Second Reading, Bill C-8, An Act to implement certain provisions of the economic and fiscal update tabled in Parliament on December 14, 2021 and other measures
Honourable senators, I would like to start off by thanking my colleague for his comments on the bill and also congratulating him on his maiden speech. I look forward to working with him, not only on the Senate’s Finance Committee but also on the Banking Committee.
My role today is that of the critic of Bill C-8, An Act to implement certain provisions of the economic and fiscal update tabled in Parliament on December 14, 2021 and other measures. This bill received first reading in the other place on December 15, and it received third reading on May 14. The Standing Committee on Finance in the other place held three meetings on this bill. I want to take you back to a question that I had asked Senator Gold about the bill to make sure that the Finance Committee in the Senate would be able to study the bill in the same amount of detail as they were allowed over in the other place.
Honourable senators, the fall fiscal update is usually delivered mid-year — we’ve been getting one a year — and is followed by an implementation bill. Last year, Bill C-14 implemented the provisions of the previous year’s fiscal update.
Regarding the bill that we’re talking about today, there are seven parts to it. I’m going to speak to each part and just provide some preliminary comments prior to it being studied by the Finance Committee.
The first part of the bill, as my honourable colleague mentioned in his speech, amends the Income Tax Act and the Income Tax Regulations to introduce two new refundable tax credits. The first one is for eligible businesses on qualifying ventilation expenses incurred to improve air quality, and the other one is to return fuel charge proceeds to farming businesses in backstop jurisdictions. Backstop jurisdictions are the provinces that haven’t implemented a carbon tax system of their own. Those would be Alberta, Saskatchewan, Manitoba and Ontario.
In addition, Part 1 of the bill also expands two other programs: It expands the travel component of the Northern residents deduction, and it also expands the school supplies tax credit that increases from 15% to 25%. It’s also a refundable tax credit and expands the criteria for eligibility.
The second part of the bill is the enactment of the underused housing tax act. I consider this the major part of the bill. It’s going to implement an annual tax of 1% on the value of vacant or underused residential property directly or indirectly owned by non-resident non-Canadians.
I’m going to talk a little bit about the act and the provisions of it, but I just want to warn my colleagues that the act is quite complex. I’ve gone through it, and I think I’ve correctly extracted certain aspects of the bill. I just want to relay them to you and then point out a few issues with regard to the bill.
As I say, it’s the most complex part of Bill C-8, and it’s really a standalone act. It’s over 90 pages long. I think it should have been tabled as a separate bill and not part of an omnibus bill, because everything else in the bill is costing the government money. This is the only part of the bill that’s a revenue-imposed initiative, so because of the length and complexity of the bill it really should have been studied as a standalone bill.
Government initially announced its intention to implement the tax in its 2020 Fall Economic Statement. At the time, the government announced it was targeting the unproductive use of domestic housing owned by non-resident non-Canadians to remove those assets from the domestic housing supply. Then Budget 2021 provided more details and proposed a national 1% tax on vacant or underused housing. It also announced a consultation process to provide stakeholders with an opportunity to comment on the parameters of the proposed tax. The consultation period ran last year from August 6 until December 2.
The Minister of National Revenue is responsible for the proposed act, and it will consist of 40 sections. When it is enacted, it’s going to come into force, or deemed to have come into force, on January 1, 2022. The proposed act sets out rules to establish an owner’s liability for the tax. It also establishes reporting and filing requirements. It provides for administration and enforcement provisions similar to other taxation legislation. It also makes consequential amendments to a number of other acts, like the Financial Administration Act.
Generally speaking, the act proposes to impose an annual tax of 1% on the value of residential property located in Canada that is owned, directly or indirectly, by persons who are neither citizens nor permanent residents of Canada, unless the owner is able to claim one of the exemptions permitted under the act. Specifically, the act does not apply to an excluded owner or an individual who qualifies for one of the several exemptions under the act.
The act provides for a number of excluded owners, the primary one being a person who is a Canadian citizen or a permanent resident, unless that person owns the property and is acting in their capacity as a trustee of a trust or as a partner in a partnership.
The definition of “excluded owner” is presented in such a way in the bill that other individuals or other groups of individuals can be included or excluded from the tax by simply changing the definition of “excluded owner.”
As I previously mentioned, the second category of individuals who may not have to pay the tax are those who qualify for an exemption. There are a number of specific exemptions listed in the legislation, but the two that I think will probably be the most commonly used will be the following: properties that are used as a primary residence by the owner or the owner’s immediate family and properties that meet the qualified occupancy of a period of 180 days.
In summary, the proposed act imposes a tax on every person who, on December 31, is an owner of a residential property in Canada unless they can meet one of the definitions of “excluded owner” or they can claim one of the several exemptions.
The term “residential property” is also defined in the proposed act, and it includes numerous types of properties, such as a detached house, a duplex, a triplex, a semi-detached house, a row house and a condominium. The government has really scooped everybody and everything up.
So every owner, other than an excluded owner or an owner who can claim one of the exemptions, is liable for the tax of 1% on either the fair market value or the taxable value of the property, multiplied by that person’s ownership percentage. The act also defines the terms “fair market value,” “taxable value” and “ownership percentage.”
As I’ve said, the proposed act itself is quite complex, and while I’ve tried to give a general overview of the act, it is tax legislation. Anyone who thinks they are impacted by the legislation should obtain professional tax advice and not rely on what I’m saying here today.
The Finance Committee of the House of Commons studied Bill C-8 and the proposed underused housing tax act. One of the issues discussed at the committee was the objective of the program. Is the objective to raise tax revenues, or is the objective to make vacant and underused housing available for use?
During the Finance Committee meetings in the other place, the emphasis was on the tax as a source of revenue. However, when the government announced its intention to implement the tax in its 2020 Fall Economic Statement, the emphasis was on targeting the unproductive use of domestic housing, which removes those assets from the domestic housing supply.
Finance Canada officials indicated during meetings that they were unsure of the impact of the unused housing tax because there is a lack of information on vacancy rates for the housing market. However, they estimated that the tax will raise about $735 million in revenue over the next five years. Budget 2021 also estimates that the annual revenues to be collected over each of the next four years will be about $700 million. The Parliamentary Budget Officer estimates that the tax will raise about $600 million over the next five years, with estimated revenues of $130 million in this fiscal year. However, the Parliamentary Budget Officer stressed the uncertainty of some of the assumptions used to calculate the estimate.
At a recent meeting of the Senate Banking Committee, Peter Routledge, Superintendent of Financial Institutions, told the committee that there are about 250,000 households being created every year in Canada, compared to approximately 200,000 to 210,000 houses being completed every year, so there is a mismatch between supply and demand. It remains to be seen whether the 1% unused housing tax will result in more houses being available to address that shortfall.
Stephen Poloz, former governor of the Bank of Canada, told the committee that municipal regulations were to blame for shortages of available housing. Specifically, government rules are what stand in the way of the private sector solving many of our problems.
Several other issues regarding the unused housing tax were raised during meetings of the Finance Committee in the other place. For example, why is the tax rate 1%? Why is it not 2% or 0.5%? Has there been any analysis of the possibility of retaliation by other national governments? For example, many American citizens own property in Canada, and a tax on their property may result in the imposition of taxes on the property Canadians own in the United States.
Another issue is that if the government’s trying to identify extra tax revenues, why not improve the money laundering regime and the tax evasion regime in this country? Another concern that was raised is why the federal government is straying into property taxes, which is the domain of municipal governments.
The underused housing tax is also causing concern with Canadian homeowners. A recent report funded by CMHC recommends the implementation of an annual deferrable progressive surtax on home values starting at $1 million. Despite the assurances of the Minister of Housing that the government is not looking at charging capital gains or any surtaxes on primary residences, homeowners were concerned to learn through media reports that CMHC is tracking millions of mortgage holders to identify homeowners with more than one property, raising the possibility that the unused housing tax may in future be applied to second residences owned by Canadians, such as summer cottages.
I’m now going to leave Part 2 and get into Part 3 of the bill. Part 3 provides for a six-year limitation or prescription period for the recovery of amounts owing with respect to a loan provided under the Canada Emergency Business Account. The Canada Emergency Business Account, or CEBA, is a loan program put in place during the pandemic, and these loans were paid out by Export Development Canada under section 23 of the Export Development Act. Eligible businesses that applied before June 30, 2021, were offered loans of up to $60,000, and these loans are interest-free until December 31, 2023. But an annual interest rate of 5% will take effect on January 1, 2024. If at least 75% of the loan amount is repaid by December 31, 2023, the remaining balance will be forgiven. For loan amounts over $40,000, at least 50% of the loan expansion must also be repaid for loan forgiveness to apply.
Clauses 41 to 43 of Bill C-8 establish the limitation of prescription periods to recover money owing under a CEBA loan: six years from the date of default. The date of the default is the day on which the person making the claim first knew or ought reasonably to have known that the default had occurred. The six-year period resets every time the borrower acknowledges their debt, for example, by promising to repay the outstanding balance or by making a payment. I had thought that the six-year limit was a bit generous, but apparently that is quite a common time frame within the federal government. The length of the limitation of prescription period of six years is similar to other loan and repayment periods, such as those established under the Canada Student Financial Assistance Act.
Part 4 of the bill authorizes the Minister of Finance to make payments of up to a $100 million to the provinces and territories out of the Consolidated Revenue Fund for the purpose of supporting ventilation improvement projects in schools. The maximum payments for provinces or territories are stipulated in the bill itself. Officials indicated that the amounts stipulated in the bill are based on a flat amount of $500,000 for each province and territory, plus a per-child allocation for each child 14 to 18 years of age within that province or territory. The funding will be provided to each province and territory, which will be responsible for disbursing the funds.
Part 5 of the bill authorizes the Minister of Health to make payments up to $300 million to the provinces and territories out of the Consolidated Revenue Fund for the purpose of supporting their COVID-19 proof-of-vaccination initiatives. The amount of payment received by each province or territory is to be determined by the Minister of Health. No other information was available regarding provincial or territorial requirements to access the funding or how the funding will be allocated. Officials have indicated that negotiations with the provinces and territories are ongoing and include issues of accountability, how much funding will be allocated to each province and territory, and how the funding will be accessed. As indicated in the bill, the intent is to establish and maintain a proof-of-vaccination program while proof of vaccines is required.
Part 6 of the bill, and specifically clause 46, authorizes the Minister of Health to make payments of up to $1.7 billion out of the Consolidated Revenue Fund for the purpose of covering any expenses incurred on or after April 1, 2021, in relation to COVID-19 tests. As a result of an amendment proposed by the Finance Committee of the House of Commons and accepted by the House, Bill C-8 now includes an accountability clause requiring the minister to report every three months on the total amount paid under the act, the number of tests purchased and how they were distributed.
While Bill C-8 is requesting $1.7 billion relating to COVID-19 tests, two other bills have provided money for COVID-19 tests. Bill C-10 provided $2.5 billion for COVID tests, and the Appropriation Bill for Supplementary Estimates (C) provided $4 billion.
In a recent report, the Parliamentary Budget Officer said that the $4 billion provided by the Appropriation Bill for Supplementary Estimates (C) is a duplication of the funding being requested through Bill C-8 and provided by Bill C-10. This raises a question: Why is the government requesting money for the same initiative twice? If Parliament approves the same funding twice, will there be an extra $4 billion available to be spent on some other unknown project? Officials have indicated that the $2.5 billion approved by Bill C-10 has been frozen by Treasury Board. In addition, all but $6 million of the $1.7 billion in this bill has been frozen.
The Standing Senate Committee on National Finance, in its recent report on Supplementary Estimates (C), expressed concern over duplicate budgeting of this initiative. Specifically, the committee said that government should end duplicate funding requests, as it lacks transparency.
Part 7 of Bill C-8 amends section 12 and Schedule VI of the Employment Insurance Act to specify the maximum number of weeks for which Employment Insurance regular benefits may be paid to certain seasonal workers in regions with very seasonal economies. Under the EI program, regular benefits are available to eligible persons who lose their job through no fault of their own and are able and available to work.
Honourable senators, this concludes my comments on the second reading of Bill C-8. I look forward to the study of the bill by the Standing Senate Committee on National Finance. Thank you.