[Recorded by Electronic Apparatus]
Monday, January 20, 1997
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[English]
The Chairman: Order, please.
The finance committee is delighted to have a number of important financial institution organizations and the institutions themselves before us today to discuss the contents of Bill C-70. We have with us, from the Association of Canadian Financial Corporations, Dave Wilson and Mike Firth; from the Insurance Bureau of Canada, Paul Kovacs and David Hartman; from the Credit Union Central of Canada, Mr. Gary Rogers; from the Canadian Life and Health Insurance Association, Mark Daniels and Jim Witol; from the Insurance Brokers Association of Canada, Joanne Brown and Jim Abernethy; from the Canadian Bankers Association, Richard Barriault and Barbara Amsden; and from the Maritime Life Assurance Company, Bill Black and Tracey Jennings. We welcome all of you.
Paul, would you like to start?
Mr. Paul Kovacs (Vice-President, Policy Development, Insurance Bureau of Canada): Thank you. With me today is David Hartman, who is with Co-operators Insurance, the largest Canadian property and casualty insurance company in Canada. David is chairman of the bureau's tax panel.
The Insurance Bureau of Canada represents the property and casualty insurance industry. Last year we paid about $14 billion of claims to help people recover from traffic accidents and damage to their homes and businesses. There are about 240 insurance companies in the property and casualty field, and we have about 100,000 employees across the country, either directly in the industry or involved in the brokerage industry, which is represented here today as well.
The bureau has long enjoyed a strong productive relationship with this committee, and we're pleased to be here today to talk about the GST harmonized sales tax technical paper.
Three years ago we made a presentation to this committee arguing in favour of a national multi-staged tax to replace the existing sales taxes, including the GST, the provincial sales tax, and other specific sales taxes.
The Chairman: And we did exactly what you asked.
Mr. Kovacs: The committee has worked very diligently to do exactly that, and we've been very pleased to work alongside the committee to try to sell this idea across the country.
The proposal we have today does fall short on a number of fronts, most importantly because several provinces chose not to participate - yet - in terms of an overall harmonized program. We're disappointed that we have not yet found an agreement that would bring all the provinces into the program. We're also disappointed that the overall package doesn't include all aspects of sales tax. In the participating provinces we made good progress with respect to the harmonization of the provincial sales tax and the GST. But there are a number of other sales taxes that we were hoping would be part of this process. At the very least that includes specific sales taxes on insurance products.
Despite our disappointment in the two areas of not having all the provinces on board yet and not having all the sales taxes as part of this proposal, we think the paper outlines a very positive step forward. This is a step toward getting the multi-stage national sales tax that we're all looking for and that the Insurance Bureau continues to strongly support. We praise the efforts of this committee to try to put that process in place, and of the government.
We do have one specific technical issue, and I'd like to ask Mr. Hartman to speak about this issue.
Mr. David Hartman (Chairperson, Tax Panel Committee, Insurance Bureau of Canada): The Canadian property and casualty insurers cannot comply with the provisions of the harmonized sales tax unless they are modified. Chapter 11 of the technical paper provides for modifications to be introduced in order to address the complexity of the particular harmonized system for financial services. We have proposed a modification to the special attribution method for property and casualty insurers with respect to our claims costs.
Finance officials understand our problem and are along in the process of assessing it. Provincial officials also understand our problem and have expressed support for the solution we have put forward. We are grateful to the government that they have acknowledged our problem. We encourage this committee to support our efforts with the Department of Finance to be flexible in modifying the proposed administration procedures to address the particular concerns of the property and casualty insurers. The proposed amendments would be revenue neutral and fair to our industry.
Let me talk briefly to the specific issues that we have in our claims cost area. Property and casualty premiums paid by insurance consumers have been exempt under the GST. Nevertheless the insurance companies pay the federal government $400 million in GST and the Atlantic provinces $40 million in provincial sales tax each year.
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Virtually all insurance claims settled are incurred locally, as it would not be logical to move a car from one province to the other to have it repaired. Insurers do not keep track of the detailed costs of GST and PST incurred in settling these claims costs. However, the proposed special attribution method, if unmodified, would require significant national financial tracking systems in order to determine the GST in the settlement of claims across the country and estimate the HST on claims in the harmonized block. Due to technological constraints, some insurers simply cannot comply with the modified system. More importantly, such a national financial tracking system would serve no purpose but to confirm what is already known, that claims costs are incurred locally. Why incur expense in the range of tens of millions of dollars when it would add no additional knowledge?
IBC proposes that HST owed for property and casualty insurance claims costs should be determined by HST actually incurred rather than estimated nationally by a financial tracking system and then allocated to harmonized regions. HST owed for all property and casualty insured costs other than claims costs would be determined through the application of a special attribution method, as detailed in the technical paper. This modification would save insurers and their customers the costs of expensive new financial tracking systems, which provide absolutely no business value.
Our proposal would have no impact on expected government revenues, and it would ensure that the property and casualty insurers can comply with the new tax system when it is introduced this spring.
The Chairman: Thank you, Mr. Hartman.
Mr. Kovacs, I understand that you are working with officials, provincial and federal, to implement this suggestion and that they're quite favourably inclined to it. I'm sure you would have the full support of all members of this committee. Maybe I could go on record right now as saying that we support those efforts and we'll look forward to their resolution in your favour. Thank you very much.
Mr. Rogers.
Mr. Gary Rogers (Director, Taxation and Special Projects, Credit Union Central of Canada): Thank you, Mr. Chairman.
As I'm sure you are aware, Credit Union Central of Canada is the trade association and banking facility for 950 credit unions in nine provinces, excluding Quebec.
In the GST context it is important to remember that each credit union is potentially a separate registrant responsible for filing a separate GST return. Therefore, since the inception of the tax, our chief concerns have been, first, to ensure that the 950 separate credit unions do not bear higher GST costs than a multi-branch bank of a similar size that operates through a single corporation, and second, to ensure that administrative complexities are minimized to the extent possible for all of these separate tax returns.
When this committee held its hearings on GST replacement several years ago, we commended the committee for seeking alternatives to a tax that is disliked by many credit union members. We commented that one combined tax was preferable to two separate taxes for most of our members, and we reminded you that harmonization would reduce the net income of a credit union or a bank just like any other vendor of exempt services, such as your dentist or your residential landlord, because we would pay increased taxes on services and not recover the cost through the input tax credit mechanism. But we did not regard the higher cost to us as being a reason to object to GST harmonization.
I'm pleased to report to you that we have no substantive objections to the harmonization rules as they would affect credit unions. Our concerns about harmonization appear to have been dealt with satisfactorily in the draft legislation. During discussions with officials of the department, our main concern was a competitive issue. Each of our credit unions in the harmonizing provinces will be paying 15% tax on all of the purchases they make locally and those they buy from arm's length suppliers outside the harmonized provinces.
Our competitive concern was that our larger financial institution competitors would be able to buy services from, say, their head office in Toronto, pay only 7% tax, and supply those services to their branches in the harmonizing provinces at less cost.
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In the draft legislation there are special rules that address this issue and attempt to allocate extra tax in that type of situation. They create some extra paperwork for our larger competitors and the tax is only a rough approximation, but we believe that in general they are a reasonable attempt to reduce the inequities that otherwise would occur. We're quite ready to look at any fine-tuning of this formula that would make it work better.
With regard to tax-inclusive pricing, you should be aware that the new requirements will affect credit unions differently from banks. Banks, being federally regulated, must display prices tax-inclusive. Credit unions, being provincially regulated, may display prices with the tax shown separately.
However, in the overall picture of things there are very few services that we supply on a taxable basis. Virtually none of these are marketed aggressively on a cost basis, so this discrepancy is unlikely to distort the marketplace.
Thank you.
The Chairman: Thank you very much, Mr. Rogers.
Next is Mark Daniels, please. Welcome.
Mr. Mark Daniels (President, Canadian Life and Health Insurance Association): Thank you very much, Jim. It's good to see you.
I'll be making some introductory remarks about our support for the integrated national sales tax and then I'll touch on a few concerns our industry has regarding Bill C-70.
My colleague, Jim Witol, who is the taxation vice-president at the Canadian Life and Health Insurance Association, is here to help me comment as the discussion goes on.
As I've already indicated, our association, which represents the life and health insurance companies in Canada, is in favour of an integrated national sales tax with one base, one rate and one set of rules. Such a tax would reduce compliance costs, eliminate tax cascading in current provincial retail sales tax systems and promote the international competitiveness of Canadian business.
During a period of partial harmonization, when some provinces have harmonized and others have not, care needs to be given to avoid double taxation or unnecessary administrative complexities.
This leads me to some of our concerns with respect to the treatment of financial services under Bill C-70 and to some suggested changes that would make the rules more equitable and easier to administer.
As the committee knows, the provincial component of the HST, the harmonized sales tax, payable by a financial institution will not be based on actual purchases in the harmonized provinces, but will be based on a formula involving the GST payable by the company across Canada. The 7% GST is scaled up to 8% and a portion of that amount, based on the percentage of business the company does in the harmonized provinces, becomes the provincial HST payable.
One problem we have with the formula is that the GST figure used in the calculation is artificially increased by GST that would have been payable in a closely related group of companies, including the financial institution, if section 150 of the Excise Tax Act did not apply.
Section 150 exempts intra-group services from GST so as not to disadvantage group corporate structures from amalgamated structures. By deeming GST payable on intra-group transactions, the formula HST is increased for financial institutions purchasing services from related companies - for example, a real estate or data processing subsidiary - compared to doing the work in-house. In short, labour costs that do not bear GST will be subject to HST when incurred in a related company.
The disallowance of the section 150 rule would appear aimed at financial institutions that would seek to reduce HST by carrying on business in the harmonized provinces and using subsidiaries located outside the harmonized zone. This problem can be avoided, however, without the need to tax labour costs, and our submission discusses this point in some detail.
We have some other concerns with the HST formula, which I'll briefly touch on.
One is the exposure to penalties on deficient HST payments. This arises when GST that has been paid by the financial institution is not captured by the institution's internal tracking system, but is only identified on audit. The HST liability is increased and interest and penalties for late payment apply. We would urge the government to allow penalties to be waived in such a situation.
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We're also concerned about the catch-all, undefined ``prescribed amount'' that can be added to the HST liability by regulation and the additional expense that a province-by-province calculation would entail over an aggregated harmonized zone calculation. I won't deal with these here; we discuss them more in the submission.
In April the government announced its intention to reduce the limitation period for claiming input tax credits from four years to two years for financial institutions and certain other large corporations. In Bill C-70 the government has by and large limited the ambit of the reduced time period to financial institutions.
In our view this is clearly discriminatory and could result in excessive GST and HST being paid because of time constraints in identifying ITCs, that is, input tax credits. For an annual filer such as a financial institution, the two-year period is really only one year after the return has been filed. We recommend that there be symmetry between the time allowed a financial institution to claim ITCs and the period of time Revenue has to reassess the financial institution.
One issue that remains unresolved is the tax treatment of management fees for investment plans, including segregated funds, resident in a harmonized province. Investment plans resident outside the harmonized province would only be subject to the GST.
With respect to resident plans, we understand the Department of Finance is considering imposing the provincial HST on management fees to the extent they are attributable to unit holders residing in the harmonized provinces. This would decrease the yield to resident unit holders of funds managed from the harmonized zone compared to funds managed from outside the zone. In fact, all unit holders of funds managed from the harmonized zone would have their yields decreased, because management fees are payable by the fund prior to any allocation to unit holders.
I know we'll be hearing more about this from Mr. Black of Maritime Life.
We would recommend that provincial HST not apply to investment fund management fees during the period of partial harmonization.
That concludes my summary remarks, Mr. Chairman. Thank you.
The Chairman: Thank you very much, Mr. Daniels.
Joanne Brown, welcome.
Ms Joanne Brown (Executive Director, Insurance Brokers Association of Canada): Thank you, Mr. Peterson.
I have a couple of remarks that will focus strictly on property and casualty brokering operations.
[Translation]
On behalf of the Insurance Brokers Association of Canada, my colleague Jim Abernethy and I welcome this opportunity to share our views regarding Bill C-70 and participate in this round table discussion.
Representing 12 member associations and approximately 24,000 members and their 55,000 employees, the Insurance Brokers Association of Canada is the national association of property and casualty insurance intermediaries. The majority of our members are small independent businesses situated in almost every community in this country.
Since the introduction of the Goods and Services Tax, IBAC and its member associations have spent a great deal of time addressing the issues of tax reform and harmonization. We were particularly pleased when members of this committee commended the IBAC - in the fourth report released last October - for its efforts at harmonization.
[English]
With regard to the tax reform, our emphasis has been to highlight the inequities the GST places on the property and casualty insurance industry. Members of this committee are familiar with our concerns on this front, so you will be pleased to know we are now working with Finance Canada's tax policy branch to determine how the overall tax treatment of our industry, that is, the property and casualty brokering industry, can be improved.
Bill C-70 has compounded these inequities for brokers, and here is why. The application of the harmonized sales tax will increase the complexity and compliance and operating costs for our industry. An element of double taxation for firms operating inside and outside the harmonized sales tax zones will be created, adding further cost to an industry unable to pass the tax on to the end user of our service.
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The increase in these costs may result in some property and casualty insurance businesses moving outside of the harmonized sales tax jurisdictions, with a predictable impact on employment.
The harmonized sales tax has also increased our cost to the advantage of our competitors, in particular foreign providers.
To deal with some of these concerns, IBAC has suggested that the federal and provincial governments provide assistance during the implementation stage of the harmonized sales tax. From our perspective, a higher level of administrative tolerance is needed. This could be achieved by issuing public pronouncements of tolerance, including a grace period for specific industries to allow accounting, information processing, and other administrative support systems the time to adjust to these changes.
The publication of industry-specific Revenue Canada guidelines may also be of great value. They can assist small business in particular to overcome the administrative obstacles resulting from the harmonized sales tax.
While we understand that some of our concerns can only be resolved over the longer term, we are pleased that Finance Canada views our suggestions in a positive light and that a level of tolerance will be possible so that our members can adapt to a new system while minimizing their costs. We welcome the support of this committee.
The Chairman: You have it. Thank you, Ms Brown.
Next, from the Canadian Bankers Association, Richard Barriault.
[Translation]
Mr. Richard Barriault (President, Taxation Committee, Canadian Bankers Association): I am in charge of taxation at the National Bank and President of the Canadian Bankers Association Taxation Committee. Ms Amsden also represents the association.
We would like to thank you for giving us the opportunity to speak on Bill C-70. Under this bill, there is a special formula for financial institutions that are subject to the HST. We estimate that the use of this formula will increase by 30 per cent the sales tax our members pay the three provinces.
We are not, however, questioning the approach considered in the bill, but we would like to suggest some amendments.
Since I will be addressing several of the points that Mr. Daniels has already raised, I will try to be brief.
[English]
First, the proposed legislation would require transactions that would otherwise not be taxable under section 150 of the Excise Tax Act, the group relief election, to be included in the special attribution formula for financial institutions and hence taxed.
We believe this component should be eliminated. This measure is contrary to the original reason for section 150, namely, to avoid taxing salaries and wages, which would be a disincentive to sustainable jobs. This is a particular concern, as the problem would not arise in some cases if the related parties were able to be one company rather than separate entities, as required for regulatory reasons.
Contrary to the legislation's intent of simplification, the system will become more complex due to the need for detailed tracking where none existed before, meaning implementation of costly new tracking systems for financial institutions and a corresponding increase in audit complexity for Revenue Canada.
Secondly, Mr. Chairman, component G of the attribution formula and proposed section 277.1 would allow taxation by regulation. Component G and section 277.1 should be eliminated for the following reasons. Despite the brief explanation in the explanatory notes, there appears to be no clear purpose for component G. We are unaware of any similar provision in tax legislation, nor was the Department of Finance able to provide an example when recently asked.
Taxpayers have a right to certainty. Lack of certainty may discourage economic activity, a concern raised by businesses that appeared this past summer before this committee in a study of economic obstacles in the tax system. Taxpayers should have the right to be consulted and the time to provide input on changes of tax provisions. The regulatory process may not allow sufficient opportunity to comment on possible impacts and alternatives.
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Third, the limitation period for claiming ITCs has been reduced from up to four years to an average of just over one year. We recognize the government's desire to limit its exposure but believe that financial institutions should be able to file eligible ITC claims for at least two years, a provision of the April 1996 version of the legislation.
Given the number of bank employees, 207,000, and the number of locations, over 8,000 branches, that could be involved in the sale of financial products through banks, honest errors will arise that may not be discovered within the short period of time for claiming ITCs prior to their expiration date. Revenue Canada Taxation often makes adjustments as many as four years after the fact, which could result in more claimable ITCs but for the limitation that the legislation would impose.
Only large exempt businesses would be subject to the provision, which is contrary to the principle of equality at least amongst taxpayers of an equivalent size.
Thank you, Mr. Chairman.
The Chairman: Merci beaucoup.
Now, from the Maritime Life Assurance Company, Mr. Bill Black and Tracey Jennings. Welcome.
[Translation]
Mr. Bill Black (President, The Maritime Life Assurance Company): My name is Bill Black and I am president of the Maritime Life Assurance Company, which is headquartered in Halifax, Nova Scotia. I am representing that company here, as well as the Assumption Mutual Life Insurance Company of Moncton, New Brunswick, which like us, as Mr. Daniels explained, believe that the proposed rules for the new harmonization tax may result in competitive inequities. Such problems could be avoided if we follow the example of Quebec, which has already harmonized these taxes.
[English]
Thank you for the chance to speak to you this morning. I want to stress in beginning that we do favour the harmonized tax, even though it ultimately will mean that we pay more tax. We do think it's a better system. We support in general the points Mark Daniels made on behalf of the CLHIA.
We sell a product called segregated funds, which is exactly the same thing as a mutual fund except it is sold by a life insurance company. The problem we have is that the proposed rules that we've been shown will cause us to pay a tax and Assumption Mutual to pay a tax that no other supplier will have to pay, and this will happen to us simply because we're headquartered within the harmonized zone. It's with respect to the proportion of our clients that are in that zone; it's not all of our clients, but it's nevertheless a significant burden for us and, if anything, more severe for Assumption Mutual, because 80% of their clients are within the zone.
We think that is not what any of the politicians who have been advocating this propose. I don't sense in any of our dialogues that this is something that has been advocated, but we don't seem to be able to get past this point. I should stress that although in fact the money we're talking about here would go to the province either of Nova Scotia or New Brunswick, we haven't had much resistance to this point of view at that level. It's really at the federal level that we've had the resistance, and that's why we're here.
The same people we've been talking to do acknowledge that if we reach a point where Ontario does harmonize, the rules will all have to be re-made anyway to make the whole thing work. We feel a little bit like road kill. We're in a situation where the rules can run over us, but when it comes to Ontario's turn they're going to fix it. It's very simple to fix it right now.
One thing that is not obvious but I would stress as part of this is that if anybody is thinking of setting up a mutual fund anywhere within Nova Scotia or Newfoundland or New Brunswick, they're going to think again and do it somewhere else now, because they would start with a competitive disadvantage that they don't need to have.
From our point of view, we're happy with either one of two solutions: we don't mind if all the suppliers pay the tax; we don't mind if nobody pays the tax. We just don't want to be one of only two suppliers who pay the tax in this business. It's a competitive inequity. As I say, I don't think anybody intended to cause it, but it is there, and we hope the committee can see its way clear to recommend a change.
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At the bottom of our submission we highlighted two different approaches to the first solution, which is to eliminate the tax altogether. Either one of those will work. The absence of specifics on the other one isn't because we didn't want to. It's rather complex. We weren't able to figure out how to do it, how to build it all in. Maybe that's why it isn't in there for everybody. As I say, in principle we don't mind if it's everybody, but it was decided it should be everybody or nobody. So that's the essence of our point.
The Chairman: Thank you very much. And that's the same point that Mark Daniels was making on segregated funds as well.
Mr. Black: Yes.
The Chairman: Our last witnesses I've already introduced: from the Association of Canadian Financial Corporations, Dave Wilson and Mike Firth. Welcome.
Mr. Dave Wilson (Finance Committee Chairperson, Association of Canadian Financial Corporations): Thank you, Mr. Chairman. Our apologies for being late. Thank you for the opportunity to address you this afternoon.
I don't know if you know who we are. The association is a member of the Association of Canadian Financial Corporations. We represent six member companies: Associates Financial Services, Avco Financial Services, Beneficial Canada, Household Financial Corporation, Superior Acceptance, and Trans Canada Credit. We serve 1.7 million customers in Canada and have$5.5 billion in assets. I have a copy of our comments, which I'll provide after, if that's okay.
Bill C-70 encompasses a number of earlier proposals for amendments to the Excise Tax Act in addition to the HST changes. We have a couple of comments about the changes as they relate to the GST, and then we'll have a couple of comments about the HST as well.
Relating to the GST amendments, there are some retroactive amendments. A number of ACFC members filed returns claiming input tax credits based on their interpretation of the original version of part IX of the Excise Tax Act. In April 1993 the government announced retroactive amendments to the act, which were said to be designed to clarify the rules governing the recovery of input tax credits by financial institutions. The government did not grandfather claims at that time on the basis that the rules were being clarified and many taxpayers did not agree.
In February 1994 further rules were announced, which introduced completely new concepts. Consequently, grandfathering of returns filed before the date of their announcement was included in the announcement. The current Bill C-70 does not contain the same grandfathering clauses originally proposed in February 1994.
The ACFC has grave concerns about the use of non-relieving retroactive legislation. The rules regarding the recovery of input tax credits by financial institutions will be retroactive for more than six years. There has never been any explanation for the government's reversal of its position as announced in February 1994. A retroactive amendment with no grandfathering erodes the confidence of taxpayers in the system and puts them in the position where they are unable to rely either on the legislation or the government's proposals for coming-into-force provisions and grandfathering. This not only undermines the rule of law in Canada, but also creates a great deal of uncertainty for foreign investors, who must now assume that tax legislation affecting their affairs will be altered up to six years after the event and any rights of appeal will be simply extinguished. All the members of the ACFC are non-Canadian-owned companies.
Furthermore, following announcement of the grandfathering clauses in February 1994, the members of the ACFC acted in good faith and expended considerable resources in negotiations with Revenue Canada as to the precise result of the grandfathered rules and its impact on the returns filed in 1992. They relied on the grandfathering clauses as proposed, only to have the rules changed yet again.
In terms of the implications of this carried over into the HST, registrants will obviously be very uncertain as to whether they can rely on HST legislation, especially in view of proposed section 277, which allows retroactivity by regulation. That point has been made already. The ominous implication of this is that retroactive amendment of a non-relieving nature is now the norm in Canada.
A second point with regard to the GST also relates to a point that has been made already, which is the two-year restriction on input tax credits. Bill C-70 contains proposals to limit the period to two years for claiming input tax credits for listed financial institutions and certain registrants. These proposals have been somewhat modified from those originally announced on April 23, 1996, but they cause us grave concern as well.
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Given that most affected registrants are annual filers, the restriction period is not two years but effectively one year, because the time available to claim runs from the beginning of the period in which the tax was incurred. For example, GST incurred on a cost on December 31, 1997, has to be claimed on the return for 1998 or forgone.
Symmetry between the time available to claim an input tax credit, which is currently four years, and the time available for Revenue Canada to issue an assessment - also currently four years - is a fundamental design feature of a value-added tax such as the GST. To impose a restriction of a two-year limit on input tax credits on a selected population of registrants will inevitably give rise to situations in the future where GST costs are borne by registrants on costs relating to the making of taxable supplies, and will simply add to the compliance cost for those registrants subject to these strictures.
There is no reason why financial institutions should be singled out for unequal treatment compared to other registrants whose activities may be fully commercial. The concept that an input tax credit is recoverable on any cost related to the making of a taxable supply is identical in the case of either registrant.
The ACFC also notes that the United Kingdom considered introducing similar measures recently, but abandoned them in favour of retaining the symmetry between assessment and refund periods.
I have some comments on the HST itself.
The formula for calculating the HST payable by selected financial institutions means that selected financial institutions will not pay HST according to where goods and services are actually consumed. The formula effectively deems the consumption of goods and services to geographically mirror the earning of gross revenue. We have three specific concerns with this formula.
Our first concern relates to the double taxation. When a selected listed financial institution incurs costs in a non-participating province and pays provincial sales tax on those costs, the formula subsequently imposes the provincial component of the HST on those costs to the extent that gross revenue of the financial institution is attributable to the participating provinces. This is clearly double taxation.
A peculiarity of the retail credit market is that for some entities a significant portion of income arises in the participating provinces, resulting in a significant amount of double taxation.
The ACFC recommends that a threshold of percentage of double taxation should be established, and entities exceeding this threshold should receive relief by amendment to the formula. Without such amendment, the ACFC believes that the formula can produce unfair results, and the double-taxation problems will be exacerbated as the harmonized tax creeps westward.
The effect of section 150 elections is our second concern. The formula as currently proposed requires registrants to adjust the amount of irrecoverable tax to remove the effect of an election under section 150 before computing the amount of HST payable. The purpose of section 150 was to remove the distortion that would exist between activities organized between one company and divisions and a parent company and closely held subsidiaries. We do not understand why the formula effectively reintroduces the distortion to the extent that the HST applies. The formula should be revised such that services flowing between entities that are subject to an election under section 150 do not give rise to additional HST costs.
Our third concern is the constant amendment in the law governing the variables in the formula. The base variable for the formula is the amount of irrecoverable GST borne by financial institutions. The rules governing calculation of the amount of the input tax credits recoverable by financial institutions have been the subject of numerous amendments, and all of them are now proposed to be retroactive.
The base for calculating HST payable by selected listed financial institutions therefore is not the product of a known, reliable, or stable system. In recognition of this, any subsequent retroactive amendments in this area should not give rise to penalties or interest as a result of further movements in the amount of HST payable in any particular year.
We also feel that there should be some administrative tolerance in view of the extreme complexity of the rules affecting all registrants, but especially selected listed financial institutions. We feel that it is appropriate that a formal policy of administrative tolerance be declared and observed by Revenue Canada for at least the first two years following the implementation of the HST. This is appropriate, given the very short time between release of the legislation and the implementation date.
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Furthermore, the period of administrative tolerance should be related to the first two years of HST implementation record-keeping and should not expire. For example, an error in 1997 should not give rise to penalties, whether it is discovered in 1997 or 1999.
In summary, we have five recommendations regarding amendments to Bill C-70 that we hope will be considered.
One, retroactive amendments related to the grandfathering originally announced on February 14 should be restored.
Two, the proposed restriction to a recovery period of two years for input tax credits in the case of some registrants should be abandoned to retain symmetry between the time scales for assessment and recovery.
Three, a threshold should be established within the formula for a selected list of financial institutions, beyond which threshold HST should not be imposed in addition to provincial taxes borne outside the participating provinces, to give relief for double taxation.
Four, the formula in section 150 elections for financial institutions should be amended such that HST not be imposed on supplies subject to a section 150 election.
Five, penalties should not be imposed on shifts in the amount of HST payable by financial institutions as a result of retroactive amendments to the GST.
That concludes our remarks. Thank you.
The Chairman: And apart from all that, you just love what we're doing.
Some hon. members: Oh, oh!
The Chairman: Members, I'm in your hands, but I would suggest we might want to invite Tim Norris, a tax policy analyst from the Department of Finance, to come forward and respond to some of these very specific concerns, many of which we have heard over and over again. I do this only with your permission.
Mr. Wilson put numbers to the concerns and gave us five. Tim, maybe you'd like to respond to some of those, because I know you've had thoughts on some of them.
Mr. Tim Norris (Tax Policy Analyst, Department of Finance): I could do my best, yes.
The Chairman: Is that acceptable to members?
Mrs. Brushett (Cumberland - Colchester): Yes, indeed.
Mr. Norris: I guess I'll start with the five that were just raised.
On restoring grandfathering, the concern the tax policy group had in relation to the amendments was that it seemed to be snowballing there. It seemed a number of tax individuals were coming up with new and varied interpretations of the law, to the point where the law didn't have consistency and certainty.
Some of the individuals here have raised the fact that retroactivity takes away from the certainty of the tax system, but what we were trying to do and in one sense what we were forced to do was suggest that the original intent and wording, as described in 1990 and discussed in quite some detail, as to the means of apportioning inputs and the means of characterizing various inputs should be protected and reinforced.
So we don't believe this is retroactively imposing new taxes or creating new tax burdens. We were simply reinforcing the existing intention of the legislation.
We appreciate that when dealing with the complexity of subject matter that is involved in the financial sector, we can't say with 100% certainty that every aspect of every supply made by a financial institution was anticipated. However, I do think the apportionment Canada adopted was adopted by every other VAT country and should have been generally understood.
So in relation to the grandfathering, our position is that we tried with best efforts, a couple of times in 1994 and once in 1995, to offer a grandfathering. That simply allowed some financial institutions that had filed claims to resurrect, change, modify and stay in the game of making a refund or a rebate claim, whereas others that had put aside their claims were not allowed this.
The goal there was ultimate equity as opposed to short-term equity.
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The Chairman: On that particular point, does anybody want to respond to Mr. Norris, members or witnesses? Okay. Thank you, Mr. Norris.
Maybe you could deal with the second point, on having reduced the four-year period to two years. Some people feel this is a little short.
Mr. Norris: We are aware of the concern that for annual filers two years can actually be 15 months or some period less than 24 months. We are reviewing that matter. Our intent is to look to the end of the period where tax was incurred rather than the beginning of the period.
That matter is subject to approval at various stages and is being currently reviewed with the legislative policy people to see if in fact it can be accurately drafted. Then at that stage it will proceed up through the normal channels.
What we would be looking to is a full 24-month period for annual filers, as I think was intended by the legislation in April.
The Chairman: That has been enacted in concert with the provinces. It meets your concerns on the two-year rule?
Mr. Wilson: I don't think it would. It would still leave the inequity between the assessment period and the input tax credit claiming period at four years and two years.
Mr. Norris: So you're saying you'd prefer a full four years? Is that the issue?
Mr. Wilson: Certainly.
Mr. Norris: That was a decision taken at a level higher than mine. I can't speak to it directly.
The Chairman: Go ahead. You break all the rules anyway, Tim. We know that.
Mr. Norris: I'll simply say it's government policy that the four years was too long. It was part of the reason that so many.... I don't want to misspeak here. It was part of the reason that things seemed to be unwinding, and we felt that two years should be enough time to properly anticipate what tax should have been paid and what inputs should have been claimed.
The Chairman: What is the reason you can't live with a full two years in fact, as opposed to a nominal two years?
Mr. Wilson: I would think conceptually that the period of assessment should be the same. If Revenue Canada has four years to reassess, there should be a four-year period given to taxpayers to claim input tax credits. I just think that symmetry is an essential element of fairness in assessing the new tax. You shouldn't limit taxpayers claiming input tax credits to a period that is shorter than the period available for assessment by Revenue Canada.
The Chairman: Could you tell me a circumstance under which a taxpayer would not know they were entitled to an input tax credit within two years?
Mr. Wilson: I can't tell you a specific circumstance, but I'm sure there are circumstances. With constant changes to the legislation and the newness of the legislation, to me it's feasible that an input tax credit could come to light after a two-year period.
The Chairman: Does anybody else have an example of how one could come to light two years later?
I know the expenses I've incurred. I as a taxpayer am in a much different position from a department, which might have four years to reassess but is not reassessing every year, and we wouldn't want them to be.
If there are examples, yes.
Mr. Jim Witol (Vice-President, Taxation, Canadian Life and Health Insurance Association): In a complex organization such as a financial institution, quite often the financial institution doesn't even know the GST it's paid. It's buried way down in the system and is amongst a number of other expenses. If the organization doesn't even know its GST, it doesn't know whether or not it's eligible for input tax credits.
I'd make a point to Tim that there's, I would think, some overkill here. You've justified retroactive legislation on the basis that there's a lot of creative taxpayers out there who have four years, and then you collapse the four down to two. If you could only have one, the limit of two years or the retroactive rule, which would you take? You have both right now.
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Mr. Norris: I choose not to respond to that directly, but to answer the previous question, in the third and fourth years the amount audited, if such, by Revenue Canada can be set off, so there is some relief in that regard. If amounts are found that are rebatable, they will be set off against any amount found by Revenue Canada under audit.
The Chairman: Okay, so if I could summarize where we are on that little round, the department's position and the minister's position is that, yes, you're quite right: the two years is too short for the taxpayers to determine what their ITCs are. However, the suggestion that we take it out to a full two years in fact is satisfactory to some but not to others. Is that a fair assessment of that one? There are some people at the table who feel the two years is adequate? Okay.
The third issue is this threshold suggested for double taxation.
Mr. Norris: I didn't fully hear that suggestion.
The Chairman: Mr. Wilson, you were talking about the problem of double taxation and saying you wanted some type of threshold to be established after which you would get relief from the double taxation that's going to be hitting your operations. It was your third recommendation.
Mr. Wilson: Yes. We have a company that is headquartered in Ontario, incurs costs in Ontario and has to pay provincial sales tax in Ontario based on Ontario consumption, which is Ontario's rule. Then subsequently the participating provinces would say we must pay sales tax in the participating provinces based on gross revenue. So there's a different calculation of the sales tax base.
To the extent that a member company of the ACFC would be based in Ontario and would have a significant portion of its gross revenue earned in the participating provinces, it would be paying Ontario sales tax on items purchased and consumed in Ontario, and then, by virtue of the formula, would be forced to calculate an amount of HST on those same costs. So it would be paying Ontario provincial sales tax and HST in the participating provinces on the same items.
Mr. Norris: What I didn't understand was an upper limit, you said, for SLFIs.
Mr. Wilson: We're suggesting that there be some sort of limit placed on the percentage of the amount that would be considered double-taxed. For example, if a company were headquartered in Ontario and purchased almost all its goods in Ontario but earned, say, 25% of its revenue in the participating provinces, we're suggesting some sort of cap to bring that 25% gross revenue amount more into line with its actual consumption in the participating provinces. I don't know exactly what form that formula amendment would take, but that's the kind of formula adjustment we're talking about.
Mr. Norris: The Department of Finance is aware of the double taxation issue. Clearly it's not a problem in relation to goods. When goods are exported from a province, generally relief is provided by that province.
On services, however, it's a new game. Within the harmonized tax sphere, provincial governments have not had to deal with this as of yet. Clearly it's a provincial government issue in the first context. If goods and services are purchased in their province for consumption outside, there should be relief. I realize that is not of much benefit currently, until either such legislation is implemented by provinces or other provinces join within a fully harmonized system.
The matter becomes one of complexity. We would be happy to review your suggestion and see if maybe an upper limit makes sense. I wouldn't make any judgments right now. It sounds complex in the sense of the formula, which started as a very simple formula, and to make it accurate, it's getting a little bit lengthy, as some of you have mentioned.
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To further limit the aspect of inputs is an idea we'll explore, but hopefully the element of double taxation is an unfortunate, temporary inconvenience until other provinces harmonize.
The Chairman: Which will be very soon.
This is such a good measure. I've had phone calls today from various provinces asking if they could get on board.
Tim, on the section 150 election...?
Mr. Norris: We've looked at the section 150 election and appreciate the concern that almost everyone at the table has raised in relation to that issue.
We've looked at two possible adjustments to section 150. The first one is in relation to taxing not the value of the full supply, which would include wages and salaries, but rather the GST paid on the original supply.
To get to that, one of the problems we had and the reason the legislation was proposed, as everyone saw in Bill C-70, was that the legal services advisers we had suggested we couldn't bridge the confidentiality of one corporation to another corporation. In other words, although you all may be members of a closely related group, we could only deal with one member and couldn't ask them to get information or amounts from another corporate group. We couldn't legally do that.
What we are proposing is an option. Because our discussions have led us to believe that most FIs would be willing to make that arrangement amongst the financial institutions in the section 150 election, we're going to allow an option. If the two parties agreed to transfer that information, we would go to the tax value of the original supply.
The way it would work is that the existing wording right now would stay, but there would be an option that if two members of the section 150 election wanted to so elect, they could go to the original value, which would be fair.
In addition, we are looking at but haven't come to a conclusion on supplies between selected listed financial institutions and other selected listed financial institutions within a section 150 election. So if you have two financial institutions supplying to each other that are both SLFIs, then they could exclude those amounts from their attribution formula calculation. We would just assume that at either end, the tax has been paid by one of those financial institutions.
So for SLFIs, we're exploring that treatment.
The Chairman: If I can interpret what you've said, you're prepared to continue discussions with affected parties to work out the best formula for dealing with this.
Mr. Norris: Yes.
The Chairman: And that's still under discussion and negotiation.
Is that satisfactory to witnesses before us?
The fifth issue you mentioned, Mr. Wilson, had something to do, as I recall, with retroactivity again. I didn't catch it completely.
Mr. Wilson: It has to do with administrative tolerance and the imposition of penalties.
The Chairman: Oh, yes.
Mr. Wilson: There are two points: administrative tolerance in the first two years and the penalties imposed on shifts in the amount of HST payable by financial institutions as a result of retroactive amendments.
The Chairman: We'll deal with administrative tolerance in the first two years. Have you ever heard of administrative intolerance?
Mr. Norris: Never.
A proposal has been made to the assistant deputy minister in relation to tolerance and what steps will be taken in that regard. I can't say more than that. We have made a number of proposals, and they will be reviewed between the ADM and the minister at some future date.
We're aware of the concerns, we've listed them, and we will present them to the government for review.
The Chairman: Is the issue you raised, Joanne Brown, the very same one?
Ms Brown: Yes, it is.
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Mr. Norris: I would simply say that the matter will be coming before Minister Martin's office in the near future.
The Chairman: Okay. We'll look forward as a committee to hearing the response on that one as well.
We had one more issue, raised by Maritime Life, on this whole question of proposed subsection 150(1) and the question on segregated funds, as mentioned by Mr. Daniels. If you have a segregated fund in a harmonized province, the fees that you pay for management, etc., administration, are 15% as opposed to whatever they are in non-competitive.
Any comments on that, Mr. Norris?
Mr. Norris: We have tried...fully aware of the issue, and we appreciate the cooperation Maritime Life has given us. We have looked at all investment funds. Clearly it is an area where they do not fall under the attribution method. So there is a 15% burden if nothing else was done for those funds or those trusts that are resident inside the harmonized block.
We have proposed a method of relief or recovery to the extent that you have consumption outside of the harmonized block of provinces. This is a proxy. It is intended to mirror the attribution formula to the extent that there is some amount of consumption outside the block. The proxy we're using is unit holders, investors and pensioners, including a cross-reference to the amount invested as being consumed outside versus inside the block. It is not perfect but it does allow relief and it does mirror the attribution formula.
There have been two other suggestions put forward by Maritime Life. The first one is to provide segregated funds with a 100% rebate. Obviously, the concern is if there's 100% rebate, there's no provincial tax being paid, there's no provincial portion of HST being paid by these investment funds and there would be inequity in the sense that they would be at an advantage to funds in Ontario. A 100% rebate would not achieve competitive equity across the board.
The second proposal is that all segregated funds and mutual funds in Canada be assessed an amount of HST. The problem with this is that where you have neither the supplier nor the recipient resident in the harmonized provinces you end up adding HST to a base that has no relevance or no tie to the HST base. That is the problem we've been facing. We considered taxing all mutual funds, but assumed there would be a great deal of concern of all funds paying tax in relation to a newly imposed tax in a certain set of provinces in Canada. But more importantly, if there is no tie to a harmonized tax, it would be inequitable to bring them into that tax system.
What we've done is to say that within the tax system, within the HST, segregated funds will be taxed at 15%, but we are willing to allow relief based on the amount of consumption that takes place outside the block. That's the position we have taken.
The Chairman: How do you feel about that?
Mr. Black: I would say two things, Mr. Chairman. I have to say to Tim that I totally disagree with him that there's some kind of rough justice or equity in what he is proposing. We will pay the tax and people headquartered outside the zone won't - period. That's inequitable. There's no offset on the other side in terms of the HST on segregated funds.
The second thing is that the practical consequence of insisting on this approach is to encourage us and other people.... You know, 80% of my customers are outside of the harmonized zone. There's no reason why I have to keep the funds headquartered in Nova Scotia or the jobs that go with them. I can go to Alberta and pay none or I can go to Quebec and pay none.
The Chairman: What are we talking about in bucks? What does this mean to you?
Mr. Black: In the first year, $350,000, going by about $100,000 a year.
The Chairman: So this proposal would cost you $100,000?
Mr. Black: No, $350,000 in the first year, $450,000 in the second year, $550,000 in the third year and so on.
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Ms Tracey Jennings (The Maritime Life Assurance Company): That's compounded. If one other province harmonizes, then that will compound and it will grow exponentially. This is not a measure that will get better. It's not one that will encourage other provinces to harmonize. By joining the harmonization, you're going to be disadvantaged. As long as you're outside of the block you don't have to charge the tax to any of your customers, even if they're resident in Nova Scotia.
So we're being placed at a distinct competitive disadvantage, because to sell to Nova Scotians or to anybody else we are forced to charge the tax, when they can buy from any other life insurance company across the country and not pay the tax.
The Chairman: Mark, do you agree?
Mr. Daniels: Absolutely. We are behind Maritime on this, completely.
Mr. Witol: You mentioned that Maritime would be at a competitive advantage because there wouldn't be any sales tax in the cost, but to the extent that what you're talking about is just services, they don't bear any provincial sales tax anywhere right now. They're subject to the GST. That's common everywhere in Canada, but there isn't a relief from any provincial sales tax there.
Ms Jennings: If I could add on that one, as well, Tim mentioned that we're getting relief through the allocation formula, and that really will help us out. The allocation formula provides relief on our purchases. The segregated fund issue relates to our revenue, and it's our revenue being charged, not our purchases. The amount of PST we're paying on our purchases is very small in relation to the HST we're going to be forced to charge on our revenue. So we feel it really is not equitable to look at it in that respect as well.
Mr. Norris: I guess the first point to make is that the provincial governments agreed to a harmonized tax base, which is the GST base. The PST base will be gone and we will have a new base that taxes services. The nature of that is that it will pick up services that weren't previously taxed.
We are aware that there will be increases for some taxpayers and decreases for others in a harmonized system, but within this system the provincial tax will be removed. As one member suggested, on services, they're exempt services, but their inputs are taxed approximately 10%. We've been told by a number of industry groups that 10% of their overhead is taxable supplies under the PST. So the PST is removed, HST is implemented and then relief is allowed to the extent of consumption.
The provincial governments have agreed to that tax base, and yes, there is an increase, but the issue relates to one of what the current burden will be and, when other provinces join in, how they will be treated under a harmonized tax. The reality is that management and administrative fees are taxable right now, and that is the base that's been adopted.
If the underlying concern here is that all management and administrative providers and the funds that use their services would always like to be at 7%, then that is a separate issue. That is an issue, as other provinces join in, that will be raised again and we can review it then.
But as for the current situation, what we've proposed is that within six months, and a year after as well, we review the effect on the funds to see what actually the result has been, what the actual tax result has been, and to assess the competitive inequities, if there are any, at that time.
Mr. Black: They are perfectly knowable right now. We don't need six months to discover that 8% tax on top of what we're paying right now will be more and will create competitive inequities. I can tell you right now exactly what it's going to look like. It's going to be different. What you're going to do is put us at a disadvantage against out-of-province suppliers. You're going to encourage us to move the relevant work outside of the harmonized zone to avoid the problem. I don't think that's the intention of government policy.
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The Chairman: Would you like to move to Willowdale?
Mr. Solberg, I'll go to you and then Mr. Daniels.
Mr. Solberg (Medicine Hat): Mr. Chairman, I don't pretend to be intimate with all the details of the tax law, but one of the things that occurs to me is that here we have a situation where there are billions of dollars flying into mutual funds today, into different funds, and effectively these people are going to be shut out of this great opportunity, or they're going to be put at a great disadvantage.
To echo what Mr. Black has just said, it's pretty obvious to me that if these people are facing a competitive disadvantage, that's going to be reflected in their ability to attract sales. I don't understand why there's such a reluctance to see the sense in that. Of all the areas in the country that needs a hand, I would think it would be Atlantic Canada. So I don't understand why there's such a reluctance to see this when it's so perfectly obvious.
The Chairman: Mr. Daniels, you want to add something.
Mr. Daniels: Yes, sir, if I may. I'm really picking up on your point.
You will recall that Mr. Black mentioned that he was talking here not only in the name of Maritime Life, which he told us has offices in Calgary or Montreal and can indeed, with some trouble and expense, shift this outside the province with its attendant job costs, but in the name of Assumption in New Brunswick as well. They do not have the same kind of flexibility. Frankly, I don't understand why we would want to burden these companies with that kind of risk, but I think the relative burden is even higher in the case of Assumption in New Brunswick. Both of them pay, it seems to me, an unnecessary price in an extraordinarily competitive market.
Six months from now you'll know your results, all right, and I'm afraid it may not be reversible in terms of regaining a share of market. It's big business right now.
The Chairman: Are there any final words on this particular issue before I ask you if there are other issues you raised that I have neglected to deal with as we've gone along?
Mr. Black: The only thing I'd like to add on that, Mr. Chairman, is that we've had a lot of dialogue with the Province of Nova Scotia on this as well. Unless they're being completely duplicitous with us - and I don't think they are; I think the resistance is all here in Ottawa; the Province of Nova Scotia well understands local economy issues - they wouldn't mind attracting the head office of a mutual fund or two. It's a great place for call centres. Same thing with New Brunswick. This would completely put that out to lunch until the whole country was harmonized.
So I think the problem is here and can be solved here. We've told you about two different ways that we think would work.
The Chairman: Any further comments on this particular issue before we move on?Mrs. Brushett.
Mrs. Brushett: Yes, Mr. Chairman, on the same vein as Mr. Black. We are indeed looking to encourage provinces to come on board with the harmonization. If in fact this particular tax with segregated funds is a disincentive to come on board with the other provinces in selling the segregated funds, such as the mutual funds, then I think it behoves us to look for a positive result here so that we can resolve it and not have it lingering out there, because it will cause us grievance down the road.
So I would like to look for solutions, I guess, as a member of this committee, in terms of how we can maybe resolve this so that it isn't detrimental and doesn't erode our financial institutions in Atlantic Canada.
The Chairman: Amen.
Are there any other issues I have neglected to raise here? Mr. Kovacs.
Mr. Kovacs: Again, we had a narrow technical issue on the property and casualty side with respect to handling our claims costs. We've had very lengthy discussions with Tim Norris and his colleagues. It has been a very sympathetic hearing about how we handle just the one part of our cost dealing with insurance claims, and if we try to follow through with the way the current proposal stands, we'd have to put in fairly high cost to track all of these claims.
Our overriding concern is that all of our claims resolution involves buying products in the local community to get a car repaired or to replace something that has been stolen or damaged as part of an insurance claim. We think the appropriate way to handle that part of our GST and the harmonized sales tax is to do it on a basis of actual costs as incurred.
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The Chairman: My understanding of the position of the government at this time is that they are prepared to see the light of your suggestion.
Am I correct on that?
Mr. Norris: Yes, we're working towards that. Short of defining specifically what's a claim and what's an overhead cost, yes, we are going down that road.
The Chairman: Thank you.
Mr. Abernethy.
Mr. Jim Abernethy (Member, Taxation Committee, Insurance Brokers Association of Canada): The Insurance Brokers also have a very similar concern that was raised here with respect to business inside and outside a harmonized zone and the competitiveness problem. I'm hoping any solution the committee may come up with would include other industries, not just the segregated fund industry.
The Chairman: You're familiar with that? Are we okay on that issue?
Mr. Norris: If we find a solution for segregated funds, we can apply it as well to brokers.
The Chairman: Okay.
Mr. Norris: I might just add that we proposed to the provincial governments that if they wanted to put in a point of sale rebate to alleviate competitive inequities, they were more than free to do so. In other words, if we're giving up on the HST base, it's their portion that they're giving away, not the GST portion.
They were not interested in that at that time. It may be something we can re-explore as a solution to resolving some of these problems.
The concern the Department of Finance has, not to be unreasonable, is that there are segregated funds, investment plans, pension plans and a number of different types of investment vehicles - hundreds, in fact, in Atlantic Canada and tens of thousands across Canada - and the treatment of segregated funds should be the same as all other funds in Atlantic Canada. To allow relief or special treatment for one would mean special treatment for all of those and would deviate from the tax base. In other words, what you're fundamentally saying is that we're collecting no tax on behalf of the provincial governments.
So they were concerned that in fact HST at 15% would be the appropriate tax. They were willing to allow relief and they agreed to the method we had proposed.
When we've talked to them we have all consistently tried to look for a better solution, and if there is a more exact or specific way of finding a number, we're open to solutions.
The Chairman: I take it you're saying, Mr. Norris, that we already impose GST on the fees at 7%, and that applies right across Canada, so there's a level playing field. This is creating an unlevel playing field to the extent that now the provincial component of the HST will be imposed.
Mr. Norris: That's right.
The Chairman: Therefore, another possibility would be for the provinces to rebate these funds as they do in the case of point of sale on books in certain cases, where they choose not to have that tax payable. That's another approach.
But I take it our final position on this is that we'll continue to consider possible ways of looking at it.
Mr. Norris: Absolutely, and if anyone comes up with a magical solution, we'd love to hear it.
Mr. Black: It's at the bottom of the last page, Tim.
Mr. Norris: I'll read it with interest.
The Chairman: Mr. Solberg.
Mr. Solberg: I have one final comment, following up on something Mr. Wilson said with respect to retroactivity. He made a very good point about it being difficult for a business to plan when all of a sudden the government can go back and change the rules.
I don't know if it's appropriate to discuss a specific instance, but there should be some kind of requirement for the Department of Finance to make sure these things are aired quite publicly when there is a discussion of that nature occurring, and perhaps this is the appropriate forum for it. I just think it's quite a dangerous thing to start to do on a regular basis, to go back and change the rules, for a whole bunch of different reasons. I really do think it would be good to bring those sorts of things here before the government or the Department of Finance decide they want to do that.
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The Chairman: I have no problem with that. I think all things considered by the government should pass through these corridors.
[Translation]
Mr. Barriault: Another element supports the point raised by Mr. Solberg. The bill includes an adjustment to the formula, with the addition of component G, which provides for amendments to the tax base by regulation, without clarifying the purpose of the proposal and without giving taxpayers any indication of the impact of this measure. Could your expert from the Department of Finance clarify this point for us?
[English]
The Chairman: Mr. Norris.
Mr. Norris: I'm sorry, I didn't have the translation facilities to hear the question.
Mr. Barriault: Item G on the formula, which is an undefined element -
The Chairman: This allows tax by regulation.
Mr. Norris: I am not competent to answer the issue in relation to item G. It is another technical officer who has developed that. I can't speak to it. I can bring the concern back to them and perhaps we could have a conference call later in the week to deal with that issue.
The Chairman: Okay. Others?
Mr. Daniels: Can I be included?
The Chairman: Sure.
Mr. Solberg: Mr. Chairman, I think this is making the point that these things should be discussed in the open, and now you're having a conference call apart from Parliament. I do think it's a good idea to take a look at these things in public. Mr. MacKnight raised this point this morning as well - concern about substantial changes being made away from parliamentary scrutiny - and we should all be concerned about it.
The Chairman: Members, Ms Brushett, Ms Whelan, Mr. St. Denis, Mr. Loubier, before we close off, are there any closing comments from any of you?
I have a list before me of detailed proposals, which I think number nine now. If my count is correct, most of these have either been resolved or are in the process of being resolved. The tough ones still relate to your company, Mr. Black, and to other institutions.
I am extremely grateful to you, Mr. Norris, for the expertise you've brought to our table, but also the openness you have shown and the need to consider these things in a public way so that all of us can be part of the solution. We are here looking for solutions. I appreciate very much the way you, as witnesses, have brought these matters to us.
Every one of you has told us that you support this effort at harmonization. You're working with us to make this very difficult transition from 10 different taxes hopefully to one. In the meantime the elevator has stopped at the eighth floor. That has caused us some problems, such as the one Maritime Life is encountering, that we wouldn't have experienced had the elevator gone all the way down to one.
All of you represent, first of all, very important interests for our economy, very big players in the Canadian GNP, GDP and jobs. Many of you are very export oriented. You are leading employers and leading industries in Canada. It's critical that we work hand in glove with you to ensure that this competitiveness be maintained on a global basis.
I am pleased that the dialogue and discussion on some of these items can continue. Regardless of what is enacted, I can assure you that this committee, the minister and the officials in the ministry are very anxious to continue a process of working to resolve problems, because we know with any huge transition such as this being done in a way that is not optimum, there are going to be enhanced problems - ones we can foresee today and ones that will come up that we have not foreseen - and we will have to work to resolve them.
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Last, because of your pre-eminent position in the Canadian structure, I know every one of you is in a position to help us complete the job of harmonization. We seek your ongoing support to encourage other provinces to join in the effort.
On behalf of all members, I thank each one of you for being with us.
We adjourn until 9 o'clock tomorrow morning, in room 209 West Block.