Finance Committee on Nov. 21st, 2022

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

Mr. Chair, I'd like to thank the member for his question.

What we can say is that the government decided to provide this additional savings opportunity to Canadians. We're not at liberty to discuss what options were under consideration.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

Now we go to the Liberals and MP MacDonald for six minutes.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

I'm going to continue on with the Canada Student Loans Act.

Mr. Rahman, where I come from, we have a number of different incentives for students. I've heard from my constituents that this is an extremely important one as well, along with the George Coles bursary and debt reduction programs we have on Prince Edward Island.

I'm going to ask you some questions in regard to amending this. I want to know how the Government of Canada plans for changes in cost due to fluctuations in the prime interest rate.

[Atiq Rahman]

Thank you, Chair.

The government has taken a number of measures on the front end as well, doubling the grants temporarily until next year. Of course there was an interest waiver for two years that is already in effect. Of course, with regard to the elimination of interest...the prime rate has been fluctuating and has been going up, as you know.

Right now, most of the students would be repaying their student loans at the prime rate had it not been for the waiver that is in effect. As the prime rate goes up, of course their payments go up as well. As a result of this elimination of interest, if it's approved by Parliament, that will no longer be charged, so their repayment will be slightly less burdensome. They will be saving slightly more than $400 a year—those who are in repayment—as a result of this measure.

[Heath MacDonald, Liberal, Malpeque, PE]

Further to that, relative to financial institutions and agreements between the federal government and those institutions or the provincial governments on their behalf, as far as lending money to students is concerned, is there an increase in the length of time borrowers can take to repay these loans? Is that a possibility?

[Atiq Rahman]

Yes, Chair.

I would just make a clarification to begin that the student loans from the federal government are actually provided by the government directly. That started in 2000. Prior to that, some student loans were provided by financial institutions. Right now, they are directly provided by the Government of Canada, and yes, the standard repayment time is 9.5 years, but if the students want, they can have it extended to 14.5 years.

[Heath MacDonald, Liberal, Malpeque, PE]

If you take the interest off of these loans, will the available amounts be increased for students now?

[Atiq Rahman]

No, the student loan amount they can receive is not changing. That level remains where it has been.

[Heath MacDonald, Liberal, Malpeque, PE]

Okay, thank you.

Am I good, Chair?

[The Chair, Liberal, Peter Fonseca]

MP MacDonald, you still have two and a half minutes left.

[Heath MacDonald, Liberal, Malpeque, PE]

I'm just going to go on to the small business tax. I'm not sure who is responsible for that here. I'll ask the question, and maybe someone can answer it.

As a former economic development minister, it's important to me. Moving the tax rate applicable from $15 million to $50 million would result in a more gradual phase out of the tax rate for those small businesses that are really starting to grow, and help incentivize that growth. Do we have any analysis of how many of our small and medium-sized enterprises will benefit from this measure?

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

Yes, I can provide an answer to that.

Obviously, going forward, it's always a bit unknown, but we have a pretty good sense from the past of how many businesses were in the different thresholds that will now be available to businesses. Looking at past filings probably gives you a good idea of the number of businesses that will benefit from this going forward. Looking at 2019 data, it's estimated that approximately 8,000 Canadian-controlled private corporations or small businesses, if you will, would benefit from the measure initially.

To your point, in terms of the breakdown, about 60% of those would newly gain access to the small business deduction, whereas the remainder would have a higher amount. So they had access before, but now they would have access to a higher amount.

[Heath MacDonald, Liberal, Malpeque, PE]

Throughout the consultation period, we've often heard from the CFIB at this committee and chambers across the country that are representative of the Canadian chamber. Are they looking favourably at this tax?

[Maximilian Baylor]

I certainly can't speak for the CFIB, but I would think that they would be inclined to look favourably on a measure that extends the small business deduction to a larger number of small businesses and smooths the phase-out, which promotes growth.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP MacDonald.

Now we'll hear from the Bloc.

MP Ste-Marie, you have six minutes, please.

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

Thank you, Mr. Chair.

First of all, I would like to thank the clerks for conducting the sound tests of the witnesses for the welfare of the interpreters and reporting back at the beginning of the meeting.

I will now make a small comment. In Canada, there are two official languages. The government could ask departments to make their presentations in both languages. Again, all the presentations have been in English only. Often, the presentations are read. They could therefore be made half in French and half in English. The language of Molière should be heard in these statements, in order to reflect the diversity of the two official languages. I hope the government will hear this message.

My first question is for the Department of Finance officials and relates to paragraph (p) of part 1 described in the summary of the bill. This paragraph is intended to provide “that the general anti-avoidance rules can apply to transactions that affect tax attributes that have not yet been used to reduce taxes;”

Since when is the government aware of tax planning that circumvents the general anti-avoidance rule by using tax attributes that have not yet been used to reduce taxes?

[Lindsay Gwyer]

Mr. Chair, I can respond to that question.

This amendment is actually a response to a court case from 2018. The court of appeal in that case determined that the general anti-avoidance rule was not available in situations where a transaction had been done to create tax attributes, but those attributes had not yet been used. Prior to that court case, it was the CRA's policy to use an issuance of what's called a notice of determination to apply the GAAR to unused tax attributes through this process. This court case determined that the GAAR conditions are not satisfied in a situation where those tax attributes have not been used yet.

The purpose of this amendment is to change those technical requirements with respect to the general anti-avoidance rule so that the CRA can continue to issue notices of determination before tax attributes have actually been used. This is really intended to just revert back to that 2018 situation.

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

Thank you.

In connection with this, is it the view of the government or the department that the courts should interpret the current wording of the general anti-avoidance rule to apply to tax planning that uses tax attributes that have not yet been used to reduce taxes?

[Lindsay Gwyer]

The intention of the amendments is to make it so that it is clear that the GAAR conditions of the test would be satisfied where there have been tax attributes that have been created and could be used in the future even though they haven't been used yet. The department's intention is to ensure that, in the future, it's not open to taxpayers to argue that they haven't satisfied the GAAR because they haven't used the tax attributes.

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

Thank you.

On the same topic, has the government observed any common characteristics of corporations using tax planning to circumvent the general anti-avoidance rule? Can you give examples?

[Lindsay Gwyer]

The case that caused these amendments included the creation of the paid-up capital, which is an account that can effectively be taken out of a company, tax-free, for the shareholder. There have been other cases where taxpayers try to create paid-up capital. Also there have been cases where taxpayers try to create a cost base in shares, which could allow shares to be sold without triggering capital gains, or where they try to create losses to shelter income. Those are the types of cases where this rule could be relevant.

More broadly, the department is in the process of doing a consultation on the general anti-avoidance rule, looking at how to strengthen it and improve its application, in general, to a broad range of cases.

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

Thank you.

I'm addressing the Department of Finance again, but on a different topic.

My questions are about the new tax-free First Home Savings Account, or FHSA, which is the new instrument for financing a home purchase.

Basically, why create this new instrument? Why not enhance the Home Buyers' Plan, or HBP, within the Registered Retirement Savings Plan, or RRSP, which is an existing vehicle rather than create a new account?

[Yves Poirier, Director, Economic Development, Personal Income Tax Division, Department of Finance]

Hello. Thank you for your question.

As stated earlier, we can't really answer about the government's intent or why they created this new account instead of using the HBP.

However, I can say what has changed from the first proposal. Initially, it was going to be one or the other, either the HBP or the FHSA. In Bill C‑32, both would now be allowed.

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

All right.

So someone who already has an RRSP can use their HBP, and in the next few years, if they contribute to their FHSA, they can use both at the same time. Is this correct?