Finance Committee on May 25th, 2023

[Lindsay Gwyer]

They're separate amendments, but they both amend the same section in the Income Tax Act. They're both in clause 3.

Yes, there is a form for an employee to claim deductions for amounts that the employee has to pay in the course of their employment, but that is only possible in limited circumstances. In circumstances where it's possible, the employer generally has to provide a form to the CRA stating that the employee had to make a payment in the course of their employment. The requirement for a paper signature on that form would be eliminated.

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

Perfect.

I have a quick comment before I get to my next suggestion. There are no tactics being employed here. I believe these provisions are complicated. The Income Tax Act in general is complicated.

I believe this is part of democracy. In fact, it's our job. I would love to see members of Parliament do a fact-based test on some of these sections. I think it's incredibly important that we understand these provisions before we pass them. There are no tactics; there are simply explanations. This is me doing my job.

Ms. Gwyer, why a $1,000 limit? What was the rationale behind that? Many of the tools that tradespeople use are well in excess of that amount. With increasing inflation, a simple tool even for a non-professional like me going to Home Depot can easily cost $2,000, $3,000 or more. Why was $1,000 chosen?

[Lindsay Gwyer]

The current deduction is $500. I think it was recognized that the cost of tools has increased along with other things, and it would be appropriate at this time to increase the amount of the deduction. It was a policy decision to double the amount of the deduction.

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

Why $1,000, or why double?

[Lindsay Gwyer]

That was just identified as an appropriate amount to allow as a deduction in this case in looking at the expenses that are incurred.

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

What is the average cost of a tool that is written in for a deduction?

[Lindsay Gwyer]

I don't have that information in front of me.

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

The $1,000 was more or less chosen out of thin air. That's what I'm hearing. I don't want to be disrespectful, Ms. Gwyer, but you haven't provided us with any evidence. I'd love for you to rebut that, if you could. Why $1,000?

I know that Mr. Blaikie is a Red Seal, and proudly so. I'm sure he would tell you that he's much more educated with respect to the trades than I am.

I suspect you would concur, and many of the folks I know in the trades industry would say, that many tools are well in excess of $1,000. The cut-off at $1,000 seems arbitrary at best.

[Lindsay Gwyer]

With any deduction, it's a question of looking at the amounts that are expended and what's appropriate to allow in the circumstances. My colleagues on the policy side would have done more analysis on that to determine what would be an appropriate amount to allow for the deduction. I don't think it was picked out of thin air, but I don't really have more specific information in front of me that I could provide at this point.

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

How does that compare, Ms. Gwyer, to other...? For example, you're a business owner and you are buying supplies that are needed for your business. Let's pick the industry of manufacturing. You own a manufacturing business. Are there similar limitations, if they needed to buy equipment, with respect to how much they can write off?

[Lindsay Gwyer]

For someone who is carrying on a business, there aren't similar limitations. The Income Tax Act generally allows people who are carrying on a business, or requires them, to compute their profits. In doing that, they would be able to deduct reasonable expenses that they incur in the course of carrying on business. There are no limits.

With respect to employees, the Income Tax Act generally doesn't allow employees to deduct amounts that they earn for the purpose of employment, subject to certain specific exceptions. This is one of those specific exceptions where, subject to the limit, the employee is able to deduct that amount.

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

Let's say you are a multi-million dollar business owner and you want to buy the same tool—it might be $5,000—that an employee wants to get. On that $5,000 tool, they're going to be able to write off $1,000, but after that they don't get any deduction. However, that same business owner who wants to buy it, who might be a multi-millionaire or maybe even a multi-billionaire, will get the right to deduct the full $5,000. Is that right?

[Lindsay Gwyer]

Well, that's generally right, but with the way the rules are designed, the general expectation is that employers will bear the costs that are required to allow employees to perform their jobs. In a context of significant expenses, it is likely to expect that the employer would be the one bearing that cost. This is an exception that recognizes that in this space, employees will sometimes bear costs themselves. It compensates them for that by providing for this limited deduction.

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

But if you have a saw or tool or something that is simply used in the course of employment, and obviously the employer is not deducting that $5,000 saw, what is the concern with allowing the full $5,000? There has to be some type of concern of abuse or otherwise. Why would it not be fair to allow the price of a saw that's exclusively used in the course of employment by the employee?

[Lindsay Gwyer]

Again, the Income Tax Act in general doesn't allow employees to claim amounts in respect of their employment. Employees are able to claim the Canada employment credit. In 2023 it's $1,368. That is intended to compensate employees for some of the costs they may incur in the course of their employment.

In general, it is expected that costs are borne by employers. That's one of the reasons that employees are in general not allowed to claim deductions for costs they incur in the course of their employment. I think there could be other concerns, maybe not necessarily with respect to this specific amendment but in general, that allowing employees to claim deductions could result in abuse or other problems.

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

I'll get back to one of the substantive issues that I think the Canadian Bankers Association brought up, which was about retroactivity. I realize we had a lengthy discussion, and Ms. Dzerowicz did not like my metaphor there.

This is not a tightening provision, of course. It's to the benefit of the taxpayers, which is a good thing. I'll put that clearly on the record.

Why would we not make this provision retroactive?

[Lindsay Gwyer]

In general, when there's a policy change to allow a credit or a deduction that wasn't previously available, it wouldn't be typical to go back and make that retroactive. For one thing, it would create administrative issues by requiring the CRA to deal with people filing amended tax returns.

It's really typical, when there's a change to increase a deduction or a credit, to have that apply on a prospective basis from the year it's announced.

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

Once again going back to the cap of $1,000, would it have been a policy option...? Instead of a hard cap at $1,000, what about an allowance to carry that forward for multiple years or carry it back for multiple years?

[Lindsay Gwyer]

I think that could be an option. That's not what is being done here.

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

All right.

What will the cost be to the treasury of having this provision in place?

[Lindsay Gwyer]

The cost is $11 million over six years.

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

What would be the cost of an unlimited or uncapped benefit?

[Lindsay Gwyer]

I don't have that information in front of me.

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

Would you mind providing that to the committee in writing at a later date?

[Lindsay Gwyer]

Yes, we can do that. I don't know if the information is available, but we can see.