Finance Committee on Feb. 14th, 2022

[Pierre Mercille]

Perhaps I can answer it, but that kind of decision is within the government's authority. The question as to the rate at which a tax should be applied should be put to the House of Commons rather than in a committee.

I'll answer your first question somewhat indirectly. I've been informed that there are two cases in which property is subject to federal tax. There's the tax on capital gains. I know that personal residences are exempted from it, but it's nevertheless a tax on property. Then there's the goods and services tax, the GST, and the harmonized sales tax, the HST, which apply to new properties.

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

Thank you very much for that answer.

Yes, sales taxes do apply to new properties. In my mind, though, I put them in another category, indirect taxation. I put capital gains tax in another category as well.

Would it have been theoretically possible to impose this tax as a capital gains tax rather than a property tax?

[Pierre Mercille]

Capital gains are really not my field. They're an income tax matter. So I don't have the necessary expertise to answer that question.

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

All right.

I'll get back to the question about setting the tax at 1% later on. I do understand that it's a political decision.

Does the department conduct elasticity analyses, if I may call them that, of the reaction of foreign buyers?

Based on your analyses, does the percentage have a major impact on housing purchase decisions made by foreigners?

Can you characterize how the behaviour of foreign buyers varies with the percentage of tax?

[Pierre Mercille]

I'll let one of my colleagues answer your question, which concerns a more economic aspect.

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

Thank you.

[Phil King]

I can take that question.

As I think I said earlier, the principal analysis we did was looking at the revenue impacts, because this is a tax. In terms of the broader economic impacts of this or similar vacancy type taxes, there are very few studies that the department is aware of, and this reflects the fact that we don't have too many of these types of taxes in Canada—or globally, for that matter—and that there's a real dearth of information on vacancy rates for the housing market writ large.

We have data on vacancy rates for rental accommodation, but not for all housing, so that makes it very difficult to do any sort of empirical work. Having said that, there are a couple of studies we're aware of or situations. One was a study that was done in France a couple of years ago about a tax they imposed in the early 1990s. The parameters are different obviously, but for a tax rate of between 10% and 15% on the potential rental income of a vacant property, they noticed there was about a 13% decline in vacancy rates in the municipalities that were taxed.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. King, we are well over time.

Thank you, Monsieur Ste-Marie.

We are moving to the NDP and MP Blaikie for six minutes.

Welcome.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

I have a question about the underused housing tax. My understanding is that the government's intention is to create more exemptions than exist in the legislation by regulation after the bill passes. Can you confirm that that's the government intention?

[Pierre Mercille]

In the fall economic statement, there was an announcement following consultations last summer that there would be two additional exemptions. One was ready for inclusion based on the timing of the bill, the other is proposed to be done by regulation as soon as possible.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

I think there are some reasonable, principled objections to the idea. If the government knows that it's intending to create a particular kind exemption, I'm wondering if you can help the committee understand why that wasn't ready to go.

[Pierre Mercille]

Maybe I'll let my colleague, Rob Ives, answer that one. I think it was a function of how to describe those areas and whether the way they are defined by Statistics Canada may change in the short term or not.

[Robert Ives]

Mr. Chair, there was a little bit of work left to be done on that. The department is currently undertaking that work, and once that work is ready, we'll be able to proceed.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

The issue is that there's a pretty sweeping power under regulation for the government, and if they're able to create this exemption presumably the power allows them to create other exemptions; it's not a limited exemption-making power. If as legislators we're approving the creation of a new tax that's supposed to have a policy objective, but government can create exemptions whenever it wants....

There's certainly an argument for some regulatory power to be able to tweak things, because I appreciate that something like this can have unintended consequences and we may not get everything right the first time. But here we're in a situation where the government has a very specific kind of exemption they want to create for this tax, and they're essentially not seeking to have that in the legislation or to have legislators approve that exemption, They're saying we're going to have this sweeping power that normally we might think is for tweaks and modifications in order to ensure that the new tax coheres with the policy objective, but by the way, we're already telling you we're going to use this to create a major new exemption. It raises the question of what other kinds of major new exemptions might be created for a tax that already has a number of what you can call loopholes—I appreciate that that's a more pejorative term—but certainly a lot of ways for people to avoid paying this tax.

Are there any other exemptions that are under discussion at this time for this tax? How can I have confidence as a legislator that government won't use this same regulatory power to create other significant exemptions to the tax after it's passed through Parliament?

[Pierre Mercille]

I can talk a little bit about regulations. It's not uncommon for tax statutes to have regulatory powers, often, it's because it's an area of more complexity. It's not a precedent for a tax statute to have regulatory powers, it's actually fairly common. That's just on the aspect—

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

I hear that.

In this case, what's surprising to me is that it's an exemption that would allow for people—who are not Canadian citizens or residents in Canada—to have a home and to leave a property vacant for 11 months of the year, or even more. It's 48 weeks of the year. It really seems to undercut the purpose of the tax.

In this case, what's surprising to me is that this exemption seems so far removed from the point of the tax, which is presumably to charge non-citizens and non-residents for having property that's unoccupied for most of the year. Here, the government is saying it's already contemplating an exemption that would allow people who are leaving properties unoccupied for 11 months of the year or more to not have to pay the tax.

That goes beyond a regulatory power to fix interpretive differences. It's really a regulatory power to undermine the policy objective of the tax.

[The Chair, Liberal, Peter Fonseca]

Could one of the officials answer?

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

I'm wondering how it is that allowing non-citizens and non-residents to have a vacant property for 11 months of the year doesn't undermine the stated purpose of the new tax—

[Pierre Mercille]

Well, I—

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

—which is to discourage leaving properties uninhabited for long periods of time.

Monsieur Mercille, I'm sorry. I cut you off. I'm happy to have you jump in.

[Pierre Mercille]

After your first part, I was not sure that there was a question. I thought that was more of a statement. That's why there was a silence.

I'm not best placed to answer this question about whether it's undermining the rest of it. I'll note that, yes, you probably view it as a very broad exemption, but compared to other statutes that go into Parliament, where they have a lot of regulatory powers, you have most of the rules in what is being tabled in Bill C-8.

I wanted to mention that.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Could you give us an example of another—

[The Chair, Liberal, Peter Fonseca]

MP Blaikie, that is the time. We've gone over by quite a bit.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

You're welcome.

We are moving to the second round.

We have the Conservatives up first, with MP Lawrence for five minutes.