Finance Committee on April 25th, 2023

[Pierre Mercille]

It's not in part 1, 2 or 3.

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

Okay, fine.

The amendment to the Canadian Environmental Protection Act relating to the carbon tax, is that also in part 4?

[Pierre Mercille]

It's not in part 1, 2 or 3.

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

Okay. Maybe I'll have better luck this time.

Mr. Mercille, at the briefing you gave us concerning the notice of ways and means, for which I thank you again, I asked a question about regional flights. As you know, those flights are expensive. The price of fuel keeps going up.

However Bill C‑47 provides for a substantial increase in the airport security tax. That tax is going to apply both to international flights and to regional flights that depart from an airport where security measures are in place. This means that no exemption from the tax is provided for regional flights.

Can you confirm that I have understood the answer I received correctly?

[Gervais Coulombe, Senior Director, Excise Taxation and Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance]

Thank you for your question.

Yes, division 2 of part 3 does apply a 32.85% increase in the rates of the air travellers security charge.

That charge applies when a flight is connected to one of the 89 airports in Canada where the Canadian Air Transport Security Authority handles security screening. The rate increase will raise the charge from about $14.96 for a return flight in Canada to $19.87, so that is an increase of about $5.00.

If a regional flight in Canada includes a departure or arrival at one of the airports designated in the Air Travellers Security Charge Act, then yes, the increase will apply to the trip. Again, however, the increase is $5.00 for a return trip in Canada. That amounts to about 1.6% for a $300 plane ticket, taxes included, or 0.8% a $600 return plane ticket.

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

Thank you, Mr. Coulombe, that is very clear.

I see that my speaking time is ending.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

That's the time.

We are now going to MP Blaikie, for six minutes, please.

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

Thank you very much.

I want to follow up on some of Mr. Baker's questions about the grocery rebate.

For clarity, the mechanism of this rebate is effectively the same mechanism that we deployed for a doubling of the GST rebate. Is that fair to say? Are any of the operational or legislative details substantially different from the doubling of the GST rebate?

[Pierre Leblanc]

No. You're right.

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

Okay.

Is it typical for tax experts in the department to offer branding advice for initiatives, or did the grocery rebate idea originate in the minister's office and get passed down to the department?

[Pierre Leblanc]

I can't comment on the policy-making process and where decisions on those things are taken.

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

I suppose it will remain a mystery in that case, but I think astute observers will probably have a sense of the answer.

I wanted to ask something on a more technical light.

One of the purposes of the BIA is to expand “the definition of 'dividend rental arrangement' to include 'specified hedging transactions' carried out in whole or in part by registered securities dealers”.

I wonder if some of our departmental officials might be able to put in plain terms what exactly that means and why it's important, from the government's perspective, to do that.

[Lindsay Gwyer]

Sure. I can try to answer that question.

It's a measure that was announced in last year's budget. It addresses certain hedging transactions that financial institutions engage in. Effectively what they do is the following.

Under general principles, there's a deduction where a Canadian company receives a dividend from another Canadian company. They have certain types of planning that will take advantage of that deduction and effectively allow them to double the deduction. They have a member in a group who will hold shares long—so they'll own shares in a Canadian company—and then a registered securities dealer within the group will borrow and short-sell those shares. As a result of that short-selling arrangement, they typically would have an obligation to make a payment equal to the amount of the dividend, and they would receive a deduction equal to two-thirds of the amount of that payment under existing rules in the Income Tax Act.

In those situations, they're effectively able to get one deduction for the dividend received and another deduction for the payment that was made equal to two-thirds the amount of the dividend. So they get a one and two-thirds deduction on the dividend, even though economically, they have no exposure to the shares because they have a long position and a short position.

The purpose of the measure is to address that planning and amend the rules, so that in that situation, they're only able to get one deduction, which is equal to the amount they paid out with respect to that dividend.

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

Right on. Thank you very much. I thought that was important to make part of the record.

I am curious about the Canada workers benefit. It talks about quarterly advance payments. Sometime in the discussion early on about changes to the Canada workers benefit, around the fall economic statement, I think some folks were talking about a biannual payment, that is, getting paid twice a year instead of four times.

Was that a misimpression of what the intent was in the fall and this has been the case all along, or has some of the thinking changed around the frequency with which the CWB payments would be made?

[Mark Maxson]

I don't recall seeing references to a biannual payment, but they are quarterly payments. There are three quarterly payments, which may lead to a bit of confusion. There is one in July, one in October, one in January and then, effectively, the residual would be the fourth quarterly payment with the tax return.

I didn't see references to biannual payments. It was always quarterly.

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

Okay.

In the case when a person's income has increased substantially over the course of a year, the government has said that they wouldn't be entitled to their final payment, but nothing would be clawed back.

Is it just that fourth residual...? At tax time, if they otherwise would have been entitled to an extra payment, they won't get that extra payment.

[Mark Maxson]

Yes, that's correct.

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

Okay. Thank you very much.

One of the things that the BIA does is increase the ability of defined benefit pension plans to borrow against their assets.

I'm wondering if someone from the department could explain for the committee what safeguards are in place currently, and if any are being added to the mix with the BIA to ensure that people's pension plans aren't going to be over-leveraged by the increased borrowing activity.

[Andrew Donelle, Senior Director, Deferred Income Plans, Department of Finance]

Safeguards on borrowing or investment risks are not part of the tax act per se. They're part of provincial pension standards legislation and the federal Pension Benefits Standards Act.

In doing our internal analysis, we responded to the stakeholders who wanted a bit more flexibility in borrowing on their defined benefit plans, and gave a small, limited amount to do the borrowing. We'll have to rely on the safeguards in the other standards legislation.

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

Could you give us a bit of a description of what some of the commonalities are across those protections, just to give the committee a sense of—

[Andrew Donelle]

Many of the provincial acts point to the federal statute, which says in a certain schedule that there are some investment concentration limits. Not more than 10% of your investments can be in any one entity. You cannot take a 30% or greater stake in certain entities.

There are those types of investment concentration limits.

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

Is there anything in particular about this borrowing? If a pension plan were going to borrow the equivalent of 20% of its assets, could it then put all of that borrowed money into one investment or one enterprise?

Is there any restriction on how they can use the borrowed funds, or is it treated like their assets have increased by 20% and as long as they invest according to the existing rules, there is no further concern from regulators or the governing legislation?

[Andrew Donelle]

The tax rule itself does not prescribe, so presumably you could put 20% into one entity, but I think those other safeguards in the provincial standards rules would probably prevent a large, mass multi-billion dollar investment into any one entity.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Donelle and MP Blaikie.

Members, that's the end of our first round.

Moving into our second round, we have MP Chambers up for five minutes, please.

[Adam Chambers, Conservative, Simcoe North, ON]

Congratulations on another budget. It's a lot of work. I know it takes lots of work.

Let's have a show of hands, so that it's not on the record. Who would like a fixed budget date?