here today to answer questions on Bill C-69.

I will start in part 1 with some of the measures that Ms. Gwyer mentioned in her introduction.

I hope that Ms. Gwyer or other officials can explain to the committee how the new investment tax credits, particularly on hydrogen and clean-tech manufacturing, will interact with the other investment tax credits that are being implemented through the fall economic statement.

[Maximilian Baylor, Director General, Business Income Tax Division, Department of Finance]

I'll take that one.

Basically, as you indicated, this bill implements two new investment tax credits, the clean hydrogen investment tax credit and the clean technology manufacturing tax credit. Those are part of a suite of six investment tax credits that the government has announced. Those six investment tax credits represent the cornerstone of the government's plan for a clean economy. It has two core objectives.

One is the environmental objective, of course. The second one is very much a competitiveness objective and a response to what we saw in the U.S. with the Inflation Reduction Act. In that regard, these two represent the next two credits in the government plan. That's sort of the big picture.

If you're asking the technical question as to whether they interact and can be claimed together, the answer is that in general, no. You can't stack them. They're complements. Obviously, if a project has two separate pieces of equipment, one can take one credit if it's eligible, and the other can take the other. That's certainly a possibility, but one doesn't stack on top of the other. They complement each other. They cover a range of clean technologies that the government is seeking to encourage to implement its plan.

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

Thank you.

Like Mr. Chambers, I do appreciate some of the information that was sent in advance about these different measures.

One of them, I think, is very important in looking at the integrity of these investment tax credits. It mentions the clean hydrogen tax credits, which will be done through carbon capture from natural gas, which would be turned into a form of clean hydrogen.

It mentions that the Environment and Climate Change Canada fuel life cycle assessment model is going to be used to assess the life cycle carbon intensity of a hydrogen project, based on its design.

The history in Canada, and also around the world, has shown that carbon capture has vastly underperformed expectations, with some facilities only capturing half of what was expected.

I was hoping that you could explain to this committee how the investment tax credits related to carbon capture—both this one and the one we discussed with the fall economic statement—will ensure integrity for carbon capture in practice, rather than just in theory, before it's built, given that it's an investment tax credit and is provided up front.

[Maximilian Baylor]

In terms of the clean hydrogen investment tax credit, I think you'll notice that the credit is based on the carbon intensity of the hydrogen produced. Essentially, that looks at the amount of emissions from the beginning of the process, or what is called “cradle to gate”. It's essentially the point where the hydrogen leaves the factory. It's the amount of emissions through that entire production process that establishes the credit rate. Of course, the cleaner the hydrogen—i.e., the lower the emissions—the higher the credit rate will be.

To your question, in order to reach a level of carbon intensity that allows you to access the credit or to access it at a higher rate, the carbon capture technology has to be effective. It has to be capturing a very high proportion of the carbon and storing it through approved storage mechanisms.

Essentially, that is what allows you to ensure that the carbon capture technology is working properly. It's stored either underground or in concrete, as in the case for the CCUS tax credit. If that's not effective, then you essentially won't achieve the level of carbon capture intensity that is needed to access the credit.

I think that answers the question.

Was there another part?

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

Just to follow up on that quickly, what happens if it doesn't perform as well as it's expected to? Is there any way of recapturing this tax credit?