Evidence of meeting #9 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was mclean.
A video is available from Parliament.
Liberal
Julie Dzerowicz Liberal Davenport, ON
Just to be clear, we're on clause 1, at line 21, on page 11. Is this correct?
NDP
Daniel Blaikie NDP Elmwood—Transcona, MB
There are two line items addressed in the amendment. There is paragraph (a) of the amendment, which adds something after line 21, and paragraph (b) of the amendment, which adds something after line 30.
I believe Mr. McLean's amendment addresses paragraph (b) by essentially deleting paragraph (b), so all that would remain is the part that adds, after line 21, all of the text in paragraph (a).
I hope that's helpful.
NDP
Daniel Blaikie NDP Elmwood—Transcona, MB
Yes. The clauses can be rather large.
The entire amendment would cause a change on page 11 and on page 12. Mr. McLean's amendment would delete paragraph (b), which is the portion that would make changes to the current page 12. You'll see that at the bottom of the page it introduces a new subclause, subclause 1(24): “Subsection (18.1) is deemed to have come into force on March 15, 2020.”
That's the aspect of the amendment that causes the retroactive application of the new provisions, and that's what Mr. McLean's amendment seeks to delete.
Liberal
Julie Dzerowicz Liberal Davenport, ON
Basically, what I'm seeing is that we're trying to strike that. That's the proposal on the table, to strike “Subsection (18.1) is deemed to have come into force on March 15, 2020.”
Are you saying that's a friendly amendment?
NDP
Daniel Blaikie NDP Elmwood—Transcona, MB
I'm saying that he has my permission to move it, which is required in clause-by-clause.
Liberal
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
I have a technical question. If the subamendment proposed by Mr. McLean were to be adopted, I would have questions about amendment NDP‑3 as amended. So should I wait until after the vote on the subamendment before I ask my questions?
Liberal
The Chair Liberal Peter Fonseca
We'll discuss it after the vote.
I don't see any further discussion.
This vote is on the subamendment to NDP-3.
(Subamendment agreed to: yeas 6; nays 5 [See Minutes of Proceedings])
December 13th, 2021 / 7:35 p.m.
Liberal
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
So I have some questions for the Department of Finance officials at this point. I assume Mr. McGowan can answer them.
Do you have any idea how many companies the amendment might affect?
My colleague Terry Beech mentioned technical problems with implementing the amendment. What would the problems be and how big would they be?
These are my initial questions regarding amendment NDP‑3 as amended.
Trevor McGowan Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
Thank you for the question. I can start with the second part, perhaps, and then turn it over to my colleague Max Baylor. He can speak to the number of public companies that would be affected.
As I understand the question, it was to provide a brief overview of some of the technical issues with the amendment that have been identified. Is that correct?
Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
Okay. Thank you very much.
As was already noted, the coming-into-force rule would have made it retroactive. With no coming-into-force rule, the default rule would be that it comes into force on royal assent. That would lead to some ambiguity, still, in terms of when it would apply. For example, would it apply to dividends paid in qualifying periods that end after royal assent or that begin after? Would it apply to dividends paid after? There are some interpretive questions that remain.
On a more substantive basis with the initial proposal, I would note that it applies where subsidiaries of public corporations paid dividends. The policy intent, as I understand it, is to prevent public corporations from paying profits out or paying retained earnings as dividends to their shareholders. However, it is quite common for groups of public companies—a public company and its subsidiaries—to move money within the group through the use of intercorporate dividends. As worded, since it applies only to dividends, it would seem to require a repayment of wage subsidy entitlements when there are dividends that move money simply within a group and nothing has been returned to shareholders.
I assume that it is intended to require repayment of the wage subsidy under subsection 125.7(2). However, that is not explicit. Rather, it says, “no overpayment on account of a qualifying entity's liability under this Part”. Here, “this Part” is part I of the Income Tax Act, which includes a number of other refundable tax credits that are done as deemed overpayments of tax, such as the one for journalism organizations and a number of others. The lack of specificity does raise questions.
There are a number of issues. I'll just talk about some of the main ones.
It also applies to fixed cumulative dividends on preferred shares. Many corporations that seek to raise capital in the public markets do so through the issuance of preferred shares. They do that instead of, say, issuing debt. Preferred shares are legally shares, but they have many economic debt-like characteristics. They tend to pay shares at a fixed rate, which is very similar to interest on a debt. Those are payments that are economically similar to interest and would be caught as well.
To summarize, there would still be questions, at least interpretively, relating to the coming into force of the rule. It could require repayment of the wage subsidy where money is moved around within a corporate group and nothing is actually returned to shareholders. Also, since it applies to dividends paid in the qualifying period, it could lead to a fairly simple way to plan around it, where a public corporation could simply defer the payment of a dividend until right after the end of the qualifying period.
The effect of this rule is not so much to require repayment in the same way that the executive compensation rules do, but rather, it takes away the initial entitlement, which gets to the same place, but it applies only for a particular period. One question is whether a likely outcome would be that public corporations seeking to pay dividends but also paying the wage subsidy could simply defer the payment of those dividends until after the relevant period and thus avoid the application of the rule. Those are some of the issues we've identified.
I'll turn it over to my colleague Max Baylor, who can speak to the number of corporations that have received the wage subsidy.
Maximilian Baylor Senior Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
We don't have specific data on the number of companies that would be affected. The only data we have is for companies that have applied. You have to go back and look at the applications for the Canada Emergency Wage Subsidy that have been made. We know the number of companies and public corporations that have received the Canada Emergency Wage Subsidy. That can give you an idea of the scope. However, the data does not indicate whether the companies paid dividends. We don't know that.
What we do know is that public corporations represent a small percentage of the employers who received the Canada Emergency Wage Subsidy, just 0.4%. As for the amount of the payment relative to the wage subsidy base, the percentage is clearly higher: it is 9.6%.
Once again, that's an overall picture. The number of companies that paid dividends is even smaller. That's a small world.
Clearly, you want to know what the data is and our view on the measure going forward. As I said, we don't know who will apply. We don't know the future, but the past data gives us an idea of the extent to which companies might be affected in the future.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Baylor and Mr. McGowan.
We have on the speakers list Ms. Dzerowicz, Mr. Chambers and then Mr. Blaikie.
Liberal
Julie Dzerowicz Liberal Davenport, ON
Thank you, Mr. Chair.
I don't know if Mr. Ste-Marie has finished his questions. He might not have. I don't want to interrupt.