Finance Committee on Feb. 14th, 2022

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order. Welcome to meeting number 19 of the House of Commons Standing Committee on Finance. Pursuant to the House of Commons order of reference adopted on Thursday, February 10, 2022, the committee is meeting on Bill C-8, an act to implement certain provisions of the economic and fiscal update tabled in Parliament on December 14, 2021, and other measures.

Today's meeting is taking place in a hybrid format pursuant to the House order of November 25, 2021. Members are attending in person in the room and remotely using the Zoom application. The proceedings will be made available via the House of Commons website. So that you're aware, the webcast will always show the person speaking rather than the entirety of the committee.

Today’s meeting is taking place in a webinar format. Webinars are for public committee meetings and are available only to members, their staff and witnesses. Members enter immediately as active participants. All functionalities for active participants remain the same. Staff will be non-active participants and will therefore only view the meeting in gallery view.

I take this opportunity to remind all participants to this meeting that screenshots or taking photos of your screen is not permitted.

Given the ongoing pandemic situation and in light of the recommendations from health authorities, as well as the directive of the Board of Internal Economy on October 19, 2021, to remain healthy and safe, all those attending the meeting in person are to maintain two-metre physical distancing and must wear a non-medical mask when circulating in the room. It is highly recommended that the mask be worn at all times, including when seated. Everyone must maintain proper hand hygiene by using the hand sanitizer provided at the room entrance. As the chair, I will be enforcing these measures for the duration of the meeting and I thank members in advance for their co-operation.

To ensure an orderly meeting, I will outline a few rules to follow.

Members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. You have the choice, at the bottom of your screen, of floor, English or French. If interpretation is lost, please inform me immediately and we will ensure interpretation is properly restored before resuming the proceedings. The “raise hand” feature at the bottom of the screen can be used at any time if you wish to speak or to alert the chair.

For members participating in person, proceed as you usually would when the whole committee is meeting in person in the committee room. Keep in mind the Board of Internal Economy's guidelines for mask use and health protocols.

Before speaking, please wait until I recognize you by name. If you're on the video conference, please click on the microphone icon to unmute yourself. For those in the room, your microphone will be controlled as normal by the proceedings and verification officer. When speaking, please speak slowly and clearly. When you're not speaking, your mike should be on mute.

As a reminder, all comments by members and witnesses should be addressed through the chair.

With regard to a speaking list, the committee clerk and I will do our best to maintain a consolidated order of speaking for all members whether they are participating virtually or in person.

The committee agreed that during these hearings the chair enforce the rule that the response by a witness to a question take no longer than the time taken to ask the question. That said, I request that members and witnesses treat each other with respect and decorum. If you think the witness has gone beyond the time, it is the member's prerogative to interrupt or to ask the next question and to be mindful of other members' time allocation during the meeting.

I also request that members not go much over their allotted question time. Though we will not interrupt during a member's allotted time, I'd like to keep you informed that the clerk has two clocks to time our members and witnesses.

I now welcome our witnesses. For the first panel, from 10 until noon, we have our top officials from the Department of Employment and Social Development, Department of Finance, Department of Health, and Public Health Agency of Canada. Owing to the limited time for answers and questions, I will not be able to go through all their names. I believe we have 16 officials with us here today. The officials will be splitting up their time. They will have 20 minutes in total to make opening remarks.

I will ask Max Baylor, senior director, saving and investment section, business income tax division, tax policy branch of the Department of Finance, to start for us.

Mr. Baylor, the floor is yours.

[Maximilian Baylor, Senior Director, Saving and Investment Section, Business Income Tax Division, Tax Policy Branch, Department of Finance]

Thank you, Mr. Chair.

I'll start with two measures in part 1: the small business air quality improvement tax credit and the measure to return fuel charge proceeds to farmers.

In regard to the small business air quality improvement tax credit, the measure would introduce a temporary refundable 25% tax credit for businesses on expenses incurred to undertake air quality improvements that increase outdoor air intake or air cleaning in commercial properties. Eligible businesses would receive the tax credit on eligible expenses of up to $10,000 per location, with a maximum expense of $50,000 across all locations.

The tax credit would be available in respect of eligible expenses incurred between September 1, 2021, and December 31, 2022. Eligible businesses would include Canadian-controlled private corporations with taxable capital employed in Canada of up to $15 million and unincorporated sole proprietors.

Eligible expenses would effectively include two categories.

The first is the purchase, installation, conversion or upgrade of mechanical heating, ventilation and air conditioning systems, or HVAC systems, that satisfy certain conditions in respect of minimum efficiency reporting value, or MERV, or satisfy certain conditions in respect of outdoor air supply rates. The second category of eligible expenses is the purchase of devices designed to filter air using high-efficiency particulate air filters, also known as HEPA filters.

For the second measure—returning fuel charge proceeds to farmers—the measure delivers on the commitment in budget 2021 and proposes to return fuel charge proceeds directly to farming businesses in the backstop jurisdictions of Ontario, Manitoba, Saskatchewan and Alberta via refundable tax credits, starting for the 2021-22 fuel charge year. Eligible farming businesses would include corporations, sole proprietors and trusts, including where they carry on business through a partnership.

To qualify, an entity must incur total farming expenses of $25,000 or more. Refundable tax credit amounts would be determined according to the eligible farming expenses of the business, multiplied by a payment rate specified by the Minister of Finance for each applicable fuel charge year. Those two payment rates were specified in the economic and fiscal updates for the first two years. Eligible farming expenses generally include those expenses deducted when calculating farming income.

That concludes the overview for the first two measures.

I'll hand it over to my colleague, Pierre Leblanc, to continue with part 1.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Baylor.

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

There are two more proposals in this part of Bill C‑8. There's the enhancement of the refundable tax credit for school supplies used by eligible educators. This measure would amend the Income Tax Act to increase the refundable credit to 25% and eliminate the requirement that the school supplies be used in a school or child care facility.

[The Chair, Liberal, Peter Fonseca]

I'm sorry to interrupt. We have a little challenge with interpretation.

Clerk, is it because of the speed or is it the Internet?

[The Clerk of the Committee, Mr. Alexandre Roger]

I think his microphone is not selected.

Would it be possible to just remove the headset connection and plug it back in? It should reset the connection. That should work.

[Pierre Leblanc]

Chair, I apologize for that.

Why don't I just switch to English? Is this okay?

[The Clerk]

Is that better for the interpreters?

Yes. I have a thumbs-up.

[The Chair, Liberal, Peter Fonseca]

Okay, Mr. Leblanc.

[Pierre Leblanc]

With the enhancement of the school supply tax credit, there is the increase in the rate, there's removing the requirement that the school supplies be used in a school or in a child care facility and the third component is adding several electronic devices to the list of eligible durable goods. This measure would take effect starting in the 2021 tax year.

The fourth and final measure in this part of the bill concerns the northern residents deduction. It expands the travel component of the deduction to those who aren't receiving employer-provided travel benefits. This would be up to $1,200 in eligible travel expenses for the northern zone, and half of that for the intermediate zone. This proposed change would also apply to the 2021 subsequent tax years.

Mr. Chair, that's all for part 1.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Mr. Clerk, we are moving to—

[Pierre Mercille, Director General, Sales Tax Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance]

Good morning. My name is Pierre Mercille. I'm the director general responsible for the legislation in the sales tax division of the Department of Finance.

Part 2 of the bill would enact new legislation, the Underused Housing Tax Act, which would impose a new tax on owners of residential property in Canada, in certain circumstances, starting in the 2022 calendar year.

Beginning in 2023, certain owners of residential properties located in Canada would be required to file with the Canada Revenue Agency a return for each residential property they own for the previous calendar year. In that return, owners might, in certain circumstances, be entitled to claim an exemption from tax on their residential property, which might be, for example, a property under a long-term lease or occupied by its owner as the owner's primary place of residence.

Owners subject to the tax would be required to calculate, report and pay the amount of tax due, which would be equal to 1% of the value of the residential property, which would be prorated on the basis of the owner's interest in the property. Canadian citizens, permanent residents of Canada and certain Canadian entities would not be subject to the tax or required to file an annual return.

This measure was originally announced in the fall economic statement of 2020. It was confirmed in budget 2021, and there was also a public consultation last summer.

Thank you. This is my short description of part 2 of the bill.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Mr. Clerk, who is up next?

[The Clerk]

I don't have their list, but, if there is no one left, I would assume they are done with the opening remarks and we can start questions.

[The Chair, Liberal, Peter Fonseca]

Okay. I thought I had allocated 20 minutes. They've only taken up a little over seven and a half minutes. If those are the opening remarks, thank you very much to the officials. That will leave more time, of course, for our members.

In our first round, we have the Conservatives up first for six minutes.

Mr. McLean is up first.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you, Mr. Chair.

I am going to focus my questions on the housing tax that's being proposed here in these measures.

I cite in the House of Commons the example in British Columbia, where there is a municipal tax already on foreign transactions in the housing market of up to 2%, depending on the buyer, plus a provincial tax of up to 3%, for a total of up to 5%. In addition, there is a 20% transfer tax on foreign buyers, and yet 7.7% of activity in the Vancouver real estate market is still being consumed by foreign buyers of real estate in Vancouver and the Lower Mainland.

These small taxes aren't having much of an effect on buying, unless we're looking ex post facto at this. How do you suppose an extra 1% jurisdictional overreach is going to solve the housing problem in Canada?

[Phil King, Director General, Sales Tax Division, Tax Policy Branch, Department of Finance]

Mr. Chair, I can take that question, thank you.

I will just point out, very simply, that this is a tax the purpose of which is to raise revenues. It's estimated that the tax will raise $735 million in revenues over the next five years.

[Greg McLean, Conservative, Calgary Centre, AB]

I'm not sure that answers my question at all. We're talking about raising revenue here in a tax. Let me pull out the absurdity of that. This is a tax you think you're going to get from foreign buyers, yet have you really thought about how it impacts our trade agreements with other jurisdictions, such as the United States, where—I should point out—Canadians own a good deal of property?

[Phil King]

In terms of the impact on any trade or other agreements we might have, those questions would have to be addressed to the appropriate sections of Justice Canada. I couldn't answer that.

[Greg McLean, Conservative, Calgary Centre, AB]

Let's not pass the buck here. Let's look at this. This is free trade.

A lot of Canadians own property in the United States. If we're going to tax American buyers on their properties in Canada, surely they're going to reciprocate very quickly in taxing Canadians who own property in the United States. That's going to be a tax drain on Canadians.

Tell me you've thought about that, please.

[Phil King]

Again, I'd reiterate my answer. Any questions about legality, trade or any other impacts of that nature—

[Greg McLean, Conservative, Calgary Centre, AB]

I'm not talking about legality, trade or anything of that nature. I'm talking about the consideration of how much money is going to come into Canadian government accounts and how much is going to go into other jurisdictions' accounts because they're reciprocating for a measure that impacts their citizens who own property in Canada.

[Phil King]

To repeat my initial answer, it's a tax whose estimated revenue yield will be $735 million over the next five years.

[Greg McLean, Conservative, Calgary Centre, AB]

Okay, so $735 million comes into Canadian tax coffers over five years, so call it $150 million a year. You are suggesting that the $150 million won't be drained from Canadian tax pockets into other jurisdictions that are collecting taxes on Canadians, or will it be more that we're losing from Canada because of this reciprocity we're going to receive on our tax treaty?

[Phil King]

Mr. Chair, I can't speak to that.

I can only give you the estimate that we have in respect of this measure in Bill C-8; it's $735 million over the next five years.