Public Accounts Committee on Dec. 3rd, 2020

[The Chair, Conservative, Kelly Block]

I call this meeting to order and welcome you all to meeting number 11 of the Standing Committee on Public Accounts.

The committee is meeting in public today. Pursuant to Standing Order 108(3)(g), the committee is meeting today to continue its study of “Report 3—Taxation of E-Commerce” in the “2019 Spring Reports of the Auditor General of Canada”.

Today's meeting is taking place in a hybrid format, pursuant to the House order of September 23, 2020. To ensure an orderly meeting, I would like to outline a few rules to follow, but I will not repeat all of them because I think everyone, including our witnesses, is very familiar with them.

You may speak in the official language of your choice. Interpretation services are available for this meeting. You have the choice, at the bottom of your screen, of selecting either “Floor”, “English” or “French”.

Unless there are exceptional circumstances, the use of headsets with a boom microphone provided by the House of Commons is mandatory for everyone participating remotely who needs to speak. Should any technical challenges arise, please advise me. Please also note that we may then need to suspend for a few minutes, as we need to ensure all members are able to participate fully. I want to add for those participating in person that masks are required unless you are seated and when physical distancing is not possible.

Should you wish to get the attention of the chair, please signal the clerk with a hand gesture. For all, should you wish to raise a point of order, please activate your microphone and indicate clearly that you wish to raise a point of order.

With regard to the speaking list, the committee clerk and I will do our best to maintain a consolidated order of speaking for all members, whether you are participating in person or virtually.

Now I would like to welcome our witnesses. Joining us today from the Office of the Auditor General of Canada are the Auditor General, Karen Hogan; Mathieu Lequain, director; and Philippe Le Goff, principal.

We also have John Ossowski, president, and Peter Hill, vice-president, commercial and trade branch, from the Canada Border Services Agency; Bob Hamilton, Commissioner of Revenue and chief executive officer, and Ted Gallivan, assistant commissioner, compliance programs branch, from the Canada Revenue Agency; and Paul Rochon, deputy minister, and Andrew Marsland, senior assistant deputy minister, tax policy branch, from the Department of Finance.

You will each have five minutes to make your opening statements.

Today I will start with Mr. John Ossowski. Please go ahead, sir.

[John Ossowski, President, Canada Border Services Agency]

Thank you, Madam Chair. Good morning to you and the members of the committee.

Thank you for having invited me once again to take part in today's discussion on the auditing of e-commerce taxation.

Peter Hill, the vice-president of our commercial and trade branch, joins me again.

When we last met, I outlined that the CBSA has already made significant progress on the concerns raised in the spring 2019 Auditor General's report. The CBSA acknowledges that there has been growth in low-value shipments year over year, particularly in shipments valued in the lowest value category—goods valued at $20 or less—and, since the Canada-U.S.-Mexico agreement was implemented, also goods from the United States and Mexico valued at $40 or less.

I would like to underline the fact that these items are exempt from duties and taxes, so there is no revenue loss associated with the increase in orders for these types of goods.

The CBSA is taking a comprehensive approach to addressing the challenges raised by the Auditor General. This includes our work on the CBSA assessment and revenue management project—the CARM project—the courier analytics tool and our e-commerce strategy, for example. These are key activities to adapt to a retail landscape in Canada in which people are making more and more purchases online.

In addition to dramatically growing volumes of e-commerce, these transactions have also increased in complexity. Changes in e-commerce are difficult to predict, such as supply chain disruptions, and can be influenced by factors outside of the country and outside of CBSA's control. That's why we are focused on working with partners and stakeholders both in Canada and internationally to tackle the challenges that we are facing.

In particular, I point to the World Customs Organization working group on e-commerce, which CBSA co-chaired. It has developed a global cross-border e-commerce framework of standards and a collaboration with our Border Five partners in the development of a business case to advance implementation of our customs e-commerce strategy.

The CBSA motto is protection, service and integrity. A lot has changed since the CLVS, the courier low-value shipment program, was first put in place. Consumer trends, volumes and even the pandemic have had their impacts. What has not changed is our commitment to protecting the tax space by ensuring that the sales tax system for e-commerce treats all vendors equally with regard to the GST and HST, ensuring the integrity of the data we collect and providing excellent service as one of the major stakeholders in Canada's e-commerce landscape.

I'd be happy to answer any questions from committee members.

Thank you for your attention.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Ossowski.

We will now go to Mr. Hamilton for five minutes.

[Bob Hamilton, Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency]

Thank you, Madam Chair.

Thank you for giving me this opportunity to discuss Report 3 with you. As you mentioned, I am accompanied today by Mr. Ted Gallivan.

I would say that in Report 3, the Auditor General made two recommendations to the CRA, and we accepted both of them.

As noted in our updated action plan, which has been provided to the committee, I am pleased to report that the CRA has already fulfilled a number of its commitments, and we are well on our way to addressing the remaining deliverables.

Thank you, Madam Chair.

I would be happy to answer any questions the committee may have.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Hamilton.

We will now move to Mr. Rochon.

[Paul Rochon, Deputy Minister, Department of Finance]

Good morning, Madam Chair.

Thank you for having invited us once again to appear before the Standing Committee on Public Accounts.

I'd like to give the committee a brief overview of recent changes that are relevant to your examination of the Auditor General's report on the taxation of e-commerce.

In the fall economic statement tabled earlier this week, the government proposed a number of changes designed to level the playing field for Canadian businesses in terms of applying the goods and services tax, the GST, to all products and services consumed in Canada, regardless of how they are supplied or who supplies them.

There are three proposals related to the GST and the harmonized sales tax, the HST.

Let me just briefly review the three changes that were introduced in the fall update, as they relate to the taxation of electronic commerce.

The first relates to foreign-based vendors with no physical presence in Canada, as these currently do not have to charge the GST on sales of digital products or services. These digital products and services that we're talking about include things like mobile apps, online video gaming, and video and music streaming.

To enhance tax fairness between Canadian and foreign-based vendors, the government proposes that foreign-based vendors selling digital products or services to consumers in Canada be required to register for, collect and remit the GST or the HST on their sales to Canadian consumers. It's estimated that this measure will raise $243 million in revenue during the first full fiscal year that it is in effect, which will be 2022-23.

I would only note that the proposed approach is modelled on the guidelines developed by the OECD.

The second measure relates to a situation of there currently being no requirement for foreign-based vendors, including those that sell through digital platforms, to collect the GST or the HST on sales of goods stored in Canadian fulfillment warehouses. These are warehouses that foreign-based vendors use to store goods and then make deliveries to Canadians in a timely way.

In the fall statement, the government proposes to apply the GST and the HST on all sales to Canadians of goods that are located in Canadian fulfillment warehouses. Under this proposal, the GST and the HST will be required to be collected and remitted by either the foreign-based vendor or the digital platform that facilitates that sale. We estimate that this measure will raise $275 million in revenue in the first full year that it is in effect, which is, again, 2022-23.

The third measure relates to property owners who are renting out their residences or other residential property through digital platforms for short-term periods. To improve GST and HST compliance and to ensure fairness across the accommodation sector, the government proposes to apply the GST and the HST to all platform-based short-term rental accommodation supplied in Canada. We estimate that this measure will raise about $65 million in 2022-23.

These changes are proposed to take effect as of July 1, 2021.

That concludes my overview of the government's recent proposals.

My colleague Andrew Marsland and I would be happy to answer any questions you might have.

Thank you.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Rochon.

I will now turn it over to Ms. Hogan as our final presenter.

[Karen Hogan, Auditor General of Canada, Office of the Auditor General]

Good morning.

Thank you, Madam Chair.

Thank you for giving me the opportunity to continue our dialogue on the taxation of e-commerce.

I will leave most of my time to the committee members for questions.

I simply want to state that the government's proposals outlined in its fall economic statement are, in our view, in line with the recommendations of the OECD, which are the best practices or actions taken by other countries.

With that, I'll hand it back to you, Madam Chair.

Thank you.

[The Chair, Conservative, Kelly Block]

Thank you very much, Ms. Hogan.

We will now go to our first round of questioning. It is a six-minute round, and we will start with Mr. Lawrence.

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

Thank you.

Thanks again to all the witnesses for their appearances. I believe everyone's come back for a second time, so I appreciate that.

I want to start off with you, Ms. Hogan.

First, having reviewed the economic and fiscal update, I would say that in table A1.9, it does appear as though the government has fulfilled your funding request, underneath “Office of Auditor General”, with an impact amount of $31 million. Is that correct?

[Karen Hogan]

We were pleased to see our funding included in the economic statement released earlier this week. I very much appreciate the committee's support as well as the finance committee's support for us to obtain our funding. Obviously now we look to the supplementary estimates (C) and Parliament's vote on that, but including our funding in the economic statement provides us with the clarity that we need in order to move forward to start rebuilding our performance audit practice and modernizing our office.

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

Mr. Hamilton, I'd like to ask you some questions about the fiscal update. I'm not sure whether you're in a position to answer them yet.

First of all, have you had a chance to review the fiscal update, and are you up to date on it?

[Bob Hamilton]

Yes, I've obviously had a chance to review the update. We are up to date and look forward to getting ourselves ready to administer on July 1, should the—

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

That's my first question. You're confident that you'll be able to collect the HST starting July 1.

[Bob Hamilton]

Yes. At CRA, we always do our best, and we're pretty confident that we will be able to. I would say, though, that it's going to require some thinking between now and then, and obviously consulting, because we want to do this in a way that's streamlined and efficient.

One good thing I would reference is that there are other countries and jurisdictions that have done some of this, so we'll be looking to those practices as well as engaging the stakeholders to look at the best way to implement this.

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

You have all the resources you need from the government to implement this policy. Is that correct?

[Bob Hamilton]

At this stage I believe we do. There will still be questions as we move forward, but at this stage, we're pretty confident.

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

It's early days yet, but by the end of this year, what percentage of the HST would you expect to capture from foreign companies?

[Bob Hamilton]

By the end of...?

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

I mean by the end of 2021. My apologies.

[Bob Hamilton]

It's hard to put a percentage on it, but I would hope that we'd be collecting all that we can. Again, I would say that we will be consulting in advance to make sure. There is always some leakage in the tax system, and we have to continually work on that to ensure compliance and ensure that everybody knows the rules, but I'm confident that we'll be getting a good share of that revenue, and we'll be working on any areas where we identify gaps.

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

With respect to enforcement, I suspect that the Netflixes of the world, as reputable, solid companies, will abide by Canadian rules, but what about some of the companies that would maybe even be part of the dark web—ones that perhaps distribute illicit materials and other things? What are your enforcement goals for the companies that aren't as reputable?

[Bob Hamilton]

That will be something...as we look at the regime and what it would take to administer it. We always have some compliance challenges that we have to move forward on. Maybe I'll ask my colleague, Ted Gallivan, to say a word.

We will be examining how companies are complying and where there might be gaps and then we'll be addressing strategies, which would be both education and hard enforcement where we need to.

Ted, I don't know if you want to add a couple of words.

[Ted Gallivan, Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency]

I would say the OECD doesn't just produce good guidance around how to facilitate voluntary compliance. Countries are working together to deal with aggressive non-compliance. There's something called JITSIC, whereby we already exchange information in relation to personal income tax. We certainly will plug in with our global partners around e-commerce as well.

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

Thank you for that.

Mr. Rochon, thank you very much for your detailed response to my question. I certainly appreciate it.

I wanted to go over this quickly. Between the fulfillment warehouses, taxation, the digital content and the Airbnbs, we're looking at about $500 million. We can argue whether it will come from the digital giants or from the taxpayers, but there will be an increased tax load on Canadians as a result of this. Is that correct?