Finance Committee on Feb. 17th, 2022

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

Thank you, Mr. Chair.

Once again, my question is for Mr. Taillon, and it pertains to the underused housing tax.

As I understand it, then, once Ottawa creeps into the property tax sphere, the risk is that it won't get out. You flagged the risk that the courts could strike down this part of the act, ruling it unconstitutional. If the purpose of the measure is to alter behaviour, it falls under provincial jurisdiction. What's more, even if the courts didn't go that far, you explained that, in all cases, Ottawa should have negotiated with the provinces. By not doing so and by acting unilaterally, Ottawa has undermined co‑operative federalism. Do I have that right?

[Patrick Taillon]

Actually, it's one or the other. Either it's a hidden tax and, in reality, a bill that deals with housing law, which means the measure's pith and substance fall under provincial jurisdiction. Or it is fundamentally a tax, which means the primary objective is to collect tax revenue, and I highly doubt that. In addition, a whole system has to be put in place in order for the federal government to administer property tax, something it has never done before.

Keep in mind that municipalities, school service centres and provinces don't exactly have an easy time when it comes to funding. For the federal government to encroach on their area of taxation—an area overseen at the local level—is inappropriate policy, especially without negotiation.

The smartest thing to do is accept that there is no magic solution for the housing situation and that each province has its own suite of strategies. For instance, Quebec has rent control measures in place that don't exist in the rest of Canada, and British Columbia uses strategies that differ from those used elsewhere. What the federal government would do, if it were wise, would be to support those strategies, rather than impose regulations that fall outside its jurisdiction.

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

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you.

We're moving to the NDP and MP Ashton for two and a half minutes.

[Niki Ashton, NDP, Churchill—Keewatinook Aski, MB]

Mr. Chair, thank you very much.

I want to go back to the earlier discussion around housing, and I appreciate the report that the PBO released earlier today around that. Of course, what we're saying is that there are some major issues with the underused housing tax and what we need to do is take immediate, concrete action to see the federal government invest in the construction of housing.

I note that, in the report, the PBO indicated the average income-earner will find it ever harder to afford a home in the future unless prices drop or wages climb.

Would you add to that as well the need for the federal government to directly invest in the construction of housing, particularly social, affordable housing in our communities?

[Yves Giroux]

I assume the question was directed at me.

It's quite clear that increasing supply is one easy—relatively speaking—way to alleviate the pressures on prices and ensure that those who are seeking to enter the market don't face a market that is very expensive and is outpricing them.

Whether it's only the federal government's jurisdiction or whether there is also something that municipalities, for example, could do through relaxing some of the requirements they impose on promoters and developers, that's an area that's up for discussion.

However, for sure, increasing supply, be it through provincial, federal or municipal action, is certainly something that would alleviate the pressure that households entering the market are facing.

[Niki Ashton, NDP, Churchill—Keewatinook Aski, MB]

Thank you.

Just quickly to the PBO, you've talked about how the government's definition of affordability is an issue as well. With the current state of inflation and the crisis that people are facing, is that going to exacerbate the issues that people are already facing with respect to the housing market?

[Yves Giroux]

When StatsCan released its report yesterday, I think, on inflation, it was clear that some components were pushing up prices: gasoline prices and food, but also the dwelling component of the consumer price index. It is clear that inflation is also present, whether you're renting or in the market to buy a house. It's not only those who are in the market to buy a house, but also those looking to rent an apartment who are facing increasing prices, and that's reflected in the consumer price index.

That means that inflation is affecting, obviously, dwelling and housing as well.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Giroux.

We are moving to the Conservatives. I have MP Chambers up for five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair.

Thank you to all our witnesses for taking some time out of your day. We certainly appreciate your helping us think through Bill C-8. I know everyone is very busy, but I hope we also have many of you back to speak with us about other issues.

Mr. Cohen, from Transparency International, thank you very much for all of your work on money laundering and for your comments on the underused housing tax.

I'm wondering if you could discuss this for a minute. We had testimony at the committee earlier this week where the government officials were stressing that this was a revenue-raising measure, and government members were stressing that it was also to do with helping with supply in the market and creating more inventory available.

My question would be this: In what you have seen and the work you have done in general on money laundering and some of the actors that we see, do you think that a 1% tax on a house will have much impact on the behaviour of some money launderers?

[James Cohen]

Thank you for the question.

Without doing an analysis of what the exact right amount is to dissuade people and going into any kind of behaviour analysis, I would say at a very basic level that you are looking at what the cost of doing business is. In this case, it's the business of crime. When you are talking about laundering millions of dollars, a 1% hit on that could be considered the cost of doing business.

This is why we talk about, as well, the need for penalties for money laundering to be highly substantive and not just seen as the cost of doing business, to properly dissuade money launderers from exploiting Canadian housing.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you. I'll take from that that it will be unlikely to dissuade money launderers.

You mentioned some challenges with the government's implementation of understanding the ownership, the ultimate owner or beneficial owner of housing, and what they could do under the current regime. Could you just expand on that? What would your recommendation be to fix that, and do you believe it would be easy for money launderers to get around the foreign underused housing tax as it currently stands?

[James Cohen]

As it currently stands, it would be, because they already are getting around any indicators we have very well. They are getting around the indicators we have to figure out the proceeds of crime or terrorist financing coming into Canada.

As I said in the beginning—and we've seen it—sure, you can set up a company that's incorporated in the federal jurisdiction or in any one of Canada's jurisdictions, but that could have come from money from a separate jurisdiction, a separate secrecy jurisdiction. Somebody could have sold you a Canadian company with the names of directors already available, Canadian directors who are willing to sell their signatures for $200 a signature.

There are a number of ways for money launderers to make it look like they have full legitimacy of being Canadians, and as I understood from reading Bill C-8 on the exemptions under Canadian companies, they would wind up coming under those exemptions. Without ultimate beneficial ownership transparency, the government probably wouldn't see the kinds of reactions to the attempt that the tax is trying to achieve immediately. Maybe it would for people who have licit funds who are just holding it in property, but for those with the illicit funds, they would most likely find a way around it.

I've been talking about the corporate registry. We also need to talk about trusts, which have their whole own legal situation, as well as nominees. I want to stress that the ultimate beneficial ownership registry is not a silver bullet. There is no silver bullet to money laundering, but it is an incredibly useful tool to the gaps that Canada currently has.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

You mentioned the year 2025. What was significant about 2025? Is that when we expect the registry to come into place?

[James Cohen]

Yes. As I recall from the government's proposal in the federal budget in 2021, this year, Innovation, Science and Economic Development Canada is meant to conduct a study on how to implement a publicly accessible registry in Canada, with the idea that such a registry would be up and online by 2025.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers. That's the time.

We are moving to the Liberals. We have MP Chatel for five minutes.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much, Chair, and thank you to our witnesses.

I must say thank you to Mr. Stewart too for agreeing to pursue our questioning on Bill C-8. I share the sentiment that it is not easy to do in this context, but we must and I'm grateful to him.

I have a question for Mr. Agnew. You mentioned that Bill C-8 is a good step forward for our farmers who are adjusting to the green transition, and you also suggested that more could be done. I'm interested to hear your view on the impact of this credit. Also, what extra steps do you have in mind?

[Mark Agnew]

There's a gap between what's in Bill C-8 and what we heard from some of our members in the industry, particularly around the harsh climate realities of the Canadian agricultural industry. Again, grain drying, for instance, is quite important to make sure the products are being dried out properly and you don't have a spoiled grain product. Because of our harsh climates in the winter, we need to have heating for livestock. Similarly, you need to have cooling in the summer in many places.

If you were to ask people what the ideal situation would be, I think the exemptions for natural gas and propane would be where we'd like to move the conversation. Bill C-234 moves it in that direction. As much as Bill C-8 is a first step, there's still that gap, given where we've heard members would like things to go.

[Sophie Chatel, Liberal, Pontiac, QC]

Staying with you, Mr. Agnew, what do you think is the impact of our other tax credit on support for air ventilation? One of the main objectives is to keep our schools open, for example, in the case of a sustained or endemic situation in our schools or other virus that could circulate.

Could you tell us what you heard from your membership on this credit? How helpful would it be?

[Mark Agnew]

I can't speak from the school standpoint, but I can from the business community standpoint. Businesses right now, particularly small and medium-sized businesses, are feeling a lot of inflationary pressures in the economy, and it's sort of that the drip-feed of every additional cost is another thing that's squeezing the bottom line.

Ventilation is going to be quite important for a number of companies, again, as a confidence-building measure. People are more aware of the need for good ventilation, but that comes at a cost. What this tax credit will do is ultimately reduce one of the input costs that a business has to have in order to operate as safely as it would like to.

[Sophie Chatel, Liberal, Pontiac, QC]

I have a question for Mr. Cohen now.

I'm very interested, of course, in the development on beneficial ownership and I understood you on trusts. I agree completely that they're an issue. We have to cover trusts as well. The requirement for the registry is a good step forward for more transparency. As you know, FATF and the international community are working really hard on the standards, as is Canada, to match those standards, of course.

This new legislation will require a 1% tax on the value of properties if they are owned by a non-resident. In the quest to find that information, would the tool the international community now has and a Canadian registry help to find money laundering in the real estate market? That's a big issue.

[James Cohen]

If I'm understanding your question correctly, it's once we have the registry and if other countries have the registry including if the FATF increases the standards on beneficial ownership registry, will this help us find money launderers. I just want to make sure that I have it correct.

[Sophie Chatel, Liberal, Pontiac, QC]

Yes.

[James Cohen]

Yes, it will help. I want to repeat there is no silver bullet, but this is a huge gap, not just in Canada but you have to look at it globally. A lot of countries are undergoing this problem of housing markets that are already being crunched on supply being exploited by those who see new condo developments or new houses just as a safety deposit box for their illicit funds.

It can't just be Canada doing this on its own. It helps that the Financial Action Task Force is currently looking at updating recommendation 24 on beneficial ownership transparency so that more countries fall in line with the actions that Canada is taking.