Finance Committee on May 18th, 2023

[Yvan Baker, Liberal, Etobicoke Centre, ON]

It's a tax charged by networks. For the folks at home, when we talk about a network, we're talking about Visa or Mastercard. This is a service for which Visa or Mastercard charge the banks. The concern you have is there will now be HST charged on that.

[Darren Hannah]

The concern we have is that the government is retroactively trying to make a change. Our concern is with the retroactive dimension of this. It is trying to retroactively change, to use legislation to override, in effect, a court case and a court decision.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Would you agree that from 1991 until 2021, which is when the Federal Court released its decision, almost all banks were charged and paying GST on payment card clearing services? That's a yes or no question.

[Darren Hannah]

The answer is it was contested through the entire period.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I don't have a lot of time, and I want to make sure we're clear about the facts. Is the answer yes or no to that question?

[Darren Hannah]

The answer is that they contested it through the entire period. There was a charge, and then the institutions would go back to CRA. CRA did nothing, and then eventually they were taken to court and they lost. The interpretation—

[Yvan Baker, Liberal, Etobicoke Centre, ON]

You're not answering my question. I'll move on to the next question.

Until the Federal Court of Appeal decision in 2021, is it fair to say that only a minority of banks were challenging the tax or filing “tax paid in error” claims?

[Darren Hannah]

For the last 20 years, institutions have been challenging this. They have been going to CRA. CRA has not been responding. The government lost. The government then did nothing, and sat on its hands for two years. Then, all of a sudden, we see retroactive legislation.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Let's go back to the impact of this.

As a percentage of the interchange fees earned by banks in any given year, could you estimate for us the percentage of those earnings that the GST paid on these payment card clearing services amounts to?

[Darren Hannah]

I don't know, and it's not the point. The point here is the principle that's at stake. The point is that there is an application of law happening in retrospect. They are changing the tax law. They are overriding a court decision.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I guess...you're not really answering my questions, are you? I'm asking you what the impact will be, because for the folks at home—

[Darren Hannah]

[Inaudible—Editor]

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Let me now finish my question.

What my constituents in Etobicoke Centre are concerned about is whether this is an appropriate measure and what the impact of this measure will be. What are the pros and cons of this?

I've heard you on the retroactivity. You've said that multiple times. We've all heard you, but what I'm trying to understand is the monetary impact here, and what the impact of this is to the banks or the issuers.

Again, what I'm asking is this: Of that share of business of the interchange fees earned by banks, which you earn on every transaction that Canadians pay when they use their card or debit card, or whatever their payment mechanism tends to be, of that pool of funds that you make, what amount of money, what percentage of those earnings, does this GST on the clearing services represent?

[Darren Hannah]

I can't tell you the specific number. I can tell you that ultimately issuers and cardholders will pay more, and that merchants will pay more, because the tax affects both issuers and acquirers.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

What you're saying is that banks make less money.

[Darren Hannah]

I'm saying that ultimately what will happen here is that cardholders will be affected and merchants will be affected.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

As someone who knows a lot about the payment space, I don't agree with that assertion that cardholders will be affected and that consumers will be affected. I think banks could be affected by a very negligible amount. This is a very negligible amount we're talking about.

The other thing I would point out is that you've talked about the retroactivity quite a bit here. The Tax Court of Canada, in 2018, gave a ruling in favour of CRA in this matter, so if we're going to go back to court cases and how the courts ruled, I would note that not all the court rulings have been in your favour.

I think the point I would make, because I'm almost out of time, is simply that there are many.... Another witness from the chamber raised the fact of competitiveness in the context of this point. I think we do a lot to make sure that our financial services sector is competitive, and especially that in the payment space we're competitive. Countries regulate their payment spaces very differently around the world. There are lots of things we do to enable that here.

What I'm hearing is that a relatively negligible amount of additional money will have to be paid by the banks in HST. It conforms with a 2018 court decision. This change will have no impact on consumers. Yes, we'll ask banks to pay a bit more in HST, but I think we've done a lot of things to help the financial services sector and the payments sector thrive in this country.

[The Chair, Liberal, Peter Fonseca]

That is time, Mr. Baker.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I have just a quick point of order on process, Chair.

I just want to make sure that everyone is clear—I believe I'm not incorrect in this—that our job here is to ask witnesses questions, not ourselves.

[The Chair, Liberal, Peter Fonseca]

Yes, Mr. Lawrence.

We're going now to the Bloc and Mr. Ste-Marie, please.

Mr. Baker, you have a point of order.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Yes. On a point of order, Chair, I think it is really disappointing that Mr. Lawrence had the nerve to say that in this committee, after we just spent 25 hours listening to them speaking to themselves—

[The Chair, Liberal, Peter Fonseca]

We would ask for decorum from all the members—

[Yvan Baker, Liberal, Etobicoke Centre, ON]

—and wasting this committee's time.

Now, I didn't ask myself a question. I asked the witness a question, and the record will show that.

[The Chair, Liberal, Peter Fonseca]

Yes. Thank you, Mr. Baker.

We ask for decorum and respect. All members know that. We would hope that this would be the case and that we would continue in that vein throughout this meeting.

For the Bloc, next is Mr. Ste-Marie, please.

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

Thank you, Mr. Chair.

First of all, I'd like to welcome all the witnesses, who are most interesting.

As you can see, we work long hours, and sometimes things can get a little heated. However, I find the questions interesting.

My questions will be for Mr. Brock and Mr. Robertson. However, first I have a comment for Mr. Hannah and Ms. Mason.

I recognize that Canada's banking and financial system is one of the most stable in the world, and I salute that. However, I'm very critical of Bay Street banks, particularly with regard to the assets and activities they report in tax havens. If we want a fair and reliable ecosystem, we need stability, predictability and justice. To my mind, bringing in retroactive legislation against court rulings is worthy of a banana republic. Your views have been heard, and I hope the committee will be able to take your suggestions into account. On that I do agree with you. Thank you.

Now, Mr. Brock and Mr. Robertson, thank you for being here and for your testimony. You raise a lot of concerns.

I want to tell the committee that I'm really not a fan of cryptocurrency. It's not very attractive to me. However, as I said to Mr. Hannah and Ms. Mason, I am in favour of a fair tax system and stability. As you've clearly demonstrated, what we have in Quebec and elsewhere in Canada are companies with big servers, big computational abilities and high-speed fibre-optic Internet access. I know a bit about that ecosystem. What do these companies do? They sell their computational abilities to the highest bidder. I studied economics. One of my former professors worked with companies in Boston, where he could often rent computational abilities. The same goes for the pharmaceutical sector.

Bill C‑47 is telling companies in this sector that when they sell their services to foreign mining companies, we'll treat them differently than companies in all other sectors of the economy. Under the rules, we'll let them deduct taxes, but other companies will no longer be able to deduct them. I have a problem with that.

The second problem relates to the point you raised about companies that create good jobs and bring in expertise. We have some in Quebec. Quebec businesses benefit from the cold weather and hydroelectricity, and therefore from green energy. So if Bill C‑47 passes as is, for those businesses, the integrated sales tax will be 15%, whereas in Alberta, where hydrocarbons produce electricity, it will be 5%. Since it will be cheaper in Alberta, future activities will shift to that province. That's economy 101.

I would like to hear your comments on that.

What can the committee do to resolve the situation and even out the playing field again?