Description
Jobs Growth And Long-term Prosperity
E C O N O M I C A C T I O N P L A N 2 0 1 2
Tabled in the House of Commons
By the Honourable
James M. Flaherty, P.C., M.P.
Minister of Finance
March 29, 2012
JOBS
GROWTH
AND
LONG-TERM PROSPERITY
Budget2012_BW_TitlePage_EN.indd 1 12-03-26 2:50 PM
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3
Chapter 1 – Introduction ................................................................. 11
Chapter 2 –Economic Developments and Prospects .......... 23
Highlights ....................................................................................................... 25
Introduction ................................................................................................... 26
Global Economic Developments and Outlook .................................................. 26
Canada’s Recent Economic Performance ........................................................ 32
Financial Market Developments ...................................................................... 38
Commodity Prices ........................................................................................... 40
Canadian Economic Outlook—Private Sector Forecasts................................... 41
Risk Assessment and Planning Assumptions.................................................... 43
Chapter 3 – Supporting Jobs and Growth
3.0 – Supporting Jobs and Growth .................................................... 47
Introduction ................................................................................................... 49
3.1 – Supporting Entrepreneurs, Innovators
and World-Class Research .................................................................... 51
Highlights ....................................................................................................... 53
Creating Value-Added Jobs Through Innovation .............................................. 53
Support for Research, Education and Training ................................................. 54
Creating Value-Added Jobs Through Innovation ............................................. 55
Helping High-Growth Firms Access Risk Capital ............................................... 60
Increasing Direct Support for Business Innovation ........................................... 61
Doubling the Industrial Research Assistance Program............................... 61
Supporting Innovative Businesses in Western Canada .............................. 62
Supporting Private and Public Sector Research Collaboration ............................ 63
Integrating High-Quality Researchers Into the Labour Market ................... 63
Strengthening Knowledge Transfer and Commercialization ....................... 65
Forestry Innovation and Market Development Support ............................. 66
Supporting Innovation Through Procurement .................................................. 66
Refocusing the National Research Council ....................................................... 68
4
Scientific Research and Experimental Development Tax Incentive Program ......... 68
Simplifying the Tax Credit Base ............................................................. 69
Increasing Cost-Effectiveness................................................................ 69
Enhancing Predictability ....................................................................... 70
Contingency Fees ................................................................................ 71
Support for Research, Education and Training ................................................ 72
Supporting Advanced Research ..................................................................... 72
Promoting Post-Secondary and Private Sector Research Collaborations ...... 73
Investing in Genomics Research ............................................................ 74
Investing in Mental Health Research ...................................................... 75
Promoting Cost-Effective Health Care ..................................................... 76
Advancing Knowledge and Treatment of Spinal Cord Injury ...................... 76
Diversifying Canada’s Medical Isotope Supply ......................................... 76
Supporting Leading-Edge Researchers ................................................... 77
Investing in Leading-Edge Research Infrastructure .......................................... 77
Canada Foundation for Innovation ......................................................... 77
Supporting Canada’s Ultra-High Speed Research Network ......................... 79
The Canadian High Arctic Research Station ............................................. 79
Extending Canada’s Participation in the International
Space Station Mission .......................................................................... 79
Revitalizing Natural Resources Canada’s Satellite Station Facilities ............. 80
Supporting Atomic Energy of Canada Limited .......................................... 80
International Education Strategy ................................................................... 81
3.2 – Improving Conditions for Business Investment ................ 83
Highlights ....................................................................................................... 85
Responsible Resource Development ............................................................... 85
Investing in Our Natural Resources................................................................ 85
Expanding Trade and Opening New Markets for Canadian Businesses ................ 85
Keeping Taxes Low for Job-Creating Businesses .............................................. 86
Improving Economic Conditions for Farmers and Fishermen ............................. 86
Strengthening Business Competitiveness........................................................ 86
Further Developing Canada’s Financial Sector Advantage ................................. 86
Improving Conditions for Business Investment .............................................. 87
Responsible Resource Development ............................................................... 88
Modernizing the Regulatory System for Project Reviews ................................... 89
Major Projects Management Office Initiative ................................................... 94
Consultation Under the Canadian Environmental Assessment Act ...................... 97
Supporting Responsible Energy Development ................................................. 97
5
Strengthening Pipeline Safety ....................................................................... 99
The Northern Pipeline Agency ....................................................................... 99
Amending Mining Regulations ....................................................................... 99
Investing in Our Natural Resources .............................................................. 100
Supporting Junior Mineral Exploration .......................................................... 100
Supporting Offshore Oil & Gas Exploration .................................................... 101
Assessing Diamonds in the North ................................................................ 101
Expanding Trade and Opening New Markets for Canadian Businesses .......... 101
Canada’s Leadership on Trade .................................................................... 102
Canada’s Trade Plan for Jobs and Growth ..................................................... 102
Canada-U. S. Border and Regulatory Action Plans .................................. 103
Deeper Canada-China Ties .................................................................. 103
Canada-EU Trade Agreement .............................................................. 104
Canada-India Trade Agreement ........................................................... 104
Trans-Pacific Partnership .................................................................... 104
Active and Ongoing Engagement in the Asia-Pacific Region ..................... 104
Canada in the Americas ...................................................................... 105
Deeper Canada-Africa Ties .................................................................. 105
Deepening Canada’s Trade and Investment Ties in Priority Markets: A Refreshed
Global Commerce Strategy ......................................................................... 106
Trade Measures to Support the Energy Industry ............................................ 107
Export Development Canada ....................................................................... 107
Streamlining Canada’s Trade Remedy System............................................... 108
Foreign Trade Zone Programming ............................................................... 108
Increasing Travellers’ Exemptions ............................................................... 108
Tax Relief for Foreign-Based Rental Vehicles ................................................. 109
International Taxation................................................................................ 110
Tax Treaties and Tax Information Exchange Agreements ........................ 111
Fostering Sustainable Global Growth............................................................ 112
Providing Stewardship in the G-20 ....................................................... 112
Strengthening the Legitimacy and Effectiveness
of the International Monetary Fund ...................................................... 112
Increasing the Impact of Canadian Development Assistance ................... 113
Refocusing Canada’s Tariff Regime for Developing Countries ................... 114
Keeping Taxes Low for Job-Creating Businesses .......................................... 114
A Competitive Business Tax System ............................................................ 114
Enhancing the Neutrality of the Tax System ................................................. 118
Phasing Out the Atlantic Investment Tax Credit—Oil & Gas and Mining ..... 118
Phasing Out the Corporate Mineral Exploration
and Development Tax Credit ............................................................... 119
6
Improving Economic Conditions for Farmers and Fishermen ....................... 119
Strengthening Agricultural Institutions ......................................................... 119
Supporting Canada’s Fisheries .................................................................... 120
Strengthening Business Competitiveness ..................................................... 120
Fostering Foreign Investment ..................................................................... 120
Reducing Red Tape .................................................................................... 121
Reducing the Tax Compliance Burden for Businesses ..................................... 123
A Doubling of the Goods and Services Tax/Harmonized Sales
Tax (GST/HST) Streamlined Accounting Thresholds ............................... 124
Simplified Administration for Partnerships ............................................. 124
Improvements to the Rules for Paying Eligible Dividends ........................ 124
Administrative Improvements That Enhance the Predictability
of the Scientific Research and Experimental Development (SR&ED)
Tax Incentive Program ....................................................................... 124
Written Responses to Business Enquiries .............................................. 125
Expansion of Web Forms for Information Returns .................................. 125
Enhancements to the CRA’s Secure My Business Account Portal .............. 125
An Improved Business Section on the CRA’s Website ............................. 125
Graduated Penalties for Late Filing....................................................... 126
Continued CRA Progress on Tax Fairness .............................................. 126
Taxation of Corporate Groups ..................................................................... 126
Further Developing Canada’s Financial Sector Advantage ............................ 127
Fostering Stable, Competitive, Fair and Efficient Capital Markets .................... 127
Preserving the Stability and Strength of Canada’s Financial Sector ................. 128
Enhancing the Governance and Oversight Framework for Canada Mortgage
and Housing Corporation ............................................................................ 128
Improving Access to Capital for Canadian Financial Institutions ...................... 129
Clarifying Federal Jurisdiction Over Banking .................................................. 130
Clarifying the Separation of Insurance and Banking ....................................... 130
Continuing to Fight Counterfeit Bank Notes .................................................. 131
3.3 – Investing in Training, Infrastructure
and Opportunity ..................................................................................... 133
Highlights ..................................................................................................... 135
Supporting Job Creation, Small Business and Skills Training ........................... 135
Improving the Employment Insurance Program ............................................. 135
Expanding Opportunities for Aboriginal Peoples to Fully Participate
in the Economy ......................................................................................... 136
Building a Fast and Flexible Economic Immigration System ............................ 136
Strengthening Canada’s Public Infrastructure ................................................ 137
7
Supporting Job Creation ............................................................................... 138
Supporting Job Creation, Small Business and Skills Training ....................... 139
Extending the Hiring Credit for Small Business .............................................. 139
Enhancing the Youth Employment Strategy .................................................. 140
ThirdQuarter Project .................................................................................. 141
Improving Labour Market Opportunities for Canadians With Disabilities ............ 142
Women on Corporate Boards ...................................................................... 143
Promoting Widespread Opportunities From Federal Shipbuilding ..................... 144
Improving the Employment Insurance Program ........................................... 145
Stable and Predictable EI Premium Rates ..................................................... 145
Connecting Canadians With Available Jobs .................................................... 146
Removing Disincentives to Work ................................................................. 147
Expanding Opportunities for Aboriginal Peoples to Fully Participate
in the Economy ............................................................................................. 148
Investments to Improve First Nations Education ........................................... 149
Helping First Nations on Reserve Access the Labour Force .............................. 150
Supporting First Nations Fishing Enterprises ................................................. 150
Urban Aboriginal Strategy .......................................................................... 151
Building a Fast and Flexible Economic Immigration System ......................... 151
Strengthening Canada’s Immigration System ............................................... 151
Temporary Foreign Worker Program ............................................................ 152
Pan-Canadian Framework for the Assessment and Recognition of Foreign
Qualifications ............................................................................................ 153
Federal Skilled Worker Fee Refund .............................................................. 154
Strengthening Canada’s Public Infrastructure .............................................. 155
Supporting Provincial, Territorial and Municipal Infrastructure ......................... 156
Territorial Borrowing Limit .......................................................................... 157
Making Important Investments in Strategic Public Infrastructure ..................... 157
Maintaining Safe and Reliable Passenger Rail Services............................ 157
Strengthening Canada’s Port System ................................................... 158
Renewing the Canadian Coast Guard Fleet ............................................ 158
Maintaining and Improving Federal Infrastructure .................................. 159
Investing in Border Infrastructure ........................................................ 159
Building a New Bridge over the St. Lawrence ........................................ 159
8
3.4 – Supporting Families and Communities ................................ 163
Highlights ..................................................................................................... 165
Protecting the Health and Safety of Canadians .............................................. 165
Investing in Communities ........................................................................... 165
Supporting Families ................................................................................... 166
Protecting Canada’s Natural Environment and Wildlife .................................... 166
Supporting Families and Communities.......................................................... 167
Protecting the Health and Safety of Canadians ............................................. 167
Health-Related Tax Measures ...................................................................... 167
Strengthening Food Safety ......................................................................... 168
Fair Compensation for Employers of Canada’s Reservists ................................ 169
Enhancing the Victims Fund ........................................................................ 169
Canadian Nuclear Safety Commission .......................................................... 170
Investing in Communities ............................................................................. 171
Improving Economic Potential on First Nations Lands ..................................... 171
Investments to Improve First Nations Water Infrastructure ............................ 172
Addressing Family Violence on Reserve ........................................................ 172
Aboriginal Mental Health Programs .............................................................. 173
Supporting Effective Government-Community Partnerships ............................ 173
Investments in Arts and Culture .................................................................. 174
Canada Council for the Arts ................................................................ 174
Commemorations for the Bicentennial of the War of 1812 ...................... 175
Official Languages ..................................................................................... 175
Encouraging Participation and Healthy Communities ...................................... 175
Strengthening Health Care in Rural and Remote Communities ........................ 176
Strengthening Access to Broadband in Rural Areas ........................................ 177
Support to Provinces and Territories for the Floods of 2011 ........................... 177
Supporting Families ...................................................................................... 178
Keeping Taxes Low for Families and Individuals ............................................ 178
Wage Earner Protection Program ................................................................. 179
Protecting Long-Term Disability Plans .......................................................... 180
Review of the Registered Disability Savings Plan ........................................... 180
Establishing Plans and Legal Representation ......................................... 182
Protecting Canada’s Natural Environment and Wildlife................................. 183
Protecting Species at Risk .......................................................................... 183
Protecting Water and Wildlife Resources ....................................................... 183
Port Hope Area Initiative ............................................................................ 184
Rouge Valley National Near-Urban Park ........................................................ 185
Expanding Tax Support for Clean Energy Generation ..................................... 185
9
Chapter 4 – Sustainable Social Programs
and a Secure Retirement ................................................................ 187
Highlights ..................................................................................................... 189
Sustainable Management of Public Finances ................................................ 190
Putting Transfers on a Long-Term, Sustainable Growth Track ......................... 190
A Strong Retirement Income System for Canadians ....................................... 192
Old Age Security Age of Eligibility ........................................................ 197
Option to Defer the OAS Pension ......................................................... 198
Proactive Enrolment for OAS and GIS Benefits ...................................... 199
Canada Pension Plan .......................................................................... 199
Federally Regulated Pension Plans ............................................................... 202
Improving Tax Fairness and Integrity .......................................................... 203
Enhancing Transparency and Accountability for Charities ................................ 204
Chapter 5 – Responsible Management
to Return to Balanced Budgets ................................................... 207
Highlights ..................................................................................................... 209
Responsible Management of Public Finances ................................................ 210
The Plan to Return to Balance ...................................................................... 210
Reductions in Departmental Spending .......................................................... 211
Refocusing Government and Programs ................................................. 217
Making It Easier for Canadians and Businesses
to Deal With Their Government ........................................................... 219
Modernizing and Reducing the Back Office ............................................ 220
Workforce Impact .............................................................................. 221
Responsible Expenditure Management ......................................................... 222
Updating Defence Capital Funding ....................................................... 223
Modernizing the Government’s Information Technology:
Shared Services Canada ..................................................................... 223
Administrative Services Review—Moving Forward .................................. 224
Parliamentary Expenses .................................................................... 224
Public Sector Compensation ................................................................ 224
Pensions of Public Servants and Parliamentarians .................................. 225
Corporate Asset Management Review................................................... 226
Greater Use of Telepresence Technology .............................................. 226
Next Steps ....................................................................................... 226
10
Chapter 6 – Fiscal Outlook ............................................................ 227
Highlights ..................................................................................................... 229
Introduction ................................................................................................. 230
Fiscal Planning Framework ........................................................................... 233
Approach to Budget Planning ...................................................................... 233
Fiscal Outlook Before the Measures Announced in Budget 2012 ...................... 233
Fiscal Impact of Measures Announced in Budget 2012 ................................... 236
Summary of Statement of Transactions ....................................................... 238
Outlook for Budgetary Revenues ................................................................. 239
Outlook for Program Expenses .................................................................... 243
Financial Source/Requirement ..................................................................... 247
Risks to the Fiscal Projections ..................................................................... 250
Sensitivity of the Budgetary Balance to Economic Shocks ............................... 250
Annex 1 –Responsible Spending ................................................ 255
Annex 2 – The Stimulus Phase of Canada’s Economic
Action Plan: A Final Report to Canadians .............................. 285
Highlights ..................................................................................................... 287
The Stimulus Phase of Canada’s Economic Action Plan ................................ 288
Results Achieved .......................................................................................... 296
Job Impact of the Stimulus Phase of the Economic Action Plan .................... 350
Conclusion .................................................................................................... 356
Annex 3 – Debt Management Strategy for 2012–13 ....... 357
Annex 4 – Tax Measures: Supplementary Information,
Notices of Ways and Means Motions and Draft
Amendments to Various GST/HST Regulations .................. 373
Chapter 1
Introducton
Chapter 1
Introducton
Introduction
13
We see Canada for what it is and what it can be—a great, good
nation, on top of the world, the True North strong and free. Our
government has been inspired by this vision from the beginning.
Today we step forward boldly, to realize it fully—hope for our
children and grandchildren; opportunity for all Canadians; a
prosperous future for our beloved country.
— The Honourable Jim Flaherty,
Minister of Finance
Chapter 1
14
Canada is emerging from the global economic recession. The economy’s
strengths provide an opportunity for the Government to take significant
actions today that will fuel the next wave of job creation and position
Canada for a secure and prosperous future. Economic Action Plan 2012
sets out a comprehensive agenda to bolster Canada’s fundamental strengths
and address the important challenges confronting the economy over the
long term.
Canada faces a fast-changing global environment, with increasing
competition from emerging market countries and a global economy that
remains fragile and uncertain. For this reason, the Government remains
focused on an agenda that will deliver high-quality jobs, economic growth
and sound public finances. Economic Action Plan 2012 will help further
unleash the potential of Canadian businesses and entrepreneurs to innovate
and thrive in the modern economy to the benefit of all Canadians for
generations to come.
Since 2006, the Government has supported the security and prosperity of
Canadians and promoted business and investment to create jobs. When the
global financial and economic crisis struck, these underlying strengths helped
Canada to avoid a deep and long-lasting recession. The Government’s sound
fiscal position prior to the crisis provided the flexibility to launch the
stimulus phase of Canada’s Economic Action Plan, which was timely,
targeted and temporary in order to have maximum impact. This plan was one
of the strongest responses to the global recession among the Group of Seven
(G-7) countries.
Economic output in Canada is now well above pre-recession levels, and
more than 610,000 jobs have been created since the recovery began in
July 2009, the best performance in the G-7.
Canadian authorities have a strong track record in managing past
economic and financial crises and delivering economic growth.
— Standard & Poor’s, October 25, 2011
Introduction
15
Canada cannot rest on this record of success. There are many challenges and
uncertainties still confronting the economy. The recovery is not complete
and too many Canadians are still looking for work. The global economy
remains fragile and any potential setbacks would have an impact on Canada.
Canadian businesses face ever-increasing competition from emerging
fast-growth countries. Our aging population will put pressure on public
finances and social programs.
Economic Action Plan 2012 takes important steps to address these structural
challenges and ensure the sustainability of public finances and social
programs for future generations. International experience shows the
importance of taking action now, rather than delaying. Economic Action
Plan 2012 focuses on the drivers of growth and job creation—innovation,
investment, education, skills and communities. Underpinning these actions
is the ongoing commitment to keeping taxes low, which is central to the
Government’s long-term economic plan.
SUPPORTING ENTREPRENEURS, INNOVATORS
AND WORLD-CLASS RESEARCH
The global economy is increasingly competitive. The pace of technological
change is creating new opportunities while making older business practices
obsolete. To succeed and thrive in this environment, Canadian businesses
need to innovate and create high-quality jobs. The Government has a strong
record of support for research and development. But Canada can and must
do better to promote innovation. The Government launched an Expert
Panel in 2010 to review federal support for research and development.
Informed by the advice of the Panel, the Government is taking action toward
a new approach to supporting innovation in Canada.
Economic Action Plan 2012 will:
• Increase funding for research and development by small and medium-
sized companies.
• Promote linkages and collaborations, including funding internships and
connecting private sector innovators to procurement opportunities in
the federal government.
• Refocus the National Research Council on research that helps Canadian
businesses develop innovative products and services.
• Enhance access to venture capital financing by high-growth companies
so that they have the capital they need to create jobs and grow.
Chapter 1
16
• Streamline and improve the Scientific Research and Experimental
Development tax incentive program, including shifting from indirect
tax incentives to more direct support for innovative private
sector businesses.
• Support research, education and training with new funding for
universities, granting councils and leading research institutions,
such as Genome Canada.
RESPONSIBLE RESOURCE DEVELOPMENT
Canada’s resource sector is an asset that will increasingly contribute to the
prosperity of all Canadians. Some $500 billion is expected to be invested in
over 500 major economic projects across Canada over the next 10 years,
driven in part by demand from emerging economies. Today, Canadian
businesses in the resource sector must navigate a maze of overlapping and
complex regulatory requirements and red tape. This leads to delays in
investment and job creation that do not contribute to better
environmental outcomes.
An efficient regulatory system provides effective protection of the interests
of Canadians while minimizing the burden on businesses. It is a vital
component of an attractive climate for investment and jobs. Since 2006, the
Government has worked to streamline and improve regulatory processes.
However, more needs to be done.
The Government is committed to reforming the regulatory system in the
resource sector so that reviews are conducted in a timely and transparent
manner, while safeguarding the environment. This will increase business
confidence and enhance investment and job creation. The Government
will continue to support responsible energy development.
Economic Action Plan 2012 will:
• Commit to bringing forward legislation to achieve the goal of
“one project, one review” in a clearly defined time period.
• Make new investments to improve regulatory reviews, streamline the
review process for major economic projects, support consultation with
Aboriginal peoples, and strengthen pipeline and marine safety.
• Continue to support the Major Projects Management Office initiative,
which has succeeded in shortening and streamlining reviews and
improving accountability.
• Ensure the safety and security of Canadians and the environment as
energy resources are developed.
Introduction
17
EXPANDING TRADE AND OPENING NEW MARKETS
FOR CANADIAN BUSINESSES
Free and open trade has long been a powerful engine for Canada’s economy.
Canadian businesses need access to key export markets in order to take
advantage of new opportunities. Over the past six years, Canada has
concluded free trade agreements with nine countries as well as foreign
investment promotion and protection agreements with ten countries.
Since 2009, Canada has eliminated all tariffs on imported machinery and
equipment and manufacturing inputs to make Canada a tariff-free zone
for industrial manufacturers, the first in the G-20 to do so.
Economic Action Plan 2012 will:
• Intensify Canada’s pursuit of new and deeper trading relationships,
particularly with large, dynamic and fast-growing economies.
• Implement the Action Plan on Perimeter Security and Economic
Competitiveness and the Action Plan on Regulatory Cooperation, which
will facilitate trade and investment flows with the United States.
• Provide support to Canadian exporters by extending the provision
of domestic financing by Export Development Canada.
INVESTING IN TRAINING, INFRASTRUCTURE
AND OPPORTUNITY
Canada’s well-trained and highly educated workforce represents one of our
key advantages in competing and succeeding in the global economy. Too
often, barriers or disincentives discourage workforce participation. Better
utilizing Canada’s workforce and making Canada’s labour market more
adaptable will help ensure Canada’s long-term economic growth.
Economic Action Plan 2012 will:
• Make investments to assist more young people in gaining tangible skills
and experience.
• Extend and expand the ThirdQuarter project to better connect workers
over the age of 50 to potential employers.
• Invest to enable more Canadians with disabilities to obtain work
experience with small and medium-sized businesses.
Chapter 1
18
• Introduce a number of targeted, common-sense changes to Employment
Insurance (EI) to make it a more efficient program that promotes job
creation, removes disincentives to work, supports unemployed Canadians
and quickly connects people to jobs.
• Support small and medium-sized businesses and their workers by making
EI premiums more stable and predictable, with annual increases limited
to five cents.
• Extend the Hiring Credit for Small Business for one year to help
small businesses to defray the costs of hiring new workers.
• Promote job creation by renewing the Canadian Coast Guard Fleet;
supporting the involvement of small and medium-sized enterprises in the
National Shipbuilding Procurement Strategy; investing in transportation
infrastructure, including railways and ports; and providing funding for
community public infrastructure facilities.
EXPANDING OPPORTUNITIES FOR ABORIGINAL PEOPLES
TO FULLY PARTICIPATE IN THE ECONOMY
The Government recognizes the contribution that Aboriginal peoples can
make to the labour force as the youngest and fastest-growing segment of
the nation’s population. Equipping First Nations people with the skills and
opportunities they need to fully participate in the economy is a priority both
for this Government and for First Nations people.
Economic Action Plan 2012 will:
• Invest in First Nations education on reserve, including early literacy
programming and other supports and services to First Nations schools
and students.
• Build and renovate schools on reserve, providing First Nations youth
with better learning environments.
• Commit to introduce a First Nation Education Act and work with willing
partners to establish the structures and standards needed to support
strong and accountable education systems on reserve.
• Improve the incentives of the on-reserve Income Assistance Program
while encouraging those who can work to access training that will
improve their prospects for employment.
• Renew the Urban Aboriginal Strategy to improve economic
opportunities for Aboriginal peoples living in urban centres.
Introduction
19
BUILDING A FAST AND FLEXIBLE
ECONOMIC IMMIGRATION SYSTEM
Since 2006, the Government has pursued much-needed reforms to focus
Canada’s immigration system on fuelling economic prosperity for Canada.
The Government has placed top priority on attracting immigrants who have
the skills and experience our economy needs. The Government is committed
to making our immigration system truly fast and flexible in a way that will
sustain Canada’s economic growth.
Economic Action Plan 2012 will:
• Realign the Temporary Foreign Worker Program to better meet labour
market demands.
• Support further improvements to foreign credential recognition
and identify the next set of target occupations beyond 2012.
• Move to an increasingly fast and flexible immigration system where
priority focus is on meeting Canada’s labour market needs.
• Return applications and fees to certain federal skilled worker
applicants who have been waiting for processing to be completed.
SUSTAINABLE SOCIAL PROGRAMS AND
A SECURE RETIREMENT
In order to ensure the sustainability of our social programs and fiscal
position for generations to come, steps are required to prepare today for the
demographic pressures that the Canadian economy will face over the longer
term. Canadians are living longer and healthier lives. Many older workers
wish to work longer and increase their retirement income.
The Government has already taken steps to ensure sound public finances
by setting a future growth path for transfers to the provinces and territories.
The growth path will provide predictable, fair and sustainable funding in
support of the provision of health care, education and other services for
all Canadians.
Chapter 1
20
Economic Action Plan 2012 will:
• Gradually increase the age of eligibility for Old Age Security (OAS)
and Guaranteed Income Supplement benefits from 65 to 67. This change
will start in April 2023, with full implementation by January 2029,
and will not affect anyone who is 54 years of age or older as of
March 31, 2012.
• Improve flexibility and choice by allowing Canadians the option of
deferring take-up of their OAS benefits to a later time and receiving
higher annual benefits.
• Ensure that pension plans for public servants and Parliamentarians are
sustainable, fair and financially responsible.
• Support the retirement income system with Pooled Registered Pension
Plans that provide an accessible, large-scale and low-cost pension option
to employers, employees and the self-employed.
RESPONSIBLE EXPENDITURE MANAGEMENT
Canadians expect value for money from their government. Over the past
year, the Government conducted a comprehensive review of approximately
$75 billion of direct program spending by federal departments and agencies.
The review identified a number of opportunities to enhance the efficiency
and effectiveness of government operations, programs and services that will
result in cost savings for the Canadian taxpayer. This will support the
Government’s commitment to return to balanced budgets over the medium
term. The Government is on track to meet its commitment to balance the
budget without cutting transfers to Canadians or to provinces.
Fiscal policy is appropriately shifting toward consolidation in the
aftermath of the effective stimulus program. The federal
government is leading the initial fiscal effort, as spending is
gradually being brought to pre-crisis levels as a share of GDP.
— International Monetary Fund
November 23, 2011
Introduction
21
Reflecting Canada’s strong economic and fiscal fundamentals, Canada will
undertake expenditure reductions that are modest compared to those being
pursued by many countries around the world. These targeted reductions
clearly contrast with the Program Review undertaken in Canada in the
mid-1990s, when transfers for health care, education and social spending
were cut.
Economic Action Plan 2012 will:
• Achieve ongoing savings of $5.2 billion, 6.9 per cent of the review base
of approximately $75 billion. This represents less than 2.0 per cent
of expected federal program spending in 2016–17, or about 0.2 per cent
of Canada’s gross domestic product (GDP) in that same year.
THE PLAN TO RETURN TO BALANCED BUDGETS
Canadians know the importance of living within their means and expect the
Government to do the same. That is why the Government is committed to
managing public finances in a sustainable and responsible manner. The
Government’s responsible financial management put Canada in a position of
strength when it came time to combat the global recession. From 2006 to
2008, the Government paid down over $37 billion in debt, significantly
contributing to Canada’s low net debt position. This enabled the Government
to quickly implement the stimulus phase of Canada’s Economic Action Plan
without leaving the country in a vulnerable fiscal position, like many
European countries.
Balancing the budget and reducing debt cuts interest costs, helps to keep
interest rates low and instills confidence in Canada’s economy, allowing
families and businesses to plan for the future. It will also ensure the
sustainability of Canada’s social programs for future generations.
Chapter 1
22
The Government is on track to return to balanced
budgets over the medium term
Chart 1.1
Budgetary Balance After Economic Action Plan 2012 Measures
Source: Department of Finance.
CONCLUSION
Economic Action Plan 2012 is a plan for jobs, growth and long-term
prosperity. By making choices now, the Government is taking the necessary
steps to reinforce the fundamental strength and promise of the Canadian
economy in order to sustain economic growth, create the high-quality jobs of
tomorrow, preserve social programs and sound public finances, and deliver
continued prosperity for generations to come.
Chapter 1
Introducton
Chapter 2
Economic Developments
and Prospects
Economic Developments and Prospects
25
HIGHLIGHTS
?
The global economic recovery remains fragile. The European
sovereign debt and banking crisis continues to weigh on
global growth.
?
The Canadian economy has remained resilient despite external
weakness, reflecting sustained growth in the domestic economy.
?
Canada has had the strongest economic growth over the recession
and recovery among Group of Seven (G-7) countries. This reflects
our solid economic fundamentals and the timely support of the
stimulus phase of Canada’s Economic Action Plan.
?
610,000 more Canadians are working now than in July 2009, the
strongest job growth among G-7 countries over the recovery.
This continues the strong performance that has resulted in over
1.1 million new jobs created since the beginning of 2006.
?
However, the fragile global economic environment will continue
to be reflected in modest growth in Canada over the near term.
?
The Department of Finance conducted a survey of private sector
economists in early March 2012. On March 5, economists met with
the Minister of Finance to discuss the economic forecast as well as
the risks associated with the outlook.
?
Private sector economists expect real gross domestic product
(GDP) growth of 2.1 per cent in 2012 and 2.4 per cent in 2013,
broadly unchanged from the November 2011 Update of Economic
and Fiscal Projections.
?
Economists also expect the level of nominal GDP—the broadest
single measure of the tax base—to be above the level anticipated
over the forecast period at the time of the November Update.
?
Private sector economists agreed that near-term risks to the outlook
have slightly moderated since the November Update, but continue
to see global economic uncertainty as the key downside risk—
in particular the potential for wider contagion of the sovereign
debt and banking crisis in Europe.
?
To reflect the downside risks surrounding the global economic
outlook, the Government is adjusting the private sector forecast
for nominal GDP downward by $20 billion in each year of the
2012–2016 forecast period.
Notes: This chapter incorporates data available up to and including March 23, 2012, unless otherwise
indicated. All rates are reported at annual rates unless otherwise noted.
Chapter 2
26
INTRODUCTION
The global economic environment remains highly uncertain. The key
challenge currently facing the global recovery remains the European
sovereign debt and banking crisis, which has weighed on financial markets
and confidence and resulted in a deterioration of the global outlook.
Nonetheless, the Canadian economy continues to expand, enjoying one
of the best performances among G-7 countries over the global economic
recession and recovery.
This chapter reviews:
• Major global economic developments since the November 2011 Update.
• Canada’s recent economic performance.
• Financial market and commodity price developments.
• The March 2012 private sector economic forecast that forms the basis
for the fiscal projections, and the risks and uncertainties surrounding
this economic forecast.
GLOBAL ECONOMIC DEVELOPMENTS AND OUTLOOK
Uncertainty surrounding the global economic recovery increased in the
second half of 2011, and the outlook for global growth has deteriorated.
The key factor underlying this deterioration is the ongoing euro-area
sovereign debt and banking crisis.
In Europe, strains in government debt markets rose between Spring 2011
and late last year, resulting in increased borrowing costs for many euro-area
governments, including record highs for some countries. This led to severe
funding pressures for most European banks, given their significant exposure
to euro-area sovereign debt and large recapitalization needs. As a result,
euro-area banks tightened credit standards and raised interest rates on loans
to households and businesses, which weighed on consumer and business
sentiment in the region. These developments pushed euro-area growth back
into negative territory in the fourth quarter of 2011, with broad-based
weakness across the region (Chart 2.1). Although indicators of business
activity suggest that the euro-area economy has broadly stabilized in the
first quarter of this year, the risk of further weakness remains.
Economic Developments and Prospects
27
Euro-area growth turned negative
in the fourth quarter of 2011
Chart 2.1
Euro-Area Real GDP Growth
Source: Eurostat.
European leaders have put in place significant policy measures to address
the sovereign debt and banking crisis. The European Central Bank has
provided significant liquidity for euro-area banks, and bank recapitalization
plans are underway. In addition, Italy and Spain have introduced important
fiscal and structural reforms, while progress has been made toward
improving broader euro-area fiscal governance. In early March, Greece also
completed its debt exchange with its private sector creditors, alleviating the
near-term risk of a disorderly default.
Together, these policy actions have helped to reduce interest rates for
euro-area governments and improve funding conditions for euro-area banks.
However, it is clear that further concrete actions by European leaders are
required, including following through on the implementation of announced
fiscal restraint measures in order to stem the crisis, stabilize the current
situation and set the stage for a return to sustained growth.
Chapter 2
28
In the United States, the economy has shown signs of renewed momentum
since Fall 2011, albeit relative to very weak growth in the first half of the
year, as real GDP grew 3.0 per cent in the fourth quarter (Chart 2.2).
Consumer confidence has generally increased since August, from near-record
lows, while business survey data point to a pickup in both manufacturing and
non-manufacturing output growth since Fall 2011.
U.S. economic growth has picked up recentl y
Chart 2.2
U.S. Real GDP Growth
Source: U.S. Bureau of Economic Analysis.
Economic Developments and Prospects
29
U.S. labour market conditions have improved, with employment gains
averaging almost 250,000 jobs per month from December 2011 through
February 2012 and the unemployment rate declining to a three-year low of
8.3 per cent in early 2012 (Chart 2.3). However, this recent improvement is
relatively modest compared to the significant job losses suffered over the
recession, while the declines in the unemployment rate also reflect workers
exiting the labour market following long-term spells of unemployment.
U.S. labour market conditions have improved
Chart 2.3
Change in U.S. Employment U.S. Unemployment Rate
Note: Last data point is February 2012.
Source: U.S. Bureau of Labor Statistics.
Chapter 2
30
The U.S. economy continues to face significant challenges stemming from
ongoing household deleveraging, necessary fiscal consolidation and spillover
effects from the European sovereign debt and banking crisis. As a result,
private sector economists continue to expect modest U.S. economic
growth (Chart 2.4).
Economists continue to expect modest U.S. growth
Chart 2.4
U.S. Real GDP Growth Outlook
Sources: U.S. Bureau of Economic Analysis; September 2011 and March 2012 Department of Finance surveys
of private sector economists.
In emerging and developing economies, growth has also slowed, reflecting
the deterioration in the external environment as well as the effects of past
tightening in domestic monetary policy. Nonetheless, growth remains strong,
led by developing Asia. In China, economic growth has eased somewhat but
remains solid. Looking ahead, slowing demand from advanced economies is
expected to result in a gradual moderation toward a more sustainable, albeit
still robust, pace of economic growth.
Economic Developments and Prospects
31
Reflecting the intensification of the euro-area sovereign debt and banking
crisis in Fall 2011 and its impact on global trade and financial markets, the
International Monetary Fund (IMF) has steadily downgraded its near-term
global outlook over the past year. The IMF now expects global real GDP
growth of 3.3 per cent in 2012, with growth in advanced economies expected
to be just 1.2 per cent. The IMF also expects modestly slower growth in
emerging economies, reflecting the worsening external environment and
a slowdown in domestic demand in key emerging economies (Chart 2.5).
Global growth prospects have weakened
Chart 2.5
IMF World Real GDP Growth Outlook
Source: IMF, World Economic Outlook Update, January 2012.
Chapter 2
32
CANADA’S RECENT ECONOMIC PERFORMANCE
Canada’s economic performance over the recession and recovery has been
solid relative to our peer countries. This reflects Canada’s sound economic,
fiscal and financial sector fundamentals, along with the significant and timely
support provided under Canada’s Economic Action Plan. As a result,
real GDP is now well above pre-recession levels—the best performance
in the G-7 (Chart 2.6).
Canada has performed better than all other G-7
economies during the global recession and the recovery
Chart 2.6
Change in Real GDP Since Pre-Recession Peak
Note: The pre-recession peak was 2007Q3 for Italy; 2007Q4 for the United States; 2008Q1 for the United Kingdom,
France, Germany and Japan; and 2008Q3 for Canada. The latest quarter is 2011Q4 for all countries.
Sources: Haver Analytics; Department of Finance calculations.
The rapid turnaround of activity and vigorous domestic demand
owes much to the government's rightly-sized and well-targeted
macroeconomic stimulus.
— International Monetary Fund,
2010 Article IV Consultation Report on Canada
Economic Developments and Prospects
33
Employment and incomes have grown faster in Canada
than any other G-7 country since 2006
In 2006, the Government launched a comprehensive economic plan
to foster strong, sustainable, long-term economic growth, building
on Canada’s key advantages. The Government followed through by
implementing broad-based tax reductions, paying down debt, and
investing in knowledge and infrastructure.
These actions put the Canadian economy on a solid foundation for
sustainable, long-term economic growth. They also placed Canada in
a stronger position than most other countries and allowed the Government
to respond quickly and effectively to support the economy and protect
Canadian jobs.
This has been reflected in a strong economic performance over the past
five years, with over 1.1 million new jobs created since the beginning
of 2006 and the strongest employment and income growth in the G-7
(Chart 2.7).
Chart 2.7
Growth in Employment
From 2006 to 2011
Growth in Real per Capita
Disposable Income
From 2006 to 2010
Note: 2011 employment data for France are the average
of 2011Q1 through 2011Q3.
Note: This chart shows gross personal per capita
disposable income deflated by the Consumer Price Index.
Note: Base year for calculations is 2005.
Sources: Haver Analytics; IMF; Department of Finance calculations.
Chapter 2
34
Canada has also posted, by far, the strongest growth in employment in the
G-7 during the recovery. These employment gains have been high-quality
jobs. 610,000 more Canadians are working today than in July 2009. Of these
jobs, about 90 per cent are in full-time positions with over three-quarters in
high-wage industries and in the private sector (Chart 2.8). It is an
encouraging sign that Canadian businesses are continuing to hire as the
temporary economic stimulus that the Government put into place during
the recession is withdrawn.
Job creation during the recovery has been in
high-wage, full-time, private-sector employment
Chart 2.8
Change in Employment Over the Recovery
July 2009 to February 2012
Notes: Calculations are based on Statistics Canada data for 105 industries. High-wage industries are defined as those
with average hourly wages above the aggregate average. Totals may not add due to rounding.
Sources: Statistics Canada; Department of Finance calculations.
Economic Developments and Prospects
35
The employment situation in Canada contrasts sharply with that of the U.S.,
where employment remains significantly below pre-recession levels. As a
result, the Canadian unemployment rate is now 0.9 percentage points below
that of the United States. The U.S. unemployment rate has exceeded that of
Canada since October 2008, a phenomenon not seen in nearly three decades.
When Canadian unemployment is measured on the same basis as in the U.S.,
the unemployment rate gap between the two countries increases to
2.0 percentage points (Chart 2.9).
1
Canada’s strong employment performance contrasts
sharpl y with that of the United States
Chart 2.9
Total Employment Unemployment Rate
Note: Last data point is February 2012.
Sources: Statistics Canada; U.S. Bureau of Labor Statistics.
1
Conceptual differences boost the Canadian unemployment rate relative to the U.S. rate.
In particular, Statistics Canada considers as unemployed those passively looking for work
(e.g. reading want ads) as well as those who will begin work in the near future, while the
U.S. Bureau of Labor Statistics does not include either group in its unemployment calculations.
In addition, the Canadian methodology includes 15-year-olds (who have a higher-than-average
unemployment rate), while the U.S. does not.
Chapter 2
36
The relatively stronger performance of the Canadian labour market is
also reflected in the long-term unemployment rate (the number of people
unemployed for a period of at least 27 weeks as a share of the labour force).
Canada’s long-term unemployment rate stood at 1.6 per cent in 2011, well
below the U.S. level of 3.9 per cent. Moreover, the Canadian labour market is
characterized by a much higher labour force participation rate (the share of
the population 15 and over in Canada, and 16 and over in the United States,
either working or actively seeking work). This indicates that there are fewer
discouraged workers, as more of the unemployed are seeking work and
finding it. In Canada, the labour force participation rate has remained
relatively high through the recession and recovery, while it declined sharply
in the U.S. to close to a three-decade low in 2011. As a result, the labour
force participation rate gap between the two countries increased to over
2.5 percentage points last year, the largest gap on record (Chart 2.10).
Structural labour market characteristics
remain solid in Canada
Chart 2.10
Long-Term Unemployment Rate Labour Force Participation Rate
Note: The long-term unemployment rate is the ratio of the
number of people unemployed for a period of at least
27 weeks to the labour force.
Note: The participation rate is the share of the
working-age population who are either working or actively
seeking work.
Sources: Statistics Canada; U.S. Bureau of Labor Statistics.
Economic Developments and Prospects
37
Since mid-2011 the labour market has been subdued. This, combined with
more individuals entering the labour market and seeking employment, has
resulted in a slight increase in the unemployment rate from a post-recession
low of 7.2 per cent in September 2011 to 7.4 per cent in February 2012.
The more moderate pace of growth in employment since mid-2011 mirrors
continued modest growth in real GDP, at 2.5 per cent in 2011. However, real
growth showed considerable variation over the course of the year as a result
of export volatility related to the Japanese earthquake and tsunami, as well
as forest fire and maintenance-related disruptions in the energy sector
(Chart 2.11). Household spending and business investment, on the other
hand, remained resilient through this period.
Real GDP growth was modest
but resilient through 2011
Chart 2.11
Real GDP Growth
Source: Statistics Canada.
Chapter 2
38
FINANCIAL MARKET DEVELOPMENTS
The deterioration of the economic outlook, along with ongoing uncertainty
related to the sovereign debt and banking crisis in Europe, continues to be
reflected in financial market weakness.
Among the most at-risk European economies, Greece has been the focus
of the crisis, as uncertainty over its fiscal sustainability and concerns over its
ability to meet its debt obligations drove Greek bond rates up sharply late
in 2011. In mid-March, Greece restructured its debt with private sector
creditors. The restructuring of Greek debt, along with a massive liquidity
injection into the euro-area banking system by the European Central Bank,
has eased market fears to some extent. However, sovereign debt concerns
remain elevated, especially for Greece, Portugal and Ireland (Chart 2.12).
Concerns over debt sustainability in Europe
have pushed up borrowing costs
Chart 2.12
10-Year Government Bond Yields
Note: Daily data up to and including March 23, 2012.
Source: Bloomberg.
Economic Developments and Prospects
39
More worrisome, however, has been instability in the sovereign debt markets
of larger European economies. In particular, yields for both Italian and
Spanish bonds rose to about 7 per cent in late 2011. The experience
of Greece, Ireland and Portugal suggests that this yield may be near the
threshold beyond which debt sustainability concerns escalate rapidly.
While bond yields in Italy and Spain have since eased, markets continue to
charge them a significant premium relative to sovereign bonds perceived as
less risky (in particular German bonds).
The heightened level of uncertainty in Europe is affecting investor
confidence globally. This has translated into significant weakness in equity
markets worldwide, with most major global stock market indices at or below
their levels of mid-2011 (Chart 2.13).
Investor uncertainty has translated into significant
weakness in equity markets
Chart 2.13
Global Equity Market Indexes
Note: Daily data up to and including March 23, 2012.
Source: Haver Analytics.
Chapter 2
40
COMMODITY PRICES
Slower-than-expected global growth and financial market weakness have
also been reflected in commodity markets (Chart 2.14). Since Budget 2011,
prices for base metals and agricultural products have fallen, while natural gas
prices continue to be depressed by increased unconventional supply in the
United States. Benchmark West Texas Intermediate crude oil prices, on the
other hand, have risen since Budget 2011, reflecting increased geopolitical
uncertainty related to political events in North Africa and prospects of an
embargo of Iranian oil exports by Europe and other regions. Despite this
rise, prices received by Canadian oil producers have fallen modestly since
Budget 2011, as surplus supply in the U.S.—the market for virtually all of
Canada’s oil exports—has constrained Canadian export volumes and prices.
Financial market uncertainty and weaker global growth
have been reflected in volatile commodity prices
Chart 2.14
Commodity Prices
(in U.S. dollars)
Change in Commodity Prices
(in U.S. dollars)
J une 6, 2011 to March 16, 2012
Note: March 2012 based on data up to and including March 16, 2012.
Sources: Commodity Research Bureau; Department of Finance calculations.
Economic Developments and Prospects
41
CANADIAN ECONOMIC OUTLOOK—
PRIVATE SECTOR FORECASTS
The average of private sector economic forecasts has been used as the basis
for fiscal planning since 1994 and introduces an element of independence
into the Government’s fiscal forecast. This practice has been supported by
international organizations such as the IMF.
The Department of Finance regularly surveys private sector economists
on their views on the outlook for the Canadian economy. The economic
forecast presented in this section is based on a survey conducted in early
March 2012 and includes the views of 14 private sector economists.
The March 2012 survey of private sector economists included Bank of
America Merrill Lynch, BMO Capital Markets, Caisse de dépôt et placement
du Québec, CIBC World Markets, the Conference Board of Canada,
Desjardins, Deutsche Bank of Canada, Laurentian Bank Securities, National
Bank Financial Group, Royal Bank of Canada, Scotiabank, TD Bank
Financial Group, UBS Securities Canada, and the University of Toronto
(Policy and Economic Analysis Program).
The outlook for Canadian real GDP growth remains largely unchanged from
the November 2011 Update of Economic and Fiscal Projections (Table 2.1).
Economists now expect real GDP to grow by 2.2 per cent in the first quarter
of 2012 and 2.1 per cent, on average, over the remainder of the year,
modestly below the pace expected in the November Update.
However, significantly stronger-than-expected GDP inflation in the latter
half of 2011 has resulted in an upward revision of the average private sector
forecast for the level of nominal GDP of about $17 billion, on average,
over the 2012–2016 period compared to the forecast at the time of the
November Update.
Private sector economists expect interest rates to be lower over most of the
forecast horizon than was expected in the November Update, and continue
to expect the Canadian dollar to remain near parity over the forecast horizon.
Economists expect the unemployment rate to gradually decline to
6.6 per cent by 2016, broadly in line with the Update forecast.
Chapter 2
42
The private sector economic outlook is consistent with continued modest
growth in the global economy. This implies an orderly, gradual resolution
of the European sovereign debt crisis, with economic conditions in Europe
gradually improving from weakness late in 2011 and early in 2012. Similarly,
the private sector outlook is consistent with a moderate and gradual
improvement of the U.S. fiscal situation.
Table 2.1
Average Private Sector Forecasts
per cent, unless otherwise indicated
2011
1
2012 2013 2014 2015 2016
2012–
2016
Real GDP growth
March 2011 survey/Budget 2011 2.9 2.8 2.7 2.5 2.5 2.4 2.6
September 2011 survey/Update 2011 2.2 2.1 2.5 2.5 2.5 2.3 2.4
March 2012 survey/Budget 2012 2.5 2.1 2.4 2.4 2.4 2.2 2.3
GDP inflation
March 2011 survey/Budget 2011 2.8 2.1 2.1 2.0 2.0 2.0 2.0
September 2011 survey/Update 2011 3.0 2.0 2.0 2.0 2.0 2.0 2.0
March 2012 survey/Budget 2012 3.3 2.4 2.0 2.1 2.0 2.0 2.1
Nominal GDP growth
March 2011 survey/Budget 2011 5.8 5.0 4.9 4.5 4.5 4.4 4.7
September 2011 survey/Update 2011 5.3 4.1 4.5 4.5 4.5 4.3 4.4
March 2012 survey/Budget 2012 5.8 4.6 4.4 4.6 4.4 4.2 4.4
Nominal GDP level
(billions of dollars)
March 2011 survey/Budget 2011 1,719 1,804 1,893 1,979 2,068 2,158 –
September 2011 survey/Update 2011 1,711 1,781 1,861 1,945 2,032 2,120 –
March 2012 survey/Budget 2012 1,719 1,798 1,877 1,963 2,050 2,136 –
Difference (March 2012 – September 2011) 8 17 16 18 18 16 17
3-month treasury bill rate
March 2011 survey/Budget 2011 1.3 2.5 3.4 3.9 4.1 4.1 3.6
September 2011 survey/Update 2011 0.9 1.2 2.0 2.9 3.5 3.7 2.7
March 2012 survey/Budget 2012 0.9 0.9 1.3 2.2 3.3 3.9 2.3
10-year government bond rate
March 2011 survey/Budget 2011 3.5 4.0 4.6 4.8 5.0 5.1 4.7
September 2011 survey/Update 2011 2.8 2.7 3.2 3.9 4.5 4.5 3.8
March 2012 survey/Budget 2012 2.8 2.2 2.8 3.6 4.3 4.5 3.5
Economic Developments and Prospects
43
Table 2.1 (cont’d)
Average Private Sector Forecasts
per cent, unless otherwise indicated
2011
1
2012 2013 2014 2015 2016
2012–
2016
Exchange rate (US cents/C$)
March 2011 survey/Budget 2011 99.7 98.8 98.1 97.4 96.5 96.2 97.4
September 2011 survey/Update 2011 101.2 102.1 102.1 98.8 97.9 98.0 99.8
March 2012 survey/Budget 2012 101.1 99.6 101.8 101.1 100.5 100.2 100.7
Unemployment rate
March 2011 survey/Budget 2011 7.5 7.2 7.0 6.7 6.5 6.4 6.8
September 2011 survey/Update 2011 7.5 7.2 7.0 6.8 6.6 6.4 6.8
March 2012 survey/Budget 2012 7.4 7.5 7.2 6.9 6.7 6.6 7.0
Consumer Price Index inflation
March 2011 survey/Budget 2011 2.4 2.1 2.0 2.0 2.0 2.0 2.0
September 2011 survey/Update 2011 2.9 2.0 2.0 2.0 2.0 2.0 2.0
March 2012 survey/Budget 2012 2.9 2.1 2.0 2.0 2.0 2.0 2.0
U.S. real GDP growth
March 2011 survey/Budget 2011 3.1 3.1 3.2 3.3 3.2 2.7 3.1
September 2011 survey/Update 2011 1.6 2.0 2.4 2.9 2.9 2.8 2.6
March 2012 survey/Budget 2012 1.7 2.3 2.4 2.8 2.9 2.8 2.6
1
Values for 2011 for the March 2012 survey/Budget 2012 are actual.
Sources: Department of Finance March 2011, September 2011 and March 2012 surveys of private sector economists.
Risk Assessment and Planning Assumptions
On March 5, 2012, the Minister of Finance met with private sector
economists to discuss the economic outlook as well as the risks associated
with the outlook. Following this meeting, the Department of Finance
surveyed these private sector economists to obtain their most up-to-date
economic projections, which include the results of the fourth-quarter
National Accounts released on March 2, 2012. The economists have agreed
that the average forecast from this survey—the March 2012 survey—
is a reasonable basis for fiscal planning. The fiscal outlook is presented
in Chapter 6.
The economists were of the view that, while there are still significant
downside risks to the outlook, these risks had moderated slightly for
the near term since the November 2011 Update.
Chapter 2
44
The economists continued to identify the European sovereign debt and
banking crisis as the main downside risk to the outlook, but felt that the risk
of a severe negative economic outcome in Europe had moderated somewhat
since November. The economists also saw the possibility that increases in
crude oil prices due to political turmoil in the Middle East could further
dampen global growth in the short run. Moreover, there remains significant
uncertainty regarding the direction of U.S. fiscal policy, particularly for 2013
and beyond, as the U.S. government continues to struggle with the daunting
challenge of implementing the sizable reduction in its budgetary deficit
required to stabilize its debt.
The main domestic risk to the outlook identified by the economists
continues to be the exposure of households to elevated levels of debt.
A negative external shock to the economy, if it translated into higher
unemployment rates, could trigger deleveraging on the part of those
households holding elevated levels of debt.
The economists also saw the potential for stronger-than-expected growth
in the U.S., particularly if recent positive momentum in labour markets
becomes more entrenched.
World prices for the major commodities produced in Canada are key
determinants of GDP inflation, and therefore nominal GDP. While there are
both upside and downside risks to the commodity price outlook, particularly
in the short term, the experience of the past decade suggests that continued
strong demand from emerging economies is likely to put upward pressure
on commodity prices over time. The private sector expectation for GDP
inflation is consistent with largely flat commodity prices. This introduces
an element of prudence into the economic-planning assumptions.
In light of ongoing downside risks surrounding the global economic outlook,
the Government has judged it appropriate to adjust downward the private
sector forecast for nominal GDP by $20 billion per year over the 2012–2016
period (Table 2.2). This adjustment for risk, representing a downward
adjustment of $3 billion in fiscal revenues in each year of the forecast,
reflects the remaining uncertainties surrounding the global economic
outlook. Relative to the November Update, this adjustment is $10 billion
lower for 2012, unchanged for 2013, and $10 billion higher per year in the
following three years.
Economic Developments and Prospects
45
The Government will continue to evaluate economic developments
and risks to determine whether or not it would be appropriate to
maintain this downward adjustment for risk in the future.
Table 2.2
Budget 2012 Planning Assumption for Nominal GDP
billions of dollars
2012 2013 2014 2015 2016
March 2012 survey of private
sector economists 1,798 1,877 1,963 2,050 2,136
Budget 2012 fiscal-planning assumption 1,778 1,857 1,943 2,030 2,116
Adjustment for risk -20 -20 -20 -20 -20
Addendum
Adjustment for risk in
November 2011 Update -30 -20 -10 -10 -10
Chapter 1
Introducton
Chapter 3
Supportng Jobs
and Growth
Supporting Jobs and Growth
49
INTRODUCTION
Our economy has shown strength and resiliency during the recent
global economic turbulence. However, Canada cannot rest on its laurels.
Our current advantage has provided an opportunity to position Canada
for sustainable, long-term economic prosperity, ensure good jobs and
provide a higher quality of life for generations to come.
Building on actions taken since 2006, Economic Action Plan 2012 announces
major and necessary steps to address structural challenges and take advantage
of new opportunities:
• Supporting Entrepreneurs, Innovators and World-Class Research
by adopting a new strategic approach to enhancing support for business
innovation and providing additional funding to help Canada reinforce its
leadership in fundamental research.
• Improving Conditions for Business Investment by streamlining
the Canadian regulatory system, particularly for major economic projects;
continuing to invest in our natural resources; expanding trade to open
new markets for Canadian businesses; keeping taxes low for job-creating
businesses; and further developing our financial sector advantage.
• Investing in Training, Infrastructure and Opportunity by
strengthening incentives for employment and skills training; improving
the Employment Insurance program; expanding opportunities for
Aboriginal peoples to fully participate in the economy; building a fast
and flexible economic immigration system; and continuing to invest in
public infrastructure.
• Supporting Families and Communities by protecting the health and
safety of all Canadians and their communities; keeping taxes low for
families and individuals; and protecting Canada’s natural environment
and wildlife for future generations.
Chapter 3
50
Table 3.0
Supporting Jobs and Growth
millions of dollars
2011–12 2012–13 2013–14 Total
Supporting Entrepreneurs, Innovators
and World-Class Research
Creating Value-Added J obs Through Innovation 255 171 426
Support for Research, Education and Training 200 141 341
Subtotal—Supporting Entrepreneurs, Innovators
and World-Class Research 454 312 767
Improving Conditions for Business Investment
Responsible Resource Development 78 87 165
Investing in Our Natural Resources 136 -24 112
Expanding Trade and Opening New Markets
for Canadian Businesses
43 47 90
Enhancing the Neutrality of the Tax System -10 -10
Improving Economic Conditions for Farmers and Fishermen 38 17 55
Further Developing Canada’s Financial Sector Advantage 3 3 6
Subtotal—Improving Conditions for Business Investment 298 120 418
Investing in Training, Infrastructure and Opportunity
Supporting J ob Creation, Small Business and Skills Training 51 186 40 277
Improving the Employment Insurance Program 177 305 482
Expanding Opportunities for Aboriginal Peoples
to Fully Participate in the Economy 92 129 221
Building a Fast and Flexible Economic Immigration System 5 4 9
Strengthening Canada’s Public Infrastructure 150 124 274
Subtotal—Investing in Training, Infrastructure and Opportunity 51 609 601 1,262
Supporting Families and Communities
Protecting the Health and Safety of Canadians 37 37 73
Investing in Communities 228 204 431
Supporting Families 4 7 12
Protecting Canada’s Natural Environment and Wildlife 29 32 60
Subtotal—Supporting Families and Communities 297 279 577
Total—Supporting Jobs and Growth 51 1,659 1,313 3,023
Less funds existing in the fiscal framework 522 436 958
Net fiscal cost 51 1,137 877 2,065
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 3.1
Supportng Entrepreneurs,
Innovators and World-Class Research
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
53
HIGHLIGHTS
Creating Value-Added Jobs Through Innovation
The Government is committed to a new approach to supporting
innovation that focuses resources on private sector needs. Economic Action
Plan 2012 proposes:
? $400 million to help increase private sector investments in early-stage risk
capital, and to support the creation of large-scale venture capital funds
led by the private sector.
? $100 million to the Business Development Bank of Canada to support its
venture capital activities.
? $110 million per year to the National Research Council to double support
to companies through the Industrial Research Assistance Program.
? $14 million over two years to double the Industrial Research and
Development Internship program.
? $12 million per year to make the Business-Led Networks of Centres
of Excellence program permanent.
? $105 million over two years to support forestry innovation and
market development.
? $95 million over three years, starting in 2013–14, and $40 million per year
thereafter to make the Canadian Innovation Commercialization Program
permanent and to add a military procurement component.
? $67 million in 2012–13 as the National Research Council refocuses on
business-led, industry-relevant research.
? Streamlining and improving the Scientific Research and Experimental
Development tax incentive program.
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Support for Research, Education and Training
The Government is committed to providing additional resources to support
advanced research at universities and other leading research institutions.
Economic Action Plan 2012 proposes:
? $37 million annually starting in 2012–13 to the granting councils to
enhance their support for industry-academic research partnerships.
? $60 million for Genome Canada to launch a new applied research
competition in the area of human health, and to sustain the Science
and Technology Centres until 2014–15.
? $6.5 million over three years for a research project at McMaster
University to evaluate team-based approaches to health care delivery.
? $17 million over two years to further advance the development of
alternatives to existing isotope production technologies.
? $10 million over two years to the Canadian Institute for Advanced
Research to link Canadians to global research networks.
? $500 million over five years, starting in 2014–15, to the Canada
Foundation for Innovation to support advanced research infrastructure.
? $40 million over two years to support CANARIE’s operation of
Canada’s ultra-high speed research network.
? $23 million over two years to Natural Resources Canada to enhance
satellite data reception capacity.
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CREATING VALUE-ADDED JOBS THROUGH INNOVATION
The Government is committed to a new approach to supporting innovation in Canada.
Economic Action Plan 2012 announces $1.1 billion over five years to directly support
research and development and $500 million for venture capital.
The global economy is changing. Competition for the brightest minds
is intensifying. The pace of technological change is creating new
opportunities while making older business practices obsolete. Canada’s
long-term economic competitiveness in this emerging knowledge economy
demands globally competitive businesses that innovate and create high-
quality jobs.
The Government supports an innovative economy and the creation of high-
quality jobs through investments in education and training, basic and applied
research, and the translation of public research knowledge to the private
sector. Since 2006, the Government has provided nearly $8 billion in new
funding for initiatives to support science, technology and the growth of
innovative firms. The Government is also sustaining a business environment
that encourages innovation by supporting financing opportunities for
businesses with the potential to become globally competitive, and creating a
regulatory environment that promotes competition, business investment and
economic growth.
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As demonstrated by Chart 3.1.1, supported by federal investments, Canada is
a world leader in post-secondary research, outpacing other Group of Seven
(G-7) countries on higher education investment.
Canada’s level of investment in higher education
outpaces other G-7 countries
Chart 3.1.1
R&D Investment in the Higher Education Sector
Note: Data are for 2010, which is the latest year for which they are available for all G-7 countries, except for Japan and
the United States (2009).
Source: Organisation for Economic Co-operation and Development (OECD), Main Science and Technology Indicators.
Despite strong policy fundamentals to support innovation in Canada,
Canadian businesses do not take full advantage. Canada continues to lag
behind peer countries in terms of overall innovation performance, including
private sector investment in research and development (R&D), and the
commercialization of research into products and processes that create high-
value jobs and economic growth.
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As demonstrated by Chart 3.1.2, Canada’s private sector has historically
lagged in terms of business investments in research relative to the size of our
economy. This trend has persisted despite Canada’s strong post-secondary
research performance in recent years. While the business sectors in the
United States and across OECD countries are increasing their relative
investments in research and development in order to improve their
competitive positions, Canada’s business sector has seen a declining trend
over the past decade. It is important that Canadian businesses begin
to address this gap in order to drive the innovation that leads to success
in a competitive global marketplace.
Business investment in R&D
in Canada lags competitors
Chart 3.1.2
Business Investment in R&D as a Share
of the Economy, 1981–2008
Source: OECD, Main Science and Technology Indicators.
The Government’s science and technology strategy, Mobilizing Science and
Technology to Canada’s Advantage, emphasizes the importance of ensuring that
federally supported research contributes to the commercialization of new
products, processes and services that create high-value jobs and economic
growth. Guided by this strategy, the Government provides significant
resources to support research, development and technology.
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Consistent with this strategy, and to fully realize the value from our
investments in advanced research, Budget 2010 announced that the
Government would conduct a comprehensive review of federal support for
research and development. The objective was to ensure that federal support
is cost-effective and makes the maximum contribution to innovation and
economic opportunities for business and Canadian workers.
This extensive review was conducted by an Expert Panel, led by
Mr. Thomas Jenkins, Executive Chairman and Chief Strategy Officer of
OpenText Corporation of Waterloo, Ontario. The Panel’s far-reaching
consultations resulted in nearly 230 written submissions, supplemented by
in-person group sessions held across the country and a detailed survey of
more than 1,000 innovative businesses of all sizes representing a wide array
of sectors and regions. The Panel also consulted innovation leaders in other
countries to learn from their experiences.
In October 2011, the Expert Panel submitted a report to the Government,
Innovation Canada: A Call to Action, with findings and recommendations on
how to improve support for innovative businesses and help them grow into
larger, globally competitive companies.
Broadly, the Expert Panel found that:
• Canadian businesses find the Scientific Research and Experimental
Development tax incentive program to be complex, with an approval
process that can be unpredictable and costly.
• Relative to peer countries, Canada has an over-reliance on tax incentives
in the mix of federal support for business research and development
compared to direct expenditures that support innovative firms and
public-private research collaborations.
• The numerous federal programs that promote business innovation can
be difficult for companies to navigate, and may create inefficiencies.
• Canada lags behind peer countries in leveraging government
procurement to promote private sector innovation.
• Unlike peer countries, Canada lacks an organization with the capacity
to act as a central hub for business-driven research.
• Canada’s risk capital sector needs further development to effectively
support the growth of innovative companies.
• Canada needs a stronger “whole-of-government” approach
to innovation.
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Key Recommendations of Innovation Canada:
A Call to Action
• Shift resources from indirect support through the Scientific Research
and Experimental Development (SR&ED) tax incentive program to direct
forms of support, including the Industrial Research Assistance Program.
• Streamline the Government’s support for business innovation.
• Simplify the SR&ED tax incentive program and improve cost-
effectiveness, predictability and accountability.
• Make business innovation one of the core objectives of procurement.
• Refocus the institutes of the National Research Council on demand-driven
applied research.
• Help high-growth innovative firms access risk capital.
• Establish a clear federal voice for innovation.
Informed by this advice, the Government is committed to a new approach
to supporting innovation in Canada, by pursuing active business-led
initiatives that focus resources on better meeting private sector needs.
Economic Action Plan 2012 begins to deliver on this commitment,
announcing $1.1 billion over five years for direct research and development
support and making available $500 million for venture capital.
This new approach will promote business innovation through improved
support for high-growth companies, research collaborations, procurement
opportunities, applied research and risk financing. This will provide a solid
foundation on which Canada’s globally competitive businesses can build by
making the investments in innovation required to create high-value jobs and
long-term economic growth. In particular, the Government will:
• Double the contribution budget of the Industrial Research
Assistance Program to better support research and development by small
and medium-sized companies.
• Support private and public research collaboration through
internships for graduate students and funding for business-led
research and development.
• Support innovation through procurement by connecting small and
medium-sized companies with federal departments and agencies to
build their capacity to compete in the marketplace.
• Refocus the National Research Council on demand-driven business-
oriented research that will help Canadian businesses develop innovative
products and services.
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• Help high-growth firms access risk capital by committing significant
funds to lever increased private sector investments in early-stage risk
capital and to support the creation of large-scale venture capital funds
led by the private sector.
• Streamline and improve the SR&ED tax incentive program by removing
capital from the expenditure base, making it more cost-effective through
design improvements and a measured rate reduction, and providing
greater predictability through administrative improvements.
The Panel’s recommendations are wide-ranging and the Government will
continue to study them carefully. In particular, the Government will explore
options to consolidate the suite of programs that supports business
innovation to make it easier for businesses to access government support
and improve efficiency. In addition, the Government will help innovative
companies have greater access to private sector risk capital. The Government
will announce further actions in response to the Panel’s recommendations in
the coming months and in Budget 2013.
Helping High-Growth Firms Access Risk Capital
Economic Action Plan 2012 will make available $400 million to help increase private
sector investments in early-stage risk capital and to support the creation of large-scale
venture capital funds led by the private sector. Also, it confirms the previous
commitment to make available an additional $100 million to the Business
Development Bank of Canada.
Young knowledge-based firms often have difficulty in accessing capital from
traditional financial institutions because they have few tangible assets beyond
their ideas. Yet some of these firms have the potential to become future
global market leaders. Facebook, Google and Research In Motion were all
start-up companies financed by venture capital. Angel investors and venture
capital funds play an important role in supporting the growth of these
high-potential firms by providing much-needed capital as well as hands-on
business advice.
The Canadian venture capital market has had mixed results in the last decade.
Further, the venture capital market faces a broad range of challenges
including a decline in fundraising, which is partially attributable to the
market’s inability to consistently attract private investors, including large,
well-funded institutional investors such as pension funds.
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The Government recognizes the crucial role played by private sector risk
capital in driving business growth and innovation, and has taken important
steps to strengthen its availability, including through the Business
Development Bank of Canada and by removing impediments to foreign
venture capital investments.
To help increase private sector investments in early-stage risk capital, and to
support the creation of large-scale venture capital funds led by the private
sector, Economic Action Plan 2012 proposes to make available $400 million
for venture capital activities. This will increase the amount of funding
available for growth-oriented innovative firms while focusing resources on
those that are likeliest to become global leaders. In the coming months, the
Government will consider how to structure its support in order to incent
private sector investments and management of seed and large-scale venture
capital funds.
In addition, Economic Action Plan 2012 confirms the previous commitment
to make available an additional $100 million to support the venture
capital activities of the Business Development Bank of Canada.
Increasing Direct Support for Business Innovation
Doubling the Industrial Research Assistance Program
Economic Action Plan 2012 proposes an additional $110 million per year starting
in 2012–13 to double support for companies through the Industrial Research
Assistance Program.
The National Research Council’s Industrial Research Assistance Program,
which supports research and development projects by innovative small and
medium-sized businesses, is a cornerstone of Canada’s innovation system
and is regarded worldwide as one of the best programs of its kind. Economic
Action Plan 2012 proposes an additional $110 million per year starting in
2012–13 to the National Research Council to double the Industrial Research
Assistance Program. This will allow the National Research Council to
support additional small and medium-sized businesses that create high-value
jobs, and to expand the services provided to businesses through the
program’s Industrial Technology Advisors. The National Research Council
will also create a concierge service that will provide information and
assistance to small and medium-sized businesses to help them make effective
use of federal innovation programs.
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Industrial Research Assistance Program
Success Stories
The National Research Council’s Industrial Research Assistance Program
(NRC-IRAP) has a strong track record of providing innovative small and
medium-sized companies with financial resources, customized services
and access to highly skilled people. Recent success stories include:
Wolf Steel Inc. (Barrie, Ontario)—The firm has been able to design,
manufacture and market a new high-efficiency furnace—the only gas
furnace manufactured in Canada—with assistance and advisory services
from NRC-IRAP.
Quark Engineering and Development Inc. (Halifax, Nova Scotia)—
The firm has transformed their TetherBerry networking technology into a
multi-platform and Bluetooth-enabled device, leading to better market
penetration, new business opportunities and increased revenues, with the
assistance of NRC-IRAP.
Motion Composites Inc. (Saint-Roch-de-l’Achigan, Quebec)—
The company designed and produced a wheelchair that is lighter, more
durable and more affordable than a traditional wheelchair, with financial
support from NRC-IRAP.
Supporting Innovative Businesses in Western Canada
Economic Action Plan 2012 announces the upcoming launch of the Western
Innovation Program.
Western Economic Diversification Canada works to improve the long-term
economic competitiveness of the West and the quality of life of its citizens
by supporting a wide range of initiatives targeting inter-related project
activities—innovations, business development and community economic
development. The agency will soon be launching the Western Innovation
Program. The new program will provide financial support to innovative small
and medium-sized enterprises in Western Canada, and is consistent with
those offered in other regions such as the Business and Regional Growth
program administered by Canada Economic Development for Quebec
Regions; the Business Development Program administered by the Atlantic
Canada Opportunities Agency; and the Southern Ontario Development
Program administered by the Federal Economic Development Agency for
Southern Ontario.
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New Approaches to Canadian Business Innovation
The Government’s new approach to supporting business innovation provides
opportunities for businesses to commercialize breakthrough ideas and
develop global markets. For example, the Government is supporting the
new Canadian Technology Accelerator initiative in New York, N.Y., which
will help Canadian entrepreneurs access venture capital, customers and
partners in key markets in the United States to catalyze their growth.
Programs like the Canadian Technology Accelerator initiative are helping
innovative small and medium-sized companies to succeed in the
international market and create more jobs for Canadians.
Supporting Private and Public Sector
Research Collaboration
Through linkages between firms and post-secondary institutions, knowledge
generated by federal support for post-secondary research is harnessed to
address market needs. Collaborative research between post-secondary
researchers and private sector partners promotes awareness by companies
of the capabilities of post-secondary institutions and researchers, facilitates
the transfer of expertise and technology, and encourages the development
of long-term research capacity within the private sector. Economic Action
Plan 2012 proposes several measures to enhance support for high-potential
research collaborations between businesses and researchers.
Integrating High-Quality Researchers Into the Labour Market
Economic Action Plan 2012 proposes $14 million over two years to double the
Industrial Research and Development Internship program.
The Industrial Research and Development Internship program currently
helps 1,000 graduate students undertake hands-on research in innovative
Canadian firms each year. This initiative provides host firms with access
to cutting-edge research and skills, while providing students with valuable
applied research experience in a private sector setting. To double the
resources of the Industrial Research and Development Internship program,
Economic Action Plan 2012 proposes $14 million over two years. This new
funding will be administered by Mitacs, an advanced research organization
with a proven track record of helping businesses solve problems through
access to graduate students.
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Mitacs and the Industrial Research and Development
Internship Program Success Stories
Through the Industrial Research and Development Internship program,
which is largely delivered by Mitacs, graduate students and postdoctoral
fellows from over 50 Canadian universities apply their specialized expertise
to business-related challenges. Open to all disciplines and all industry
sectors, projects can span a wide range of areas, including manufacturing,
technical innovation, business processes, information technology and social
sciences. Research internship projects include:
• Wastewater treatment plants in northern Saskatchewan
(NexLev Solutions and the University of Saskatchewan)—NexLev
Solutions, a management services and technology company, recently
partnered with Dr. Mahshid Atapour, a postdoctoral fellow at the
University of Saskatchewan’s computer science department, to complete
a project aimed at automating the operation of wastewater treatment
plants for communities in northern Saskatchewan. As part of the project,
NexLev required a mathematician with expertise in several areas,
including modeling, probability theory and Monte Carlo simulation.
NexLev teamed up with Dr. Atapour through the Mitacs internship
program to complete these objectives, resulting in considerable cost
savings for the firm.
• Development of lipid nanoparticles (AlCana and the University of
British Columbia)—Through the Mitacs internship program, Alcana, a
biotechnology company, partnered with Dr. Josh Zaifman, a postdoctoral
fellow at the University of British Columbia’s chemistry department, to
develop its lipid nanoparticles project. Alcana believes that this project
exhibits the potential to become a new means for the targeted delivery
of therapeutics. Alcana has indicated that through this program, it was
able to significantly reduce the project’s operating costs, as Dr. Zaifman
conducted a large part of his research using the university’s resources,
which were not otherwise available to the firm.
• Complex lightshows in Montréal, Quebec (Realisations.net and the
École des Hautes Études Commerciales)—Realisations.net produces
commercial lightshows and soundscapes for major events, such as
Montreal Canadiens’ games. For the new Quartier des spectacles at the
centre of Montreal, the company needed expertise to solve problems
related to projecting light shows on buildings and putting on a production
in a public space in a way that recognizes that people live and work in the
area. Mitacs interns from the Écoles des Hautes Études Commerciales
were tasked with determining how the projected contents of the show
could be managed, as well as with drafting a business plan to ensure that
the project, while remaining respectful of its surroundings, could be
produced at a profit.
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Strengthening Knowledge Transfer and Commercialization
Economic Action Plan 2012 proposes $12 million per year to make the
Business-Led Networks of Centres of Excellence program permanent.
The Business-Led Networks of Centres of Excellence program supports
research on business priorities by teams of private sector researchers and
academics. The program has proven to be an effective way to link innovative
businesses to Canada’s world-class researchers, helping to create and sustain
knowledge-based jobs. To build on the success of these collaborations,
Economic Action Plan 2012 proposes $24 million over two years and
$12 million per year thereafter to make the Business-Led Networks of
Centres of Excellence program permanent.
Business-Led Networks of Centres of Excellence
Existing Networks
The inaugural Business-Led Networks of Centres of Excellence competition
in 2009 selected four networks:
• The Canadian Forest NanoProducts Network—ArboraNano
(Pointe-Claire, Quebec) is helping to develop innovative,
nanotechnology-based carbon-neutral products created from Canada’s
vast forest resource.
• Green Aviation Research & Development Network—GARDN
(Ottawa, Ontario) is promoting aerospace technologies for the
protection of the environment.
• The Quebec Consortium for Drug Discovery—CQDM (Nuns’ Island,
Quebec) is working to accelerate the drug discovery process and to
develop safer and more effective drugs.
• Sustainable Technologies for Energy Production Systems—STEPS
(Regina, Saskatchewan) is addressing hydrocarbon energy production
sustainability challenges, helping to ensure a secure and affordable supply
of clean energy for Canadians.
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Forestry Innovation and Market Development Support
Economic Action Plan 2012 proposes $105 million over two years to support
the continued transformation of the forestry sector.
In 2011, the forestry sector directly supported 233,000 jobs in over
200 communities across the country and accounted for 1.9 per cent of
Canadian gross domestic product. The forestry sector has faced a number
of economic challenges over the past decade. In response to these challenges,
the forestry industry has taken important steps to become more productive
and transition to higher-value activities.
The Government has provided significant support to the forestry sector
to facilitate its transformation through a suite of innovation and market
development programs. To maximize the effectiveness of federal support,
the Government will be refocusing its current programming from five
to two initiatives:
• The Expanding Market Opportunities Program will combine the
Canada Wood Export and the North American Wood First programs
and incorporate the activities previously delivered by the Leadership
for Environmental Advantage in Forestry (the LEAF Program).
• The Forest Innovation Program will combine support for the
emergence of transformative technologies, including those developed
by FPInnovations and the Canadian Wood Fibre Centre, through the
previous Promoting Forest Innovation and Investment program, and the
technology transfer activities to small and medium-sized enterprises that
were previously delivered through the Value to Wood program.
To support the continued transformation of the forestry sector, Economic
Action Plan 2012 proposes $105 million over two years. The Government
will continue to engage with the forestry industry to identify opportunities
for the private sector to increase its investment in innovation and develop
new markets for Canadian forestry products.
Supporting Innovation Through Procurement
Economic Action Plan 2012 proposes an additional $95 million over three years,
starting in 2013–14, and $40 million per year thereafter to make the Canadian
Innovation Commercialization Program permanent and to add a military
procurement component.
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The Canadian Innovation Commercialization Program, which was launched
in 2010 and has already shown encouraging results, connects small and
medium-sized enterprises with federal departments and agencies that have
a need for innovative products and services. By selling to the federal
government, businesses can demonstrate the value of their products and
services, increase the scale of their operations, and generate future sales
to non-federal customers. To build on the early success of this program,
Economic Action Plan 2012 proposes an additional $95 million over
three years, starting in 2013–14, and $40 million per year thereafter to
make the Canadian Innovation Commercialization Program permanent.
The program will include an added military procurement component.
Accelerating Commercialization by Small Businesses
Following the evaluation of proposals submitted under the Canadian
Innovation Commercialization Program’s first two Calls for Proposals, over
60 innovations have been pre-qualified. Public Works and Government
Services Canada has been working with the selected companies to match
their innovations with federal government departments.
Project Examples
CVT Corp (Sainte-Julie, Quebec)
CVT Corp is an internationally recognized technology company specializing
in the development and manufacture of continuously variable transmissions
for power generation, oil and gas, mining, farming and off-road equipment.
Funding will help the company in commercializing its variable speed diesel
gensets (models of 50kW and 125kW) which, when incorporated into
equipment, offer significant fuel savings, lower emissions and reduced
noise levels.
GestureTek Inc. (Toronto, Ontario)
GestureTek Inc. is a world leader in video gesture control technology
for multi-touch surfaces, signs, displays, and devices and games for
advertising, entertainment and information delivery. Funding will allow the
company to commercialize its GestPoint Maestro 3D Digital Whiteboard
Display Application—a 3D-camera system for point-control-from-a-distance,
integrated with networked whiteboard systems for collaborative dual-
location user experiences.
Virtual Marine Technology (St. John’s, Newfoundland and Labrador)
Virtual Marine Technology is a global provider of small craft training
simulators. Funding will allow the company to commercialize its
MissionQuest multi-task simulators, which help crews to train and
prepare for situations such as search and rescue exercises that are
often too expensive, rare and dangerous to replicate in the context
of on-water training.
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Accelerating Commercialization
by Small Businesses (cont’d)
Synodon Inc. (Edmonton, Alberta)
Synodon has developed and demonstrated an advanced airborne remote
gas sensing system, enabling the monitoring and measurement of natural
releases of methane gas in the Arctic. Funding will enable the deployment
of this technology to allow Natural Resources Canada to survey the vast
Canadian Arctic.
Refocusing the National Research Council
Economic Action Plan 2012 proposes $67 million in 2012–13 to support the
National Research Council in refocusing on business-led, industry-relevant research.
The National Research Council was created in 1916 to support basic research
and the development of commercial innovations. The organization has made
an important contribution to the Canadian economy, supporting the
development of innovations, such as the pacemaker and computer animation
technology, that have created high-value jobs. To continue to play this
important role in Canada’s innovation system, the National Research Council
must adapt to business research needs, and concentrate on active business-
driven, industry-relevant applied research. To support this new direction,
Economic Action Plan 2012 proposes $67 million to the National Research
Council in 2012–13.
In consultation with businesses and university and college stakeholders,
the Government will consider ways to better focus the National Research
Council on demand-driven research, consistent with the recommendations
of the Expert Panel.
Scientific Research and Experimental Development
Tax Incentive Program
The Scientific Research and Experimental Development (SR&ED)
tax incentive program is one of the most generous systems in the
industrialized world for research and development (R&D). It is the single
largest federal program supporting business R&D in Canada, providing more
than $3.6 billion in tax assistance in 2011.
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Consistent with the recommendations of the Expert Panel, Economic Action
Plan 2012 is proposing a number of measures to streamline and improve the
SR&ED tax incentive program. The savings generated by these actions
will be invested in direct support programs that will reinforce business
innovation in Canada.
How Does the Scientific Research and Experimental
Development (SR&ED) Tax Incentive Program Work?
Currently, eligible expenditures include most of the costs that are directly
related to SR&ED, including salary and wages, materials, overhead,
contracts and capital expenditures (other than most buildings).
The SR&ED tax incentive program has two components:
• An income tax deduction, which allows immediate expensing
of all eligible expenditures.
• An investment tax credit:
- The general rate is 20 per cent.
- An enhanced rate of 35 per cent is provided to small and medium-sized
Canadian-controlled private corporations (CCPCs) on their first
$3 million of eligible expenditures.
- Unused credits earned in a year are generally fully refundable
for small and medium-sized CCPCs on their first $3 million of
current expenditures.
Simplifying the Tax Credit Base
Economic Action Plan 2012 proposes to simplify the SR&ED program by
removing capital from the expenditure base.
The rules regarding the eligibility of capital expenditures are the most
complex for businesses to comply with. In order to simplify the program,
Economic Action Plan 2012 proposes to narrow the base of eligible
expenditures by removing capital. The other expenditure elements will
remain eligible, including salary and wages, materials, overhead expenses
and contract payments. This proposed change will affect capital expenditures
incurred in 2014 and subsequent years.
Increasing Cost-Effectiveness
Economic Action Plan 2012 proposes to increase the cost-effectiveness of the SR&ED
program through two design improvements and a measured reduction in the general
tax credit rate.
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In order to increase cost-effectiveness, Economic Action Plan 2012 proposes
two design improvements that will better align the tax credits received with
actual business expenditures on SR&ED projects, as well as a measured
reduction in the general tax credit rate.
The two design improvements will affect the calculation of overhead
expenditures and of arm’s length contract payments:
• To limit instances where the rules result in tax credits being provided for
overhead costs that exceed the actual costs incurred, Economic Action
Plan 2012 proposes to gradually reduce the “prescribed proxy amount”
that is used to compute overhead expenditures under the so-called “proxy
method,” from 65 per cent to 55 per cent of direct labour costs. The
55-per-cent rate will be fully phased in as of January 1, 2014.
• To remove the profit element from arm’s length contract payments,
Economic Action Plan 2012 proposes to allow only 80 per cent of these
contract payments to be used for the purposes of calculating the SR&ED
tax credits. This change is consistent with the current tax treatment
of non-arm’s length contracts, and will target the tax credits to SR&ED
expenditures incurred, and not on profit margins. It will be effective as
of January 1, 2013.
Economic Action Plan 2012 also proposes a reduction in the general
SR&ED investment tax credit rate. The recent corporate income tax rate
reductions (from 22.12 per cent in 2007 to 15 per cent in 2012) have
effectively increased the relative generosity of the SR&ED tax incentive
program and resulted in growing pools of unused investment tax credits.
Effective January 1, 2014, the general SR&ED investment tax credit rate will
be reduced from 20 per cent to 15 per cent.
Enhancing Predictability
Economic Action Plan 2012 announces actions by the Canada Revenue Agency
to improve the predictability of the SR&ED tax incentive program. The Government
will invest $4 million in 2012–13 and $2 million in 2013–14 to implement changes
to the administration of the program.
Economic Action Plan 2012 announces that the Canada Revenue Agency
(CRA) will conduct a pilot project to determine the feasibility of a formal
pre-approval process. The CRA will also:
• Enhance the existing online self-assessment eligibility tool.
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• Work collaboratively with industry representatives to address
emerging issues.
• Make more frequent and effective use of “tax alerts.”
• Improve the Notice of Objection process to allow for a second review
of scientific eligibility determinations.
Administrative Improvements to the Scientific
Research and Experimental Development (SR&ED)
Tax Incentive Program
The Canada Revenue Agency (CRA) has recently implemented a number
of administrative improvements to address challenges that have been
identified by stakeholders in the areas of accessibility, predictability and
consistency. These improvements include:
• Increasing the number of technical reviewers.
• Providing additional training and establishing coordinated technical
support for the technical reviewers.
• Devoting more time to program services.
• Enhancing the quality assurance methodology.
• Reviewing dispute resolution procedures to ensure their effectiveness.
In addition, the CRA is in the process of consolidating and clarifying the
administrative policies that are currently contained in about 70 documents
pertaining to the SR&ED tax incentive program. The revised information will
ultimately be presented in a user-friendly format on the CRA website in
December 2012, with the objective of reducing complexity and
improving accessibility.
Contingency Fees
The Government announces a study of contingency fees charged by tax preparers.
Small and medium-sized businesses sometimes rely on tax preparers
charging on a contingency-fee basis to prepare their SR&ED claims.
These fees may be as high as 30 per cent of SR&ED benefits, or even
more. The Government is concerned that high contingency fees charged
by tax preparers are diminishing the benefits of the SR&ED tax incentive
program to Canadian businesses and the economy. In the coming year, the
Government will conduct a study, including consultations with taxpayers,
to better understand why firms choose to hire consultants on a contingency-
fee basis and determine whether action is required.
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SUPPORT FOR RESEARCH, EDUCATION AND TRAINING
Supporting Advanced Research
Since 2006, the Government has provided nearly $8 billion in new funding
for initiatives to support science, technology and the growth of innovative
firms. This includes $5 billion in support for science and technology activities
performed by non-business enterprises. This funding has helped to make
Canada a world leader in post-secondary education research and to create
the knowledge and highly skilled workforce that is required for a more
prosperous economy. This support has contributed to a strong foundation
for Canada’s innovation system, ensuring that Canadian researchers can
continue to generate groundbreaking ideas and businesses have access to
the knowledge, ideas, people and resources needed to bring this knowledge
to market and create high-quality jobs.
Economic Action Plan 2012 proposes additional resources to support
advanced research at universities and other leading research institutions.
Canada Invests in Science, Technology
and Innovation Leadership
Since 2006, the Government has provided nearly $8 billion in new funding
for initiatives to support science, technology and the growth of innovative
firms in Canada, including $5 billion for advanced research, education and
training, $2 billion for post-secondary infrastructure, and $1 billion for
applied research and financing. Key examples include:
Education and Training
• $45 million over five years to establish the Banting Postdoctoral
Fellowships to attract top-level research talent to Canada.
• $100 million over five years to create the Vanier Canada Graduate
Scholarships to draw top doctoral students to Canada.
• $71 million over four years to establish the Canada Excellence Research
Chairs to attract the world’s best researchers to Canada.
Basic Research
• Nearly $1.5 billion in new resources since 2006 to support advanced
research through the federal granting councils.
• Over $600 million to support cutting-edge research infrastructure through
the Canada Foundation for Innovation.
• $2 billion for university and college infrastructure projects, including
repair, maintenance and construction, through the Knowledge
Infrastructure Program.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
73
Canada Invests in Science, Technology
and Innovation Leadership (cont’d)
Knowledge Translation
• $440 million over six years to establish the Centres of Excellence for
Commercialization and Research, to help translate knowledge into
significant commercial advantage for Canadian businesses.
• $78 million over four years to support linkages between businesses
and colleges through the College and Community Innovation Program.
Applied Research
• $200 million over two years under Canada’s Economic Action Plan to
temporarily expand contributions to small and medium-sized enterprises
through the Industrial Research Assistance Program.
• More than $470 million over four years to support strategic innovation
projects in key sectors of the Canadian economy, including the
automotive, aerospace, forestry and clean technology sectors.
Financing for Commercialization
• $40 million over two years to launch the Canadian Innovation
Commercialization pilot program to help small and medium-sized
enterprises market innovative products and services to
federal departments.
• $475 million to finance high-potential, innovative firms through
the Business Development Bank of Canada, of which $75 million
was provided through Budget 2008 and $400 million was committed
in June 2009.
Promoting Post-Secondary and Private Sector Research Collaborations
Economic Action Plan 2012 proposes $37 million annually to enhance the granting
councils’ support for industry-academic research partnership initiatives.
The federal granting councils support outstanding research and advanced
training at post-secondary institutes and research hospitals. The granting
councils have been increasing their focus on partnerships between post-
secondary researchers and companies to target research to business needs
and transfer knowledge into economic advantage.
The granting councils will be pursuing operational efficiencies and
reallocation of funding from lower-priority programs to generate savings.
The Government will fully reinvest 2012–13 savings in priority areas of
the granting councils, particularly in industry-academic partnerships.
Chapter 3.1
74
Specifically, Economic Action Plan 2012 proposes $37 million annually
starting in 2012–13 to the granting councils to enhance their support for
industry-academic research partnership initiatives. The new resources for
the councils will be allocated as follows:
• $15 million per year to the Canadian Institutes of Health Research
for its Strategy for Patient-Oriented Research.
• $15 million per year to the Natural Sciences and Engineering Research
Council for its Strategy for Partnerships and Innovation.
• $7 million per year to the Social Sciences and Humanities Research
Council for its industry-academic partnership initiatives.
Investing in Genomics Research
Economic Action Plan 2012 proposes an additional $60 million for genomics research.
Genome Canada is a not-for-profit corporation dedicated to supporting
Canada’s research leadership in genomics, a fast-growing field that has
significant potential social and economic benefits. Genomics research helps
unlock new possibilities in important areas such as health, fisheries, forestry,
agriculture and the environment.
To date, the Government has provided $980 million to Genome Canada,
which along with funding from other partners will result in close to $2 billion
in genomics research in Canada. To help achieve important future genomics
research breakthroughs, Economic Action Plan 2012 proposes an additional
$60 million for Genome Canada to launch a new applied research
competition in the area of human health, and to sustain the Science
and Technology Centres until 2014–15.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
75
Genome Canada Success Stories
• Facilitating early screening and diagnosis to improve outcomes
for colon cancer. Researchers from Ontario and Quebec have
discovered markers that identify individuals who are at greater risk of
developing colon cancer. This knowledge led to the development of a
genetic risk assessment test for the disease. Early diagnosis reduces
the cost of treatment and improves the likelihood that treatment will
be successful.
• Increasing the competitiveness of the forest industry. Spruce
trees are the most widely used species in Canada’s forest plantations.
Researchers at Université Laval are working to develop tools and
protocols that make it possible to select high-performance spruce trees
with better quality wood and high potential to adapt to climate change.
Government and industry have partnered to transfer molecular breeding
technology to commercial application across a broader range of tree
species, to increase the competitiveness of the Canadian forest industry.
• Maximizing the value of canola. Researchers in Western Canada
have identified several important genes that have potential for
enhancing the crop performance of canola. These genes have now been
employed to produce canola plants exhibiting larger seeds, increased
seed yield and increased efficiency in nutrient use.
Investing in Mental Health Research
Economic Action Plan 2012 proposes $5.2 million in 2012–13 to establish
and integrate a network of mental health-related professionals. Research will be
centered on treating depression, with a focus on suicide prevention and post-traumatic
stress disorder.
Mental health-related illnesses impact the lives of many Canadians, at a
great social and economic cost. The advancement of research in this area,
particularly research aimed at developing more effective diagnostic and
treatment tools, is critical to improving the lives of these individuals.
Economic Action Plan 2012 proposes $5.2 million in 2012–13 to support
the Canadian Depression Research and Intervention Network. The Mood
Disorders Society of Canada, in conjunction with the Mental Health
Commission of Canada, will lead the development of the Network,
connecting over 80 of Canada’s brightest depression researchers from across
the country. Particular focus will be on suicide prevention and identifying
and treating post-traumatic stress disorder. Funding provided in the budget
will serve as a catalyst for private and public sector investment.
Chapter 3.1
76
Promoting Cost-Effective Health Care
Economic Action Plan 2012 proposes $6.5 million over three years for a health
research project at McMaster University.
Canadians rely on an effective, efficient and accessible public health care
system. The Government is working with partners to further improve the
delivery of health care services. Economic Action Plan 2012 proposes
$6.5 million over three years for a research project at McMaster University.
The project will evaluate ways to achieve better health outcomes for patients
while also making the health care system more cost-effective, through greater
implementation of medical teams. Federal support will be augmented by
contributions from other partners.
Advancing Knowledge and Treatment of Spinal Cord Injury
Economic Action Plan 2012 announces the Government’s commitment to support
spinal cord injury research at the Rick Hansen Institute.
May 2012 marks the 25
th
anniversary of the conclusion of the Rick Hansen
Man in Motion World Tour, which saw him visit more than 30 countries
and raise over $26 million for spinal cord research. To help improve the
lives of people living with spinal cord injuries, the Government will continue
to partner with the Rick Hansen Institute to support its work to achieve
breakthroughs in spinal cord injury research and care.
Diversifying Canada’s Medical Isotope Supply
Economic Action Plan 2012 proposes $17 million over two years to further develop
alternatives to existing isotope production technologies.
Medical isotopes are used in a variety of treatments and diagnostic
procedures that help save lives. In Budget 2010, the Government provided
$35 million over two years to Natural Resources Canada to support research
and development towards new technologies for the production of medical
isotopes to help replace reactor-based isotope supplies. Very promising
results have been demonstrated to date, but more work is required to bring
these new technologies to commercial scale. To further advance the
development of alternatives to existing isotope production technologies and
help secure the supply of medical isotopes for Canadians, Economic Action
Plan 2012 proposes an additional $17 million over two years to Natural
Resources Canada.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
77
Supporting Leading-Edge Researchers
Economic Action Plan 2012 proposes $10 million over two years to support linkages
between Canadian researchers and leading international minds.
The Canadian Institute for Advanced Research (CIFAR) is a private,
non-profit organization linking Canadian researchers with the top minds
from around the world. Its main priority is to establish and maintain global
networks of top researchers and students, enabling Canadians to participate
in and lead groundbreaking work on the international stage. To enhance the
organization’s activities and allow it to continue to link Canadian researchers
to the world, Economic Action Plan 2012 proposes $10 million over
two years to CIFAR.
CIFAR Programs
Through its research programs, CIFAR identifies areas where significant
new knowledge can be created by bringing together leading Canadian
and international researchers to focus on ”big questions.” For example:
Nanoelectronics aims to understand the power of materials at the
nanometre (one billionth of a metre) scale, which holds the potential to
create computer circuits orders of magnitude smaller than those found
on today’s microchips.
Quantum information processing unites computer scientists and
physicists in an effort to harness the unique properties of the quantum
world, with the aim of building quantum computers.
Investing in Leading-Edge Research Infrastructure
Canada Foundation for Innovation
Economic Action Plan 2012 proposes $500 million over five years to support
advanced research infrastructure.
The Canada Foundation for Innovation is a not-for-profit corporation
that supports the modernization of research infrastructure at Canadian
universities, colleges, research hospitals and other not-for-profit research
institutions across Canada. Through the Foundation, the federal government
invests with other partners in state-of-the-art facilities and equipment that
play a crucial role in attracting and retaining the world’s top minds, training
the next generation of researchers and driving cutting-edge discoveries.
Chapter 3.1
78
The federal government has allocated $5 billion to the Canada Foundation
for Innovation to date, most recently providing $750 million through
Budget 2009. The Government will sustain its investments in advanced
research infrastructure. To support the Foundation’s core activities,
Economic Action Plan 2012 proposes $500 million over five years,
starting in 2014–15, to the Canada Foundation for Innovation. The funding
will support new competitions, including for the College-Industry Innovation
Fund, with funding awarded in 2014–15.
Canada Foundation for Innovation Success Stories
Since its creation, the Canada Foundation for Innovation has supported
over 7,300 leading-edge research infrastructure projects at 130 research
institutions in 65 municipalities across Canada. Examples include:
• In Montréal, Quebec, the Canada Foundation for Innovation contributed
$8.4 million to the Université de Montréal for communications and
medical imaging equipment to conduct research on how to better treat
patients with heart and vascular diseases.
• In Oshawa, Ontario, the Canada Foundation for Innovation contributed
over $98,000 to the University of Ontario Institute of Technology to
support a cutting-edge research laboratory for integrated high-speed
broadband wireless communication systems.
• In Waterloo, Ontario, the Canada Foundation for Innovation has
contributed over $3.7 million to the University of Waterloo for
infrastructure to perform advanced research on materials and
manufacturing for lightweight automotive structures and advanced
occupant protection.
• In Halifax, Nova Scotia, the Canada Foundation for Innovation has
provided over $720,000 to Dalhousie University for equipment
to advance groundbreaking research that will enable new materials
for energy production, energy storage and sustainability.
• In Vancouver, British Columbia, the Canada Foundation for Innovation
has contributed $139,000 to the British Columbia Institute of
Technology for infrastructure at the Centre for Rehabilitation
Engineering and Technology that Enables (CREATE), which promotes
research and development in rehabilitation technologies.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
79
Supporting Canada’s Ultra-High Speed Research Network
Economic Action Plan 2012 proposes $40 million over two years to support the
operations of Canada’s ultra-high speed research network.
CANARIE is a not-for-profit organization that operates Canada’s only
ultra-high speed national research and education network, providing vital
infrastructure for world-leading research and innovation in Canada. To sustain
the evolution of the network and ensure that it continues to encourage world-
class research collaborations across the country, Economic Action Plan 2012
proposes $40 million over two years to CANARIE to support the operations
of Canada’s ultra-high speed research network.
The Canadian High Arctic Research Station
Economic Action Plan 2012 announces the Government’s ongoing commitment to
establishing the Canadian High Arctic Research Station.
Canada’s Economic Action Plan laid the groundwork to establish a world-
class research station in the North. As announced by the Prime Minister in
August 2010, the station will be located in Cambridge Bay. Once established,
the station will provide a year-round presence in the region and anchor the
network of research infrastructure across Canada’s North, making a
significant contribution towards the Government’s Northern Strategy.
The Government will be announcing next steps in the establishment of
the Canadian High Arctic Research Station in the coming months.
Extending Canada’s Participation in the International
Space Station Mission
Economic Action Plan 2012 confirms that Canada will continue its participation in
the International Space Station mission to 2020.
Canada’s participation in international space projects demonstrates its
position as a sophisticated research and innovation leader, with a global
advantage in several niche technology areas, including robotics. Beginning
with the first Canadarm, Canada has played a unique and privileged role with
respect to the operation of the International Space Station, alongside the
United States, the European Union, Russia and Japan. Using advanced
technology, Canadian astronauts such as Julie Payette and Chris Hadfield
have helped conduct world-class research on the International Space Station
in fields such as human space flight, physiology, physical science and
technology development. To sustain Canada’s leadership in space research,
the Government confirms that Canada will continue its participation in the
International Space Station mission to 2020. The Canadian Space Agency
will engage with NASA to define the terms of this continued participation.
Chapter 3.1
80
To explore how best to address key issues facing the aerospace and space
sectors, such as innovation, market access and development, skills
development, procurement, and supplier development, the Government
is proceeding with a review of federal aerospace and space programs and
policies. The Honourable David L. Emerson will head the review and will
report his findings to the Minister of Industry in late 2012.
Revitalizing Natural Resources Canada’s Satellite Station Facilities
Economic Action Plan 2012 proposes $23 million over two years for new satellite data
reception facilities and the development of a data management system.
With the second largest landmass on earth and the longest coastline in the
world, Canada relies on satellite technology to monitor its land and borders
and deliver critical activities, including emergency services (e.g. flood
mapping) and active monitoring of Canadian waters for the detection of oil
spills. Canada requires up-to-date reception capacity to reap the full benefits
from its observation satellites, including RADARSAT, in support of
sovereignty, public safety and economic competitiveness objectives. To
support the observation of Canada’s vast geography, Economic Action Plan
2012 proposes $23 million over two years to Natural Resources Canada for
new satellite data reception facilities and the development of a data
management system.
Supporting Atomic Energy of Canada Limited
Economic Action Plan 2012 proposes $107 million over two years to ensure a secure
supply of medical isotopes and maintain safe and reliable operations at Atomic Energy
of Canada Limited’s Chalk River Laboratories.
Atomic Energy of Canada Limited (AECL) is a federal Crown corporation
that specializes in a range of nuclear products and services. The Government
has taken an important step in positioning Canada’s nuclear industry
for future success with the sale of AECL’s CANDU Reactor Division last
October. The second phase of the restructuring of AECL—the restructuring
of its nuclear laboratories—is now underway. To ensure a secure supply of
medical isotopes and maintain safe and reliable operations at the Chalk River
Laboratories, Economic Action Plan 2012 proposes $107 million over
two years for AECL’s laboratory operations.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
81
International Education Strategy
Education, innovation and knowledge are key drivers in a world economy.
Attracting more international students and researchers to Canada will create
jobs and economic growth, expand our people-to-people ties in priority
markets, showcase Canadian research excellence abroad, help produce a
more skilled workforce and foster closer ties between Canadian and
international educational institutions.
Recognizing the need for a comprehensive plan, Budget 2011 announced
Canada’s International Education Strategy. An expert Advisory Panel was
named in October 2011 and is chaired by Dr. Amit Chakma, President and
Vice-Chancellor, University of Western Ontario. The Panel has completed its
engagement with Canadian stakeholders and partners and will soon submit a
report with recommendations that will aim to deepen educational links
between Canada and international institutions and contribute to Canada’s
long-term prosperity.
Chapter 3.1
82
Table 3.1
Supporting Entrepreneurs, Innovators and World-Class Research
millions of dollars
2012–13 2013–14 Total
Creating Value-Added Jobs Through Innovation
Increasing Direct Support for Business Innovation
Doubling the Industrial Research Assistance Program
110 110 220
Supporting Private and Public Sector Research Collaboration
Integrating High-Quality Researchers Into the Labour Market
7 7 14
Strengthening Knowledge Transfer and Commercialization
12 12 24
Forestry Innovation and Market Development Support
55 50 105
Supporting Innovation Through Procurement
25 25
Refocusing the National Research Council
67 67
Scientific Research and Experimental Development
Tax Incentive Program
Increasing Cost-Effectiveness
Reduce Overhead Proxy Rate From 65 per cent to 55 per cent
-10 -10
Remove the Profit Element From Arm’s Length
Contract Payments
-25 -25
Enhancing Predictability
4 2 7
Subtotal—Creating Value-Added J obs Through Innovation 255 171 426
Support for Research, Education and Training
Supporting Advanced Research
Promoting Post-Secondary and Private Sector
Research Collaborations 37 37 74
Investing in Genomics Research
10 50 60
Investing in Mental Health Research
5
5
Promoting Cost-Effective Health Care
3 2 5
Diversifying Canada’s Medical Isotope Supply
7 10 17
Supporting Leading-Edge Researchers
5 5 10
Investing in Leading-Edge Research Infrastructure
Supporting Canada’s Ultra-High Speed Research Network
20 20 40
Revitalizing Natural Resources Canada’s Satellite
Station Facilities
8 16 23
Supporting Atomic Energy of Canada Limited
105 1 107
Subtotal—Support for Research, Education and Training
200 141 341
Total—Supporting Entrepreneurs, Innovators
and World-Class Research
454 312 767
Less funds existing in the fiscal framework 149 97 246
Net fiscal cost
306 215 521
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 3.2
Improving Conditons
for Business Investment
Supporting Jobs and Growth
Improving Conditions for Business Investment
85
HIGHLIGHTS
Responsible Resource Development
The Government is committed to improving the review process for major
economic projects to accelerate investment and job creation. Economic
Action Plan 2012 proposes:
? System-wide legislative improvements to the review process for major
economic projects to achieve the goal of “one project, one review” in
a clearly defined time period for major economic projects.
? $165 million over two years for responsible resource development that
creates jobs while protecting the environment.
Investing in Our Natural Resources
The Government is supporting the development of Canada’s natural
resource industries. Economic Action Plan 2012 proposes:
? Support for junior mineral exploration by extending the temporary
15-per-cent Mineral Exploration Tax Credit for flow-through share
investors for an additional year.
? Actions to improve access to modern, reliable seismic data for offshore
resource development.
? $12.3 million over two years to continue to assess diamonds in the North.
Expanding Trade and Opening New Markets
for Canadian Businesses
The Government is taking action to improve Canadians’ standard of living
by growing international trade and creating export opportunities for
Canadian businesses. Economic Action Plan 2012 proposes:
? Intensifying Canada’s pursuit of new and deeper international trade and
investment relationships, including updating the Government’s Global
Commerce Strategy.
? Implementing the Action Plan on Perimeter Security and Economic
Competitiveness and the Action Plan on Regulatory Cooperation, which
will facilitate trade and investment flows with the United States.
? Providing support to Canadian businesses through tariff and tax
measures, along with the extended provision of domestic financing
by Export Development Canada.
? Increasing travellers’ exemptions to modernize existing rules and facilitate
border processes for Canadians bringing goods home from abroad.
Chapter 3.2
86
Keeping Taxes Low for Job-Creating Businesses
The Government has reduced business taxes and is committed to keeping
taxes low. The Government has also taken action to enhance the neutrality
of the tax system to support growth and encourage investment to flow to its
most productive uses. Economic Action Plan 2012 proposes:
? Enhancing the neutrality of the tax system and further rationalizing
inefficient fossil fuel subsidies by phasing out tax preferences for
resource industries.
Improving Economic Conditions for Farmers and Fishermen
The Government is improving economic conditions for farmers and
fishermen. Economic Action Plan 2012 proposes:
? $44 million over two years to transition the Canadian Grain Commission
to a sustainable funding model.
? $10.5 million in 2012–13 to support key fisheries science activities.
Strengthening Business Competitiveness
The Government is taking action to improve the competitive position
of job-creating Canadian businesses. Economic Action Plan 2012 proposes:
? Reducing red tape through the “One-for-One” Rule and implementing
the Canada-United States Action Plan on Regulatory Cooperation.
? Reducing the tax compliance burden for businesses.
? Eliminating foreign investment restrictions for certain
telecommunications companies.
Further Developing Canada’s Financial Sector Advantage
The Government is proposing new initiatives that will further ensure that our
financial system remains strong and that it benefits all Canadians. Economic
Action Plan 2012 proposes:
? Introducing legislative amendments to support central clearing of
standardized over-the-counter derivative transactions, and to reinforce
Canada’s financial stability framework.
? The Government will introduce enhancements to the governance and
oversight framework for Canada Mortgage and Housing Corporation,
and is moving forward with a legislative framework for covered bonds.
Supporting Jobs and Growth
Improving Conditions for Business Investment
87
IMPROVING CONDITIONS FOR BUSINESS INVESTMENT
In a competitive global economy, Canadian entrepreneurs and businesses
need a competitive and efficient tax system, a modern regulatory system, a
well-functioning financial system and access to international markets. This
solid foundation allows Canadian firms to create jobs and growth by
exploiting opportunities at home and abroad.
The Government has a proven record of support for entrepreneurship,
investment and growth. Since 2006, the Government has worked to promote
investment and reduce regulatory impediments to business growth. As well,
the stimulus phase of Canada’s Economic Action Plan provided
unprecedented levels of funding to support the renewal of economically vital
public infrastructure across the country. It is no surprise that Forbes magazine
ranked Canada as the number one country in the world for doing business in
2011, citing our strong economic recovery and competitive tax system,
among other factors.
Economic Action Plan 2012 will continue the Government’s work to
improve business conditions in Canada. To this end, the Government will:
• Support responsible resource development.
• Invest in our natural resources.
• Expand trade and open new markets for Canadian businesses.
• Keep taxes low for job-creating businesses.
• Improve economic conditions for farmers and fishermen.
• Strengthen business competitiveness.
• Further develop Canada’s financial sector advantage.
Chapter 3.2
88
RESPONSIBLE RESOURCE DEVELOPMENT
Major economic projects create jobs and spur development across Canada.
In 2010, natural resource sectors employed over 760,000 workers in
communities throughout the country. In the next 10 years, more than
500 major economic projects representing $500 billion in new investments
are planned across Canada. A significant element of this economic boost is
represented by Canada’s unique oil sands industry, which employs over
130,000 people while generating wealth that benefits all Canadians. This
contribution is increasing: a recent study by the Canadian Energy Research
Institute estimates that in the next 25 years, oil sands growth will support, on
average, 480,000 jobs per year in Canada and will add $2.3 trillion to our
gross domestic product. Increasing global demand for resources, particularly
from emerging economies, will create new economic and job opportunities
from which all Canadians will benefit.
Canadians will only reap the benefits that come from our natural resources
if investments are made by the private sector to bring the resources to
market. Yet those who wish to invest in our resources have been facing an
increasingly complicated web of rules and bureaucratic reviews that have
grown over time, adding costs and delays that can deter investors and
undermine the economic viability of major projects.
To maximize the value that Canada draws from our natural resources, we
need a regulatory system that reviews projects in a timely and transparent
manner, while effectively protecting the environment. The Government
recognizes that the existing system needs comprehensive reform. The
Government will bring forward legislation to implement system-wide
improvements to achieve the goal of “one project, one review” in a clearly
defined time period. Economic Action Plan 2012 proposes to streamline the
review process for major economic projects, support consultation with
Aboriginal peoples, and strengthen pipeline and marine safety.
Supporting Jobs and Growth
Improving Conditions for Business Investment
89
Modernizing the Regulatory System for Project Reviews
The Government will propose legislation to streamline the review process for major
economic projects.
Since 2006, the Government has been working to streamline the review
process for major economic projects so that projects proceed in a timely
fashion while protecting the environment. For example, in 2010 the
Government amended the Canadian Environmental Assessment Act to
allow assessments to start sooner and reduce duplication, and created
participant funding programs to ensure meaningful public engagement in
the review process.
These steps have made a difference, but more needs to be done. Currently,
companies undertaking major economic projects must navigate a complex
maze of regulatory requirements and processes. Approval processes can be
long and unpredictable. Delays and red tape often plague projects with few
environmental risks. Under the current system, thousands of smaller projects
with little or no risk to the environment are caught up in the federal
environmental review process. The types of small projects that can be
needlessly subjected to lengthy reviews include construction of a new
pumping house for the expansion of a maple syrup plant, and the
replacement of an existing culvert under a causeway. By forcing these
thousands of low-risk projects to go through the review process, the current
system draws resources away from projects that have the greatest impact on
the environment. This approach is not economically sound or
environmentally beneficial.
In the federal government alone, accountability for assessments rests with
dozens of departments and agencies, each with its own mandate, processes,
information needs and timelines. This leads to duplication and a needless
waste of time and resources. For example:
• Enbridge proposed a new $2-billion pipeline connecting Hardisty,
Alberta to Gretna, Manitoba. Due to multiple approval processes, federal
departments made their decisions on the project two years after the
National Energy Board’s approval of the project.
• Areva Resources Canada has proposed the construction and operation of
a uranium mine and mining facilities in northern Saskatchewan, with
capital investment of up to $400 million and up to 200 construction jobs.
There was a 19-month delay in starting the environmental assessment.
The federal lead department changed midway through the environmental
review, which added unnecessary complexity.
Chapter 3.2
90
• The NaiKun Wind Energy Group is proposing to develop a
396-megawatt offshore wind energy project in Hecate Strait off the
northeast shores of Haida Gwaii in British Columbia. The company
estimates that the project would have a capital investment of $1.6 billion
and would create up to 200 construction jobs. The federal decision to
approve the process came 16 months after the provincial decision.
The starting point of federal environmental assessments can also be
unpredictable, which can cause lengthy delays. The Rabaska Partnership,
for instance, is proposing to construct and operate a liquefied natural gas
terminal near Beaumont and Lévis, Quebec, including a marine jetty to
receive tankers, on-shore facilities, and a new 50-kilometre pipeline to
connect to existing natural gas transmission networks. It took almost two
years before the federal panel began its review. Similarly, the federal
environmental assessment for the project began 10 months after Canpotex
Terminals Limited and Prince Rupert Port Authority submitted a project
description proposing to construct a 13-million-tonnes-per-year potash
export terminal with a deepwater marine wharf in Prince Rupert, British
Columbia. The proponents estimate that the project would have a
capital investment of $750 million and would create up to 800 jobs
during construction.
A further complication is overlapping federal and provincial regulatory
requirements and processes that require a high degree of coordination.
For example, an application for the Joslyn North Mine Project, an oil sands
mine located in northern Alberta, was submitted to the Province of Alberta
in 2006. A federal environmental assessment did not begin until 2008 and a
decision to approve the project was issued by the responsible federal
department in December 2011. The Lower Churchill Generation Project
includes two hydroelectric power generating facilities on the lower section of
the Churchill River in Labrador. A description of the project was submitted
to the federal and provincial governments in 2006, an environmental
assessment began in 2007 and the responsible federal departments approved
the project in March 2012. Under a modernized regulatory review system,
defined timelines will apply to environmental assessments, including for
panel reviews of projects such as the Lower Churchill Generation Project.
Both levels of government have recognized an urgent need to
reduce duplication.
Supporting Jobs and Growth
Improving Conditions for Business Investment
91
[Federal, provincial and territorial ministers] reaffirmed their
commitment to working toward the shared objective of one-
project/one-review for our environmental assessments and
associated regulatory processes to position Canada for long-term
growth and job creation while maintaining the highest standard of
environmental protection.
— Annual Energy and Mines Conference Communiqué, July 2011
Currently, over $3 billion in provincially approved projects are
stranded in the mire of federal process and delay. This is
unacceptable. Time is money. Duplication is waste. Tax dollars
are limited. We cannot afford to hold investment and jobs hostage.
Byzantine bureaucratic practices have no place in the 21
st
Century.
— British Columbia Speech from the Throne, February 2010
A positive area of cooperation between the federal government and
provinces was the conclusion in 2011 of the Canada-Quebec Accord for the
shared management of offshore petroleum resources. By clarifying the roles
and responsibilities of each level of government, this Accord will allow for
the development of oil and gas resources in the Gulf of St. Lawrence,
creating jobs and economic development while protecting fisheries and
the environment.
A modern regulatory system should support progress on economically viable
major economic projects and sustain Canada’s reputation as an attractive
place to invest, while contributing to better environmental outcomes.
Increased resource development activities can also offer new opportunities
for Aboriginal businesses and can generate well-paying jobs for Aboriginal
peoples near their communities. There are steps the Government can take to
improve consultations with Aboriginal peoples when it contemplates conduct
that might affect potential or established Aboriginal or Treaty rights.
Chapter 3.2
92
The Government will focus on four major areas to streamline the review
process for major economic projects:
• Making the review process for major projects more
predictable and timely.
• Reducing duplication and regulatory burden.
• Strengthening environmental protection.
• Enhancing consultations with Aboriginal peoples.
The Government will propose legislation to modernize the federal regulatory
system that will establish clear timelines, reduce duplication and regulatory
burdens, and focus resources on large projects where the potential
environmental impacts are the greatest.
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Summary of Key Improvements
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These measures will accelerate project development and directly lead to the
creation of high-paying, high-quality jobs including for engineers,
tradespeople and other skilled workers. The resulting economic activity will
stimulate additional job creation across the country.
Major Projects Management Office Initiative
Economic Action Plan 2012 proposes $54 million over two years to renew
the Major Projects Management Office initiative.
The Major Projects Management Office initiative has helped to transform
the approvals process for major natural resource projects by shortening
the average review times from 4 years to just 22 months, and improving
accountability by monitoring the performance of federal regulatory
departments. More than 70 major projects are currently benefitting from
the system-wide improvements made possible by the initiative (see map). To
continue to support effective project approvals through the Major Projects
Management Office initiative, Economic Action Plan 2012 proposes
$54 million over two years.
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Major Projects Management Office Initiative:
Current Projects
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Major Economic Projects Benefitting From the Major
Projects Management Office Initiati ve
Horn River Natural Gas Pipeline (British Columbia)
The Horn River Natural Gas Pipeline project connects natural gas supply
from northeastern British Columbia to an existing pipeline infrastructure.
The Major Projects Management Office initiative coordinated the federal
review of the project and approval was granted in February 2011,
17 months after receiving the description of the project.
Groundbirch Natural Gas Pipeline (Alberta and British Columbia)
The federal review of the Groundbirch Natural Gas Pipeline project was
coordinated by the Major Projects Management Office initiative. A
description of the pipeline, which would cross from Alberta into British
Columbia, was submitted to the Office in November 2008 and the project
was approved within 17 months in April 2010.
Bakken Oil Pipeline (Manitoba and Saskatchewan)
The Bakken Oil Pipeline, which will transport oil from Saskatchewan to
Manitoba, was approved by the federal government within 17 months in
March 2012. The review of the project, which was expected to trigger
statutory and regulatory obligations for several departments, was
coordinated by the Major Projects Management Office after receiving a
project description in October 2010.
Detour Lake Gold Mine (Ontario)
Approval for the Detour Lake Gold Mine project was granted by the Minister
of the Environment in December 2011. A description of the open-pit mine
project, which would be located in northeastern Ontario, was submitted in
October 2009. The Major Projects Management Office coordinated the
review of the project, which was expected to trigger statutory and
regulatory obligations for Fisheries and Oceans Canada, Natural Resources
Canada and Transport Canada, and the review of the project was completed
in 14 months.
Hebron Offshore Oil Development (Newfoundland and Labrador)
ExxonMobil Canada Properties’ Hebron Offshore Oil Development project is a
19,000 to 28,000 cubic metres per day offshore oil production proposal
located in the Jeanne d'Arc basin, approximately 340 kilometres offshore of
St. John's. The proposal consists of an offshore oil production system and
associated facilities. A project description was submitted in March 2009 and
the review was completed in January 2012.
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Major Economic Projects Benefitting From the Major
Projects Management Office Initiati ve (cont’d)
Matoush Uranium Exploration (Quebec)
The Matoush Uranium Exploration Ramp Access project involves the
excavation of an exploration ramp to determine the possibility of a uranium
mine within the James Bay and Northern Quebec Agreement territory
located approximately 260 kilometres north of Chibougamau in Quebec.
The project consists of a 2,405-metre ramp, at a maximum depth of
300 metres. Temporary structures will be built at the surface to support
the underground exploration. The project description was submitted in
September 2008 and the review was completed February 2012.
Consultation Under the Canadian Environmental
Assessment Act
Economic Action Plan 2012 proposes $13.6 million over two years to support
consultations with Aboriginal peoples.
The Government is committed to consulting with Aboriginal peoples in
the review of projects to ensure that their rights and interests are respected.
Consultations can also facilitate discussions on how Aboriginal peoples
can benefit from the economic development opportunities associated
with these projects. To support consultations with Aboriginal peoples related
to projects assessed under the Canadian Environmental Assessment Act,
Economic Action Plan 2012 proposes $13.6 million over two years to the
Canadian Environmental Assessment Agency.
Supporting Responsible Energy Development
Economic Action Plan 2012 proposes $35.7 million over two years to support
responsible energy development.
Safe navigation of oil tankers is very important to our Government. Oil
tankers have been moving safely and regularly along Canada’s West Coast
since the 1930s. For example, 82 oil tankers arrived at Port Metro Vancouver
in 2011. Nearly 200 oil or chemical tankers visited the Ports of Prince Rupert
and Kitimat over the past five years. They all did so safely.
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Oil tankers in Canada must comply with the safety and environmental
protection requirements of international conventions and, while in Canadian
waters, with Canada’s marine safety regulatory regime. These requirements
include double hulling of ships, mandatory pilotage, regular inspections and
aerial surveillance.
Any tanker built after July 6, 1993, must be double hulled to operate in
Canadian waters. A double hull is a type of hull where the bottom and sides
of a vessel have two complete layers of watertight hull surface. Tankers that
are not double hulled are being gradually phased out. And, for large crude oil
tankers, the phase-out date for single hulled vessels—like the Exxon
Valdez—was 2010, which means that all large crude tankers operating in our
waters today are double hulled.
In compulsory pilotage areas, the Pacific Pilotage Authority requires tanker
operators to take a marine pilot with local knowledge onboard before
entering a harbour or busy waterway. In special circumstances, more
stringent measures may be taken, including: requiring two pilots onboard oil
tankers; escort tugs; additional training standards; and navigational
procedures, restrictions and routing measures.
Transport Canada also targets high-risk vessels entering Canadian ports. The
department’s ship inspectors board and inspect foreign vessels, including oil
tankers, entering Canadian ports to ensure they comply with all of our rules.
In 2011, almost 1,100 inspections were carried out across Canada, 147 of
them on oil tankers.
Economic Action Plan 2012 proposes further measures to support
responsible energy development, including:
• New regulations which will enhance the existing tanker inspection regime
by strengthening vessel inspection requirements.
• Appropriate legislative and regulatory frameworks related to oil spills,
and emergency preparedness and response.
• A review of handling processes for oil products by an independent
international panel of tanker safety experts.
• Improved navigational products, such as updated charts for
shipping routes.
• Research to improve our scientific knowledge and understanding of
marine pollution risks, and to manage the impacts on marine resources,
habitats and users in the event of a marine pollution incident.
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These measures will ensure that pipelines in Canada are carefully monitored,
environmental consequences are understood and emergency response
is improved. Economic Action Plan 2012 proposes $35.7 million over
two year to further strengthen Canada’s tanker safety regime and support
responsible development.
Strengthening Pipeline Safety
Economic Action Plan 2012 proposes $13.5 million over two years to strengthen
pipeline safety.
The National Energy Board is an independent federal agency established
to regulate international and interprovincial aspects of the oil, gas and electric
utility industries, including international and interprovincial pipelines.
To increase the number of inspections of oil & gas pipelines from about
100 to 150 inspections per year, and double from 3 to 6 the number of
annual comprehensive audits to identify issues before incidents occur,
Economic Action Plan 2012 proposes $13.5 million over two years to the
National Energy Board. Funding for these activities will be fully cost-
recovered from industry.
The Northern Pipeline Agency
Economic Action Plan 2012 proposes $47 million over two years to the
Northern Pipeline Agency.
The Northern Pipeline Agency was created as a single window regulatory
body to oversee the planning and construction of a major pipeline—the
Alaska Pipeline—to transport natural gas from Alaska through Canada to
the lower 48 U.S. states. To carry out federal regulatory responsibilities
related to the Alaska Pipeline Project, Economic Action Plan 2012 proposes
$47 million over two years to the Northern Pipeline Agency. This funding
will be fully cost-recovered from industry.
Amending Mining Regulations
Economic Action Plan 2012 proposes $1 million over two years to amend metal
mining regulations.
Environment Canada is responsible for administering the key pollution
prevention provisions under the Fisheries Act, including the associated Metal
Mining Effluent Regulations. These regulations prescribe controls on the
effluents and waste rock that can be deposited into certain bodies of water.
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To address an existing regulatory gap and provide greater certainty for the
mining industry in Canada, Economic Action Plan 2012 proposes $1 million
over two years to Environment Canada to expand Metal Mining Effluent
Regulations to non-metal diamond and coal mines.
INVESTING IN OUR NATURAL RESOURCES
Canada’s rich natural resources contribute to jobs and growth in
communities across the country. The energy and mining sectors accounted
for nearly 10 per cent of Canada’s gross domestic product (GDP) in 2010,
and employed nearly 580,000 workers. Economic Action Plan 2012
announces new and renewed measures in support of energy and
mineral exploration.
Supporting Junior Mineral Exploration
Economic Action Plan 2012 proposes to extend the temporary 15-per-cent Mineral
Exploration Tax Credit for flow-through share investors for an additional year.
The temporary 15-per-cent Mineral Exploration Tax Credit for flow-through
share investors helps junior exploration companies raise capital by providing
an incentive to individuals who invest in flow-through shares issued to
finance mineral exploration. This credit is in addition to the regular
deduction provided for the exploration expenses “flowed through”
from the issuing company.
The credit is scheduled to expire on March 31, 2012. However, given
ongoing global uncertainty and in support of the exploration efforts of junior
exploration companies, Economic Action Plan 2012 proposes to extend the
credit for an additional year, until March 31, 2013.
It is estimated that the extension of this measure will result in a net reduction
of federal revenues of $100 million over the 2012–13 to 2013–14 period.
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Supporting Offshore Oil & Gas Exploration
Economic Action Plan 2012 proposes to amend the Coasting Trade Act to improve
access to modern, reliable seismic data for offshore resource development.
Offshore oil & gas developments create jobs and support economic growth
in Canada’s communities. Continued exploration activity is required to bring
new projects to communities and sustain these economic benefits over the
long term and depends on modern, reliable seismic technology and data. To
advance exploration for new developments, Economic Action Plan 2012
proposes to amend the Coasting Trade Act to improve access to modern,
reliable seismic data for offshore resource development. This will ensure
private sector companies have the information they require to
identify potential resource development opportunities.
Assessing Diamonds in the North
Economic Action Plan 2012 proposes $12.3 million over two years to continue to
assess diamonds in the North.
The natural resource sector in Canada’s North provides significant
employment and business opportunities for Aboriginal peoples and
communities. The Diamond Valuation and Royalty Assessment Program,
operated by Aboriginal Affairs and Northern Development Canada, ensures
that Canadians and Northerners benefit from the royalties associated with
diamond production in the region. To renew the Diamond Valuation and
Royalty Assessment Program, Economic Action Plan 2012 proposes
$12.3 million over two years to Aboriginal Affairs and
Northern Development Canada.
EXPANDING TRADE AND OPENING NEW MARKETS FOR
CANADIAN BUSINESSES
Our country’s prosperity is linked to reaching beyond our borders for
economic opportunities that serve to grow Canada’s trade and investment.
Open trade has long been a powerful engine for Canada’s economy. It is
even more so in these globally challenging economic times.
Our Government understands the importance of market openness to the
global economy and has shown continued leadership on the world stage by
opposing protectionism and trade-restrictive measures. Canada believes open
markets create jobs and economic growth for people around the world.
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Canada’s Leadership on Trade
Deepening Canada’s trade and investment relationships in large and fast-
growing export markets around the world is key to jobs and growth. In less
than six years, Canada has concluded new free trade agreements with nine
countries: Colombia, Jordan, Panama, Peru, the European Free Trade
Association (Iceland, Liechtenstein, Norway and Switzerland), and most
recently with Honduras. Canadian businesses and workers now have
preferred export access and a real competitive edge in key markets around
the world.
Since 2007, Canada has concluded or brought into force foreign investment
promotion and protection agreements with 10 countries (China, Peru, Latvia,
the Czech and Slovak Republics, Romania, Madagascar, Jordan, Bahrain and
Kuwait) and is in active negotiations with 10 others, including India.
Our Government recognizes that restrictions on imports and investment
stifle our exporters and undermine competitiveness. Over the past three
years, the Government has removed many of Canada’s self-imposed trade
costs to help businesses be more competitive. For example, since 2009, the
Government has eliminated all tariffs on imported machinery and
equipment, and manufacturing inputs to make Canada a tariff-free zone for
industrial manufacturers, the first in the G-20. These actions are providing
more than $410 million in annual tariff relief to Canadian businesses. Such
made-in-Canada measures have helped—and will continue to help—create
jobs for Canadians, increase investment and innovation, and
improve productivity.
Canada’s Trade Plan for Jobs and Growth
Economic Action Plan 2012 proposes to intensify Canada’s pursuit of
new and deeper trading relationships. Our Government understands that
Canadians’ standard of living and future prosperity depend on growing trade
and investment.
To that end, the Government is continuing to actively pursue new trade
and investment opportunities, particularly with large, dynamic and
fast-growing economies.
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Canada-U. S. Border and Regulatory Action Plans
In December 2011, Canada and the United States took the biggest step
forward in bilateral cooperation since the signing of the North American
Free Trade Agreement with the launch of the Action Plan on Perimeter
Security and Economic Competitiveness and the Action Plan on
Regulatory Cooperation. These agreements create a new, modern
border for a new century.
The Action Plan on Perimeter Security and Economic Competitiveness
provides a practical road map for speeding up legitimate trade and travel
across the Canada-U.S. border, while enhancing security. In a typical year,
more than $500 billion worth of two-way trade takes place between Canada
and the U. S. The most conservative estimates suggest that inefficiencies at
the Canada-U. S. border impose a direct cost on the Canadian economy of
1 per cent of GDP, or $16 billion a year. Even a modest improvement in
border efficiency will result in significant and lasting economic gains.
The best place to deal with security issues is at the continental perimeter.
Smarter systems can reduce the needless inconvenience posed to
manufacturers and travellers by multiple inspections of freight and baggage,
i.e. goods should be once screened, twice accepted. Pilot projects at Prince
Rupert and Montréal will begin soon. In addition to these pilot projects, the
Government will take other measures to implement action plan
commitments and other border improvements over the next two years.
Deeper Canada-China Ties
In order to benefit Canadian workers and businesses, our Government
continues to strengthen its ties with China, now Canada’s second largest
trading partner.
In February 2012, Canada announced that after 18 years of negotiation
Canada and China had concluded a Foreign Investment Promotion and
Protection Agreement. This landmark agreement will facilitate investment
flows between Canada and China by providing a more stable and secure
environment for investors on both sides of the Pacific. The potential for
increased Canadian investment in China is significant given that China is
expected to become the world’s largest economy by 2020.
Our Government will continue to actively engage with China to explore
how to best enhance our growing bilateral trade and economic relations.
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Canada-EU Trade Agreement
The Government is working to conclude negotiations toward a trade
agreement with the European Union (EU). This agreement will improve
access for Canadian businesses to the EU’s $18-trillion economy and
500 million consumers. The potential to Canadian workers and their families
from a Canada-EU free trade agreement include:
• A 20-per-cent boost in bilateral trade.
• A $12-billion annual boost to Canada’s economy.
Canada-India Trade Agreement
Our Government is committed to building on our strong ties with India to
create new opportunities and strengthen the economies of both countries.
In November 2010, the Prime Minister announced the start of trade
negotiations. This initiative underscores the dedication of both countries
to meeting a mutual goal of tripling bilateral trade to $15 billion annually
by 2015.
A Joint Study Report concluded that a new Canada-India trade agreement
could boost Canada’s economy by at least $6 billion, and directly benefit
Canadian businesses and workers in sectors ranging from primary
agricultural, resource-related and chemical products to transportation,
machinery and equipment, and services.
Trans-Pacific Partnership
In November 2011, the Prime Minister formally indicated Canada’s interest
in joining the Trans-Pacific Partnership (TPP) negotiations. The current TPP
members represent an export market of 505 million people and a GDP of
almost $17 trillion (2010).
Active and Ongoing Engagement in the Asia-Pacific Region
In the past few years, our Government has been aggressively expanding
commercial relations with the Asia-Pacific region to create jobs and
economic benefits. The opportunities in this dynamic region are impressive.
Asia-Pacific markets have an economic growth rate that is two to three times
the global average.
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Canada is maximizing opportunities for entrepreneurs through innovative
trade, investment, air transport, and science and technology agreements.
Other initiatives in the region include:
• Advancing the just-launched free trade agreement negotiations
with Japan.
• Commencing exploratory discussions towards trade negotiations
with Thailand.
• Adopting the Joint Declaration on Trade and Investment with the
Association of Southeast Asian Nations to increase Canada’s trade
and investment ties in the region.
• Signing air transport agreements with six Asia-Pacific countries.
Canada recently approved the issuance of a 20-year licence to export
liquefied natural gas from Kitimat, British Columbia to the Asia-Pacific
region. This initiative will allow Canada to diversify its energy exports to
growing markets in the Asia-Pacific region, further strengthening its trading
partnerships with Asian economies.
Canada in the Americas
In the Americas region, Canada has concluded trade agreements with the
United States, Mexico, Honduras, Panama, Costa Rica, Chile, Colombia
and Peru. Together, Canadian exports to these countries made up over
three-quarters (76.6 per cent) of Canada’s worldwide exports in 2010.
In June 2011, the Government announced that Canada is moving ahead
with exploratory discussions to enhance its trade relationship with South
America’s largest common market, Mercosur, whose members are Argentina,
Brazil, Paraguay and Uruguay. Mercosur countries represent an export
market of nearly 250 million consumers and account for almost three-
quarters of all economic activity in South America.
Deeper Canada-Africa Ties
Canada wants to deepen its commercial presence in Africa to create
opportunities for Canadian businesses and workers arising from Africa’s
present and future economic growth.
Opportunities in Africa for Canadian companies exist in sectors such as
telecommunications, agriculture, energy, transportation, infrastructure,
natural resources and education.
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In October 2011, Canada began negotiations towards a free trade agreement
with Morocco, Canada’s first with an African country.
Deepening Canada’s Trade and Investment Ties in Priority
Markets: A Refreshed Global Commerce Strategy
Economic Action Plan 2012 proposes to refresh the Global Commerce Strategy
through extensive consultations with Canada’s business community.
In 2007, the Government launched the Global Commerce Strategy to
respond to changes in the global economy and position Canada for
long-term prosperity. The Global Commerce Strategy identified 13 priority
markets around the world where Canadian opportunities and interests had
the greatest potential for growth. This led to five years of Canadian
leadership on the world stage in support of open trade, job creation,
economic growth and prosperity for Canadians.
Economic Action Plan 2012 proposes to refresh the Global Commerce
Strategy through extensive consultations with Canada’s business community,
including the very critical small and medium-sized businesses. An updated
Global Commerce Strategy will align Canada’s trade and investment
objectives with specific high-growth priority markets with an eye to ensuring
that Canada is branded to its greatest advantage within each of those
markets. In what remains a fragile global economic climate, the new Global
Commerce Strategy will be announced in 2013, and guide Canada’s trade
plan in priority markets going forward.
New Market Opportunities
Trading Partner
Population
(millions, 2010)
Gross Domestic Product
(billions of
US dollars, 2011)
Economic Growth
(per cent)
2010 2011
European Union 494 17,960 1.8 1.7
India 1,191 1,843 10.1 7.8
J apan 128 5,855 4.0 -0.5
TPP 505 17,804 3.5 1.9
Mercosur 244 3,025 8.0 4.8
Notes: Values for 2011 are estimates. Economic growth for the TPP and Mercosur is weighted by share of world output
at purchasing power parity, as per convention. TPP = Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore,
United States and Vietnam. Mercosur = Argentina, Brazil, Paraguay and Uruguay.
Sources: International Monetary Fund; Organisation for Economic Co-operation and Development (OECD).
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Trade Measures to Support the Energy Industry
Economic Action Plan 2012 proposes to restore the duty-free status of certain
imported fuels used as manufacturing inputs in energy and electricity production.
Canada’s energy sector is a vital component of the Canadian economy.
Recently, certain imported fuels used as manufacturing inputs in energy
and electricity production became subject to a 5-per-cent tariff as a result
of a Canada Border Services Agency ruling. Economic Action Plan 2012
proposes to restore the duty-free status of these inputs. Eliminating this tariff
will lower business costs by $30 million annually, improve the
competitiveness of the energy industry, including electricity generation
in Newfoundland and Labrador, and maintain the Government’s
commitment to make Canada a tariff-free zone for industrial manufacturers.
Export Development Canada
Economic Action Plan 2012 extends the temporary domestic powers provided
to Export Development Canada for an additional year.
Since 2009, Export Development Canada (EDC) has provided additional
financing support to Canadian exporters who were facing difficulties in
meeting their financing needs due to the financial crisis. While credit
conditions have continued to improve, credit availability remains limited in
some areas, in part due to the impact of developments outside Canada on
foreign banks. Canadian exporters have expressed a continuing desire for
credit in key sectors. Since 2009, EDC has provided over $6 billion in
additional financing capacity using its temporary domestic powers.
On March 8, 2012, the Government extended the temporary domestic
powers provided to EDC under Canada’s Economic Action Plan for an
additional year (until March 12, 2013) to help meet the financing needs of
Canadian exporters. The extension of EDC’s temporary domestic powers
until March 2013 will support further assessment and consultation with
stakeholders on EDC’s role in the domestic market. EDC will continue to
focus its domestic lending activities on filling gaps in a manner that is
coordinated with the Business Development Bank of Canada and
complements the activity of private sector financial institutions.
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Streamlining Canada’s Trade Remedy System
Economic Action Plan 2012 proposes to consolidate Canada’s trade remedy
investigation functions into one organization, under the Canadian International
Trade Tribunal.
Canada’s continued support for trade liberalization is complemented by
a strong and effective trade remedy system, which acts as an important
safety valve for Canadian manufacturers harmed by unfairly traded imports.
Canada’s trade remedy system is currently jointly administered by the
Canada Border Services Agency and the Canadian International
Trade Tribunal (CITT).
In Budget 2011, the Government committed to proposing initiatives
to ensure Canada operates an efficient trade remedy system. To deliver
on this commitment, the Government will introduce legislation to
consolidate Canada’s trade remedy investigation functions into one
organization, under the CITT. This restructuring will create efficiencies
that will help the Government maintain and sustain an effective trade remedy
system. This initiative will also cut red tape, making it less cumbersome for
Canadian businesses to take action against unfair trade, and will result in
cost savings.
Foreign Trade Zone Programming
In Budget 2011, the Government committed to review Canada’s foreign
trade zone (FTZ)-like policies and programs to ensure that they are
competitive, well marketed and efficiently administered. Consultations
concluded in February 2012.
The Government is carefully reviewing submissions to identify opportunities
to reduce red tape and costs, facilitate access to existing programs, and
improve efforts to promote our FTZ-like policies and programs as an
integral part of Canada’s tax and tariff advantages. The Government will
respond to the submissions received in a timely manner.
Increasing Travellers’ Exemptions
Economic Action Plan 2012 proposes to increase the value of goods that may be
imported duty- and tax-free by Canadian residents returning from abroad after a
24-hour and 48-hour absence to $200 and $800, respectively.
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Every year, Canadians take some 30 million overnight trips outside of
Canada, often returning with goods purchased abroad. Modernization of the
rules applied to these purchases is long overdue. Economic Action Plan 2012
proposes the most significant increase in the duty- and tax-free travellers’
exemptions in decades. The travellers’ exemption allows Canadians to bring
back goods up to a specified dollar limit without having to pay duties or
taxes, including customs duty, Goods and Services Tax/Harmonized Sales
Tax, federal excise levies and provincial sales and product taxes.
The Government proposes to increase the value of goods that may be
imported duty- and tax-free by Canadian residents returning from abroad
after a 24-hour and 48-hour absence to $200 and $800, harmonizing them
with U.S. levels. This measure will facilitate cross-border travel by
streamlining the processing of returning Canadian travellers who have made
purchases while outside Canada. This change will be effective beginning on
June 1, 2012. It is estimated that this measure will reduce federal revenues by
$13 million in 2012–13 and by $17 million in 2013–14.
New Travellers’ Exemption Limits
Length of Absence Current Limits Limits as of June 1, 2012
More than 24 hours $50 $200
More than 48 hours $400 $800
More than 7 days $750 $800
Tax Relief for Foreign-Based Rental Vehicles
Economic Action Plan 2012 proposes tax relief for Canadian residents
temporarily importing foreign-based rental vehicles to facilitate access to
Canadian tourism destinations.
To facilitate access to Canadian tourism destinations, Economic Action
Plan 2012 proposes to eliminate or reduce taxes on foreign-based rental
vehicles temporarily imported by Canadian residents, consistent with the
Government’s commitment under the Federal Tourism Strategy. These
changes will make it easier for Canadians who have been travelling abroad to
return to Canada to continue their touring and travelling activities with a
foreign-based rental vehicle. For example, a Canadian who takes a cruise
from British Columbia to Alaska and has been outside Canada for at least
48 hours would be able to rent a vehicle in Alaska and then enter the Yukon
for touring purposes without having to pay taxes on that vehicle at the
border. These changes will be effective starting June 1, 2012.
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International Taxation
Economic Action Plan 2012 proposes improvements to Canada’s system
of international taxation.
Canada’s system of international taxation plays a key role in providing
the right environment for cross-border trade and investment. In 2007,
the Government established the Advisory Panel on Canada’s System of
International Taxation, chaired by Mr. Peter Godsoe, with a mandate to
provide recommendations to improve the fairness and competitiveness of
Canada’s international tax rules.
The Panel’s December 2008 report concluded that Canada’s system
of international taxation is a good one that has served Canada well.
At the same time, given that the competitiveness landscape is continually
shifting, Canada’s international tax rules must constantly adapt to maintain
an appropriate balance of competitiveness, simplicity, fairness, efficiency
and protection of the tax base.
The Government has acted on a number of the Panel’s recommendations
and made other incremental improvements to the system of international
taxation. These past actions include:
• Repealing section 18.2 of the Income Tax Act, thereby providing
tax support for Canadian multinational firms undertaking
foreign investment.
• Narrowing the definition of taxable Canadian property, thereby
improving the ability of Canadian businesses, including innovative
high-growth companies that contribute to job creation and economic
growth, to attract foreign venture capital.
• Ensuring that taxpayers have an opportunity to apply for refunds
of tax withheld under section 105 of the Income Tax Regulations
and section 116 of the Income Tax Act after a reassessment by the
Canada Revenue Agency.
• Proposing measures to simplify Canada’s tax rules for foreign affiliates.
• Proposing simplified and more targeted rules for foreign investment
entities and non-resident trusts.
• Proposing measures to counter schemes, often referred to as “foreign tax
credit generators,” that were designed to shelter tax otherwise payable by
artificially increasing foreign tax credits.
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Economic Action Plan 2012 introduces several additional improvements to
respond to the report of the Panel. Details of these measures can be found in
Annex 4. Going forward, the Government will continue to evaluate the
report of the Panel and consider additional improvements to Canada’s
international taxation rules.
Tax Treaties and Tax Information Exchange Agreements
The Government is actively negotiating and concluding tax treaties to reduce
tax barriers to international trade and investment, strengthen Canada’s
bilateral economic relationships, and create enhanced opportunities for
Canadian businesses abroad. Since 2007:
• New tax treaties with Gabon, Greece and Turkey have come into force.
• Updated tax treaties and protocols with Finland, Italy, Korea, Mexico,
Switzerland and the United States have come into force.
• New tax treaties with Colombia and Namibia have been signed.
• New protocols to update tax treaties with Austria, Barbados, France,
and Singapore have been signed.
• Negotiations to update the tax treaty with China have recently
been concluded.
• Negotiations for a new tax treaty with Hong Kong have begun.
• Negotiations to update tax treaties with Israel, the Netherlands,
New Zealand, Poland, Spain and the United Kingdom have begun.
Canada now has 89 tax treaties in force, 7 tax treaties and protocols signed
but not yet in force, and 11 tax treaties under negotiation.
The Government is committed to combating international tax evasion and to
ensuring tax fairness by implementing the standard developed by the
Organisation for Economic Co-operation and Development for the effective
exchange of tax information. The Government, in its 2007 budget, extended
the exemption for dividends received out of active business income earned
by foreign affiliates resident in tax treaty countries to also include active
business income earned by foreign affiliates established in a jurisdiction that
has agreed to a tax information exchange agreement (TIEA) with Canada.
This provided non-tax treaty jurisdictions an incentive to enter into TIEAs
with Canada. Since 2007, the Government has brought into force 13 TIEAs,
signed 3 other TIEAs, and is actively negotiating TIEAs with 14 other
jurisdictions, including negotiations recently launched with Panama.
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Fostering Sustainable Global Growth
Persistent economic and financial difficulties in Europe and other parts of
the world are hindering economic recovery. Canada is playing a leadership
role in formulating global policy responses through institutions such as the
G-20 and the International Monetary Fund (IMF), and through its leadership
of the Financial Stability Board, which is chaired by Bank of Canada
Governor Mark Carney. Canada is also helping address development
challenges through focused programs and initiatives that meet the needs of
the developing world.
Providing Stewardship in the G-20
In September 2009, as part of its response to the global economic crisis, the
G-20 created the Framework for Strong, Sustainable and Balanced Growth.
The G-20 Framework is a forum where members identify and assess global
economic risks and vulnerabilities, and coordinate policies designed to foster
stronger, more sustainable and balanced economic growth. Canada and India
have co-chaired the Framework Working Group since its launch at the 2009
Pittsburgh Summit. In its capacity as co-chair, Canada has led the
development of action plans that deal with pressing global economic
concerns, and promote growth and prosperity across the globe.
The considerable progress achieved through this process culminated in the
Action Plan for Growth and Jobs agreed by Leaders in Cannes, France in
November 2011, which set out a broad range of reforms covering the key
policy areas across G-20 members. Looking ahead in 2012, Canada will
continue to provide leadership in developing an action plan for Leaders at
the upcoming G-20 Summit in Los Cabos, Mexico. The plan will monitor
progress in meeting past commitments and develop new commitments as
appropriate to address current global economic risks and vulnerabilities.
Strengthening the Legitimacy and Effectiveness of the
International Monetary Fund
The IMF is a key global institution in assisting the international community
through economic crises. In order to support its continuing role, the
Government of Canada is delivering on its commitment to ratify a historic
quota and governance reform agreement reached in 2010, which enhances
the IMF’s capacity to provide support to the global economy. These actions
should continue to strengthen the legitimacy and effectiveness of the IMF.
Supporting Jobs and Growth
Improving Conditions for Business Investment
113
To support accountability to Canadians, the Government is enhancing the
timeliness of its reporting on Canadian priorities and activities of the IMF
and World Bank by aligning the timing of its annual report to Parliament and
the public with the annual report on development assistance tabled annually
in the Fall.
Increasing the Impact of Canadian Development Assistance
Canadians want to help the world’s poor, but they want assurances that their
tax dollars are making a real difference in the lives of the people they are
intended to help. In Budget 2007, the Government committed to an
ambitious agenda to maximize the effectiveness of Canada’s international
assistance efforts. Considerable progress has been made in delivering on our
promise to make Canada’s aid more effective, particularly in the areas of
accountability for resources and results, transparency, and the use of
innovation to maximize the impact of aid.
Last year, Canada was the first to meet its G-8 commitment to double
investments in sustainable agricultural development. Currently, we are
leading global efforts on maternal, newborn and child health, as agreed at the
G-8 meeting in Muskoka in 2010. The Canadian International Development
Agency now delivers over 80 per cent of its bilateral assistance in a more
focused set of countries, which allows Canada to play a more influential role
in achieving enduring impacts in these countries. The Government has also
taken significant steps to improve the transparency of our spending to
Canadians and other countries, for example by joining the Open
Government Partnership and the International Aid Transparency Initiative.
In addition, Canada has supported development innovation, pioneering new
approaches to maximize impact and leverage private sector capital to address
global development challenges. Canada’s strategic investments over the past
several years are showing promising results including the accelerated
introduction of pneumococcal vaccines to protect the lives of the world’s
poorest children through the Advanced Market Commitment; progress by
Grand Challenges Canada in tackling critical barriers to solving some of the
most pressing global health challenges; and enhanced support for applied
research that demonstrates sustained and measurable impacts on food
security in developing countries through the Canadian International Food
Security Research Fund.
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Refocusing Canada’s Tariff Regime for Developing Countries
Economic Action Plan 2012 proposes to review Canada’s preferential tariff regime
for developing countries.
Since 1974, Canada has granted preferential market access to imports
from developing countries as a means to promote their economic growth
and export diversification. The global economic landscape has changed
considerably since then, including significant shifts in the income levels
and trade competitiveness of certain developing countries. To respond to
these developments and ensure that this form of development assistance
is appropriately aligned with our development policy objectives, the
Government will undertake a comprehensive review of Canada’s
General Preferential Tariff regime.
KEEPING TAXES LOW FOR JOB-CREATING BUSINESSES
A Competitive Business Tax System
This Government has implemented broad-based tax reductions that support
investment and growth across the Canadian economy. The Government is
delivering more than $60 billion of tax relief to job-creating businesses over
2008–09 and the following five fiscal years. Key actions include the following:
• To spur business investment and improve productivity, the Government
reduced the federal general corporate income tax rate to 15 per cent on
January 1, 2012, from 22.12 per cent in 2007. These tax reductions
include the elimination of the corporate surtax in 2008 for
all corporations.
• To help small businesses retain more of their earnings for investment,
expansion and job creation, the Government cut the small business tax
rate to 11 per cent in 2008 and increased the amount of income eligible
for this lower rate to $500,000 in 2009.
• To further spur investment in small businesses, the Government
increased the Lifetime Capital Gains Exemption on qualified small
business shares to $750,000 from $500,000 in Budget 2007, the first
increase in the exemption since 1988.
• To remove a disincentive for business investment, the Government
eliminated the federal capital tax in 2006. The Government also provided
the provinces with a temporary financial incentive to encourage them to
eliminate their general capital taxes and to eliminate or replace their
capital taxes on financial institutions with a minimum tax. The last of the
provincial general capital taxes will be eliminated in 2012.
Supporting Jobs and Growth
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• To better support cross-border trade and investment and Canada’s
participation in the global economy, the Government has improved
Canada’s system of international taxation.
• To encourage investment to flow to its most productive uses and reduce
the tax burden on capital investment, the Government improved the
neutrality of the tax system by better aligning capital cost allowance rates
with the useful life of assets. For example, in 2007, the capital cost
allowance rate for manufacturing and processing buildings was increased
to 10 per cent from 4 per cent, and the rate for computers was increased
to 55 per cent from 45 per cent.
Lower general corporate income tax rates and other tax changes have
increased the expected rate of return on investment and reduced the cost
of capital (Chart 3.2.1), giving businesses strong incentives to invest and hire
in Canada.
Canada leads the G-7 with the lowest overall
tax rate on new business investment
Chart 3.2.1
Marginal Effective Tax Rate¹ on New Business Investment, 2014
1
The marginal effective tax rate (METR) on new business investment takes into account federal, provincial and
territorial statutory corporate income tax rates, deductions and credits available in the corporate tax system and
other taxes paid by corporations, including provincial capital taxes and retail sales taxes on business inputs.
The methodology for calculating METRs is described in the 2005 edition of Tax Expenditures and Evaluations
(Department of Finance). The METR includes measures announced as of January 1, 2012.
It excludes the resource and financial sectors and tax provisions related to research and development.
2
OECD average excludes Canada.
Source: Department of Finance.
Chapter 3.2
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The competitiveness of Canada’s business tax system is supported by
third-party analysis.
• KPMG’s publication Competitive Alternatives 2010 rigorously analyzed
the impact of federal, state, provincial and municipal taxes on business
operations, concluding that business tax costs in the United States
are more than 55 per cent higher than in Canada.
• According to the 2011 Forbes magazine feature, “The Best Countries
for Business,” Canada is the number one jurisdiction for doing business
among 134 countries studied.
• Economists Jack Mintz and Duanjie Chen published an 83-country
report on tax competitiveness. Their most recent report shows that
Canada went from being the least tax competitive G-7 country in 2005
to the most tax competitive country in the G-7 in 2011.
As shown in Chart 3.2.2, overall business investment in non-residential
construction and machinery and equipment in 2011 exceeded the pre-
downturn peak of 2008, and investment intentions for 2012 are
even stronger. This business investment increases the amount of machinery,
equipment, information technology and other physical capital in the
economy. A larger stock of capital, in turn, increases Canada’s productive
capacity, creates jobs and raises living standards.
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Improving Conditions for Business Investment
117
Low taxes are supporting record-high business
investment intentions
Chart 3.2.2
Business Investment in Canada
Note: Includes business investment in non-residential construction and machinery and equipment.
Source: Statistics Canada, Public and Private Investment Intentions.
Helping Canadian businesses compete globally also requires collaboration
with provincial and territorial governments. A number of provinces have
taken important actions to enhance Canada’s tax competitiveness and
contribute to a strong foundation for future growth. In addition, the
Government of Canada has a number of tax agreements with its provincial
and territorial partners that result in greater efficiency and simplicity of the
tax system, and work is ongoing to improve and enhance the application and
administration of these agreements.
Keeping taxes low for Canadian businesses is a cornerstone of this
Government’s long-term plan for jobs, growth and prosperity.
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Enhancing the Neutrality of the Tax System
In 2009, along with other members of the G-20, the Government committed
to “rationalize and phase out over the medium term inefficient fossil fuel
subsidies.” This builds on the Government’s 2006 commitment to examine
opportunities to make the tax system more neutral across sectors, in order to
help ensure that investment is directed towards its most productive uses. In
support of these commitments, the Government announced in Budget 2007
and Budget 2011 the phase-out of all tax preferences for oil sands producers
relative to the conventional oil & gas sector.
Economic Action Plan 2012 proposes to further Canada’s efforts toward
rationalizing fossil fuel subsidies, reducing tax distortions and improving the
allocation of investment and capital within the Canadian economy by phasing
out tax preferences for resource industries.
Phasing Out the Atlantic Investment Tax Credit—Oil & Gas and Mining
Economic Action Plan 2012 proposes to phase out the Atlantic Investment Tax
Credit for investments in the oil & gas and mining sectors.
The Atlantic Investment Tax Credit is a 10-per-cent credit available for
certain investments in new buildings, machinery and equipment used in
the Atlantic region and the Gaspé Peninsula. Currently, the credit supports
investments in farming, fishing, logging, manufacturing and processing, oil
& gas, and mining.
The Canadian oil & gas and mining sectors have generally been performing
well, and investment by these industries in the Atlantic region is robust and
growing. Recognizing this, Economic Action Plan 2012 proposes to phase
out the Atlantic Investment Tax Credit for investments in the oil & gas, and
mining sectors.
The change will help improve the neutrality of the tax system for the oil
& gas, and mining sectors across Canada and constitutes further action by
Canada in support of the commitment by G-20 Leaders to rationalize and
phase out inefficient fossil fuel subsidies over the medium term.
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119
Phasing Out the Corporate Mineral Exploration and
Development Tax Credit
Economic Action Plan 2012 proposes to phase out the Corporate
Mineral Exploration and Development Tax Credit.
The mining sector has historically benefited from a number of targeted
income tax preferences. As a first step in meeting the objective of making
the tax system more neutral across mining and other industries, Economic
Action Plan 2012 proposes to phase out the 10-per-cent Corporate Mineral
Exploration and Development Tax Credit.
Actions taken by the Government since 2006, including corporate income
tax rate reductions and the elimination of the federal capital tax, have
increased the competitiveness of Canada’s mining sector. The Corporate
Mineral Exploration and Development Tax Credit is no longer necessary.
This change is expected to increase federal revenues by approximately
$10 million over the 2012–13 to 2013–14 period.
IMPROVING ECONOMIC CONDITIONS FOR
FARMERS AND FISHERMEN
Strengthening Agricultural Institutions
Economic Action Plan 2012 proposes $44 million over two years to transition the
Canadian Grain Commission to a sustainable funding model.
The agriculture sector was one of the most resilient through the economic
downturn. The near- and medium-term outlook for agricultural commodity
prices and farm income is strong. In 2009, the agriculture and agri-food
sector accounted for approximately 2 million jobs and 8 per cent of total
GDP. With nearly $35.5 billion in exports, Canada is the world’s fifth-largest
exporter of agriculture and food products.
The coming year will see a focus on setting the right conditions for farmers
and businesses in the agriculture and agri-food sector to compete and adapt.
The Government will work with its provincial and territorial partners,
and with industry, to develop a new federal-provincial-territorial agricultural
policy framework to replace the current Growing Forward agreement in
2013. The new five-year framework agreement will set out policies and
programs to support a modern, innovative and market-oriented sector. This
will include a refocused suite of Business Risk Management programs.
Chapter 3.2
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The Government is delivering on its long-standing promise to give Western
Canadian farmers the freedom to market their own wheat and barley on the
open market. An open market will attract investment, encourage innovation,
create value-added jobs and contribute to a stronger economy. The
monopoly on the sale of Western Canadian wheat and barley for export and
domestic human consumption will end as of August 1, 2012. The
Government is committed to a smooth transition for farmers, which includes
a viable, voluntary Canadian Wheat Board as part of an open and competitive
Canadian grain market.
Efforts continue to modernize key institutions within the grain sector. To
support its transition to a sustainable funding model, Economic Action Plan
2012 proposes $44 million over two years to the Canadian Grain
Commission as it updates its fee structure.
Supporting Canada’s Fisheries
Economic Action Plan 2012 proposes $10.5 million in 2012–13 to support
key fisheries science activities.
Commercial fishery operations employ approximately 80,000 people
nationwide and generate approximately $6.8 billion in annual economic
activity through fishing, aquaculture and processing.
Scientific monitoring activities of key commercial stocks support
conservation and sustainability objectives while increasing economic
opportunity for fishermen by allowing higher catch levels to be set with
greater confidence. To support scientific activities of importance to industry,
Economic Action Plan 2012 proposes $10.5 million in 2012–13 for the
Department of Fisheries and Oceans. The Government will also take steps
to allow the use of fishery resources to help generate revenues to pay for
scientific activities.
STRENGTHENING BUSINESS COMPETITIVENESS
Fostering Foreign Investment
The Government will introduce targeted improvements to the foreign ownership review
process and be introducing legislative amendments to lift foreign investment restrictions
in the telecommunications sector for companies that hold less than a 10 per cent share
of the total Canadian telecommunications market.
Supporting Jobs and Growth
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121
Foreign investment provides significant benefits to Canada through
knowledge, capital, access to new markets and the creation of high-value jobs
across the country. The Government is committed to an open investment
framework that encourages foreign investment in Canada as well as
Canadian business investment abroad, while safeguarding Canada’s interests.
The Investment Canada Act requires the review of significant foreign
investments in Canada in order to ensure that the investments bring a
net benefit to our country. To help strengthen investor confidence, the
Government will introduce targeted improvements to the administration
of the Act in the interests of greater transparency while preserving
investor confidentiality.
With respect to the telecommunications sector in particular, the
Government consulted with industry and consumer stakeholders on how
to increase foreign investment in a way that would maximize economic and
social benefits for Canadians.
The Government heard that liberalization of foreign investment in
the telecommunications sector can encourage greater competition by
strengthening the position of new entrants, improving access to capital
and enabling closer strategic partnerships. Liberalization could also
increase choice and lower costs for consumers, encourage innovation and
improve productivity.
The Government will be introducing amendments to the
Telecommunications Act to lift the foreign investment restrictions in that
Act for telecommunications companies that hold less than a 10 per cent
share of the total Canadian telecommunications market.
This targeted action will remove a barrier to investment for the companies
that need it most, a key consideration as the upcoming wireless auction
planned for 2013 is expected to be highly competitive and capital-intensive.
Reducing Red Tape
The Government is continuing to reduce regulatory burden faced by businesses.
Red tape hampers economic growth and erodes trust between government
and citizens. The Government is committed to removing bureaucratic
obstacles to businesses’ efforts to create jobs and growth.
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In January 2011, the Government created the Red Tape Reduction
Commission, fulfilling a Budget 2010 commitment. After a year of
extensive Canada-wide consultations, the Commission brought forward
recommendations to reduce irritants to business that impede growth,
competitiveness and innovation.
The Government responded earlier this year by implementing the
“One-for-One” Rule. Under this rule, every time the Government adopts
a new regulation, it must eliminate an existing one. When a new or amended
regulation increases administrative burden on business, the Government will
offset—from existing regulations—an equal amount of administrative
burden costs on business.
The President of the Treasury Board will develop an Action Plan to address
the Commission’s Recommendations Report in the coming months to
deliver better regulations that reduce frustration and lower costs for
Canadian business.
Red Tape Reduction Commission Membership
The Red Tape Reduction Commission was composed of Parliamentarians
and members of the private sector:
• The Honourable Tony Clement, President of the Treasury Board,
Lead Minister
• The Honourable Maxime Bernier, Minister of State (Small Business and
Tourism), Chair of the Commission
• William Aho, Central Mechanical Systems, Ltd.
• Dean Allison, Member of Parliament (Niagara West–Glanbrook)
• Bernard Bélanger, Premier Tech
• Lois Brown, Member of Parliament (Newmarket–Aurora)
• Stirling MacLean, WearWell Garments, Ltd.
• Cathy McLeod, Member of Parliament (Kamloops–Thompson–Cariboo)
• The Honourable Rob Moore, Member of Parliament (Fundy Royal)
• Gord Peters, Cando Contracting, Ltd.
• Denis Prud’homme, former owner of Prud’homme Trucking
• Catherine Swift, Canadian Federation of Independent Business
• Chris Warkentin, Member of Parliament (Peace River)
Supporting Jobs and Growth
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123
The Government is also committed to implementing the Canada-United
States Action Plan on Regulatory Cooperation, announced on
December 7, 2011, by Prime Minister Harper and President Obama.
The Action Plan contains 29 initiatives to align the regulatory approaches
between Canada and the United States in areas of agriculture and food,
transportation, health and personal care products, chemical management,
the environment, and other cross-sectoral areas, without compromising
health, safety or environmental protection standards. The Action Plan will
help reduce barriers to trade, lower costs for consumers and business, and
create economic opportunities on both sides of the border.
Reducing the Tax Compliance Burden for Businesses
Economic Action Plan 2012 proposes measures to reduce the tax compliance burden
for small businesses and announces a number of administrative improvements by the
Canada Revenue Agency.
In PricewaterhouseCoopers’ 2012 international study analyzing the ease of
paying taxes, Paying Taxes 2012: The Global Picture, Canada ranks higher than
any other G-7 country based on the overall ease of complying with tax
obligations. PricewaterhouseCoopers also identified Canada as a potential
model for other countries’ tax systems from the perspective of a company
filing and paying taxes.
Reducing the Tax Compliance Burden Has
Positive Results
• The Canada-Ontario Tax Collection Agreement was amended to provide
for federal administration of Ontario’s corporate taxes for taxation years
that end after 2008. PricewaterhouseCoopers estimated that this change
reduces compliance costs by more than $135 million annually for Ontario
businesses, by allowing for a single annual tax form, a single tax collector
and one set of income tax rules.
• The frequency of tax remittance and filing requirements for small
businesses in the areas of income taxes, source deductions and sales
taxes was reduced by measures introduced in Budget 2007. More than
600,000 small businesses are able to benefit from these changes, with
the total number of filings and remittances for small businesses reduced
by more than one-third.
• The definition of taxable Canadian property was narrowed in
Budget 2010, thereby eliminating the need for tax reporting under
section 116 of the Income Tax Act for many investments. This improves
the ability of Canadian businesses, including innovative high-growth
companies that contribute to job creation and economic growth,
to attract foreign venture capital.
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Through ongoing review and revision of the tax system and its administration,
the Government is continuing to reduce the tax compliance burden, including
the following actions proposed or announced in Economic Action Plan 2012.
A Doubling of the Goods and Services Tax/Harmonized Sales Tax
(GST/HST) Streamlined Accounting Thresholds
The GST/HST streamlined accounting methods simplify compliance for
small businesses and public service bodies. Economic Action Plan 2012
proposes to double the thresholds for eligibility to use these methods
so that more small businesses and public service bodies have access to these
simplified approaches.
Simplified Administration for Partnerships
In order to reduce the workload for partnerships that want to file waivers,
Economic Action Plan 2012 proposes to amend the Income Tax Act to
provide the authority for a single designated partner to sign a waiver on
behalf of all partners.
Improvements to the Rules for Paying Eligible Dividends
Under existing rules, if a corporation wishes to pay dividends, and only a
portion of those dividends would be eligible for an enhanced dividend tax
credit, that portion must be paid as a separate dividend in order for investors
to be eligible to claim the enhanced dividend tax credit. Economic Action
Plan 2012 proposes amendments, for dividends paid on or after Budget Day,
to allow a corporation to pay a single dividend and designate a portion of it
as an eligible dividend.
Administrative Improvements That Enhance the Predictability
of the Scientific Research and Experimental Development (SR&ED)
Tax Incentive Program
Economic Action Plan 2012 announces administrative changes to the
SR&ED tax incentive program that will improve its predictability and reduce
the tax compliance burden. These initiatives will complement the SR&ED
Policy Review Project currently underway, which will consolidate and clarify
the administrative policies that are contained in about 70 documents
pertaining to the SR&ED tax incentive program.
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125
Written Responses to Business Enquiries
As of April 16, 2012, businesses will be able to submit questions and receive
answers to their specific business enquiries electronically using the Canada
Revenue Agency’s (CRA’s) secure My Business Account portal. These
written responses will provide businesses with increased confidence in
the information provided by the CRA and thus greater certainty in their
tax affairs.
Expansion of Web Forms for Information Returns
The CRA’s Web Forms electronic filing application for information returns
is an online service enabling the creation and secure filing of encrypted
returns over the Internet, including the filing of original, additional, amended
and cancelled slips. The CRA’s Web Forms service also validates data in real
time, prompts the user to correct errors before filing slips, automatically
calculates totals for the summary, and prints slips for recipients. Web Forms
now accepts 11 additional types of returns, and the limit on the number of
each type of form (e.g. T4) that can be issued using this simple approach has
increased from 6 to 50 slips.
Enhancements to the CRA’s Secure My Business Account Portal
The CRA’s My Business Account portal is a secure and convenient way to
access business accounts online and perform certain transactions. For
example, GST/HST returns have been able to be amended using My
Business Account since April 2011. As of April 16, 2012, business owners
will have the option to input an address change online, and balances such as
Non-Capital Losses and Refundable Dividend Tax on Hand from the last
five tax year-ends will be automatically displayed.
An Improved Business Section on the CRA’s Website
Modifications to the CRA’s website provide a “one-stop shop” for
businesses and a clear path to available electronic services with a new task-
based web page. By improving the ability of businesses to find and use
information and services on the CRA’s website, this initiative responds
to concerns raised during consultations held by the Red Tape
Reduction Commission.
Chapter 3.2
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Graduated Penalties for Late Filing
The Government recognizes that Canadians and businesses, particularly
small businesses, invest time and effort to voluntarily comply with tax laws.
Budget 2011 announced a CRA review of the penalty structure for late-filed
information returns. After working with the Canadian Federation of
Independent Business and other organizations representing small businesses,
the CRA has instituted a new administrative policy to ensure that these
penalties are charged in a manner that is both fair and reasonable. Where a
business is unable to comply in a timely manner with a reporting obligation
related to certain information returns, such as T4s, reduced penalties will be
applied when the number of late-filed returns is small.
Continued CRA Progress on Tax Fairness
Information on complaints and disputes is now easier to access on the CRA
website through revised web pages that are simpler to use and were put in
place in December 2011. Visibility will be further improved by adding
information on recourse mechanisms to notices of assessment and
reassessment. The CRA is also updating publications related to tax fairness
and developing new content and new types of content, such as webinars on
redress mechanisms.
Taxation of Corporate Groups
Economic Action Plan 2012 reaffirms the Government’s commitment to continue
exploring whether new rules for the taxation of corporate groups could improve the
functioning of the corporate tax system.
Budget 2010 announced that the Government would explore whether new
rules for the taxation of corporate groups—such as the introduction of a
formal system of loss transfers or consolidated reporting—could improve
the functioning of the corporate tax system. Public consultations held
between November 2010 and April 2011 provided important feedback
from stakeholders that will be helpful going forward. Discussions with
stakeholders, including the provinces and territories, are ongoing.
As a new system for the taxation of corporate groups would constitute a
fundamental change to the Canadian corporate tax system, the Government
will be taking into account the potential effects on taxpayers and the
complexity of the tax system, any potential revenue impacts for federal,
provincial and territorial governments, and the impact that a new system
of group taxation could have on federal-provincial and federal-territorial
tax arrangements.
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Improving Conditions for Business Investment
127
If as a result of this exercise a new system of group taxation should be
proposed, stakeholders will be consulted again on the specific design
of the new system.
FURTHER DEVELOPING CANADA’S FINANCIAL
SECTOR ADVANTAGE
Canada’s financial system is widely considered to be one of the soundest,
most resilient and best regulated financial systems in the world. For the
fourth year in a row, the World Economic Forum has recognized our
banking system as the soundest in the world. Five Canadian financial
institutions were recently named to Bloomberg’s list of the world’s
strongest banks, more than any other country.
The Government has implemented a number of measures to maintain
Canada’s financial sector advantage and reinforce the stability of the sector.
Economic Action Plan 2012 proposes new initiatives that will build on the
significant steps taken since 2008 to further ensure that our financial system
remains strong and that it benefits all Canadians.
Fostering Stable, Competitive, Fair
and Efficient Capital Markets
In light of the Supreme Court’s securities reference, the Government is consulting with
provinces and territories, a number of which have reaffirmed their interest in working on
a cooperative basis towards a common securities regulator.
As part of the initiative to establish a Canadian securities regulator, in
May 2010 the Government referred the proposed Canadian Securities Act
to the Supreme Court of Canada for an opinion as to whether Parliament
has the constitutional authority to enact the proposed legislation. On
December 22, 2011, the Supreme Court determined that the proposed Act
as drafted was not constitutionally valid under the general branch of the
federal power to regulate trade and commerce. The Government of Canada
respects this decision and will act in accordance with it.
Chapter 3.2
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The Supreme Court also found that Parliament has a role with matters of
genuine national importance and scope, including management of systemic
risk and in ensuring fair and efficient capital markets nationally. The Supreme
Court indicated that “[t]he common ground that emerges is that each level of
government has jurisdiction over some aspects of the regulation of securities
and each can work in collaboration with the other to carry out its
responsibilities”. Accordingly, the Government is consulting with provinces
and territories, a number of which have reaffirmed their interest in working
on a cooperative basis towards a common securities regulator.
A common securities regulator would give Canada a competitive advantage
by reducing unnecessary compliance costs for issuers, strengthening our
ability to respond to financial instability, enhancing enforcement and better
serving the needs of all Canadians.
Preserving the Stability and Strength
of Canada’s Financial Sector
The Government will introduce legislative amendments to support central clearing
of standardized over-the-counter derivative transactions and to reinforce Canada’s
financial stability framework.
A well-capitalized financial sector and sound regulatory and supervisory
system meant that financial institutions in Canada were better able to weather
the 2008 global financial crisis than those in many other countries.
The Government remains committed to maintaining this advantage.
Canada has made significant progress in implementing the G-20 financial
sector reform agenda and will continue to play a leadership role in promoting
sound financial sector regulation internationally. Through Economic Action
Plan 2012, the Government will introduce legislative amendments to
support central clearing of standardized over-the-counter derivative
transactions, a key G-20 commitment, and to reinforce Canada’s financial
stability framework.
Enhancing the Governance and Oversight Framework
for Canada Mortgage and Housing Corporation
The Government will introduce enhancements to the governance and oversight
framework for Canada Mortgage and Housing Corporation. The Government
is also moving forward with a legislative framework for covered bonds.
Supporting Jobs and Growth
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129
The Government continuously monitors housing finance risks and takes
action when necessary. Adjustments to the rules for government-backed
insured mortgages were announced in July 2008, February 2010 and
January 2011. In addition, in June 2011 Parliament approved legislation to
formalize arrangements with private mortgage insurers and Canada Mortgage
and Housing Corporation (CMHC), enhancing the Government’s ability to
manage risks arising from the mortgage insurance sector.
As part of the Government’s continuous efforts to strengthen the housing
finance system, the Government will introduce enhancements to the
governance and oversight framework for CMHC, contributing to the stability
of the housing market and benefitting all Canadians. The Government will
propose legislative amendments to strengthen oversight of CMHC and to
ensure its commercial activities are managed in a manner that promotes the
stability of the financial system.
The Government is moving forward with a legislative framework for covered
bonds. A legislative framework will support financial stability by helping
lenders find new sources of funding and by making the market for Canadian
covered bonds more robust. CMHC will be the administrator of this
covered bond program, which will be available to federally and provincially
regulated mortgage lenders in Canada.
Improving Access to Capital for Canadian
Financial Institutions
The Government will introduce legislative amendments to allow public sector
investment pools that satisfy certain criteria, including pursuing commercial objectives,
to directly invest in a Canadian financial institution, subject to approval by the
Minister of Finance.
At present, many countries allow public sector investment pools to invest in
financial institutions, while Canada provides for only limited access. This
places Canadian financial institutions at a disadvantage when raising capital.
However, public sector investment pools are currently allowed to invest in
other sectors of the Canadian economy. Permitting these pools of capital to
invest in Canadian financial institutions provides these institutions access to
new sources of stable long-term investment, which promotes financial stability.
Chapter 3.2
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The Government will propose legislative amendments to allow public pools of
capital that satisfy certain criteria, including pursuing commercial objectives, to
make limited direct investments in a financial institution, subject to approval
by the Minister of Finance. The Minister of Finance’s approval would be
guided by factors such as the best interest of the financial sector and national
security considerations.
Clarifying Federal Jurisdiction Over Banking
The Government will introduce a preamble into the Bank Act to clarify the intent
that all banking activities throughout Canada be governed exclusively by the same
high-quality federal standards that have served Canadians so well.
Canadians benefit from one of the best-regulated banking sectors in the
world. Canada’s banking regulatory framework rests on stringent prudential
rules that ensure that our banking sector remains safe and sound and on
consumer protection rules that stress consumer choice and transparent
disclosure. These rules are enforced consistently by federal regulatory
agencies including the Office of the Superintendent of Financial Institutions
and the Financial Consumer Agency of Canada. The Government will
introduce a preamble into the Bank Act to clarify the intent that all banking
activities throughout Canada be governed exclusively by the same high-
quality federal standards that have served Canadians so well, and to avoid the
creation of local and potentially inconsistent rules that threaten the uniform
application of the federal banking regulatory framework.
Clarifying the Separation of Insurance and Banking
As previously announced in December 2011, the Government will propose a legislative
amendment to clarify the prohibition against banks offering life annuities or products
of a similar nature.
The Government has a long-standing policy of separating the business
of insurance from the business of banking. This ensures that financial
institutions are subject to the regulatory regime that properly addresses
the risk that they undertake. In line with this policy, and as announced by
the Minister of Finance in December 2011, the Government will propose a
legislative amendment to clarify the prohibition against banks offering life
annuities or products of a similar nature.
Supporting Jobs and Growth
Improving Conditions for Business Investment
131
Continuing to Fight Counterfeit Bank Notes
Economic Action Plan 2012 provides $9.6 million over three years to the Royal
Canadian Mounted Police to continue the National Counterfeit Enforcement Strategy.
In 2011, the Bank of Canada began to issue more-secure polymer bank
notes. In transitioning to these new notes, the Government must guard
against the risk that counterfeiters will attempt to liquidate their inventory of
older notes or seek to take advantage of the unfamiliarity of Canadians with
the new notes. Economic Action Plan 2012 provides $9.6 million over three
years to ensure that the Royal Canadian Mounted Police has the funding
necessary to continue the National Counterfeit Enforcement Strategy, first
announced in Budget 2006. The National Counterfeit Enforcement Strategy
provides dedicated resources for the enforcement, prosecution and
prevention of currency counterfeiting. Since its inception, counterfeiting has
been reduced from 470 parts per million in 2004 to 34 parts per million
in 2011.
Chapter 3.2
132
Table 3.2
Improving Conditions for Business Investment
millions of dollars
2012–13 2013–14 Total
Responsible Resource Development
Major Projects Management Office Initiative 27 27 54
Consultation Under the Canadian Environmental
Assessment Act
7 7 14
Supporting Responsible Energy Development 12 24 36
Strengthening Pipeline Safety 7 6 14
The Northern Pipeline Agency 24 23 47
Amending Mining Regulations 1 1 1
Subtotal—Responsible Resource Development 78 87 165
Investing in Our Natural Resources
Supporting J unior Mineral Exploration 130 -30 100
Assessing Diamonds in the North 6 6 12
Subtotal—Investing in Our Natural Resources 136 -24 112
Expanding Trade and Opening New Markets for
Canadian Businesses
Trade Measures to Support the Energy Industry 30 30 60
Increasing Travellers’ Exemptions 13 17 30
Tax Relief for Foreign-Based Rental Vehicles - - -
Subtotal—Strengthening Canada's Trading Relationships
and Supporting Sustainable Global Growth 43 47 90
Keeping Taxes Low for Job-Creating Businesses
Enhancing the Neutrality of the Tax System
Phasing Out the Corporate Mineral Exploration and
Development Tax Credit -10 -10
Improving Economic Conditions
for Farmers and Fishermen
Strengthening Agricultural Institutions 27 17 44
Supporting Canada’s Fisheries 11 11
Subtotal—Improving Economic Conditions for Farmers
and Fishermen
38 17 55
Further Developing Canada’s Financial Sector Advantage
Continuing to Fight Counterfeit Bank Notes 3 3 6
Total—Improving Conditions for Business Investment
298 120 418
Less funds existing in the fiscal framework 85 71 156
Net fiscal cost 212 50 262
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 3.3
Investng in Training,
Infrastructure and Opportunity
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
135
HIGHLIGHTS
Supporting Job Creation, Small Business and Skills Training
The Government is committed to supporting job creation by small
businesses and opportunities for under-represented groups in the workforce.
Economic Action Plan 2012 proposes:
? Investing $205 million to extend the temporary Hiring Credit for Small
Business for one year.
? Providing an additional $50 million over two years to the Youth
Employment Strategy to assist more young people in gaining tangible
skills and experience.
? Providing $6 million over three years to extend and expand the
ThirdQuarter project to key centres across the country.
? Improving labour market opportunities for Canadians with disabilities
by investing $30 million over three years in the Opportunities Fund
and by creating a panel on labour market opportunities for persons
with disabilities.
? Promoting the involvement of small and medium-sized enterprises
in shipbuilding projects.
Improving the Employment Insurance Program
The Government is committed to making targeted, common-sense
changes to make Employment Insurance (EI) a more efficient program
that is focused on job creation and opportunities. Economic Action
Plan 2012 proposes:
? Limiting EI premium rate increases to 5 cents each year until the
EI Operating Account is balanced.
? Providing $21 million over two years to enhance the content and
timeliness of the job and labour market information that is provided
to Canadians who are searching for employment.
? Investing $74 million over two years to ensure that EI claimants
benefit from accepting work.
? Investing $387 million over two years to align the calculation of
EI benefit amounts with local labour market conditions.
Chapter 3.3
136
Expanding Opportunities for Aboriginal Peoples to Fully
Participate in the Economy
The Government is committed to expanding opportunities for
Aboriginal peoples to fully participate in the labour market. Economic
Action Plan 2012 proposes:
? Providing $275 million over three years to support First Nations
education and build and renovate schools on reserve.
? Committing to work with willing partners toward passage of legislation
that will establish the structures and standards to support strong and
accountable education systems on reserve.
? Announcing the Government’s commitment to improve the incentives in
the on-reserve Income Assistance Program while encouraging those who
can work to access training so they are better equipped for employment.
? Providing $33.5 million in 2012–13 to extend the Atlantic Integrated
Commercial Fisheries Initiative and the Pacific Integrated Commercial
Fisheries Initiative.
? Providing $27 million over two years to renew the Urban
Aboriginal Strategy.
Building a Fast and Flexible Economic Immigration System
The Government is committed to transitioning to a faster and more flexible
economic immigration system. Economic Action Plan 2012 proposes:
? Announcing the Government’s intention to better align the Temporary
Foreign Worker Program with labour market demands and to ensure that
businesses look to the domestic labour force before accessing the
Temporary Foreign Worker Program.
? Signalling the Government’s intention to support further improvements
to foreign credential recognition and to work with provinces and
territories to identify the next set of target occupations for inclusion,
beyond 2012, under the Pan-Canadian Framework for the Assessment
and Recognition of Foreign Qualifications.
? Proposing to return applications and refund up to $130 million in fees
paid by certain federal skilled worker applicants who applied under
previous criteria established prior to February 27, 2008.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
137
Strengthening Canada’s Public Infrastructure
The Government is building on recent actions to modernize Canada’s public
infrastructure. Economic Action Plan 2012 proposes:
? $150 million over two years for a new Community Infrastructure
Improvement Fund to support repairs and improvements to existing
community facilities.
? Amendments to the Yukon Act, the Northwest Territories Act
and the Nunavut Act to create new regulations that will ensure
consistent treatment of borrowing across the three territories and with
their Public Accounts.
? $105 million in 2012–13 on a cash basis to support VIA Rail Canada’s
operations and capital projects.
? $27.3 million over two years to support the divestiture of regional ports
and the continued operation and maintenance of federally owned ports.
? $5.2 billion over the next 11 years on a cash basis to renew the Canadian
Coast Guard fleet.
? $101 million over the next five years on a cash basis to restore and
modernize the Esquimalt Graving Dock.
Chapter 3.3
138
SUPPORTING JOB CREATION
Canada’s well-trained and highly educated workforce is one of our key
advantages in competing and succeeding in the global economy. However,
too often barriers or disincentives discourage workforce participation. Better
utilizing Canada’s workforce and making Canada’s labour market more
adaptable will help ensure our long-term economic growth.
That is why, since 2006, the Government has placed a strong emphasis
on access to skills training, support for post-secondary education, building a
fast and flexible economic immigration system, and developing untapped
potential in the labour market.
The Government makes considerable investments in support of families
and individuals, labour market development, labour force attachment and
job readiness. This includes $16.7 billion in Employment Insurance benefits,
$10.1 billion annually in support of post-secondary education and $2.5 billion
annually for labour market agreements with the provinces and territories.
Canada’s immigration system supports a vibrant workforce by attracting
skilled workers who will contribute to the growth of our economy. The
Government also encourages under-represented groups to participate in the
labour market through initiatives such as the Youth Employment Strategy,
the Targeted Initiative for Older Workers, the Opportunities Fund for
Persons with Disabilities, and the Aboriginal Skills and Employment
Training Strategy.
Economic Action Plan 2012 builds on these initiatives with an enhanced
labour market focus and a number of targeted investments that will help
respond to current labour market challenges and meet longer-term labour
market needs. The Government will introduce measures to streamline
processes and increase funding to better integrate certain under-represented
groups in the labour force, including immigrants, persons with disabilities,
youth, Aboriginal peoples and older Canadians.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
139
SUPPORTING JOB CREATION, SMALL BUSINESS
AND SKILLS TRAINING
Economic Action Plan 2012 announces a number of measures to address
short-term labour market challenges and meet long-term market needs.
Extending the Hiring Credit for Small Business
Economic Action Plan 2012 proposes $205 million to extend the Hiring Credit
for Small Business for one year.
Small businesses are the engine of job creation in Canada, and are
indispensable in their role as job creators. In recognition of the challenges
faced by small businesses across the country, Budget 2011 announced a
temporary Hiring Credit for Small Business of up to $1,000 per employer.
This credit provided needed relief to small businesses by helping defray the
costs of hiring new workers and allowing them to take advantage of
emerging economic opportunities.
As the economy continues to recover amid continuing global economic
uncertainty, Economic Action Plan 2012 proposes to extend the temporary
Hiring Credit for Small Business for one year. A credit of up to $1,000
against a small employer’s increase in its 2012 EI premiums over those paid
in 2011 would be provided. This temporary credit would be available to
approximately 536,000 employers, whose total EI premiums were at or
below $10,000 in 2011, reducing small business 2012 payroll costs by about
$205 million.
It [the Hiring Credit for Small Business] is a popular measure
among all SMEs [small and medium-sized enterprises] but is
particularly important among growing firms as it helps them
strengthen business performance.
— Canadian Federation of Independent Business,
December 2011
Chapter 3.3
140
How the Hiring Credit for Small Business Works
Drew and Ali own a small pizza parlour. They employed five people in 2011
and had a total payroll of $125,000. Their total EI premiums in 2011 were
$3,108. Since business is improving in 2012, they have hired a new
employee, which will bring their total payroll to $150,000. The Hiring Credit
for Small Business will provide them with a credit of $732, equal to what
would otherwise have been the increase in their 2012 EI premiums over
those paid in 2011.
The Canada Revenue Agency will automatically calculate the Hiring Credit
when Drew and Ali file their 2012 tax return. They do not need to apply,
avoiding red tape and needless delays.
Enhancing the Youth Employment Strategy
Economic Action Plan 2012 proposes $50 million over two years to enhance
the Youth Employment Strategy.
Young workers entering the workforce are facing an uncertain job market.
At the same time, some sectors are facing growth-limiting labour shortages,
which young Canadians should be equipped to fill. The Government
currently invests more than $330 million annually to support young
Canadians through the Youth Employment Strategy, including youth at risk
and recent post-secondary graduates. Last year alone, this investment helped
to connect nearly 70,000 Canadian youth with the work experience and skills
training they need to build a foundation for success in the job market.
Economic Action Plan 2012 builds on this investment by providing an
additional $50 million over two years to assist more young people in gaining
tangible skills and experience. This funding will focus on connecting young
Canadians with jobs in fields that are in high demand.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
141
Helping Canadian Youth Gain Skills and Experience
Through the Youth Employment Strategy
The Centre for Skills Development & Training in Burlington, Ontario provided
employability skills interventions to 62 youth with barriers to employment
under a Skills Link project. The participants benefited from hands-on
workshops in the skilled trades of construction, manufacturing and
electrical. At the end of the project, 70 per cent of the participants were
either employed or had returned to school.
In 2010–11, the reachAbility Association provided employability skills
interventions to 10 youth with barriers to employment in Halifax, Nova
Scotia under a Skills Link project. The participants benefited from various
hands-on workshops that focused on subjects such as computer use,
research and networking. At the end of the project, 80 per cent of the
participants were employed or had returned to school.
From September 7, 2010 to June 10, 2011, the YMCA of Greater
Vancouver provided career-related work experiences to 73 unemployed
or underemployed post-secondary graduates across British Columbia.
The participants gained 4 to 6 months of work experience in green sectors
of the economy. At the end of the project, 74 per cent of the participants
were employed and 3 per cent had returned to school.
From October 25, 2010 to May 31, 2011, the Canadian Media Production
Association provided career-related work experience to 40 unemployed or
underemployed post-secondary graduates in eight provinces across Canada.
The participants gained 24 weeks of hands-on work experience in the field
of film, television, and the interactive media production industry. At the end
of the project, 82 per cent of the participants were employed and 2 per cent
had returned to school.
ThirdQuarter Project
Economic Action Plan 2012 proposes $6 million over three years to extend and
expand the ThirdQuarter project to key centres across the country.
Older workers face particular challenges in finding employment, despite their
skills and experience being valuable assets to employers and the labour
market. The Targeted Initiative for Older Workers is a federal-provincial-
territorial employment program that provides a range of employment
activities for unemployed older workers in vulnerable communities with
populations of less than 250,000 to help them stay in the workforce.
Budget 2011 provided $50 million over two years to extend this program
until 2013–14, helping to ensure that displaced older workers have access to
the training and employment programs they need to secure new employment.
Chapter 3.3
142
The ThirdQuarter project is an innovative initiative, led by the Manitoba
Chamber of Commerce, to help employers find experienced workers who
are over 50. It provides an online forum that makes it easier for individuals
to find jobs that match their skills, while helping businesses and
organizations narrow the field of potential employees to those who have
the skills they are seeking. ThirdQuarter was initially launched in
14 communities in British Columbia, Saskatchewan, Manitoba and the
Atlantic provinces, where it has successfully connected employers with the
experienced workers they had been seeking, leading to 900 older workers
being hired.
In addition to the measures the Government has in place to support the
employment of older Canadians who wish to remain in the workforce,
Economic Action Plan 2012 is providing flexibility in the Old Age Security
(OAS) program for those who wish to defer retirement. Starting on
July 1, 2013, the Government will allow for the voluntary deferral of the
OAS pension, for up to five years, allowing Canadians the option of
deferring take-up of their OAS pension to a later time and receiving a higher,
annual pension. In addition, Economic Action Plan 2012 provides the option
to work longer and receive higher annual benefits.
Improving Labour Market Opportunities for
Canadians With Disabilities
Economic Action Plan 2012 proposes $30 million over three years to the
Opportunities Fund and announces the creation of a panel on labour market
opportunities of persons with disabilities to improve their labour market participation.
Canadians with disabilities are disproportionately impacted by economic
turbulence and encounter unique challenges in finding jobs during a period
of economic recovery. Many employers have experienced first-hand the
invaluable contribution Canadians with disabilities make to their businesses.
This Government recognizes that economic growth and prosperity requires
greater participation of Canadians with disabilities in the job market.
The Government supports the participation of persons with disabilities in
the economy through transfers to the provinces and territories such as
the Labour Market Agreements for Persons with Disabilities ($218 million
annually) and the Labour Market Agreements ($500 million annually).
The Government also invests $30 million annually through the
Opportunities Fund for Persons with Disabilities to connect individuals with
the skills and work experience needed to participate fully in the economy.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
143
Economic Action Plan 2012 will invest an additional $30 million over three
years in the Opportunities Fund to enable more Canadians with disabilities
to obtain work experience with small and medium-sized businesses, and to
ensure employers are aware of the invaluable contribution persons with
disabilities can make to their business and the Canadian economy.
The Government will also establish a panel on the labour market
opportunities of persons with disabilities. The panel will identify private
sector successes and best practices with regard to the labour market
participation of persons with disabilities. The Minister of Finance and the
Minister of Human Resources and Skills Development will review the panel’s
report by the end of 2012.
Helping Canadians With Disabilities Gain Employment
and Work Experience Through the Opportunities Fund
From April 1, 2008 to March 31, 2011, the Canadian Council on
Rehabilitation and Work provided employment services to 1,607 people
with disabilities in British Columbia, Saskatchewan, Manitoba, New
Brunswick, and Newfoundland and Labrador under a $2.6-million
Opportunities Fund project. At the end of the project, 572 participants
were employed and 45 had returned to school.
From April 1, 2008 to March 31, 2011, the Neil Squire Society provided
employment services to 571 people with disabilities in British Columbia,
Saskatchewan, Ontario and New Brunswick under a $3.5-million
Opportunities Fund project. At the end of the project, 201 participants
were employed and 77 had returned to school.
The participants in both these initiatives benefited from interventions that
focused on skills development and work experience—often using wage
subsidies to help employers hire people with disabilities.
In 2010, SPHERE-Québec received $8.6 million over three years from the
Opportunities Fund for the coordination of projects aimed at helping persons
with disabilities in Quebec acquire a wide range of skills and work
experiences. In 2010, the Government also contributed $157,094 to the
organization for its project Imagine…ton avenir!, which aims to give youth
with disabilities a better chance at finding jobs.
Women on Corporate Boards
Economic Action Plan 2012 announces the creation of an advisory council of
leaders from the private and public sectors to promote the participation of women
on corporate boards.
Chapter 3.3
144
Canadian women have high levels of education and business experience.
Many lead successful businesses and are active members of corporate boards.
Yet they remain under-represented on boards of directors and in top
leadership positions. Increasing opportunities for women to serve on
corporate boards makes good business sense for Canadian women and for
Canada’s economy. The Minister for Status of Women will work with the
private sector to promote the participation of women on corporate boards
and champion their leadership. Through the creation of an advisory council
of leaders from the private and public sectors, the Government will work
with the private sector to link corporations to a network of women with
professional skills and experience.
Promoting Widespread Opportunities
From Federal Shipbuilding
Economic Action Plan 2012 confirms measures to promote the involvement of small
and medium-sized enterprises in shipbuilding projects.
In 2010, the Government announced the $35-billion National Shipbuilding
Procurement Strategy. A major milestone was reached in February 2012 with
the signing of umbrella agreements with Irving Shipyard of Halifax and
Vancouver Shipyards for the large combat and non-combat ship
construction work valued at $33 billion. These shipyards were selected
through an open, fair and transparent competition. Contracts for small vessel
construction, valued at $2 billion, will be awarded to other Canadian
shipyards, and ongoing refit and repair work valued at $500 million annually
will be open to all shipyards through a competitive process. Together, these
investments will revitalize the marine industry in Canada and deliver the vital
equipment required by Canada’s naval and Coast Guard personnel to defend
our sovereignty and national security, as well as advance Canadian
interests abroad.
The National Shipbuilding Procurement Strategy is expected to provide
thousands of high-value jobs over the next 20 to 30 years, providing stability
for shipbuilders across the country. The Canadian Association of Defence
and Security Industries has estimated that 15,000 direct and indirect jobs may
be created over the coming decades. Economic benefits from the
shipbuilding will flow to the broader marine industry, generating employment
for skilled workers in a variety of sectors, such as steel manufacturing,
information technology and defence systems.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
145
The Government wants small and medium-sized enterprises to have all the
information they need to be ready to take advantage of opportunities arising
from the building of federal ships. The result is the Atlantic Shipbuilding
Action Plan and the Western Canada Shipbuilding Action Plan. These Action
Plans are designed to promote the active participation of small and medium-
sized businesses in the supply chains that will result from the building of the
ships and thus create growth and jobs throughout the regions.
IMPROVING THE EMPLOYMENT INSURANCE PROGRAM
Employment Insurance (EI) is Canada’s single largest labour market
program, providing income replacement to help individuals and their
families, as well as training and other labour market supports to help
Canadians return to employment. As Canada’s economy and labour market
context change over time, the Government must ensure EI remains effective
and efficient in support of job creation and economic growth. Economic
Action Plan 2012 proposes a number of targeted, common-sense changes to
make EI a more efficient program that promotes job creation, removes
disincentives to work, supports unemployed Canadians and quickly connects
people to jobs.
Stable and Predictable EI Premium Rates
Economic Action Plan 2012 ensures stable, predictable EI premium rates by
limiting premium rate increases to 5 cents each year until the EI Operating
Account is in balance, and then moving to a seven-year break-even rate.
In response to the economic downturn in 2009 and 2010, the Government
froze the EI premium rate in 2010 at the lowest rate since 1982, leaving more
than $3.5 billion in the pockets of workers and employers. In 2011 and 2012,
the Government limited the maximum annual premium rate change to
5 cents—a full 10 cents lower than the allowable annual increase limit—to
help protect Canadian jobs during a period of fragile recovery. In 2011,
Shelly Glover, Parliamentary Secretary to the Minister of Finance, and Kellie
Leitch, Parliamentary Secretary to the Minister of Human Resources and
Skills Development, also undertook cross-country consultations with
Canadians on how the EI rate-setting mechanism could be further improved.
The consultations indicated that Canadians want stable and predictable
EI premium rates, and a transparent rate-setting process.
Chapter 3.3
146
In response to the consultations, the Government will introduce legislation
to ensure predictability and stability in the EI premium rate. Over the next
few years, the Canada Employment Insurance Financing Board (CEIFB) will
continue to set the rate, but the Government will limit rate increases to no
more than 5 cents each year until the EI Operating Account is balanced.
Once the Account has achieved balance, the EI premium rate will be set
annually at a seven-year break-even rate to ensure that EI premiums are no
higher than needed to pay for the EI program. After the seven-year rate is
set, annual adjustment to the rate will also be limited to 5 cents. These
improvements will ensure affordability for premium payers while offering
ongoing predictability and stability.
The Government will also introduce legislation to allow the premium rate to
be set earlier in the Fall to provide longer notice to employers and workers.
In light of this new approach to rate setting, the Government will review
the size and structure of the CEIFB to ensure that independent rate setting
is done in the most cost-effective manner possible.
Connecting Canadians With Available Jobs
Economic Action Plan 2012 proposes $21 million over two years to connect
unemployed Canadians with jobs.
Matching workers with available jobs is critical to supporting economic
growth and productivity, as well as quality of life for Canadians. Economic
Action Plan 2012 makes targeted new investments of $21 million over two
years to help unemployed Canadians find jobs more quickly. These
investments will enhance the content and timeliness of the job and labour
market information that is provided to Canadians who are searching for
employment. This Government recognizes that providing EI claimants with
relevant and timely job information is essential for a quick return to work.
Along with providing relevant and timely job information, the Government
will introduce legislation to strengthen and clarify what is required of
claimants who are receiving regular EI benefits and are looking for work. In
the coming months, the Minister of Human Resources and Skills
Development will announce fair and transparent guidelines for compliance,
which take into account local labour market conditions and an individual’s
past history with the EI program.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
147
The Government will also coordinate the Temporary Foreign Worker
Program with efforts to connect unemployed Canadians with available jobs.
In addition to the improvements to the Temporary Foreign Worker Program
described later in this chapter, the Government is developing approaches to
notify EI claimants when employers are looking for workers, and to inform
employers if there are EI claimants in the same region who match the open
positions. Creating a link between the EI program and the Temporary
Foreign Worker Program will help make local and qualified Canadian
workers aware of vacancies and available to fill them, while ensuring
temporary foreign workers are employed where they are most needed.
Each year, the federal government transfers $1.95 billion from the
EI program to the provinces and territories to support skills training
activities and job search supports for EI claimants. Over the next 12 months,
the Government will work with provincial and territorial governments to
make skills training and job search supports available to EI claimants earlier
in their claim period.
Removing Disincentives to Work
Economic Action Plan 2012 proposes $74 million over two years to introduce a new
national Working While on Claim EI pilot project and proposes $387 million
over two years to align the calculation of EI benefit amounts with local labour
market conditions.
EI claimants who stay active in and remain connected to the labour market
find permanent employment faster than those who do not. The existing
Working While on Claim pilot project reduces claimants’ EI benefits dollar-
for-dollar once they have earned a certain amount, discouraging them from
accepting additional work. Economic Action Plan 2012 proposes to invest
$74 million over two years in a new, national EI pilot project that will ensure
claimants are not discouraged from accepting work while receiving EI
benefits. This new pilot project will cut the current clawback rate in half and
apply it to all earnings made while on claim. This new pilot will ensure that
EI claimants always benefit from accepting work by allowing them to
keep more of what they earn while on EI and supporting their search
for permanent employment.
Chapter 3.3
148
How the New Working While on Claim Pilot Project
Benefits Claimants
Jennifer is a dental hygienist who has been laid off and is receiving EI
benefits of $450 per week. She has found part-time work in a dental clinic
that pays a total of $600 per week.
Under the current Working While on Claim pilot project, Jennifer can earn
up to 40 per cent of her weekly benefits, $180, with no reduction in her EI
benefit payment. Earnings above this level reduce her benefit payment
dollar-for-dollar. Jennifer’s combined earnings and EI benefit would
be $630.
Under the new pilot project, Jennifer’s EI benefit will only be reduced by
50 per cent of her earnings from working while she is on claim. Her
combined weekly income would be $750, an increase of $120 per week.
Economic Action Plan 2012 also proposes to invest $387 million over
two years to align the calculation of the value of EI benefits with local labour
market conditions. This new approach will reduce disincentives to accepting
all available work prior to applying to the EI program by permanently
revising the way benefits are calculated. Beginning in April 2013, all claimants
will have their EI benefit amount calculated based on the highest weeks of
earnings over the preceding year. The number of weeks that will be used will
range from 14 to 22, depending on the unemployment rate in the particular
EI region. This approach to calculating the value of EI benefits will make the
program more responsive to changes in the local labour market and ensure
that those living in regions with similar labour market conditions receive
similar benefits. While this new approach is being put in place, the current
Best 14 Weeks pilot project will be extended, until April 2013.
EXPANDING OPPORTUNITIES FOR ABORIGINAL PEOPLES
TO FULLY PARTICIPATE IN THE ECONOMY
Since 2001, the Aboriginal population has increased by 25 per cent,
compared with 6 per cent for the Canadian population as a whole. About
25,000 Aboriginal youth turn 15 each year and this number is expected to
increase after 2016, markedly so in some provinces. Over the coming
decades, Aboriginal peoples will become an increasingly important source
of Canada’s labour force growth.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
149
The Government recognizes the contribution that Aboriginal peoples can
make to the labour market as the youngest and fastest-growing segment
of the nation’s population. The investments in this budget will help
Aboriginal peoples participate more fully in Canada’s economy and
benefit from its growth.
Investments to Improve First Nations Education
Economic Action Plan 2012 commits the Government to introduce legislation,
and explore new funding mechanisms, for First Nations elementary and
secondary education, and proposes $275 million over three years to support
First Nations education.
In Budget 2010 the Government committed to work with First Nations
to develop options, including new legislation, to improve the governance
framework and clarify accountability for First Nations elementary and
secondary education. In 2011, the Government and the Assembly of
First Nations launched a National Panel, which made a number
of recommendations for reforming First Nations education in its
February 2012 report.
In response to the Panel’s report, the Government will work with willing
partners to introduce a First Nation Education Act and have it in place for
September 2014. The purpose of this legislation is to establish the structures
and standards to support strong and accountable education systems on
reserve. This will set the stage for more positive education outcomes for
First Nations children and youth. The Government will also work to explore
mechanisms to ensure stable, predictable and sustainable funding for
First Nations elementary and secondary education.
To help ensure readiness for the new First Nations education system
to be outlined in legislation, this budget will invest $100 million over three
years for First Nations education to provide early literacy programming
and other supports and services to First Nations schools and students,
and to strengthen their relationships with provincial school systems.
To complement these investments in First Nations education programming,
this budget will invest $175 million over three years to build and renovate
schools on reserve, providing First Nations youth with better learning
environments. This will build on investments in on-reserve school
infrastructure made as part of Canada’s Economic Action Plan between
2009 and 2011.
Chapter 3.3
150
Helping First Nations on Reserve Access the Labour Force
Economic Action Plan 2012 announces the Government’s commitment to improve
the incentives in the on-reserve Income Assistance Program while encouraging those
who can work to access training so they are better equipped for employment.
Since 2006, the Government has made substantial investments to improve
Aboriginal labour market outcomes. Over $400 million annually is invested
in Aboriginal skills and training through the Aboriginal Skills and
Employment Training Strategy and the Skills and Partnership Fund, and
over $300 million per year supports First Nations and Inuit in their post-
secondary studies through the Post-Secondary Student Support Program
and the University and College Entrance Preparation Program.
Equipping First Nations people with the skills and opportunities they need
to fully participate in the economy is a priority for this Government and First
Nations. In many areas of the country, First Nations communities are ideally
placed to contribute to and benefit from large economic projects.
Through Economic Action Plan 2012, the Government is committing
to make progress by better aligning its on-reserve Income Assistance
Program with provincial systems through improved compliance with
program requirements. The Government will also work with First Nations
to encourage those who can work to access training and, more broadly,
to improve the incentives for labour market participation in this program.
Canada’s young Aboriginal population has tremendous potential for
long-term success and economic prosperity, and our Government is
committed to helping them achieve their full potential.
Supporting First Nations Fishing Enterprises
Economic Action Plan 2012 proposes $33.5 million in 2012–13 to extend the
Atlantic Integrated Commercial Fisheries Initiative and the Pacific Integrated
Commercial Fisheries Initiative.
The Atlantic and Pacific Integrated Commercial Fisheries Initiatives
are designed to integrate First Nations fishing enterprises into existing
commercial fisheries. Through these and related programs, the Government
has invested approximately $700 million to provide access to commercial
fisheries and business development and co-management activities for
First Nations fishing enterprises. To continue promoting integrated
commercial fisheries, Economic Action Plan 2012 proposes $33.5 million
in 2012–13 to the Department of Fisheries and Oceans to extend
these initiatives.
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151
Urban Aboriginal Strategy
Economic Action Plan 2012 proposes $27 million over two years to renew
the Urban Aboriginal Strategy.
The Government is committed to working with other levels of government,
Aboriginal organizations and the private sector to improve economic
opportunities for Aboriginal peoples living in urban centres.
Through the Urban Aboriginal Strategy, the Government partners with
Aboriginal communities and local organizations, municipal and provincial
governments, and the private sector to support projects that respond to
local priorities and activities such as job training, skills and entrepreneurship
initiatives. For instance, the Strategy provided $200,000 to Winnipeg’s
Urban Circle Training Centre, where for over 20 years around 350 urban
Aboriginal people annually have received employment counselling and
accredited training.
BUILDING A FAST AND FLEXIBLE ECONOMIC
IMMIGRATION SYSTEM
Since 2006, the Government has pursued much-needed reforms to focus
Canada’s immigration system on fuelling economic prosperity for Canada.
For example, the Government has placed a high priority on finding people
who have the skills and experience required to meet Canada’s economic
needs. Temporary foreign workers have been given greater opportunities to
contribute to the success of our economy, and provinces and territories now
have the capacity to address their labour shortages through an expanded role
in selecting immigrants.
Strengthening Canada’s Immigration System
Economic Action Plan 2012 announces the Government’s intention build a fast and
flexible economic immigration system whose primary focus is on meeting Canada’s
labour market needs.
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By complementing recent reforms, Economic Action Plan 2012 will
enable Canada to transition to an increasingly fast and flexible economic
immigration system. In the future, the Government will explore with
provinces, territories and employers approaches to developing a pool of
skilled workers who are ready to begin employment in Canada. To ensure
that immigrants are ready to work, the assessment of educational credentials
will be strengthened and the federal skilled worker point system will be
reformed to reflect the importance of younger immigrants with Canadian
work experience and better language skills.
The Government will provide further incentives to retain educated and
experienced talent through the Canadian Experience Class and introduce
a new stream to facilitate the entry of skilled tradespersons. The Business
Immigration Program will target more active investment in Canadian growth
companies and more innovative entrepreneurs. The Provincial Nominee
Program will be improved by focusing on economic immigration streams
in order to respond quickly to regional labour market demand. In short,
the Government is committed to strengthening the immigration system to
make it truly proactive, targeted, fast and efficient in a way that will sustain
Canada’s economic growth and deliver prosperity for the future.
Temporary Foreign Worker Program
Economic Action Plan 2012 announces the Government’s intention to better align the
Temporary Foreign Worker Program with labour market demands and to ensure that
businesses look to the domestic labour force before accessing the Temporary Foreign
Worker Program.
Canada’s labour market faces high unemployment rates in some regions
and labour shortages in other regions as well as in certain sectors. Where
there are acute needs in the labour market that are not easily filled by the
domestic labour force, temporary foreign workers are an important resource
for Canadian businesses. To meet employer demand and improve the
responsiveness of the Temporary Foreign Worker Program, the Government
of Canada reduced the paper burden on employers and shortened processing
times. The Government has also taken steps to enhance protection for
temporary foreign workers.
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153
Going forward, the Government will continue to consider additional
measures to ensure that the Temporary Foreign Worker Program supports
our economic recovery and growth by better aligning the program with
labour market demands. At the same time, the Government will look at
ways to ensure that businesses have made all reasonable efforts to recruit
from the domestic labour force before accessing the Temporary Foreign
Worker Program.
Pan-Canadian Framework for the Assessment and
Recognition of Foreign Qualifications
Economic Action Plan 2012 signals the Government’s intention to support further
improvements to foreign credential recognition and to work with provinces and territories
to identify the next set of target occupations for inclusion, beyond 2012, under the Pan-
Canadian Framework for the Assessment and Recognition of Foreign Qualifications.
Ensuring that foreign credentials are quickly and fairly assessed in Canada
helps highly skilled newcomers find work related to their training, allowing
them to quickly contribute to Canada’s economy. Budget 2009 provided
funding to support work on developing the Pan-Canadian Framework for
the Assessment and Recognition of Foreign Qualifications, whereby foreign-
trained professionals in priority occupations will have their qualifications
assessed within one year, anywhere in the country. While the Framework is
intended over time to apply to all regulated occupations, eight groups were
identified in the Framework for inclusion by December 31, 2010. An
additional six target occupations were identified in the Framework for
inclusion by December 31, 2012.
2010 Target Occupations
Architects
Engineers
Medical Laboratory Technologists
Occupational Therapists
Pharmacists
Physiotherapists
Registered Nurses
Financial Auditors and Accountants
2012 Target Occupations
Dentists
Engineering Technicians
Licensed Practical Nurses
Medical Radiation Technologists
Physicians
Teachers (K-12)
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The commitment in the Framework with respect to the 2010 target
occupations has been met, and work is ongoing with respect to meeting
the December 2012 timeline for the additional six priority groups. The
Government will continue working with provinces, territories and other
stakeholders to support further improvements to foreign credential
recognition, including identifying a third set of target occupations for
inclusion under the Framework after 2012.
The Government is taking further steps to help internationally trained
professionals enter the workforce quickly through the Foreign Credential
Recognition Loans Pilot, which was launched in February 2012. The Pilot
will provide funding to community-based partners—such as non-
government and non-profit organizations—to increase their capacity to
deliver financial assistance to eligible professionals seeking to have their
credentials recognized in Canada. The loans will make it easier for
internationally trained professionals to complete the credential recognition
process and find jobs that best suit their skills and experience.
Federal Skilled Worker Fee Refund
Economic Action Plan 2012 proposes to return applications and refund up to
$130 million in fees to certain federal skilled worker applicants who applied prior
to February 27, 2008 and have been waiting for processing to be completed.
Canada needs to select immigrants who are ready, willing and able to fully
integrate into Canada’s labour market and fill gaps in our economy,
particularly where we have existing skills shortages. Canada has a number
of economic immigration programs, the largest one being the Federal Skilled
Worker Program, which is the main avenue to permanent immigration
to Canada.
The large backlog of applications that has accumulated under the
Federal Skilled Worker Program is impeding the responsiveness of
Canada’s immigration system. The Government recognized the backlog
problem several years ago and has taken actions to eliminate it through our
2008 Action Plan for Faster Immigration. Before the Action Plan was
introduced, the backlog had swelled to over 640,000 applicants, many of
whom faced wait times of up to seven years. Through the judicious use of
measures introduced by the Action Plan, the backlog has been cut to less
than 300,000 applicants since 2008—a reduction of more than 50 per
cent. Wait times for new applicants are now closer to 18 months on average,
with some applicants waiting as little as 6 to 12 months.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
155
Faster action is still required, however, in order to more immediately
direct our efforts toward better addressing modern labour market realities.
Canada risks losing the global talent competition for the world’s best and
brightest as potential immigrants choose to take their skills to other countries
with more responsive immigration systems rather than remain in the queue
to have their application processed in Canada.
Economic Action Plan 2012 therefore proposes to return applications and
refund up to $130 million in fees, on a cash basis, paid by certain federal
skilled worker applicants who applied under previous criteria established
prior to February 27, 2008.
STRENGTHENING CANADA’S PUBLIC INFRASTRUCTURE
The Government recognizes the importance of investments in public
infrastructure. Efficient and modern public infrastructure helps move people,
goods and services to markets and supports business competitiveness, job
creation and economic growth.
The federal government plays an important role in the provision of
public infrastructure in Canada. It is the custodian of an infrastructure
portfolio with strategic national importance, including a wide range of
transportation-related assets such as airports, ports and bridges. The
Government also provides funding to support provincial, territorial and
municipal infrastructure.
Since 2007, the Government has made significant investments in public
infrastructure. Under the $33-billion, seven-year Building Canada plan, the
Government provides major support for provincial, territorial and municipal
infrastructure for investments in priority areas such as highways, roads,
bridges, public transit, water infrastructure and broadband. This includes:
• Federal funding of $8.8 billion under the Building Canada Fund, of
which an estimated $5 billion will continue to flow beyond 2011–12 to
municipalities, provinces and territories to reflect project timelines.
• Predictable and long-term funding for municipalities under the Gas Tax
Fund and the Goods and Services Tax rebate for municipalities. The
Government has made the $2-billion annual allocation under the Gas
Tax Fund a permanent legislated measure.
• Investments to strengthen trade-related infrastructure through the
Gateways and Border Crossings Fund and the Asia-Pacific Gateway and
Corridor Initiative.
Chapter 3.3
156
The Government also made $11 billion available for infrastructure stimulus
initiatives under the stimulus phase of Canada’s Economic Action Plan.
Supporting Provincial, Territorial and Municipal Infrastructure
Economic Action Plan 2012 proposes $150 million over two years to support repairs
and improvements to existing small public infrastructure facilities through the
Community Infrastructure Improvement Fund.
The Government is taking concrete steps to deliver on its commitment to
work with provinces, territories, the Federation of Canadian Municipalities
and other stakeholders on the development of a long-term plan for public
infrastructure that extends beyond the expiry of the Building Canada plan
in 2014.
Consultations are underway with our partners and stakeholders. Together,
we will explore broad directions and priorities for a new plan that will focus
on investments in infrastructure that support long-term economic growth
and prosperity, while encouraging greater private sector involvement and
increasing the use of public-private partnerships where they can generate
better value for taxpayers. A new plan will be designed to leverage funding
from all governments and the private sector and ensure affordability and
sustainability over the long term.
Over the next two years, the Government will spend nearly $12 billion
to support provincial, territorial and municipal infrastructure through
existing initiatives.
Community-based facilities contribute to the quality of life in small
communities and large urban centres across Canada. To support repairs and
improvements to existing facilities, such as community centres, Economic
Action Plan 2012 proposes $150 million over two years for the establishment
of a Community Infrastructure Improvement Fund. This new Fund will
improve the quality of facilities enjoyed by Canadians while supporting job
creation in communities across the country.
The Fund will be delivered by the regional development agencies and will
support projects on a cost-shared basis in partnership with municipalities,
community organizations and not-for-profit entities. Projects will be selected
on the basis of their readiness to proceed and the anticipated economic
benefits, including job creation.
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157
Territorial Borrowing Limit
Economic Action Plan 2012 is confirming the introduction of amendments to the
Yukon Act, the Northwest Territories Act and the Nunavut Act to create new
regulations that will ensure consistent treatment of borrowing across the three territories
and with their Public Accounts.
The Government of Canada is committed to supporting the three territorial
governments in developing their economic potential. An important aspect
of this support is providing clear rules by which territorial governments may
borrow to undertake investments in their future. The Government of Canada
will introduce amendments to the Yukon Act, the Northwest Territories Act
and the Nunavut Act to create new regulations that will ensure consistent
treatment of borrowing across the three territories and with their Public
Accounts. This will provide certainty to territorial governments as they
plan for their future.
In addition, the three territorial borrowing limits have been increased
to $800 million, $400 million and $400 million respectively for the
Government of the Northwest Territories, the Government of Yukon and
the Government of Nunavut. This provides additional capacity for the
three governments to borrow in support of their priorities, such as major
infrastructure projects.
Making Important Investments in Strategic Public Infrastructure
Maintaining Safe and Reliable Passenger Rail Services
Economic Action Plan 2012 proposes $105 million in 2012–13 on a cash basis to
support VIA’s operations and capital projects.
VIA Rail Canada operates the country’s national passenger rail service. In
2010, VIA served over 4 million passengers and connected 450 communities
across Canada. To support VIA’s operations and investments in track
signalling systems, track components, station repairs and information
technology projects, Economic Action Plan 2012 proposes $105 million in
2012–13 on a cash basis for VIA Rail Inc. These investments will enhance
the safety and efficiency of VIA Rail Canada’s operations.
Chapter 3.3
158
Strengthening Canada’s Port System
Economic Action Plan 2012 proposes $27.3 million over two years to support the
divestiture of regional port facilities and the continued operation and maintenance of
federally owned ports.
Canada’s ports are an integral part of the national transportation system and
play an important role in Canada’s international trade. The Government has
recently announced up to $85.6 million in funding for capital projects and
other modernization initiatives at the Ports of Montreal, Saguenay, and
Sept-Îles. These investments will support the role of these ports as gateways
to global markets and promote jobs and growth in the region.
Under the National Marine Policy, the Government has taken steps to
strengthen the public port system by establishing dedicated and independent
port authorities for Canada’s largest ports and divesting smaller regional
ports to local interests. Port divestiture improves the efficiency of Canadian
marine transportation by rationalizing the port system and placing decision
making and operations in the hands of users and local interests. This will
allow communities to own and control the use of their facilities and
determine service and maintenance levels appropriate to their circumstances.
To support the divestiture of regional port facilities and the continued
operation and maintenance of federally owned ports, Economic Action
Plan 2012 proposes $27.3 million over two years for Transport Canada.
Renewing the Canadian Coast Guard Fleet
Economic Action Plan 2012 proposes $5.2 billion over the next 11 years on
a cash basis to renew the Fleet of the Canadian Coast Guard.
This year, the Canadian Coast Guard celebrates 50 years of dedicated service.
The Coast Guard plays a key role in supporting the safety of Canadians,
promoting uninterrupted shipping to Canadian port gateways, and facilitating
trade flows. It delivers search and rescue programs, provides marine
pollution responses, and supports science and other government maritime
activities. The Canadian Coast Guard is Canada’s main maritime presence,
especially in the high Arctic.
To renew the Canadian Coast Guard Fleet to make it more adaptable,
capable and cost-efficient, Economic Action Plan 2012 proposes $5.2 billion
over the next 11 years on a cash basis. The procurement of new vessels and
helicopters for the Canadian Coast Guard, as well as work related to
repairing and refitting existing vessels, will support jobs and generate
significant economic benefits.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
159
Maintaining and Improving Federal Infrastructure
Economic Action Plan 2012 provides $101 million on a cash basis to restore
and modernize the Esquimalt Graving Dock.
The Esquimalt Graving Dock, which was originally constructed in 1927, is
the largest deep-sea shipbuilding and repair facility on Canada’s West Coast.
It generates economic benefits totaling $183 million annually for British
Columbia and it supports an estimated 1,300 jobs in the Greater
Victoria Area.
Budget 2011 provided $148 million, on a cash basis, over five years to carry
out capital expenditures to maintain and improve a number of engineering
assets, such as bridges, dams and other specialized assets, across Canada.
Building on this commitment, Economic Action Plan 2012 proposes an
additional $101 million, on a cash basis, over the next five years for Public
Works and Government Services Canada to restore and modernize the
Esquimalt Graving Dock. This investment will help maintain jobs and
support economic activity in southern British Columbia.
Investing in Border Infrastructure
Under the Beyond the Border Action Plan, announced in Fall 2011, the
Government will modernize and expand capacity at priority border facilities
in Western and Central Canada. Investment in modern infrastructure at key
land ports of entry will ensure that our border crossings have the capacity
to support the volume of commercial and passenger traffic resulting from
economic growth and job creation.
The Windsor-Detroit trade corridor is North America’s most important land
crossing. The Government will continue to work with the State of Michigan,
the U.S. Government and the Province of Ontario to make timely progress
toward the construction of a new crossing.
Building a New Bridge over the St. Lawrence
The Government is building a new bridge to replace the existing Champlain
Bridge in Montréal. It will span the St. Lawrence River to connect the Island
of Montréal to the South Shore. This is the busiest crossing in Canada
for cars, trucks and buses, and is vital to the regional and national
economies with an estimated $20 billion in international trade crossing
the bridge annually.
Chapter 3.3
160
There are many components to the project, including environmental
assessment, design work and financial analysis. In January, the Government
formally launched the federal environmental assessment phase of the project.
The Government will continue close collaboration with key stakeholders,
including the Government of Quebec and municipalities in the region, as the
project moves forward. The new bridge is expected to open in 2021–2022.
The Government has invested in the safety and security of the Champlain
Bridge. Investments totalling $380 million since 2009 will keep the bridge
safe until the new crossing is complete.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
161
Table 3.3
Investing in Training, Infrastructure and Opportunity
millions of dollars
2011–12 2012–13 2013–14 Total
Supporting Job Creation, Small Business
and Skills Training
Extending the Hiring Credit for Small Business 51 154 205
Enhancing the Youth Employment Strategy 25 25 50
ThirdQuarter Project
2 2 4
Improving Labour Market Opportunities for Canadians
with Disabilities 5 13 18
Subtotal—Supporting J ob Creation, Small Business
and Skills Training 51 186 40 277
Improving the Employment Insurance Program
Connecting Canadians With Available J obs 11 10 21
Removing Disincentives to Work
New National Working While on Claim EI Pilot Project 28 46 74
Aligning Benefits With Local Labour Market Conditions 138 249 387
Subtotal—Improving the Employment Insurance Program 177 305 482
Expanding Opportunities for Aboriginal Peoples to
Fully Participate in the Economy
Investments to Improve First Nations Education 45 115 160
Supporting First Nations Fishing Enterprises
34
34
Urban Aboriginal Strategy 14 14 27
Subtotal—Expanding Opportunities for Aboriginal
Peoples to Fully Participate in the Economy 92 129 221
Building a Fast and Flexible Economic
Immigration System
Federal Skilled Worker Fee Refund 5 4 9
Strengthening Canada’s Public Infrastructure
Supporting Provincial, Territorial and Municipal Infrastructure 75 75 150
Making Important Investments in Strategic
Public Infrastructure
Maintaining Safe and Reliable Passenger Rail Services 49 9 58
Strengthening Canada’s Port System
16 11 27
Renewing the Canadian Coast Guard Fleet 9 29 38
Maintaining and Improving Federal Infrastructure - 1 1
Subtotal—Strengthening Canada's Public Infrastructure 150 124 274
Total—Investing in Training, Infrastructure
and Opportunity 51 609 601 1,262
Less funds existing in the fiscal framework 72 53 125
Net fiscal cost 51 537 549 1,137
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 3.4
Supportng Families
and Communites
Supporting Jobs and Growth
Supporting Families and Communities
165
HIGHLIGHTS
Protecting the Health and Safety of Canadians
The Government is committed to promoting safe communities and
protecting the health of individual Canadians. Economic Action Plan
2012 proposes:
? Expanding health-related tax relief under the Goods and Services
Tax/Harmonized Sales Tax (GST/HST) and income tax systems to
better meet the health care needs of Canadians.
? $51.2 million over the next two years to strengthen Canada’s food
safety system.
? Financial support for employers of Canada’s military reservists to offset
costs incurred when part-time reservists sign up for full-time duty.
? Announcing enhanced support for the Victims Fund in the
coming months.
Investing in Communities
The Government is committed to preserving Canada’s diverse cultural
treasures and improving the quality of life in communities across the country.
Economic Action Plan 2012 proposes:
? Announcing the Government’s intent to explore with interested
First Nations the option of moving forward with legislation that would
allow private property ownership within current reserve boundaries.
? Providing $330.8 million over two years to build and renovate on-reserve
water infrastructure and support the development of a long-term strategy
to improve water quality in First Nations communities.
? Providing $11.9 million in 2012–13 to support shelter services and
violence prevention programming on reserves.
? Continuing to explore social finance instruments as a way to further
encourage the development of government-community partnerships.
? Supporting major exhibitions at Canadian museums and
galleries by modernizing the Canada Travelling Exhibitions
Indemnification Program.
? Continuing support to ParticipACTION and Le Grand défi
Pierre Lavoie.
Chapter 3.4
166
? Providing up to $99.2 million over three years to assist the provinces
and territories with the cost of permanent flood mitigation measures
undertaken for the 2011 floods.
Supporting Families
The Government is committed to expanding government support for
families, students, seniors and pensioners, and persons with disabilities.
Economic Action Plan 2012 proposes:
? Providing $1.4 million annually to ensure that Wage Earner Protection
Program applicants receive the benefits they are entitled to when they
need them.
? Requiring federally regulated private sector employers to insure,
on a go-forward basis, any long-term disability plans they offer to
their employees.
? Helping Canadians with severe disabilities and their families by
improving the Registered Disability Savings Plan.
Protecting Canada’s Natural Environment and Wildlife
The Government is committed to preserving Canada’s natural beauty.
Economic Action Plan 2012 proposes:
? $50 million over two years to protect wildlife species at risk.
? The creation of Canada’s first national near-urban park in the Rouge
Valley in Ontario.
? Expanding the eligibility for the accelerated capital cost allowance for
clean energy generation equipment to include a broader range of
bioenergy equipment.
Supporting Jobs and Growth
Supporting Families and Communities
167
SUPPORTING FAMILIES AND COMMUNITIES
Economic Action Plan 2012 builds on previous measures the Government
has taken since 2006 to create a safe and clean environment for all
Canadians. Some of these measures are designed to preserve Canada’s natural
heritage, such as protecting species at risk and creating Canada’s first national
near-urban park.
The recent Crown-First Nations Gathering underscored the Government’s
commitment to work with First Nations on shared priorities. Economic
Action Plan 2012 supports this commitment by introducing initiatives to
enhance economic potential on First Nations lands, improve water quality in
First Nations communities, and address family violence on reserves.
Economic Action Plan 2012 will expand on investments to promote the
health and safety of individual Canadians and families, including providing
GST/HST and income tax relief on several health-related goods and services,
and supporting the employers of military reservists.
Building on significant tax relief provided since 2006, the Government
continues to invest in measures to support Canada’s families. Economic
Action Plan 2012 delivers on this priority, for example, through
improvements to the Registered Disability Savings Plan.
The Government also provides significant funding to provinces in support of
health, education and other programs and services. In 2012–13, federal
support to provinces and territories through major transfers and other direct
targeted support will reach an all-time high of $60.9 billion—an increase of
43 per cent since 2005–06.
PROTECTING THE HEALTH AND SAFETY OF CANADIANS
Health-Related Tax Measures
Economic Action Plan 2012 proposes to expand health-related tax relief under the
GST/HST and income tax systems to better meet the health care needs of Canadians.
Economic Action Plan 2012 proposes a number of changes to the tax
treatment of health-related goods and services in order to reflect the evolving
nature of the health sector and the health care needs of Canadians, including:
• Exempting pharmacists’ professional services from the GST/HST, other
than prescription drug dispensing services, which are already zero-rated
under the GST/HST.
Chapter 3.4
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• Expanding the list of health care professionals who can order certain
medical and assistive devices zero-rated under the GST/HST to reflect
the increasing involvement of health care professionals, such as nurses,
in giving orders for these devices.
• Expanding the list of GST/HST zero-rated medical and assistive
devices and the list of expenses an individual may claim for income
tax purposes under the Medical Expense Tax Credit (METC) to
include blood coagulation monitors for use by individuals who
require anti-coagulation therapy.
The changes to the GST/HST health-related measures will generally be
effective March 30, 2012. It is estimated that these changes will reduce
federal revenues by $3 million in each of 2012–13 and 2013–14.
Changes to the METC will apply for the 2012 and subsequent taxation years,
and are estimated to reduce federal revenues by a small amount in each of
2012–13 and 2013–14.
Strengthening Food Safety
Economic Action Plan 2012 proposes $51.2 million over the next two years to
continue measures to strengthen Canada’s food safety system.
Following the release of the Weatherill Report to address food safety risks,
the Government launched several measures in 2009 to enhance surveillance
and early detection and improve response capabilities to food-borne illness
emergencies. To support the ongoing effectiveness of Canada’s food safety
system, Economic Action Plan 2012 proposes $51.2 million over the next
two years for the Canadian Food Inspection Agency, the Public Health
Agency of Canada and Health Canada to continue these measures. The
Government is also pursuing complementary activities to strengthen
Canada’s food safety system, including plans to streamline and accelerate
the process by which foods are regulated.
Supporting Jobs and Growth
Supporting Families and Communities
169
Fair Compensation for Employers of Canada’s Reservists
Economic Action Plan 2012 proposes action to provide financial support to employers
of reservists, to offset costs incurred when part-time reservists sign up for full-time duty.
Canada’s reservists make an extraordinary commitment and many personal
sacrifices to keep Canadians safe. They are called upon to serve abroad for
extended periods, which can place significant financial strain on their
employers—particularly small businesses. With assistance from Canada
Company: Many Ways to Serve, which builds the bridge between business
and community leaders and the Canadian Forces, the Government is
working to ensure our reservists remain gainfully employed and that
members of our military receive the widest support, care and recognition
they deserve for the important contributions they make to Canada.
Building on the Government’s commitment to support the men and women
of our armed forces, Economic Action Plan 2012 commits to providing
financial support to employers of reservists to offset costs such as the hiring
and training of replacement workers or increasing overtime hours for existing
employees. Details of this program will be announced by the Government in
the coming months.
Enhancing the Victims Fund
Economic Action Plan 2012 proposes to build on the Budget 2011 investment
and will announce enhanced support for the Victims Fund in the coming months.
Victims of crime deserve to have a strong and effective voice in the federal
justice and corrections systems. Budget 2011 renewed the Federal Victims
Strategy, which enhanced programming and supported the Federal
Ombudsman for Victims of Crime. The Government will announce
further support to the Victims Fund in the coming months.
Chapter 3.4
170
Supporting Victims of Crime
Since 2006, the Government has increased support for victims of crime
to ensure they have an effective voice in the federal justice and
corrections systems:
• Budget 2006 provided $65 million over five years for a Federal Victims
Strategy. This included the creation of the Office of the Federal
Ombudsman for Victims of Crime and enhancing the Victims Fund to
increase access to the justice system.
• Budget 2010 provided $16.5 million over five years for additional
programs for victims of crime, including support for Child
Advocacy Centres.
• Budget 2010 also provided $25 million over five years to address the high
number of missing and murdered Aboriginal women. This funding includes
support for victims.
• Budget 2011 renewed, and made permanent, the Federal Victims
Strategy at a funding level of $13 million per year.
Canadian Nuclear Safety Commission
Economic Action Plan 2012 proposes $8 million per year to cover the costs of licensing
nuclear equipment and substances at educational institutions, medical institutions and
government departments.
As Canada’s nuclear regulator, the Canadian Nuclear Safety Commission
protects the health, safety and security of Canadians and supports Canada’s
international commitments on the peaceful use of nuclear energy. To cover
the costs associated with licensing nuclear equipment and substances at
educational institutions, medical institutions and government departments,
Economic Action Plan 2012 proposes $8 million per year for the Canadian
Nuclear Safety Commission.
Supporting Jobs and Growth
Supporting Families and Communities
171
INVESTING IN COMMUNITIES
Improving Economic Potential on First Nations Lands
Economic Action Plan 2012 announces the Government’s intent to explore with
interested First Nations the option of moving forward with legislation that would
allow private property ownership within current reserve boundaries.
The Government of Canada continues to work with First Nations to
create conditions to accelerate economic development opportunities.
At the historic Crown-First Nations Gathering, the Prime Minister and
the National Chief of the Assembly of First Nations agreed to launch
within three months an economic task force that would report back in
a timely fashion with recommendations to further unlock the economic
potential of First Nations peoples.
This work will build on steps the Government has already taken to enable
interested First Nations to assume greater control over their reserve lands,
resources and environment, notably through the First Nations Land
Management Act. First Nations that opt in to this Act can better pursue and
seize economic opportunities. This puts First Nations in more direct control
of their economic development, helping them build a brighter future in
which their communities are self-sufficient and prosperous.
Budget 2011 reaffirmed the Government’s commitment to expand the
First Nations Land Management regime by committing to reallocate up
to $20 million over two years to respond to the growing interest from First
Nations leaders to participate. This allowed the Government to introduce
18 new entrants to the regime in January 2012, bringing the total number
of First Nations that are operating or developing their own land codes to 56.
Some First Nations have expressed an interest in exploring the possibility
of legislation that would allow private property ownership within current
reserve boundaries. Economic Action Plan 2012 announces the
Government’s intent to explore with interested First Nations the option
of moving forward with legislation that would allow for this. The
Government will continue to work with First Nations to address barriers
to economic development on reserve.
Chapter 3.4
172
Investments to Improve First Nations Water Infrastructure
Economic Action Plan 2012 proposes $330.8 million over two years to build
and renovate water infrastructure on reserve and to support the development
of a long-term strategy to improve water quality in First Nations communities.
Many First Nations continue to face challenges ensuring access to safe water
in their communities despite significant investments by the Government
to help improve water systems. Since 2006, the Government has invested
around $2.5 billion to assist First Nations in the construction, maintenance
and operation of water and wastewater systems in their communities. This
includes the completion of over 130 major projects and funding for the
operation and maintenance of over 1,200 water or wastewater systems.
The Government remains committed to improving the health and safety
of First Nations communities.
Earlier this year, the Government introduced the Safe Drinking Water
for First Nations Act to ensure First Nations have access to safe and reliable
drinking water. This bill will allow the Government, in collaboration with
First Nations, to develop federal regulations for access to safe drinking water,
and to ensure the effective treatment of wastewater and the protection of
sources of drinking water on reserve.
Addressing Family Violence on Reserve
Economic Action Plan 2012 proposes $11.9 million for the Family Violence
Prevention Program in 2012–13, bringing the total budget for the program to
$30.4 million for an additional year.
The Government has taken steps to improve the lives of women and
children on reserve. Budget 2010 invested $25 million over five years to
address the high number of missing and murdered Aboriginal women.
In addition, legislation was introduced in 2011 to provide fairer treatment
of marital property on reserve upon the dissolution of a marriage.
That said, numerous First Nations communities continue to experience
family violence that threatens the ability to safely raise a family.
Ensuring shelter services and violence prevention programming are available
to on-reserve communities is an important element of addressing these
serious security concerns.
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Aboriginal Mental Health Programs
Economic Action Plan 2012 commits to working with Aboriginal communities
and organizations, provinces and territories to improve the mental health and well-being
of Aboriginal peoples in Canada.
Health Canada currently invests over $100 million annually to support mental
health programs and services for Aboriginal peoples through community-
level mental health initiatives, addiction and substance abuse treatment
centres, and the National Aboriginal Youth Suicide Prevention Strategy.
The Government has also provided significant support to Health Canada’s
Indian Residential Schools Resolution Health Support Program, which
provides mental health and emotional support services to former students
and their families.
Supporting Effective Government-Community Partnerships
Economic Action Plan 2012 announces that the Government will continue to explore
social finance instruments as a way to further encourage the development of government-
community partnerships.
The Minister of Human Resources and Skills Development is modernizing
the administration of grants and contributions to reduce red tape and make
it easier to access funding. The Minister is also testing ways to maximize the
impact of federal spending to support community-level partnerships,
including pay-for-performance agreements and encouraging leveraging
of private sector resources.
Building on these partnerships and the work of the Canadian Task Force
on Social Finance, the Government will continue to support the momentum
building around social finance initiatives and will explore social finance
instruments. For example, social impact bonds hold promise as a tool to
further encourage the development of government-community partnerships.
Details will be announced by the Minister of Human Resources and Skills
Development over the coming months.
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Investments in Arts and Culture
Economic Action Plan 2012 proposes additional support to museums and galleries
through the Canada Travelling Exhibitions Indemnification Program to help attract
new exhibitions.
The Government recognizes that arts and culture is an important generator
of jobs and growth. In challenging economic times, Canada’s Economic
Action Plan included investments in culture, such as periodicals and the
audiovisual sector. The Government also chose to increase funding for arts
and culture during the global economic recession, providing economic
stimulus through additional cultural infrastructure funding. The Government
believes that supporting the arts is essential to supporting Canada’s economy
and quality of life and will continue strong support for Canadian culture.
Economic Action Plan 2012 proposes to further support Canada’s museums
by strengthening the Canada Travelling Exhibitions Indemnification
Program, which helps Canadian museums and art galleries reduce their
insurance costs when hosting major exhibitions. To achieve this, the
Government will introduce legislation to raise the indemnification limit from
$1.5 billion to $3 billion. This increased support will be complemented by a
change to the calculation period and an increase in the maximum level of
support per exhibition, from $450 million to $600 million. These important
modernization initiatives will help art galleries and museums attract more
internationally acclaimed treasures to Canada. Canadians are proud of their
museums. Taken together, national and local museums in communities all
across Canada are some of the best in the world. The Government created
two new national museums: the Canadian Museum of Immigration at Pier 21
in Halifax and the Canadian Museum for Human Rights in Winnipeg.
Canadians value museums, the stories they tell, the collections they house,
and the role they play in preserving culture. Because of this, Economic
Action Plan 2012 will maintain funding for Canada’s national museums.
Canada Council for the Arts
While continuing to recognize the importance of cultural institutions to
Canada’s social and cultural fabric, the Government is maintaining funding
for the Canada Council for the Arts. For over 50 years, the Canada Council
for the Arts has been the leading supporter of Canadian artists. The
Government has increased funding for the Canada Council to its highest
funding level ever. Economic Action Plan 2012 will maintain record support
for the Canada Council for the Arts by providing cultural communities with
funding stability.
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Supporting Families and Communities
175
Commemorations for the Bicentennial of the War of 1812
Important commemorations for the 200th anniversary of the War of 1812
will boost tourism and allow Canadians to celebrate their history. The 200th
anniversary of the War of 1812 is also an opportunity for Canadians to take
pride in their history. Over the next four years, the Government’s
investments will increase Canadians’ awareness of this defining moment in
Canada’s history.
The 200th anniversary of the War of 1812 is just one of many events that are
bringing Canadians together as the country moves closer to Canada’s
150
th
anniversary in 2017, which will also include celebrations around the
Queen’s Diamond Jubilee.
Official Languages
Canada’s two official languages are an integral part of Canadian history and
identity. The Government’s commitment to official languages has been
recognized internationally. In 2009, the Prime Minister was honoured with
the highest international award of merit for support to the Francophonie.
The Government’s five-year “Roadmap for Canada’s Linguistic Duality
2008–2013” represents the most comprehensive investment in Canada's
official languages in Canada’s history. Economic Action Plan 2012 will
continue support for official languages by maintaining funding to protect,
celebrate and enhance Canada’s linguistic duality.
Encouraging Participation and Healthy Communities
Economic Action Plan 2012 proposes continued support to ParticipACTION
and to Le Grand défi Pierre Lavoie.
The Government recognizes the role that participation in sport plays in
promoting more active lifestyles and healthier, stronger communities.
Since coming to office, the Government has ensured that Canadian athletes
are provided the support needed to reach the podium at every opportunity
possible. This includes significant investment in high-performance sport
including support to athletes, national sport organizations, and hosting of
major international sporting events.
Chapter 3.4
176
In 2015, Canada will again play host as Toronto welcomes the Americas for
the Pan American and Parapan American Games. To ensure these Games
are a success, the Government of Canada will invest, as its contribution, over
$450 million to give our world-class athletes the opportunity to compete in
state-of-the-art sport facilities. This significant investment will leave a lasting
sport legacy for Canadians for years to come, and will bring economic
prosperity throughout the Greater Toronto Area.
As announced in Budget 2011, the Government has increased its ongoing
support to Special Olympics Canada to help enrich the lives of Canadians
with an intellectual disability through sport and competition in Special
Olympics events.
In addition, Economic Action Plan 2012 continues investments in
ParticipACTION, which works with provincial and local partners to deliver
community-based physical activity and fitness programs. Economic Action
Plan 2012 also confirms further support to Le Grand défi Pierre Lavoie.
Details on both initiatives will be announced in the coming months.
The Government is proud to make these investments, which will contribute
to the well-being of Canadians across the country and the communities
in which they live.
Strengthening Health Care in Rural and Remote Communities
To expand the provision of primary health services to Canadians in rural and
remote communities, Budget 2011 announced that the Government would
forgive a portion of Canada Student Loans for new family physicians, nurses
and nurse practitioners who practise in underserved rural or remote
communities, including communities that provide health services to
First Nations, Inuit and Métis populations.
Starting in 2012–13, family physicians who meet the program criteria,
including family medical residents in training with an accredited medical
school in Canada, will be eligible for federal Canada Student Loan
forgiveness of up to $8,000 per year to a maximum of $40,000, while nurse
practitioners and nurses will be eligible for Canada Student Loan forgiveness
of up to $4,000 per year to a maximum of $20,000.
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Strengthening Access to Broadband in Rural Areas
The Government will act to ensure that Canadians living in rural Canada have access
to the same high-quality broadband services as other Canadians.
As part of the stimulus phase of Canada’s Economic Action Plan,
$225 million was provided to Industry Canada over three years to
develop and implement a strategy to extend broadband coverage to as many
underserved households as possible. The biggest component of this strategy
is the Broadband Canada: Connecting Rural Canadians program, which has
helped provide broadband access to over 210,000 additional households.
The Government recognizes that high-quality broadband networks are
essential for enhancing local economic opportunities and for providing
access to valuable services. In 2013, the Government plans to hold spectrum
auctions for the 700 MHz and 2,500 MHz spectrum bands. In the spectrum
auction involving the 700 MHz band, the Government will be implementing
specific measures to ensure that Canadians living in rural Canada are able to
receive the same high-quality services that are available to the rest of
Canadians. Companies that have access to more than one block of the
700 MHz band, through the auction or through spectrum sharing, will be
required to deploy new advanced services to 90 per cent of the population in
their coverage area within five years and to 97 per cent within seven years.
Support to Provinces and Territories
for the Floods of 2011
Economic Action Plan 2012 proposes up to $99.2 million over three years for
permanent flood mitigation measures undertaken for the 2011 floods.
The Government is providing support to the many communities affected
by recent natural disasters, and is committed to working with other levels
of government to build safer and more resilient communities. The
Government has worked with the provinces and territories to identify
permanent mitigation measures that were undertaken for the floods of 2011.
Economic Action Plan 2012 proposes up to $99.2 million over three years
to assist the provinces and territories with the cost of permanent flood
mitigation measures undertaken for the 2011 floods.
The Government is also committed to discussing with the provinces and
territories the development of a national disaster mitigation program,
recognizing that mitigation can lessen the impact of natural disasters on
vulnerable communities and reduce the costs associated with these events.
Chapter 3.4
178
SUPPORTING FAMILIES
Since 2006, this Government has introduced measures targeted to help
families, students, seniors and pensioners, workers, persons with disabilities,
and communities, including an ambitious agenda of personal income tax
relief. Economic Action Plan 2012 also proposes a number of measures to
improve the Registered Disability Savings Plan.
Keeping Taxes Low for Families and Individuals
Since 2006, the Government has implemented an ambitious agenda of tax
relief for families and individual Canadians, aimed at creating a tax system
that fuels job creation and growth in the economy and allowing Canadians
to keep more of their hard-earned money. Tax reductions have also rewarded
Canadians for realizing their full potential, and have given individuals and
families the flexibility to make the choices that are right for them.
In total, the Government is providing almost $160 billion in tax relief for
individuals and families over 2008–09 and the following five fiscal years.
For instance:
• The Government reduced the GST rate by 2 percentage points,
benefiting all Canadians—even those who do not earn enough to pay
personal income tax. Maintaining the GST Credit level while reducing the
GST rate by 2 percentage points translates into more than $1.1 billion in
GST Credit benefits annually for low- and modest-income Canadians.
• The Government increased the amount of income that all Canadians can
earn before paying federal income tax. Those who earn enough to pay tax
also benefit from the reduction in the lowest personal income tax rate to
15 per cent from 16 per cent. Taxpayers can also earn more before being
subject to higher income tax rates because of the increase in the income
thresholds at which the 22-per-cent rate and the 26-per-cent rate begin
to apply.
• The Government introduced the Working Income Tax Benefit (WITB)
in Budget 2007 and effectively doubled it under the stimulus phase of
Canada’s Economic Action Plan. The WITB lowers the “welfare wall”
and strengthens work incentives for low-income Canadians already
working, while encouraging other low-income Canadians to enter
the workforce.
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• The Government introduced the Tax-Free Savings Account (TFSA)—
a flexible, registered, general-purpose savings vehicle available since
2009—that allows Canadians to earn tax-free investment income,
improving incentives to save and allowing Canadians to more easily meet
their lifetime savings needs. The response to the TFSA has been
overwhelmingly positive. Approximately 8.2 million TFSA accounts have
been opened, with more than $40 billion of assets growing tax-free.
With these actions, the Government has fulfilled commitments to reduce
taxes on savings, lower the “welfare wall” for low- and modest-income
earners, and reduce taxes for all Canadians.
Tax Relief for Canadians Since 2006
In total, the Government has introduced more than 140 tax relief measures
since 2006. As a result of actions taken by the Government, the average
family of four is saving more than $3,100 per year in taxes, and seniors and
pensioners are receiving about $2.5 billion in targeted tax relief for the
2012–13 fiscal year. Due to measures taken since 2006, more than 1 million
low-income Canadians, including about 380,000 seniors, have been removed
from the tax rolls in 2012.
The federal tax burden for all Canadians is now the lowest it has been in
50 years. Going forward, the Government is committed to keeping taxes low
for families and individuals.
Wage Earner Protection Program
Economic Action Plan 2012 proposes $1.4 million annually to ensure that Wage
Earner Protection Program applicants receive the benefits they are entitled to when they
need them.
The Wage Earner Protection Program (WEPP) was introduced in 2008 to
provide timely compensation to workers for unpaid wages and vacation pay
earned in the six months preceding an employer bankruptcy or receivership.
In Budget 2009, WEPP was expanded to include severance and termination
pay, and in Budget 2011 it was again expanded to cover employees who lose
their jobs when their employer’s attempt at restructuring takes longer than
six months and is subsequently unsuccessful. Economic Action Plan 2012 is
committing $1.4 million annually to ensure that WEPP applicants receive the
benefits they are entitled to when they need them.
Chapter 3.4
180
Protecting Long-Term Disability Plans
The Government commits to introduce legislation to require federally regulated
private sector employers to insure, on a go-forward basis, the long-term disability
plans offered to employees.
In the March 2010 Speech from the Throne, the Government announced
that it would explore ways to better protect workers when their employers
go bankrupt. Today, the Government is committing to introduce legislation
to require federally regulated private sector employers to insure, on a
go-forward basis, any long-term disability plans they offer to their employees.
Once the proposed legislation takes effect, employees with disabilities
working in federally regulated sectors will be assured that the long-term
disability benefits they have been promised will be fully protected.
Review of the Registered Disability Savings Plan
Economic Action Plan 2012 proposes measures to ensure that Registered Disability
Savings Plans continue to meet the needs of Canadians with severe disabilities and
their families.
In July 2006, the Minister of Finance appointed the Expert Panel on
Financial Security for Children with Severe Disabilities to consider how best
to ensure the financial security of children with severe disabilities. The Panel
submitted its report, A New Beginning, in December 2006.
The Government acted on the Panel’s recommendations by announcing the
introduction of a new tax-assisted Registered Disability Savings Plan (RDSP)
in Budget 2007, which became available in December 2008.
The RDSP is widely regarded as a major policy innovation and positive
development in helping to ensure the long-term financial security of children
with severe disabilities. Since becoming available in 2008, nearly
55,000 RDSPs have been opened. This is due in part to the considerable
efforts of financial institutions to make these plans available to Canadians.
RDSPs are offered by 11 different financial institutions across the country,
all of which have made a significant investment to offer the program.
Beneficiaries, their families and others have contributed over $220 million
to these plans, and the Government has provided approximately $450 million
in support through Canada Disability Savings Grants (CDSGs) and Canada
Disability Savings Bonds (CDSBs).
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181
In Budget 2011, the Government announced that it would undertake a
review of the RDSP program in 2011, consistent with the commitment in
Budget 2008 to review the program in three years to ensure that RDSPs are
meeting the needs of Canadians with severe disabilities and their families.
The RDSP review was launched in October 2011. As part of the review,
a consultation paper was released, which included a number of questions
on which Canadians were invited to provide feedback. In response, the
Government received more than 280 submissions from individuals and
organizations. In addition, consultations were held with representatives
from disability groups, financial institutions, and provincial and territorial
governments, including public guardians and trustees. The Government
wishes to thank those who participated in the review for their thoughtful
input and suggestions.
Based on the feedback received during the review, Economic Action
Plan 2012 proposes a number of measures to improve the RDSP.
These measures will:
• Provide greater access to RDSP savings for small withdrawals by
replacing the requirement to repay any CDSGs and CDSBs paid into
an RDSP within the 10 years preceding a withdrawal from the plan
with a requirement to repay CDSGs and CDSBs at a fixed ratio to
the amount withdrawn.
• Provide greater flexibility to make withdrawals from certain RDSPs by
increasing the annual maximum withdrawal limit that applies to these
RDSPs, and ensure that RDSP assets are used to support a beneficiary
during their lifetime by requiring a minimum amount to be withdrawn
from all RDSPs beginning the year a beneficiary attains 60 years of age.
• Provide greater flexibility for parents who save in Registered Education
Savings Plans (RESPs) for children with disabilities by allowing
investment income earned in an RESP to be transferred on a tax-free
basis to an RESP beneficiary’s RDSP.
• Provide greater continuity for long-term saving by RDSP beneficiaries
who cease to qualify for the Disability Tax Credit in certain
circumstances by extending the period that their plans may remain open.
• Improve the administration of the RDSP for financial institutions
and beneficiaries by amending certain RDSP administrative rules.
Chapter 3.4
182
Establishing Plans and Legal Representation
The RDSP has been highly successful due in part to the cooperation of
provinces and territories in ensuring that RDSP benefits are not clawed
back by reductions in social assistance payments.
However, a number of adults with disabilities have experienced problems in
establishing a plan because their capacity to enter into a contract is in doubt.
Questions of appropriate legal representation in these cases are a matter of
provincial and territorial responsibility. In many provinces and territories,
the only way that an RDSP can be opened in these cases is for the individual
to be declared legally incompetent and have someone named as their legal
guardian—a process that can involve a considerable amount of time and
expense on the part of concerned family members, and that may have
significant repercussions for the individual.
Some provinces and territories have instituted more streamlined processes
to allow for the appointment of a trusted person, such as a parent, other
relative, or friend, to manage resources on behalf of an individual with a
disability, or have otherwise indicated that their system already provides
sufficient flexibility to address these concerns. The Government of Canada
recognizes and appreciates the leadership shown by the Governments of
British Columbia, Saskatchewan, Manitoba, Newfoundland and Labrador,
and Yukon in this regard. In addition, the Government of Canada is pleased
that the Government of Alberta has recently indicated that it will examine
ways to simplify access to the RDSP program.
The Government of Canada continues to encourage the Governments of
Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, the
Northwest Territories and Nunavut to examine whether streamlined
processes would be suitable for their jurisdiction.
Given the importance of this issue to the success of the RDSP program, the
Government of Canada will work with provinces and territories to develop a
standardized, streamlined process that provinces and territories could adopt
in order to facilitate and simplify the process of opening RDSPs for
beneficiaries who lack contractual competence.
In the interim, while these processes are being developed, Economic Action
Plan 2012 proposes to temporarily expand the definition of who may be the
plan holder of an RDSP. Specifically, a beneficiary’s spouse, common-law
partner, or parent will be able to become the plan holder and open an RDSP
on behalf of an adult who might not be able to open a plan due to concerns
Supporting Jobs and Growth
Supporting Families and Communities
183
about their ability to enter into a contract. These rules will be in place until
the end of 2016, to provide provinces and territories time to develop more
appropriate, long-term solutions to address RDSP legal representation issues.
The changes to the RDSP will cost $3 million in 2012–13 and $6 million
in 2013–14.
PROTECTING CANADA’S NATURAL ENVIRONMENT
AND WILDLIFE
Since 2006, significant new resources have been provided to create new
National Parks and expand existing ones, enhance water quality and protect
wildlife, support environmental remediation of contaminated sites, protect
the Great Lakes, improve air quality and address climate change. The
Government is taking additional actions to protect and enrich our unique
environmental heritage, so that it can be enjoyed and treasured by current
and future generations of Canadians. These include new investments to
safeguard wildlife species at risk, protect water resources, create Canada’s
first national near-urban park and support clean energy generation.
Protecting Species at Risk
Economic Action Plan 2012 proposes $50 million over two years to protect wildlife
species at risk.
The Species at Risk Act is one of the Government’s main conservation tools
to protect wildlife species, maintain healthy ecosystems and preserve
Canada’s natural heritage. To continue to protect Canada’s diverse species
and help secure the necessary conditions for their recovery, Economic
Action Plan 2012 proposes $50 million over two years to support the
implementation of the Species at Risk Act.
Protecting Water and Wildlife Resources
The Government will continue to pursue water quality and ecosystem
health improvements.
The Government is working together with partners to protect and restore
Canada’s water resources for the benefit of all Canadians. Going forward,
the Government will continue to pursue water quality and ecosystem health
improvements in lakes and other bodies of water, such as Lake Winnipeg and
Lake Simcoe.
Environment Canada is also working towards establishing a hunting and
wildlife advisory panel. Details are to be announced in the coming months.
Chapter 3.4
184
Port Hope Area Initiative
Economic Action Plan 2012 proposes $8 million over two years to compensate
property owners and municipalities.
The Government is committed to safely clean up and store historical
low-level radioactive waste in Port Hope and Clarington, Ontario.
New facilities are being constructed in both communities where the waste
will be safely managed. Economic Action Plan 2012 proposes $8 million
over two years to help compensate property owners and municipalities
for potential losses related to remediation efforts associated with the
low-level waste.
Expanding Canada’s National Parks and Marine
Conservation Areas
The Government has taken steps that will add more than 150,000 square
kilometres to the lands and waters administered by Parks Canada—a more
than 50-per-cent increase since 2006. Examples include:
Gwaii Haanas National Marine Conservation Area Reserve in
British Columbia
The Gwaii Haanas National Marine Conservation Area Reserve and Haida
Heritage Site extends about 10 kilometres offshore from the existing Gwaii
Haanas National Park Reserve. It encompasses roughly 3,500 square
kilometres of the Hecate Strait and Queen Charlotte Shelf natural marine
regions. Combined with the existing park reserve, the new marine
conservation area will protect over 5,000 square kilometres of spectacular
wilderness from alpine mountain tops to the deep sea beyond the
continental shelf—a first for Canada, North America and the world.
Nahanni National Park Reserve in the Northwest Territories
The Nahanni National Park Reserve was expanded six-fold in June 2009
and is the third largest park in Canada. It protects over 30,000 square
kilometres (a little less than the size of Vancouver Island), which is
approximately 91 per cent of the Greater Nahanni Ecosystem in the
Dehcho region. The expansion of the Nahanni enhanced its UNESCO
World Heritage Site designation as a protected area and Canada’s leadership
in international protected area conservation. Globally unique caves, canyons
and rock towers can all be found within the expanded park as well as critical
habitat for grizzly bears, woodland caribou and Dall’s sheep.
Supporting Jobs and Growth
Supporting Families and Communities
185
Rouge Valley National Near-Urban Park
The Government will take action on the creation of Canada’s first national
near-urban park in the Rouge Valley in Ontario.
National Parks generate significant economic activity by attracting visitors
from Canada and abroad, and provide Canadians with access to our natural
heritage. To provide opportunities for local residents and visitors to enjoy,
discover and learn about the Rouge Valley’s rich natural and cultural heritage,
the Government will be taking steps towards the creation of Canada’s first
national near-urban park in the Rouge Valley in Ontario.
Expanding Tax Support for Clean Energy Generation
Economic Action Plan 2012 proposes to expand the eligibility for the accelerated
capital cost allowance for clean energy generation equipment to include a broader
range of bioenergy equipment.
The tax system encourages businesses to invest in clean energy generation
and energy efficiency equipment by providing an accelerated capital cost
allowance (CCA) rate. CCA Class 43.2 includes a variety of stationary
equipment that generates or conserves energy by using renewable sources
or fuels from waste, or by using fuel more efficiently. It allows the cost
of eligible assets to be deducted for tax purposes at a rate of 50 per cent
per year on a declining balance basis—which is faster than would be implied
by the useful life of the assets.
Economic Action Plan 2012 proposes to expand the eligibility for accelerated
CCA under Class 43.2 to include:
• Waste-fuelled thermal energy equipment used for space and water
heating applications.
• Equipment that is part of a district energy system that distributes
thermal energy primarily generated by waste-fuelled thermal
energy equipment.
• Equipment that uses residue of plants (e.g. straw) to generate
electricity and heat.
It is estimated that these measures will reduce federal revenues by about
$2 million over the next two years.
Chapter 3.4
186
Table 3.4
Supporting Families and Communities
millions of dollars
2012–13 2013–14 Total
Protecting the Health and Safety of Canadians
Health-Related Tax Measures 3 3 6
Strengthening Food Safety 26 26 51
Canadian Nuclear Safety Commission 8 8 16
Subtotal—Protecting the Health and Safety of Canadians 37 37 73
Investing in Communities
Investments to Improve First Nations Water Infrastructure 165 165 331
Addressing Family Violence on Reserve 12 12
Support to Provinces and Territories for the Floods of 2011 50 38 88
Subtotal—Investing in Communities 228 204 431
Supporting Families
Wage Earner Protection Program 1 1 3
Review of the Registered Disability Savings Plan 3 6 9
Subtotal—Supporting Families 4 7 12
Protecting Canada’s Natural Environment
and Wildlife
Protecting Species at Risk 25 25 50
Port Hope Area Initiative 4 4 8
Expanding Tax Support for Clean Energy Generation – 2 2
Subtotal—Protecting Canada’s Natural Environment
and Wildlife
29 32 60
Total—Supporting Families and Communities 297 279 577
Less funds existing in the fiscal framework 216 216 432
Net fiscal cost 81 63 145
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 4
Sustainable Social Programs
and a Secure Retrement
Sustainable Social Programs and a Secure Retirement
189
HIGHLIGHTS
?
The Government is taking the necessary steps to ensure that
Canada’s social programs remain sustainable over the long term.
?
The Government has already set the future growth path of
transfers to provinces and territories that will provide sustainable,
predictable and record funding in support of health care, education
and other services for Canadians.
?
To ensure that Old Age Security (OAS) remains sustainable and
reflects demographic realities, the Government will adjust the age
of eligibility requirement for OAS, which will begin to
be implemented in 2023 and will be fully implemented in 2029.
?
To improve flexibility and choice, starting on July 1, 2013,
the Government will allow for the voluntary deferral of the OAS
pension, for up to five years, allowing Canadians the option of
deferring take-up of their OAS pension to a later time and receiving
a higher annual pension.
?
The Government is improving the integrity and fairness of the tax
system by closing tax loopholes that allow some businesses and
individuals to avoid paying their fair share of tax.
?
The Government is introducing measures to ensure that charities
devote their resources primarily to charitable, rather than political,
activities, and to enhance public transparency and accountability
in this area.
Chapter 4
190
SUSTAINABLE MANAGEMENT OF PUBLIC FINANCES
Putting Transfers on a Long-Term, Sustainable Growth Track
Economic Action Plan 2012 reaffirms the Government’s commitment to sustainable
and predictable transfers to provinces and territories in support of health care, education
and other programs and services.
The Government of Canada provides significant financial support to
provincial and territorial governments on an ongoing basis to assist them
in the provision of programs and services. Major transfers to provinces
and territories will reach a record level of $59 billion in 2012–13, accounting
for about a quarter of the Government’s total program spending (Chart 4.1).
Major transfers to provinces and territories
will total almost one quarter of federal
program spending in 2012–13
Chart 4.1
Major Transfers to Other Levels of Government
as a Share of Total Program Spending
Source: Department of Finance.
Sustainable Social Programs and a Secure Retirement
191
The Government recognizes the important role major transfers play within
the federation, and is committed to ensuring that transfers to other levels
of government grow in a manner that is affordable and sustainable and
reflects taxpayers’ ability to pay.
In December 2011, the Government set the future growth path of transfers
to provinces and territories to provide sustainable and predictable funding in
support of the provision of health care, education and other programs and
services for all Canadians.
Legislation will be introduced to ensure the current 6-per-cent annual
escalator for the Canada Health Transfer (CHT) will continue for five more
years. Starting in 2017–18, the CHT will grow in line with a three-year
moving average of nominal GDP growth, with funding guaranteed to
increase by at least 3 per cent per year.
This growth path demonstrates the Government’s commitment to a publicly
funded, universally accessible health care system that respects the principles
of the Canada Health Act and recognizes that health care is an area of
provincial jurisdiction. Funding for health care will continue to grow from
$27 billion in 2011–12 to a minimum of $38 billion by 2018–19. This health
care funding will provide certainty and stability to the provinces and
territories as they take action to put their respective health care systems on
sustainable spending paths. The CHT will be reviewed in 2024.
The Canada Social Transfer (CST) provides financial support to provinces
and territories for post-secondary education, social assistance and social
services, as well as programs for children. Recognizing the importance of this
funding for the delivery of social programs, the Government will introduce
legislation to continue the 3-per-cent escalator for the CST for 2014–15 and
subsequent years. The CST will also be reviewed in 2024.
In Budget 2007, the Government legislated equal per capita cash support for
both the CST and the CHT in order to provide comparable treatment for all
Canadians, regardless of where they live. CST equal per capita cash
allocations began in 2007–08. To provide provinces and territories the time
to prepare, legislation set 2014–15 as the year when CHT equal per capita
cash allocations would begin.
The Government will introduce legislation to ensure that the transition is
fiscally responsible by providing protection so that no province or territory
will receive less than its 2013–14 CHT cash allocation in subsequent years as
a result of the move to equal per capita cash.
Chapter 4
192
The Government also announced in December 2011 that Equalization
will continue to grow in line with GDP and Territorial Formula Financing
(TFF) will continue to grow based on its current formula. Federal-provincial-
territorial officials will complete the review of the technical aspects of
Equalization and TFF in time for their renewal in 2014–15.
A Strong Retirement Income System for Canadians
The Government is committed to ensuring the retirement security
of Canadians.
Canada has a strong, three-pillar retirement income system (see box).
Since 2006, the Government has taken many steps to strengthen the system,
including increasing the Guaranteed Income Supplement for the most
vulnerable seniors, introducing pension income splitting, increasing the
Age Credit and creating innovative programs such as the Tax-Free Savings
Account and Pooled Registered Pension Plans.
Economic Action Plan 2012 takes action to ensure the retirement security
of all Canadians now and into the future by:
• Placing the first pillar, Old Age Security (OAS) and the Guaranteed
Income Supplement (GIS), on a sustainable path.
• Confirming that the Canada Pension Plan is sustainable at the current
contribution rate of 9.9 per cent of pensionable earnings.
• Confirming that the Government is moving forward on the timely
implementation of Pooled Registered Pension Plans.
Sustainable Social Programs and a Secure Retirement
193
Canada’s Three-Pillar Retirement Income System
Pillar 1: Old Age Security Program
The Old Age Security (OAS) program is financed from the Government
of Canada’s general revenues and provides a monthly pension to most
Canadians 65 years of age or over. The maximum annual OAS pension
is $6,481.
The Government provides additional support to low-income seniors through
the Guaranteed Income Supplement (GIS). The maximum annual
GIS benefit is $8,788 for single seniors and $11,654 for couples.
The OAS program provides approximately $38 billion per year in benefits
to 4.9 million individuals.
Economic Action Plan 2012 introduces changes to the age of eligibility
for OAS benefits, to be phased in gradually, starting in 2023. As well,
Economic Action Plan 2012 introduces the option to defer the OAS pension
and receive an actuarially adjusted pension, starting on July 1, 2013.
Pillar 2: Canada Pension Plan and Québec Pension Plan
The Canada Pension Plan (CPP) and the Québec Pension Plan (QPP) provide
a basic level of earnings replacement in retirement for all Canadian workers.
The CPP and the QPP are financed by contributions from workers and
employers. The maximum annual CPP and QPP retirement benefits
are $11,840.
The CPP and QPP also provide supplementary benefits, which include
survivor benefits and disability benefits.
The CPP and QPP provide approximately $44 billion per year in benefits
to 6.5 million individuals. Economic Action Plan 2012 confirms that the CPP
is sustainable at the current contribution rate of 9.9 per cent of
pensionable earnings.
Chapter 4
194
Canada’s Three-Pillar Retirement Income System (cont’d)
Pillar 3: Voluntary tax-assisted savings opportunities
To help Canadians accumulate additional savings for retirement,
the Government provides tax-assisted savings opportunities through
Registered Pension Plans, Registered Retirement Savings Plans and
Registered Retirement Income Funds. The Tax-Free Savings Account
(TFSA), introduced by the Government in Budget 2008, also provides tax
assisted savings opportunities. It is a general-purpose savings plan that
may be used for any savings purpose, including retirement saving. The
TFSA provides greater savings incentives for low- and modest-income
individuals since neither TFSA investment income nor withdrawals affect
eligibility for federal income-tested benefits and credits, such as OAS and
GIS benefits.
The Government is adding to the pillar by introducing Pooled Registered
Pension Plans, which will provide an accessible, large-scale and low-cost
pension option to employers, employees and the self-employed.
The OAS program is the single largest program of the Government of
Canada. It was put in place at a time when Canadians were not living the
longer, healthier lives that they are now. It was designed for a much different
demographic future than Canada faces today. In the 1970s, there were seven
workers for every one person over the age of 65. There are currently four
workers per senior, and in 20 years, there will be only two.
Sustainable Social Programs and a Secure Retirement
195
The number of workers per senior will decline to nearl y
half its current level by 2030
Chart 4.2
Ratio of Working-Age People to Seniors
Source: 9
th
Actuarial Report on the Old Age Security Program.
In addition, in 1970, life expectancy was age 69 for men and 76 for women.
Today, it is 79 for men and 83 for women. The baby boom generation (born
between 1946 and 1964) is also the largest age cohort in history. At the same
time, Canada’s birth rate is falling. Given these demographic changes, the
cost of the OAS program will grow from $38 billion in 2011 to $108 billion
in 2030.
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196
The life expectancy of Canadians continues to rise
Chart 4.3
Life Expectancy at Birth
Source: Statistics Canada.
Many countries are increasing the age of eligibility of their public pension
programs. Of the 34 Organisation for Economic Co-operation and
Development countries, the following have recently increased or announced
plans to increase the eligibility ages: Australia, Austria, Belgium, the Czech
Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Ireland,
Israel, Italy, Japan, Korea, the Netherlands, the Slovak Republic, Slovenia,
Spain, Turkey, the United Kingdom and the United States.
Also, as Canadians are living longer and healthier lives, many may prefer to
work longer. The OAS program should reflect this new reality and provide
the option for individuals to work longer and receive higher
retirement benefits.
Economic Action Plan 2012 takes action to ensure that the OAS program
is on a sustainable path. These actions will ensure OAS remains strong and
is there for future generations when they need it, as it is for all seniors who
currently receive these benefits.
Sustainable Social Programs and a Secure Retirement
197
Old Age Security Age of Eligibility
Economic Action Plan 2012 puts the OAS program on a sustainable path by
proposing legislation to raise the age of eligibility for OAS and GIS benefits
gradually from 65 to 67 starting in April 2023. This will be fully implemented
by January 2029.
The age of eligibility for OAS and GIS will be gradually increased from
65 to 67, starting in April 2023, with full implementation by January 2029.
An 11-year notification period, followed by a 6-year phase-in period, is being
provided to ensure that individuals have significant advance notification to
plan their retirement and make adjustments.
This proposed legislative change to the age of OAS/GIS eligibility
will not affect anyone who is 54 years of age or older as of March 31, 2012.
Thus, individuals who were born on March 31, 1958 or earlier will not be
affected. Those who were born on or after February 1, 1962 will have an
age of eligibility of 67. Those who were born between April 1, 1958 and
January 31, 1962 will have an age of eligibility between 65 and 67.
For example, as shown in Table 4.2, someone born in April 1960
will be eligible for OAS/GIS at age 66 and one month.
Table 4.2
OAS/GIS Age of Eligibility by Date of Birth
Year of Birth
1958 1959 1960 1961 1962
Month of Birth OAS/GIS Eligibility Age
J an. 65 65 +5 mo 65 +11 mo 66 +5 mo 66 +11 mo
Feb. – Mar. 65 65 +6 mo 66 66 +6 mo 67
Apr. – May 65 +1 mo 65 +7 mo 66 +1 mo 66 +7 mo
J une – J uly 65 +2 mo 65 +8 mo 66 +2 mo 66 +8 mo
Aug. – Sept. 65 +3 mo 65 +9 mo 66 +3 mo 66 +9 mo
Oct. – Nov. 65 +4 mo 65 +10 mo 66 +4 mo 66 +10 mo
Dec. 65 +5 mo 65 +11 mo 66 +5 mo 66 +11 mo
Note: mo = months.
In line with the increase in age of OAS/GIS eligibility, the ages at which
the Allowance and the Allowance for the Survivor are provided will also
gradually increase from 60-64 today to 62-66 starting in April 2023.
This change will not affect anyone who is 49 years of age or older as
of March 31, 2012.
Chapter 4
198
The Government will ensure that certain federal programs, including
programs provided by Veterans Affairs Canada and Aboriginal Affairs and
Northern Development Canada that currently provide income support
benefits until age 65, are aligned with changes to the OAS program. Without
such an alignment, individuals receiving benefits from these programs would
stop receiving them at age 65 and face an income gap until age 67 when they
become eligible for OAS and GIS. The alignment will ensure that these
individuals do not face a gap in income at ages 65 and 66.
The Government will discuss the impact of the changes to the OAS program
on Canada Pension Plan (CPP) disability and survivor benefits with
provinces and territories, who are joint stewards of the CPP, in the course of
the next triennial review. The Government will compensate provinces and
territories for net additional costs they face resulting from the increase in the
age of eligibility for OAS benefits.
Option to Defer the OAS Pension
Economic Action Plan 2012 proposes to give individuals the option to defer take-up
of their OAS pension to a later time and subsequently receive an actuarially adjusted
higher pension.
To improve flexibility and choice in the OAS program, starting on
July 1, 2013, the Government will allow for the voluntary deferral of the
OAS pension, for up to five years, allowing Canadians the option of
deferring take-up of their OAS pension to a later time and receiving a higher,
actuarially adjusted, annual pension. For example, individuals could continue
to work longer and defer taking up their OAS pension beyond age 65,
resulting in an actuarially adjusted pension starting in a subsequent year.
The adjusted pension will be calculated on an actuarially neutral basis, as
is done with the CPP. This means that, on average, individuals will receive
the same lifetime OAS pension whether they choose to take it up at the
earliest age of eligibility or defer it to a later year. The annual pension will
be higher if they choose to defer. GIS benefits, which provide additional
support to the lowest-income seniors, will not be eligible for
actuarial adjustment.
Sustainable Social Programs and a Secure Retirement
199
Example of One-Year
OAS Deferral
Example of Fi ve-Year
OAS Deferral
Michael will be turning 65
in September 2013.
Instead of taking up his OAS pension
at age 65, he plans to continue
working a year longer and defer the
pension until age 66.
When he takes up his OAS
pension at age 66, his annual
pension will be $6,948 instead
of $6,481 (in 2012 dollars).
Rita will be turning 65
in December 2013.
She plans to continue working as
long as she can. She prefers to forgo
her OAS pension for the maximum
deferral period of five years so that
she can have a substantially higher
annual pension amount, starting at
age 70.
When she takes up her OAS
pension at age 70, her annual
pension will be $8,814 instead
of $6,481 (in 2012 dollars).
Proactive Enrolment for OAS and GIS Benefits
Economic Action Plan 2012 proposes to put in place a proactive enrolment regime for
OAS and GIS.
As part of the Administrative Services Review, initiated in Budget 2010,
the Government is pursuing additional standardization and consolidation
opportunities to improve the way it delivers services to Canadians while
generating operational savings. In the context of this initiative, the
Government will improve services for seniors by putting in place a proactive
enrolment regime that will eliminate the need for many seniors to apply for
OAS and GIS. This measure will reduce the burden on seniors of completing
application processes and will reduce the Government’s administrative costs.
Proactive enrolment will be implemented in a phased-in approach from 2013
to 2015.
Canada Pension Plan
Economic Action Plan 2012 announces that the 2010–2012 triennial review of the
CPP confirms the financial sustainability of the Plan for at least the next 75 years at
the current contribution rate of 9.9 per cent of pensionable earnings.
Federal, provincial and territorial Ministers of Finance have completed their
2010–2012 triennial review of the CPP. In accordance with the legislation
governing the CPP, Finance Ministers review the financial state of the CPP
every three years and make recommendations as to whether benefits or the
contribution rate or both should be changed.
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200
Economic Action Plan 2012 announces that the 2010–2012 triennial review
of the CPP confirms the financial sustainability of the Plan for at least the
next 75 years at the current contribution rate of 9.9 per cent of pensionable
earnings. Thus, there will be no change to the contribution rate.
Finance Ministers also agreed to a number of technical amendments
to the CPP legislation and to the CPP Investment Board regulations.
The proposed CPP amendments range from consequential changes to the
reforms that were made to modernize the CPP in the previous 2007–2009
triennial review to amendments that will ensure consistency within the
different parts of the CPP legislation. The technical amendments will not
change the level of CPP benefits or have an impact on the contribution rate.
The Government’s Record on Seniors
As a result of actions taken to date by the Government, seniors and
pensioners will receive $2.5 billion in additional targeted tax relief for
the 2012–13 fiscal year. In particular, since 2006, the Government has:
• Increased the Age Credit amount by $1,000 in 2006 and by another
$1,000 in 2009.
• Doubled the maximum amount of income eligible for the Pension Income
Credit to $2,000.
• Introduced pension income splitting.
• Increased the age limit for maturing pensions and Registered Retirement
Savings Plans (RRSPs) to 71 from 69 years of age.
In 2012, a single senior can earn at least $19,542 and a senior couple
at least $39,084 before paying federal income tax. As a result of actions
taken since 2006, 380,000 seniors have been removed from the tax rolls.
In addition, the Government has strengthened the pillars of the retirement
income system. The Government:
• Created a new Guaranteed Income Supplement top-up benefit for
Canada’s most vulnerable seniors. Budget 2011 announced additional
annual benefits of up to $600 for single seniors and $840 for couples
for more than 680,000 low-income seniors.
• Increased, in Budget 2008, the amount that can be earned before
the GIS is reduced to $3,500, so GIS recipients can keep more of
their hard-earned money without any reduction in GIS benefits.
Sustainable Social Programs and a Secure Retirement
201
The Government’s Record on Seniors (cont’d)
• In 2009, the Canada Pension Plan was modernized to make it more
flexible for those transitioning out of the workforce and to better reflect
the way Canadians currently live, work and retire.
• Built a better framework for federally regulated Registered Pension Plans
(RPPs)—including ensuring that an employer fully funds benefits if the
pension plan is terminated.
• Introduced several improvements to the tax rules for RPPs and RRSPs
to support work and saving by older Canadians and to provide sponsors
of defined benefit pension plans with more funding flexibility.
• Expanded pension options with the introduction of Pooled Registered
Pension Plans for millions of Canadians who have not previously had
access to a large-scale, low-cost, professionally administered company
pension plan.
• Amended the Canadian Human Rights Act and the Canada Labour Code
to prohibit federally regulated employers from setting a mandatory
retirement age unless there is a bona fide occupational requirement.
This allows Canadians to choose how long they wish to remain active
in the labour force.
• Introduced the Tax-Free Savings Account (TFSA) in Budget 2008. The
TFSA is especially beneficial to seniors as neither the income earned in
a TFSA nor withdrawals from it affect eligibility for federal income-tested
benefits and credits, such as the Age Credit, OAS and GIS benefits.
The TFSA also benefits seniors by providing them with a savings vehicle
to meet their ongoing savings needs, something to which they have only
limited access once they are over age 71 and are required to begin
drawing down their registered retirement savings.
Finally, the Government has also strengthened direct support to seniors:
• Budget 2011 provided $10 million over two years to increase funding
for the New Horizons for Seniors Program, which funds organizations that
help ensure that seniors can benefit from, and contribute to, the quality
of life in their communities through active living and participation in social
activities. This was in addition to $5 million per year provided
in Budget 2010 and $10 million per year provided in Budget 2007.
• Budget 2009 provided $400 million over two years for the construction
of new housing units for low-income seniors.
• Budget 2008 invested $13 million over three years to help seniors and
others recognize the signs and symptoms of elder abuse and to provide
information on what support is available.
• Since 2006, $210 million has been invested in the Targeted Initiative for
Older Workers, a federal-provincial-territorial employment program that
provides a range of employment activities for unemployed older workers
in vulnerable communities.
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202
Federally Regulated Pension Plans
The Government has introduced legislation to implement Pooled Registered Pension
Plans, which will provide a new, accessible, large-scale and low-cost pension option to
employers, employees and the self-employed.
The Government is implementing changes to Canada’s pension landscape
that will make saving for retirement easier for millions of Canadians.
On November 17, 2011, the Government introduced the Pooled Registered
Pension Plans Act (the PRPP Act). PRPPs will provide a new, accessible,
large-scale and low-cost pension option to employers, employees and the
self employed.
The PRPP Act will apply to employees in industries that are federally
regulated. It will also apply to all individuals employed in the Yukon,
Northwest Territories and Nunavut. Provinces must introduce
enabling legislation in their own jurisdictions to make PRPPs available
throughout Canada.
The Government will continue to work closely with the provinces to
encourage implementation of the framework in a timely manner to help
Canadians reach their retirement objectives. A high level of harmonization
of regulations across jurisdictions will be instrumental in increasing the
availability of PRPPs and achieving lower costs.
In December 2011, the federal government also released for public comment
a package of draft amendments to the Income Tax Act and Income Tax
Regulations to accommodate PRPPs under the tax rules. The tax rules for
PRPPs will apply to all PRPPs, whether federally or provincially regulated.
Comments received during the consultation period, which ended on
February 14, 2012, are being reviewed. The tax rules for PRPPs will
be implemented in 2012.
The Government will also introduce technical amendments to strengthen
the Pension Benefits Standards Act, 1985.
Sustainable Social Programs and a Secure Retirement
203
Improving Tax Fairness and Integrity
Economic Action Plan 2012 proposes new measures to close tax loopholes in order
to improve the fairness and integrity of the tax system and to help keep tax rates low.
In the 2010 Speech from the Throne, the Government committed to take
aggressive steps to close tax loopholes that allow a few businesses and
individuals to take advantage of hard-working Canadians who pay their fair
share of tax. By broadening and protecting the tax base, these actions also
help to keep Canadian tax rates competitive and low, thereby improving
incentives to work, save and invest in Canada.
Since 2006, the Government has introduced over 40 measures to improve
the integrity of the tax system, raising over $2 billion in revenues for the
federal government in both 2013–14 and 2014–15. These measures also
help protect provincial tax revenues on our shared tax bases.
The Government is taking further action through Economic Action
Plan 2012 to improve the fairness and integrity of the tax system by:
• Restricting the ability of foreign-based multinational corporations to
transfer, or “dump”, foreign affiliates into their Canadian subsidiaries
with a view to creating tax-deductible interest or distributing cash free
of withholding tax, without providing any economic benefit to Canada.
• Improving the effectiveness of Canada’s thin capitalization rules, which
seek to prevent Canadian corporate profits from being distributed to
certain non-resident shareholders free of Canadian income tax by way
of interest payments on excessive debt.
• Preventing the avoidance of corporate income tax through the
use of partnerships to convert income gains into capital gains.
• Modifying the penalty for making unreported tax shelter sales
to better match the penalty to the purported tax savings of the
unreported tax shelter.
• Tightening the rules applicable to Retirement Compensation
Arrangements to prevent certain schemes designed to inappropriately
reduce tax liabilities.
• Tightening the rules applicable to Employees Profit Sharing Plans
to discourage excessive contributions for employees with a close tie
to their employer.
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204
Economic Action Plan 2012 proposals to improve tax fairness and integrity
will yield $120 million in savings in 2012–13, rising to $320 million by
2013–14. Further details on these proposals can be found in Annex 4.
Enhancing Transparency and Accountability for Charities
Economic Action Plan 2012 proposes measures to ensure that charities devote their
resources primarily to charitable, rather than political, activities, and to enhance public
transparency and accountability in this area.
The Government of Canada provides registered charities with generous
assistance under the tax system in recognition of the valuable work that they
perform. Registered charities are exempt from tax on their income and may
issue official donation receipts for gifts received. In turn, donors can use
those receipts to reduce their taxes by claiming the Charitable Donations
Tax Credit (for individuals) or Charitable Donations Tax Deduction (for
corporations). In 2011, federal tax assistance for the charitable sector was
approximately $2.9 billion. At the request of the Government, the House of
Commons Standing Committee on Finance is studying current and proposed
incentives for charitable giving to ensure that the tax incentives are as
effective as possible.
Canadians have shown that they are willing to donate generously to support
charities, but want to be assured that charities are using their resources
appropriately. In this regard, charities are required by law to operate
exclusively for charitable purposes and to devote their resources exclusively
to charitable activities.
Given their unique perspectives and expertise, it is broadly recognized that
charities make a valuable contribution to the development of public policy
in Canada. Accordingly, under the Income Tax Act charities may devote
a limited amount of their resources to non-partisan political activities that
are related to their charitable purposes.
Recently, concerns have been raised that some charities may not be
respecting the rules regarding political activities. There have also been calls
for greater public transparency related to the political activities of charities,
including the extent to which they may be funded by foreign sources.
Sustainable Social Programs and a Secure Retirement
205
The Canada Revenue Agency (CRA), as administrator of the tax system,
is responsible for ensuring that charities follow the rules. Accordingly,
to enhance charities’ compliance with the rules with respect to political
activities, Economic Action Plan 2012 proposes that the CRA:
• Enhance its education and compliance activities with respect to political
activities by charities.
• Improve transparency by requiring charities to provide more information
on their political activities, including the extent to which these are funded
by foreign sources.
These administrative changes will cost $5 million in 2012–13 and $3 million
in 2013–14.
It is also proposed that the Income Tax Act be amended to restrict the extent
to which charities may fund the political activities of other qualified donees,
and to introduce new sanctions for charities that exceed the limits on
political activities, or that fail to provide complete and accurate information
in relation to any aspect of their annual return.
Chapter 1
Introducton
Chapter 5
Responsible Management to
Return to Balanced Budgets
Responsible Management to Return to Balanced Budgets
209
HIGHLIGHTS
?
In Budget 2011, the Government reiterated its commitment
to generate ongoing savings from operating efficiencies and
improving productivity by announcing a review of departmental
spending. The results of this review are presented in this budget.
?
Canada’s economic and fiscal fundamentals are strong. The scale
of Canada’s efforts to reduce the deficit is modest compared to
the expenditure restraint efforts being pursued by many countries
around the world and relative to that undertaken in Canada in
the mid-1990s, which included reduced transfers to provinces
for health care and education.
?
The Government’s economic management strikes the right
balance between supporting economic growth and job creation
and returning to budget balance over the medium term.
?
That is why the Government remains committed to returning
to balanced budgets at an appropriate pace as the economy
continues to recover from the global economic crisis.
?
The Government’s plan to return to balanced budgets over
the medium term is on track.
?
Measures initiated in Budget 2010 and Budget 2011 to restrain
growth in federal spending have proven to be highly successful,
contributing to a projected return to budgetary balance over the
medium term, while ensuring continued and growing funding for
the programs and services that are a priority for Canadians.
?
The Government is not reducing transfers to persons, including
those for seniors, children and the unemployed, or transfers to
other levels of government in support of health care and
social services.
?
The results of the Government’s review of departmental spending
will yield savings of $5.2 billion on an ongoing basis. The planned
reduction in spending represents less than 2.0 per cent of federal
program spending in 2016–17, or 0.2 per cent of Canada’s gross
domestic product (GDP) in that same year.
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210
RESPONSIBLE MANAGEMENT OF PUBLIC FINANCES
Canadians know the importance of living within their means and expect the
Government to do the same. That is why the Government is committed to
managing public finances in a sustainable and responsible manner. The
Government’s responsible financial management put Canada in a position
of strength when it came time to combat the global recession. From 2006
to 2008, the Government paid down over $37 billion in debt, significantly
contributing to Canada’s low net debt position. This enabled the
Government to quickly implement the stimulus phase of Canada’s Economic
Action Plan without leaving the country in a vulnerable fiscal position like
many European countries.
But Canadians know that responsible fiscal management—balancing the
budget and reducing debt—does far more than just provide room to
manoeuvre when the economy is negatively affected by developments
outside our borders. Responsible fiscal management contributes to strong
economic growth and job creation over the long term. Reducing debt:
• Frees up tax dollars otherwise absorbed by interest costs, which can
be reinvested in other priorities such as health care, public services or
lower taxes.
• Keeps interest rates low, encouraging businesses to invest for the future.
• Signals that public services are sustainable over the long run.
• Strengthens the country’s ability to respond to challenges such as
population aging.
• Preserves Canada’s low-tax plan, fostering the long-term growth that
generates high-quality jobs for all Canadians.
THE PLAN TO RETURN TO BALANCE
The Government’s medium-term fiscal plan is founded on returning to
balanced budgets. The means to achieve this goal have been well established,
beginning in Budget 2009 with the launch of the stimulus phase of Canada’s
Economic Action Plan, which was explicitly designed to be temporary. The
plan was then augmented in Budget 2010, which announced targeted actions
to control the growth in direct program spending, including: restraining the
growth in defence spending; capping the International Assistance Envelope;
freezing departmental operating budgets for two years; and freezing the
salaries of the Prime Minister, Ministers, Members of Parliament and
Senators until 2013.
Responsible Management to Return to Balanced Budgets
211
Budget 2011 further augmented the plan. First, it delivered on the
2010 strategic review, which, combined with the results of the reviews
of the previous three years, resulted in $2.8 billion in ongoing savings.
Second, it launched a comprehensive review of departmental spending with
the objective of achieving at least $4 billion in annual savings by 2014–15.
Over the past year, the Government assessed approximately $75 billion of
direct program spending by departments and agencies. Federal organizations
were asked to look at the efficiency and effectiveness of their programs and
operations to ensure value for money, as well as to rethink business
processes and service delivery platforms. Major transfers to persons and
transfers to other levels of government were excluded from the scope of the
review. In fact, transfers will continue to increase to record high levels in
2012–13 and going forward.
The following section provides an overview of the results of the review.
It highlights key measures the Government is taking to find efficiencies in
its operations and achieve greater relevance and effectiveness in government
programs and services.
The [Canadian] authorities have appropriately shifted toward fiscal
consolidation. The federal government is leading the initial fiscal
effort, and regional governments are expected to follow suit.
[IMF] Staff supports the [Canadian] authorities’ objective of
returning to a stronger fiscal position in the medium term.
— International Monetary Fund, November 2011
Reductions in Departmental Spending
The results of the Government’s review of departmental spending amount
to roughly $5.2 billion in ongoing savings, representing 6.9 per cent of an
aggregate review base of $75.3 billion.
These measures represent modest and measured action on the part of the
Government to help ensure a return to balanced budgets over the medium
term. In fact, the reduction in spending represents less than 2.0 per cent of
expected federal program spending in 2016–17, or about 0.2 per cent of
Canada’s GDP that same year (Chart 5.1).
Chapter 5
212
Relative to total program spending of over $250 billion,
planned departmental spending reductions are modest
Chart 5.1
Planned Spending Reductions Relative to Total
Program Spending and Review Base
Departmental Spending Reductions—Value Departmental Spending Reductions—Share
Note: The review base is 2011–12 direct program spending (excludes major transfers to provinces and major transfers
to persons), on a cash basis, net of temporary Economic Action Plan measures, respendable revenues and Treasury
Board central votes, expenditures related to liabilities already recorded in the Public Accounts and flow-through
revenues transferred to provinces.
As Table 5.1 demonstrates, this was not an exercise in across-the-board
spending reductions. The Government focused instead on finding savings
that would reflect the primary goal of achieving efficiencies in operations and
enhancing productivity, as well as those that would better align spending with
the priorities of Canadians. As a result, the savings achieved relative to
existing spending vary across portfolios. Further, almost 70 per cent of the
total ongoing savings are due to operating efficiencies. An overview of
savings for each participating government portfolio appears in Annex 1.
Responsible Management to Return to Balanced Budgets
213
Table 5.1
Planned Reductions in Departmental Spending
millions of dollars, accrual basis
Portfolio 2012–13 2013–14 2014–15 Ongoing
Review
Base
Per Cent
of Review
Base
1
Per Cent of
Total
Program
Spending
1
Aboriginal Affairs and
Northern Development 26.9 60.1 165.6 165.6 6,223.2 2.7 0.06
Agents of Parliament 8.3 8.8 16.4 16.4 – – 0.01
Agriculture and Agri-Food 17.1 168.5 309.7 309.7 3,092.3 10.0 0.12
Canada Revenue Agency
2
14.8 87.0 225.4 253.1 3,641.2 6.9 0.09
Citizenship and Immigration 29.8 65.2 84.3 84.3 1,581.5 5.3 0.03
Environment 19.5 56.4 88.2 88.2 1,062.2 8.3 0.03
Finance
2
20.6 32.6 34.6 38.6 229.4 16.8 0.01
Fisheries and Oceans 3.8 13.4 79.3 79.3 1,360.1 5.8 0.03
Foreign Affairs and
International Trade 72.4 116.6 169.8 169.8 1,916.2 8.9 0.06
Health 111.7 218.5 309.9 309.9 4,811.7 6.4 0.12
Heritage 52.2 130.7 191.1 191.1 2,773.7 6.9 0.07
Human Resources and
Skills Development 10.6 64.7 286.7 286.7 7,589.8 3.8 0.11
Industry 89.2 182.7 217.3 217.3 3,454.4 6.3 0.08
International Assistance
Envelope 180.7 242.1 377.6 377.6 3,896.8 9.7 0.14
J ustice 21.2 69.0 76.9 76.9 898.3 8.6 0.03
National Defence 326.8 706.1 1,119.8 1,119.8 15,069.0 7.4 0.42
Natural Resources 68.3 86.0 108.3 108.3 1,079.6 10.0 0.04
Privy Council Office 3.7 6.5 12.2 12.2 102.6 11.9 0.00
Public Safety 179.4 370.7 687.9 687.9 6,940.6 9.9 0.26
Public Service Commission 2.2 4.5 9.0 9.0 89.9 10.0 0.00
Public Works and
Government Services
2
1.5 28.1 85.3 177.6 1,848.6 9.6 0.07
Regional Development
Agencies 26.7 73.4 86.9 86.9 996.2 8.7 0.03
Shared Services Canada 74.7 104.5 150.0 150.0 1,493.4 10.0 0.06
Transport 63.4 97.2 152.6 152.6 1,428.8 10.7 0.06
Treasury Board 10.4 18.6 30.2 30.2 281.1 10.7 0.01
Veterans Affairs
2
36.1 49.3 66.7 36.9 3,487.6 1.1 0.01
Total Portfolio Savings 1,472.1 3,061.2 5,141.5 5,235.7 75,348.1 6.9 1.9
Note: Totals may not add due to rounding.
1
Ongoing savings as a percentage of the review base and 2016–17 total program spending across the Government.
2
Savings associated with the Canada Revenue Agency’s and the Department of Finance Canada’s spending reduction
measures will continue to grow in value beyond 2014–15. Given that a large portion of its spending is fixed over the
short term (e.g. through lease agreements and contracts), Public Works and Government Services Canada has until
2018–19 to achieve its savings target. The lower ongoing savings for Veterans Affairs Canada reflects the accrual
impact of some of its savings measures, which are fully amortized by 2015–16.
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214
This modest approach reflects Canada’s sound fiscal and economic
fundamentals, and is in stark contrast to more significant expenditure
restraint measures that many other countries have had to put in place
to stabilize their fiscal positions.
Countries such as the United Kingdom and euro-area members including
Greece, Portugal, Italy and Spain, for example, are drastically reducing
funding and services for their citizens. The planned measures in many
of these countries represent the deepest spending reductions in decades,
and are accompanied by hundreds of thousands of lost public sector jobs,
tax increases and postponed infrastructure projects.
Chart 5.2 compares the spending track underlying the Government’s plan
to return to balance over the medium term, including the reductions in
departmental spending announced in this budget, with those being
implemented in Spain, the U.K., Italy, France and Germany. Up to 2014–15,
planned spending restraint is expected to result in a decline in program
spending as a share of GDP of 1.0 percentage point.
1
The actions the Government is currently undertaking to reduce the
growth in spending are also modest compared to those implemented in
the mid-1990s. Between 1993-94 and 1997-98, federal program spending
was reduced by 3.8 percentage points of GDP, from 16.8 per cent to
13.0 per cent of GDP, and included reductions in Employment
Insurance benefits and funding for the provinces and territories for
health care and education.
This is significantly less
than the expenditure restraint measures being taken in other countries, where
program spending as a per cent of GDP is being reduced by between 2.4
percentage points, in the case of Germany, and 4.5 percentage points in the
case of Spain.
1
Includes the impact of measures undertaken in Budget 2010, Budget 2011 and Budget 2012
to restrain growth in program spending.
Responsible Management to Return to Balanced Budgets
215
Planned spending restraint is modest
Chart 5.2
Decline in Program Spending as a per cent of GDP
(2011–12 to 2014–15)
Notes: Estimates for Canada are for the federal government only. Based on provincial budget outlooks, aggregate
spending restraint at the provincial level is expected to total 1.2 per cent of GDP over the 2011–2014 period.
Sources: National forecasts; European Commission; U.K. Office for Budget Responsibility; International Monetary Fund;
Department of Finance calculations.
Unlike the significant fiscal consolidation exercise in the mid-1990s, major
transfers to persons and other levels of government for health care and
education and other social programs will not be cut. On the contrary, major
transfers to provinces, territories and individuals will grow over the forecast
period. In 2014–15, once the planned reductions in departmental spending
have been fully implemented, federal program spending is projected to be
roughly 6 per cent higher than in 2010–11. This will be fuelled by continued
growth in transfers to provinces for the provision of health care, education
and social services and to individuals for Old Age Security and
children’s benefits.
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216
However, growth in spending is expected to be less than that of the
economy. As a consequence, total program spending as a per cent
of GDP is expected broadly to return to pre-recession levels over
the budget horizon (Chart 5.3).
Including the departmental spending reductions
detailed in this budget, program spending is expected
to broadl y return to pre-recession levels
Chart 5.3
Program Spending as a Share of GDP
Sources: Department of Finance: Statistics Canada.
The planned reductions in departmental spending announced in this budget
are modest and focused on making government operations leaner and more
efficient, while preserving fundamental programs, services and transfers for
Canadian individuals and families. Indeed, these spending reductions will
result in a more productive, efficient and responsive government by:
• Refocusing government and programs.
• Making it easier for Canadians and businesses to deal
with their government.
• Modernizing and reducing the back office.
Responsible Management to Return to Balanced Budgets
217
This section provides some examples of the savings measures that will be
implemented in these areas, and Annex 1 contains additional details. Once
departments and agencies have had the opportunity to communicate cost
savings measures contained in this budget to their employees and collective
bargaining agents, they will begin to implement these measures and
communicate accordingly.
Refocusing Government and Programs
The Government is committed to reducing unnecessary spending by
focusing on providing programs that are consistent with federal roles and
responsibilities, ensuring programs are delivered by those best positioned to
do so, and refocusing program funding based on achievable objectives and
the needs of Canadians. In particular, the Government’s review of
departmental spending has identified opportunities to better align program
funding with citizen and business demand.
? The Government will introduce legislation to modernize Canada’s
currency set by eliminating the penny from Canada’s coinage system.
The Government will no longer distribute pennies as of Fall 2012.
However, the penny will retain its value indefinitely and can continue to
be used in payments. The penny has weak purchasing power and costs
the Government 1.6 cents to produce. Other countries, such as New
Zealand, Australia, the Netherlands, Norway, Finland and Sweden,
have made smooth transitions to a penny-free economy. The
Government expects that businesses will apply rounding for cash
transactions in a fair and transparent manner. Canadians will be able
to redeem pennies for full value. The Government will work in
collaboration with institutions and charitable organizations that may wish
to organize fundraising activities around the elimination of the penny.
? Domestic coinage denominations have been shifting from metal alloys to
plated steel cores. The $1 and $2 coins are the last of the denominations
to be converted to the new plating technology. The Government will
adjust the metal composition of these coins, significantly reducing their
unit production costs.
? The Government is eliminating the Public Appointments Commission
Secretariat as the Government has significantly strengthened the rigour
and accessibility of the public appointments system over the past
five years. Improvements put in place to strengthen the public
appointments system include advertising public appointment
opportunities on a dedicated website and conducting open selection
processes for leadership and full-time positions.
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218
? In recent years, the Government has made major, necessary investments
in the country’s military capabilities. Going forward, defence contracting
and internal processes will be streamlined to achieve savings. However,
Canadian Forces regular and reserve force strength will be maintained
at 68,000 and 27,000, respectively, preserving the balance across the four
Canada First Defence Strategy pillars upon which military capabilities
are built—personnel, equipment, readiness and infrastructure.
? The Government will update the terms and conditions of employment
abroad to make them comparable to benefits provided in the private
sector or by other public sector counterparts. Based on international
standards, rent ceilings for leased accommodations will be lowered
moderately. Extending some postings will help deepen Canadians’
contacts on the ground and will also reduce the administrative
costs associated with frequent relocation.
? The Government will also sell some official residences abroad and move
to smaller ones, generating capital revenue of $80 million. More modest
quarters will not impact the ability of our diplomats to do their jobs
and will reduce the number of required staff, resulting in further
operating savings.
? While the National Round Table on the Environment and the Economy
(NRTEE) filled an important need in the past, a mature and expanded
community of environmental policy stakeholders has demonstrated the
capacity to provide analysis and policy advice for the Government of
Canada. As a result, the Government will introduce legislation to
eliminate the NRTEE. Environment Canada will continue to offer
effective programs to protect Canada’s natural environment.
? The Government will eliminate the Katimavik program. Our
Government is committed to giving our young people the opportunities
they deserve, and we will achieve that by funding programs that benefit
large numbers of young people at a reasonable cost rather than
concentrating available funding on a very small number of participants at
an excessive per-person cost. Our Government is proud to continue to
invest in affordable, effective programming that engages youth, including
Encounters with Canada, Forum for Young Canadians, and
organizations that support youth, like the YMCA. Canadian Heritage will
continue to invest over $105 million in youth programming to allow
almost 100,000 young people to learn about their country.
Responsible Management to Return to Balanced Budgets
219
? The Government will eliminate the Advanced Leadership Program at the
Canada School of Public Service. While the program has been successful
in building senior leader capacity, it is no longer a cost-effective learning
tool. The school will continue to offer other relevant, affordable and
quality learning experiences to support capacity building.
? The Government will introduce legislation to wind down Assisted
Human Reproduction Canada, with final closure of operations by
March 31, 2013. The winding down of the Agency responds to the
2010 ruling of the Supreme Court of Canada that significantly reduced
the federal role in assisted human reproduction. Health Canada will take
over responsibility for any remaining federal functions such
as compliance and enforcement, and outreach.
Making It Easier for Canadians and Businesses
to Deal With Their Government
The Government is maintaining its commitment to reduce unnecessary
red tape to allow businesses to focus on creating high-quality jobs and
contribute to Canada’s economic growth. Specifically, the Government will
expand electronic services available to Canadians and Canadian businesses
and introduce regulatory changes that will cut unnecessary red tape for
citizens and employers, placing greater flexibility and control in their hands.
? The Government will consolidate Agriculture and Agri-Food Canada’s
grants and contribution programs across the Department and streamline
management of the Farm Debt Mediation Service. Delivering all of its
programs out of one branch will allow the Department to offer more
efficient services with fewer people. Farmers and the industry will
benefit from this change, which will simplify the application process
and reduce paperwork and other redundancies, while reducing costs.
? The Government will change how the Canadian Food Inspection Agency
(CFIA) monitors and enforces non-health and non-safety food labelling
regulations. The CFIA will introduce a web-based label verification tool
that encourages consumers to bring validated concerns directly to
companies and associations for resolution. The Government will also
repeal regulations related to container standards to enable industry to
take advantage of new packaging formats and technologies, while
removing an unnecessary barrier for the importation of new products
from international markets.
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220
? The Government will streamline and modernize Human Resources and
Skills Development Canada’s administration and delivery of grants and
contributions, which will improve services and reduce red tape. Ongoing
savings will be achieved by consolidating, standardizing and automating
administrative functions to reduce duplication and increase capacity to
offer advanced services and transactions online.
? The Government will replace the existing contribution agreements for
the housekeeping and grounds maintenance components of the Veterans
Independence Program (VIP) with annual grants. This will simplify the
process for more than 96,000 Veterans, primary caregivers and survivors,
who will continue to receive the financial support they need for
housekeeping and grounds maintenance services, but will no longer have
to obtain, track and submit receipts to be reimbursed. As a result, almost
2.5 million transactions each year related to these reimbursements under
VIP will be eliminated.
? The Government is taking action to more quickly give doctors and
patients access to drugs that have already passed a rigorous safety review,
including removing the requirement for regulatory amendments to
declare prescription status for new drugs, or to switch their status from
prescription to non-prescription. This measure is purely about reducing
the red tape that blocks drugs shown to be safe from getting on the
market and is consistent with the Government’s broader red tape
reduction efforts.
Modernizing and Reducing the Back Office
The Government is committed to streamlining, consolidating and
standardizing administrative functions and operations within and across
organizations. The Government has identified opportunities to consolidate
administrative functions including human resources and financial services,
real property maintenance, information technology, communications and
contracting within portfolios and across similar organizations. It has also
identified ways to reduce travel expenses by using virtual tools such as
teleconferencing, videoconferencing and virtual presence.
? Environment Canada and Natural Resources Canada will reduce travel
activities and will reduce their fleets by a total of 160 vehicles.
? A number of departments and agencies with similar mandates and
program and policy goals, such as the regional development agencies,
Health Canada and the Public Health Agency of Canada, and Agriculture
and Agri-Food Canada and the Canadian Food Inspection Agency,
will achieve savings by merging their back office functions.
Responsible Management to Return to Balanced Budgets
221
? Public Works and Government Services Canada will introduce new
office space standards in Crown-owned and federal government
occupied buildings. The new, more efficient and effective office
accommodation standards are consistent with industry best practices.
? Shared Services Canada (SSC) will now deliver email, data centre and
network services to 43 federal organizations. SSC will realize significant
cost savings by moving to a single email system, consolidating data
centres, and utilizing its collective purchasing power.
Workforce Impact
As the largest employer in Canada, the Government is managing the impact
of these spending reductions on its workforce responsibly.
The planned reduction in departmental spending is expected to eliminate
about 12,000 government positions over a three-year-period, with affected
individuals qualifying for collectively bargained workforce adjustment
measures. This number takes into account attrition—largely retirement
or other voluntary departures. In total, federal employment will be reduced
by about 19,200 or 4.8 per cent. To the largest extent possible, the
Government will use these vacancies towards redeploying individuals whose
jobs have been affected by the spending reduction.
The planned reduction in employment includes the elimination of about
600 executive positions, or 7.4 per cent of the executive workforce,
bringing the level of management overhead more in line with private
sector best practices.
To put the total planned reduction in employment in perspective,
the 4.8 per cent, or 19,200, reduction is about one-third of that
experienced during the 1990s Program Review, which saw a reduction
in federal employment of about 14 per cent or about 50,000.
Further, the planned reduction in employment would reverse only about
20 per cent of the increase in federal public sector employment that has
occurred since the late 1990s. Indeed, between 1998 and 2011, federal
employment grew by approximately one-third, or 95,000, from just
under 300,000 in 1998 to just under 400,000 in 2011.
A large proportion of full-time-equivalent reductions will occur in the
National Capital Region. The regional distribution of employment in the
federal public service will be largely unaffected by the implementation of the
departmental spending reductions.
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222
It is expected that the proposed reduction in employment, which represents
only 0.1 per cent of all jobs in Canada, will be marginal compared to the
expected job growth in the wider economy over the course of the three
years in which the reductions will be implemented.
In addition, the Government is taking actions in this budget, as part of its
plan for jobs and growth, that will offset some of the reduction in public
service employment, while at the same time creating an environment for
private sector job creation.
The Government will make every effort to manage the employment
reductions resulting from the reduction in departmental spending in a
manner that treats federal employees fairly and minimizes disruptions to
Canadians. The collectively bargained Workforce Adjustment Directive for
unionized employees and the Directive on Career Transition for Executives
set out the options and benefits available to employees whose position will
be affected by a workforce adjustment situation.
Where possible, the Government will use natural attrition and internal
redeployments to mitigate the impact on permanent federal employees.
The Government will strengthen workforce information sharing across
federal departments to ensure that hiring managers can be easily linked
with affected employees.
The overall cost of workforce adjustment measures resulting from the
planned reduction in departmental spending is estimated to be $0.9 billion.
Consistent with government accounting practices, which are based on
independently set standards, these costs are accrued in the 2011–12
fiscal year.
Responsible Expenditure Management
In addition to the measures described above, and as part of its commitment
to responsible and sustainable public finances, the Government is
implementing several other initiatives that will improve the efficiency and
reduce the costs of service delivery, streamline its reporting procedures by
eliminating unnecessary and duplicative reports, as well as better align
planned spending with expected needs.
Responsible Management to Return to Balanced Budgets
223
Updating Defence Capital Funding
The Government of Canada has made significant progress towards the
implementation of the Canada First Defence Strategy, which outlines a
comprehensive, long-term plan to provide the Canadian Forces with the
people, equipment and support they need to carry out their core missions
in Canada and elsewhere in North America and abroad. The Government
will continue to replace key equipment, including purchasing new ships built
in Canada through the National Shipbuilding Procurement Strategy, as well
as by acquiring an affordable replacement for Canada’s aging CF-18 fleet to
better equip Canada’s men and women in uniform. In order to ensure that
funding for major capital equipment procurements is available when it is
needed, the Government is adjusting the National Defence funding profile
to move $3.54 billion over seven years into the future period in which
purchases will be made.
Modernizing the Government’s Information Technology:
Shared Services Canada
Shared Services Canada was established on August 4, 2011, as a
demonstration of the Government’s commitment to generating
operational efficiencies and ensuring value for Canadian taxpayers.
The new department’s mandate is to consolidate information technology
(IT) infrastructure, including email, data centres and networks, across
43 departments and agencies. Through this initiative, the Government will
produce savings and reduce the Government’s footprint, strengthen the
security and safety of government data to ensure Canadians are protected,
and make it more cost-effective to modernize IT services. The new
organization has already identified upfront, ongoing savings. It will continue
to generate savings for taxpayers as it carries out its mandate.
The Government will introduce legislation establishing Shared Services
Canada with a mandate to deliver value for money for Canadian taxpayers
and giving it the necessary authorities to maintain the integrity of its
mission-critical operations and to realize the efficiencies for which it
was created.
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224
Administrative Services Review—Moving Forward
Building on the administrative services review from Budget 2010,
the Government set out a direction in Budget 2011 to improve services
and realize efficiencies by examining government-wide solutions that
standardize, consolidate and re-engineer the way it does business. As
discussed above, the Government is moving forward with the creation
of Shared Services Canada, with a mandate to lower costs by streamlining
information technology networks, data centres and email systems.
Moving forward, the Government will pursue additional standardization
and consolidation opportunities, continuing to improve the way it delivers
services to Canadians while generating operational savings. For example, as
discussed in Chapter 4, the Government plans to improve services to seniors,
while reducing its own administrative costs, by putting in place a proactive
enrolment regime that would eliminate the need for many seniors to
apply for Old Age Security and the Guaranteed Income Supplement
if they meet the eligibility requirements.
Parliamentary Expenses
The House of Commons Board of Internal Economy and the Senate Board
of Internal Economy, Budgets and Administration have undertaken
reviews of Parliamentary spending in order to find efficiencies and provide
better value for taxpayers. These boards have found efficiencies through
new policies and process improvements, and submitted their results to
the Government.
Public Sector Compensation
The Government is also taking specific action to bring federal public service
compensation in line with that of other public and private sector employers.
This includes eliminating the accumulation of severance benefits for
voluntary resignation and retirement, which to date has been eliminated
for about 230,000 unionized and non-unionized federal government
employees, including members of the Royal Canadian Mounted Police,
the Canadian Forces and all executives in the core public administration.
Other federal public sector employers are pursuing similar approaches.
Starting on April 1, 2012 and on a go-forward basis, the prior years of service
of former members of the Canadian Forces who join the public service will
be recognized for the purpose of calculating vacation entitlements.
Responsible Management to Return to Balanced Budgets
225
Pensions of Public Servants and Parliamentarians
In Budget 2010, the Government indicated that it would engage public
sector bargaining agents and assess measures taken by other jurisdictions
in Canada to ensure that the total costs of compensation are reasonable.
Employee pension plans represent a significant element of the Government’s
total compensation expenses.
The Government is committed to respecting its pension obligations.
The Government will take steps to ensure that plans are sustainable,
financially responsible and broadly consistent with the pension products
offered by other jurisdictions as well as fair relative to those offered in the
private sector.
The Government proposes to adjust the Public Service Pension Plan so
that public service employee contributions equal, over time, those of the
employer (50/50). Comparable changes to the contribution rates will be
made to the pension plans for the Canadian Forces, the Royal Canadian
Mounted Police and Parliamentarians.
In addition, it is proposed that, for those employees who join the federal
public service starting in 2013, the normal age of retirement will be raised
from 60 to 65.
Adjustments to the pension plan of Parliamentarians will take effect in the
next Parliament.
The Government will also work with Crown corporations to ensure that
their employee pension plans are financially sustainable and broadly aligned
with those available to federal employees.
The Government will be consulting with key stakeholders on all of these
changes in the coming months.
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226
Corporate Asset Management Review
Since 2009, the Government has been undertaking a systematic review of
corporate assets as a normal part of good governance, which can contribute
to the ongoing reallocation of financial resources to high priorities in order
to maximize benefits to taxpayers. The review assesses selected assets,
with a view to improve their efficiency and effectiveness and to ensure that
government resources are employed in ways that focus on the priorities
of Canadians. There are a number of potential outcomes from this process
that may be adopted or implemented, ranging from the status quo to
amendments to current mandates or governance, and even possibly
divestment. The Government will continue to review its corporate assets
to ensure value for taxpayers.
Greater Use of Telepresence Technology
The Government will explore ways to increase its productivity by using
telepresence and other remote conferencing technologies more extensively.
Telepresence technology is similar to videoconferencing; however, it enables
participants to see life-size, full-motion video with high-quality sound.
The Government will develop a strategy to expand the use of telepresence
technology and other remote meeting solutions. Investments in this
technology will be financed by reductions in travel expenses.
Next Steps
The section above has described the numerous measures that the
Government has taken to date to achieve its medium-term objective of
returning to balanced budgets. Following a deliberate and measured review
of departmental spending, the Government is taking action to refocus
federal efforts on relevant and effective programs that are required to meet
long-standing needs in the primary areas of federal responsibility. It will also
ensure that all government operations are performed as efficiently
as possible.
Over the coming year, the Government will continue to examine new ways
to reduce costs, modernize how government works and ensure value for
taxpayers’ money, including in the areas of service delivery, corporate asset
management, travel and administrative systems.
Chapter 1
Introducton
Chapter 6
Fiscal Outlook
Fiscal Outlook
229
HIGHLIGHTS
?
The Government’s plan for returning to balanced budgets over
the medium term is on track.
?
The deficit in 2011–12 is projected to be $8.5 billion lower than
it was in 2010–11, and it is projected to decrease by an additional
$3.8 billion in 2012–13. The deficit is projected to continue to
decline to $1.3 billion in 2014–15.
?
Over the forecast period, the budgetary balance is projected to
improve by a total of $39.6 billion compared to the November
2011 Update of Economic and Fiscal Projections, reflecting both
the improved economic outlook and the Government’s strong
fiscal management.
?
As a share of gross domestic product (GDP), program
expenses are projected to decline from 14.7 per cent in 2010–11
to 12.7 per cent in 2016–17, which represents a return to
pre-recession spending ratios.
?
The federal debt is projected to decline to 28.5 per cent of GDP
in 2016–17, in line with its pre-recession level.
?
Canada expects to achieve, well ahead of schedule, its Group of
Twenty (G-20) commitments to halve deficits by 2013 and stabilize
or reduce total government debt-to-GDP ratios by 2016, as agreed
to by G-20 leaders at their summit in Toronto in June 2010.
?
Canada continues to hold a significant fiscal advantage over other
G-7 countries. The International Monetary Fund projects that by
2016, Canada’s total government net debt-to-GDP ratio will remain
at about one-third of the G-7 average and more than 20 percentage
points of GDP below that of Germany, the G-7 country with the
next-lowest ratio.
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230
INTRODUCTION
The economy is the Government’s top priority. Responsible and sustainable
fiscal management is a key element of the Government’s plan to create jobs
and growth over the long term. Economic Action Plan 2012 reaffirms the
Government’s commitment to returning to balanced budgets over
the medium term and putting the debt-to-GDP ratio on a downward track.
Chart 6.1 indicates that the projected budgetary balance has improved over
the entire forecast horizon, reflecting both the improved economic outlook
and the Government’s strong fiscal management. Over the current year and
the next five years, the projected budgetary balance has improved by a total
of $39.6 billion compared to the projection at the time of the November 2011
Update of Economic and Fiscal Projections. The Government projects that it
will return to balanced budgets over the medium term.
Government remains on track to return
to balanced budgets over the medium term
Chart 6.1
Projected Budgetary Balance
November 2011 Update versus Budget 2012
Source: Department of Finance.
Fiscal Outlook
231
An important measure of fiscal sustainability is the debt-to-GDP ratio.
Before the global financial crisis, the Government reduced its debt by
over $37 billion between 2006 and 2008. The resulting reductions in the
debt-to-GDP ratio provided Canada with the flexibility to implement
measures to support the economy as part of the stimulus phase of Canada’s
Economic Action Plan without jeopardizing Canada’s fiscal sustainability.
Returning to balanced budgets over the medium term will ensure that the
federal debt, measured in relation to the size of the economy, resumes its
downward track (Chart 6.2). Canada’s federal debt in relation to the economy
is expected to decline to 28.5 per cent of GDP by 2016–17, in line with its
pre-recession level.
As a result, Canada expects to achieve, well ahead of schedule, its G-20
commitments to halve deficits by 2013 and stabilize or reduce total
government debt-to-GDP ratios by 2016, as agreed to by G-20 Leaders
at their summit in Toronto in June 2010.
The federal debt-to-GDP ratio is projected
to resume its downward track
Chart 6.2
Federal Debt-to-GDP Ratio
Note: This chart has been changed to reflect a data change in table 6.4.
Sources: Department of Finance; Statistics Canada.
Chapter 6
232
Canada continues to maintain a fiscal advantage over other G-7 economies.
The International Monetary Fund projects that Canada’s total government
net debt-to-GDP ratio (which includes federal, provincial and territorial debt,
as well as the Canada Pension Plan and Québec Pension Plan) will remain the
lowest among the G-7 countries, falling to 33.3 per cent in 2016 (Chart 6.3).
This ratio would be about one-third of the G-7 average (92.9 per cent of
GDP), and significantly lower than Germany, which would have the second-
lowest net debt-to-GDP ratio in the G-7 (55.3 per cent of GDP).
Canada will maintain a significant fiscal
advantage over other G-7 countries
Chart 6.3
Projected Total Government Net Debt, 2016
Notes: Total government net debt is total liabilities net of financial assets of the central, state and local levels
of government, as well as those in social security funds. In Canada, total government includes the federal,
provincial/territorial and local government sectors, as well as the Canada Pension Plan and Québec Pension Plan.
For international comparability, adjustments are made to unfunded public pension liabilities.
Source: International Monetary Fund, Fiscal Monitor, September 2011.
Fiscal Outlook
233
FISCAL PLANNING FRAMEWORK
Approach to Budget Planning
To ensure objectivity and transparency, the economic forecast underlying
the Government’s fiscal projections is based on an average of private sector
economic forecasts. This process has been followed for nearly two decades.
This budget maintains that approach.
However, as described in Chapter 2, although the March 2012 private sector
survey is considered to be a reasonable basis for fiscal planning purposes, the
global economic outlook remains uncertain and, as a result, the Government
has judged it appropriate to maintain a downward adjustment to the private
sector forecast for nominal GDP. With this adjustment for risk, the revenue
projections are reduced by $3.0 billion in each year from 2012–13 to 2016–17
(Table 6.1).
Table 6.1
Planning Assumptions for Budget 2012
billions of dollars
2012–13 2013–14 2014–15 2015–16 2016–17
Adjustment for risk to revenues
1
-3.0 -3.0 -3.0 -3.0 -3.0
1
A negative number implies a deterioration in the budgetary balance. A positive number implies an improvement
in the budgetary balance.
Fiscal Outlook Before the Measures
Announced in Budget 2012
Table 6.2 provides a summary of the changes in the fiscal projections
between the November 2011 Update and this budget. The $24.4 billion
deficit projected for 2011–12, before measures announced in this budget, is
$6.6 billion lower than the $31.0-billion deficit projected in the 2011 Update,
which reflects in part the removal of the adjustment for risk since the fiscal
year has essentially ended and the risks have not materialized. In addition,
revenues are expected to be $1.6 billion higher than forecast in the Update,
while the projections for program expenses and public debt charges are
lower by $1.6 billion and $0.5 billion, respectively.
Chapter 6
234
The budgetary balance over the remainder of the projection period has also
improved since the Update, as higher revenues and lower public debt charges
are expected to more than offset an increase in projected program expenses.
Table 6.2
Summary of Changes in the Fiscal Outlook Since the November 2011 Update
of Economic and Fiscal Projections
billions of dollars
2011–12 2012–13 2013–14 2014–15 2015–16 2016–17
November 2011 Update budgetary balance -31.0 -27.4 -17.0 -7.5 -3.4 0.5
Revenue effect of adjustment for risk -3.0 -4.5 -3.0 -1.5 -1.5 -1.5
November 2011 Update budgetary balance
before adjustment for risk -28.0 -22.9 -14.0 -6.0 -1.9 2.0
Impact of economic and fiscal developments
Decisions since the November Update
-0.1 -0.7 0.0 0.0 0.0 0.0
Budgetary revenues
1.6 2.1 2.0 2.2 2.3 2.3
Budgetary expenses
1
1.6 1.3 -0.8 -1.6 -1.3 -1.0
Public debt charges
1
0.5 1.0 2.1 2.1 1.6 1.6
Total economic and fiscal developments
3.6 3.7 3.4 2.6 2.5 2.9
Revenue effect of adjustment for risk -3.0 -3.0 -3.0 -3.0 -3.0
Revised status quo budgetary balance
(before budget measures) -24.4 -22.2 -13.7 -6.3 -2.4 1.9
Note: Totals may not add due to rounding.
1
A negative number implies an increase in spending and a deterioration in the budgetary balance. A positive number
implies a decrease in spending and an improvement in the budgetary balance.
Fiscal Outlook
235
Decisions taken since the November Update include the Government’s
commitment to provide transfer protection payments to provinces in
2012–13 to ensure that no province experiences a decline in its combined
entitlements under the Canada Health Transfer, Canada Social Transfer and
Equalization and additional funding for Atomic Energy of Canada Limited
to support its ongoing operations.
Budgetary revenues have been revised upward over the entire projection
period from the November Update, primarily reflecting better-than-expected
year-to-date results and the improvement in the economic outlook.
Budgetary expenses are projected to be below the level projected in the
November Update in 2011–12 and 2012–13, but higher from 2013–14
onward. Lower projected spending in 2011–12 and 2012–13 is a result of
lower year-to-date Employment Insurance benefits, lower offshore resource
revenue being transferred to the provinces, and lower infrastructure spending
as funding is being shifted to future years. Higher projected spending from
2013–14 onward reflects higher elderly and children’s benefits due to higher
projected population growth and inflation, as well as the realignment of
funding for infrastructure and the reassessment of government liabilities.
The decrease in public debt charges over the forecast horizon reflects a
downward revision to projected interest rates, as well as the decrease in
debt associated with an improved budgetary balance.
Chapter 6
236
Fiscal Impact of Measures Announced in Budget 2012
Table 6.3 sets out the impact of the measures introduced in this budget.
Table 6.3
Fiscal Outlook With Measures
billions of dollars
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
November 2011 Update budgetary balance -31.0 -27.4 -17.0 -7.5 -3.4 0.5
Economic and fiscal developments
(including decisions since the Update
and change to adjustment for risk)
6.6 5.2 3.4 1.1 1.0 1.4
Revised status quo budgetary balance
(before budget measures) -24.4 -22.2 -13.7 -6.3 -2.4 1.9
Budget measures
Revenue measures
Closing tax loopholes
0.0 0.1 0.3 0.4 0.4 0.5
Phasing out/eliminating tax preferences
0.0 0.0 0.1 0.2 0.2 0.3
Employment Insurance changes
-0.1 -0.3 -0.8 -1.1 -0.2 -0.2
Other measures
0.0 -0.2 0.0 0.2 0.4 0.4
Total revenue measures
-0.1 -0.4 -0.4 -0.2 0.9 1.1
Expense measures
1
Supporting jobs and growth
0.0 -0.8 -0.9 -0.8 -0.6 -0.6
Reductions in departmental spending
-0.9 1.8 3.5 5.3 5.2 5.2
Updating defence capital funding
0.4 0.5 1.3 0.7 0.3 0.1
Total expense measures
-0.5 1.4 3.9 5.3 4.9 4.8
Total budget measures -0.5 1.1 3.5 5.0 5.8 5.9
Budgetary balance (after budget measures) -24.9 -21.1 -10.2 -1.3 3.4 7.8
Note: Totals may not add due to rounding.
1
A negative number implies an increase in spending and a deterioration in the budgetary balance. A positive number
implies a decrease in spending and an improvement in the budgetary balance.
The new policy measures in this budget have a negative impact on the
budgetary balance of $0.5 billion in 2011–12, largely due to the recording
of a liability for estimated workforce adjustment costs associated with the
departmental spending reductions announced in this budget. For the
remainder of the forecast horizon, budget measures have a positive impact
on the budgetary balance, rising from $1.1 billion in 2012–13 to $5.9 billion
in 2016–17.
Fiscal Outlook
237
Revenue measures announced in this budget will lower revenues by
$0.1 billion in 2011–12, by $0.4 billion in 2012–13 and 2013–14, and by
$0.2 billion in 2014–15. They will raise revenues by $0.9 billion in 2015–16
and by $1.1 billion in 2016–17. Revenues are raised in all years by actions to
close tax loopholes and phase out or eliminate tax preferences. The higher
revenues from these actions are more than offset over the 2011–12 to
2014–15 period by the impact of Employment Insurance (EI) measures on
EI premium revenues. EI premium revenues are lowered by the extension of
the EI Hiring Credit for Small Business and limiting increases in the premium
rate to 5 cents per year until the EI Operating Account is balanced.
The budget also announces actions to support jobs and growth. These
measures cost a total of $3.6 billion over the next five years. At the same
time, the budget will reduce departmental spending by $20.1 billion between
2011–12 and 2016–17 after taking into account workforce adjustment costs,
which departments are expected to fund internally. Program expenses are
also reduced by the alignment of defence funding with expected
requirements. Overall, on a net basis, budget measures will reduce
spending by $20.8 billion over 2011–12 and the next five years.
The fiscal projections in Chart 6.4 show that the Government remains
on track to eliminate the deficit over the medium term.
The Government is on track to return to balanced
budgets over the medium term
Chart 6.4
Budgetary Balance After Measures
Source: Department of Finance.
Chapter 6
238
Summary of Statement of Transactions
Table 6.4 summarizes the Government’s financial position,
including measures announced in this budget.
Table 6.4
Summary Statement of Transactions
billions of dollars
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Budgetary revenues 237.1 248.0 255.0 270.4 285.5 300.0 312.5
Program expenses 239.6 241.9 245.3 249.4 253.9 261.7 268.6
Public debt charges 30.9 31.0 30.8 31.1 33.0 34.9 36.1
Total expenses 270.5 272.9 276.1 280.6 286.9 296.6 304.7
Budgetary balance -33.4 -24.9 -21.1 -10.2 -1.3 3.4 7.8
Federal debt
1
550.3 581.3 602.4 612.5 613.9 610.4 602.6
Per cent of GDP
Budgetary revenues
14.6 14.4 14.3 14.6 14.7 14.8 14.8
Program expenses
14.7 14.1 13.8 13.4 13.1 12.9 12.7
Public debt charges
1.9 1.8 1.7 1.7 1.7 1.7 1.7
Budgetary balance
-2.1 -1.4 -1.2 -0.5 -0.1 0.2 0.4
Federal debt
33.9 33.8 33.9 33.0 31.6 30.1 28.5
Note: Totals may not add due to rounding.
1
The projected level of federal debt for 2011–12 includes an estimate of other comprehensive income, as well as
estimated transitional adjustments related to enterprise Crown corporations’ adoption of International Financial
Reporting Standards.
The numbers in blue italics in Table 6.4 above and in the paragraph below were updated
from the print version of the Budget Plan released on March 29, 2012.
As a result of the improved economic outlook and actions taken in this
budget to support jobs and growth and to return to balanced budgets over
the medium term, the budgetary balance is projected to improve from a
$24.9-billion deficit in 2011–12 to a surplus of $7.8 billion in 2016–17. As a
percentage of GDP, the budgetary balance is projected to improve from a
deficit of 1.4 per cent in 2011–12 to a surplus of 0.4 per cent in 2016–17.
The federal debt-to-GDP ratio (accumulated deficit) stood at 33.9 per cent
in 2010–11, less than half of its peak of 68.4 per cent in 1995–96. The debt
ratio is projected to fall to 28.5 per cent in 2016–17, in line with its
pre-recession level.
Fiscal Outlook
239
Outlook for Budgetary Revenues
Table 6.5
The Revenue Outlook Budget 2012
billions of dollars
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Income taxes
Personal income tax 113.5 120.9 125.4 133.9 142.0 149.8 157.0
Corporate income tax 30.0 32.6 32.4 34.3 36.5 37.9 39.9
Non-resident income tax 5.1 5.2 5.5 6.0 6.5 7.0 7.4
Total income tax 148.6 158.6 163.3 174.2 184.9 194.7 204.3
Excise taxes/duties
Goods and Services Tax 28.4 29.1 30.9 32.4 34.0 35.6 37.3
Customs import duties
3.5 4.0 4.1 4.3 4.5 4.7 4.9
Other excise taxes/duties
11.0 10.9 10.9 10.9 11.0 10.9 10.7
Total excise taxes/duties
42.9 44.1 45.9 47.6 49.5 51.2 52.9
Total tax revenues 191.5 202.7 209.2 221.8 234.4 245.9 257.2
Employment Insurance
premium revenues 17.5 18.7 20.1 21.5 23.0 24.2 23.6
Other revenues 28.1 26.6 25.7 27.0 28.2 30.0 31.6
Total budgetary revenues 237.1 248.0 255.0 270.4 285.5 300.0 312.5
Per cent of GDP
Personal income tax
7.0 7.0 7.1 7.2 7.3 7.4 7.4
Corporate income tax
1.8 1.9 1.8 1.8 1.9 1.9 1.9
Goods and Services Tax
1.7 1.7 1.7 1.7 1.8 1.8 1.8
Total tax revenues 11.8 11.8 11.8 11.9 12.1 12.1 12.2
Employment Insurance
premium revenues 1.1 1.1 1.1 1.2 1.2 1.2 1.1
Other revenues 1.7 1.5 1.4 1.5 1.4 1.5 1.5
Total 14.6 14.4 14.3 14.6 14.7 14.8 14.8
Note: Totals may not add due to rounding.
Table 6.5 sets out the Government’s projection for budgetary revenues
reflecting both Budget 2012 measures and the adjustment for risk, which
for planning purposes is applied to tax revenues and other revenues.
Revenues are expected to increase by 4.6 per cent in 2011–12 based on
year-to-date results and the economic projections. Over the remainder of the
forecast horizon, revenues are projected to grow at an average annual rate of
4.7 per cent.
Chapter 6
240
Personal income tax revenues—the largest component of budgetary
revenues—are projected to increase by $7.4 billion, or 6.5 per cent, to
$120.9 billion in 2011–12. Over the remainder of the projection period,
personal income tax revenues increase somewhat faster than growth in GDP,
averaging 5.4 per cent annual growth, reflecting the progressive nature of the
income tax system combined with real income gains.
Corporate income tax revenues are projected to increase by 8.8 per cent to
$32.6 billion in 2011–12. Over the remainder of the projection period,
corporate income tax revenues are projected to grow at an average annual
rate of 4.1 per cent, based on projected profit growth and measures
announced in this budget.
Non-resident income tax revenues are projected to grow at an average rate
of 6.3 per cent over the forecast horizon, reflecting projected growth in
dividend and interest payments.
Goods and Services Tax (GST) revenues are projected to grow by
2.7 per cent in 2011–12 based on projected growth in taxable consumption
and year-to-date results. Annual growth in GST revenues is projected to
average 5.1 per cent over the remainder of the projection period, in line with
growth in taxable consumption.
Customs import duties are projected to increase by $0.5 billion, or
14.9 per cent, in 2011–12, reflecting year-to-date results and lower customs
import duties in 2010–11 due to the duty remission framework for certain
imported ships announced on October 1, 2010. Over the remainder of the
projection period, annual growth in customs import duties is projected to
average 4.1 per cent, based on projected growth in imports and the tariff
relief for manufacturers announced on November 27, 2011.
Based on year-to-date results, other excise taxes and duties are projected
to be $10.9 billion in 2011–12 and remain close to that level over the
remainder of the projection period.
EI premium revenues are projected to grow by 6.8 per cent in 2011–12.
Based on the economic outlook and measures announced in this budget,
including the new EI rate-setting mechanism, it is projected that the annual
growth in EI revenues will average 4.8 per cent over the remainder of the
forecast horizon and that the EI Operating Account will return to cumulative
balance by 2016.
Fiscal Outlook
241
Employment Insurance Operating Account
Employment Insurance Operating Account
Projections Including All Budget 2012 Measures
billions of dollars
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
EI premium revenues 18.7 20.1 21.5 23.0 24.2 23.6
EI benefits
1
17.5 18.7 19.3 19.3 19.5 19.8
2011 2012 2013 2014 2015 2016
EI Operating Account annual balance
2
-0.6 -0.3 0.3 1.9 3.2 3.4
EI Operating Account cumulative balance
2
-8.5 -8.8 -8.4 -6.6 -3.4 0.0
Reference:
Projected premium rate (per $100 of
insurable earnings) 1.78 1.83 1.88 1.93 1.98 1.95
Projected premium rate without the changes
to the premium rate-setting mechanism
announced in this budget (per $100
of insurable earnings) 1.78 1.83 1.93 2.03 2.10 2.00
1
EI benefits include regular EI benefits, sickness, maternity, parental, compassionate care, fishing and work-sharing
benefits, and employment benefits and support measures. These represent 90 per cent of total EI program
expenses. The remaining EI costs relate mainly to administration and are included in direct program spending.
2
The EI Operating Account annual and cumulative balances are on a calendar-year basis since the EI premium rate
is set on a calendar-year basis.
In this budget, the Government is taking steps to respond to employers’
and employees’ concerns by ensuring the stability and predictability
of EI premiums and limiting increases to 5 cents per year until the
EI Operating Account is balanced. Further, the Government is pursuing
a number of reforms to the EI program that will provide support for job
creation, help unemployed Canadians find work and remove disincentives
to work.
The global recession increased total benefit expenditures over a relatively
short period of time, resulting in a projected cumulative deficit in the
EI Operating Account of $8.5 billion in 2011. Over the next few years, the
Canada Employment Insurance Financing Board will continue to set the rate,
but the Government will limit rate increases to 5 cents each year until the
EI Operating Account is balanced. Under the proposed new EI rate-setting
mechanism, the EI Operating Account is projected to return to balance in
2016. To achieve this, the premium rate is projected to increase by 5 cents
per year until 2015 to reach $1.98 per $100 of insurable earnings and then
decrease to $1.95 in 2016. Without the changes to the premium rate-
setting mechanism announced in this budget, the premium rate would have
been higher in every year of the forecast horizon. Canada will continue to
have one of the lowest payroll contribution rates in the OECD.
Chapter 6
242
Other revenues include those of consolidated Crown corporations, net
income from enterprise Crown corporations, foreign exchange revenues,
returns on investments and proceeds from the sales of goods and services.
Other revenues are projected to fall by $1.5 billion, or 5.4 per cent, to
$26.6 billion in 2011–12, as a number of one-time factors which raised
2010–11 revenues are not expected to reoccur in 2011–12. These include
lower provisions for credit losses, unrealized gains on derivatives held under
the Insured Mortgage Purchase Program, gains realized on the Government’s
sale of common shares in General Motors, and foreign exchange gains.
Growth in other revenues is expected to average 3.5 per cent per year over
the remainder of the projection period.
Chart 6.5 shows that the revenue-to-GDP ratio decreased sharply from
16.3 per cent in 2006–07 to 14.3 per cent in 2009–10 due to the impact of
the global recession and tax reductions. Revenues as a share of GDP rose to
14.6 per cent in 2010–11. Over the remainder of the forecast period, the
revenue-to-GDP ratio is projected to remain relatively stable at that level.
Revenue-to-GDP ratio steady over the projection period
Chart 6.5
Revenue-to-GDP Ratio
Sources: Department of Finance; Statistics Canada.
Fiscal Outlook
243
Outlook for Program Expenses
Table 6.6
The Program Expenses Outlook
billions of dollars
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Major transfers to persons
Elderly benefits 35.6 38.1 40.4 42.6 45.0 47.5 50.1
Employment Insurance (EI) benefits
1
19.9 17.5 18.7 19.3 19.3 19.5 19.8
Children’s benefits 12.7 12.8 13.2 13.5 13.8 14.0 14.1
Total 68.1 68.5 72.2 75.5 78.1 81.0 84.0
Major transfers to other
levels of government
Canada Health Transfer 25.4 27.0 28.6 30.3 32.1 34.0 36.1
Canada Social Transfer 11.2 11.5 11.9 12.2 12.6 13.0 13.3
Other health and social transfers
2
0.6 0.2 0.3 0.3
Fiscal arrangements
3
16.4 16.9 17.8 18.7 19.5 20.3 21.1
Canada’s cities and communities 1.8 2.3 2.0 2.0 2.0 2.0 2.0
Other transfers
4
0.7 2.3 1.1 0.4 0.3 0.3 0.2
Alternative Payments for
Standing Programs -3.1 -3.2 -3.4 -3.6 -3.8 -4.0 -4.2
Total 53.0 56.9 58.4 60.3 62.8 65.6 68.5
Direct program expenses
Operating expenses subject to freeze 54.7 54.9 53.6 53.3 53.3 54.8 55.6
Other operating expenses 22.5 22.7 23.2 23.2 23.4 24.4 24.4
Transfer payments 36.8 34.0 32.5 31.6 30.4 30.0 29.8
Capital amortization 4.4 4.9 5.3 5.5 5.8 6.0 6.1
Total 118.5 116.5 114.7 113.7 113.0 115.1 116.1
Total program expenses 239.6 241.9 245.3 249.4 253.9 261.7 268.6
Chapter 6
244
Table 6.6 (cont’d)
The Program Expenses Outlook
per cent of GDP
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Major transfers to persons 4.2 4.0 4.1 4.1 4.0 4.0 4.0
Major transfers to other levels
of government 3.3 3.3 3.3 3.2 3.2 3.2 3.2
Direct program expenses 7.3 6.8 6.5 6.1 5.8 5.7 5.5
Total program expenses 14.7 14.1 13.8 13.4 13.1 12.9 12.7
Note: Totals may not add due to rounding.
1
EI benefits include regular EI benefits, sickness, maternity, parental, compassionate care, fishing and work-sharing
benefits, and employment benefits and support measures. These represent 90 per cent of total EI program expenses.
The remaining EI costs relate mainly to administration and are included in direct program spending.
2
Other health and social transfers include the Wait Time Reduction Transfer and other health-related transfers.
3
Fiscal arrangements include Equalization, Territorial Formula Financing, the Youth Allowances Recovery and
statutory subsidies.
4
Other major transfers to other levels of government include transitional payments; transfer protection payments in
2010–11, 2011–12 and 2012–13; payments under the 2005 Offshore Accords; the recognition of repayment by
British Columbia of the transitional assistance it received from the Government of Canada for sales tax harmonization;
and a provision in 2011–12 in support of the Memorandum of Agreement between the Government of Canada and the
Government of Quebec regarding sales tax harmonization.
Table 6.6 provides an overview of the projections for program expenses
by major component, including the measures announced in this budget.
Program expenses consist of major transfers to persons, major transfers
to other levels of government and direct program expenses.
Major transfers to persons consist of elderly, EI and children’s benefits.
Elderly benefits are comprised of Old Age Security, Guaranteed Income
Supplement and Spousal Allowance payments to qualifying seniors,
with Old Age Security payments representing approximately 80 per cent
of these expenditures. Elderly benefits are projected to grow from
$38.1 billion to $50.1 billion over the planning period, or approximately
5.6 per cent per year—significantly faster than nominal GDP, which averages
4.4 per cent growth per year. This increase is due to consumer price inflation,
to which benefits are fully indexed, and a projected increase in the seniors’
population from 4.8 million to 6.0 million over the planning period, or an
average increase of 3.6 per cent per year.
Fiscal Outlook
245
EI benefits are projected to decrease by 11.6 per cent to $17.5 billion in
2011–12, based in large part on year-to-date results. EI benefits are projected
to grow modestly over the remainder of the planning period, averaging
2.4 per cent per year, as the fiscal cost of new measures and higher average
weekly benefits are offset by lower projected unemployment rates.
Children’s benefits, including the Canada Child Tax Benefit and the
Universal Child Care Benefit, are projected to increase moderately
over the forecast horizon, reflecting population growth and adjustments
for inflation.
Major transfers to other levels of government include transfers in support of
health and social programs, Equalization and Territorial Formula Financing.
Legislation will be introduced to ensure the current 6-per-cent annual
escalator for the Canada Health Transfer (CHT) will continue for five more
years. Starting in 2017–18, the CHT will grow in line with a three-year
moving average of nominal GDP growth, with funding guaranteed to
increase by at least 3 per cent per year. The Government will introduce
legislation to continue the 3-per-cent escalator for the Canada Social Transfer
for 2014–15 and subsequent years.
Other major transfers to other levels of government in 2011–12 include
recognition of the repayment by British Columbia of the transitional
assistance it received from the Government of Canada for sales tax
harmonization, as well as a provision in support of the Memorandum of
Agreement between the Government of Canada and the Government of
Quebec regarding sales tax harmonization. Additionally, other major
transfers to other levels of government include total transfer protection
payments to provinces in 2010–11, 2011–12 and 2012–13.
Direct program expenses include operating expenses of National
Defence and other departments, expenses of Crown Corporations,
transfers administered by departments for farm income support, natural
resource royalties paid to provinces, and student financial assistance.
Some of these expenses are subject to the operating freeze announced in
Budget 2010. These include the wages and salaries of federal employees,
professional services contracts, telecommunications, leases, utilities (heat and
hydro), materials and supplies. These expenses are projected to decline from
2011–12 to 2013–14 due to the cost containment measures introduced in
previous budgets and reductions to departmental spending announced in
this budget.
Chapter 6
246
Other operating expenses include costs for employee pensions and other
benefits, non-wage expenses of National Defence and amounts for items
such as the allowance for bad debt. The projections for this expense item
reflect the reallocation of resources to better align funding that will support
the Canada First Defence Strategy. They also reflect departmental spending
reductions announced in this budget.
Transfers are projected to decline over the projection period, reflecting the
wind-down of the stimulus phase of Canada’s Economic Action Plan, a
reduction in activity under the Building Canada Fund and departmental
spending reductions announced in this budget.
Amounts for capital expenses are presented on an accrual basis. The amount
of capital amortization is expected to increase over the next five years as a
result of new investments and upgrades to existing capital.
Table 6.7
Savings Measures Since Budget 2010
millions of dollars
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017 Total
Budget 2010
Spending restraint 452 1,586 3,481 4,425 5,130 5,130 5,130 25,334
Tax fairness—closing tax loopholes 355 440 500 565 625 625 625 3,735
Total for Budget 2010 807 2,026 3,981 4,990 5,755 5,755 5,755 29,069
Budget 2011
Spending restraint
194 271 569 525 534 534 2,627
Tax fairness—closing tax loopholes
240 730 1,095 1,040 990 990 5,085
Total for Budget 2011
434 1,001 1,664 1,565 1,524 1,524 7,712
Budget 2012
Reductions in departmental spending
-900 1,762 3,481 5,332 5,175 5,219 20,069
Tax fairness—closing tax loopholes
120 320 415 440 490 1,785
Total for Budget 2012
-900 1,882 3,801 5,747 5,615 5,709 21,854
Total savings 807 1,560 6,864 10,455 13,067 12,894 12,988 58,635
Note: Totals may not add due to rounding.
Fiscal Outlook
247
Chart 6.6 shows program expenses as a share of GDP. The stimulus phase of
Canada’s Economic Action Plan, which strengthened Canada’s economy and
supported Canadians during the global recession, resulted in a temporary
increase in the program expenses-to-GDP ratio. However, as a result of the
targeted savings measures announced since Budget 2010, program expenses
as a share of GDP decline in all years of the forecast horizon. As a share
of GDP, program expenses are projected to decline from 14.7 per cent in
2010–11 to 12.7 per cent in 2016–17, which represents a return to
pre-recession spending ratios.
Program expenses-to-GDP ratio to return
to its pre-recession level
Chart 6.6
Program Expenses-to-GDP Ratio
Sources: Department of Finance; Statistics Canada.
Financial Source/Requirement
The budgetary balance is presented on a full accrual basis of accounting,
recording government liabilities and assets when they are incurred or
acquired, regardless of when the cash is paid or received.
Chapter 6
248
In contrast, the financial source/requirement measures the difference
between cash coming in to the Government and cash going out.
This measure is affected not only by the budgetary balance but also by
the Government’s non-budgetary transactions. These include changes
in federal employee pension accounts; changes in non-financial assets;
investing activities through loans, investments and advances; changes
in other financial assets and liabilities; and foreign exchange activities.
Table 6.8
The Budgetary Balance, Non-Budgetary Transactions
and Financial Source/Requirement
billions of dollars
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Budgetary balance -33.4 -24.9 -21.1 -10.2 -1.3 3.4 7.8
Non-budgetary transactions
Pensions and other accounts
7.0 4.8 6.2 5.3 4.0 2.9 2.9
Non-financial assets
-3.2 -2.3 -1.0 -1.1 -0.7 -0.5 -0.3
Loans, investments and advances
Enterprise Crown corporations
-9.2 -4.5 -4.3 -4.7 -4.3 -5.6 -4.3
Insured Mortgage
Purchase Program
5.2 3.4 2.4 41.9 10.6 0.0 0.0
Other
0.3 1.2 -0.4 -0.3 -0.3 -0.2 -0.2
Total
-3.7 0.1 -2.2 36.8 5.9 -5.9 -4.5
Other transactions -12.9 -7.7 -5.2 -0.6 1.2 1.4 1.2
Total -12.8 -5.1 -2.2 40.4 10.4 -2.1 -0.7
Financial source/requirement -46.2 -30.0 -23.3 30.2 9.1 1.3 7.1
Note: Totals may not add due to rounding.
As shown in Table 6.8, significant financial requirements are projected
in 2011–12 and 2012–13 ($30.0 billion in 2011–12 and $23.3 billion in
2012–13), followed by financial sources of $30.2 billion in 2013–14,
$9.1 billion in 2014–15, $1.3 billion in 2015–16 and $7.1 billion in 2016–17.
The requirements in 2011–12 and 2012–13 mainly reflect the budgetary
balance, whereas the financial sources expected over the 2013–14 to 2016–17
period mainly reflect the improvement of the budgetary balance and the
repayment of principal on assets maturing under the Insured Mortgage
Purchase Program.
Fiscal Outlook
249
The financial source associated with pensions and other accounts is expected
to be $6.2 billion in 2012–13. Pensions and other accounts include the
activities of the Government of Canada’s employee superannuation plans,
as well as those of federally appointed judges and Members of Parliament.
Since April 2000, the net amount of contributions less benefit payments
related to post-March 2000 service has been invested in capital markets.
Contributions and payments pertaining to pre-April 2000 service are
recorded in the pension accounts. The Government also sponsors a variety
of future benefit plans, such as health care and dental plans and disability
and other benefits for war veterans and others.
Financial requirements for non-financial assets mainly reflect the difference
between cash outlays for the acquisition of new tangible capital assets and
the amortization of capital assets that are included in the budgetary balance.
They also include the proceeds from the net losses or gains of tangible capital
assets, losses on the disposal of tangible capital assets, the change in
inventories, and prepaid expenses. A net cash requirement of $1.0 billion
is estimated for 2012–13.
Loans, investments and advances include the Government’s investments
in enterprise Crown corporations, such as Canada Mortgage and Housing
Corporation (CMHC), Canada Post Corporation, Export Development
Canada and the Business Development Bank of Canada (BDC). They also
include loans, investments and advances to national and provincial
governments and international organizations, and for government programs.
The requirements for enterprise Crown corporations projected from
2011–12 to 2016–17 reflect the Government’s decision in Budget 2007 to
meet all the borrowing needs of CMHC, BDC and Farm Credit Canada
through its own domestic debt issuance. The financial source in the
projection period under the Insured Mortgage Purchase Program is due to
the winding down in March 2010 of purchases of insured mortgage pools
under the plan and the subsequent repayments of principal as the assets
under the plan mature.
Other transactions include the payment of tax refunds and other accounts
payable, the collection of taxes and other accounts receivable, the conversion
of other accrual adjustments included in the budgetary balance into cash,
as well as foreign exchange activities. A portion of the $5.2-billion net cash
requirement in 2012–13 reflects borrowings to improve prudential liquidity
management, announced as part of the prudential liquidity plan in
Budget 2011.
Chapter 6
250
Risks to the Fiscal Projections
Risks to the economic outlook are the greatest source of uncertainty to
the fiscal projections. Private sector economists consider global economic
uncertainty as the principal economic risk—in particular the potential for
wider contagion of the sovereign debt and banking crisis in Europe. To
help illustrate how the fiscal outlook could be affected by changes in the
economic outlook, tables illustrating the sensitivity of the budgetary balance
to a number of economic shocks are provided below.
Beyond the economic outlook, there remain upside and downside risks
associated with the fiscal projections, as several key drivers of the fiscal
outlook are not directly linked to economic variables (such as the relationship
between personal income taxes and personal income or the extent to which
departments and agencies do not fully use all of the resources appropriated
by Parliament).
Sensitivity of the Budgetary Balance to Economic Shocks
Changes in economic assumptions affect the projections for revenues and
expenses. The following tables illustrate the sensitivity of the budgetary
balance to a number of economic shocks:
• A one-year, 1-percentage-point decrease in real GDP growth driven
equally by lower productivity and employment growth.
• A decrease in nominal GDP growth resulting solely from a one-year,
1-percentage-point decrease in the rate of GDP inflation.
• A sustained 100-basis-point increase in all interest rates.
These sensitivities are generalized rules of thumb that assume
any decrease in economic activity is proportional across income
and expenditure components.
Fiscal Outlook
251
Table 6.9
Estimated Impact of a One-Year, 1-Percentage-Point
Decrease in Real GDP Growth on Federal Revenues,
Expenses and Budgetary Balance
billions of dollars
Year 1 Year 2 Year 5
Federal revenues
Tax revenues
Personal income tax -1.8 -1.9 -2.2
Corporate income tax -0.4 -0.4 -0.4
Goods and Services Tax -0.3 -0.3 -0.4
Other -0.2 -0.2 -0.3
Total tax revenues -2.7 -2.9 -3.3
Employment Insurance premium revenues -0.1 -0.1 1.0
Other revenues 0.0 0.0 0.0
Total budgetary revenues -2.9 -3.0 -2.3
Federal expenses
Major transfers to persons
Elderly benefits 0.0 0.0 0.0
Employment Insurance benefits 0.8 0.9 0.9
Children’s benefits 0.0 0.0 0.0
Total 0.8 0.9 0.9
Other program expenses -0.1 0.0 -0.3
Public debt charges 0.0 0.1 0.4
Total expenses 0.7 0.9 1.0
Budgetary balance -3.6 -3.9 -3.4
Note: Totals may not add due to rounding.
A 1-percentage-point decrease in real GDP growth reduces the budgetary
balance by $3.6 billion in the first year, $3.9 billion in the second year and
$3.4 billion in the fifth year (Table 6.9).
• Tax revenues from all sources fall by a total of $2.7 billion in the
first year and by $2.9 billion in the second year. Personal income tax
revenues decrease as employment and wages and salaries fall. Corporate
income tax revenues fall as output and profits decrease. GST revenues
decrease as a result of lower consumer spending associated with the fall
in employment and personal income.
Chapter 6
252
• EI premium revenues decrease in the early years as employment and
wages and salaries fall before increasing in Year 5, when the premium
rate is raised to recoup the cost of higher benefit payments and return
the EI Operating Account to balance. This also reflects the rate-setting
mechanism announced in this budget.
• Expenses rise, mainly reflecting higher EI benefits (due to an increase in
the number of unemployed) and higher public debt charges (reflecting a
higher stock of debt due to the lower budgetary balance).
Table 6.10
Estimated Impact of a One-Year, 1-Percentage-Point
Decrease in GDP Inflation on Federal Revenues,
Expenses and Budgetary Balance
billions of dollars
Year 1 Year 2 Year 5
Federal revenues
Tax revenues
Personal income tax -1.8 -1.4 -1.5
Corporate income tax -0.4 -0.4 -0.4
Goods and Services Tax -0.3 -0.3 -0.4
Other -0.2 -0.2 -0.3
Total tax revenues -2.7 -2.4 -2.6
Employment Insurance premium revenues -0.2 -0.3 0.4
Other revenues -0.1 -0.1 -0.1
Total budgetary revenues -3.0 -2.8 -2.3
Federal expenses
Major transfers to persons
Elderly benefits -0.2 -0.4 -0.5
Employment Insurance benefits -0.1 -0.1 -0.2
Children’s benefits -0.1 -0.1 -0.1
Total -0.5 -0.7 -0.8
Other program expenses -0.4 -0.4 -0.8
Public debt charges -0.4 0.0 0.2
Total expenses -1.2 -1.0 -1.4
Budgetary balance -1.8 -1.8 -0.9
Note: Totals may not add due to rounding.
Fiscal Outlook
253
A 1-percentage-point decrease in nominal GDP growth resulting solely from
lower GDP inflation (assuming that the Consumer Price Index moves in line
with GDP inflation) lowers the budgetary balance by $1.8 billion in the
first year, $1.8 billion in the second year and $0.9 billion in the
fifth year (Table 6.10).
• Lower prices result in lower nominal income and, as a result, personal
income tax, corporate income tax and GST revenues all decrease,
reflecting declines in the underlying nominal tax bases. For the other
sources of tax revenue, the negative impacts are similar under the real
and nominal GDP shocks.
• EI premium revenues decrease marginally in the early years in response
to lower earnings, but are higher in Year 5, consistent with the principle
of breaking even over time and the new rate-setting mechanism
announced in this budget, the EI premium rate adjusts to return the
EI Operating Account to balance. Unlike the real GDP shock,
EI benefits do not rise since unemployment is unaffected by
price changes.
• Partly offsetting lower revenues are the declines in the cost of statutory
programs that are indexed to inflation, such as elderly benefit payments
and the Canada Child Tax Benefit, as well as declines in federal wage and
non-wage expenses that are indirectly linked to inflation. Payments under
these programs are smaller if inflation is lower. Public debt charges
decline in the first year due to lower costs associated with Real Return
Bonds, then rise due to the higher stock of debt.
Table 6.11
Estimated Impact of a Sustained 100-Basis-Point
Increase in All Interest Rates on Federal Revenues,
Expenses and Budgetary Balance
billions of dollars
Year 1 Year 2 Year 5
Federal revenues 1.1 1.5 2.0
Federal expenses 1.7 2.8 3.9
Budgetary balance -0.6 -1.3 -1.9
Chapter 6
254
An increase in interest rates decreases the budgetary balance by $0.6 billion in
the first year, $1.3 billion in the second year and $1.9 billion in the fifth year
(Table 6.11). The decline stems entirely from increased expenses associated
with public debt charges. The impact on debt charges rises through time as
longer-term debt matures and is refinanced at higher rates. Moderating the
overall impact is an increase in revenues associated with the increase in the
rate of return on the Government’s interest-bearing assets, which are
recorded as part of other revenues.
Chapter 1
Introducton
Annex 1
Responsible Spending
Responsible Spending
257
In 2007, the Government established a new standard for managing
government spending focused on efficiency and effectiveness, core roles and
delivering results for Canadians. Strategic reviews were introduced to support
sound expenditure management and responsible spending. Between 2007–08
and 2010–11, over $2.8 billion in ongoing savings were generated from
strategic reviews.
Building on the strategic reviews with a commitment to delivering ongoing
priority programs and services in a financially responsible manner, the
Government announced a review of departmental spending in Budget 2011.
PLANNED REDUCTIONS IN DEPARTMENTAL SPENDING
Over the past year, the Government assessed hundreds of savings proposals
put forward by government organizations. Guided by experts from outside
government, organizations were asked to focus on achieving efficiencies in
their operations, as well as to refocus business processes and service
delivery platforms.
As part of the review, organizations examined their spending from
the following perspectives:
• Operating efficiency—To what extent are results being achieved
efficiently? Can this activity be delivered at a lower cost or in a more
effective way?
• Internal services—Are internal services (e.g. human resources
management, financial management, communications) as efficient
as possible? Can improvements be made to reduce any overlap
and duplication?
• Effectiveness—To what extent is this program, activity or service
achieving the expected results for which it was designed?
• Affordability—Is the program, activity or service a priority,
and is it affordable during a period of fiscal restraint?
• Relevance and need—To what extent is there still a need for
this program, activity or service?
• Federal role—To what extent is this program, activity or service
consistent with the federal government’s roles and responsibilities?
• Organizational role—Would greater efficiencies be achieved if another
department or agency, a government service provider, or the private
sector delivered the program, activity or service?
Annex 1
258
The review encouraged departments to ensure that government programs
and services remain relevant and effective, while achieving value for
taxpayers’ money. These changes will:
• Refocus government and programs by eliminating or reducing
programs that can be delivered in other ways, for which demand is lower
or which are no longer needed.
• Make it easier for Canadians and businesses to deal with their
government by providing effective and efficient programs and services
to Canadians at a lower cost and by reducing unnecessary red tape to
allow businesses to focus on creating jobs and contributing to Canada’s
economic growth.
• Modernize and reduce the back office by streamlining, consolidating
and standardizing administrative functions and operations within and
across organizations.
Total savings under the review ramp up to roughly $5.2 billion ongoing,
representing 6.9 per cent of an aggregate review base of $75.3 billion. This
represents less than 2.0 per cent of expected federal program spending
in 2016–17.
Reflecting Canada’s strong economic growth and fiscal fundamentals, the
scale of Canada’s efforts to reduce the deficit is modest compared to the
expenditure restraint efforts being pursued by many other countries around
the world or relative to the Program Review undertaken in Canada in the
mid-1990s.
The Government will be introducing legislative and regulatory amendments
required to implement the identified reductions in spending of departments,
agencies and agents of Parliament. What follows is a description of the
actions being taken by federal organizations to find efficiencies in their
operations and re-engineer the way they do business.
Responsible Spending
259
ABORIGINAL AFFAIRS AND NORTHERN
DEVELOPMENT PORTFOLIO
Aboriginal Affairs and Northern Development Canada (AANDC) is
achieving savings through restructuring, operational efficiencies and
changes to business processes, in order to improve service delivery to
Aboriginal communities.
The Department will work with Aboriginal peoples to make it easier for
them to access program funding by simplifying the application process,
agreements and reporting requirements. Steps will also be taken to provide
qualified recipients with more flexibility and management control, while
eliminating red tape for both recipients and the Department.
AANDC will continue to refocus the Department in keeping with
developments such as a reduction in the backlog of specific claims
and devolution of responsibilities to the Northwest Territories.
Table A1.1
Planned Savings—Aboriginal Affairs and Northern Development Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Aboriginal Affairs and Northern
Development portfolio 26.9 60.1 165.6 165.6
Aboriginal Affairs and Northern
Development Canada 24.4 55.1 160.6 160.6
First Nations Statistical Institute 2.5 5.0 5.0 5.0
Note: Totals may not add due to rounding.
Annex 1
260
AGENTS OF PARLIAMENT
Although not initially part of the review, Agents of Parliament adhered
to the spirit and intent of the exercise and will pursue a series of measures,
such as streamlining, consolidating and standardizing administrative
functions, and improving business processes, to achieve operating
savings. The Commissioner of Official Languages will contribute to
the Government’s expenditure restraint efforts by reallocating operating
savings towards necessary information technology investments.
Table A1.2
Planned Savings—Agents of Parliament
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Agents of Parliament 8.3 8.8 16.4 16.4
Auditor General of Canada 0.0 0.0 6.7 6.7
Chief Electoral Officer of Canada 7.5 7.5 7.5 7.5
Office of the Privacy Commissioner of Canada 0.7 0.7 1.1 1.1
Commissioner of Official Languages – – – –
Commissioner of Lobbying 0.0 0.2 0.2 0.2
Public Sector Integrity Commissioner of Canada 0.0 0.0 0.3 0.3
Office of the Information Commissioner of Canada 0.1 0.3 0.5 0.5
Note: Totals may not add due to rounding.
Responsible Spending
261
AGRICULTURE AND AGRI-FOOD PORTFOLIO
Agriculture and Agri-Food portfolio organizations will streamline their
operations and reduce operating costs, while making sure services are
provided to farmers and the agriculture industry in the most cost-effective
and efficient way. For example, Agriculture and Agri-Food Canada and the
Canadian Food Inspection Agency will merge their back-office functions and
will integrate scientific research capacity and expertise through co-location
and collaboration, making it easier for farmers and industry to get the
information on technological advances they need to succeed. Agriculture
and Agri-Food Canada will also consolidate the delivery of grants and
contribution programs across the Department and streamline management
of the Farm Debt Mediation Service.
Portfolio organizations are also taking steps to improve service delivery,
making it easier for farmers, food processors and other clients to access
programs and services. For example, the Canadian Food Inspection Agency
(CFIA) will transform its service delivery approach by providing a single
window for client applications for permits, licences and registration, as well
as for the provision of technological, interpretive and specialized advice.
The Government will also change how the CFIA monitors and enforces
non-health and safety food labelling regulations. The CFIA will introduce
a web-based label verification tool that encourages consumers to bring
validated concerns directly to companies and associations for resolution.
The Government will also repeal regulations related to container standards
to enable industry to take advantage of new packaging formats and
technologies, while removing an unnecessary barrier for the importation
of new products from international markets.
Table A1.3
Planned Savings—Agriculture and Agri-Food Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Agriculture and Agri-Food Portfolio 17.1 168.5 309.7 309.7
Agriculture and Agri-Food Canada 14.9 158.4 252.9 252.8
Canada Agriculture Review Tribunal 0 0 0.1 0.1
Canadian Dairy Commission 0.0 0.0 0.4 0.4
Canadian Food Inspection Agency 2.1 10.0 56.1 56.1
Farm Products Council of Canada 0.1 0.1 0.3 0.3
Note: Totals may not add due to rounding.
Annex 1
262
CANADA REVENUE AGENCY
The Canada Revenue Agency continues to modernize its operations and
reduce red tape to enhance services to Canadians while reducing its overall
costs. It is increasingly providing services electronically to make it easier for
Canadians and businesses to interact with the Agency at the lowest possible
cost. By simplifying the way it collects taxes and distributes benefit payments,
the Agency will ensure Canadians and small and medium-sized enterprises
receive the benefits and credits to which they are entitled as efficiently and
quickly as possible. In addition, the Agency will leverage the expertise of tax
professionals to improve the effectiveness of its operations.
Table A1.4
Planned Savings—Canada Revenue Agency
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Canada Revenue Agency 14.8 87.0 225.4 253.1
Note: Savings associated with the Canada Revenue Agency’s spending reduction measures will continue to grow in value
beyond 2014–15.
Responsible Spending
263
CITIZENSHIP AND IMMIGRATION PORTFOLIO
Citizenship and Immigration Canada and the Immigration and Refugee
Board of Canada are making it easier for Canadians, immigrants and refugees
to interact with them. They are also aligning their services with demand.
For example, Citizenship and Immigration Canada will change the way it
operates in Canada and abroad by reducing overhead costs and continuing
to streamline operations and program delivery to provide better value for
Canadians. In this regard, it will continue to take steps to more efficiently
process immigration applications by centralizing part of its visa processing,
which will reduce duplication and overlap, and allowing in-Canada applicants
to be processed in Canada.
These actions, together with the measures announced in Economic Action
Plan 2012, will contribute to making the immigration system truly proactive,
fast and flexible in a manner that will be responsive to labour market needs.
The Immigration and Refugee Board is making changes to ensure operational
sustainability and maintain the quality and fairness of services to the public.
Table A1.5
Planned Savings—Citizenship and Immigration Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Citizenship and Immigration Portfolio 29.8 65.2 84.3 84.3
Citizenship and Immigration Canada 26.5 59.0 71.2 71.2
Immigration and Refugee Board of Canada 3.3 6.3 13.1 13.1
Note: Totals may not add due to rounding.
Annex 1
264
ENVIRONMENT PORTFOLIO
Environment Canada and the Parks Canada Agency will achieve efficiencies
and savings through the consolidation and streamlining of administrative
functions, program management, planning, and reporting requirements
within each organization. As well, effective partnerships will be forged within
the portfolio to eliminate redundancies, reduce costs and improve service
to Canadians, including in the areas of environmental enforcement and
monitoring. Both organizations are focusing on their core mandates, aligning
their programs and services accordingly and partnering to deliver services.
For example, while the National Round Table on the Environment and
the Economy (NRTEE) filled an important need in the past, a mature
and expanded community of environmental stakeholders has demonstrated
the capacity to provide analysis and policy advice to the Government.
As a result, the Government will introduce legislation to eliminate
the NRTEE.
Table A1.6
Planned Savings—Environment Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Environment Portfolio 19.5 56.4 88.2 88.2
Environment Canada 13.3 31.5 53.8 53.8
National Round Table on the Environment
and the Economy 0.2 5.2 5.2 5.2
Parks Canada 6.0 19.7 29.2 29.2
Note: Totals may not add due to rounding.
Responsible Spending
265
FINANCE PORTFOLIO
The Department of Finance Canada will generate savings by reconfiguring
and modernizing its internal services and policy analysis functions.
It is also taking a further significant step to reduce coinage procurement
costs by changing the metal composition of $1 and $2 coins from metal
alloys to plated steel cores and eliminating the penny. In contrast to other
coin denominations, the Government loses money on every new penny
produced. It costs the Government 1.6 cents to produce each new penny,
which exceeds the penny’s face value by 0.6 cents. The estimated cost to
the Government of supplying pennies to the economy is about $11 million
per year.
Table A1.7
Planned Savings—Finance Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Finance Portfolio 20.6 32.6 34.6 38.6
Department of Finance Canada 19.5 30.9 32.4 36.4
CITT 0.0 0.0 0.5 0.5
PPP Canada Inc. 0.3 0.5 0.5 0.5
FINTRAC 0.9 1.3 1.3 1.3
Note: Totals may not add due to rounding. Savings associated with the Department of Finance Canada’s spending
reduction measures will continue to grow in value beyond 2014–15.
Annex 1
266
FISHERIES AND OCEANS CANADA
Fisheries and Oceans Canada will restructure its operations, consolidate
internal services and leverage technology to realize efficiencies and achieve
savings. It will also reduce its motor vehicle fleet, which will not only lower
costs but also help green its operations.
The Department will consolidate its operations and make changes to its
programming to provide more cost-effective services to Canadians. For
example, it will refocus its research activities by leveraging, where it can,
academia and other independent facilities. As committed in 2000, Fisheries
and Oceans Canada will complete the transfer of responsibility for managing
and maintaining Arctic ports to the Northwest Territories and Nunavut.
Table A1.8
Planned Savings—Fisheries and Oceans Canada
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Fisheries and Oceans Canada 3.8 13.4 79.3 79.3
Responsible Spending
267
FOREIGN AFFAIRS AND INTERNATIONAL TRADE PORTFOLIO
Organizations within the Foreign Affairs and International Trade portfolio
will modernize and align their operations to best advance Canadian values
and priorities while reducing the costs of maintaining their presence in
Canada and abroad, without affecting services to Canadians. Steps will be
taken to consolidate and streamline internal services in Canada and in
missions abroad, reduce the vehicle fleet, review and update allowances, and
extend the duration of postings. For example, the Foreign Service Directives
for Canada-Based Staff serving around the world will be updated to better
align them with current conditions and make them comparable to benefits
provided in the private sector or by other public sector counterparts.
Foreign Affairs and International Trade Canada will also restructure its
Canadian offices, foreign properties and missions to provide better value
for money and results for Canadians. For instance, the Government will sell
some official residences abroad and move to more practical and economical
ones, generating capital revenue of $80 million.
Canada will also examine its participation in some international organizations
to ensure that they are relevant to Canada’s interests and priorities.
The National Capital Commission, which reports to Parliament through the
Minister of Foreign Affairs, plays an integral role in making Canada’s Capital
Region a source of national pride and significance. Following a review
of its services, the National Capital Commission will also streamline and
modernize its operations by leveraging new technologies and equipment.
Table A1.9
Planned Savings—Foreign Affairs and International Trade Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Foreign Affairs and
International Trade Portfolio 72.4 116.6 169.8 169.8
Foreign Affairs and International
Trade Canada 71.8 115.7 168.0 168.0
National Capital Commission 0.6 1.0 1.8 1.8
Note: Totals may not add due to rounding.
Annex 1
268
HEALTH PORTFOLIO
By enhancing coordination, consolidating operations and eliminating
redundant activities, Health portfolio organizations will deliver improved
services to Canadians. For example, Health Canada and the Public Health
Agency of Canada will transform how they manage grants and contributions
to achieve administrative efficiencies and generate savings, while maintaining
service delivery to Canadians. Health Canada will also enhance its regional
presence in the North, opening offices in Iqaluit and Yellowknife to deliver
services locally rather than from Ottawa.
Health Canada and the Public Health Agency of Canada will adopt a
shared services model, eliminating duplication and overlap between their
respective organizations through the consolidation of internal services and
the standardization of policies and processes.
Savings will also be achieved through organizational simplification. The
Government will introduce legislation to wind down Assisted Human
Reproduction Canada and will integrate it within Health Canada. A stand-
alone agency for this reduced role is no longer justified. Health Canada will
assume responsibility for compliance and enforcement related to federal
responsibilities, and outreach activities.
The Canadian Institutes of Health Research, consistent with the two granting
councils under the Industry portfolio, has ensured that programming in
support of basic research, student scholarships, and industry-related research
initiatives and collaborations are preserved. This approach sends a strong
signal of the Government’s commitment to these priority areas. In addition,
the Government will fully reinvest 2012–13 savings in priority areas of the
granting councils, particularly in industry-academic partnerships.
Table A1.10
Planned Savings—Health Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Health Portfolio 111.7 218.5 309.9 309.9
Assisted Human Reproduction Canada 8.0 9.5 9.5 9.5
Canadian Institutes of Health Research 15.0 30.0 30.0 30.0
Hazardous Materials Information
Review Commission 0.0 0.8 0.8 0.8
Health Canada 74.2 141.5 200.6 200.6
Patented Medicine Prices Review Board 0.8 0.9 1.0 1.0
Public Health Agency of Canada 13.7 35.7 68.0 68.0
Note: Totals may not add due to rounding.
Responsible Spending
269
HERITAGE PORTFOLIO
Organizations within the Canadian Heritage portfolio will streamline
corporate support functions, consolidate office space and improve the
efficiency of operating processes, improve processes for managing programs
and operations, and prioritize grants and contributions. Canadian Heritage
will move to a more integrated policy framework that focuses on the socio-
economic benefits that their programs offer to Canadians and their
communities. The Department will also focus on funding that leverages
contributions from partners.
For example, the Government is eliminating the Katimavik program, as it
reaches a relatively small number of participants annually at a relatively high
cost per participant due to the nature and duration of the experience.
Canadian Heritage will continue to invest in youth programming and provide
opportunities for more youth to learn about their country.
The Canada Council for the Arts, the National Gallery of Canada and
national museums will not see any reductions in resources as a result of
the review process.
Table A1.11
Planned Savings—Heritage Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Heritage Portfolio 52.2 130.7 191.1 191.1
Canada Council for the Arts – – – –
Canada Science and
Technology Museum – – – –
Canadian Broadcasting Corporation 27.8 69.6 115.0 115.0
Canadian Heritage 17.8 42.2 46.2 46.2
Canadian Museum of Civilization – – – –
Canadian Museum for Human Rights – – – –
Canadian Museum of Nature – – – –
Canadian Radio-television and
Telecommunications Commission 0.0 0.4 0.4 0.4
Library and Archives of Canada 3.5 6.6 9.6 9.6
National Arts Centre Corporation 0.1 1.8 1.9 1.9
National Battlefields Commission 0.2 0.8 0.8 0.8
National Film Board of Canada 0.1 3.3 6.7 6.7
National Gallery of Canada – – – –
Telefilm Canada 2.7 6.0 10.6 10.6
Note: Totals may not add due to rounding.
Annex 1
270
HUMAN RESOURCES AND SKILLS DEVELOPMENT PORTFOLIO
Organizations within the Human Resources and Skills Development
portfolio will continue to modernize their operations to improve services
to Canadians at a reduced cost. The Department will also streamline its
organization, modernize its internal services, and consolidate and
strengthen its policy and research capacity.
Human Resources and Skills Development Canada will transform the
administration of grants and contributions to enhance online delivery
and reduce red tape and the paper burden for applicants and recipients,
thereby improving results for Canadians.
The Minister will introduce legislative amendments to eliminate
administrative duplication in appeals and tribunal services by replacing
the current administrative tribunal system for major federal social security
programs with a single-window decision body. The new Social Security
Tribunal will continue to provide a fair, credible and accessible appeals
process for Canadians.
Table A1.12
Planned Savings—Human Resources and Skills Development Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Human Resources and Skills
Development Portfolio 10.6 64.7 286.7 286.7
Canada Mortgage
and Housing Corporation 4.4 24.2 102.4 102.4
Human Resources and Skills
Development Canada 6.3 39.4 183.2 183.2
National Council of Welfare 0.0 1.1 1.1 1.1
Note: Totals may not add due to rounding.
Responsible Spending
271
INDUSTRY PORTFOLIO
Industry Canada has ensured that core activities related to government
priorities, such as regulatory compliance and enforcement, grants and
contributions that foster the knowledge-based economy, and support for
key industries, are preserved. Industry Canada’s savings measures target
reductions in administrative expenditures, office consolidations and more
efficient research and analysis functions.
Statistics Canada will responsibly manage its resources and priorities while
maintaining the collection and analysis of data relevant to public policy
development, implementation and evaluation, and meeting the priority
needs of Canadian institutions.
Organizations within the portfolio related to science and technology
(the National Research Council of Canada and two of the three federal
granting councils) have ensured that programming in support of basic
research, student scholarships, and industry-related research initiatives
and collaborations are preserved. This approach sends a strong signal
of the Government’s commitment to these priority areas as identified
by the Government and the research stakeholder community. In addition,
Economic Action Plan 2012 is proposing $368.5 million over two years
in new resources for priority initiatives delivered by these organizations.
Consistent with the objectives of the Federal Tourism Strategy, the Canadian
Tourism Commission will adjust its activities to focus resources on markets
of strategic importance to Canada’s tourism industry.
Table A1.13
Planned Savings—Industry Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Industry Portfolio 89.2 182.7 217.3 217.3
Canadian Space Agency 7.9 24.7 29.5 29.5
Canadian Tourism Commission 0.5 14.2 14.2 14.2
Industry Canada 49.2 65.2 79.5 79.5
Natural Sciences and Engineering Research
Council of Canada 15.0 30.0 30.0 30.0
National Research Council of Canada 1.3 16.3 16.3 16.3
Social Sciences and Humanities Research
Council of Canada 7.0 14.0 14.0 14.0
Statistics Canada 8.3 18.3 33.9 33.9
Note: Totals may not add due to rounding.
Annex 1
272
INTERNATIONAL DEVELOPMENT ASSISTANCE PORTFOLIO
The Canadian International Development Agency, Foreign Affairs and
International Trade Canada, the International Development Research
Centre, the Royal Canadian Mounted Police and Natural Resources Canada
will streamline administrative services and ensure more efficient program
delivery. The Canadian International Development Agency will restructure
and streamline management and internal services.
The Government of Canada will take steps to improve the effectiveness of
Canada’s aid by strengthening its focus, improving efficiency and increasing
accountability. In this regard, the Canadian International Development
Agency will restructure its operations to reduce its operational costs and
concentrate its efforts where it can have the greatest impact. The Agency
and other portfolio organizations will adjust their programming in keeping
with the ability of partners and regional institutions to implement programs,
thus ensuring that Canada achieves sustainable results and improves the
effectiveness of its aid.
Table A1.14
Planned Savings—International Assistance Envelope
millions of dollars
2012–13 2013–14 2014–15 Ongoing
International Assistance Envelope (IAE) 180.7 242.1 377.6 377.6
Canadian International Development Agency 152.7 191.6 319.2 319.2
Foreign Affairs and International Trade Canada (IAE only) 15.5 28.8 29.1 29.1
International Development Research Centre 6.2 15.3 23.0 23.0
Royal Canadian Mounted Police (IAE only) 1.3 1.3 1.3 1.3
Natural Resources Canada (IAE only) 5.0 5.0 5.0 5.0
Note: Totals may not add due to rounding.
Responsible Spending
273
JUSTICE PORTFOLIO
The Department of Justice, the Public Prosecution Service of Canada and
the Courts Administration Service are modernizing their operations to focus
on core mandates and new ways of doing business while safeguarding
Canada’s system of justice.
Following a review of its internal services, the Department of Justice will
consolidate and streamline the delivery of administrative and legal services
to eliminate duplication and reduce costs, and will improve service through
the adoption of best practices and the creation of centres of expertise.
This approach will enable it to provide more streamlined legal advice
and maintain its standards of excellence.
The three organizations in this portfolio will increasingly leverage technology
to modernize their operations and reduce costs. For example, the
Department of Justice will rely to a greater extent on digital information
holdings and electronic communications for meetings and publications
to realize efficiencies and savings.
Table A1.15
Planned Savings—Justice Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Justice Portfolio 21.2 69.0 76.9 76.9
Courts Administration Service 0.5 0.5 1.0 1.0
Department of J ustice 12.3 60.2 67.5 67.5
Public Prosecution Service of Canada 8.4 8.4 8.4 8.4
Note: Totals may not add due to rounding.
Annex 1
274
NATIONAL DEFENCE PORTFOLIO
Significant progress has been made in modernizing the Canadian Forces
through major, necessary investments in the country’s military capabilities.
To improve the efficiency and effectiveness of the organization, the
Department of National Defence and the Canadian Forces will improve
contracting processes, streamline the procurement of support equipment and
spare parts, centralize real property management, and centralize and enhance
human resources management to achieve better value for money.
As the Department of National Defence and the Canadian Forces transition
to a lower pace of operations following the end of the combat mission in
Afghanistan, Canadian Forces regular and reserve force strength will be
maintained at 68,000 and 27,000, respectively. This will preserve balance
across the four Canada First Defence Strategy pillars upon which military
capabilities are built—personnel, equipment, readiness and infrastructure.
Table A1.16
Planned Savings—National Defence Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
National Defence Portfolio 326.8 706.1 1,119.8 1,119.8
Communications Security Establishment Canada 7.9 13.7 13.7 13.7
National Defence 318.8 692.4 1,106.1 1,106.1
Note: Totals may not add due to rounding.
Responsible Spending
275
NATURAL RESOURCES PORTFOLIO
Natural Resources Canada and the Canadian Nuclear Safety Commission
will focus on their core roles and responsibilities, and will align their
activities accordingly.
Natural Resources Canada will reduce internal corporate services and
rationalize its organizational structure and operations to be more efficient.
In focusing on its core mandate, Natural Resources Canada and the
Canadian Nuclear Safety Commission will reduce or eliminate activities of
low relevance, effectiveness, efficiency, or affordability. These changes will
not have an impact on the health, safety and security of Canadians and
the environment.
Table A1.17
Planned Savings—Natural Resources Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Natural Resources Portfolio 68.3 86.0 108.3 108.3
Canadian Nuclear Safety Commission 0.5 1.3 1.3 1.3
Natural Resources Canada 67.8 84.7 107.0 107.0
Note: Totals may not add due to rounding.
Annex 1
276
PRIVY COUNCIL OFFICE PORTFOLIO
The Privy Council Office is transforming some of its operations and
looking at innovative ways to achieve efficiencies. In addition, some support
in non-critical areas will be removed to focus on core roles of advice to the
Prime Minister and ministers, support to the Cabinet, and integration and
leadership of the public service. For example, the Government is eliminating
the Public Appointments Commission and Secretariat as it has significantly
strengthened the rigour and accessibility of the public appointments system
over the past five years, particularly for full-time and leadership positions.
Table A1.18
Planned Savings—Privy Council Office Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Privy Council Office Portfolio 3.7 6.5 12.2 12.2
Privy Council Office 1.4 4.0 9.2 9.2
Canadian Intergovernmental
Conference Secretariat 0.5 0.6 0.7 0.7
Public Appointments Commission Secretariat 1.1 1.1 1.1 1.1
Transportation Safety Board of Canada 0.7 0.8 1.3 1.3
Note: Totals may not add due to rounding.
Responsible Spending
277
PUBLIC SAFETY PORTFOLIO
With the heaviest focus placed on maintaining service and preserving
programs that are critical to protecting the safety of Canadians, Public
Safety Canada will reduce spending in areas of declining necessity
and derive savings from business transformation and organizational
restructuring.
The Royal Canadian Mounted Police will be pursuing administrative
and operational support efficiencies, with minimal impacts on direct
policing operations.
The Canada Border Services Agency will streamline internal services
and low-performing processes.
The Correctional Service of Canada will find efficiencies in its operations and
will continue to use existing facilities. The Government has not built a single
new prison since 2006 and has no intention of building any new prisons.
Table A1.19
Planned Savings—Public Safety Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Public Safety Portfolio 179.4 370.7 687.9 687.9
Canada Border Services Agency 31.3 72.8 143.4 143.4
Canadian Security Intelligence Service 13.7 20.2 24.5 24.5
Correctional Service of Canada 85.5 170.2 295.4 295.4
Parole Board of Canada 1.6 2.7 4.8 4.8
Public Safety Canada 2.9 15.8 24.7 24.7
Royal Canadian Mounted Police 44.4 89.1 195.2 195.2
Note: Totals may not add due to rounding.
Annex 1
278
PUBLIC SERVICE COMMISSION OF CANADA
By streamlining internal operations and making greater use of technology,
the Public Service Commission of Canada will restructure and reduce
its internal services, aligning with the Commission’s program changes
and rationalization.
These actions are being undertaken without compromising the Commission’s
role of providing assurance of the integrity of the staffing system in the
federal public service.
Table A1.20
Planned Savings—Public Service Commission of Canada
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Public Service Commission of Canada 2.2 4.5 9.0 9.0
Responsible Spending
279
PUBLIC WORKS AND GOVERNMENT SERVICES CANADA
Public Works and Government Services Canada is transforming how it
does business to better serve its clients through increased efficiency and
effectiveness. In this regard, the Department will modernize its information
technology infrastructure to reduce annual licensing, maintenance and
operating costs. In addition, the Department will transition to electronic
publications and will increasingly adopt online service delivery to Canadians
and businesses.
The Department will also rationalize redundant services and consolidate
its operations while meeting the needs of other federal government
organizations and ultimately Canadians. It will also introduce new office
space standards in Crown-owned and federal government occupied
buildings. The new, more efficient and effective office accommodation
standards are consistent with industry best practices.
Table A1.21
Planned Savings—Public Works and Government Services Canada
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Public Works and Government
Services Canada 1.5 28.1 85.3 177.6
Note: Given that a large portion of its spending is fixed over the short term (e.g. through lease agreements
and contracts), Public Works and Government Services Canada has until 2018–19 to achieve its savings target.
Annex 1
280
REGIONAL DEVELOPMENT AGENCIES
Following a review of their internal services, the regional development
agencies will consolidate offices, internal services, procurement and
environmental assessment services to eliminate duplication and reduce
operating costs, while continuing to deliver quality services to entrepreneurs
and communities. Aligning with private sector and community demand, they
will focus on supporting projects with the greatest economic growth and job
creation potential in communities across Canada.
Table A1.22
Planned Savings—Regional Development Agencies
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Regional Development Agencies 26.7 73.4 86.9 86.9
Atlantic Canada Opportunities Agency 2.1 13.8 17.9 17.9
Canada Economic Development
for Quebec Regions 7.4 26.7 28.1 28.1
Canadian Northern Economic
Development Agency 0.2 2.4 2.4 2.4
Federal Economic Development
Agency for Southern Ontario 10.4 21.3 22.1 22.1
Western Economic Diversification Canada 6.6 9.3 16.3 16.3
Note: Totals may not add due to rounding.
Responsible Spending
281
SHARED SERVICES CANADA
Created in August 2011, Shared Services Canada has a mandate to
streamline and reduce duplication in the Government’s information
technology (IT) services while strengthening the security of government
and Canadian data. Shared Services Canada is standardizing and re-
engineering IT services across government to provide more cost-effective
and efficient government operations.
Through Shared Services Canada, the Government will move to a single
e-mail system, consolidate its data centres from over 300 to less than 20 and
streamline its electronic networks. Shared Services Canada will now deliver
e-mail, data centre and network services to 43 organizations. Shared Services
Canada will also support the Government’s Workplace 2.0 efforts, enabling
a more mobile, connected, collaborative and efficient work force. This will
improve services to Canadians, make IT more secure and reliable, and save
taxpayers’ dollars.
Table A1.23
Planned Savings—Shared Services Canada
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Shared Services Canada
74.7 104.5 150.0 150.0
Annex 1
282
TRANSPORT PORTFOLIO
Organizations in the Transport portfolio identified a combination of
productivity-enhancing and transformative measures that change the way
programs and services are delivered and support the Government’s agenda
of refocusing government and reducing red tape. Non-core activities will
be reduced while maintaining capacity related to core mandates in order to
protect the safety of Canadians and support economic growth.
For example, VIA Rail Canada Inc. will pursue productivity improvements
such as augmenting the performance of the heating, ventilation and air
conditioning systems on board trains to reduce maintenance costs, reduce
energy consumption, and increase passenger comfort. It will also implement
automation projects such as electronic ticketing and invoicing systems.
Table A1.24
Planned Savings—Transport Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Transport Portfolio 63.4 97.2 152.6 152.6
Canadian Air Transport Security Authority 19.4 32.4 59.7 59.7
Marine Atlantic Inc. 0.5 2.2 10.9 10.9
The J acques Cartier and Champlain
Bridges Incorporated 0.0 0.5 0.5 0.5
Transport Canada 37.0 47.0 61.8 61.8
VIA Rail Canada Inc. 6.5 15.1 19.6 19.6
Notes: The Government is committed to balance air travel security expenses with Air Travellers Security Charge
revenues over time. Totals may not add due to rounding.
Responsible Spending
283
TREASURY BOARD PORTFOLIO
The Treasury Board Secretariat and the Canada School of Public Service will
align their organizational structures and resources with their core mandates
by scaling back where appropriate. For example, the Secretariat is moving to
electronic reporting and making better use of technology to provide guidance
on management policies. The Canada School of the Public Service is
eliminating the Advanced Leadership Program. With these changes, the
Secretariat and the School are sharpening their focus on supporting
management excellence and accountability across government.
Table A1.25
Planned Savings—Treasury Board Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Treasury Board Portfolio 10.4 18.6 30.2 30.2
Canada School of Public Service 2.8 3.5 6.6 6.6
Treasury Board Secretariat 7.6 15.1 23.6 23.6
Note: Totals may not add due to rounding.
Annex 1
284
VETERANS AFFAIRS CANADA
Veterans Affairs Canada will continue to make it easier for Veterans and their
families to receive the benefits and services they are entitled to in the shortest
possible time. For instance, replacing the existing contribution agreements
for the housekeeping and grounds maintenance components of the Veterans
Independence Program with annual grants will simplify the process for
more than 96,000 Veterans, primary caregivers and survivors.
Changes will also be made to eliminate duplication and overlap between
Veterans Affairs and the Department of National Defence to better serve
Canadian Forces Members and Veterans.
Table A1.26
Planned Savings—Veterans Affairs Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Veterans Affairs Portfolio 36.1 49.3 66.7 36.9
Veterans Affairs Canada 36.1 49.3 66.7 36.9
Veterans Review and Appeal Board – – – –
Note: The lower ongoing savings for Veterans Affairs Canada reflects the accrual impact of some of its savings measures,
which are fully amortized by 2015–16.
Chapter 1
Introducton
Annex 2
The Stmulus Phase of
Canada’s Economic Acton Plan:
A Final Report to Canadians
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
287
HIGHLIGHTS
?
The stimulus phase of Canada’s Economic Action Plan steered the
economy through the deepest global recession since the 1930s
and has positioned Canada to succeed in a highly competitive
global economy.
?
Over 30,000 projects were completed under the stimulus phase of
the Economic Action Plan. These projects have contributed to a
strong labour market recovery, with over 610,000 net new jobs
created since July 2009.
?
This performance reflects the Government’s commitment to
create jobs and opportunities for Canadians. Since January 2006,
employment in Canada has increased by over 1.1 million, the
strongest performance of any Group of Seven (G-7) country
over this period.
?
The Government was flexible in responding to the needs of
Canadians during the economic recovery:
? The Government strengthened Employment Insurance (EI)
benefits and froze EI premium rates in 2010. In 2011 and 2012,
EI premium increases were limited to 5 cents per $100 of
insurable earnings.
? The Government extended the deadline for infrastructure
projects under four Economic Action Plan funds from
March 31, 2011 to October 31, 2011.
?
This additional flexibility gave the Government’s partners more
time to complete infrastructure projects funded during the stimulus
phase of the Economic Action Plan. It is estimated that almost
$3.5 billion was spent in the 2011–12 fiscal year as a result of the
Government’s prudent management.
?
The stimulus phase of Canada’s Economic Action Plan was
successful in securing the recovery by protecting jobs and families,
while making important investments to contribute to Canada’s
long-term economic prosperity.
?
The next phase of Canada’s Economic Action Plan builds on
the momentum created in the stimulus phase by continuing to
focus on jobs and growth, while solidifying Canada’s long-term
fiscal sustainability.
Annex 2
288
THE STIMULUS PHASE OF CANADA’S
ECONOMIC ACTION PLAN
By providing over $63 billion in timely fiscal stimulus, Canada’s Economic
Action Plan made important investments that will contribute to Canada’s
long-term economic prosperity while supporting those most affected by
the global recession. Taxes have been reduced for Canadian families and
job-creating businesses; EI benefits were enhanced for the unemployed;
thousands of infrastructure projects were completed across the country;
significant support was provided for science and technology, industries
and communities; and extraordinary actions were taken to improve access
to financing.
The implementation of the stimulus phase of the Economic Action Plan was
timely and completed as planned. The Government carefully designed and
managed the stimulus to ensure the sound stewardship of taxpayer funds.
We found that the programs we examined were designed in a
manner to allow for timely implementation while maintaining
suitable controls.
— Fall 2010 Report of the Auditor General of Canada
to the House of Commons
The Government reported regularly to Canadians on the implementation
of the stimulus phase of Canada’s Economic Action Plan. To date,
the Government has released seven reports focusing on substantive
milestones—dollars spent and outcomes achieved—and provided an
additional update to Canadians as part of Budget 2011.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
289
Table A2.1
Reports to Canadians Date
Stimulus phase of Canada’s Economic Action Plan launch J anuary 2009
First Report to Canadians March 2009
Second Report to Canadians J une 2009
Third Report to Canadians September 2009
Fourth Report to Canadians December 2009
Fifth Report to Canadians (Budget 2010) March 2010
Sixth Report to Canadians September 2010
Seventh Report to Canadians J anuary 2011
Final Report to Canadians (Budget 2012) March 2012
Temporary stimulus has now been wound down, and the Government is
reporting to Canadians for a final time. As the Government moves forward
with the next phase of Canada’s Economic Action Plan, this annex provides
details on overall results achieved since the launch of the stimulus phase in
January 2009.
The stimulus phase of the Action Plan stimulated economic growth by:
• Reducing the Tax Burden for Canadians: Providing Canadians
with significant, permanent personal income tax relief and encouraging
businesses to make the type of productivity-enhancing investments that
result in sustained economic growth.
• Helping the Unemployed: Providing more resources for EI benefits
to support those who lost their jobs and supporting training and skills
development programs to help Canadians get the additional skills they
need for the jobs of tomorrow. This included offering additional benefits
to long-tenured workers. It also included providing support to Canadian
workers participating in work-sharing agreements.
• Building Infrastructure to Create Jobs: Investing in new infrastructure
and stimulating housing construction to create jobs and help ensure that
Canada emerged from the global economic downturn with a modern
and greener infrastructure and more affordable and safe housing for
lower-income Canadians. The stimulus phase of the Economic Action
Plan also provided additional support to the housing sector through
the Home Renovation Tax Credit.
Annex 2
290
• Advancing Canada’s Knowledge Economy and Creating Better
Jobs: Improving infrastructure at colleges, universities, federal
laboratories and research facilities; introducing additional support
for graduate students and internships; commercializing new ideas;
and strengthening research and technology leadership in Canada.
• Supporting Industries and Communities: Supporting local economies
and protecting jobs in regions, communities and sectors that were most
affected by the global economic downturn.
• Improving Access to Financing and Strengthening Canada’s
Financial System: Ensuring the continued stability of the Canadian
financial system and improving access to financing for Canadian
households and businesses.
Overall, more than $60 billion in stimulus and tax reductions were delivered
to the economy in 2009–10 and 2010–11, and it is estimated that almost
$3.5 billion was delivered in 2011–12 (Table A2.2).
Table A2.2
Canada’s Economic Action Plan—Results Achieved
millions of dollars
2009–10 2010–11 2011–12 Total
Reducing the Tax Burden for Canadians 3,020 3,180 6,200
Helping the Unemployed 3,348 5,005 8,353
Building Infrastructure to Create J obs 6,021 7,462 1,051 14,534
Advancing Canada’s Knowledge Economy
and Creating Better J obs 1,550 1,469 250 3,269
Supporting Industries and Communities 10,979 2,023 13,003
Total federal stimulus measures 24,918 19,140 1,301 45,359
Leveraged provincial and territorial actions 8,553 7,679 2,164 18,395
Total Economic Action Plan stimulus
33,471 26,819 3,465 63,755
Notes: Totals may not add due to rounding. Amounts for 2009–10 and 2010–11 are actual cash expenditures, while
amounts for 2011–12 reflect estimated expenditures only for the four extended infrastructure programs. As a result of
the extension of these programs, some funds originally planned for 2010–11 will be recorded in 2011–12. Final numbers
will be released in the Public Accounts of Canada in Fall 2012.
At the federal level, it is estimated that over $45 billion was delivered through
the stimulus phase of the Economic Action Plan, generating a significant
boost to jobs and growth.
From the outset of the stimulus phase of the Economic Action Plan in
early 2009, the Government worked closely with partners in provinces
and territories to identify priority and shovel-ready infrastructure projects.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
291
For many stimulus programs, the Government required that federal
contributions be matched by equal or greater contributions from provinces
territories and municipalities, thereby ensuring maximum impact from the
Economic Action Plan.
In many cases, provinces, territories and municipalities chose to contribute
more than the amounts required under program contribution agreements,
thereby allowing larger and more ambitious infrastructure projects to be
funded through the Plan. Taking into account these additional contributions,
it is estimated that over $63 billion in stimulus and tax reductions were
delivered to the economy between 2009–10 and 2011–12.
Prudent and Flexible Management
In order for the stimulus to be effective, it had to deliver important
economic and job-creating results when Canada needed it the most.
The Government worked with provincial, territorial and municipal partners
to ensure that stimulus funds were spent effectively and in a timely manner
so that communities benefited from the economic recovery.
While the majority of infrastructure projects were completed by
March 31, 2011, consultations with provinces, territories and municipalities
in Fall 2010 revealed that a number of infrastructure projects were at risk
of not being completed by the March 31
st
deadline. In response to these
concerns, the Government extended the project completion deadline
to October 31, 2011 under four cost-shared infrastructure programs,
providing additional flexibility to its partners and extending stimulus benefits
by an additional construction season. While this extension had some impact
on the timing of expenditures between fiscal years 2010–11 and 2011–12,
it did not impose any additional costs on the Government, as it entailed a
change in the profile of budgeted funds and not new allocations of funding.
Canada has emerged from the recession of 2008-2009 as a leader
in the pack of industrialized nations. And while it is important not to
rest on our laurels, Canadian economic and fiscal fundamentals are
a rightful source of pride for our business and political leaders.
(The Finance Minister) has guided the economy through the
recession with a deft hand, and is now set to return his
government to the important path of fiscal sustainability.
— Richard Gauthier, CEO, Canadian Automobile Dealers Association
March 9, 2011, Globe and Mail
Annex 2
292
This additional flexibility gave the Government’s partners more time to
complete infrastructure projects funded during the stimulus phase of the
Economic Action Plan. It is estimated that 2,270 projects were completed
as a result of the extension.
Over 30,000 Projects Have Been Completed
In total, based on the most recent reports received, 30,200 projects have
been completed with support from Canada’s Economic Action Plan, since
January 2009. These included:
• Roughly 7,500 provincial, territorial and municipal infrastructure projects,
including almost 4,000 Infrastructure Stimulus Fund projects and over
1,900 Recreational Infrastructure Canada projects.
• Over 500 projects to improve infrastructure at colleges and universities
across the country.
• 258 projects to improve small craft harbours.
• Over 1,850 projects to assist communities hardest hit by the recession
through the Community Adjustment Fund.
• 147 cultural infrastructure projects.
• Over 200 projects to upgrade facilities at National Parks and National
Historic Sites.
• 249 projects to modernize federal laboratories.
• Roughly 1,800 projects to renovate and repair federal buildings.
• Over 300 projects to enhance the accessibility of Crown-owned
buildings for persons with disabilities.
• 97 First Nations infrastructure projects.
• An estimated 16,500 social housing and First Nations housing projects.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
293
The Stimulus Phase of Canada’s Economic Action Plan
Protected Canadian Jobs
Economic developments since the introduction of the stimulus phase of
Canada’s Economic Action Plan underscore its success in protecting
Canadian jobs through strong support to the domestic economy. As a result,
there are more than 610,000 Canadians working today than in July 2009,
and Canada has posted the strongest growth in employment among
G-7 countries (Chart A2.1).
Canada has experienced the strongest growth in
employment among G-7 countries during the recovery
Chart A2.1
Improvement in Employment During the Recovery
Note: Monthly data for Canada (July 2009 to January 2012), the United States (February 2010 to January 2012),
Germany (July 2009 to January 2012), Italy (August 2010 to January 2012) and Japan (August 2011 to January 2012).
Quarterly data for France (2009Q4 to 2011Q3) and the United Kingdom (2010Q1 to 2011Q4).
Sources: Haver Analytics; Department of Finance calculations.
The Economic Action Plan was a partnership between governments
to protect Canadians during a global crisis—and that partnership
has delivered results. Municipalities are co-funding $10 billion worth
of stimulus projects that will keep 100,000 Canadians on the job
and supporting their families.
— Hans Cunningham, Past President of the Federation
of Canadian Municipalities, December 2010
Annex 2
294
This performance was remarkable given that the global recession posed
a particularly significant challenge for the Canadian economy. We faced
losses in the value of our exports not only from weaker demand from our
trading partners, but also from sharply lower commodity prices. These
factors, along with the negative impact of the global financial market crisis
on Canadian credit and equity markets, resulted in sharp declines in
consumer and business confidence during the early stages of the
global recession.
With the implementation of the stimulus phase of the Economic Action Plan
in early 2009, however, Canada’s economic situation stabilized, and output
and jobs began to grow again. This resulted in a rebound in consumer and
business confidence, despite ongoing external weakness in the global
economy. Stronger confidence, in turn, was reflected in:
• A solid rebound in consumer spending growth, which averaged close to
3 per cent per quarter over the stimulus phase of the Economic Action
Plan, reflecting in part the positive impacts of tax relief and stimulus
spending, as well as support for the unemployed through enhanced
EI benefits and training programs.
• Strong growth in residential investment, bolstered by temporary
measures introduced to support the housing market. In particular,
with support from the Home Renovation Tax Credit, which provided
Canadian homeowners with approximately $2.3 billion in tax relief, home
renovation spending growth averaged over 18 per cent per quarter from
the second quarter of 2009 through the first quarter of 2010.
• A resurgence in private business investment growth, which returned to
positive territory in early 2010 and averaged over 16 per cent per quarter
over the remainder of the stimulus phase of the Economic Action Plan.
• Finally, government investments in infrastructure were key to the success
of the Economic Action Plan, with average government investment
growth of almost 15 per cent per quarter during the stimulus phase of the
Economic Action Plan.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
295
The Government’s Policies Are Supporting
a Strong Job Market
The Government’s sound policies and prudent management have
contributed to significant job growth in Canada. Since January 2006,
employment in Canada has increased by over 1.1 million, the strongest
performance of any G-7 country over this period.
• Over 610,000 jobs have been created since July 2009, more than
offsetting all of the jobs lost during the recession.
• About 90 per cent of the jobs created since July 2009 have been full-time
jobs and over 75 per cent have been high-quality jobs in high-wage
industries and in the private sector.
Canada’s labour market has performed better than its G-7 peers,
with Canada posting the strongest employment growth among
G-7 countries over the recovery (Chart A2.1).
In the last few years, Canada has got every major decision right.
Look at the facts. Not a single Canadian bank fell or faltered during
the global banking crisis. Canada got to grips with its deficit and
was running surpluses and paying down debt before the recession,
fixing the roof while the sun was shining. Your economic leadership
has helped the Canadian economy to weather the global storms far
better than many of your international competitors.
— David Cameron, Prime Minister, United Kingdom,
September 22, 2011
Annex 2
296
RESULTS ACHIEVED
The following section reports on key overall results achieved under the
stimulus phase of Canada’s Economic Action Plan. Actions taken during
the stimulus phase are divided into six themes:
• Reducing the Tax Burden for Canadians
• Helping the Unemployed
• Building Infrastructure to Create Jobs
• Advancing Canada’s Knowledge Economy and Creating Better Jobs
• Supporting Industries and Communities
• Improving Access to Financing and Strengthening Canada’s
Financial System
Reducing the Tax Burden for Canadians
The tax reductions provided during the stimulus phase of Canada’s
Economic Action Plan were an essential part of the Government’s effort to
boost economic growth and establish a competitive business environment,
which helps create more and better-paying jobs and increase living standards
for Canadians. The tax reductions built on actions taken since 2006 and
reinforced the Government’s ambitious agenda of creating a tax system
that fuels investment and job creation in Canada.
Actions taken by the Government since 2006, including those in the
stimulus phase of the Economic Action Plan, will reduce taxes on
individuals, families and businesses by an estimated $220 billion over
2008–09 and the following five fiscal years. In total, the Government
has introduced more than 140 tax relief measures since 2006.
Tax relief for Canadian families and individuals (not including
housing-related tax relief) provided under the stimulus phase of the
Economic Action Plan from 2008–09 to 2010–11 totalled $6.9 billion.
These permanent measures provide tax relief on an ongoing basis.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
297
Table A2.3
Reducing the Tax Burden for Canadians
millions of dollars
2008–09 2009–10 2010–11 Total
Personal income tax relief for all taxpayers 470 1,885 1,950 4,305
Increases to the National Child Benefit supplement
and the Canada Child Tax Benefit 230 310 540
Enhancing the Working Income Tax Benefit 145 580 580 1,305
Targeted relief for seniors 80 325 340 745
Total–Reducing the Tax Burden for Canadians
695 3,020 3,180 6,895
Notes: Totals may not add due to rounding. The Canada Child Tax Benefit and the National Child Benefit supplement are
considered expenditures for budgetary purposes and thus should not be included in calculations of total tax relief.
Tax Relief for Individuals and Families
The stimulus phase of the Economic Action Plan introduced significant
new personal income tax reductions that have provided relief, particularly
for low- and middle-income Canadians, as well as measures to help
Canadians purchase or improve their homes. These tax reductions allow
individuals and families to keep more of their hard-earned money and
improve incentives to work, save and invest, while also contributing
to the Government’s long-term economic agenda. For example,
the Government:
• Increased the amount of income that Canadians can earn before paying
federal income tax, and increased the top of the two lowest income tax
brackets so that Canadians can earn more income before being subject
to higher tax rates.
• Introduced the Working Income Tax Benefit in Budget 2007,
and effectively doubled it in the stimulus phase of Canada’s Economic
Action Plan. This enhancement lowered the “welfare wall,” further
strengthening work incentives for low-income Canadians already in the
workforce and encouraging other low-income Canadians to enter the
workforce. Canadians have been able to receive enhanced benefits since
filing their 2009 tax return.
• Raised the level at which the National Child Benefit supplement for
low-income families is fully phased out and the level at which the
Canada Child Tax Benefit begins to be phased out, which is providing a
benefit of up to $443 per year (in the 2011–12 benefit year) for a family
with two children. Additional monthly benefits under these programs
began to be paid to families with children in July 2009.
Annex 2
298
• Increased the Age Credit amount by $1,000 in 2009 to provide tax relief
to low- and middle-income seniors. With indexation, this means
additional tax savings of up to $157 for low-income seniors in 2012.
• Introduced a new tax credit of up to $750 to assist first-time home
buyers and provided them with additional access to their Registered
Retirement Savings Plan savings to purchase or build a home.
Tax Relief for Families Since 2006: Example
Michael and Kate are a couple with two children. Michael earns $40,000 and
Kate earns $60,000. As a result of actions taken by the Government since
2006, they are expected to pay $2,145 less in personal income tax and
$960 less in GST, for a total of $3,105 in tax relief in 2012. Michael and Kate
also receive an additional $81 in child benefits.
Supporting Families With Children
Since 2006, the Government has significantly increased support for families
to better assist them with the costs of raising children:
• The Universal Child Care Benefit, available since July 2006, gives families
with young children more choice in child care by providing $100 per month
for each child under age 6.
• The Child Tax Credit, available since 2007, recognizes the expenses
associated with raising children by providing personal income tax relief
of up to $329 in 2012 for each child under age 18.
• The Children’s Fitness Tax Credit, available since 2007, promotes physical
fitness among children through a 15-per-cent credit on up to $500 in
eligible fees for the enrolment of a child under age 16 in an eligible
program of physical activity.
• The Children’s Arts Tax Credit, available since 2011, promotes children’s
participation in artistic, cultural, recreational or developmental activities
through a 15-per-cent credit on up to $500 in eligible fees for the
enrolment of a child under age 16 in an eligible program.
• The amount that families can earn before the National Child Benefit
supplement is fully phased out—or before the base benefit under the
Canada Child Tax Benefit begins to be phased out—was increased starting
in July 2009. As a result, a low-income family with two children receives
an additional benefit of up to $443 in the 2011–12 benefit year.
• The spousal and other related amounts were increased to equal the basic
personal amount so that single-earner families, including single parents,
receive the same tax treatment as two-earner families, effective 2007.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
299
Supporting Families With Children (cont’d)
• To help families with children with disabilities, the Government introduced
the Registered Disability Savings Plan (RDSP) starting in 2008, and
increased the Child Disability Benefit component of the Canada Child Tax
Benefit as of July 2006. Families with infirm children may also claim the
new Family Caregiver Tax Credit, a 15-per-cent credit on an amount of
$2,000 available starting in 2012. Budget 2012 introduces several
measures to improve the RDSP. These measures will give RDSP
beneficiaries and their families increased flexibility to establish, contribute
to and access savings from their plans.
• To help families with education costs, the Government took several actions
to strengthen Registered Education Savings Plans and expand and
enhance the Canada Student Loans Program, and launched the new
consolidated Canada Student Grants Program. The Government also
exempted scholarship and bursary income from tax and introduced the
Textbook Tax Credit.
• Families are major beneficiaries of the substantial tax relief the
Government has provided to all Canadians, such as the 2-percentage-
point reduction in the Goods and Services Tax, broad-based personal
income tax reductions, and the introduction of the Tax-Free Savings
Account, which helps Canadians meet lifetime savings needs.
• In addition, many families are benefiting from other more targeted tax
measures introduced since 2006, such as the Working Income Tax Benefit,
the Canada Employment Credit, the Public Transit Tax Credit and the
First-Time Home Buyers’ Tax Credit.
• The average family of four is now saving more than $3,100 per year in
taxes, and more than 1 million low-income Canadians have been removed
from the tax rolls in 2012.
• Altogether, actions taken since 2006 will provide about $160 billion of
tax relief for individuals and families over 2008–09 and the following
five fiscal years.
Annex 2
300
Supporting Low-Income Working Canadians
Canada’s tax system ensures that people with lower incomes contribute a
smaller proportion of their income in taxes. Indeed, more than 40 per cent of
all taxpayers pay no net tax; that is, their tax liabilities are either nil or
offset by income-tested benefits such as the Canada Child Tax Benefit and
the GST Credit. In addition, low-income Canadians now pay significantly less
tax and receive more benefits due to actions taken by the Government since
2006. In fact, in 2012, one third of the personal income tax relief provided
by the Government will go to Canadians with incomes under $41,544, even
though they pay about 13 per cent of taxes.
Since it was introduced in 2007, the Working Income Tax Benefit (WITB) has
lowered the welfare wall, so that low-income individuals may keep more of
their earnings. In 2012, if the WITB had not been introduced, a typical low-
income single parent in Nova Scotia would have only kept about 28 cents of
each additional dollar earned between $3,000 and $10,000, due to reduced
benefits from federal and provincial income-tested programs and taxes. As a
result of the enhanced WITB, the same family will keep about 53 cents of
each additional dollar earned.
Other tax relief provided by the Government has also helped low-income
working Canadians. For example, the amount that a single parent with one
child can earn in 2012 before paying taxes has increased by $5,324 to
$26,557 as a result of the introduction of the Canada Employment Credit,
the Child Tax Credit and legislated increases to the basic personal amount,
and the Eligible Dependant Credit.
Tax Relief for Job-Creating Businesses
A competitive business tax system is essential for creating an environment
that encourages new investment, growth and job creation in Canada. In 2007,
Parliament passed a bold tax reduction plan that lowered the federal general
corporate income tax rate from 22.12 per cent in 2007 (including the
corporate surtax that was eliminated in 2008) to 15 per cent in 2012. The
stimulus phase of the Economic Action Plan built on these corporate income
tax reductions to help position businesses to weather the effects of global
economic challenges, invest in Canada, and spur innovation and growth—
thereby creating more and better-paying jobs for Canadian workers. Stimulus
measures included:
• Help for businesses to adopt newer technology at a faster pace:
a temporary 100-per-cent capital cost allowance (CCA) rate was
introduced for computers acquired after January 27, 2009 and
before February 1, 2011.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
301
• Help for businesses in manufacturing and processing industries to
restructure and retool to position themselves for long-term success: the
temporary 50-per-cent straight-line accelerated CCA rate for investments
in manufacturing or processing machinery and equipment was extended
to include investments undertaken in 2010 and 2011. This measure was
first introduced in Budget 2007 and was extended, most recently in
Budget 2011, to include investments undertaken before 2014.
• Support for small businesses: the amount of small business income
eligible for the reduced federal income tax rate was further increased
to $500,000 effective January 1, 2009, following a previous increase
to $400,000 from $300,000 as of January 1, 2007.
• Support for mineral exploration activity across Canada: the temporary
Mineral Exploration Tax Credit was extended.
These measures provided immediate economic stimulus, while also
encouraging the type of productivity-enhancing investments that result
in sustained growth.
Including measures in the stimulus phase of the Economic Action Plan,
the Government has introduced business tax relief totalling roughly
$60 billion over 2008–09 and the following five fiscal years.
Business tax cuts are benefiting Canadians in very important
ways … If governments had not provided tax relief for Canadian
businesses, the recession would have been deeper and
unemployment would have certainly been higher … (now) we have
a corporate sector that is better poised to take advantage of
new market opportunities, which will, in turn, continue to
generate job growth.
— Jayson Myers, President & CEO,
Canadian Manufacturers and Exporters
January 25, 2012 press release
Annex 2
302
Supporting Small Businesses
The tax system provides considerable support to small businesses through a
lower corporate income tax rate, incentives for investors, enriched financial
support for research and development (R&D) and simplified compliance.
Since 2006, the Government has introduced a large number of tax measures to
support investment, innovation and growth by small businesses, including:
• To help small businesses retain more of their earnings for investment,
expansion and job creation, the lower small business tax rate was reduced to
11 per cent from 12 per cent in 2008. The amount of income eligible for this
lower rate was increased from $300,000 to $400,000 in 2007, and then to
$500,000 in 2009.
• To spur investment in small businesses, Budget 2007 increased the Lifetime
Capital Gains Exemption on qualified small business shares to $750,000 from
$500,000, the first increase in the exemption since 1988.
• To enhance support for R&D through the Scientific Research and Experimental
Development tax incentive program, Budget 2008 increased the amount of
expenditures eligible for the higher, refundable tax credit to $3 million and
extended eligibility to medium-sized companies by increasing the taxable
capital and income limits.
• To help innovative companies attract venture capital, Budget 2010 narrowed
the definition of taxable Canadian property, thereby eliminating the need for
tax reporting under section 116 of the Income Tax Act for many investments.
This improves the ability of Canadian businesses, including innovative high-
growth companies that contribute to job creation and economic growth, to
attract foreign venture capital.
• To encourage hiring in the small businesses sector, Budget 2011 announced a
temporary Hiring Credit for Small Business of up to $1,000 against a small
employer’s increase in its 2011 EI premiums over those paid in 2010. This
temporary credit was available to approximately 525,000 employers whose
total EI premiums were at or below $10,000 in 2010, reducing their 2011
payroll costs by about $165 million.
• To assist employers facing challenges, Budget 2011 also made available
an extension of up to 16 weeks for active or recently terminated
EI work-sharing agreements.
Budget 2012 further supports small businesses by announcing:
• An extension of the Hiring Credit for Small Business for one year, which will
provide a credit of up to $1,000 against a small employer’s increase in its 2012
EI premiums over those paid in 2011.
• A new approach to setting EI premium rates that will ensure predictability and
stability by limiting rate increases to 5 cents per year until the EI Operating
Account is balanced, after which the Canada Employment Insurance Financing
Board will be mandated to set a seven-year break-even rate to be recalculated
every year.
• Actions to reduce the tax compliance burden for small businesses. This includes
doubling the thresholds for eligibility to use the GST/HST streamlined
accounting methods, simplifying administration for partnerships, and improving
the rules for paying eligible dividends.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
303
As a result of federal and provincial business tax changes, Canada has
an overall tax rate on new business investment
that is lower than that in any
other G-7 country and below the average of the member countries of the
Organisation for Economic Co-operation and Development (OECD)
(Chart A2.2).
Canada leads the G-7 with the lowest overall
tax rate on new business investment
Chart A2.2
Marginal Effective Tax Rate
1
on New Business Investment, 2014
1
The marginal effective tax rate (METR) on new business investment takes into account federal, provincial and
territorial statutory corporate income tax rates, deductions and credits available in the corporate tax system and
other taxes paid by corporations, including provincial capital taxes and retail sales taxes on business inputs.
The methodology for calculating METRs is described in the 2005 edition of Tax Expenditures and Evaluations
(Department of Finance).The METR includes measures announced as of January 1, 2012.
It excludes resource and financial sectors and tax provisions related to research and development.
2
OECD average excludes Canada.
Source: Department of Finance.
The government's commitment to reducing the general corporate
income tax rate to 15% by 2012 is important to our ongoing
economic recovery and should be applauded.
— Gabe Hayos, Canadian Institute of Chartered Accountants
House of Commons Standing Committee on Finance
October 18, 2011
Annex 2
304
Improving the competitiveness of the Canadian tax system requires
collaboration among all governments to help Canadian businesses compete
globally. Provinces and territories have also taken action to enhance Canada’s
business tax advantage (Chart A2.3.). These actions are helping Canada build
a strong foundation for future economic growth, job creation and higher
living standards for Canadians.
Combined, federal and provincial tax changes have
improved Canada’s tax competiti veness
Chart A2.3
Marginal Effective Tax Rates¹ by Province, 2014
1
The marginal effective tax rate reflects actions taken since 2006 by federal and provincial governments, and
includes measures announced as of January 1, 2012. It excludes resource and financial sectors and tax provisions
related to research and development.
Source: Department of Finance.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
305
Table A2.4
Reducing the Tax Burden for Canadians
millions of dollars
2008–09 2009–10 2010–11 Total
Personal income tax relief for all taxpayers 470 1,885 1,950 4,305
Increases to the National Child Benefit supplement
and the Canada Child Tax Benefit 230 310 540
Enhancing the Working Income Tax Benefit 145 580 580 1,305
Targeted relief for seniors 80 325 340 745
Total–Reducing the Tax Burden for Canadians 695 3,020 3,180 6,895
Reference:
Tax and Tariff Measures to Support
Housing and Business
Home Renovation Tax Credit 2,265 2,265
Increasing withdrawal limits under the Home Buyers’ Plan 15 15 30
First Time Home Buyers’ Tax Credit 130 115 245
Mineral Exploration Tax Credit for flow-through
share investors 70 -15 55
Increasing the income limit for the small business tax rate 45 80 125
Temporary 100-per-cent capital cost allowance
rate for computers 340 355 695
Tariff relief on machinery and equipment 76 81 157
Temporary acceleration of the capital cost allowance rate
for manufacturing or processing machinery and equipment
Notes: Totals may not add due to rounding. The Canada Child Tax Benefit and the National Child Benefit supplement
are considered expenditures for budgetary purposes and thus should not be included in calculations of total tax relief.
Annex 2
306
Helping the Unemployed
The stimulus phase of Canada’s Economic Action Plan included $8.4 billion
over two years to support workers most affected by the global recession.
Because of the quick and decisive measures taken by the Government,
Canada’s economy has more than recovered all of the jobs lost during the
downturn. As temporary stimulus measures began to wind down, the
Government took additional steps to secure the recovery by limiting
Employment Insurance (EI) premium rate increases to 5 cents per $100
of insurable earnings for 2011 and 2012 and 10 cents for subsequent years.
Table A2.5
Helping the Unemployed
millions of dollars
2009–10 2010–11 Total
Strengthening benefits for Canadian workers 1,259 1,680 2,938
Enhancing the availability of training 896 948 1,844
Keeping EI rates frozen for 2010 1,193 2,378 3,571
Total–Helping the Unemployed
3,348 5,005 8,353
Note: Totals may not add due to rounding.
Over the course of the downturn, the EI program provided Canadians
with needed temporary support. In 2009–10, the Government spent
approximately $5.3 billion more in EI benefits than during the previous year.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
307
Supporting Workers
The Government of Canada provides significant support to Canadian
workers, including programs and services for those looking to first enter the
labour market, those looking to upgrade their skills and training, and those
in need of support during periods of unemployment.
Since 2006, the Government has introduced important measures aimed
at ensuring a more skilled and inclusive workforce. Investments
have included:
• Putting in place the Targeted Initiative for Older Workers in 2006 to
support a range of employment activities for unemployed older workers
in vulnerable communities. Canada’s Economic Action Plan provided an
additional $60 million over three years for the Targeted Initiative for Older
Workers to help older workers remain active and productive participants in
the labour market. Budget 2011 then provided $50 million over two years
to extend the Initiative until 2013–14.
• Introducing a new labour market training architecture in Budget 2007,
making available $3 billion over six years to provinces and territories
for the design and delivery of labour market programs with a focus
on assisting groups under-represented in the labour force, including
persons with disabilities, Aboriginal peoples, recent immigrants and
older workers.
• Providing $7 billion over two years, under the Economic Action Plan,
for direct support to workers most affected by the recession. The Canada
Skills and Transition Strategy included investments to: strengthen
EI benefits, work-sharing and wage protection benefits; significantly
expand the availability of training opportunities, including for older
workers, youth and Aboriginal peoples; encourage completion of
apprenticeships; facilitate the recognition of foreign credentials;
and freeze EI premium rates for two years.
Budget 2010 announced additional, targeted actions to protect Canadian
workers and their jobs from the effects of the global economic recession by:
• Temporarily extending the maximum length of work-sharing agreements
to protect jobs, allowing more workers to keep their jobs while employers
retained skilled employees with years of experience.
• Providing $108 million over three years to assist young people looking
to gain skills and experience. This included a one-year $30-million
increase in funding for the Career Focus component of the Youth
Employment Strategy as well as $20 million in support of Pathways
to Education Canada’s work to support disadvantaged youth.
• Budget 2011 provided additional support by extending for up to 16 weeks
active or recently terminated work-sharing agreements, further protecting
workers’ jobs.
Annex 2
308
Supporting Workers (cont’d)
The Government has also introduced a number of tax measures to support
Canadian workers, including:
• The Canada Employment Credit, introduced in Budget 2006, provides
tax recognition for work-related expenditures such as home computers,
uniforms and supplies.
• The Tradesperson’s Tools Deduction, introduced in Budget 2006, allows
tradespersons to deduct from their income part of the cost of tools they
must acquire as a condition of employment.
• The Apprenticeship Job Creation Tax Credit, introduced in Budget 2006,
encourages employers to hire new apprentices in eligible trades.
• The Working Income Tax Benefit, introduced in Budget 2007, strengthens
work incentives for low-income Canadians already in the workforce and
encourages low-income Canadians to enter the workforce. The Economic
Action Plan effectively doubled the tax relief provided by the Working
Income Tax Benefit for 2009 and future years.
• This tax relief builds on the support provided to apprentices through the
Apprentice Incentive Grant provided in Budget 2006 and the
Apprenticeship Completion Grant, which was introduced in Budget 2009.
In addition, Budget 2012 provides:
• $50 million over two years to enable the Youth Employment Strategy to
help more young Canadians get the information and gain the skills, work
experience and abilities they need to make a successful transition to
the workplace.
• $21.3 million over two years to help unemployed Canadians get back
to work more quickly by enhancing the content and timeliness of labour
market information that is provided to them. The Government will also
clarify what is expected of Canadians with respect to their job search
activities while they are receiving regular EI benefits.
• $74.0 million over two years to introduce a new, national three-year
EI pilot project that will allow claimants to earn more money while
receiving EI benefits. This new pilot project will mean those working while
on EI claim will see their benefits reduced by only 50 per cent of earnings.
This change means that claimants will be able to earn more and have a
higher total income while they are on claim.
• An improved way to calculate EI benefits that will reduce disincentives to
taking all available work. Beginning April 2013, claimants will have their
EI benefits calculated based on the highest weeks of earnings over the
year preceding a claim. The number of weeks will vary from 14 to 22,
depending on the unemployment rate in the claimant’s EI region.
• A commitment to protect long-term disability benefits of employees in
the federally regulated private sector by requiring employers to insure,
on a go-forward basis, any long-term disability plans they offer to
their employees.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
309
In addition to much-needed temporary assistance, the stimulus phase of the
Economic Action Plan invested in training for Canadian workers so they
can take advantage of new opportunities as the economy recovers. The
Plan’s support for the unemployed included:
• An extra five weeks of EI benefits were provided to more than
1.2 million EI claimants.
• EI premium rates in 2010 were frozen at $1.73 per $100 of insurable
earnings—their lowest level since 1982.
• Nearly 12,000 long-tenured unemployed workers have received
additional assistance through the Career Transition Assistance program
in order to participate in long-term training.
• To date, almost 225,000 long-tenured workers have received
5 to 20 weeks of additional EI benefits.
• In December 2011, over 13,000 Canadians were participating in more
than 550 work-sharing agreements. At its peak in October 2009, over
165,000 Canadians were participating in work-sharing agreements.
In order to support a continued recovery for Canadian businesses and
workers, the Government announced, as part of the November 2011
Update of Economic and Fiscal Projections, an additional extension
of up to 16 weeks for active, recently terminated or new work-sharing
agreements. The extension will be phased out by October 2012.
• Since April 1, 2009, payments have been made to more than
40,600 claimants under the Wage Earner Protection Program.
• The Government provided $750 million per year to the provinces
and territories in 2009–10 and 2010–11 in support of training and
skills development programs, which has benefited more than
200,000 Canadians annually.
• Projects under the enhanced Targeted Initiative for Older Workers
provided support to over 12,000 older workers. Due to the success
of the initiative, Budget 2011 provided $50 million over two years to
extend the program.
• Training and skills development was provided to close to
19,800 Aboriginal people through the Aboriginal Skills and
Employment Partnership program and the Aboriginal Skills
and Training Strategic Investment Fund.
Annex 2
310
• Support is being provided to implement the Pan-Canadian Framework
for the Assessment and Recognition of Foreign Qualifications. To date,
funding has supported 67 contribution agreements, including projects
with seven provincial and territorial governments and 21 different
professions, to assist with the implementation of the Framework.
• Funding has supported 1,008 youth internships in not-for-profit and
community service organizations through the YMCA and YWCA,
91 per cent of which have an environmental focus.
The number of Canadian workers benefiting from
work-sharing has fallen as the recovery takes hold
Chart A2.4
Canadian Workers Participating in Active
Work-Sharing Agreements
Source: Human Resources and Skills Development Canada.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
311
Canada’s Economic Action Plan:
Working for Canadians
Aboriginal Skills and Employment
Partnership Program
Edmonton, Alta.—Sean Mangal got a solid foothold in the pipes trade
through Trade Winds to Success, an 18-week pre-apprenticeship training
program that ensures Aboriginal peoples are positioned to benefit from
Alberta’s construction industry in occupations such as boilermakers,
ironworkers, carpenters and pipe/steamfitters. Trade Winds to Success
enabled Sean to obtain a job in his chosen field as a pipefitter with Arpi’s
North Inc., working on projects such as the Edmonton International
Airport expansion.
Enhanced Work Sharing
Mississauga, Ont.—Since being founded in 1936, the Mascot Truck Parts
company has become one of the largest heavy-duty specialists in North
America, applying its expertise to rebuilding all makes of transmissions,
differentials and steering gears. The economic downturn hit the
manufacturing and automotive industry hard and Mascot felt the impact.
To avoid layoffs, the company signed a work-sharing agreement that
allowed it to keep 107 employees and the business running.
Apprenticeship Grants
Vancouver, B.C.—Ross Redeker’s love for working with his hands has
led him to become a successful and well-paid plumber. His previous job
as a warehouse manager was not giving him the sort of job satisfaction
he had been looking for, and he wanted to make a change. He left the
warehouse job to become a plumber apprentice. Currently employed at
Bridge Mechanical, the company that hired him four years ago, Ross is
grateful to the Government of Canada for providing the apprenticeship
grants. “I want to thank you for making these programs available. It has
not only given me financial assistance to obtain a job that I enjoy, but it
has given me a sense of pride. When people ask what I do for a living,
I can say ‘I am a certified plumber.’”
Annex 2
312
Table A2.6
Helping the Unemployed
millions of dollars
2009–10 2010–11 Total
Strengthening Benefits
An extra 5 weeks of EI benefits 796 796 1,592
EI—long-tenured workers
(Career Transition Assistance program) 15 83 98
EI—long tenured workers
(extension of regular benefits) 215 731 946
EI—work sharing 211 49 260
Wage Earner Protection Program 22 21 43
Subtotal—Strengthening Benefits 1,259 1,680 2,938
Enhancing the Availability of Training
EI training programs 500 500 1,000
Strategic Training and Transition Fund 250 250 500
Canada Summer J obs Program 10 10 20
Federal public service student employment program 10 10 20
YMCA/YWCA 15 15
Targeted Initiative for Older Workers 5 21 26
Apprenticeship Completion Grant 39 40 79
Foreign Credential Recognition program 12 22 35
Aboriginal Skills and Employment Partnership program 7 48 56
Aboriginal Skills and Training Strategic Investment Fund 24 46 70
Aboriginal Human Resource Development Strategy 23 23
Subtotal—Enhancing the Availability of Training 896 948 1,844
Keeping EI rates frozen for 2010 1,193 2,378 3,571
Total—Helping the Unemployed
3,348 5,005 8,353
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
313
Building Infrastructure to Create Jobs
State-of-the-art transportation infrastructure helps move people and goods
to markets, and improves business competitiveness, allowing the economy
to grow and prosper. Other types of public infrastructure, such as clean
drinking water systems and cultural and recreational facilities, improve public
health and enhance the quality of life for Canadian families.
Table A2.7
Building Infrastructure to Create Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Building Infrastructure
Investments in provincial, territorial
and municipal infrastructure 852 3,469 1,051 5,373
Investments in First Nations infrastructure 229 280 510
Federal infrastructure 943 713 1,657
Subtotal—Building Infrastructure 2,025 4,463 1,051 7,540
Stimulating Housing Construction
Support for home ownership and
the housing industry 2,596 321
2,917
Investments in social housing for Canadians 1,399 2,678
4,077
Subtotal—Stimulating Housing Construction 3,995 2,999 6,994
Total—Building Infrastructure to Create Jobs
6,021 7,462 1,051 14,534
Total—With provincial contributions
8,019 13,934 2,816 24,769
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
Amounts for 2009–10 and 2010–11 are actual cash expenditures, while amounts for 2011–12 reflect estimated
expenditures for the four extended infrastructure programs. As a result of the extension of these programs, some funds
originally planned for 2010–11 will be recorded in 2011–12. Final numbers will be released in the Public Accounts of
Canada in Fall 2012. The budgetary impact may be somewhat smaller because some of these expenditures relate to
construction and renovation costs of federal assets (for which only depreciation is recorded on a budgetary basis) and
loans to third parties (where there is a budgetary impact only in the event that there is a risk of loss).
In the shorter term, infrastructure and housing investments are widely
recognized as an effective means to boost economic activity and put people
to work. That is why the Government delivered about $14.5 billion during
the stimulus phase of Canada’s Economic Action Plan to modernize a broad
range of infrastructure including our roads, bridges, public transit, parks and
water treatment facilities, and to support home ownership, help stimulate the
housing sector, and improve housing across Canada. These investments,
including those in new infrastructure and the rehabilitation of existing assets,
helped to create and maintain jobs across Canada during the economic
downturn, and will continue to benefit all Canadians for many years.
Annex 2
314
While the majority of projects announced as part of the stimulus phase of
Canada’s Economic Action Plan were completed by March 31, 2011, a
number of provincial/territorial, municipal and not-for-profit projects facing
scheduling challenges benefited from a one-time seven-month extension to
the deadline for completing infrastructure projects. This flexibility provided
the Government’s partners with an additional construction season to
complete projects under the following four programs: the Infrastructure
Stimulus Fund, the Building Canada Fund Communities Component
Top-Up, the Knowledge Infrastructure Program and the Recreational
Infrastructure Canada program. As a result of the extension, almost
$3.5 billion in stimulus was invested in the economy in 2011–12, and it is
estimated that roughly 2,270 projects under the four extended programs
were completed after March 31, 2011.
Investments in Provincial, Territorial and Municipal Infrastructure
As part of the stimulus phase of Canada’s Economic Action Plan, the
Government launched a number of new initiatives to stimulate additional
investment in provincial, territorial and municipal infrastructure. These
new stimulus initiatives consisted of the Infrastructure Stimulus Fund,
the Building Canada Fund Communities Component Top-Up, the Green
Infrastructure Fund, the Recreational Infrastructure Canada program and
funding for recreational trails.
By working closely with each province and territory to approve projects
quickly, the Government allocated close to $5.4 billion in stimulus funding
towards almost 7,000 projects across the country. Provinces, territories,
municipalities and other partners also contributed to these projects, thereby
generating a total investment in public infrastructure of about $14 billion at
a critical time.
In addition to launching new stimulus initiatives, the Government took steps
to accelerate funding under Building Canada initiatives that were announced
in Budget 2007. These steps were designed to further increase investment
when support for the economy was needed most.
Some of these projects, particularly larger-scale projects being funded under
the Major Infrastructure Component of the Building Canada Fund, are
ongoing and continue to support long-term economic growth.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
315
In the last few years, federal investments have helped
municipalities put police on the streets, repair social housing
and rebuild the roads, bridges, water systems and public transit
Canada needs to support families, businesses and long-term
economic growth.
— Federation of Canadian Municipalities,
February 2012
Infrastructure Stimulus Fund: Through the Infrastructure Stimulus Fund,
the Government made $4 billion in funding available for infrastructure
projects that could get underway quickly and thus provide much-needed
economic stimulus to the Canadian economy. Working with provinces,
territories, municipalities and the private sector, more than 4,000 projects
were completed under this program. In total, these projects represented an
investment of about $10 billion in Canada’s public infrastructure.
Canada’s Economic Action Plan:
Working for Canadians
Examples of Completed Infrastructure
Stimulus Fund Projects
St. Lunaire-Griquet, N.L.—With the help of $1.25 million from the
Infrastructure Stimulus Fund, Newfoundland and Labrador improved
access to one of its prime tourist destinations, L’Anse aux Meadows. The
Route 436 approach to this UNESCO World Heritage site, Canada’s earliest
known Viking settlement, was resurfaced and widened. A culvert was also
replaced. The benefits of this project include improved safety and traffic
flow and lower maintenance costs, all of which contribute to the promotion
of tourism and economic growth in the region.
Chatham, Ont.—The Chatham-Kent Women’s Centre provides shelter,
counselling, education and housing support to victims of domestic abuse.
To accommodate growing demand, the centre received $322,475 from the
Infrastructure Stimulus Fund to expand the facility and make the building
accessible to persons with disabilities. Now double its original size, the
centre no longer has to rely on hotels or community partners to house their
clients, freeing up the time and money to focus on programs to help women
and children threatened by domestic abuse.
Annex 2
316
Canada’s Economic Action Plan:
Working for Canadians
Examples of Completed Infrastructure
Stimulus Fund Projects (cont’d)
Spirit River, Alta.—Elevator and Cargill roads are important access routes
that contribute to the Central Peace Region’s economic development. The
roads support an average of 1,020 truckloads a year, translating into more
than $120 million in annual regional revenues. Both roads were restored
and repaved thanks to $336,761 from the Infrastructure Stimulus Fund.
This project helped sustain jobs in the area, while also increasing road
safety for truckers. It also improved access to the industrial and agricultural
network to enhance the flow of goods crucial to the regional economy.
Carmacks, Y.T.—Running through the Town of Carmacks, Freegold Road
is a primary supply route to and from many northern mining projects. A
single-lane wooden bridge across the Nordenskiold River had been causing
bottlenecks on this important local artery. With a $1-million contribution
from the Infrastructure Stimulus Fund, a new steel bridge is now in place.
It is large enough to handle two lanes of traffic as well as heavy vehicles
and includes a sidewalk. The new bridge supports continued resource
development in the region.
Bonus for Community Projects: The stimulus provided under Canada’s
Economic Action Plan included $500 million to top up the more than
$1 billion in initial funding that was made available under the Communities
Component of the Building Canada Fund. More than 500 projects were
completed as a result of this top-up, representing a total investment of
approximately $1.5 billion in community infrastructure.
Green Infrastructure Fund: The Green Infrastructure Fund supports
sustainable energy generation and transmission, modernized wastewater
infrastructure and better management of solid waste. To date, the
Government has committed $617 million towards 17 Green Infrastructure
Fund projects. Provinces, territories, municipalities and the private sector
are also contributing funding towards these projects, bringing the total
investment to over $2 billion. Projects under the Green Infrastructure Fund
are mainly long-term strategic initiatives that not only have been creating
stimulus in the short term but will lead to a more sustainable economy in
the coming years.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
317
Canada’s Economic Action Plan:
Working for Canadians
Annex 2
318
National Recreational Trails: The stimulus phase of the Economic Action
Plan made $25 million in funding available in 2009–10 to the National Trails
Coalition to help build and renew recreational trails for walking, running,
cross-country skiing and biking, as well as snowmobile and all-terrain vehicle
trails. The funding supported a total of 474 projects that were completed
by March 31, 2010.
Recreational Infrastructure Canada: Hockey arenas, soccer fields, tennis
courts and swimming pools provide Canadians and their families with the
benefits of physical activity and community-based experience. The stimulus
phase of Canada’s Economic Action Plan provided $500 million for the
Recreational Infrastructure Canada program, supporting the construction of
new facilities and upgrades to existing ones across the country. These funds
were matched by contributions from other levels of government and
recipients, thereby increasing the impact on local employment. In total,
1,919 projects were completed, creating significant new economic activity
in all parts of Canada.
Canada’s Economic Action Plan:
Working for Canadians
Examples of Community Projects
Arichat, N.S.—Thanks to $250,000 from the Building Canada Fund
Communities Component Top-Up, the Village of Arichat replaced five aging
and malfunctioning wastewater pumping stations that were installed in the
1970s and had become impossible to maintain. The work has made the
community’s wastewater collection system more efficient and reliable. The
work has also benefited the environment by preventing raw sewage from
discharging into the Arichat harbour, as had occurred when the old sewage
pumps malfunctioned.
Sayabec, Que.—For the Town of Sayabec’s residents, improving the
community centre was a key goal. The centre is the hub of local activities
and one of few in the region able to host events such as exhibitions,
performances and conferences. With $593,630 from the Building Canada
Fund Communities Component Top-Up, the centre renovated its storage
and stage areas. The building’s roof and siding were also replaced, and
more parking spaces were added to accommodate a growing clientele.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
319
Canada’s Economic Action Plan:
Working for Canadians
Examples of Community Projects (cont’d)
Langford, B.C.—The City of Langford was in need of a new arena for some
time. With only two skating rinks to serve 66,000 residents, ice time was
constantly booked. To solve this problem, the city received over $4.4 million
from the Building Canada Fund Communities Component Top-Up to build a
new recreational facility. The City Centre Park Sportsplex includes an ice
rink and bowling alley. It also features a one-of-a-kind ”ice river” that
connects the new 500-seat arena to an outdoor skating area that can be
converted into a children’s splash park in Summer.
Lorette, Man.—Previously served by only three municipal wells and
numerous private wells, Lorette residents had to put up with recurring
boil-water orders. With the help of $600,000 from the Building Canada Fund
Communities Component Top-Up, the town built a one-million-litre concrete
reservoir and pumping station with filtration and disinfection capacity. The
system also has sufficient capacity to accommodate future community
growth. Thanks to the stimulus provided, everyone in the town is now linked
to a modern potable water system that has improved drinking water quality
and reliability.
First Nations Infrastructure
During the stimulus phase of Canada’s Economic Action Plan, the
Government spent $510 million to support infrastructure projects in three
priority areas: schools, water and wastewater projects, and health and police
facilities in First Nations communities. In total, these funds supported
97 major projects, all of which were completed.
Investments, such as the following, spurred significant job creation and
economic development in First Nations communities, many of which
are rural:
• $173-million investment in 12 school projects.
• $188-million investment in 23 water and wastewater projects.
• $134-million investment in health service infrastructure, including
40 major projects and 135 minor projects.
• $15-million investment in 22 First Nations policing infrastructure projects.
Annex 2
320
Funding to Upgrade and Modernize Federal Infrastructure
Federal infrastructure stimulus projects under the Plan included investments
in faster and more reliable passenger rail services, safer bridges and highways,
refurbished harbours for small crafts and more efficient border crossings.
Reliable Passenger Rail Services: The stimulus phase of Canada’s
Economic Action Plan provided funding for a wide range of projects
designed to modernize rail passenger services through improvements to
infrastructure, locomotives, passenger cars, stations and related facilities.
• VIA Rail was able to accelerate its capital projects as a result of
investments made through the stimulus phase of Canada’s Economic
Action Plan, including completing upgrades to rail car safety systems,
tracks and stations.
• The stimulus phase of the Action Plan also supported two remote
passenger rail services: Keewatin Railway, which operates between
The Pas and Pukatawagan (northern Manitoba), and Tshiuetin Rail
Transportation, which operates between Sept-Îles and Schefferville
(northern Quebec) as well as in Labrador.
Federal Bridges: Through the stimulus phase of Canada’s Economic
Action Plan, the Government invested more than $89 million over
two years in the rehabilitation and repair of the following bridges:
• Blue Water Bridge in Sarnia.
• Peace Bridge in Fort Erie.
• Champlain Bridge in Montréal.
• Alexandra Bridge and the Chaudière Crossing in the National
Capital Region.
• The LaSalle Causeway in Kingston and the Burlington Lift Bridge
in Burlington.
The funding ensures that bridges and other transportation infrastructure
continue to be safe and serve the needs of commuters.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
321
Federal Buildings: The stimulus phase of the Plan delivered significant
funds to repair and renovate the federal government’s building portfolio.
About 2,000 repair and renovation projects were completed. In addition,
funding was provided to over 300 projects to enhance the accessibility of
Crown-owned buildings for persons with disabilities. During project
selection, priority was given to facilities where services were provided directly
to Canadians.
Canada’s Economic Action Plan:
Working for Canadians
Examples of Federal Bridges
National Capital Region—The work done on the Alexandra Bridge in the
National Capital Region exemplifies the positive outcomes of green-based
approaches to asset rehabilitation. This rehabilitation project involved
strengthening the steel structure and increasing its seismic capacity as well
as replacing the deck, guardrail and wooden boardwalk. The work done on
the century-old bridge was closely managed to maximize the recycling of
all salvageable materials and, as a result, achieved over 88 per cent
diversion from landfill. The pressure-treated wood previously used in the
bridge’s boardwalk was replaced with planks made from non-treated
durable wood species. Screw fasteners now hold the planks in place instead
of traditional nails. The screws ensure fewer planks will need to be replaced
each year.
Burlington, Ont.—The original, lead-based paint on the Burlington Lift
Bridge, dating back to 1962, had begun to flake and peel off the bridge,
producing an increased risk of contamination to the surrounding
environment. There was also a need to paint the lift span in order to
mitigate the structural deterioration resulting from its exposure to road
salt, which had accelerated the rate of peeling and corrosion. In addition,
structural deficiencies due to corrosion were repaired. All the repair work
was completed within 20 months and the bridge was shut down only twice
throughout the duration of the work.
Alaska Highway: On sections of the Alaska Highway from Summit Lake,
British Columbia, to the Yukon border, deck repairs to eight bridges were
completed, 28 kilometres of asphalt road surface were repaved, and an
intersection was rebuilt to make it safer. These investments totalled
$13 million and were all completed on budget during the short northern
Summer construction period.
Annex 2
322
Twinning of the Trans-Canada Highway in Banff National Park:
The project involved two separate design/build tenders, one for the
Icefields Interchange and a second for the twinning of six kilometres of
the Trans-Canada Highway between the Interchange and the Alberta-
British Columbia border. Funding was provided over three years and
construction is expected to be completed in Fall 2012.
Small Craft Harbours: The stimulus phase of Canada’s Economic Action
Plan provided $200 million to Fisheries and Oceans Canada to undertake
repairs of small craft harbours through 272 projects. To date, repair,
maintenance and dredging has been completed for 258 projects. Projects
that remain underway will be completed in the future with existing
departmental funding.
Fisheries and Oceans Canada was also provided with $17 million to
accelerate the construction of the Pangnirtung harbour in Nunavut.
Stimulus funding spent totalled $11.2 million. The remaining $5.8 million
was approved for spending in 2011–12.
Canada’s Economic Action Plan:
Working for Canadians
Small Craft Harbours
Port Saunders, N.L.—A wharf reconstruction project at the commercial
fishing harbour of Port Saunders has restored the capacity of the harbour
to support the economic sustainability of this community. The harbour,
which is used by 140 commercial fishing vessels, is important to the
economic viability of the seafood industry in the Gulf of St. Lawrence.
The Economic Action Plan’s $2.5-million project protected over
500 full-time seasonal jobs in the harvesting and processing sectors.
Berens River, Man.—Berens River is a remote Aboriginal community
located 280 kilometres northeast of Winnipeg, Manitoba. It is an active
fishing community with over 65 commercial fishers; fishing is the primary
economic endeavour. Thanks to Canada’s Economic Action Plan, a contract
for $185,000 was awarded to Lindell and Dymterko Ltd. for a new timber
crib wharf. The community now has access to an improved vessel berthing
for the commercial fishers and increased landing capacity.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
323
Federal Contaminated Sites: Through the stimulus phase of Canada’s
Economic Action Plan, the Government accelerated work to assess
and remediate federal contaminated sites. Departments completed over
210 accelerated remediation projects and over 2,400 site assessments in
2009–10 and 2010–11.
Supporting Home Ownership and Jobs in Housing Construction
The housing industry is an important source of economic activity and job
creation in Canada, as it promotes demand for building materials and other
goods and services. For many Canadians, their homes are their most
important investment. To protect and create jobs, the Government
provided significant support for home ownership and renovations.
Canadians who undertook eligible renovations to their homes after
January 27, 2009 and before February 1, 2010 were entitled to receive up
to $1,350 in tax relief from the temporary Home Renovation Tax Credit
(HRTC) introduced in the stimulus phase of Canada’s Economic Action
Plan. The HRTC expired as planned on January 31, 2010.
The HRTC helped more than 3 million Canadians—about one out of every
three owner-occupied households—improve their homes while boosting
Canada’s economic growth.
The stimulus phase of Canada’s Economic Action Plan also provided
additional tax support to first-time home buyers, who continue to benefit
from greater access to their Registered Retirement Savings Plan savings to
purchase or build a home, as well as up to $750 in tax relief from the First-
Time Home Buyers’ Tax Credit.
Further, thanks to Canada’s Economic Action Plan, homeowners benefited
from the enhanced ecoENERGY Retrofit – Homes program to make
energy efficiency improvements to their homes. The program experienced
strong demand during the stimulus phase of the Economic Action Plan and
was renewed until March 31, 2012.
Investments in Social Housing
The stimulus phase of Canada’s Economic Action Plan included historic
investments in social housing that contributed to supporting Canada’s
housing construction and renovation industries. Federal support of roughly
$2 billion helped Canadian families access suitable and affordable housing,
while putting Canadians back to work.
Annex 2
324
In addition, provincial and territorial governments, which were responsible
for program design and delivery, contributed over $1.5 billion toward
this two-year investment. This joint investment in social housing allows for
the construction and renovation of 16,500 housing units for low income
families across the country. This includes 430 construction projects for
low-income seniors and persons with disabilities, and over 11,350 existing
social housing renovation projects administered by provinces and
territories nationwide.
The Government of Canada also invested $150 million to renovate and
retrofit federally administered social housing. In total, almost 1,310 projects
were completed. These projects support some of the most vulnerable in our
communities: single-parent families, recent immigrants, and Aboriginal
peoples living off reserve.
Through the stimulus phase of the Economic Action Plan, the Government
invested $400 million over two years to build and renovate housing in
First Nations communities. Close to 500 communities benefited from more
than 3,200 projects. A further $200 million was also invested in the North to
address the territories’ housing needs, which supported 210 projects.
In addition to direct funding for social housing, municipalities undertook
housing-related infrastructure projects supported by 272 low-cost loans
totalling $2 billion.
Funds from the Affordable Housing Initiative were used by the
Quebec government to fund subsidized housing through the
provincial program AccèsLogis. These funds, coupled with money
for housing provided through Canada’s Economic Action Plan,
totalled $85.6 million last year, enough to build 1,223 social-
housing units. These new homes were a lifeline for the increasing
number of people who are forced to resort to food banks and who
find themselves evicted from their apartments for being unable to
pay their rent.
— Cathy Inouye, Project Genesis; Paula Kline,
Montreal City Mission; John Eric Feliciano,
Face à Face Listening and Intervention Centre.
June 2011
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
325
Canada’s Economic Action Plan:
Working for Canadians
Investments in Housing for Low-Income Seniors
and Persons with Disabilities
Prince Albert, Sask.—The Prince Albert Community Housing Society
(PACH) completed a project in Prince Albert that provides 18 much-needed
affordable housing units for seniors, allowing them to stay in their
community close to family and friends. PACH received $2.3 million in
combined federal and provincial funding under Canada’s Economic Action
Plan. This investment has helped provide residents with quality, affordable
housing that meets their needs while contributing to the economic and
social well-being of the entire community.
Prince Albert Community Housing was delighted when the proposal
for these units was approved with $2.3 million in funding provided
by the federal and provincial governments. It is now a beautiful
home for seniors with extremely happy residents who have a place
they can call home.
— Linda Boyer, Manager, Prince Albert Housing Society Inc.
Investments in First Nations and Northern Housing
Fort Smith, N.W.T.—A small community located along the banks of the
Slave River in the Northwest Territories has benefited from new housing
as a result of $600,000 in federal assistance through Canada’s Economic
Action Plan. The Town of Fort Smith added four new affordable housing
units for low-income families to the community’s housing stock thanks to
the funding, which also contributed to the sustainability of the community.
The investments being made are an important part of our efforts to
ensure the sustainability of our communities through the provision
of affordable housing.
— Robert C. McLeod, Minister Responsible for
the Northwest Territories Housing Corporation
Annex 2
326
Canada’s Economic Action Plan:
Working for Canadians (cont’d)
Renovation and Retrofit of Existing Social Housing (Federal)
Charlottetown, P.E.I.—Gateway Co-op, Charlottetown’s largest co-op,
received new windows thanks to a federal investment through Canada’s
Economic Action Plan. It received over $169,000 in federal funding to
replace windows in the 28-unit building, improving its energy efficiency
and creating local jobs.
Without this initiative, co-ops would not be as able to make many
of the repairs they need. Government funding initiatives for
affordable housing have helped to consolidate co-ops’ success in
delivering affordable, mixed-income housing programs at a
reasonable cost.
— Nicholas Gazzard, Executive Director,
Co-operative Housing Federation of Canada
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
327
Table A2.8
Building Infrastructure to Create Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Investments in Provincial, Territorial
and Municipal Infrastructure
Accelerating payments: Provincial/Territorial Base
Funding Initiative 179 158 337
Infrastructure Stimulus Fund 525 2,635 807 3,967
Bonus for Community Projects 30 303 163 497
Green Infrastructure Fund 5 42 47
National recreation trails 25 25
Recreational Infrastructure Canada 87 331 82 501
Investments in First Nations Infrastructure
School construction 82 91 173
Water and wastewater projects 69 119 188
Critical community services (health facilities) 67 67 134
Critical community services (police facilities) 12 3 15
Federal infrastructure
An improved rail system 138 213 352
Trans-Canada Highway 16 29 45
Federal bridges 39 50 89
Alaska Highway 13 13
Small craft harbours 117 93 210
Repair and restoration of federal buildings 171 151 322
Enhancing accessibility of federal buildings 16 22 38
Manège Militaire in the City of Québec 1 1 2
Accelerating action on federal contaminated sites 88 127 216
Border facilities 2 20 22
Aviation security 343 7 350
Subtotal—Building Infrastructure 2,025 4,463 1,051 7,540
Support for Home Ownership
and the Housing Industry
Home Renovation Tax Credit 2,265 2,265
Home Buyers’ Plan withdrawal limit 15 15 30
First-Time Home Buyers’ Tax Credit 130 115 245
ecoENERGY Retrofit – Homes program 186 191 377
Annex 2
328
Table A2.8 (cont’d)
Buidling Infrastructure to Create Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Investments in Social Housing
for Canadians
Renovation and retrofit of social housing
(provincial/territorial) 433 417 850
Renovation and retrofit of
social housing (federal)
1
67 82 149
First Nations housing—Canada Mortgage
and Housing Corporation
1
123 126 249
First Nations housing—Aboriginal Affairs
and Northern Development Canada 75 79 154
Northern housing 100 100 200
Housing for low-income seniors 200 200 400
Housing for persons with disabilities 25 50 75
Loans to municipalities:
housing-related infrastructure 376 1,624 2,000
Subtotal—Stimulating
Housing Construction 3,995 2,999 6,994
Total—Building Infrastructure
to Create Jobs 6,021 7,462 1,051 14,534
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
Amounts for 2009–10 and 2010–11 are actual cash expenditures, while amounts for 2011–12 reflect estimated
expenditures for the four extended infrastructure programs. As a result of the extension of these programs, some funds
originally planned for 2010–11 will be recorded in 2011–12. Final numbers will be released in the Public Accounts of
Canada in Fall 2012. The budgetary impact may be somewhat smaller because some of these expenditures relate to
construction and renovation costs of federal assets (for which only depreciation is recorded on a budgetary basis) and
loans to third parties (where there is a budgetary impact only in the event that there is a risk of loss).
1
Approximately $1 million in spending was reprofiled to 2011–12.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
329
Advancing Canada’s Knowledge Economy
and Creating Better Jobs
While providing stimulus across the country, Canada’s Economic Action
Plan also contributed to long-term growth and prosperity by helping to build
Canada’s capacity for innovation.
The stimulus phase of Canada’s Economic Action Plan included more than
$3 billion over two years for post-secondary education and research,
technology and innovation, and environmental science. These measures were
consistent with the Government’s long-term plan to strengthen Canada’s
capacity for excellence in research by creating world-leading facilities for
research and advanced training and better preparing young Canadians for
the jobs of tomorrow. The stimulus phase of the Plan also included measures
to create jobs, promote business opportunities and provide support for small
and medium-sized companies. Other investments improved Canadians’
access to broadband Internet, modernized federal laboratories, and
strengthened Canada’s position as a global leader in clean energy.
. . . the Knowledge Infrastructure Program (KIP) was a tremendous
success, but Canadians got so much more from this investment of
their tax dollars. The KIP program strengthened Canada's research,
innovation and education capacity in ways that will benefit
Canadians for generations to come.
— Paul Davidson, President,
Association of Universities and Colleges of Canada, October 2011
Annex 2
330
Table A2.9
Advancing Canada’s Knowledge Economy
and Creating Better Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Action to Invest in Post-Secondary
Education and Research
Improving infrastructure
at universities and colleges 991 746 250 1,987
Other 86 154 240
Subtotal—Action to Invest in Post-Secondary
Education and Research 1,077 900 250 2,227
Investing in Science and Technology
Renewing federal laboratories 85 149 234
Clean energy and the environment 358 274 632
Other 30 146 176
Subtotal—Investing in Science and Technology 473 569 1,042
Total—Advancing Canada’s Knowledge
Economy and Creating Better Jobs 1,550 1,469 250 3,269
Total—With provincial contributions 3,128 2,677 649 6,454
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
Amounts for 2009–10 and 2010–11 are actual cash expenditures, while amounts for 2011–12 reflect estimated
expenditures for the four extended infrastructure programs. As a result of the extension of these programs, some funds
originally planned for 2010–11 will be recorded in 2011–12. Final numbers will be released in the Public Accounts of
Canada in Fall 2012. The budgetary impact may be somewhat smaller because some of these expenditures relate to
construction and renovation costs of federal assets (for which only depreciation is recorded on a budgetary basis) and loans
to third parties (where there is a budgetary impact only in the event that there is a risk of loss).
The Government is helping to build a strong, innovative economy through
science, technology and research excellence, while training new generations
of highly skilled individuals for better jobs. This support underlines the
Government’s commitment to making innovation a long-term strategic
priority. Canada needs this new wave of highly qualified workers to
prosper in a global economy that depends more and more on knowledge
and innovation as a key driver of long-term competitiveness, growth
and employment.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
331
Post-Secondary Education and Research
Through the Knowledge Infrastructure Program, close to $2 billion
was spent on the repair, maintenance and construction of university
and college facilities. By leveraging $3.2 billion from project partners,
the program has led to a $5.2-billion investment in infrastructure at
post-secondary institutions.
A total of 515 projects were completed under the Knowledge Infrastructure
Program. The program deadline was extended to October 31, 2011, and all
but five of the projects that were funded through the program have reached
completion. The remaining five projects are being completed without
additional federal funding.
Arctic Research Infrastructure: The stimulus phase of Canada’s Economic
Action Plan provided $84 million to improve existing research facilities that
support Arctic science and technology and to begin work in support of a
new, world-class Canadian High Arctic Research Station. All 21 projects
were completed over the two years of the Action Plan.
Canada’s Economic Action Plan:
Working for Canadians
Infrastructure Investments at Universities
and Colleges Completed Projects
Halifax, N.S.—Renovations at the Nova Scotia College of Art & Design
University improved research and technology development facilities for film
and media arts. Funding of just under $2 million from the Government of
Canada enables the university to train an additional 110 students per year
in a premier facility for the testing and creation of new ideas and
technologies in cinema. The renovations preserved the architectural
integrity of a 133-year-old building, while bringing it up to current health
and safety standards, developing its data infrastructure and connections to
high-speed research networks, and incorporating more energy-efficient
systems that reduce greenhouse gas emissions and reduce operating costs.
Edmonton, Alta.—Thanks to Canada’s Economic Action Plan, $10 million
was provided to the University of Alberta to renovate three floors of the 40-
year-old Chemical and Materials Engineering Building. Upgrades to
54 research and teaching labs were made, asbestos was removed, safety
and building code deficiencies were corrected and more energy-efficient
mechanical and electrical systems were installed. By addressing these
critical health and safety deficiencies, previously unusable space now
accommodates an additional 20 professors, 100 graduate students,
50 research administrative staff and 150 undergraduate students.
Annex 2
332
Canada’s Economic Action Plan:
Working for Canadians
Fredericton, N.B.—The newly constructed Richard J. Currie Center at the
University of New Brunswick, which the Government of Canada supported
with an $8-million investment, enables an interdisciplinary team of
researchers to come together to form a critical mass of expertise in human
performance, biomechanics, health promotion and chronic disease
management. Combined with the Institute of Biomedical Engineering, the
facility creates a centre of excellence on human performance, biomechanics,
chronic disease management and health promotion, allowing Canada to
compete with the best in the world. As a result of the project, the institution
anticipates that it has increased its training capacity by more than
400 students annually.
Investing in Science and Technology
As part of its effort to ensure Canada’s long-term economic prosperity
and sustainability, the stimulus phase of Canada’s Economic Action Plan
provided support for science and technology through investments to
modernize federal laboratories, spur research in clean energy and
space technology, and improve broadband access.
Renewing Federal Laboratories: The Government delivered over
$234 million to upgrade and modernize federal laboratories doing research
in a wide array of fields, including health, safety, security, transportation,
environmental protection and heritage. These projects provided near-term
stimulus in regions across Canada, and helped federal departments to better
deliver their core regulatory responsibilities, improve science and technology
capacity, and enhance the health and safety of Canadians.
Clean Energy and the Environment: The stimulus phase of Canada’s
Economic Action Plan established the $1-billion, five-year, Clean Energy
Fund, including up to $150 million for clean energy research and
development and $850 million for clean energy demonstration projects.
The projects being supported by the fund assist in increasing the deployment
of renewable and clean technologies. To date, federal funding totalling over
$610 million has been announced for projects under the fund. In addition,
in response to unprecedented demand under the ecoENERGY Retrofit –
Homes program, $205 million under the fund was allocated to finance up
to 120,000 additional retrofits for Canadian homeowners.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
333
Broadband: As part of the stimulus phase of Canada’s Economic Action
Plan, $225 million was provided to Industry Canada over three years to
develop and implement a strategy to extend broadband coverage to as many
underserved households as possible. The biggest component of this strategy
is the Broadband Canada: Connecting Rural Canadians program. This program has
helped provide broadband access to over 210,000 additional households.
Table A2.10
Advancing Canada’s Knowledge Economy
and Creating Better Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Action to Invest in Post-Secondary
Education and Research
Improving infrastructure at universities
and colleges 991 746 250 1,987
Canada Foundation for Innovation 50 50
Institute for Quantum Computing 17 17 34
Arctic research Infrastructure 32 51 84
Canadian Graduate Scholarships program 35 35 70
Industrial Research and Development
Internship program 3 1 4
Subtotal—Action to Invest in Post-Secondary
Education and Research 1,077 900 250 2,227
Investing in Science and Technology 0
Modernizing federal laboratories 85 149 234
Clean Energy Fund 65 274 339
Canadian Environmental
Sustainability Indicators 8 8
Strengthening Canada’s nuclear advantage 285 285
Canada’s space industry 10 45 55
Canada Health Infoway 58 58
Extending access to broadband
in rural communities 20 43 63
Subtotal—Investing in Science
and Technology 473 569 1,042
Total—Advancing Canada’s Knowledge
Economy and Creating Better Jobs 1,550 1,469 250 3,269
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
Amounts for 2009–10 and 2010–11 are actual cash expenditures, while amounts for 2011–12 reflect estimated
expenditures for the four extended infrastructure programs. As a result of the extension of these programs, some funds
originally planned for 2010–11 will be recorded in 2011–12. Final numbers will be released in the Public Accounts of
Canada in Fall 2012. The budgetary impact may be somewhat smaller because some of these expenditures relate to
construction and renovation costs of federal assets (for which only depreciation is recorded on a budgetary basis) and
loans to third parties (where there is a budgetary impact only in the event that there is a risk of loss).
Annex 2
334
Supporting Industries and Communities
The stimulus phase of Canada’s Economic Action Plan provided over
$13 billion to create and protect jobs in the regions, communities and
industries of the Canadian economy that were the most affected by the global
recession. This support addressed the economic challenges faced by
traditional industries such as forestry, agriculture and manufacturing, which
continue to play important roles in the economies of many communities
across the country. In addition to providing targeted support, the stimulus
helped industries bolster their competitiveness and position themselves
for long-term success, both within Canada and in the global economy.
Table A2.11
Supporting Industries and Communities
millions of dollars
2009–10 2010–11 Total
Support for Industries
Forestry 59 102 162
Agriculture 14 74 88
Mineral exploration 70 -15 55
Small businesses 166 193 360
Tourism 136 149 285
Shipbuilding 82 93 175
Culture 150 157 306
Tax and tariff relief
Temporary 100-per-cent capital cost allowance
rate for computers
340 355 695
Tariff relief on machinery and equipment 76 81 157
Subtotal—Support for Industries 1,093 1,190 2,283
Support for Communities
Helping all regions prosper 596 655 1,251
Strengthening partnerships with Aboriginal peoples 135 179 314
Subtotal—Support for Communities 731 834 1,565
Total—Supporting Industries and Communities
1,824 2,023 3,848
Federal support to auto sector
1
9,155 – 9,155
Total—Supporting Industries and Communities
10,979 2,023 13,003
Total—With provincial contributions
15,955 2,513 18,468
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
The budgetary impact may be somewhat smaller because some of these expenditures relate to construction and renovation
costs of federal assets (for which only depreciation is recorded on a budgetary basis) and loans to third parties (where there
is a budgetary impact only in the event that there is a risk of loss).
1
Includes $250 million, which was disbursed to Chrysler on March 30, 2009.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
335
Support for Communities: The Government took significant actions to
enable the development of strong Canadian communities in a time of crisis.
The stimulus phase of Canada’s Economic Action Plan included:
• An investment of over $930 million over two years through the
Community Adjustment Fund to support economic diversification in
communities affected by challenges facing local industries.
• Establishing the Federal Economic Development Agency for Southern
Ontario with over $1 billion provided over five years to support
economic development in Southern Ontario communities.
• Providing $50 million over five years to establish the Canadian Northern
Economic Development Agency and a further $90 million over five years
to renew the Strategic Investments in Northern Economic Development
program to strengthen economic activity in Northern communities.
Canada’s Economic Action Plan:
Working for Canadians
Support for Communities
The Government has taken significant actions to enable the development
of strong Canadian communities. These include:
• Establishing the $1-billion Community Development Trust in
January 2008 to support provincial and territorial initiatives aimed
at assisting vulnerable communities.
• Providing $1 billion over two years for the Community Adjustment Fund,
as part of the Economic Action Plan, to support economic diversification
in communities affected by challenges facing local industries.
• Providing $500 million over two years through the Economic Action Plan
for the Recreational Infrastructure Canada program to support the
construction of new recreational facilities and upgrades to existing ones
in communities across Canada.
• Establishing the Federal Economic Development Agency for
Southern Ontario with over $1 billion over five years, as part of the
Economic Action Plan, to support economic development in Southern
Ontario communities.
• Providing $50 million over five years through the Economic Action Plan
to establish the Canadian Northern Economic Development Agency and
a further $90 million over five years to renew the Strategic Investments
in Northern Economic Development program to strengthen economic
activity in Northern communities.
Annex 2
336
Canada’s Economic Action Plan:
Working for Canadians
Support for Communities (cont’d)
• Providing close to $50 million per year in permanent resources through
Budget 2010 to strengthen the activities of the regional economic
development agencies in promoting growth in communities across
Canada. Budget 2010 also provided $11 million per year, on an ongoing
basis, for the Community Futures Program to help create new economic
opportunities and promote innovation in rural communities.
• Providing $1.9 billion over five years starting in September 2008, for
the Affordable Housing Initiative ($125 million per year), the Residential
Rehabilitation Assistance Program ($128 million per year) and the
Homelessness Partnering Strategy ($135 million per year). In addition,
the Economic Action Plan provided $2.1 billion towards the construction
and renovation of affordable housing units, and $2 billion in low-cost
loans were made available to municipalities.
• Encouraging individuals to make a sustained commitment to public
transit use through the introduction of the Public Transit Tax Credit.
Budget 2012 continues to support communities by providing $150 million
over two years for repairs or improvements to community facilities in all
regions of Canada.
Budget 2012 also provides up to $99.2 million over three years for
permanent flood mitigation measures undertaken by communities affected
by major flooding in 2011.
Canada’s Economic Action Plan:
Working for Canadians
Examples of Community Adjustment Fund Projects
Victoria, P.E.I.—Thousands of visitors flock to the seaside village of
Victoria, Prince Edward Island every year to enjoy the tourist attractions
the island community has to offer. Thanks to an investment of $220,000
from the Government of Canada through the Community Adjustment Fund,
Victoria’s popularity as a summertime destination has been enhanced even
further. The stimulus funding supported a number of capital improvements
to Victoria’s seaside tourism landscape, including general landscaping,
curbing and lighting. The project has allowed the community to provide
more amenities to existing clientele and attract a further influx of tourists
and businesses along Victoria’s waterfronts.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
337
Canada’s Economic Action Plan:
Working for Canadians
Examples of Community Adjustment Fund Projects (cont’d)
Grand Falls-Windsor, N.L.—The Town of Grand Falls-Windsor received
$3 million to assist the Central Newfoundland Region to create new
opportunities in the cranberry industry. The project involved the
development of up to 120 additional acres of production with 10 private
sector operators. It also included site selection analysis for the Exploits
Region, and the development of a comprehensive report outlining
opportunities for future commercial development. Thanks to the stimulus
phase of Canada’s Economic Action Plan, total acreage in the province is
expected to reach 500 acres by 2015 with up to 20 growers in the industry.
Winnipeg, Man.—The Bruce D. Campbell Farm & Food Discovery Centre
is Canada’s first hands-on educational centre to explore the importance of
nutrition and food production. This newly constructed 8,280-square-foot
building includes interactive exhibits that will lead visitors on a journey from
the farmer’s wheat field to the kitchen table. The centre expects to receive
30,000 visitors a year, many of them middle-year students and teachers.
Tailored to the school curriculum, the indoor and outdoor exhibits will
highlight the increasing importance of science and technology in agricultural
practices and Canada’s world leadership in food safety and production. The
centre, located at the University of Manitoba’s Glenlea Research Station
south of Winnipeg, received more than $2.3 million in funding from the
Community Adjustment Fund.
Northwest Territories—Through the Community Adjustment Fund, the
Tulita Dene Band Council received $488,000 in federal funding. Working
in cooperation with the Norman Wells Land Corporation, the Band Council
oversaw the gathering and removal of communications wire on the Canol
Heritage Trail. The wire was left behind after the original construction of
the Canol Heritage Trail in the 1940s and was considered a hazard to
wildlife and people that use the trail. The funding enhanced community
recreational use, and supported the further development of eco-tourism
activities in the area.
Automotive Sector: The automotive sector has faced significant challenges
as a result of the global economic recession. In 2009, the governments of
Canada and Ontario provided $13.7 billion of financial support for the
restructuring of General Motors and Chrysler, with the federal share of this
support being two thirds. The governments of Canada and Ontario received
ownership stakes in the restructured firms. It is estimated that approximately
52,000 Canadian jobs were protected by government action to support the
automotive industry.
Annex 2
338
Canada exited from its investment in Chrysler in July 2011. The Government
of Canada continues to manage its remaining stake in General Motors to
maximize the return for taxpayers, while reducing its ownership as quickly
as is appropriate.
The Government of Canada has begun to reduce its ownership in General
Motors. In connection with the initial public offering by General Motors
in November 2010, Canada sold over 35 million shares. This sale reduced
Canada’s ownership stake in General Motors to 9.34 per cent. On
January 14, 2011, General Motors announced it would inject US$2 billion
worth of stock into its company pension plan, resulting in Canada’s
ownership stake in General Motors being reduced to 8.98 per cent.
Canada’s Economic Action Plan:
Working for Canadians
Support for the Aerospace Sector
The aerospace sector is a leading employer in the high technology
sector. Since 2006, the Government has taken significant actions,
including through the Economic Action Plan, to promote the competitiveness
of the aerospace sector. These include:
• Establishing in 2007 the Strategic Aerospace and Defence Initiative to
support advanced research and development projects by the aerospace
and defence industries, with about $900 million available over five years.
In 2009, an additional $200 million over four years was provided to
the program.
• Providing the Canadian Space Agency with $110 million over three years,
as part of the Economic Action Plan, to support the development of
advanced robotics and other space technologies.
• Launching the Review of Aerospace and Space Programs and Policies.
Headed by the Honourable David Emerson and assisted by a three-
member advisory council, the review will explore how government,
industry and other key stakeholders can address the key issues facing the
aerospace and space sectors, such as innovation, market access and
development, skills development, procurement and supplier development.
• Committing in Budget 2012 to the continuation of Canada’s participation
in the International Space Station mission to 2020 alongside the United
States, the European Union, Russia and Japan. Using advanced
technology, Canadian astronauts will continue to help conduct world-class
research on the station in fields such as human spaceflight, physiology,
physical science and technology development. The aerospace sector will
benefit from Canada’s technology contribution to the mission.
These initiatives help to create or maintain highly skilled Canadian jobs,
encourage public and private partnerships, and keep Canada at the forefront
of the international aerospace industry.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
339
Forestry: In recent years, the forestry sector faced a number of important
challenges, including the collapse of the U.S. housing market and declines in
newsprint demand. Under the stimulus phase of the Economic Action Plan,
over $160 million was spent by Natural Resources Canada to support market
diversification and innovation activities in the forestry sector. These
investments have created real value for the forestry sector, with novel
products that secure Canada’s position as a technological leader. In addition,
the funding has enabled Canadian producers to increase exports to key
markets such as China and maintain their positions in established markets
such as Japan and Europe.
Canada’s Economic Action Plan:
Working for Canadians
Support for Forestry
The forestry sector is an important contributor to the Canadian economy,
forming the economic base in many regions. Canada’s forest product
companies have encountered intense competitive pressures, including
greater competition from low-cost producers, higher input and energy
costs, a variable Canadian dollar and low productivity.
Since 2006, the Government has put in place significant support, including
through the Economic Action Plan, to help the forestry sector address these
challenges and become more competitive. This includes:
• Negotiating the Canada-United States Softwood Lumber Agreement
in 2006, restoring access to the United States market and resulting in
the return of over $5 billion in duty deposits to Canadian producers.
• Providing $200 million through Budget 2006 to combat the pine
beetle infestation.
• Providing $170 million over two years through Budget 2009 and an
additional $60 million through Budget 2011, to support market
diversification and innovation initiatives in the forestry sector. These
activities built on the $127.5-million Forest Industry Long-Term
Competitiveness Initiative announced in Budget 2006 to help the forestry
sector shift toward higher-value products and tap into new markets.
• Establishing the $1-billion Pulp and Paper Green Transformation Program
in June 2009 to support capital projects in the forestry sector that offer
demonstrable environmental benefits.
• Providing $100 million over four years through Budget 2010 for the
Investments in Forest Industry Transformation Program to support
the development, commercialization and implementation of advanced
clean energy technologies in the forestry sector.
Budget 2012 builds on these sustained efforts by providing $105 million
over two years to promote innovation and market development and to
support continued transformation in the forestry sector.
Annex 2
340
Forestry: Support for Innovation and Market
Diversification Across Canada
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
341
Agriculture: The Government worked closely with farmers, the agri-food
industry and the provinces and territories to deliver on the agricultural
measures included in the stimulus phase of the Economic Action Plan.
• Through to the end of 2011–12, $226 million of the Agricultural
Flexibility Fund will have been spent on initiatives that help the
agricultural sector adapt to pressures, improve environmental
sustainability, support innovative processes and products, and address
market challenges. Initiatives under the Agricultural Flexibility Fund
will continue to support the sector over the remaining two years of
the program.
• The stimulus phase of the Economic Action Plan included investments
to improve the operations of livestock and processing plants. A total of
$48 million will have been spent on 18 projects by the end of 2011–12,
the last year of the program.
• Since the new Canadian Agricultural Loans Act took effect in
Summer 2009, 6,141 loans, totalling more than $338 million,
have been granted. Of these loans, 464 were registered to beginning
farmers for a total of $40 million and 120 loans were issued for
amounts greater than $250,000.
Small Business: Canada’s small and medium-sized companies are an
important engine of our economy, driving innovation, productivity, job
creation and economic growth. In addition to other target supports for small
and medium-sized enterprises, the stimulus phase of Canada’s Economic
Action Plan allocated $200 million over two years to the Industrial Research
Assistance Program to enable it to temporarily expand its initiatives for small
and medium-sized enterprises. The National Research Council moved
quickly to spend the $200 million allocated in 2009–10 and 2010–11 to help
firms innovate and to hire new post-secondary graduates.
Tourism: In 2009–10 and 2010–11, the Marquee Tourism Events Program
provided support to events across Canada, such as the Charlottetown
Festival, Carnaval de Québec, Niagara Wine Festival, Red River Exhibition
and Pacific National Exhibition, in order to stimulate the economy and help
promote Canada as a global destination of choice. Through this program,
79 organizations responsible for 107 events received funding over two years.
The program helped draw tourists to host cities and regions and increase
tourism-related spending in Canadian restaurants, hotels, retailers and
transportation companies.
Annex 2
342
The Government of Canada also provided nearly $50 million through
the Canadian Tourism Commission for additional promotional activities
domestically and in priority international markets for the Canadian
tourism industry.
Our vast National Parks and numerous National Historic Sites help attract
a large number of visitors from abroad each year, generating significant
economic activity and bringing our natural heritage closer to Canadians.
Under the stimulus phase of Canada’s Economic Action Plan, Parks Canada
spent $147 million over two years to build and upgrade facilities, including
visitor centres and campgrounds, as well as roads at National Parks and
National Historic Sites throughout the country.
Shipbuilding: The stimulus phase of Canada’s Economic Action Plan
provided $175 million to the Canadian Coast Guard to purchase 98 new
boats and to repair and refit 40 existing large vessels. To date, the
procurement and repair of all boats and vessels has been completed with the
exception of three new inshore fisheries science vessels, which are currently
under construction and are expected to be delivered in the Spring 2012.
Budget 2012 is investing $5.2 billion over the next 11 years on a cash basis to
replace and refit the Canadian Coast Guard’s vessel and helicopter fleet. This
will contribute to job creation and ensure the Canadian Coast Guard can
continue to carry out its mandated activities.
Culture: The Government has delivered unprecedented levels of investment
in Canada’s cultural industries, creating jobs and supporting the creative
economy. Through the stimulus phase of Canada’s Economic Action Plan,
the Government charted a course that allowed our creative industries to
navigate the changing technological and economic landscapes, with over
$300 million in support for culture and the arts.
• The Canada Cultural Spaces Fund spent almost $60 million over
2009–10 and 2010–11 to support 147 cultural infrastructure
projects across Canada.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
343
• In 2009–10 the Canada Arts Training Fund provided $6 million to
27 organizations, and in 2010–11 the Fund invested $13 million to help
34 of the highest calibre institutions in Canada train the most talented
emerging artists for professional careers.
• In 2009–10, $14 million was transferred to Canada Post, which helped
more than 1,000 magazines and community newspaper companies mail
169 million copies of their publications to Canadian readers in all regions
of the country. In 2010–11, the redesigned program, the Canada
Periodical Fund, disbursed $15 million to 928 Canadian magazine and
community newspaper titles to help them to create and distribute a
diverse range of publications to Canadians.
• In 2009–10, a $100-million investment in the Canadian Television Fund
supported projects, in partnership with the broadcasting industry, to
produce high quality, distinctively Canadian television programs. The
revamped program, renamed the Canada Media Fund, combined the
former Canadian Television Fund and the Canada New Media Fund, and
expanded on this work through a $100-million investment in 2010–11 by
supporting content creation for Canadian television, as well as for
software applications for current and emerging digital platforms.
Canada’s Economic Action Plan:
Working for Canadians
Support for Rural Canadians
Since 2006, the Government has taken action to support the rural economy
and made investments that improve the quality of life of rural Canadians.
The Government has provided support to important sectors of the
rural economy:
• Supporting the Competitiveness and Long-Term Profitability of the
Agricultural Sector—Since 2006, the Government has provided targeted
assistance to support the competitiveness of the sector and enhance
market access through initiatives such as the Slaughter Improvement
Program, the Hog Industry Loan Loss Reserve Program, the Hog Farm
Transition Program and the Market Access Secretariat.
• Under the federal/provincial/territorial Growing Forward policy framework,
the Government has provided $6.2 billion over the past four years to
assist with business risk management challenges facing farm businesses.
This included support in 2010 and in 2011 for grain and livestock farmers
following floods in Western Canada and Quebec.
Annex 2
344
Canada’s Economic Action Plan:
Working for Canadians
Support for Rural Canadians (cont’d)
• Building a Competitive Fisheries Sector—The federal government has
invested significant resources to promote the economic well-being of
the commercial fishing industry and small coastal communities,
including through:
- $39 million to advance fisheries science and research.
- $22 million to improve regulatory science in support of
the aquaculture sector.
- $225 million to repair core small craft harbours across Canada and to
accelerate the construction of the Pangnirtung Harbour in Nunavut.
- $72 million to repair storm-damaged harbours to ensure they remain
in a safe and functional state.
- $230 million to integrate Aboriginal fishers into Atlantic and Pacific
commercial fisheries.
• Supporting the Transformation of the Forestry Sector—The
Economic Action Plan provided $170 million over two years through
Budget 2009 and an additional $60 million through Budget 2011 for forest
innovation and market development. In addition, the Government
introduced the $1-billion Pulp and Paper Green Transformation Program
to support innovation and environmentally friendly investments in
Canadian mills.
• Promoting Competitiveness and Environmental Responsibility
in Energy and Mining Operations—The Major Projects Management
Office was created to streamline and accelerate the federal regulatory
review process for new projects in energy and mining, creating
investment and new jobs in rural communities. Going forward, more than
$500 billion is forecast to be invested in major natural resource projects
across Canada over the next 10 years. Budget 2012 also supports mineral
exploration by junior mining companies by extending the temporary
15-per-cent Mineral Exploration Tax Credit for investors in flow-through
shares for an additional year, to March 31, 2013.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
345
Canada’s Economic Action Plan:
Working for Canadians
Support for Rural Canadians (cont’d)
In addition, the Government has taken action to improve the quality of life
of Canadians in rural areas.
• Physical remoteness means greater costs for transportation and
infrastructure for rural communities. Under the Economic Action Plan,
$15.7 billion was spent to modernize a broad range of infrastructure
including roads, bridges, public transit, parks, water treatment facilities
and harbours. The $500-million Communities Component Top-Up of the
Building Canada Fund targets infrastructure stimulus for communities with
populations of less than 100,000.
• As part of Canada’s Economic Action Plan, $225 million was provided
to Industry Canada over three years to develop and implement a strategy
to extend broadband coverage to as many unserved and underserved
households as possible. The biggest component of this strategy is
the Broadband Canada: Connecting Rural Canadians program. By
March 31, 2012, over 210,000 additional households in rural and remote
regions will have broadband access.
• Through the Knowledge Infrastructure Program, the Government has
provided close to $2 billion over two years for university and college
infrastructure, including repair, maintenance and construction projects at
rural colleges such as the Northern Lights College in Dawson Creek (British
Columbia), Portage College in Lac La Biche (Alberta), the Strait Area
Campus at the Nova Scotia Community College in Port Hawkesbury, and
Aurora College in Tsiigehtchic (Northwest Territories). These projects
strengthened the ability of colleges in rural areas to deliver advanced
knowledge and skills training. The projects also supported numerous jobs
during the construction period.
• In Budget 2010, the Government provided $11 million per year, on an
ongoing basis, for the Community Futures Program. This funding will
help create new economic opportunities and promote innovation in rural
communities across Canada.
Budget 2012 provides renewed funding for the Major Projects Management
Office Initiative, to continue to streamline and accelerate the federal
regulatory review process for new projects in energy and mining, creating
investment and new jobs in rural communities.
• Budget 2012 also provides $105 million over two years to promote
innovation and market development and to support continued
transformation in the forestry sector.
Annex 2
346
Tax and Tariff Relief: In addition to supporting key industries, the stimulus
phase of the Economic Action Plan included permanent and temporary
measures that built on broad-based tax reductions passed by Parliament
in 2007 that lowered the federal general corporate income tax rate to
15 per cent in 2012.
The stimulus provided under the Economic Action Plan also helped
Canadian firms create jobs, modernize their operations and better compete
globally through the temporary accelerated capital cost allowance rates for
computers and for manufacturing or processing machinery and equipment,
and the elimination of all remaining tariffs on imported machinery and
equipment and industrial manufacturing inputs. A first phase of tariff relief,
focusing on machinery and equipment, was implemented in Budget 2009,
providing $157 million over two years in duty savings. Budget 2010
implemented a second phase of tariff relief, eliminating all remaining tariffs
on industrial inputs, which provides $300 million in additional annual savings
to Canadian businesses.
With these measures, the Government has made Canada a tariff-free zone
for industrial manufacturers, a first in the G-20. Since the measures were
implemented, Canadian businesses have benefited from tariff relief on over
$50 billion of imports. These initiatives increase investment, foster
innovation and productivity, and increase overall prosperity.
By continuing to pursue an ambitious trade strategy, the federal
government is helping to position Canada for increased success in
the global economy. Your plan to make Canada a tariff-free zone
for industrial manufacturers is enhancing the ability of Canadian-
based firms to compete in domestic and foreign markets
— John Manley, Canadian Council of Chief Executives
March 2012
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
347
Table A2.12
Supporting Industries and Communities
millions of dollars
2009–10 2010–11 Total
Support for the automotive sector
1
9,155 9,155
Support for Industries
Forestry
Forestry (marketing and innovation) 59 102 162
Agriculture
Agriculture flexibility program 6 58 64
Investment in cattle processing plants 8 16 24
Mineral Exploration
Extending the Mineral Exploration Tax Credit 70 -15 55
Small Businesses
Reducing taxes for small businesses 45 80 125
Industrial Research Assistance Program 98 100 198
Canada Youth Business Foundation 10
10
Canadian Business Networks 14 13 27
Tourism
Canadian Tourism Commission
2
20 20 40
Marquee Tourism Events Program 48 49 97
Parks Canada 67 80 147
Shipbuilding
Shipbuilding 82 93 175
Culture
Cultural infrastructure 30 29 59
Canada Prizes for the Arts and Creativity
Canada Arts Training Program 6 13 19
Community newspapers and magazines 14 15 29
Canada Media Fund 100 100 200
Tax and Tariff Relief
Temporary 100-per-cent capital
cost allowance rate for computers 340 355 695
Tariff relief on machinery and equipment 76 81 157
Subtotal—Support for Industries 1,093 1,190 2,208
Annex 2
348
Table A2.12 (cont'd)
Supporting Industries and Communities
millions of dollars
2009–10 2010–11 Total
Support for Communities
Helping All Regions Prosper
Community Adjustment Fund 417 513 931
Federal Economic Development Agency
for Southern Ontario 128 108 236
Eastern Ontario Development Program 10 10 19
Strengthening economic development in the North 3 8 12
Strategic Investments in Northern Economic Development 10 16 26
Promoting energy development in Canada’s North 28 0 28
Strengthening Partnerships With Aboriginal peoples
First Nations and Inuit health programs 131 165 296
First Nations child and family services 4 14 18
Subtotal—Support for Communities 731 834 1,565
Total—Supporting Industries and Communities
10,979 2,023 13,003
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
The budgetary impact may be somewhat smaller because some of these expenditures relate to construction and renovation
costs of federal assets (for which only depreciation is recorded on a budgetary basis) and loans to third parties (where there
is a budgetary impact only in the event that there is a risk of loss).
1
Includes $250 million which was disbursed to Chrysler on March 30, 2009.
2
The 2010–11 figure does not include an $8-million transfer from the Marquee Tourism Events Program to the Canadian
Tourism Commission.
Improving Access to Financing and
Strengthening Canada’s Financial System
Canada’s financial system showed exceptional stability throughout the global
financial crisis, with its banking system being recognized as the soundest in
the world. However, Canada was not immune to the global crisis, and the
Government took timely and effective measures to provide extraordinary
liquidity to the financial system and mitigate the impact of the global credit
crunch on the Canadian economy. While the Canadian financial system
withstood the global financial crisis better than most, the crisis made it
difficult for Canadian banks and other lenders to obtain funds from
international markets at reasonable costs. To soften the impact of the crisis,
the stimulus phase of Canada’s Economic Action Plan included measures to
provide up to $200 billion to support lending to Canadian households and
businesses through the Extraordinary Financing Framework (EFF).
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
349
The EFF measures included: the Insured Mortgage Purchase Program
(IMPP); a new 10-year maturity in the ongoing Canada Mortgage Bond
program; the Canadian Secured Credit Facility; support for the Bank of
Canada’s emergency liquidity measures; increased flexibilities and capacities
for financial Crown corporations, including the introduction of the Business
Credit Availability Program; and assurance facilities for banks and life
insurance companies. All of this support was offered on a commercial basis
to protect taxpayers.
The Government’s actions under the EFF contributed significantly to
improved credit conditions following its implementation. For example,
during 2010, aided by the Canadian Secured Credit Facility, $12.5 billion
of securities backed by vehicle and equipment loans and leases, floorplan
financing and credit card receivables was issued, the most since 2006. This
market remained strong in 2011, with $10.9 billion of securities issued
during the year.
Credit growth in Canada remains stronger
than in the U.S.
Chart A2.5
Total Credit Growth
Sources: Bank of Canada; U.S. Federal Reserve Board. Last data point is 2011Q4.
Annex 2
350
Our financial system, the strongest in the world, supports national
growth at a time when banking problems in many developed
countries have become an impediment to the revitalization of
economic activity.
— Warren Jestin, Senior Vice-President
& Chief Economist, Scotiabank,
December 2011
In addition, through the IMPP, the Government purchased $69 billion in
insured residential mortgage pools from Canadian financial institutions to
help them to continue lending to Canadian consumers and businesses. The
program operated at no financial cost or additional risk to taxpayers since the
mortgages were already contingent liabilities of the Government of Canada.
In fact, to date, the IMPP has generated more than $1.2 billion in net
revenues. By the time the program ends in 2014–2015, it will have generated
an estimated $2.5 billion in net revenues that will benefit Canada’s budgetary
balance. Overall, the IMPP, together with the other measures included in the
EFF, allowed Canadian households and businesses continued access to
financing at a reasonable cost during the global credit crisis.
JOB IMPACT OF THE STIMULUS PHASE
OF THE ECONOMIC ACTION PLAN
The objective of the stimulus phase of Canada’s Economic Action Plan was
to protect jobs and safeguard individual Canadians in the face of the worst
global financial and economic crisis since the 1930s. This section provides a
final assessment of the economic impact of the stimulus phase of the
Economic Action Plan.
Measuring the Job Impact of the Stimulus Phase
of the Economic Action Plan
To estimate the total number of jobs maintained or created by the stimulus
phase of the Economic Action Plan, all stimulus actions—infrastructure
stimulus, tax reductions, Employment Insurance (EI) measures and other
actions—need to be taken into account. Job impacts cannot be observed
directly for all elements of the Action Plan (i.e. tax reductions and
EI measures) since they are not related to specific projects or activities but
rather support income and overall economic activity.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
351
For elements of the stimulus phase of the Economic Action Plan that are
project-based, project managers can normally estimate the number of jobs
related to each project. However, project-level data cannot readily be
aggregated to determine an overall job impact because:
• Where data is available, it is often not presented in a consistent
manner—for example, on a full-time-equivalent basis.
• Even if complete project-level data were available on a consistent basis,
the data would only account for the direct impact in the construction
industry. Indirect jobs created or maintained in industries providing
inputs to the construction industry and induced jobs created or
maintained in all industries by the additional economic activity in the
construction industry would not be accounted for.
As a result, the job impacts of the stimulus phase of the Economic Action
Plan are estimated using the Department of Finance’s Canadian Economic
and Fiscal Model (CEFM), which provides “multipliers” for different
categories of expenditure and tax measures that account for first-round,
indirect and induced impacts on the economy. Further details on the
underlying assumptions and methodology of this model-based approach can
be found in the Seventh Report to Canadians (January 2011).
This approach is in line with that taken by international organizations
and other governments, including the United States.
1
• Peter Dungan, Director, and Steve Murphy, Research Associate, Policy
and Economic Analysis Program, Rotman School of Management,
University of Toronto.
It was also reviewed
and validated by well-respected economic experts from the private sector
and academia:
• Glen Hodgson, Senior Vice-President and Chief Economist, and Pedro
Antunes, Director of the National and Provincial Forecast, Conference
Board of Canada.
• Stéfane Marion, Chief Economist and Strategist, National Bank
Financial Group.
1
See, for example, Congressional Budget Office, Estimated Impact of the American Recovery
and Reinvestment Act on Employment and Economic Output from October 2011 Through
December 2011 (February 2012).
Annex 2
352
The assumptions underlying these estimates are prudent. The multipliers
used in assessing the economic impact of the stimulus phase of the
Economic Action Plan are similar to or lower than those used by the U.S.
Council of Economic Advisers in assessing the impact of the American
Recovery and Reinvestment Act and those found in models of leading
Canadian private sector forecasters.
2
In addition, recent economic research
suggests that fiscal multipliers are larger than those used in this analysis when
the policy interest rate has reached its effective lower bound, as was the case
in Canada from April 2009 to May 2010.
3
The Job Impact of the Stimulus Phase
of the Economic Action Plan
To assess the impact of the stimulus phase of the Economic Action Plan on
jobs maintained or created, the economic activity multipliers in the CEFM
are combined with information on the amount of stimulus flowing in the
economy. Estimates take into account provincial and territorial leverage
reported by partners. In some cases, reported leverage exceeds levels
required by program parameters at the outset of the stimulus phase of the
Economic Action Plan. These provincial and territorial contributions are
shown in Table A2.2 of this annex.
Table A2.13 shows the resulting estimated stimulus flowing in the economy
as of March 2011, to each area of the stimulus phase of the Economic
Action Plan. The analysis that follows reviews the economic and job impacts
of the stimulus phase of the Economic Action Plan through March 2011, the
last month in which the majority of the stimulus measures in the Plan were
in effect.
2
Executive Office of the President, Council of Economic Advisers. Christina Romer and J ared
Bernstein. “The J ob Impact of the American Recovery and Reinvestment Plan” (J anuary 2009)
and Government of Canada, Budget 2009, Annex 1.
3
Lawrence Christiano, Martin Eichenbaum and Sergio Rebelo. “When is the Government Spending
Multiplier Large?” National Bureau of Economic Research Working Paper No. 15394 (2009).
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
353
Table A2.13
Economic Action Plan Funds Flowing
in the Economy
millions of dollars
Dollars Flowing
as of March 2011
Reducing the Tax Burden for Canadians 6,288
Helping the Unemployed 8,477
Building Infrastructure to Create J obs
1
21,794
Advancing Canada’s Knowledge
Economy and Creating Better J obs
1
5,463
Supporting Industries and Communities
1
18,730
Total 60,752
Note: Totals may not add due to rounding
1
Includes provincial and territorial leverage.
It is estimated that close to $15 billion was devoted to reducing the tax
burden and helping the unemployed. Over $21 billion was invested in
new public and housing infrastructure. More than $5 billion was invested
in knowledge infrastructure and science and technology to help create
better jobs. Finally, over $18 billion was disbursed to support industries
and communities.
Combining the amounts flowing for each of the measures in the Economic
Action Plan with the appropriate activity multipliers for production and
employment discussed earlier provides an estimate of the Action Plan’s
economic impact.
The implementation of the stimulus phase of the Economic Action Plan has
had a substantial beneficial impact on output and employment (Table A2.14).
On average, the funds disbursed are estimated to have boosted Canada’s real
gross domestic product (GDP) growth by 1.2 percentage points per quarter
between the second quarter of 2009 and the first quarter of 2011.
Annex 2
354
Improved economic growth translates into a higher level of employment.
Indeed, the stimulus phase of the Economic Action Plan reduced the size
of the contraction in employment in the second quarter of 2009, prevented
another contraction in the third quarter of 2009, and contributed to the
increase in employment from the last quarter of 2009 through the first
quarter of 2011. The Department of Finance estimates that the stimulus
phase of the Economic Action Plan had created or maintained almost
250,000 jobs as of March 2011, and that the job impact remained close
to this level through the remainder of 2011.
Table A2.14
Impact of Economic Action Plan Measures
on Real GDP and Employment
per cent, period to period at annual rates, unless otherwise indicated
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
March
2011
Real GDP Growth
Actual -3.7 1.7 5.0 5.6 2.3 2.5 3.1 3.7 –
Without Economic Action Plan
(EAP) measures -5.1 0.1 3.1 3.6 2.1 1.4 2.3 2.9 –
Impact of the EAP
(percentage points) 1.4 1.6 1.9 2.0 0.2 1.1 0.8 0.8 –
Employment Growth
Actual -1.8 0.0 1.8 1.3 3.1 1.3 1.0 2.2 –
Without EAP measures -2.3 -0.6 0.9 0.4 2.5 0.7 0.4 1.6 –
Impact of the EAP
(percentage points) 0.6 0.6 0.9 0.9 0.6 0.6 0.6 0.6 –
Employment level (thousands) 27 53 92 130 156 185 213 239 248
Table A2.15 breaks down the jobs estimated to have been created or
maintained according to the five elements of the stimulus phase of the
Economic Action Plan.
Table A2.15
Jobs Estimated to Have Been Created
or Maintained According to Each Element
of the Economic Action Plan
March 2011
Reducing the Tax Burden for Canadians 24,000
Helping the Unemployed 33,000
Building Infrastructure to Create J obs 96,000
Advancing Canada’s Knowledge Economy and Creating Better J obs 28,000
Supporting Industries and Communities 68,000
Total 248,000
Note: Totals may not add due to rounding.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
355
Sectoral Impact of the Stimulus Phase
of the Economic Action Plan on Jobs
The manufacturing and construction sectors were particularly hard hit
by the economic slowdown. The stimulus phase of the Economic Action
Plan responded with several measures to support these sectors directly,
particularly through infrastructure investment and funding to support
housing as well as industries and communities.
Employment in construction increased strongly following the
implementation of the stimulus phase of the Action Plan, recovering all of
the jobs lost during the recession, contrasting sharply with the recessions of
the 1980s and 1990s when employment in this industry continued to decline
in the early stages of recovery. Employment in manufacturing stabilized with
weak U.S. demand and the appreciation of the Canadian dollar limiting
employment growth in the manufacturing sector. Employment in the service
sector increased significantly and is now well above pre-recession levels.
Table A2.16 provides a sectoral breakdown of the jobs estimated to have
been created or maintained by the stimulus phase of the Economic
Action Plan.
4
Table A2.16
Sectoral Breakdown of the Number of Jobs
Estimated to Have Been Created or Maintained
by the Economic Action Plan
March 2011
Primary and utilities 5,000
Construction 60,000
Manufacturing 39,000
Services 143,000
Total 248,000
Note: Totals may not add due to rounding.
4
The results are based on estimates from the CEFM and simulations from an input-output model
of the Canadian economy.
Annex 2
356
CONCLUSION
The performance of the Canadian economy through the global financial
crisis shows that the stimulus phase of Canada’s Economic Action Plan
worked—it played a key role in supporting the domestic economy through
a period of significant global weakness. The stimulus phase of the Economic
Action Plan provided a vital boost to confidence and significant support
to those industries most affected by the recession, thereby creating or
preserving jobs that would otherwise have been lost.
Chapter 1
Introducton
Annex 3
Debt Management Strategy
for 2012–13
Debt Management Strategy for 2012–13
359
PURPOSE
The Debt Management Strategy sets out the Government of Canada’s objectives,
strategy and plans for the management of its domestic and foreign debt,
other financial liabilities and related assets. Borrowing activities support the
ongoing refinancing of government debt coming to maturity, the execution
of the budget plan and other financial operations of the Government,
including investing in financial assets needed to establish a prudent liquidity
position and borrowing on behalf of some Crown corporations.
The Financial Administration Act requires that the Government table in
Parliament, prior to the start of the fiscal year, a report on the anticipated
borrowing to be undertaken in the year ahead, including the purposes for
which the money will be borrowed.
Annex 3
360
HIGHLIGHTS OF THE FEDERAL DEBT
MANAGEMENT STRATEGY
• For 2012–13, net issuance of domestic marketable bonds is planned to be
approximately $97 billion, up from $94 billion in 2011–12. At the end of
2012–13, the stock of marketable bonds is projected to be $481 billion.
• The foundation for this year’s debt program is the medium-term debt
strategy announced in Budget 2011. However, with long-term interest
rates at historic lows and a narrower differential between long- and
short-term interest rates than in recent years, the debt strategy for
2012–13 includes a temporary increase in 10-year bond issuance.
• By the end of 2012–13, the treasury bill stock is projected to be
$159 billion, about $4 billion lower than the year-end level for
2011–12. The treasury bill stock is projected to decline significantly
in 2013–14 when mortgage securities purchased under the Insured
Mortgage Purchase Program begin to mature.
• This year’s debt strategy, together with the changes to bond maturity
dates announced as part of the medium-term debt strategy in
Budget 2011 and the projected drop in the stock of treasury bills
in 2013–14, will lead to a substantial decline in refinancing risk.
• The Government’s prudential liquidity management plan, presented in
Budget 2011, is on track to achieve the desired $35-billion target increase
in liquid holdings, comprising both domestic cash balances and foreign
reserve assets, by the end of 2013–14. During the past year, foreign
exchange reserves have increased by about $10 billion.
• In 2012–13, a number of changes will be made to the Retail Debt
Program to improve the efficiency of the program and better align
product offerings to the needs of today’s investors.
Debt Management Strategy for 2012–13
361
Medium-Term Debt Strategy
The modelling analysis supporting the debt management strategy for 2012–13
reflects a wide range of economic and interest rate scenarios drawn from
historical experience. This analysis continues to suggest that portfolios
weighted towards more short- and medium-term bonds improve the cost-risk
characteristics of the debt structure.
The medium-term debt strategy includes a new prudential liquidity plan and
four new bond maturity dates. Over time, the implementation of the strategy
is expected to lead to a more balanced debt structure profile (Chart A3.1) and
a reduced exposure to debt rollover risk. Further, the current yield curve differs
substantially from past history, and long-term bond rates are at record low
levels. Accordingly, some adjustments to the debt program for 2012–13,
discussed in more detail below, are being implemented to reflect this interest
rate environment, while maintaining a portfolio generally weighted towards
more short- and medium-term bonds.
Taken together, these actions will help to insulate the Government’s financial
position in case of future financial shocks. However, the transition to the
new debt structure will take many years. During this transition period,
the strategy will be monitored and, if necessary, adjusted to respond to
changing circumstances.
Chart A3.1
Composition of Market Debt by Instrument Type
By Original Term at Issuance
Annex 3
362
The share of bonds with original terms of 30 years is expected to increase
from 18 per cent to 28 per cent of the stock of market debt over the next
decade. At that time, the share of longer-term debt is expected to stabilize
as long bonds issued in the 1990s begin to mature. Over the coming decade,
the share of bonds with original terms of 10 years or more is projected to
increase from about 37 per cent to around 45 per cent.
Refinancing risk is being prudently managed, as evidenced by key metrics.
It is projected that the net annual refixing share of debt, which measures the
proportion of all interest-bearing debt net of financial assets that matures or
needs to be repriced within one year, will fluctuate between 33 and
36 per cent over the coming decade (Chart A3.2)
Chart A3.2
Projected Evolution of the Refixing Share of Interest-Bearing Debt
as a Percentage of the Stock of Interest-Bearing Debt
Debt Management Strategy for 2012–13
363
It is also projected that the average term to maturity (ATM) of the market
debt net of financial assets will gradually increase (Chart A3.3).
Chart A3.3
Projected Evolution of the ATM of the Marketable
Debt Portfolio
Prudential Liquidity Management
The Government holds liquid financial assets in the form of domestic
cash deposits and foreign exchange reserves to safeguard its ability to meet
payment obligations in situations where normal access to funding markets
may be disrupted or delayed. This also supports investor confidence in
Canadian government debt. In Budget 2011, the Government announced
its intention to increase its liquidity position. Once fully implemented, the
Government’s overall liquidity levels will cover at least one month of the net
projected cash flows, including coupon payments and debt refinancing needs.
During 2011–12, the Government took steps towards implementing the new
liquidity plan. Liquid foreign exchange reserves have increased by about
US$10 billion and exceed the minimum target level of 3 per cent of nominal
gross domestic product established under the strategy. Government deposits
held with financial institutions and the Bank of Canada are scheduled to
grow to about $25 billion before the end of 2013–14.
Annex 3
364
Information on cash balances and foreign exchange assets is available
in The Fiscal Monitor (http://www.fin.gc.ca/pub/fm-rf-index-eng.asp).
Information on the management of Canada’s reserves held in the Exchange
Fund Account is available in the Report on the Management of Canada’s Official
International Reserves (http://www.fin.gc.ca/purl/efa-eng.asp).
Planned Borrowing Activities for 2012–13
Borrowing Authority
For 2012–13, the aggregate borrowing limit that is being requested from
the Governor in Council to meet Budget 2012 financial requirements
and provide a margin for prudence will be $315 billion.
Actual borrowing and uses of funds compared with those forecast will be
reported in the 2012–13 Debt Management Report, and detailed information
on outcomes will be provided in the 2013 Public Accounts of Canada. Both
documents will be tabled in Parliament in Fall 2013.
Sources of Borrowing
The aggregate principal amount of money required to be borrowed by
the Government from financial markets in 2012–13 to finance Budget 2012
refinancing needs and other financial requirements is projected to be
$268 billion.
Uses of Borrowing
Refinancing Needs
In 2012–13, refinancing needs are projected to be approximately $234 billion.
The main source of refinancing needs during the year stems from the
turnover of the treasury bill stock, which has a term to maturity of one year
or less, and bonds that will mature in 2012–13. Other lesser amounts include
retail debt (Canada Savings Bonds and Canada Premium Bonds) and foreign-
currency-denominated bonds that will mature in 2012–13.
Financial Source/Requirement
The other main determinant of borrowing needs is the Government’s
financial source or requirement. If the Government has a financial source,
it can use the source for some of its refinancing needs. If it has a financial
requirement, then it must meet that requirement along with its
refinancing needs.
Debt Management Strategy for 2012–13
365
The financial source/requirement measures the difference between
cash coming into the Government and cash going out. This measure is
affected not only by the budgetary balance but also by the Government’s
non-budgetary transactions.
The budgetary balance is presented on a full accrual basis of accounting,
recording government liabilities and assets when they are incurred or
acquired, regardless of when the cash is paid or received.
Non-budgetary transactions include changes in federal employee pension
accounts; changes in non-financial assets; investing activities through loans,
investments and advances (including loans to three Crown corporations—
the Business Development Bank of Canada, Farm Credit Canada and Canada
Mortgage and Housing Corporation); and other transactions (e.g. changes
in other financial assets and liabilities, and foreign exchange activities).
For 2012–13, a budgetary deficit of $21 billion and a financial requirement
of $23 billion are projected. The liquidity plan will increase borrowing
in 2012–13 by about $8 billion. As the amount the Government plans to
borrow is higher than the planned uses of borrowings, the year-end cash
position is projected to increase by $10 billion (Table A3.1).
Actual borrowing for the year may differ from the forecast due to uncertainty
associated with economic and fiscal projections, the timing of cash
transactions and other factors, such as changes in foreign reserve needs
and Crown borrowings.
Annex 3
366
Table A3.1
Planned Sources and Uses of Borrowings for 2012–13
billions of dollars
Sources of Borrowings
Payable in Canadian currency
Treasury bills
1
159
Bonds 99
Retail debt 2
Total payable in Canadian currency 260
Payable in foreign currencies 8
Total cash raised through borrowing activities 268
Uses of Borrowings
Refinancing needs
Payable in Canadian currency
Treasury bills 163
Bonds 67
Of which:
Regular bond buybacks 6
Retail debt 2
Canada Pension Plan (CPP) bonds and notes 0
Total payable in Canadian currency 232
Payable in foreign currencies 3
Total refinancing needs 235
Financial source/requirement
Budgetary balance 21
Non-budgetary transactions
Pension and other accounts -6
Non-financial assets 1
Loans, investments and advances
Enterprise Crown corporations 4
Insured Mortgage Purchase Program (net of redemptions) -2
Other 0
Total loans, investments and advances 2
Other transactions
2
5
Total non-budgetary transactions 2
Total financial source/requirement 23
Total uses of borrowings 258
Other unmatured debt transactions
3
Net Increase or Decrease (-) in Cash
10
Notes: Numbers may not add due to rounding. A negative sign denotes a financial source.
1
These securities are rolled over, or refinanced, a number of times during the year. This results in a larger number
of new issues per year than the stock outstanding at the end of the fiscal year, which is presented in the table.
2
Other transactions primarily comprise the conversion of accrual adjustments into cash, such as tax and other account
receivables, provincial and territorial tax collection agreements, tax payables and other liabilities, and changes in the
foreign exchange account.
3
These transactions comprise cross-currency swap revaluation, unamortized discounts on debt issues and obligations
related to capital leases.
Debt Management Strategy for 2012–13
367
DEBT MANAGEMENT STRATEGY FOR 2012–13
Objectives
The fundamental objective of debt management is to raise stable and
low-cost funding to meet the financial needs of the Government of
Canada. An associated objective is to maintain a well-functioning market
in Government of Canada securities, which helps to keep debt costs low
and stable.
Raising Stable Low-Cost Funding
Achieving stable low-cost funding involves striking a balance between
the cost and the risk associated with the debt structure.
Over the medium term, debt management decisions will be taken with a view
to keeping debt costs low and maintaining refinancing risks at prudent levels,
while reserving sufficient flexibility to adapt to changing circumstances.
Maintaining a Well-Functioning Government Securities Market
Having access to a well-functioning government securities market ensures
that funding can be raised efficiently to meet the Government’s needs
regardless of economic conditions. To support a liquid and well-functioning
Government of Canada securities market, the Government strives
to maintain transparent, regular and diversified borrowing programs.
Market Consultations
As in previous years, market participants were consulted periodically in
2011–12. Consultations held in November and December were focused
on obtaining feedback regarding the effectiveness of the Government’s debt
distribution framework to ensure that auction and intermediation processes
continue to promote the debt strategy objectives of stable, low-cost funding
and a well-functioning market for government securities. Additionally,
market participants’ views were sought regarding trends affecting the
Government of Canada securities market, the effectiveness of
communications with market participants, and the changing profile
of participants at auctions.
Further details on the subjects of discussion and the views expressed
during the consultations can be found on the Bank of Canada website
(http://www.bankofcanada.ca/publications-research/market-notices/).
Annex 3
368
Adapting to Low Historic Interest Rates
Long-term interest rates have fallen to historically low levels and the
differential between long-term and short-term interest rates is narrower
than in recent years. Given this environment, it is advantageous and prudent
for the Government to lock in additional long-term funding at these
attractive rates.
Consequently, in 2012–13, the Government plans to increase issuance of
10-year bonds, reduce the stock of treasury bills and reduce issuance of
short-term bonds compared to 2011–12. An additional 10-year bond auction
will be conducted in the first quarter of 2012–13. In addition, regular bond
buyback operations on a cash basis for the 10-year sector will be
discontinued. This will contribute to a reduction in refinancing risk at a low
cost, consistent with the key objectives of the medium-term debt strategy.
Composition of Market Debt
The stock of market debt increased by $117 billion between 2008–09
and 2011–12 (Table A3.2). However, since a significant proportion of market
debt issued since 2008–09 was used to acquire interest-bearing investments,
such as insured mortgage-backed securities through the Insured Mortgage
Purchase Program (IMPP), the increase in the federal debt (accumulated
deficit) is much lower. IMPP asset maturities are projected to be $42 billion
in 2013–14, with approximately another $10 billion of assets maturing
in 2014–15.
Table A3.2
Change in Composition of Market Debt
billions of dollars
2008–09
Actual
2009–10
Actual
2010–11
Actual
2011–12
Projected
2012–13
Planned
Treasury bills 192 176 163 163 159
Marketable bonds 295 368 416 445 481
Retail debt 13 12 10 9 9
Foreign debt 10 8 8 11 13
CPP bonds 0.5 0.5 0 0 0
Total market debt 511 564 597 628 662
Debt Management Strategy for 2012–13
369
Bond Program
In 2012–13, the level of net bond issuance is planned to be about $97 billion,
$3 billion higher than the $94 billion issued in 2011–12 (Table A3.3).
Table A3.3
Bond Issuance Plan for 2012–13
billions of dollars
2008–09
Actual
2009–10
Actual
2010–11
Actual
2011–12
Projected
2012–13
Planned
Gross bond issuance 75 102 96 100 99
Buybacks -6 -2 -4 -6 -2
Net issuance 69 100 92 94 97
Maturing bonds and adjustments
1
-27 -27 -44 -66 -67
Change in bond stock 42 73 48 28 30
1
Includes cash management bond buybacks and the inflation adjustment for Real Return Bonds.
Maturity Dates and Benchmark Bond Target Range Sizes
The addition of four new maturity dates, implemented in 2011–12, has
helped smooth the cash flow profile of upcoming maturities by reducing
the size of June 1 and December 1 maturities and related coupon payments.
The move to eight maturity dates also gives the debt program additional
capacity to absorb potential increases in funding requirements.
For 2012–13, no additional changes to the bond maturity pattern and
benchmark target range sizes are planned, thus preserving the structure
implemented in 2011–12. Table A3.4 shows the projected bond maturity
pattern and benchmark size ranges for 2012–13. These amounts do not
include coupon payments.
Table A3.4
Size of Maturity Dates and Benchmark Size Ranges
billions of dollars
Feb. Mar. May June Aug. Sept. Nov. Dec.
2-year 8-12 8-12 8-12 8-12
3-year 8-12 8-12
5-year 10-13
10-13
10-year 10-14
30-year 12-15
Real Return Bond
1
10-16
Total
16-24 10-13 8-12 10-14 16-24 10-13 8-12 10-16
1
Includes estimate for inflation adjustment. The 30-year nominal bond and Real Return Bond do not mature in
the same year.
Annex 3
370
Bond Auction Schedule
In 2012–13, there will be quarterly auctions of 2-, 3-, 5- and 10-year bonds
and Real Return Bonds (RRBs). Three 30-year bond auctions will occur—
one in each of the first, third and fourth quarters of 2012–13. The order of
bond auctions within each quarter may be adjusted to support the borrowing
program, and there may be multiple auctions of the same benchmarks in
some quarters. The dates of each auction will continue to be announced
through the Quarterly Bond Schedule that is published on the Bank of Canada
website prior to the start of each quarter
(http://www.bankofcanada.ca/stats/cars/f/bd_auction_schedule.html).
Bond Buyback Programs
Two types of bond buyback operations will be conducted in 2012–13: regular
bond buybacks on a cash basis and on a switch basis, and cash management
bond buybacks.
Regular Bond Buyback Operations
In 2011–12, regular bond buyback operations on a switch basis were used
in the 2-year sector to facilitate the transition to new benchmark dates
and in the 30-year sector to support liquidity in long bonds. Having
successfully made the transition to the revised maturity structure, 2-year
switch buybacks will cease to be used in 2012–13. A 30-year switch buyback
operation will continue to be used in each quarter when no 30-year bond
auction is planned. Additional 30-year switch buyback operations may
also be considered.
Regular bond buyback operations on a cash basis, introduced as a temporary
measure in 2011–12 to support gross long bond issuance in the 10- and
30-year sectors, will be discontinued for the 10-year sector in 2012–13.
Cash bond buybacks will continue in the 30-year sector, subject to
market conditions.
Cash Management Bond Buyback Operations
The cash management bond buyback program helps manage government
cash requirements by reducing the high levels of cash balances needed
ahead of large bond maturities. In light of the success of these operations
in 2011–12 and taking into account feedback received during market
consultations, weekly cash management bond buyback operations
will be continued in 2012–13.
Debt Management Strategy for 2012–13
371
Treasury Bill Program
Bi-weekly issuance of 3-, 6- and 12-month maturities will be continued.
By the end of 2012–13, the treasury bill stock is projected to be
$159 billion, approximately $4 billion lower than the end-of-year level
for 2011–12. The treasury bill stock is being held at this level so that it can
be managed lower in order to absorb large cash inflows in 2013–14 related
to asset maturities from the IMPP. This action is being taken in an effort to
ensure that the treasury bill market continues to function well while keeping
the size of the bond program roughly stable in 2013–14.
Cash management bills (i.e. short-dated treasury bills) help manage
government cash requirements in an efficient manner. These instruments
will also continue to be used in 2012–13.
Retail Debt Program
Almost 3 million Canadians hold Canada Savings Bonds (CSBs) or Canada
Premium Bonds (CPBs). This past year, around 750,000 Canadians
purchased bonds through the payroll savings option offered by more than
11,000 employers across Canada, while over 50,000 Canadians purchased
bonds directly with cash. Investors repeatedly cite the safety and security
of CSBs and CPBs as key attributes, with payroll deduction providing a
convenient automatic savings option.
In 2012–13, a number of changes will be made to the Retail Debt Program
to improve the efficiency of the program and better align product offerings
to the needs of today’s investors.
Beginning with the Fall 2012 campaign, the Retail Debt Program will offer
one product per sales channel (i.e. cash purchases and payroll deductions).
The CPB will continue to be sold through the cash channel by financial
institutions, investment dealers and direct phone sales. CPBs will be
enhanced with a cashability feature—they will be redeemable throughout
the year with interest earned up to the last anniversary date of purchase.
All outstanding CPBs will also benefit from this feature. The term to
maturity of all new CPBs will be shortened to three years from ten years
to align with their three-year step-up coupon pricing. This will also make
the CPB’s term to maturity comparable with other retail products.
Annex 3
372
CSBs will be offered exclusively through the Payroll Savings Program,
which is how the vast majority of CSBs are currently sold. The term to
maturity of all new CSBs will also be shortened to three years to match
the term of CPBs.
Further information on the Retail Debt Program is available on the Canada
Savings Bonds website (http://www.csb.gc.ca).
Foreign Currency Funding
The purpose of the Exchange Fund Account (EFA) is to aid in the control
and protection of the external value of the Canadian dollar. Assets held
in the EFA are managed to provide foreign currency liquidity, support
market confidence, and promote orderly conditions for the Canadian
dollar in the foreign exchange markets, if required. The prudential liquidity
plan instituted in Budget 2011 calls for liquid foreign exchange reserves
to be maintained at a level at or above 3 per cent of nominal gross
domestic product.
The Government has access to a range of direct sources of funding for its
foreign currency assets. These include a short-term US-dollar paper program,
medium-term note issuance in various markets, international bond issues,
purchases and sales of Canadian dollars in foreign exchange markets, and
cross-currency swaps involving the exchange of domestic liabilities for
foreign-currency-denominated liabilities. In February 2012, the Government
issued a US$3-billion global bond to help meet the requirements of the
prudential liquidity plan. This was Canada’s first US-dollar global bond
issuance since September 2009.
The debt management strategy for 2012–13 assumes that all foreign liabilities
maturing during the year will be refinanced. The actual amount of gross
foreign currency funding may vary from this assumption, depending on
market conditions and the Government’s foreign currency needs. The mix
of funding sources used to finance the reserves in 2012–13 will depend on
a number of considerations, including relative cost, market conditions, and
the objective of maintaining a prudent foreign-currency-denominated debt
maturity structure.
Further information on managing foreign currency reserves and funding
objectives is provided in the Report on the Management of Canada’s Official
International Reserves, which is available on the Department of Finance website.
Chapter 1
Introducton
Annex 4
Tax Measures:
Supplementary Informaton,
Notces of Ways and Means Motons
and Draf Amendments to Various
GST/HST Regulatons
Tax Measures
Supplementary Information
375
TABLE OF CONTENTS
Tax Measures: Supplementary Information
Overview ................................................................................................................ 379
Personal Income Tax Measures ............................................................................ 382
Medical Expense Tax Credit .................................................................................................. 382
Registered Disability Savings Plans ....................................................................................... 382
Mineral Exploration Tax Credit for Flow-Through Share Investors .............................. 392
Eligible Dividends – Split-Dividend Designation and Late Designation ....................... 392
Group Sickness or Accident Insurance Plans ..................................................................... 394
Retirement Compensation Arrangements ........................................................................... 395
Employees Profit Sharing Plans ............................................................................................ 399
Salary of the Governor General of Canada ......................................................................... 400
Life Insurance Policy Exemption Test ................................................................................. 400
Business Income Tax Measures ............................................................................ 403
Clean Energy Generation Equipment: Accelerated Capital Cost Allowance ................ 403
Corporate Mineral Exploration and Development Tax Credit ........................................ 406
Atlantic Investment Tax Credit ............................................................................................. 407
Scientific Research and Experimental Development Program ........................................ 410
Tax Avoidance Through the Use of Partnerships .............................................................. 414
Partnership Waivers ................................................................................................................. 416
International Taxation ........................................................................................... 417
Transfer Pricing Secondary Adjustments ............................................................................. 417
Thin Capitalization Rules ........................................................................................................ 418
Foreign Affiliate Dumping ..................................................................................................... 423
Base Erosion Rules – Canadian Banks ................................................................................. 425
Overseas Employment Tax Credit ........................................................................................ 426
Sales and Excise Tax Measures ............................................................................. 428
GST/HST Health Measures ................................................................................................... 428
GST Rebate for Books to be Given Away for Free
by Prescribed Literacy Organizations ................................................................................ 431
Doubling GST/HST Streamlined Accounting Thresholds .............................................. 431
Tax Relief for Foreign-Based Rental Vehicles
Temporarily Imported by Canadian Residents................................................................. 433
Consistent Application of the Green Levy on Fuel-Inefficient Vehicles ....................... 434
Other Tax Measures .............................................................................................. 435
Gifts to Foreign Charitable Organizations .......................................................................... 435
Charities – Enhancing Transparency and Accountability ................................................. 436
Tax Shelter Administrative Changes ..................................................................................... 437
Aboriginal Tax Policy .............................................................................................................. 439
Customs Tariff Measures ...................................................................................... 441
Trade Measures to Support the Energy Industry ............................................................... 441
Travellers’ Exemptions ............................................................................................................ 441
Previously Announced Measures........................................................................... 442
Annex 4
376
Notices of Ways and Means Motions
Notice of Ways and Means Motion to Amend the Income Tax Act ....................................... 445
Notice of Ways and Means Motion to Amend the Excise Tax Act ....................................... 480
Notice of Ways and Means Motion to Amend the Customs Tariff ......................................... 490
Draft Amendments to Various GST/HST Regulations .................... 493
Chapter 1
Introducton
Tax Measures:
Supplementary
Informaton
Tax Measures
Supplementary Information
379
OVERVIEW
This annex provides detailed information on each of the tax measures
proposed in the Budget.
Table A4.1 lists these measures and provides estimates of their
budgetary impact.
The annex also provides Notices of Ways and Means Motions to amend
the Income Tax Act, the Excise Tax Act (and related regulations) and the
Customs Tariff.
In this annex, references to “Budget Day” are to be read as references to
the day on which this Budget is presented.
Annex 4
380
Table A4.1
Cost of Proposed Tax and Tariff Measures
1
Fiscal Costs (millions of dollars)
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017 Total
Personal Income Tax Measures
Medical Expense Tax Credit – – – – – – –
RDSP – Plan Holders
2
– 1 2 3 3 2 11
RDSP – Proportional Repayment Rule – – – – – – –
RDSP – Maximum and Minimum Withdrawals – – – – – – –
RDSP – Rollover of RESP Investment Income
2
– – 1 – – – 1
RDSP – Termination of an RDSP
following Cessation of Eligibility
for the DTC
2
– 1 2 4 5 10 22
RDSP – Administrative Changes
2
– 1 1 1 – – 3
Mineral Exploration Tax Credit for
Flow-Through Share Investors – 130 (30) – – – 100
Eligible Dividends – Split-Dividend Designation
and Late Designation – – – – – – –
Group Sickness or Accident Insurance Plans – (20) (85) (95) (100) (105) (405)
Retirement Compensation Arrangements – – – – – – –
Employees Profit Sharing Plans – (10) (35) (40) (40) (40) (165)
Salary of the Governor General of Canada – – – – – – –
Life Insurance Policy Exemption Test
Business Income Tax Measures
Clean Energy Generation Equipment: Accelerated
Capital Cost Allowance – – 2 3 4 4 13
Corporate Mineral Exploration and Development
Tax Credit – – (10) (25) (25) (30) (90)
Atlantic Investment Tax Credit – Oil and
Gas and Mining Activities – – – (15) (35) (85) (135)
Atlantic Investment Tax Credit – Electricity
Generation Equipment – – 1 1 1 1 4
SR&ED Investment Tax Credit Rate – – – (190) (285) (295) (770)
SR&ED Capital Expenditures – – – (15) (40) (40) (95)
SR&ED Overhead Expenditures – – (10) (55) (95) (100) (260)
SR&ED Contract Payments – – (25) (55) (60) (65) (205)
Tax Avoidance Through the Use of Partnerships – – – – – – –
Partnership Waivers – – – – – – –
Tax Measures
Supplementary Information
381
Table A4.1 (cont’d)
Cost of Proposed Tax and Tariff Measures
1
Fiscal Costs (millions of dollars)
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017 Total
International Taxation
Transfer Pricing Secondary Adjustments – – – – – – –
Thin Capitalization – Debt-to-Equity Ratio – – (60) (110) (75) (65) (310)
Thin Capitalization – Partnerships – – – – – – –
Thin Capitalization – Disallowed
Interest Treated as a Dividend – – (1) (1) (1) (1) (4)
Thin Capitalization – Foreign Affiliate Loans – – – – – – –
Foreign Affiliate Dumping – (110) (225) (265) (325) (385) (1,310)
Base Erosion Rules – Canadian Banks
Overseas Employment Tax Credit – – (10) (35) (65) (95) (205)
Sales and Excise Tax Measures
GST/HST Health Measures – 3 3 4 4 4 18
GST Rebate for Books to be Given
Away for Free by Prescribed Literacy
Organizations – – – – – – –
Doubling GST/HST Streamlined
Accounting Thresholds – – – – – – –
Tax Relief for Foreign-Based Rental Vehicles
Temporarily Imported by Canadian Residents – – – – – – –
Consistent Application of the Green Levy
on Fuel-Inefficient Vehicles – – – – – – –
Other Measures
Gifts to Foreign Charitable Organizations – – – – – – –
Charities – Enhancing Transparency and
Accountability – – – – – – –
Tax Shelter Administrative Changes – – – – – – –
Aboriginal Tax Policy – – – – – – –
Customs Tariff Measures
Trade Measures to Support
the Energy Industry – 30 30 30 30 30 150
Travellers’ Exemptions – 13 17 18 18 19 85
1
A “–” indicates a nil amount, a small amount (less than $1 million) or an amount that cannot be determined in respect of
a measure that is intended to protect the tax base.
2
The cost of this measure is attributable to program expenditure.
Annex 4
382
PERSONAL INCOME TAX MEASURES
Medical Expense Tax Credit
The Medical Expense Tax Credit recognizes the effect of above-average
medical and disability-related expenses on a taxpayer’s ability to pay income
tax. The Medical Expense Tax Credit provides federal income tax relief equal
to 15 per cent of eligible medical and disability-related expenses in excess of a
threshold that is the lesser of 3 per cent of the taxpayer’s net income and an
indexed dollar amount ($2,109 in 2012).
The list of expenses eligible for the Medical Expense Tax Credit is
regularly reviewed and updated in light of new technologies and other
disability-specific or medically-related developments. Budget 2012 proposes
to add to the list blood coagulation monitors for use by individuals who
require anti-coagulation therapy, including associated disposable peripherals
such as pricking devices, lancets and test strips. The cost of these devices will
be eligible for the Medical Expense Tax Credit when they are prescribed by a
medical practitioner.
This measure will apply to expenses incurred after 2011.
Registered Disability Savings Plans
To ensure the ongoing effectiveness of Registered Disability Savings Plans
(RDSPs), and in response to stakeholder comments received during the
recent review of the RDSP, Budget 2012 proposes a number of changes to
the rules governing these plans.
An RDSP may be established for an individual who is eligible for the
Disability Tax Credit (DTC). The individual eligible for the DTC is the plan
beneficiary. The plan holder is the individual who generally opens the RDSP
and makes decisions regarding contributions, investments, and withdrawals.
The plan holder can be the beneficiary or, if the plan is opened for a minor
child, a parent. The plan holder can also be a legal representative of
the beneficiary.
Parents, beneficiaries and others wishing to save on behalf of the beneficiary
are allowed to contribute to an RDSP. Contributions to an RDSP are limited
to a lifetime maximum of $200,000. Contributions are permitted until the
end of the year in which a beneficiary attains 59 years of age.
Tax Measures
Supplementary Information
383
Annual RDSP contributions attract Canada Disability Saving Grants
(CDSGs) at matching rates of 100, 200, or 300 per cent, depending on the
beneficiary’s family income and the amount contributed, up to a lifetime
maximum of $70,000. An RDSP is eligible to receive CDSGs until the end
of the year in which the beneficiary attains 49 years of age. The Government
also provides up to $1,000 in Canada Disability Savings Bonds (CDSBs)
annually to RDSPs established by low- and modest-income families, up to a
lifetime maximum of $20,000. CDSBs are paid into RDSPs until the end of
the year in which the beneficiary attains 49 years of age.
Contributions to an RDSP are not deductible and are not included in the
beneficiary’s income when withdrawn. Investment income earned in an
RDSP grows tax-free. CDSGs, CDSBs and investment income earned in
an RDSP are included in the beneficiary’s income for tax purposes when
withdrawn from the RDSP. Each withdrawal from an RDSP comprises a
taxable portion and a non-taxable portion based on the relative proportion
of taxable assets (including CDSGs, CDSBs, and investment income) and
non-taxable assets (private contributions) in the plan. RDSP withdrawals
must commence by the end of the year in which the beneficiary attains
60 years of age.
Plan Holders
Under current rules, when an RDSP is established for a beneficiary who has
attained the age of majority, the plan holder must be either the beneficiary or,
if the beneficiary lacks the capacity to enter into a contract, the beneficiary’s
guardian or other legal representative.
However, a number of adults with disabilities have experienced difficulties in
establishing a plan because their capacity to enter into a contract is in doubt.
Questions of appropriate legal representation in these cases are a matter of
provincial and territorial responsibility. In many provinces and territories, the
only way that an RDSP can be opened in these cases is for the individual to
be declared legally incompetent and have someone named as their legal
guardian – a process that can involve a considerable amount of time and
expense on the part of concerned family members, and that may have
significant repercussions for the individual.
Annex 4
384
While these provinces and territories develop more appropriate, long term
solutions to address RDSP legal representation issues, Budget 2012 proposes
to allow, on a temporary basis, certain family members to become the plan
holder of the RDSP for an adult individual who might not be able to enter
into a contract. This measure will ensure that individuals in all provinces and
territories who might not be contractually competent and who do not have a
legal representative may still benefit from RDSPs.
Specifically, where, in the opinion of an RDSP issuer, an individual’s ability
to enter into a contract is in doubt, the spouse, common-law partner, or
parent of the individual will be considered a “qualifying family member”
and will be eligible to establish an RDSP for the individual (i.e., be the plan
holder of the RDSP). Budget 2012 also proposes to provide that no action
will lie against an RDSP issuer who, being of the opinion that a beneficiary’s
ability to enter into a contract is in doubt, allows a qualifying family member
to establish and become the holder of an RDSP for the beneficiary.
RDSP issuers will be required to notify an individual when a qualifying family
member establishes an RDSP for which the individual is the beneficiary.
If, subsequently, the issuer no longer has doubt regarding the individual’s
contractual competence, or the individual is determined to be contractually
competent by a public agency or tribunal authorized to make such a
determination in the relevant jurisdiction, the individual may replace the
qualifying family member as plan holder.
If, after an RDSP has been opened by a qualifying family member, a legal
representative (i.e., a guardian, tutor, curator or other person who is legally
authorized to act on behalf of the individual) is named in respect of an
individual, the legal representative will replace the qualifying family member
as plan holder.
This measure will not apply in circumstances where an RDSP has already
been established for an individual or where an individual already has a
legal representative.
This measure will apply from the date of Royal Assent to the enacting
legislation until the end of 2016. A qualifying family member who becomes
a plan holder under this measure will be able to remain the plan holder
after 2016.
Tax Measures
Supplementary Information
385
Proportional Repayment Rule
Under current rules, any CDSGs and CDSBs paid into an RDSP in the
preceding 10 years generally must be repaid to the Government on any of
the following events:
• any amount is withdrawn from the RDSP;
• the RDSP is terminated or deregistered; or
• the RDSP beneficiary ceases to be eligible for the DTC or dies.
This is known as the “10-year repayment rule”. To ensure that RDSP funds
are available to meet potential obligations under this rule, RDSP issuers must
set aside an “assistance holdback amount” equal to the total CDSGs and
CDSBs paid into the RDSP in the preceding 10 years less any CDSGs and
CDSBs already repaid in respect of that 10-year period. When one of the
events described above occurs, the required repayment is equal to the
amount of the assistance holdback amount immediately preceding the event.
To provide greater access to RDSP savings for small withdrawals, while still
supporting the long-term savings objective of these plans, Budget 2012
proposes to introduce a proportional repayment rule that will apply when
a withdrawal is made from an RDSP. This rule will replace the
10-year repayment rule only in respect of RDSP withdrawals. The existing
10-year repayment rule will continue to apply where the RDSP is terminated
or deregistered, or the RDSP beneficiary ceases to be eligible for the
DTC or dies.
The proportional repayment rule will require that, for each $1 withdrawn
from an RDSP, $3 of any CDSGs or CDSBs paid into the plan in the
10 years preceding the withdrawal be repaid, up to a maximum of the
assistance holdback amount. Repayments will be attributed to CDSGs or
CDSBs that make up the assistance holdback amount based on the order
in which they were paid into the RDSP, beginning with the oldest amounts.
Annex 4
386
This measure will apply to withdrawals made from an RDSP after 2013.
Example
Jeff opens an RDSP in 2009 and contributes $1,500 to his plan annually,
attracting the maximum amount of CDSGs ($3,500) each year. In 2014,
the assistance holdback amount for his plan equals $21,000.
In 2014, Jeff withdraws $600 from his RDSP. Under the 10-year repayment
rule, the entire assistance holdback amount ($21,000) would have to be
repaid. Under the proportional repayment rule, $1,800 of the assistance
holdback amount will be repaid (approximately 9 per cent of the repayment
required under the 10-year repayment rule). The $1,800 repayment will
come from CDSGs paid into Jeff’s RDSP in 2009 and the plan’s assistance
holdback amount will be reduced to $19,200.
Maximum and Minimum Withdrawals
Budget 2012 proposes changes to the rules governing maximum and
minimum withdrawals from RDSPs. These changes will provide greater
flexibility in making withdrawals from an RDSP and ensure that RDSP assets
are used to support the RDSP beneficiary during their lifetime.
There are two types of withdrawals that may be made from an RDSP: a
discretionary disability assistance payment, which may be made at any time,
subject to the plan terms and certain restrictions under the tax rules; and a
lifetime disability assistance payment (LDAP), which provides an ongoing
stream of payments from the RDSP for a beneficiary.
LDAPs may commence at any time. Once started, they must be paid at least
annually until either the RDSP is terminated or the beneficiary dies. LDAPs
must begin no later than the end of the year in which the beneficiary attains
60 years of age, so that the assets in the plan provide for the long-term
financial security of the beneficiary during their lifetime. The maximum
LDAP that can be withdrawn from the RDSP each year is determined by a
formula (the LDAP formula) that is based on the age of the beneficiary and
the fair market value of the assets held in the RDSP.
Specific rules limit the maximum amount that may be withdrawn annually
from RDSPs where CDSGs and CDSBs paid into the plan exceed private
contributions made to the plan. Such RDSPs are known as primarily
government-assisted plans (PGAPs). Total withdrawals from a PGAP in a
calendar year may not exceed the amount determined by the LDAP formula
for the year. No such maximum withdrawal limits apply to non-PGAPs.
Tax Measures
Supplementary Information
387
Budget 2012 proposes to increase the maximum annual limit for withdrawals
from PGAPs to the greater of the amount determined by the LDAP formula
and 10 per cent of the fair market value of plan assets at the beginning of the
calendar year. A PGAP beneficiary will continue to be eligible for the existing
exemption from the maximum annual limit for withdrawals if a medical
doctor certifies in writing that the beneficiary’s state of health is such that,
in the doctor’s opinion, the beneficiary has a life expectancy of five years
or less.
PGAPs are also subject to a minimum annual withdrawal requirement
commencing with the calendar year in which the beneficiary attains 60 years
of age. For that calendar year and subsequent years, the total withdrawals
from a PGAP must be at least equal to the amount determined by the LDAP
formula for the year. For other RDSPs, there is no specified minimum
withdrawal amount.
Budget 2012 proposes to extend to all RDSPs the minimum annual
withdrawal requirement that currently applies only to PGAPs. Accordingly,
once an RDSP beneficiary attains 60 years of age, the total withdrawals from
the RDSP in a calendar year must be at least equal to the amount determined
by the LDAP formula for the year.
These measures will apply after 2013.
Rollover of RESP Investment Income
To provide greater flexibility for parents who save in a Registered
Education Savings Plan (RESP) for a child with a severe disability,
Budget 2012 proposes to allow investment income earned in an RESP to be
transferred on a tax-free (or “rollover”) basis to an RDSP if the plans share a
common beneficiary.
In order to qualify for this measure, the beneficiary must meet the existing
age and residency requirements in relation to RDSP contributions. As well,
one of the following conditions must be met:
• the beneficiary has a severe and prolonged mental impairment that
can reasonably be expected to prevent the beneficiary from pursuing
post-secondary education;
• the RESP has been in existence for at least 10 years and each
beneficiary is at least 21 years of age and is not pursuing post-secondary
education; or
• the RESP has been in existence for more than 35 years.
Annex 4
388
These are the existing conditions for receiving an accumulated income
payment (AIP) from an RESP. An AIP is a lump-sum distribution of
investment income earned in an RESP to the RESP subscriber,
generally made in circumstances where the RESP beneficiary does not
pursue post-secondary education and the RESP is being terminated. The
AIP is included in the income of the RESP subscriber for regular income
tax purposes and is also subject to an additional 20-per-cent tax. An RESP
subscriber may reduce the amount of the AIP subject to tax by contributing
a portion of the AIP to a Registered Retirement Savings Plan under
specified conditions.
Under this proposal, when RESP investment income is rolled over to an
RDSP, contributions in the RESP will be returned to the RESP subscriber
on a tax-free basis. The subscriber can contribute these amounts to the
RDSP (immediately or over time) if they so choose, potentially attracting
CDSGs.
1
The amount of RESP investment income rolled over to an RDSP may not
exceed, and will reduce, the beneficiary’s available RDSP contribution room.
The rollover amount will be considered a private contribution for the
purpose of determining whether the RDSP is a PGAP, but will not attract
CDSGs. The rollover amount will be included in the taxable portion of
RDSP withdrawals.
In addition, Canada Education Savings Grants and Canada
Learning Bonds in the RESP will be required to be repaid to the
Government and the RESP terminated by the end of February of the year
after the year during which the rollover is made. As in the case of a
contribution of an AIP to a Registered Retirement Savings Plan, the rollover
amount will not be subject to regular income tax or the additional
20-per-cent tax.
This measure will apply to rollovers of RESP investment income made
after 2013.
1
The carry forward of RDSP grants and bonds introduced in Budget 2010 allows RDSP
beneficiaries to claim unused entitlements for CDSGs and CDSBs for the preceding 10 years
(starting from 2008, the year RDSPs became available).
Tax Measures
Supplementary Information
389
Termination of an RDSP following Cessation of Eligibility for the DTC
An RDSP may be established only for a beneficiary who is eligible for the
Disability Tax Credit (DTC). If a beneficiary’s condition factually improves
such that the beneficiary does not qualify for the DTC for a taxation year
(i.e., the beneficiary is DTC-ineligible throughout a full calendar year), the
RDSP must be terminated by the end of the following year. No contributions
may be made to, and no CDSGs or CDSBs may be paid into, the RDSP once
the beneficiary is DTC-ineligible. In addition, the 10-year repayment rule
applies (with the required repayment being equal to the amount of the
assistance holdback amount immediately preceding the beneficiary
becoming DTC-ineligible) and any assets remaining in the RDSP must be
paid to the beneficiary.
A beneficiary who becomes DTC-ineligible might, due to the nature of their
condition, be eligible for the DTC for some later year and would be able to
establish a new RDSP. Contribution room and repaid CDSGs and CDSBs
are not restored in these circumstances.
To reduce the administrative burden on these beneficiaries and ensure
greater continuity in their long-term saving, Budget 2012 proposes to extend,
in certain circumstances, the period for which an RDSP may remain open
when a beneficiary becomes DTC-ineligible.
This measure will apply to RDSPs where the beneficiary has become
DTC-ineligible. In addition, a medical practitioner must certify in writing
that the nature of the beneficiary’s condition makes it likely that the
beneficiary will, because of the condition, be eligible for the DTC in
the foreseeable future.
Election
If an RDSP plan holder decides to take advantage of this measure, the plan
holder will be required to elect in prescribed form and submit the election,
along with the written certification, to the RDSP issuer. The RDSP issuer will
then be required to notify Human Resources and Skills Development Canada
that the election has been made. The election must be made on or before
December 31
st
of the year following the first full calendar year for which the
beneficiary is DTC-ineligible.
Annex 4
390
Results of an Election
Where an election is made, the following rules will apply commencing with
the first full calendar year for which the beneficiary is DTC-ineligible:
• No contributions to the RDSP will be permitted, including under the
proposed rule for the rollover of RESP investment income. However, a
rollover of proceeds from a deceased individual’s Registered Retirement
Savings Plan or Registered Retirement Income Fund to the RDSP of a
financially dependent infirm child or grandchild will still be permitted.
• No new CDSGs or CDSBs will be paid into the RDSP. If a beneficiary
dies after an election has been made, the existing 10-year repayment rule
will apply (with the required repayment being equal to the amount of the
assistance holdback amount immediately preceding the beneficiary
becoming DTC-ineligible, less any repayments made during or after the
first full calendar year for which the beneficiary is DTC-ineligible).
• No new entitlements will be generated for the purpose of the carry-
forward of CDSGs and CDSBs for years for which the beneficiary is
DTC-ineligible.
• Withdrawals from the RDSP will be permitted, and will be subject to the
proposed proportional repayment rule and the proposed maximum and
minimum withdrawal rules as applicable. For years for which the
beneficiary is DTC-ineligible, the assistance holdback amount will be
equal to the amount of the assistance holdback amount immediately
preceding the beneficiary becoming DTC-ineligible less any repayments
made during or after the first full calendar year for which the beneficiary
is DTC-ineligible.
Neither the certification required for an election, nor the election itself, will
have any bearing on any determination of an individual’s eligibility for the
DTC. The sole purpose of the certification and election is to allow an RDSP
to remain open for the years under election.
Duration of an Election
An election will generally be valid until the end of the fourth calendar year
following the first full calendar year for which a beneficiary is DTC-ineligible.
The RDSP must be terminated by the end of the first year for which there is
no longer a valid election.
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If a beneficiary becomes eligible for the DTC while an election is valid,
the usual RDSP rules will apply commencing with the year for which the
beneficiary becomes eligible. For example, contributions will be permitted
and new CDSGs and CDSBs may be paid into the RDSP. Should the
beneficiary become DTC-ineligible at some later time, a new election
could be made.
This measure will apply to elections made after 2013.
RDSPs, that under current rules would have to be terminated before 2014
because the beneficiary has become DTC-ineligible and that have not yet
been terminated, will not be required to be terminated until the end of 2014.
Plan holders of such RDSPs may take advantage of this measure if they
obtain the required medical certification and make an election on or before
December 31, 2014.
Administrative Changes
Under current rules, when an RDSP is established, the issuer of the plan
must notify Human Resources and Skills Development Canada within
60 days. When an RDSP is transferred from one RDSP issuer to another,
the transfer must be completed within 120 days of the new plan being
established. Budget 2012 proposes to replace these deadlines with a
requirement that an RDSP issuer act “without delay” in notifying Human
Resources and Skills Development Canada or the establishment of transfer
of an RDSP. The elimination of these deadlines is intended to give issuers
greater flexibility in complying with their obligations.
When an RDSP is transferred to a new issuer, the issuer of the original plan
is required to provide a large amount of information to the new issuer.
Issuers are also required to file this information on a regular basis with
Human Resources and Skills Development Canada. To reduce the
administrative burden for issuers, Budget 2012 also proposes that Human
Resources and Skills Development Canada, rather than the issuer of the
original plan, be responsible for providing this information to the issuer of
the new plan when an RDSP transfer occurs.
These measures will apply on Royal Assent to the enacting legislation.
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In addition, Budget 2012 proposes that the Canada Disability Savings Regulations
be amended to eliminate the 180-day deadline for an RDSP issuer to submit
an application for a CDSG or a CDSB.
This measure will apply on and after the day that the regulation amending the
Canada Disability Savings Regulations is registered.
Mineral Exploration Tax Credit for Flow-Through Share Investors
Flow-through shares allow companies to renounce or “flow through” tax
expenses associated with their Canadian exploration activities to investors,
who can deduct the expenses in calculating their own taxable income. This
facilitates the raising of equity to fund exploration by enabling companies
to sell their shares at a premium. The Mineral Exploration Tax Credit is an
additional benefit, available to individuals who invest in flow-through shares,
equal to 15 per cent of specified mineral exploration expenses incurred in
Canada and renounced to flow-through share investors.
Budget 2012 proposes to extend eligibility for the mineral exploration tax
credit for one year, to flow-through share agreements entered into on or
before March 31, 2013. Under the existing “look-back” rule, funds raised in
one calendar year with the benefit of the credit can be spent on eligible
exploration up to the end of the following calendar year. Therefore, for
example, funds raised with the credit during the first three months of 2013
can support eligible exploration until the end of 2014.
Mineral exploration, as well as new mining and related processing activity
that could follow from successful exploration efforts, can be associated with
a variety of environmental impacts to soil, water, and air and, as a result,
could have an impact on the goals of the Federal Sustainable Development
Strategy. All such activity, however, is subject to applicable federal and
provincial environmental regulations, including project-specific
environmental assessments where required.
Eligible Dividends – Split-Dividend Designation and
Late Designation
Corporate income is generally subject to two levels of tax – the corporate
level and personal shareholder level when corporate profits are distributed
as taxable dividends. In order to relieve against double taxation, the
Income Tax Act integrates the corporate and personal income tax systems
by crediting individuals through the Dividend Tax Credit (DTC) with their
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proportionate share of income tax assumed to have been payable at the
corporate level on taxable dividends they receive.
The amount of this DTC depends on the type of dividend paid by a
corporation to a shareholder. If the dividend is an “eligible dividend”, i.e.,
a dividend paid out of income that was taxed at the general corporate
income tax rate (currently 15 per cent federally), the shareholder qualifies
for an enhanced DTC. A taxable dividend that is not an eligible dividend, i.e.,
a dividend paid out of income that was taxed at a lower rate (in most cases
being the small business income tax rate), qualifies for the regular DTC.
The enhanced DTC is available only if, at the time the dividend is paid,
the corporation notifies each shareholder in writing that the dividend is
designated as an eligible dividend. If a corporation fails to designate a
dividend as an eligible dividend, despite the corporation having had sufficient
income to make an eligible dividend designation, the corporation cannot file
a late eligible dividend designation. In contrast, a corporation that makes an
excessive eligible dividend designation may correct the designation by paying
a special 20-per-cent tax in respect of the amount of the excessive
designation or by filing a valid election under which the shareholders accept
that the excess amount that they have received is a separate taxable dividend
that qualifies for the regular DTC.
Budget 2012 proposes to simplify the manner in which a corporation
resident in Canada pays and designates eligible dividends by allowing the
corporation to designate, at the time it pays a taxable dividend, any portion
of the dividend to be an eligible dividend. The portion of a taxable dividend
that is designated to be an eligible dividend will qualify for the enhanced
DTC, and the remaining portion will qualify for the regular DTC.
Simplifying the administrative compliance involved in designating a
dividend to be an eligible dividend will support the objectives of the
Red Tape Reduction Commission.
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Budget 2012 also proposes to allow the Minister of National Revenue to
accept a corporation’s late designation of a taxable dividend to be an eligible
dividend. Under the proposal, the Minister will be allowed to accept a late
designation of an eligible dividend if the corporation makes the late
designation within the three-year period following the day on which the
designation was first required to be made. In addition, the Minister must be
of the opinion that accepting the late eligible dividend designation would be
just and equitable in the circumstances, including to affected shareholders.
This measure will therefore improve tax fairness for any corporation that
pays a non-eligible taxable dividend to the extent that it is determined that
the corporation had, when the dividend was paid, income taxed at the general
corporate income tax rate to support an eligible dividend designation, and
that the above conditions are met.
These measures will apply to taxable dividends paid on or after Budget Day.
Group Sickness or Accident Insurance Plans
Employment benefits, whether provided in cash or in-kind, are generally
included in an employee’s income for tax purposes. Subject to a number of
exceptions, if an employer contributes to a group insurance plan in respect of
an employee, an amount is included in the employee’s income either when
the employer contributions are made to the plan or when benefits are
received under the plan.
Currently, wage-loss replacement benefits payable on a periodic basis under
a group sickness or accident insurance plan to which an employer has
contributed are included in an employee’s income for tax purposes when
those benefits are received. However, no amount is included in an
employee’s income, either when the employer contributions are made or
the benefits are received, to the extent that:
• benefits are not payable on a periodic basis; or
• benefits are payable in respect of a sickness or accident when there is
no loss of employment income.
To provide for more neutral and fair tax treatment of beneficiaries under a
group sickness or accident insurance plan, Budget 2012 proposes to include
the amount of an employer’s contributions to a group sickness or accident
insurance plan in an employee’s income for the year in which the
contributions are made to the extent that the contributions are not in
respect of a wage-loss replacement benefit payable on a periodic basis.
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This measure will not affect the tax treatment of private health services
plans or other plans described in paragraph 6(1)(a) of the Income Tax Act.
This measure will apply in respect of employer contributions made on or
after Budget Day to the extent that the contributions relate to coverage after
2012, except that such contributions made on or after Budget Day and
before 2013 will be included in the employee’s income for 2013.
Retirement Compensation Arrangements
Under the Income Tax Act, a retirement compensation arrangement (RCA) is
a type of employer-sponsored, funded retirement savings arrangement. RCAs
are normally used to fund the portion of a higher-income employee’s pension
benefit that exceeds the maximum pension benefit permitted under the
Registered Pension Plan (RPP) contribution limits. The RCA rules were
introduced in the 1980s to ensure consistent tax treatment across all
employers for pension arrangements above the RPP limits.
RCAs are exempt from regular Part I income tax, and contributions made
to an RCA are generally deductible in computing income. A refundable RCA
tax (RCA tax) is imposed at a rate of 50 per cent on contributions to an
RCA, as well as on income and gains earned or realized by an RCA. The
RCA tax is generally refunded as taxable distributions are made from the
RCA. However, a special rule assists taxpayers in circumstances where the
RCA has suffered investment losses and the ability of the RCA to make
distributions is significantly impaired. Under this rule, the RCA may obtain
a refund of the RCA tax even if the property held in the RCA has lost some
or all of its value.
The Canada Revenue Agency has identified a number of arrangements
that seek to take advantage of various features of the RCA rules in order
to obtain unintended tax benefits. For example, some arrangements involve
the deduction of large contributions that are indirectly returned to the
contributors through a series of steps ending with the purported RCA
having little or no assets but still being able to claim the refundable tax
using the impaired asset exception. Other arrangements use insurance
products to allocate costs to the arrangement for benefits that arise outside
the arrangement.
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The Government is challenging these tax-motivated arrangements, which are
not consistent with the policy intent of the RCA rules. Since these challenges
are both time-consuming and costly, the Government is acting now to
introduce specific legislative measures to prevent the use of similar schemes
in future.
Budget 2012 proposes new prohibited investment and advantage rules to
directly prevent RCAs from engaging in non-arm’s length transactions.
These rules will be based very closely on existing rules for Tax-Free Savings
Accounts and Registered Retirement Savings Plans (RRSPs). As well,
Budget 2012 proposes a new restriction on RCA tax refunds in
circumstances where RCA property has lost value.
Prohibited Investments
Budget 2012 proposes that the new prohibited investment rules apply in
respect of RCAs that have a “specified beneficiary”. In general terms, a
specified beneficiary of an RCA will be an employee entitled to benefits
under the RCA who has a significant interest in their employer. The
custodian of an RCA will be liable to pay a 50-per-cent tax on the fair market
value of any prohibited investment acquired or held by the RCA. A specified
beneficiary of an RCA that participates in the acquisition or holding of a
prohibited investment by the RCA will be jointly and severally, or solidarily,
liable, to the extent of their participation, for the tax.
This tax will be refundable if the RCA disposes of the prohibited investment
by the end of the year following the year in which it was acquired (or such
later time as the Minister of National Revenue considers reasonable) unless
any of the persons liable for the tax knew or ought to have known that the
investment was a prohibited investment. The Minister will also have the
power to waive or cancel the tax where the Minister is satisfied that it is just
and equitable to do so, having regard to all the circumstances.
This measure will apply in respect of investments acquired, or that become
prohibited investments, on or after Budget Day.
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Advantages
Budget 2012 also proposes that the definition of “advantage” be adapted to
address the specific forms of tax planning that have been identified in
relation to RCAs. For example, if an RCA buys a high-value property and
that value is later intentionally eroded or transferred from the RCA without
adequate consideration, an “RCA strip” transaction will be considered to
have taken place and to constitute an advantage. An “RCA strip” will be a
new definition similar to the existing definition of “RRSP strip” in the RRSP
rules, with such modifications as the circumstances require to apply to
transactions involving RCAs. RCA strips will include situations where an
RCA holds a promissory note issued by a non-arm’s length debtor in respect
of the RCA and the debtor fails to make commercially reasonable payments
of principal and interest on the promissory note.
As is the case under the existing advantage rules, an RCA advantage will be
subject to a special tax equal to the fair market value of the advantage. The
custodian of the RCA will be liable for the special tax. A specified beneficiary
of the RCA that participates in extending the advantage will be jointly and
severally, or solidarily, liable, to the extent of their participation, for the
special tax.
The Minister of National Revenue will have the power to waive or cancel the
special tax where the Minister is satisfied that it is just and equitable to do so,
having regard to all the circumstances.
The special tax will generally apply to advantages extended, received or
receivable on or after Budget Day, including advantages that relate to RCA
property acquired, or transactions occurring, before Budget Day. However,
advantages that relate to property acquired, or transactions occurring, before
Budget Day will be eligible for special transitional rules on an elective basis,
as is the case under the existing advantage rules.
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Transitional Rules
If RCA property acquired, or transactions occurring, before Budget Day
cause an advantage to be obtained by a specified beneficiary of the RCA (or a
person who does not deal at arm’s length with the specified beneficiary) on or
after Budget Day, then the amount of the advantage will not be subject to the
special tax provided that the amount is included in computing the income of
the specified beneficiary. For example, if on or after Budget Day a specified
beneficiary of an RCA proceeds with steps, such as the removal of assets from
a debtor corporation, that cause a pre-Budget Day promissory note to lose its
value, the amount of the decline in value will be treated as an “RCA strip” and
therefore as an advantage subject to the special tax, unless the specified
beneficiary includes the amount of the advantage in their income.
If RCA property acquired, or transactions occurring, before Budget Day
cause an advantage to be obtained (such as income earned, and capital gains
accrued and realized, on a prohibited investment) by the RCA on or after
Budget Day, the amount of the advantage will not be subject to the special
tax provided that the amount is distributed from the RCA and included in
the income of a beneficiary or an employer in respect of the RCA. Such
distributions will be treated as regular taxable distributions for the purpose of
determining RCA tax.
RCA Tax Refunds
Budget 2012 proposes that, if RCA property has declined in value, the RCA
tax be refunded only in circumstances where the decline in value of the
property is not reasonably attributable to prohibited investments or
advantages, unless the Minister of National Revenue is satisfied that it is just
and equitable to refund the RCA tax, having regard to all the circumstances.
This measure will apply in respect of RCA tax on RCA contributions made
on or after Budget Day.
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Employees Profit Sharing Plans
Employees Profit Sharing Plans (EPSPs) are trust arrangements that enable
employers to share profits with employees, assist employees to save, and
better align the economic interests of management and labour. Under an
EPSP, an employer may make tax-deductible contributions to a trust and
the trustee is required to allocate to beneficiaries each year all employer
contributions, profits from trust property, capital gains and losses, and
certain amounts in respect of forfeitures. These EPSP allocations, with
certain exceptions, are included in computing the income of the beneficiaries
for the taxation year in which they are allocated. Once amounts are allocated,
payments are made by the trustee to the beneficiaries in accordance with the
terms of the plan (for example, immediately, after a minimum vesting period,
or on retirement or termination). Because the allocations are taxable,
payments out of the trust are generally not subject to tax when received by
the beneficiaries.
Recently, EPSPs have been used increasingly as a means for some business
owners to direct profits to members of their families in order to reduce or
defer the payment of income tax on these profits. Budget 2011 announced
that the Government would review EPSPs and undertake consultations to
ensure that any changes to the tax rules (to limit the potential for abuse)
continue to accommodate appropriate uses of EPSPs. The consultations
took place from August to October 2011. Participants in the consultations
generally recognized the importance of having reasonable limitations on
EPSP contributions, particularly in respect of non-arm’s length employees.
To ensure that EPSPs are used for their intended purposes, Budget 2012
proposes a targeted measure to discourage excessive employer contributions.
This proposal introduces a special tax payable by a specified employee
2
2
“Specified employee” is defined in subsection 248(1) of the Income Tax Act and generally includes
an employee who has a significant equity interest in their employer or who does not deal at arm’s
length with their employer.
on an
“excess EPSP amount”. In general terms, an “excess EPSP amount” will be
the portion of an employer’s EPSP contribution, allocated by the trustee to a
specified employee, that exceeds 20 per cent of the specified employee’s
salary received in the year by the specified employee from the employer.
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The special tax will be made up of two components. The first component
will be equal to the top federal marginal tax rate of 29 per cent. The second
component will be equal to the top marginal tax rate of the province of
residence of the specified employee
3
A mechanism will be introduced to authorize the Minister of National
Revenue to waive or cancel the application of these excess EPSP amount
rules if the Minister considers that it is just and equitable to do so, having
regard to all the circumstances. In such cases, the normal rules will apply.
and will be shared with provinces and
territories participating in a Tax Collection Agreement. A new deduction will
be introduced to ensure that an excess EPSP amount is not also subject to
regular income tax. A specified employee will, however, not be able to claim
any other deductions or credits in respect of an excess EPSP amount.
This measure will apply in respect of EPSP contributions made by an
employer on or after Budget Day, other than contributions made before
2013 pursuant to a legally binding obligation arising under a written
agreement or arrangement entered into before Budget Day.
Salary of the Governor General of Canada
Following consultations between the Governor General and the
Government, both have agreed that the income tax exemption for the
Governor General’s salary should end and that the Governor General’s
salary, as adjusted, paid under the Governor General’s Act should be subject
to tax in the same manner as the salary of other Canadians.
This treatment is consistent with recent measures in other Commonwealth
countries to make the salary of their Governors General subject to income
tax (i.e., Australia in 2001 and New Zealand in 2010).
This measure will apply to the 2013 and subsequent taxation years.
Life Insurance Policy Exemption Test
Life insurance plays an important role in meeting the financial needs of
Canadians by helping to protect against the financial risks of premature
death. Life insurance policies may provide both a protection (i.e., insurance)
and savings component. The income earned on the savings component of a
life insurance policy that is an exempt policy, as determined under the
Income Tax Regulations, is not subject to accrual taxation in the hands of
the policyholder.
3
The second component will be zero if the specified employee’s province of residence is Quebec.
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The exemption test that determines whether a life insurance policy is an
exempt policy was implemented in the early 1980s and is intended to
differentiate protection-oriented life insurance policies from investment-
oriented life insurance policies. A life insurance policy is an exempt policy
when the savings accumulating in the policy does not exceed the savings in
a benchmark policy. The benchmark policy is generally defined as a policy
where the death benefit is payable on the earlier of death and the age of 85
years (the endowment time) and premiums are payable 20 years after the
issuance of the policy (the pay period). Depending on the type of coverage,
the savings in the benchmark policy are calculated using prescribed mortality
and interest rates, the rates used in determining the premiums, or the cash
surrender value of the actual policy.
4
The savings in an actual policy are
measured using an amount that is equal to the greater of the cash surrender
value of the policy and the modified net premium reserve in respect of
the policy.
5
As the exemption test was implemented almost 30 years ago, the
Government has reviewed the test to ensure that it continues to serve
the intended purpose. The review indicates that technical improvements are
required to update and simplify the test. Budget 2012 proposes to implement
the following changes to the exemption test:
• measuring the savings in an actual policy and the benchmark policy using
the Canadian Institute of Actuaries 1986-1992 mortality tables and an
interest rate of 3.5 per cent to better reflect mortality rates and
investment returns while improving consistency between the
measurement of the savings in an actual policy and the measurement
of the savings in the benchmark policy;
• increasing the endowment time of the benchmark policy from age
85 years to age 90 years to reflect increased life expectancy;
• measuring the savings in an actual policy using the greater of the cash
surrender value of the policy (before the application of surrender
charges) and the net premium reserve in respect of the policy to capture
all savings in an actual policy while improving consistency between the
measurement of the savings in the policy and the measurement of the
savings in the benchmark policy; and
4
The cash surrender value is the amount available to the policyholder on surrender of the policy
during lifetime.
5
The modified net premium reserve is equal to the present value of future benefits minus the
present value of future modified net premiums.
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• reducing the pay period of the benchmark policy to 8 years from 20 years
to better reflect current industry practices and the pay period used in
other countries.
Also, Budget 2012 proposes that the Investment Income Tax (IIT) levied on
life insurers be recalibrated where appropriate to neutralize impacts of the
proposed technical improvements on the IIT base.
Over the coming months, the Government will undertake consultations
with key stakeholders on the proposed technical improvements and the
recalibration of the IIT base.
Amendments to the tax provisions arising from these consultations will apply
to life insurance policies issued after 2013.
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BUSINESS INCOME TAX MEASURES
Clean Energy Generation Equipment: Accelerated Capital
Cost Allowance
Under the capital cost allowance (CCA) regime in the income tax system,
Class 43.2 of Schedule II to the Income Tax Regulations provides an accelerated
CCA rate (50 per cent per year on a declining balance basis) for investment
in specified clean energy generation and conservation equipment. The class
incorporates by reference to Class 43.1
6
• using a renewable energy source (for example, wind, solar, small hydro);
a detailed list of eligible equipment
that generates or conserves energy by:
• using fuels from waste (for example, landfill gas, wood waste,
manure); or
• making efficient use of fossil fuels (for example, high efficiency
cogeneration systems, which simultaneously produce electricity and
useful heat).
Providing accelerated CCA in this context is an exception to the general
practice of setting CCA rates based on the useful life of assets. Accelerated
CCA provides a financial benefit by deferring taxation. This incentive for
investment is premised on the environmental benefits of low-emission or no-
emission energy generation equipment.
In addition, if the majority of the tangible property in a project is eligible
for inclusion in Class 43.2, certain intangible project start-up expenses (for
example, engineering and design work and feasibility studies) are treated as
Canadian Renewable and Conservation Expenses. These expenses may be
deducted in full in the year incurred, carried forward indefinitely for use in
future years, or transferred to investors using flow-through shares.
Budget 2010 expanded Class 43.2 to broaden the eligible range of
applications for which heat recovery equipment and equipment of a district
energy system can be used. Equipment that generates electricity using waste
heat was added to Class 43.2 in Budget 2011.
6
Class 43.1 was introduced in 1994 and provides an accelerated CCA rate of 30 per cent (per year
on a declining balance basis) for properties acquired after February 21, 1994. Class 43.2 was
introduced in 2005 and it is available for properties acquired after February 22, 2005 and before
2020. The eligibility criteria for these two CCA classes are generally the same, except that
cogeneration systems that use fossil fuels must meet a higher efficiency standard in order to
qualify for Class 43.2.
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Budget 2012 proposes to further expand Class 43.2 with respect to waste-
fuelled thermal energy equipment, and equipment of a district energy system
that uses thermal energy provided primarily by eligible waste-fuelled thermal
energy equipment. Budget 2012 also proposes to expand Class 43.2 to
include equipment that uses the residue of plants – generally produced by the
agricultural sector – to generate electricity and heat.
These measures will encourage investment in technologies that can
contribute to a reduction in emissions of greenhouse gases and air pollutants,
in support of Canada’s targets set out in the Federal Sustainable
Development Strategy. These measures could also contribute to the
diversification of Canada’s energy supply.
Waste-Fuelled Thermal Energy Equipment
Waste-fuelled thermal energy equipment produces heat using wastes (for
example, wood waste) and fuels from waste (for example, biogas and bio-oil).
Currently, Class 43.2 includes waste-fuelled thermal energy equipment,
subject to the requirement that the heat energy generated from the
equipment is used in an industrial process or a greenhouse.
Budget 2012 proposes to expand Class 43.2 by removing this requirement.
This change will allow waste-fuelled thermal energy equipment to be used in
a broad range of applications, including space and water heating. For
example, wood waste could be used as an alternative to heating oil for space
and water heating in a shopping centre.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date.
Equipment of a District Energy System
District energy systems transfer thermal energy between a central generation
plant and a group or district of buildings by circulating steam, hot water
or cold water through a system of underground pipes. Thermal energy
distributed by a district energy system can be used for heating, cooling or
in an industrial process. Certain equipment that is part of a district energy
system is currently included in Class 43.1 or Class 43.2, if the system
distributes thermal energy primarily generated by one or more of an eligible
cogeneration system, a ground source heat pump, active solar heating
equipment and heat recovery equipment.
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Building on the proposed expansion of Class 43.2 to include waste-fuelled
thermal energy equipment used for a broader range of applications, Budget
2012 also proposes to expand Class 43.2 by adding equipment that is part of
a district energy system that distributes thermal energy primarily generated by
waste-fuelled thermal energy equipment (that is itself eligible for inclusion in
Class 43.2). For example, in a remote community a district energy system that
uses heat generated by waste-fuelled thermal energy equipment could provide
an alternative to equipment that uses only fossil fuels.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date.
Energy Generation from Residue of Plants
The residue of plants (for example, straw, corn cobs, leaves and similar
organic waste produced by the agricultural sector) can be used in a number
of ways, including the production of heat, electricity, biofuels and other
bioproducts. Subject to certain requirements, equipment that uses these
residues to produce biogas or bio-oil is currently eligible for inclusion in
Class 43.2.
Budget 2012 proposes to add the residue of plants to the list of eligible waste
fuels (i.e., biogas, bio-oil, digester gas, landfill gas, municipal waste, pulp and
paper waste, and wood waste) that can be used in waste-fuelled thermal
energy equipment included in Class 43.2 or a cogeneration system included in
Class 43.1 or Class 43.2. For example, a greenhouse could produce heat for
its operations using a heating system fuelled by the residue of plants.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date.
Environmental Compliance
If equipment using fuels from waste does not comply with environmental
regulations, there could, in some instances, be an increased risk of the release
of pollutants. To ensure that taxpayers who benefit from Class 43.1 or 43.2
do so in an environmentally responsible manner, Budget 2012 proposes that
equipment using eligible waste fuels not be eligible under Class 43.1 or
Class 43.2 if the applicable environmental laws and regulations of Canada
or of a province, territory, municipality, or a public or regulatory body are
not complied with at the time the equipment first becomes available for use.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date.
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Corporate Mineral Exploration and Development Tax Credit
A corporate tax credit is available at the rate of 10 per cent for pre-
production mining expenditures incurred in respect of certain mineral
resources in Canada. The term “pre-production mining expenditure” in
subsection 127(9) of the Income Tax Act sets out the expenses that are eligible
for the credit:
• exploration expenses described in paragraph (f) of the definition of
“Canadian exploration expense” in subsection 66.1(6) of the
Income Tax Act; and
• pre-production development expenses described in paragraph (g) of the
definition of “Canadian exploration expense”.
Qualifying minerals for purposes of the credit are diamonds, base or precious
metals and industrial minerals that become base or precious metals
through refining.
Budget 2012 proposes to phase out the corporate tax credit for pre-
production mining expenditures. The credit will apply at a rate of 10 per cent
for exploration expenses incurred in 2012, and at a rate of 5 per cent for such
expenses incurred in 2013. The credit will not be available for exploration
expenses incurred after 2013.
The corporate tax credit will apply at a rate of 10 per cent for pre-production
development expenses incurred before 2014, at a rate of 7 per cent for such
expenses incurred in 2014, and at a rate of 4 per cent for such expenses
incurred in 2015. The credit will not be available for pre-production
development expenses incurred after 2015.
Additional transitional relief will be provided in recognition of the long
timelines involved in developing mines. The corporate tax credit will apply at
a rate of 10 per cent for pre-production development expenses incurred by a
taxpayer before 2016 either:
• under a written agreement entered into by the taxpayer before Budget
Day; or
• as part of the development of a new mine where
? the construction of the new mine was started by, or on behalf of,
the taxpayer before Budget Day, or
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? the engineering and design work for the construction of the new
mine, as evidenced in writing, was started by, or on behalf of, the
taxpayer before Budget Day.
Activities such as obtaining permits or regulatory approvals, conducting
environmental assessments, community consultations, impact benefit studies
and similar activities will not be considered construction or engineering and
design work.
Exploration and pre-production development expenses will continue to
qualify as Canadian exploration expenses, and as such will continue to be
fully deductible in the year incurred.
Mineral exploration as well as new mining and related processing activity that
could follow from successful exploration efforts, can be associated with a
variety of environmental impacts to soil, water and air and, as a result, could
have an impact on the goals of the Federal Sustainable Development
Strategy. All such activity, however, is subject to applicable federal and
provincial environmental regulations, including project-specific
environmental assessments where required.
Atlantic Investment Tax Credit
The Atlantic Investment Tax Credit (AITC) is a 10-per-cent credit available
for qualifying acquisitions of new buildings, machinery and equipment, used
primarily in farming, fishing, logging, mining, oil and gas, and manufacturing
and processing in the Atlantic provinces, the Gaspé Peninsula and their
associated offshore regions.
Oil and Gas and Mining Activities
Budget 2012 proposes to phase out the AITC for oil and gas and mining
activities over a four-year period. In particular, this proposal will apply
to assets acquired on or after Budget Day for use in any of the
following activities:
• operating an oil or gas well;
• extracting petroleum or natural gas from a natural accumulation of
petroleum or natural gas;
• extracting minerals from a mineral resource;
• processing ore from a mineral resource to any stage that is not beyond
the prime metal stage or its equivalent;
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• processing iron ore from a mineral resource to any stage that is not
beyond the pellet stage or its equivalent;
• processing tar sands ore from a mineral resource to any stage that is not
beyond the crude oil stage or its equivalent;
• producing industrial minerals;
• processing heavy crude oil recovered from a natural reservoir to a stage
that is not beyond the crude oil stage or its equivalent;
• Canadian field processing;
• exploring or drilling for petroleum or natural gas; and
• prospecting or exploring for or developing a mineral resource.
The availability of the AITC for assets acquired for use in other activities will
not be affected.
The AITC will apply at a rate of 10 per cent for assets acquired before 2014
for use in any of the activities listed above and at a rate of 5 per cent for such
assets acquired in 2014 and 2015. The AITC will not be available for such
assets acquired after 2015.
Transitional relief will be provided in recognition of the long timelines
involved in some oil and gas and mining projects. The AITC will apply at a
rate of 10 per cent for assets acquired by a taxpayer before 2017 either:
• under a written agreement entered into by the taxpayer before Budget
Day; or
• as part of a project phase where
? the construction of the project phase was started by, or on behalf of,
the taxpayer before Budget Day, or
? the engineering and design work for the construction of the project
phase, as evidenced in writing, was started by, or on behalf of, the
taxpayer before Budget Day.
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For this purpose, a phase of a project is a discrete expansion in the
extraction, processing or production capacity of the project to attain the
planned capacity level that was the demonstrated intention of the taxpayer
immediately before Budget Day. Construction undertaken to maintain or
restore a capacity level that had been reached before Budget Day is not
considered a discrete expansion. Activities such as obtaining permits or
regulatory approvals, conducting environmental assessments, community
consultations, impact benefit studies and similar activities will not be
considered construction or engineering and design work.
Along with other members of the G-20, Canada has committed to rationalize
and phase out over the medium-term inefficient fossil fuel subsidies. The
Government announced in Budget 2007 and in Budget 2011 the phase-out
of tax preferences for oil sands producers, which supports the G-20
commitment and align the tax treatment of oil sands with the conventional
oil and gas sector (moreover, the Income Tax Act does not include any tax
preferences specific to oil sands producers). The phase out of the AITC for
oil and gas and mining sectors builds on these measures and is a further
action that the Government is taking in support of the G-20 commitment.
The change will also improve the neutrality of the tax system for Canada’s
resource sector.
Resource development can be associated with a variety of environmental
impacts to soil, water and air and, as a result, could have an impact on the
goals of the Federal Sustainable Development Strategy. All such activity,
however, is subject to applicable federal and provincial environmental
regulations, including project-specific environmental assessments
where required.
Electricity Generation Equipment
Equipment is generally eligible for the AITC if the equipment is a qualified
property. Electricity generation equipment described in Class 1, 8, 29 or 41,
paragraph (c) of Class 43.1 or paragraph (a) of Class 43.2, of Schedule II to
the Income Tax Regulations used in the Atlantic region primarily in an eligible
activity is a qualified property.
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Budget 2012 proposes to improve the neutrality of the AITC by amending
the Income Tax Act and section 4600 of the Income Tax Regulations so that
qualified property will include certain electricity generation equipment and
clean energy generation equipment used primarily in an eligible activity (i.e.,
farming, fishing, logging, and manufacturing and processing). In particular,
“qualified property” will include the following equipment, if it is used in the
Atlantic region primarily in an eligible activity set out in paragraph (c) of the
definition of “qualified property” in subsection 127(9) of the Income Tax Act:
• electricity generation equipment described in Class 17 or 48; and
• clean energy generation and conservation equipment described in
Class 43.1 or 43.2.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date, except that the measure
will not apply to acquisitions of assets that are used primarily in oil and gas or
mining activities.
This measure is not expected to have a significant impact on either the
environment or achieving the targets of the Federal Sustainable
Development Strategy.
Scientific Research and Experimental Development Program
In October 2010, the Government mandated the Expert Review Panel on
Research and Development to review all federal support for business
research and development with a view to maximizing the effect of federal
programs that contribute to innovation and create economic opportunities
for business. The expert panel submitted its report to the Government in
October 2011. It makes a series of recommendations that call for a simplified
and more focused approach to the Government’s support for business
research and development, including the Scientific Research and
Experimental Development (SR&ED) tax incentive program. To support the
key objectives identified by the expert panel, Budget 2012 proposes several
changes to the SR&ED tax incentive program to make it simpler, and more
cost effective and predictable.
The SR&ED tax incentive program provides broad-based support for
SR&ED performed in every industrial sector in Canada, and supports small
businesses in the performance of SR&ED. Under the SR&ED program,
allowable current and capital expenditures are fully deductible. In addition,
qualified SR&ED expenditures incurred in Canada are included in computing
a taxpayer’s SR&ED qualified expenditure pool at the end of each taxation
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year. In general, the amount of this pool at the end of a taxation year is equal
to all the qualified expenditures incurred by the taxpayer in the year, plus any
amount transferred to the taxpayer in respect of certain non-arm’s length
SR&ED contracts less any amount transferred by the taxpayer in respect of
such contracts to another person. The balance in the SR&ED qualified
expenditure pool at the end of a taxation year is generally eligible for an
investment tax credit. There are two investment tax credit rates for SR&ED
qualified expenditure pool balances. The general rate is 20 per cent and there
is an enhanced rate of 35 per cent for eligible Canadian-controlled private
corporations (CCPCs).
CCPCs are eligible to claim the enhanced investment tax credit at the
rate of 35 per cent on up to $3 million of qualified SR&ED expenditures
annually. For these taxpayers, unused investment tax credits are refundable in
respect of the first $3 million of expenditures each year; current expenditures
are eligible for a 100-per-cent refund and capital expenditures are eligible for
a 40-per-cent refund. All expenditures above the $3 million limit are eligible
for an investment tax credit at the rate of 20 per cent and qualify for a 40-
per-cent refund. The $3 million expenditure limit is phased out for CCPCs
whose taxable income for the previous taxation year is between $500,000 and
$800,000 or whose taxable capital employed in Canada for the previous
taxation year is between $10 million and $50 million.
SR&ED Investment Tax Credit Rate
Budget 2012 proposes to reduce the general 20-per-cent SR&ED investment
tax credit rate applicable to SR&ED qualified expenditure pool balances at
the end of a taxation year to 15 per cent. The 15-per-cent investment tax
credit rate will apply in respect of taxation years that end after 2013, except
that, for a taxation year that includes January 1, 2014, the 5-percentage-point
reduction in the investment tax credit rate will be pro-rated based
on the number of days in the taxation year that are after 2013. The enhanced
35-per-cent SR&ED investment tax credit rate applicable in respect of
eligible CCPCs will remain unchanged on up to $3 million of qualified
SR&ED expenditures annually.
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SR&ED Capital Expenditures
As indicated above, allowable current and capital expenditures in respect of
SR&ED are fully deductible, and qualifying SR&ED expenditures are eligible
for an investment tax credit. Budget 2012 proposes to exclude expenditures
of a capital nature (including payments in respect of the use or the right to
use property that would, if it were acquired by the taxpayer, be capital
property of the taxpayer) from eligibility for SR&ED deductions and
investment tax credits. This measure will apply to property acquired on or
after January 1, 2014, and to amounts paid or payable in respect of the use
of, or the right to use, property during any period that is after 2013.
This measure will also apply to exclude otherwise eligible contract payments
made by a taxpayer from benefiting from SR&ED tax incentives to the
extent that the payment is in respect of a capital expenditure made in
fulfillment of the contract.
Expenditures that have been excluded because of this measure from the
SR&ED tax incentives will be accorded the treatment otherwise applicable
to such expenditures under the Income Tax Act.
SR&ED Overhead Expenditures
Itemized overhead expenditures directly attributable to the conduct
of SR&ED are currently eligible for the SR&ED tax incentives. In lieu of
itemizing such overhead expenditures, taxpayers can elect to use a simplified
proxy method for the calculation of these expenditures. Under the proxy
method, a taxpayer can generally include in the taxpayer’s SR&ED qualified
expenditure pool for a taxation year, which is eligible for SR&ED investment
tax credits, an amount equal to 65 per cent of the total of the eligible portion
of salaries and wages of the taxpayer’s employees directly engaged in the
conduct of SR&ED in Canada in the taxation year.
Budget 2012 proposes to reduce the rate at which the prescribed proxy
amount is calculated to 60 per cent (from 65 per cent) for 2013 and to
55 per cent after 2013. The proxy rate that will apply for taxation years that
include days in 2012, 2013 or 2014 will be pro-rated based on the number
of days in the taxation year that are in each of those calendar years.
Tax Measures
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SR&ED Contract Payments
Where a taxpayer (the payer) contracts to have SR&ED performed by a
non-arm’s length person (the performer), the total qualified expenditures
on which either the performer or the payer can claim SR&ED investment tax
credits are currently restricted to the amount of the qualified SR&ED
expenditures incurred by the performer in fulfillment of the contract. These
rules ensure that investment tax credits are not earned on the profit element
of non-arm’s length SR&ED contracts.
In the case of arm’s length SR&ED contract payments, however, the payer is
currently entitled to SR&ED investment tax credits in respect of the entire
amount of the contract payment, while the amount of the contract payment
is netted against the qualifying SR&ED expenditures of the performer.
Budget 2012 proposes to disallow from the expenditure base for investment
tax credits the profit element of arm’s length SR&ED contracts. For
simplicity, it is proposed that this be achieved by way of a proxy, under
which only 80 per cent of the cost to a payer of arm’s length SR&ED
contracts will be eligible for SR&ED investment tax credits.
This measure will apply to expenditures incurred on or after January 1, 2013.
Consistent with the measures described above concerning SR&ED capital
expenditures, the amount of an arm’s length contract payment eligible for
SR&ED tax incentives for the payer will also exclude any amount paid in
respect of a capital expenditure incurred by the performer in fulfillment
of the contract. SR&ED contract performers will be required to inform
the contract payers of these amounts. Once that measure is in force
(beginning in 2014), the exclusion with respect to capital expenditures will
reduce the amount of the contract payment before the 80-per-cent eligibility
ratio is applied.
In addition, the amount that the performer is required to net against its
qualifying SR&ED expenditures because of the contract payment will be
reduced by the amount received by the performer that is in respect of capital
expenditures by the performer.
Expenditures that have been excluded because of this measure from the
SR&ED tax incentives will be accorded the treatment otherwise applicable
to such expenditures under the Income Tax Act.
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Tax Avoidance Through the Use of Partnerships
Section 88 of the Income Tax Act contains rules that enable a taxable Canadian
corporation (the Parent) that has acquired control of another taxable
Canadian corporation (the Subsidiary) to increase the cost of certain capital
assets acquired by the Parent on a vertical amalgamation with, or winding-up
of, the Subsidiary (the section 88 bump). The section 88 bump recognizes
that, in such cases, the amount paid by the Parent for the shares of the
Subsidiary represents the cost of the assets of the Subsidiary and allows
the Parent, within limits, to add the amount paid for the shares to the cost
of certain capital assets acquired on the amalgamation or winding-up.
Capital assets, such as land, shares of a corporation or an interest in a
partnership, may be eligible for the section 88 bump. Assets that if sold could
produce income (as distinguished from producing only capital gains) are not
eligible for the section 88 bump. These income assets include eligible capital
property, depreciable property, inventory and resource property.
In recent years, corporate partnership structures have been used with
increasing frequency to attempt to circumvent the denial of the section
88 bump in respect of a Subsidiary’s income assets. Instead of the Subsidiary
holding income assets directly, the income assets are held indirectly through
a partnership. Upon the acquisition of control of the Subsidiary, the Parent
amalgamates with, or winds up, the Subsidiary and then claims an increase
(or “bump”) to the cost of the partnership interest, even in circumstances
where all of the fair market value of the partnership interest is derived from
income assets.
A second concern arises in respect of section 100 of the Income Tax Act,
which is meant to ensure that income assets held by a partnership are fully
taxable on the sale of the partnership by a taxpayer to a tax-exempt person
(since the tax-exempt person could wind up the partnership without paying
any income tax). This rule does not currently apply to a sale of a partnership
to a non-resident even though the income from a disposition of an income
asset owned by the partnership may be exempt from Canadian income tax
under either domestic law or one of Canada’s tax treaties. As well, some
taxpayers have sought to take advantage of the fact that section 100 does
not expressly refer to indirect sales of partnership interests to a
tax-exempt person.
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The Canada Revenue Agency challenges these partnership structures where
appropriate under the existing provisions of the Income Tax Act, including
the general anti-avoidance rule. However, specific legislative action is
warranted to explicitly prohibit the use of these and similar structures.
Budget 2012 proposes two measures to ensure that partnerships cannot be
used to circumvent the intended application of sections 88 and 100. The first
measure will generally deny a section 88 bump in respect of a partnership
interest to the extent that the accrued gain in respect of the partnership
interest is reasonably attributable to the amount by which the fair market
value of income assets exceed their cost amount. This measure will apply
where the income assets are held directly by the partnership or indirectly
through another partnership. For this purpose, assets directly owned by a
taxable Canadian corporation, shares of which are held by the partnership,
will not be considered to be indirectly held by the partnership.
This measure will apply to amalgamations that occur, and windings-up that
begin, on or after Budget Day. An exception will be provided where a taxable
Canadian corporation amalgamates with its subsidiary before 2013, or begins
to wind up its subsidiary before 2013. This exception will apply only if,
before Budget Day, the corporation had acquired control, or was obligated as
evidenced in writing to acquire control, of the subsidiary and the corporation
had the intention, as evidenced in writing, to amalgamate with, or wind up,
the subsidiary. A corporation will not be considered to be obligated to
acquire control where the corporation may be excused from the obligation if
an amendment is made to the Income Tax Act.
Budget 2012 also proposes to extend the application of section 100 of the
Income Tax Act to the sale of a partnership interest to a non-resident person,
unless the partnership is carrying on business in Canada through a permanent
establishment in which all of the assets of the partnership are used. In such
cases, the income assets remain within the Canadian income tax base. This
measure will also clarify that section 100 applies to dispositions made
directly, or indirectly as part of a series of transactions, to a tax-exempt or
non-resident person.
This measure will apply to dispositions, of interests in partnerships, that
occur on or after Budget Day. An exception will be provided for an arm’s
length disposition made by a taxpayer before 2013 that the taxpayer is
obligated to make pursuant to a written agreement entered into by the
taxpayer before Budget Day. A taxpayer will not be considered to be
obligated to make the disposition where the taxpayer may be excused from
the obligation if an amendment is made to the Income Tax Act.
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Partnership Waivers
The Income Tax Act provides that the Canada Revenue Agency (CRA) may,
for a fiscal period of a partnership, make a determination (which includes a
redetermination) under section 152(1.4) of the Income Tax Act of any income,
loss, deduction or other amount in respect of the partnership. The CRA is
precluded from determining an amount if more than three years have elapsed
since the later of the deadline for filing the relevant partnership information
return and the day it is actually filed. Where the CRA obtains a waiver from
each partner, however, the time period for making a determination is
extended. If one or more of the partners does not provide a waiver, and, as
a result, the period cannot be extended, a determination will need to be made
by the CRA using only the information that is available to it at that time.
The provision of a waiver is at the discretion of the taxpayer.
There are circumstances under which it is advantageous to both the CRA
and the partners of a partnership to waive the three-year time limit.
Obtaining the required waivers from all members of the partnership
can, however, be difficult.
Under current rules, the members of a partnership may designate a partner
who is authorized to file an objection on behalf of all its partners, to a
determination under the Income Tax Act. Budget 2012 proposes that a single
designated partner of a partnership may also be empowered to waive, on
behalf of all its partners, the three-year time limit for making a determination.
This measure will apply on Royal Assent to the enacting legislation.
Tax Measures
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INTERNATIONAL TAXATION
Transfer Pricing Secondary Adjustments
The expression “transfer prices” has become known internationally as
the tax term that refers to the prices at which goods, services and intangibles
are traded across international borders between persons who do not deal
with each other at arm’s length. Section 247 of the Income Tax Act contains
transfer pricing rules, which apply in respect of transactions or series of
transactions between parties who do not deal at arm’s length. Where the
terms or conditions of a transaction or series of transactions do not reflect
arm’s length terms and conditions, the Canada Revenue Agency (CRA) may
adjust for tax purposes amounts related to the transaction or series to reflect
arm’s length terms and conditions. This is commonly referred to as a
“primary adjustment”.
Once a primary adjustment has been made, a “secondary adjustment” is
generally required to account for the benefit conferred on non-residents
participating in the transaction or series of transactions. For example, if a
Canadian corporation buys goods from its non-resident parent corporation
for $100 but parties dealing at arm’s length would have charged $80, the
primary adjustment would reduce by $20 the cost of the goods to the
Canadian taxpayer. A secondary adjustment should also arise to reflect the
$20 benefit that was conferred on the non-resident parent (i.e., the amount
by which the non-resident parent was overpaid for the goods).
A number of provisions in the Income Tax Act, such as section 15 and
paragraph 214(3)(a), can apply to treat a benefit conferred on a non-resident
as a dividend subject to withholding tax under Part XIII of the Act and it is
the policy of the CRA to assess these secondary adjustments. There is,
however, no specific provision in the transfer pricing rules regarding
secondary adjustments. The Transfer Pricing Subcommittee of the Advisory
Panel on Canada’s System of International Taxation recommended that
legislative changes be made to clarify the treatment of secondary adjustments
as constructive dividends.
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Budget 2012 proposes to amend section 247 of the Income Tax Act to
confirm that secondary adjustments will be treated as dividends for
Part XIII tax purposes. A Canadian corporation subject to a primary
adjustment will also be deemed to have paid a dividend to each non-arm’s
length non-resident participant in the transaction or series of transactions in
proportion to the amount of the primary adjustment that relates to the non-
resident, regardless of whether the non-resident is a shareholder of the
Canadian corporation.
Budget 2012 also proposes, consistent with CRA administrative practice, to
clarify that a non-resident is allowed to repatriate to a Canadian corporation
that has been subject to a primary adjustment an amount equal to the portion
of the primary adjustment that relates to the non-resident. If the repatriation
is made by the non-resident with the concurrence of the Minister of National
Revenue no deemed dividend will arise in respect of that non-resident. In
addition, no deemed dividend will arise if the non-resident is a controlled
foreign affiliate (as defined in subsection 17(15) of the Income Tax Act) of the
Canadian corporation. In this instance, the benefit conferred on the non-
resident is more akin to a capital contribution than a dividend.
This measure will apply to transactions (including transactions that are part
of a series of transactions) that occur on or after Budget Day.
Thin Capitalization Rules
The thin capitalization rules limit the deductibility of interest expense of a
Canadian-resident corporation in circumstances where the amount of debt
owing to certain non-residents exceeds a 2-to-1 debt-to-equity ratio. The
thin capitalization rules protect the Canadian tax base from erosion through
excessive interest deductions in respect of debt owing to these non-residents.
These rules apply to debts owing to a specified shareholder (a person or
group owning shares representing more than 25 per cent of the votes or
value of the corporation) that is not resident in Canada and any other
non-resident who does not deal at arm’s length with a specified shareholder.
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The Advisory Panel on Canada’s System of International Taxation
(the Advisory Panel) made a number of recommendations relating to the thin
capitalization rules, including reducing the debt-to-equity ratio from 2-to-1
to 1.5-to-1 and extending the rules to partnerships, trusts and Canadian
branches of non-resident corporations. The Advisory Panel also encouraged
the Government to review the treatment of interest expense that is not
deductible under Canada’s thin capitalization rules (disallowed interest
expense) in order to ensure that non-resident investors are prevented from
inappropriately reducing their Canadian withholding tax obligations.
Budget 2012 proposes to improve the integrity and fairness of the thin
capitalization rules by:
• reducing the debt-to-equity ratio from 2-to-1 to 1.5-to-1;
• extending the scope of the thin capitalization rules to debts of
partnerships of which a Canadian-resident corporation is a member;
• treating disallowed interest expense under the thin capitalization rules as
dividends for Part XIII withholding tax purposes; and
• preventing double taxation in certain circumstances where a Canadian-
resident corporation borrows money from its controlled foreign affiliate.
Debt-to-Equity Ratio
The intent of the thin capitalization rules generally, and the debt-to-equity
ratio in particular, is to allow Canadian corporations to finance themselves
using a reasonable amount of debt owing to certain non-residents, while
protecting the tax base against excessive interest deductions in respect of
such debt. A useful guidepost for setting the debt-to-equity ratio is the typical
capital structure of Canadian corporations generally. The Advisory Panel
concluded that the permitted 2-to-1 debt-to-equity ratio is high compared to
actual industry ratios in the Canadian economy, suggesting it allows
inappropriately high levels of foreign related party debt. Analysis by the
Government indicates that this conclusion continues to hold.
Canada’s debt-to-equity ratio also appears high relative to world standards
because the ratios in many other countries apply to broader measures of debt
(which the Advisory Panel also noted). For example, some countries include
in their ratios third-party debt which is guaranteed by a foreign parent
corporation, while others take into account all debt owing to third parties.
In order to better protect the tax base, Budget 2012 proposes to reduce the
debt-to-equity ratio in the thin capitalization rules from 2-to-1 to 1.5-to-1.
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This measure will apply to corporate taxation years that begin after 2012.
Partnerships
Partnerships are not taxable under the Income Tax Act. A partnership
calculates its income or loss as if it were a separate person resident in Canada
and the income or loss is then allocated to its partners.
While Canada’s thin capitalization rules restrict the deductibility of interest
expense incurred by Canadian-resident corporations, the rules do not
reference interest expense incurred by partnerships. The Advisory Panel
recommended that the scope of the thin capitalization rules be extended
to partnerships.
Budget 2012 proposes to extend the thin capitalization rules to debts owed
by partnerships of which a Canadian-resident corporation is a member. In
particular, for the purpose of determining the corporation’s debt-to-equity
ratio under the thin capitalization rules, debt obligations of the partnership
will be allocated to its members based on their proportionate interest in
the partnership.
In circumstances where a corporate partner’s permitted debt-to-equity ratio
is exceeded, the partnership’s interest deduction will not be denied but an
amount will be included in computing the income of the partner from a
business or property, as appropriate. The source of this income inclusion will
be determined by reference to the source against which the interest is
deductible at the partnership level. This inclusion will equal the amount of
the interest on the portion of the allocated partnership debt that exceeds the
permitted debt-to-equity ratio.
Tax Measures
Supplementary Information
421
Example
Canco 1 and Canco 2 are Canadian-resident corporations and are equal
partners in a partnership that earns income from a business. Canco 1 is
wholly owned by Forco, a non-resident corporation. The Canco 1 shares
owned by Forco have paid-up capital of $4,000 but Canco 1 has no other
capital for the purposes of the thin capitalization rules. Forco lends $3,000
to the partnership and lends $8,500 directly to Canco 1.
Canco 1 has a 50-per-cent interest in the partnership and will therefore be
allocated 50 per cent of the partnership loan ($1,500) for thin capitalization
purposes. Canco 1 has capital of $4,000 and is considered to have
outstanding debts to a specified non-resident (Forco) of $10,000
($8,500 debt owed by Canco 1 to Forco plus $1,500 in debt allocated
from the partnership).
With a permitted debt-to-equity ratio of 1.5-to-1, Canco 1 has $4,000 of
total excess debt – that is, ($10,000 – 1.5 x $4,000)/10,000, or 2/5, of
$10,000. This 2/5 ratio is applied to interest on the debt owed directly to
Forco by Canco 1 as well as the debt allocated from the partnership to
determine how much interest is denied, or added back to income,
respectively. Accordingly, 2/5 of the interest deduction in respect of the
$8,500 direct loan from Forco will be denied and an amount equal to 2/5 of
the deductible interest expense in respect of the $1,500 debt allocated
from the partnership will be required to be included in computing the
income of Canco 1 from the partnership’s business.
This measure will apply in respect of debts of a partnership that are
outstanding during corporate taxation years that begin on or after Budget Day.
Disallowed Interest Treated as a Dividend
The Advisory Panel encouraged the Government to review the withholding
tax treatment of interest that is disallowed under the thin capitalization rules.
Interest expense of a corporation that is not deductible as a result of the
application of the thin capitalization rules is, for income computation
purposes under Part I of the Income Tax Act, treated the same as a non-
deductible return on equity (i.e., a dividend). It is nevertheless treated as
interest for withholding tax purposes under Part XIII of the Income Tax Act.
Consistent with the treatment of disallowed interest for income computation
purposes, Budget 2012 proposes to recharacterize disallowed interest
expense (including for this purpose any amount that is required to be
included in computing the income of a corporation in respect of an amount
deductible by a partnership of which the corporation is a member)
as a dividend for non-resident withholding tax purposes.
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The calculations required for compliance with the thin capitalization rules are
required to be made after the end of a corporation’s taxation year. Under this
proposal, disallowed interest expense of a corporation for a taxation year will
be allocated to specified non-residents in proportion to the corporation’s
debt owing in the taxation year to all specified non-residents (taking into
account debts owing by partnerships of which the corporation is a member).
The corporation will be allowed to allocate the disallowed interest expense
to the latest interest payments made to any particular specified non-resident
in the taxation year. Where the disallowed interest expense has not been paid
by the end of the taxation year of the corporation, the disallowed interest
expense will be deemed to have been paid as a dividend by the corporation
at the end of that taxation year.
The relevant withholding tax will be due at the time that it would have been
due if the deemed dividend had been paid at the time the disallowed interest
expense was paid or deemed to have been paid. In circumstances where the
amount withheld exceeds the withholding tax payable, the non-resident
creditor will be able to obtain a refund of the excess.
This measure will apply to taxation years that end on or after Budget Day.
For taxation years that include Budget Day, the measure will apply to an
amount of disallowed interest expense that is based on a pro-ration for
the number of days in the taxation year that are on or after Budget Day.
Foreign Affiliate Loans
Under the existing definition of “outstanding debts to specified
non-residents” in subsection 18(5) of the Income Tax Act, the thin
capitalization rules can, in some circumstances, apply to loans made to
a Canadian-resident corporation from a controlled foreign affiliate of
the corporation.
The Canadian tax system also contains rules that protect the tax base by
preventing taxpayers from shifting passive income to low-tax jurisdictions.
Under these rules, foreign accrual property income (FAPI), which includes
certain interest income earned by controlled foreign affiliates of a taxpayer, is
taxable in the hands of the taxpayer on an accrual basis.
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The combination of these rules can result in double taxation where, for
example, a particular Canadian-resident corporation that is owned by a
widely held Canadian public company has borrowed money from its
controlled foreign affiliate. In these circumstances the particular corporation
may be prevented from deducting interest on the loan under the thin
capitalization rules while at the same time the interest is taxable in its hands
as FAPI.
Budget 2012 proposes to exclude interest expense of a Canadian-resident
corporation from the application of the thin capitalization rules to the extent
that a portion of that interest is taxable in the hands of the corporation in
respect of the FAPI of a controlled foreign affiliate of the corporation.
This measure will apply to taxation years, of Canadian-resident corporations,
that end on or after Budget Day.
Foreign Affiliate Dumping
The Government strongly supports cross-border trade and investment.
However, it is important to ensure that cross-border investment is not used
as a tool to erode the corporate tax base. The Advisory Panel on Canada’s
System of International Taxation (the Advisory Panel) identified certain types
of foreign affiliate “dumping” transactions as being abusive: such
transactions reduce the Canadian tax base without providing any significant
economic benefit to Canadians. The Advisory Panel recommended that a
targeted measure be introduced to curtail these transactions while ensuring
that bona fide business transactions are not affected.
Foreign affiliate dumping transactions often involve a Canadian subsidiary
using borrowed funds to acquire shares of a foreign affiliate from its foreign
parent corporation. These transactions are carried out in the expectation that
interest paid by the Canadian subsidiary on such borrowed money is
deductible in computing income for tax purposes while, at the same time,
most dividends received by the Canadian subsidiary on the shares of the
foreign affiliate are exempt from taxation, resulting in the erosion of the
Canadian corporate tax base. The thin capitalization rules, including the
amendments proposed in this Budget, do not provide adequate protection
against these transactions.
Annex 4
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The Government also has concerns with variations of these transactions,
including, for example:
• acquisitions of shares of a foreign affiliate that are made with internal
funds of the Canadian subsidiary – such transactions provide a
mechanism for foreign parent corporations to extract earnings from their
Canadian subsidiaries free of Canadian dividend withholding tax;
• acquisitions of newly-issued shares of a foreign affiliate, whether financed
with internal or borrowed funds, where previously-issued shares of the
foreign affiliate are owned by the foreign parent or another non-resident
member of the same corporate group;
• acquisitions of foreign affiliate shares from a foreign subsidiary of the
foreign parent; and
• acquisitions of foreign affiliate shares from an arm’s length party at the
request of the foreign parent.
Although existing anti-avoidance rules in the Income Tax Act may apply in
some cases to foreign affiliate dumping transactions, immediate action is
being taken to discourage such transactions from being undertaken in
the future.
Consistent with the Advisory Panel’s recommendation, Budget 2012
proposes to implement a measure that will curtail foreign affiliate dumping
while at the same time preserving the ability of Canadian subsidiaries of
foreign parents to undertake legitimate expansions of their Canadian-based
businesses. This measure proposes that, where certain conditions are met, a
dividend will be deemed to be paid by a Canadian subsidiary to its foreign
parent to the extent of any non-share consideration given by the Canadian
subsidiary for the acquisition of the shares of a foreign affiliate. Any deemed
dividend will be subject to non-resident withholding tax, as reduced by any
applicable tax treaty. It further proposes to disregard the paid-up capital of
any shares of the Canadian subsidiary that are given as consideration. This
measure effectively extends an existing cross-border surplus stripping rule to
cover transactions involving foreign affiliates.
Tax Measures
Supplementary Information
425
This measure will not apply to transactions that meet a “business purpose”
test. The primary factors to consider in applying this test are non-tax factors
that will be set out in the Income Tax Act and explained further in the
accompanying explanatory notes. In general, the factors are intended to assist
in determining whether it is reasonable to conclude that the investment in,
and ownership of, the foreign affiliate belongs in the Canadian subsidiary
more than in any other entity in the foreign parent’s group. If it is reasonable
to so conclude, then this measure will not apply. The Government
recognizes that distinguishing between foreign affiliate dumping transactions
and transactions that are undertaken with a view to the legitimate expansion
of a Canadian-based business is not straightforward. Accordingly, to assist
with the finalization of the legislation to implement this measure, the
Government invites stakeholders to submit comments concerning the details
of the proposed “business purpose” test, as set out in the Notice of Ways
and Means Motion for this measure, before June 1, 2012.
This measure will apply to transactions that occur on or after Budget Day,
other than transactions that occur before 2013 between parties that deal at
arm’s length and that are obligated to complete the transaction pursuant to
the terms of an agreement in writing between the parties that is entered into
before Budget Day. A party will be considered not to be obligated to
complete a transaction if the party may be excused from completing the
transaction as a result of amendments to the Income Tax Act.
As indicated above, the Government’s intention is to curtail foreign affiliate
dumping. The Government will monitor developments in this area to
determine whether further action is warranted.
Base Erosion Rules – Canadian Banks
Budget 2012 proposes that amendments be made to the so-called “base
erosion” rules in the Income Tax Act’s foreign accrual property income regime.
Amendments will be developed to alleviate the tax cost to Canadian banks of
using excess liquidity of their foreign affiliates in their Canadian operations.
Amendments will also be developed to ensure that certain securities
transactions undertaken in the course of a bank’s business of facilitating
trades for arm’s length customers are not inappropriately caught by the base
erosion rules.
These amendments will be developed in conjunction with industry
representatives and will include appropriate safeguards to ensure the
Canadian tax base is adequately protected.
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426
Overseas Employment Tax Credit
Employees who are residents of Canada and who qualify for the Overseas
Employment Tax Credit (OETC) are entitled to a tax credit equal to the
federal income tax otherwise payable (calculated using the employee’s
average tax rate) on 80 per cent of their qualifying foreign employment
income, up to a maximum foreign employment income of $100,000.
The OETC is deductible in determining the employee’s tax payable.
Generally, the OETC is available where:
• the employee is employed outside Canada for a period of more than six
consecutive months by a person resident in Canada (or a foreign affiliate
of such a person); and
• the employee’s foreign employment income is derived from employment
in connection with the exploration for or exploitation of certain natural
resources, activities performed under a contract with the United Nations,
or construction, installation, engineering or agricultural activities.
The OETC was originally introduced in Budget 1979 (as a deduction in
computing income) as a targeted measure to maintain the competitiveness
of Canadian firms in certain sectors in bidding for overseas contracts. At the
time, the tax legislation of many of Canada’s foreign competitors provided
some degree of similar tax relief. The environment in which the OETC
operates has changed significantly since then. In particular, the Government
has implemented substantial, broad-based tax reductions that support
investment and growth in all sectors of the economy and most of Canada’s
foreign competitors (for example, the United States, United Kingdom and
France) do not have analogous tax preferences. In addition, recent court
decisions have expanded the application of the OETC beyond its
original intent.
Budget 2012 proposes to phase out the OETC over four taxation years,
beginning with the 2013 taxation year. During the phase-out period, the
factor (currently 80 per cent) applied to an employee’s qualifying foreign
employment income in determining the employee’s OETC will be reduced to
60 per cent for the 2013 taxation year, 40 per cent for the 2014 taxation year
and 20 per cent for the 2015 taxation year. The OETC will be eliminated for
the 2016 and subsequent taxation years.
Tax Measures
Supplementary Information
427
These phase-out rules will not apply with respect to qualifying foreign
employment income earned by an employee in connection with a project or
activity to which the employee’s employer had committed in writing before
Budget Day. For example, if an employer has tendered an irrevocable bid in
writing for a project before Budget Day, the employer will be considered to
have committed in writing to the project irrespective of whether the bid has
been accepted before Budget Day. In such instances, the factor applied to an
employee’s qualifying foreign employment income in determining the
employee’s OETC will remain at 80 per cent for the 2013, 2014 and 2015
taxation years. The OETC will be eliminated for the 2016 and subsequent
taxation years.
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SALES AND EXCISE TAX MEASURES
GST/HST Health Measures
Basic health care services are treated as exempt from the Goods and Services
Tax/Harmonized Sales Tax (GST/HST). Exempt treatment means that
suppliers of exempt health care services do not charge GST/HST to patients,
but they cannot claim input tax credits to recover the GST/HST paid on
inputs in relation to these supplies. In addition, certain medical devices,
prescription drugs and certain other drugs used to treat life-threatening
conditions are zero-rated. Zero-rating means that suppliers do not charge
purchasers GST/HST on these medical devices and drugs and are entitled to
claim input tax credits to recover the GST/HST paid on inputs in relation to
these supplies.
Budget 2012 proposes to improve the application of the GST/HST to a
number of health care services, drugs and medical devices to reflect the
evolving nature of the health care sector.
Pharmacists’ Services
Pharmacists’ professional practice has traditionally been limited to
performing the services of dispensing prescription drugs. To ensure that no
tax applies to prescription drugs, pharmacists’ drug dispensing services and
prescription drugs have both been zero-rated since the inception of the GST.
A number of provincial governments have recently expanded the health care
services that pharmacists are authorized to perform in the course of their
professional practice beyond those of dispensing drugs. Examples of non-
dispensing health care services that pharmacists are authorized to provide in
certain provinces include:
• ordering and interpreting lab tests (e.g., to determine if a medication is
creating an adverse reaction);
• administering medications and vaccinations (e.g., administering
flu vaccines);
• changing drug dosages; and
• prescribing drugs for minor ailments.
Tax Measures
Supplementary Information
429
Budget 2012 proposes to exempt from the GST/HST services rendered by
pharmacists within a pharmacist-patient relationship for the promotion of
the patient’s health or for the prevention or treatment of a disease, disorder
or dysfunction of the patient. The proposal will result in an exemption for
the non-dispensing health care services that pharmacists are authorized to
provide in the course of their professional practice. Pharmacists’ services of
dispensing prescription drugs will continue to be zero-rated.
Under the current rules, a prescribed list of diagnostic health care services,
such as blood tests, are exempt when ordered by certain health care
professionals, such as physicians or registered nurses. Budget 2012 proposes
to expand the exemption for these diagnostic services to include those
ordered by pharmacists when the pharmacists are authorized to issue such
orders under the laws of a province.
These measures will apply to supplies made after Budget Day.
Corrective Eyewear
Under the GST/HST, corrective eyewear that is supplied on the written
order of an eye care professional authorized by provincial law to prescribe
eyeglasses or contact lenses is zero-rated.
Under recent provincial law changes, opticians have been authorized in
certain circumstances to conduct vision assessments and produce records of
the assessment that authorize dispensing of corrective eyewear. Budget 2012
proposes to zero-rate corrective eyeglasses or contact lenses supplied under
the authority of an assessment record produced by a person who is entitled
under the laws of the province in which the person practices to produce the
record authorizing dispensing of corrective eyewear.
This measure will apply to supplies made after Budget Day and to supplies
made on or before that day if GST/HST was not charged, collected or
remitted in respect of the supply.
Medical and Assistive Devices
Medical and assistive devices that are specially-designed to assist an individual
in coping with a chronic disease or illness or a physical disability are zero-
rated under the GST/HST. The medical devices eligible for zero-rating are
listed in the GST/HST legislation.
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430
Blood Coagulation Monitoring Devices
Included in the list of zero-rated medical and assistive devices are certain
monitoring or metering devices (e.g., blood-sugar monitoring or metering
devices and associated test strips and reagents that assist individuals in
determining their appropriate dosage of insulin).
Budget 2012 proposes to add blood coagulation monitoring or metering
devices and associated test strips and reagents to the zero-rated medical
device list. These devices are specially-designed for use by individuals
requiring blood coagulation monitoring or metering, for example to
determine appropriate levels of medications that alter their rate of blood
coagulation to prevent strokes caused by blood clots.
This measure will apply to supplies made after Budget Day.
Medical and Assistive Devices Supplied on Written Order
In the case of certain medical and assistive devices, the devices are eligible for
zero-rating only when supplied on the written order of a medical practitioner.
This requirement is intended to ensure that tax relief is specifically targeted
to individuals with a chronic disease or illness or a physical disability.
Registered nurses, occupational therapists and physiotherapists do not qualify
as medical practitioners for purposes of these rules. However, they are
increasingly involved in assessing when medical and assistive devices are
needed. Accordingly, Budget 2012 proposes to zero-rate supplies of the
devices, that currently qualify for zero-rating only when supplied on the
written order of a medical practitioner, when supplied on the written order of
a registered nurse, occupational therapist or physiotherapist as part of their
professional practice.
This measure will apply to supplies made after Budget Day.
Drugs
Under the GST/HST, prescription drugs and a list of non-prescription drugs
that are used to treat life-threatening diseases are zero-rated.
Budget 2012 proposes to add the drug “Isosorbide-5-mononitrate” to the list
of zero-rated non-prescription drugs. This drug is similar in chemical
composition and effect to the currently listed drug “Isosorbide dinitrate” and
both are used to treat congestive heart failure.
Tax Measures
Supplementary Information
431
This measure will apply to supplies made after Budget Day and to supplies
made on or before that day if GST/HST was not charged, collected or
remitted in respect of the supply.
GST Rebate for Books to be Given Away for Free by Prescribed
Literacy Organizations
To promote literacy, a rebate of the GST (and the federal portion of the
HST) is provided for printed books (including audio recordings of printed
books and printed versions of religious scriptures) acquired by public
libraries, educational institutions, as well as charities and qualifying non-profit
organizations prescribed by regulation and whose primary purpose is the
promotion of literacy. Currently, the rebate does not apply to tax paid on
printed books purchased to be sold or given away.
Budget 2012 proposes to allow charity and qualifying non-profit literacy
organizations prescribed by regulation to claim a rebate of the GST (and the
federal portion of the HST) they pay to acquire printed books to be given
away. This change will allow literacy organizations, if prescribed by
regulation, to claim a rebate of tax paid on printed books that are, for
example, purchased to be given to children from low income households
who might not otherwise be able to afford them. Information on the process
for charity and qualifying non-profit literacy organizations to apply to be
prescribed by regulation for this purpose is available from the Canada
Revenue Agency.
This measure will apply to acquisitions and importations of printed books in
respect of which tax becomes payable after Budget Day.
Doubling GST/HST Streamlined Accounting Thresholds
Most small businesses and most public service bodies (PSBs) can elect to use
the Quick or Special Quick Method of accounting respectively to determine
the amount of GST/HST to remit. These methods are intended to simplify
GST/HST compliance. Under these methods, taxpayers multiply eligible
GST/HST-included sales by a specified remittance rate and remit that
amount to the Canada Revenue Agency in lieu of tracking GST/HST paid
on purchases and GST/HST collected on sales. Generally, small businesses
may elect to use the Quick Method if their annual taxable sales (including
those of their associates) do not exceed $200,000 (GST/HST-included).
Under the Special Quick Method that PSBs can generally elect to use, no
sales threshold restriction applies.
Annex 4
432
Most small businesses and most small PSBs can also elect to use the
Streamlined Input Tax Credit Method, which provides a simplified process
for determining input tax credits (ITCs). The Streamlined Input Tax Credit
Method is generally available to a business or a PSB with annual taxable sales
(including the sales of associates) not exceeding $500,000 and annual taxable
purchases (excluding zero-rated purchases) not exceeding $2 million.
Under this method, rather than tracking the actual GST/HST paid on eligible
business purchases in order to determine the ITCs they can claim, businesses
(or PSBs) can calculate their ITCs based on a portion of their eligible total
business purchases subject to tax, including the amounts of GST, HST and
non-refundable provincial sales tax paid or payable (referred to as tax-
included business purchases). The portion, or tax factor, used to calculate
ITC entitlements is based on the tax rate applicable to the purchases. For
instance, where all purchases were subject to only the 5-per-cent GST, the
business (or PSB) would multiply the sum of their tax-included business
purchases by a “5/105” tax factor. The result of that calculation would be the
amount of ITCs the business (or PSB) can claim. For purchases made in
HST provinces, the current tax factors are: 12/112 for British Columbia,
13/113 for Ontario, New Brunswick and Newfoundland and Labrador, and
15/115 for Nova Scotia. As well, most PSBs that fall under the same
thresholds may use the Prescribed Method for Calculating Rebates, a similar
simplified method for calculating their PSB rebate entitlement.
To further simplify GST/HST compliance for small businesses and PSBs,
and in support of the objectives of the Red Tape Reduction Commission’s report
presented to the Government on January 18, 2012, Budget 2012 proposes to
double the existing streamlined accounting thresholds. Specifically:
• the annual taxable sales threshold at or below which eligible businesses
can elect to use the Quick Method will increase to $400,000 (from
$200,000) of GST/HST-included taxable sales; and
• the annual taxable sales and taxable purchases thresholds at or below
which eligible businesses or PSBs can elect to use the Streamlined Input
Tax Credit Method and eligible PSBs can elect to use the Prescribed
Method for Calculating Rebates will increase:
? to $1,000,000 (from $500,000) of taxable sales, and
? to $4,000,000 (from $2,000,000) of taxable purchases.
This measure will be effective in respect of a GST/HST reporting period of
a person (or a claim period of a person, in the case of the Prescribed Method
for Calculating Rebates) beginning after 2012.
Tax Measures
Supplementary Information
433
Tax Relief for Foreign-Based Rental Vehicles Temporarily
Imported by Canadian Residents
Currently, rental vehicles that are registered in another country (foreign-
based rental vehicles) and temporarily imported by Canadian residents are
generally subject to full taxes at the border (i.e., the GST on the full value of
the vehicle, the Green Levy and the automobile air conditioner tax apply).
Such importations were, until recently, also prohibited under federal vehicle
safety rules unless it could be shown that the vehicle in question satisfied all
Canadian standards. Generally, no taxes or similar restrictions apply to
foreign-based rental vehicles temporarily imported by foreign residents
visiting Canada.
As part of the Federal Tourism Strategy, the Government committed to
review existing restrictions that make it difficult for Canadian residents to
drive foreign-based rental vehicles into Canada and consider how
these restrictions can be eased. Federal vehicle safety rules were amended
in Bill C-13, Keeping Canada’s Economy and Jobs Growing Act, which came into
force on December 15, 2011, to generally enable the temporary importation
of these rental vehicles for a period not exceeding 30 days.
Following a review of existing tax provisions, Budget 2012 proposes changes
to the tax treatment of rental vehicles temporarily imported by Canadian
residents. Specifically, Budget 2012 proposes to:
• fully relieve GST/HST on foreign-based rental vehicles temporarily
imported by Canadian residents who have been outside Canada for at
least 48 hours;
• levy GST/HST on a partial basis, as described below, on foreign-based
rental vehicles temporarily imported by Canadian residents who have not
been outside Canada for at least 48 hours; and
• fully relieve the Green Levy and the automobile air conditioner tax on all
foreign-based rental vehicles temporarily imported by Canadian residents.
In the case of a Canadian resident who has been outside Canada for less than
48 hours and who temporarily imports a foreign-based rental vehicle, the
GST/HST will be levied on fixed monetary values, intended to approximate
the average cost of a weekly rental of the same type of vehicle in Canada, for
each week or part of a week that the vehicle is in Canada. These weekly fixed
monetary values will be set out in regulations and will generally be as follows:
• $200 for cars;
• $300 for pickup trucks, sport utility vehicles and vans; and
Annex 4
434
• $1,000 for recreational vehicles, such as motor homes.
Where GST/HST applies on these rental vehicles, the GST/HST rate
applicable will be that of the province where the vehicle enters Canada. For
example, travellers who enter Canada at Windsor, Ontario would pay the
Ontario HST rate of 13 per cent at the time of entry.
This reduced tax treatment will apply only to foreign-based rental vehicles
temporarily imported for a period not exceeding 30 days, which is consistent
with the revised federal vehicle safety rules that now permit the temporary
importation of these vehicles for a period not exceeding 30 days.
This measure will apply to foreign-based rental vehicles temporarily imported
by Canadian residents on or after June 1, 2012.
Consistent Application of the Green Levy on
Fuel-Inefficient Vehicles
The Green Levy applies on certain fuel-inefficient vehicles, in accordance
with the vehicle’s fuel efficiency rating. The Green Levy applies to
automobiles that have a weighted average (i.e., 55 per cent city/45 per cent
highway) fuel consumption rating of 13 or more litres per 100 kilometres, as
determined in accordance with information published by the Government of
Canada under the EnerGuide mark.
On February 17, 2012, the Minister of Natural Resources announced that
Canada will change the vehicle fuel consumption testing requirements to
better align with those in the United States.
To ensure that this change does not affect the application of the Green Levy,
Budget 2012 proposes that the Excise Tax Act be amended so that the
weighted average fuel consumption rating for the purposes of the Green
Levy continues to be determined by reference to the current test method.
The necessary legislative amendments will apply on Royal Assent to the
enacting legislation.
Tax Measures
Supplementary Information
435
OTHER TAX MEASURES
Gifts to Foreign Charitable Organizations
In general, donations made by Canadians to foreign charities are not eligible
for the Charitable Donations Tax Credit or Deduction. However, a foreign
charitable organization that receives a gift from the Government of Canada
may register as a qualified donee under the Income Tax Act. As a qualified
donee, a foreign charitable organization may issue an official donation receipt
for a gift received from a Canadian donor, entitling the donor to a credit or
deduction in computing Canadian income or tax. A Canadian registered
charity may also make a gift to a foreign charitable organization that is a
qualified donee.
Budget 2012 proposes to modify the rules for registering certain foreign
charitable organizations as qualified donees. Foreign charitable organizations
that receive a gift from the Government may apply for qualified donee status
if they pursue activities:
• related to disaster relief or urgent humanitarian aid; or
• in the national interest of Canada.
After consultation with the Minister of Finance, the Minister of National
Revenue will have the discretionary power to grant qualified donee status to a
foreign charitable organization that meets these criteria. Qualified donee
status will be made public, and will be granted for a 24-month period that
begins on the date chosen by the Minister of National Revenue, which
normally would be no later than the date of the gift from the Government.
Granting qualified donee status in these situations will ensure that Canadians
receive tax relief for donations made to approved foreign charitable
organizations that carry out activities of significance to, and in the interest of,
the Canadian public. The Canada Revenue Agency will develop guidance
regarding the administration of this measure.
Foreign charitable organizations that have received qualified donee status
under the existing rules will continue to be qualified donees until the
expiration of the period of their current status.
This measure will apply to applications made by foreign charitable
organizations on or after the later of January 1, 2013 and Royal Assent to
the enacting legislation.
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436
Charities – Enhancing Transparency and Accountability
Under the Income Tax Act, registered charities are required to operate
exclusively for charitable purposes and to devote their resources exclusively
to charitable activities. Charitable purposes include the relief of poverty, the
advancement of education or religion and certain other purposes as
recognized by the courts.
A charity is, however, allowed to engage in political activity as long as the
activities represent a limited portion of its resources, are non-partisan and
are ancillary and incidental to its charitable purposes and activities.
Concerns have been raised that some charities may be exceeding these
limitations and that there is currently no requirement for a charity to
disclose the extent to which it receives funding from foreign sources for
political activities.
To support the administrative measures proposed in this Budget to enhance
compliance and increase disclosure by charities regarding political activities,
Budget 2012 also proposes to provide additional enforcement tools to the
Canada Revenue Agency (CRA). These measures will also apply to registered
Canadian amateur athletic associations.
These measures will apply on Royal Assent to the enacting legislation.
Intermediate Sanctions
Where a charity does not comply with its obligations under the
Income Tax Act, the CRA generally takes a graduated approach to addressing
non-compliance. First, the CRA works with the charity and provides it with
an opportunity to comply voluntarily. If compliance issues become more
serious, the CRA may apply intermediate sanctions, such as monetary
penalties or a one-year suspension of the charity’s tax-receipting privileges.
The CRA may also revoke the registration of a charity. Intermediate
sanctions are not, however, currently available in the context of
political activities.
Tax Measures
Supplementary Information
437
Budget 2012 proposes to grant to the CRA the authority to suspend for one
year the tax-receipting privileges of a charity that exceeds the limitations on
political activities. Further, to ensure that charities are accurately reporting in
respect of all the activities in which they engage, the CRA will be granted the
authority to suspend the tax-receipting privileges of a charity that provides
inaccurate or incomplete information in its annual information return until
the charity provides the required information.
Funding of Political Activities
Where a charity makes a gift to another qualified donee, the Income Tax Act
currently treats the amount of the gift to have been devoted to its charitable
purposes and activities, even if the gift is earmarked for political activities.
This treatment allows a charity to indirectly pursue political activities beyond
what would be permitted if it engaged in those activities directly.
Budget 2012 proposes that, where a gift is made by a charity and it can
reasonably be considered that a purpose of the gift is to support the political
activities of a qualified donee, the gift will be considered to be an expenditure
made by the charity on political activities.
Tax Shelter Administrative Changes
The registration of tax shelters and the reporting requirements imposed on
tax shelter promoters are important tools that assist the Canada Revenue
Agency (CRA) in identifying, investigating and challenging abusive tax
planning arrangements. Budget 2012 proposes to encourage tax shelter
registration and reporting by:
• modifying the calculation of the penalty applicable to a promoter when
a person participates in an unregistered charitable donation tax shelter;
• introducing a new penalty for a promoter who fails to meet their
reporting obligations with respect to annual information returns; and
• limiting the period for which a tax shelter identification number is valid
to one calendar year.
Charitable Donation Tax Shelters
The Income Tax Act imposes a penalty on any person (normally the tax shelter
promoter) who sells an interest in, or accepts consideration in respect of, a
tax shelter that is not registered with the CRA, or who files false information
in an application to register a tax shelter. Where this penalty applies, a
participant in the tax shelter cannot make any related claim or deduction until
the tax shelter is registered and the penalty is paid.
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438
Currently, the penalty is the greater of $500 and 25 per cent of the
consideration received or receivable in respect of the tax shelter. For
example, if a participant were to pay $12,000 to acquire from a promoter a
property that is an unregistered tax shelter, the penalty to the promoter
would equal $3,000. This penalty is intended to encourage compliance by
making a promoter liable for a significant proportion of the tax savings that
the promoter asserts are available to participants in the tax shelter.
In the context of some charitable donation tax shelters, the cost to
participants of the property acquired is relatively small in relation to the tax
savings that the promoter asserts are available to participants. In these cases,
the penalty may be less effective in encouraging compliance by the promoter.
Budget 2012 therefore proposes that, in the case of a charitable donation
tax shelter, this penalty be the greater of the amount determined under
the existing rules and 25 per cent of the amount asserted by the promoter
to be the value of property that participants in the tax shelter can transfer
to a donee.
This measure will generally apply on Royal Assent to the enacting legislation.
Unreported Tax Shelter Sales
A promoter who accepts consideration, or acts as a principal or agent, in
respect of a tax shelter is required to file an annual information return, which
must include the amount paid by each participant who has acquired an
interest in the tax shelter. The penalty for not filing this return on time is the
greater of $100 and $25 multiplied by the number of days that the return is
outstanding, to a maximum of $2,500. Since one of the primary purposes of
the tax shelter registration system is to provide timely and accurate
information regarding tax shelters to the CRA, there is a need for a stronger
incentive for promoters to provide the required information.
Budget 2012 proposes that an additional penalty be imposed if a promoter
fails to either:
• file an annual information return in response to a demand by the CRA
to file the return; or
• report in the return an amount paid by a participant in respect of the
tax shelter.
Tax Measures
Supplementary Information
439
The new penalty will equal 25 per cent of the consideration received or
receivable by a promoter in respect of all interests in the tax shelter that
should have been, but were not, reported in an annual information return, or,
in the case of a charitable donation tax shelter for which amounts paid by the
participants are not reported, the greater of 25 per cent of the consideration
received or receivable by the promoter and the amount asserted by the
promoter to be the value of the property that those participants can transfer
to a donee.
This measure will apply:
• in the case of the failure to file an annual information return, to
demands to file made by the CRA after Royal Assent to the enacting
legislation; and
• in the case of the failure to report in an annual information return an
amount paid by a participant, to returns filed after Royal Assent to the
enacting legislation.
Tax Shelter Identification Numbers
A tax shelter identification number does not have an expiration date,
meaning that a promoter may market for an indefinite period a tax shelter for
which an identification number has been issued. As a result, when an annual
information return in respect of a tax shelter has not been filed, the CRA
may need to allocate resources to determine whether the return has not been
filed because the promoter is not complying with their filing obligations, or
because no interests in the tax shelter were sold in the year.
Budget 2012 proposes that a tax shelter identification number be valid only
for the calendar year identified in the application for the number filed with
the CRA.
This measure will apply to applications made on or after Budget Day. Tax
shelter identification numbers issued as a result of applications made before
Budget Day will be valid until the end of 2013.
Aboriginal Tax Policy
Taxation is an integral part of good governance as it promotes greater
accountability and self-sufficiency and provides revenues for important
public services and investments. Therefore, the Government of Canada
supports initiatives that encourage the exercise of direct taxation powers
by Aboriginal governments.
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440
To date, the Government of Canada has entered into 33 sales tax
arrangements under which Indian Act bands and self-governing Aboriginal
groups levy a sales tax within their reserves or their settlement lands. In
addition, 12 arrangements respecting personal income taxes are in effect with
self-governing Aboriginal groups under which they impose a personal
income tax on all residents within their settlement lands. The Government
reiterates its willingness to discuss and put into effect direct taxation
arrangements with interested Aboriginal governments.
The Government of Canada also supports direct taxation arrangements
between interested provinces or territories and Aboriginal governments and
has enacted legislation to facilitate such arrangements.
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CUSTOMS TARIFF MEASURES
Trade Measures to Support the Energy Industry
Budget 2012 proposes tariff relief to support the energy industry. In keeping
with the Government’s commitment to make Canada a tariff-free zone for
industrial manufacturers, Budget 2012 will eliminate the 5 percent Most-
Favoured-Nation (MFN) rate of duty on certain imported oils used as
production inputs in gas and oil refining as well as electricity production.
Eliminating these duties will improve the competitiveness of certain
manufacturers of goods such as gasoline, diesel, electricity and jet fuel.
This tariff elimination will be given effect by amendments to the
Customs Tariff and will be effective in respect of goods imported on or after
March 30, 2012.
Travellers’ Exemptions
Under existing provisions in the Customs Tariff, Canadian travellers may
qualify for an exemption which allows returning residents to bring back
goods valued up to a specified dollar limit without having to pay duties or
taxes, including customs duty, GST/HST and federal excise levies. Further,
the provinces generally provide a matching exemption from provincial sales
and product taxes.
Budget 2012 proposes to increase the travellers’ exemption to $200 from $50
for returning Canadian residents who are out of the country for 24 hours or
more. Budget 2012 similarly proposes to increase exemption levels for
travellers who are out of the country for 48 hours or more to $800. This new
threshold will replace the current 48-hour exemption of $400 and the current
7-day exemption of $750.
There will continue to be no duty or tax exemptions for absences of less than
24 hours. Volume and quantity limits on alcohol and tobacco products also
remain unchanged.
The new exemption levels, to be given effect by amendments to the Customs
Tariff, will be effective in respect of travellers returning to Canada on or after
June 1, 2012.
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PREVIOUSLY ANNOUNCED MEASURES
Budget 2012 confirms the Government’s intention to proceed with the
following previously announced tax and related measures, as modified to
take into account consultations and deliberations since their release:
• Legislative proposals released on July 16, 2010 relating to income tax
technical and bijuralism amendments;
• Legislative proposals released on August 27, 2010 (including measures
announced in the March 4, 2010 Budget and those relating to
foreign affiliates);
• Legislative proposals released on November 5, 2010 relating to income
tax technical amendments;
• Legislative proposals released on December 16, 2010 relating to real
estate investment trusts;
• Proposed changes to certain GST/HST rules relating to financial
institutions released on January 28, 2011;
• Legislative proposals released on March 16, 2011 relating to the
deductibility of contingent amounts, withholding tax on interest paid
to certain non-residents, and the tax treatment of certain life insurance
corporation reserves;
• Measures announced on July 20, 2011 relating to specified investment
flow-through entities, real estate investment trusts and publicly
traded corporations;
• Legislative proposals released on August 19, 2011 relating to
foreign affiliates;
• Legislative proposals released on October 31, 2011 relating to income tax
and sales and excise tax technical amendments;
• Measures announced on November 10, 2011 relating to improving the
caseload management of the Tax Court of Canada;
• Income tax and GST/HST amendments to accommodate the
introduction of Pooled Registered Pension Plans (including legislative
proposals released on December 14, 2011);
• Automobile expense amounts for 2012 announced on
December 29, 2011; and
• Measures announced on February 17, 2012 relating to transitional rules
for the elimination of the Harmonized Sales Tax in British Columbia.
Budget 2012 also reaffirms the Government’s commitment to move
forward as required with technical amendments to improve the operation
of the tax system.
Tax Measures:
Notces of Ways and
Means Motons
Chapter 1
Introducton
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NOTICE OF WAYS AND MEANS MOTION
TO AMEND THE INCOME TAX ACT
That it is expedient to amend the Income Tax Act to provide among
other things:
Registered Disability Savings Plans
(1) That the provisions of the Act relating to registered disability savings
plans be modified in accordance with the proposals described in the budget
documents tabled by the Minister of Finance in the House of Commons on
Budget Day.
Mineral Exploration Tax Credit for Flow-Through Share Investors
(2) That, for expenses renounced under a flow-through share agreement
entered into after March 2012,
(a) paragraph (a) of the definition “flow-through mining expenditure”
in subsection 127(9) of the Act be replaced with the following:
(a) that is a Canadian exploration expense incurred by a corporation
after March 2012 and before 2014 (including, for greater certainty, an
expense that is deemed by subsection 66(12.66) to be incurred before
2014) in conducting mining exploration activity from or above the
surface of the earth for the purpose of determining the existence,
location, extent or quality of a mineral resource described in
paragraph (a) or (d) of the definition “mineral resource” in
subsection 248(1),
and
(b) paragraphs (c) and (d) of the definition “flow-through mining
expenditure” in subsection 127(9) of the Act be replaced with
the following:
(c) an amount in respect of which is renounced in accordance with
subsection 66(12.6) by the corporation to the taxpayer (or a
partnership of which the taxpayer is a member) under an agreement
described in that subsection and made after March 2012 and before
April 2013, and
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(d) that is not an expense that was renounced under
subsection 66(12.6) to the corporation (or a partnership of which
the corporation is a member), unless that renunciation was under
an agreement described in that subsection and made after
March 2012 and before April 2013.
Eligible Dividends – Split-Dividend Designation and Late Designation
(3) That, for dividends paid on or after Budget Day, the Act be amended by
(a) replacing paragraph (a) of the definition “eligible dividend” in
subsection 89(1) with the following:
(a) the amount that is equal to the portion of a taxable dividend
that is received by a person resident in Canada, paid after 2005 by
a corporation resident in Canada and designated, as provided under
subsection (14), to be an eligible dividend, and
(b) replacing subsection 89(14) with the following:
Dividend designation
(14) A corporation designates a particular portion of a dividend it
pays at any time to be an eligible dividend by notifying in writing at
that time each person or partnership to whom it pays all or any part
of the dividend that the particular portion of the dividend is an
eligible dividend.
and
(c) adding the following after subsection 89(14):
Late designation
(14.1) Where, in the opinion of the Minister, the circumstances of a
case are such that it would be just and equitable to permit a
designation under subsection (14) to be made before the day that is
three years after the day on which the designation was required to be
made under that subsection, the designation is deemed to have been
made on the day the designation was required to be made.
Group Sickness or Accident Insurance Plans
(4) That, for the 2013 taxation year, subsection 6(1) of the Act be amended
by adding the following after paragraph (e):
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(e.1) the total of
(i) all amounts (or the portions of those amounts) contributed by the
taxpayer’s employer on or after Budget Day and before 2013 that are
attributable to the taxpayer’s coverage after 2012 under a group
sickness or accident insurance plan, except to the extent that the
contributions (or portions of those contributions) are attributable to
benefits under the plan that, if received by the taxpayer, would be
included in the taxpayer’s income under paragraph (f) in the year the
benefits are received if that paragraph were read without regard to its
subparagraph (v), and
(ii) all amounts contributed in 2013 in respect of the taxpayer by the
taxpayer’s employer to a group sickness or accident insurance plan,
except to the extent that the contributions are attributable to benefits
under the plan that, if received by the taxpayer, would be included in
the taxpayer’s income under paragraph (f) in the year the benefits are
received if that paragraph were read without regard to its
subparagraph (v).
(5) That, for the 2014 and subsequent taxation years, paragraph 6(1)(e.1) of
the Act be replaced with the following:
(e.1) the total of all amounts contributed in the year in respect of the
taxpayer by the taxpayer’s employer to a group sickness or accident
insurance plan, except to the extent that the contributions are
attributable to benefits under the plan that, if received by the taxpayer,
would be included in the taxpayer’s income under paragraph (f) in the
year the benefits are received if that paragraph were read without regard
to its subparagraph (v).
Retirement Compensation Arrangements
(6) That, in respect of retirement compensation arrangements, the Act be
amended by adding
(a) definitions “advantage”, “prohibited investment”, “significant
interest” and “swap transaction”, similar to the existing definitions
in Part XI.01 of the Act, with such modifications as the
circumstances require;
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(b) a definition “RCA strip”, similar to the existing definition “RRSP
strip” in Part XI.01 of the Act, with such modifications as the
circumstances require; and
(c) a definition “specified beneficiary” that refers to an individual who
has an interest or right in respect of a retirement compensation
arrangement and who has a significant interest in an employer in respect
of the arrangement.
(7) That the Act be amended to require a custodian of a retirement
compensation arrangement to pay a tax equal to 50 per cent of the fair
market value of a prohibited investment acquired or held by the arrangement,
similar to the existing tax in section 207.04 of the Act, with such
modifications as the circumstances require.
(8) That the Act be amended to require a custodian of a retirement
compensation arrangement to pay a tax equal to the fair market value of any
advantage obtained by a specified beneficiary of the arrangement or a person
who does not deal at arm’s length with the specified beneficiary, similar to
the existing tax in section 207.05 of the Act, with such modifications as the
circumstances require.
(9) That the Act be amended to provide that a specified beneficiary of a
retirement compensation arrangement that participates in acquiring or
holding a prohibited investment, or in extending an advantage, in respect of
the arrangement be jointly and severally, or solidarily, liable, to the extent of
their participation, for the tax payable in relation to the prohibited
investment or the advantage.
(10) That,
(a) subject to subparagraphs (b) and (c), paragraphs (6) and (9) apply on
and after Budget Day;
(b) paragraph (7) apply in respect of investments acquired, or that
become prohibited investments, on or after Budget Day; and
(c) paragraph (8) apply to advantages extended, received or receivable on
or after Budget Day, other than an advantage that relates to property
acquired, or transactions occurring, before Budget Day
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(i) if the advantage is obtained by a specified beneficiary of the
retirement compensation arrangement (or a person who does not
deal at arm’s length with the specified beneficiary) and the amount of
the advantage is included in computing the income of the specified
beneficiary, or
(ii) if the advantage is obtained by a retirement compensation
arrangement and the amount of the advantage is distributed from the
arrangement and included in computing the income of a beneficiary
or an employer in respect of the arrangement.
(11) That, in respect of refundable tax on contributions made to a retirement
compensation arrangement on or after Budget Day, section 207.5 of the Act
be amended so that the election in subsection 207.5(2) is available only in
circumstances where
(a) a decline in value of property of the retirement compensation
arrangement is not reasonably attributable to a prohibited investment or
an advantage, or
(b) the Minister of National Revenue is satisfied that it is just and
equitable to accept the election having regard to all the circumstances
(including the extent to which tax has been paid under another
provision of the Act).
Employees Profit Sharing Plans
(12) That, for the 2012 and subsequent taxation years, subsection 8(1) of the
Act be amended by adding the following after paragraph (o.1):
(o.2) an amount that is an excess EPSP amount (as defined in subsection
207.8(1)) of the taxpayer for the year, except to the extent that the
taxpayer’s tax for the year under subsection 207.8(2) in respect of the
excess EPSP amount is waived or cancelled.
(13) That, in respect of payments made on or after Budget Day to a trust
governed by an employees profit sharing plan, the Act be amended by adding
the following after Part XI.3:
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Part XI.4 – Tax on Excess EPSP Amounts
Excess EPSP amount
207.8(1) In this Part, “excess EPSP amount”, of a specified employee
for a taxation year in respect of an employer, means the amount
determined by the formula
A – (20% x B)
where
A is the portion of the total of all amounts paid by the employer of the
specified employee (or by a corporation with which the employer
does not deal at arm’s length) to a trust governed by an employees
profit sharing plan that is allocated for the year to the specified
employee; and
B is the specified employee’s total income for the year from
employment with the employer computed without reference to
paragraph 6(1)(d) and sections 7 and 8.
Tax payable
(2) If a specified employee has an excess EPSP amount for a taxation
year, the specified employee shall pay, for the year, a tax equal to the
amount determined by the formula
(A+B) x C
where
A is 29%;
B is
(i) if the specified employee is resident in the Province of Quebec at
the end of the year, 0%,
(ii) if the specified employee is resident in a province other than
Quebec at the end of the year, the highest provincial personal income
tax rate that applies for the year to a resident of the province, or
(iii) in any other case, 14%; and
C is the total of all excess EPSP amounts of the specified employee for
the year.
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Waiver or cancellation
(3) If a specified employee would otherwise be liable to pay a tax under
subsection (2), the Minister may waive or cancel all or part of the liability
if the Minister considers it just and equitable to do so having regard to
all the circumstances.
(14) That paragraphs (12) and (13) not apply in respect of payments made
before 2013 to a trust governed by an employees profit sharing plan pursuant
to a legal obligation arising under a written agreement or arrangement
entered into before Budget Day.
Salary of the Governor General of Canada
(15) That, for the 2013 and subsequent taxation years, paragraph 81(1)
of
the Act be replaced with the following:
income from the office of Governor General of Canada, other than
salary under the Governor General’s Act.
Life Insurance Policy Exemption Test
(16) That the provisions of the Act, and the Income Tax Regulations, with
respect to life insurance policies be modified in accordance with the
proposals related to the life insurance policy exemption test described in the
budget documents tabled by the Minister of Finance in the House of
Commons on Budget Day.
Corporate Mineral Exploration and Development Tax Credit
(17) That, for expenditures incurred on or after Budget Day,
subsection 127(9) of the Act be amended by
(a) replacing paragraph (a.3) of the definition “investment tax credit”
with the following:
(a.3) where the taxpayer is a taxable Canadian corporation, the
total of
(i) the specified percentage of the taxpayer’s pre-production
mining expenditure described in subparagraph (a)(i) of the
definition “pre-production mining expenditure”, and
(ii) the specified percentage of the taxpayer’s pre-production
mining expenditure described in subparagraph (a)(ii) of the
definition “pre-production mining expenditure”,
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(b) replacing paragraph (a) of the definition “pre-production mining
expenditure” with the following:
(a) would be an expense
(i) described in paragraph (f) of the definition “Canadian
exploration expense” in subsection 66.1(6) if the expression
“mineral resource” in that paragraph were defined to mean a
mineral deposit from which the principal mineral to be extracted
is diamond, a base or precious metal deposit, or a mineral
deposit from which the principal mineral to be extracted is an
industrial mineral that, when refined, results in a base or precious
metal, or
(ii) described in paragraph (g), and not described in paragraph (f),
of the definition “Canadian exploration expense” in
subsection 66.1(6) if the expression “mineral resource” in that
paragraph were defined to mean a mineral deposit from which
the principal mineral to be extracted is diamond, a base or
precious metal deposit, or a mineral deposit from which the
principal mineral to be extracted is an industrial mineral that,
when refined, results in a base or precious metal, and
and
(c) deleting “and” at the end of paragraph (i) and by replacing
paragraph (j) of the definition “specified percentage” with the following:
(j) in respect of a pre-production mining expenditure of the taxpayer
described in subparagraph (a)(i) of the definition “pre-production
mining expenditure” that is incurred
(i) before 2013, 10%,
(ii) in 2013, 5%, and
(iii) after 2013, 0%, and
(k) in respect of a pre-production mining expenditure of the taxpayer
described in subparagraph (a)(ii) of the definition “pre-production
mining expenditure” that is incurred
(i) before 2014, 10%,
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(ii) after 2013 and before 2016, 10% if the expenditure
is incurred
(A) under a written agreement entered into by the taxpayer
before Budget Day, or
(B) as part of the development of a new mine and
(I) the construction of the mine was started by, or on
behalf of, the taxpayer before Budget Day (and for this
purpose construction does not include obtaining permits
or regulatory approvals, conducting environmental
assessments, community consultations or impact benefit
studies, and similar activities), or
(II) the engineering and design work for the construction
of the mine, as evidenced in writing, was started by, or on
behalf of, the taxpayer before Budget Day (and for this
purpose engineering and design work does not include
obtaining permits or regulatory approvals, conducting
environmental assessments, community consultations or
impact benefit studies, and similar activities), and
(iii) in any other case,
(A) in 2014, 7%,
(B) in 2015, 4%, and
(C) after 2015, 0%.
Atlantic Investment Tax Credit – Oil and Gas and Mining Activities
(18) That, in respect of property acquired on or after Budget Day,
subsection 127(9) of the Act be amended by
(a) replacing the portion of the definition “qualified property” before
paragraph (a) with the following:
“qualified property”, of a taxpayer, means property (other than a
qualified resource property) that is
(b) replacing subparagraphs (c)(iv) to (xiii) of the definition “qualified
property” with the following:
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(iv) storing grain, or
(v) harvesting peat,
(c) replacing the reference to “subparagraphs (c)(i) to (xiii)” in
paragraph (d) of the definition “qualified property” with
“subparagraphs (c)(i) to (v)”,
(d) adding the following after paragraph (a) of the definition
“specified percentage”:
(a.1) in respect of a qualified resource property acquired by a taxpayer
primarily for use in the Province of Nova Scotia, New Brunswick,
Prince Edward Island or Newfoundland and Labrador, the Gaspé
Peninsula or the prescribed offshore region and that is acquired
(i) on or after Budget Day and before 2014, 10%,
(ii) after 2013 and before 2017, 10% if the property
(A) is acquired by the taxpayer under a written agreement
of purchase and sale entered into by the taxpayer before
Budget Day, or
(B) is acquired as part of a project phase and
(I) the construction of the phase was started by, or on
behalf of, the taxpayer before Budget Day (and for this
purpose construction does not include obtaining permits
or regulatory approvals, conducting environmental
assessments, community consultations or impact benefit
studies, and similar activities), or
(II) the engineering and design work for the construction
of the phase, as evidenced in writing, was started by, or on
behalf of, the taxpayer before Budget Day (and for this
purpose engineering and design work does not include
obtaining permits or regulatory approvals, conducting
environmental assessments, community consultations or
impact benefit studies, and similar activities), and
(iii) in any other case,
(A) in 2014 and 2015, 5%, and
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(B) after 2015, 0%,
and
(e) adding the following definitions in alphabetical order:
“project phase” means a phase of a project of a taxpayer that is
a discrete expansion in the extraction, processing or production
capacity of the project beyond a capacity level that was attained
before Budget Day and which expansion in capacity was the
taxpayer’s demonstrated intention immediately before Budget Day;
“qualified resource property”, of a taxpayer, means property that is a
prescribed building or prescribed machinery and equipment, that is
acquired by the taxpayer on or after Budget Day, that has not been
used, or acquired for use or lease, for any purpose whatever before it
was acquired by the taxpayer and that is
(a) to be used by the taxpayer in Canada primarily for the
purpose of any of the activities referred to in
subparagraphs (c)(iv) to (xi) of the definition “qualified property”
as that definition read immediately before Budget Day, or
(b) to be leased by the taxpayer to a lessee (other than a person
exempt from tax under this Part because of section 149) that can
reasonably be expected to use the property in Canada primarily
for the purpose of any of the activities referred to in
subparagraphs (c)(iv) to (xi) of the definition “qualified property”
as that definition read immediately before Budget Day, but this
paragraph does not apply to prescribed machinery and
equipment unless use of the property by the first person to
whom it was leased begins on or after Budget Day and
(i) the property is leased in the ordinary course of carrying on
a business in Canada by a corporation whose principal
business is leasing property, lending money, purchasing
conditional sales contracts, accounts receivable, bills of sale,
chattel mortgages or hypothecary claims on movables, bills of
exchange or other obligations representing all or part of the
sale price of merchandise or services, or any combination of
these activities,
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(ii) the property is manufactured and leased in the ordinary
course of carrying on a business in Canada by a corporation
whose principal business is manufacturing property that it
sells or leases, or
(iii) the property is leased in the ordinary course of carrying
on business in Canada by a corporation whose principal
business is selling or servicing property of that type.
Atlantic Investment Tax Credit – Electricity Generation Equipment
(19) That, in respect of property acquired on or after Budget Day,
(a) the definition “qualified property” in subsection 127(9) of the Act be
amended by
(i) deleting “or” at the end of paragraph (a), by adding “or” at the end
of paragraph (b) and by adding the following after paragraph (b):
(b.1) prescribed energy generation and conservation property
acquired by the taxpayer on or after Budget Day,
and
(ii) replacing the portion of paragraph (c.1) before subparagraph (i)
with the following:
(c.1) property (other than prescribed energy generation and
conservation property) to be used by the taxpayer in Canada
primarily for the purpose of producing or processing electrical
energy or steam in a prescribed area, where
and
(b) that for the purposes of the definition “qualified property” in
subsection 127(9) of the Act, prescribed energy generation and
conservation property be depreciable property (other than property that
is a prescribed building or prescribed machinery and equipment) of the
taxpayer included in Class 43.1, 43.2 or 48 or in Class 17 because of
subparagraph (a.1)(i) of that Class, of Schedule II to the
Income Tax Regulations.
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Scientific Research and Experimental Development Program
(20) That,
(a) for taxation years that end after 2013, the reference to “20%” in
paragraph (a.1) of the definition “investment tax credit” in
subsection 127(9) of the Act be replaced with “15%”, except that for
taxation years that include January 1, 2014, it shall be read as a reference
to the percentage that is the total of
(i) 20% multiplied by the proportion that the number of days that are
in the taxation year and before 2014 is of the number of days in the
taxation year, and
(ii) 15% multiplied by the proportion that the number of days that
are in the taxation year and after 2013 is of the number of days in the
taxation year;
(b) for taxation years that end after 2013, the reference to “15%” in
subsection 127(10.1) of the Act be replaced with “20%”, except that for
taxation years that include January 1, 2014, it shall be read as a reference
to the percentage that is the total of
(i) 15% multiplied by the proportion that the number of days that are
in the taxation year and before 2014 is of the number of days in the
taxation year, and
(ii) 20% multiplied by the proportion that the number of days that
are in the taxation year and after 2013 is of the number of days in the
taxation year;
(c) for expenditures incurred after 2012, subparagraph (a)(ii) of the
definition “qualified expenditure” in subsection 127(9) of the Act be
amended to include only 80% of an expenditure that
(i) would otherwise be included under that subparagraph,
(ii) is for scientific research and experimental development performed
for or on behalf of the taxpayer by another person or partnership
with whom the taxpayer deals at arm’s length, and
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(iii) has been reduced to exclude any amount of a capital nature
incurred by the other person or partnership in the performance of
the scientific research and experimental development;
(d) the percentage at which the prescribed proxy amount, for a taxation
year, referred to in paragraph (b) of the definition “qualified
expenditure” in subsection 127(9) of the Act is calculated be, for
taxation years that end after 2012, the percentage that is the total of
(i) 65% multiplied by the proportion that the number of days that are
in the taxation year and before 2013 is of the number of days in the
taxation year,
(ii) 60% multiplied by the proportion that the number of days that
are in the taxation year and in 2013 is of the number of days in the
taxation year, and
(iii) 55% multiplied by the proportion that the number of days that
are in the taxation year and after 2013 is of the number of days in the
taxation year;
and
(e) for expenditures made by a taxpayer after 2013,
(i) section 37 of the Act be amended to exclude an expenditure in
respect of the use or the right to use property that would, if it were
acquired by the taxpayer, be capital property of the taxpayer,
(ii) paragraph 37(1)(b) of the Act be repealed,
(iii) subparagraphs (a)(i) and (iii) of the definition “qualified
expenditure” in subsection 127(9) of the Act be repealed, and
(iv) section 127 of the Act be amended to exclude from the SR&ED
qualified expenditure pool an expenditure in respect of the use or the
right to use property that would, if it were acquired by the taxpayer,
be capital property of the taxpayer.
(21) That such other amendments to the Act be made as are necessary to
give effect to the proposals relating to scientific research and experimental
development described in the budget documents tabled by the Minister of
Finance in the House of Commons on Budget Day.
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Tax Avoidance Through the Use of Partnerships
(22) That paragraph 88(1)(d) of the Act be amended by deleting “and” at the
end of subparagraph (ii) and by adding the following after subparagraph (ii):
(ii.1) for the purpose of calculating the amount in subparagraph (ii) in
respect of an interest of the subsidiary in a partnership, the fair market
value of the interest at the time the parent last acquired control of the
subsidiary is deemed to be the amount determined by the formula
A – B
where
A is the fair market value of the interest at that time, and
B is the portion of the amount by which the fair market value of
the interest at that time exceeds its cost amount as may
reasonably be regarded as being attributable at that time to the
total of all amounts each of which is
(A) in the case of a depreciable property held directly by the
partnership or held indirectly by the partnership through one or
more other partnerships, the amount by which the fair market
value (determined without reference to liabilities) of the
property exceeds its cost amount,
(B) in the case of a Canadian or foreign resource property held
directly by the partnership or held indirectly by the partnership
through one or more other partnerships, the fair market value
(determined without reference to liabilities) of the property, or
(C) in the case of a property that is neither a capital property or
resource property and that is held directly by the partnership or
held indirectly by the partnership through one or more other
partnerships, the amount by which the fair market value
(determined without reference to liabilities) of the property
exceeds its cost amount, and
(23) That paragraph (22) apply to amalgamations that occur and windings-up
that begin on or after Budget Day, other than – where a taxable Canadian
corporation (referred to in this paragraph as the “parent corporation”) that
has acquired control of another taxable Canadian corporation (referred to in
this paragraph as the “subsidiary corporation”) – an amalgamation of the
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parent corporation and the subsidiary corporation that occurs before 2013,
or a winding-up of the subsidiary corporation into the parent corporation
that begins before 2013, if
(a) the parent corporation acquired control of the subsidiary corporation
before Budget Day, or was obligated as evidenced in writing before
Budget Day to acquire control of the subsidiary (except that the parent
corporation shall not be considered to be obligated if, as a result of
amendments to the Act, it may be excused from the obligation to
acquire control), and
(b) the parent corporation had the intention as evidenced in writing
before Budget Day to amalgamate with, or wind up, the
subsidiary corporation.
(24) That section 100 of the Act be amended by
(a) replacing the portion of subsection 100(1) before paragraph (a) with
the following:
Disposition – partnership to tax-exempt or non-resident
100(1) If, as part of a transaction or event or series of transactions
or events, a taxpayer disposes of an interest in a partnership and that
interest is acquired by a person exempt from tax under section 149
or by a non-resident person, notwithstanding paragraph 38(a), the
taxpayer’s taxable capital gain for a taxation year from the disposition
of the interest is deemed to be
and
(b) adding the following after subsection 100(1):
Exception – non-resident person
(1.1) Subsection (1) does not apply to a taxpayer’s disposition of an
interest in a partnership to a non-resident person if the partnership,
immediately before and immediately after the acquisition of the
interest by the non-resident person, uses all the property of the
partnership in carrying on business through a permanent
establishment in Canada.
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(25) That paragraph (24) apply to dispositions of an interest in a partnership
made by a taxpayer on or after Budget Day, other than an arm’s length
disposition by the taxpayer before 2013 if the taxpayer is obligated to dispose
of the interest pursuant to a written agreement entered into by the taxpayer
before Budget Day. A taxpayer shall not be considered to be obligated if,
as a result of amendments to the Act, the taxpayer may be excused from
the obligation.
(26) That such other amendments to the Act be made as are necessary to
give effect to the proposals relating to the avoidance of tax through the use
of partnerships that hold income assets described in the budget documents
tabled by the Minister of Finance in the House of Commons on Budget Day.
Partnership Waivers
(27) That, effective on Royal Assent to the enacting legislation, section 152
of the Act be amended by adding the following after subsection (1.8):
Waiver of determination limitation period
(1.9) A waiver in respect of the period during which the Minister may
make a determination under subsection (1.4) in respect of a partnership
for a fiscal period may be made by one member of the partnership if
that member is
(a) designated for that purpose in the information return made under
section 229 of the Income Tax Regulations for the fiscal period; or
(b) otherwise expressly authorized by the partnership to so act.
Transfer Pricing Secondary Adjustments
(28) That, for transactions that occur on or after Budget Day, section 247
of the Act be amended by adding the following after subsection (11):
Deemed dividends to non-residents
(12) For the purposes of Part XIII, if a particular corporation would
have a transfer pricing capital adjustment or a transfer pricing income
adjustment, for a taxation year, if the particular corporation, or a
partnership of which the particular corporation is a member, had
undertaken no transactions or series of transactions other than those in
which a particular non-resident person that does not deal at arm’s length
with the particular corporation (other than a corporation that was a
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controlled foreign affiliate, as defined in subsection 17(15), of
the particular corporation throughout the period during which
the transaction or series of transactions occurred) was a participant,
(a) a dividend is deemed to have been paid by the particular
corporation and received by the particular non-resident person at
the end of that taxation year; and
(b) the amount of the dividend is the amount, if any, by which
(i) the amount that would be the portion of the total of the
particular corporation’s transfer pricing capital adjustment, and
transfer pricing income adjustment, for the taxation year that
could reasonably be considered to relate to the particular non-
resident person if
(A) the only transactions or series of transactions undertaken
by the particular corporation were those in which the
particular non-resident person was a participant, and
(B) the definition “transfer pricing capital adjustment” in
subsection (1) were read without reference to the references
therein to “1/2 of” and “3/4 of”
exceeds
(ii) the amount that would be the portion of the total of the
particular corporation’s transfer pricing capital setoff adjustment,
and transfer pricing income setoff adjustment, for the taxation
year that could reasonably be considered to relate to the
particular non-resident person if
(A) the only transactions or series of transactions undertaken
by the particular corporation were those in which the
particular non-resident person was a participant, and
(B) the definition “transfer pricing capital adjustment” in
subsection (1) were read without reference to the references
therein to “1/2 of” and “3/4 of”.
Repatriation
(13) Where a dividend is deemed by paragraph (12)(a) to have been paid
by a corporation and received by a non-resident person, and an amount
has been paid, with the concurrence of the Minister, by the non-resident
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person to the corporation, the amount of the dividend may be reduced
to the amount that the Minister considers appropriate, having regard to
all the circumstances, including the amount of the dividend and the
amount of the payment.
Repatriation – interest
(14) Where the amount of a dividend has been reduced because of the
application of subsection (13), interest on the amount of the dividend
(calculated without reference to subsection (13)) payable in respect of
insufficient payments of tax under Part XIII on the amount of the
dividend so calculated shall remain payable for the period that begins at
the time the dividend was deemed by subsection (12) to have been paid
and that ends at the time at which the payer of the dividend received the
amount referred to in subsection (13) from a non-resident person in
respect of the dividend.
Repatriation – interest
(15) Where the amount of a dividend has been reduced because of
the application of subsection (13), the amount of interest payable by
a taxpayer because of subsection (14) may be reduced to the amount
that the Minister considers appropriate, having regard to all the
circumstances, including whether the country in which the
non-resident person described in subsection (13) is resident
provides reciprocal treatment.
Non-application of ss. 15, 56(2) and 246
(16) Section 15, subsection 56(2) and section 246 do not apply in
respect of an amount in respect of which a dividend is deemed by
paragraph (12)(a) to have been paid by a corporation and received by
a non-resident person.
Thin Capitalization – Debt-to-Equity Ratio
(29) That, for taxation years that begin after 2012, the reference to “two”
in subparagraph 18(4)(a)(ii) of the Act be replaced with “1.5”.
Thin Capitalization – Partnerships
(30) That, for taxation years that begin on or after Budget Day,
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(a) in determining whether the debt-to-equity ratio of a corporation
resident in Canada exceeds the debt-to-equity ratio set out in
subsection 18(4) of the Act, each member of a partnership be deemed
to owe that member’s specified proportion, within the meaning
proposed to be assigned by subsection 248(1) of the Act as set out in
Department of Finance news release 2010-068 (dated July 16, 2010), of
the debts owed by the partnership; and
(b) there be included in computing the income of the corporation an
amount equal to the interest on the portion of the debts owing by
the partnership to specified non-residents, that are allocated to the
corporation under subparagraph (a), that exceeds the debt-to-equity
ratio set out in subsection 18(4) of the Act.
Thin Capitalization – Disallowed Interest Treated as a Dividend
(31) That, for taxation years that end on or after Budget Day,
(a) for the purposes of Part XIII of the Act, interest paid or credited,
by a corporation resident in Canada or by a partnership of which the
corporation is directly or indirectly a member (referred to in this
paragraph as the “payer”), in a taxation year of the corporation to a
non-resident person be deemed to have been paid by the corporation as
a dividend and, except for this paragraph, not to have been paid or
credited by the payer as interest to the extent that
(i) the interest is not deductible to the corporation because of the
application of subsection 18(4) of the Act, or
(ii) an amount in respect of the interest is included in computing the
income of the corporation because of the application of any measure
giving effect to subparagraph (30)(b);
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(b) for the purposes of this paragraph, interest that is payable at a time
that is in the taxation year referred to in subparagraph (a) but that has
not been paid or credited in that taxation year be deemed to have been
paid immediately before the end of that taxation year and not at any
other time;
(c) for the purpose of determining the time at which a deemed dividend,
that arises because of the application of subparagraph (a) to a
taxation year, is considered to have been paid to a particular specified
non-resident, the corporation may designate, on or before the
corporation’s filing-due date for the taxation year, which amounts paid
or credited in the taxation year as interest to the particular specified
non-resident are to be recharacterized as dividends; and
(d) where the taxation year includes Budget Day, the amount of each
dividend deemed by subparagraph (a) to have been paid in the taxation
year be the proportion of the amount of the dividend otherwise
determined that the number of days that are in the taxation year that
are on or after Budget Day is of the number of days that are in the
taxation year.
Thin Capitalization – Foreign Affiliate Loans
(32) That, for taxation years that end on or after Budget Day,
(a) an amount of interest, the deductibility of which by a corporation
resident in Canada would otherwise be denied because of the application
of subsection 18(4) of the Act, shall not be denied to the extent of any
portion of the interest that is included in computing the income of the
corporation in respect of the foreign accrual property income of a
controlled foreign affiliate of the corporation (net of any amount
deductible in respect of that portion of the interest because of the
application of subsection 91(4) of the Act); and
(b) an amount in respect of interest, that would otherwise be required
to be included in computing the income of a corporation resident in
Canada because of the application of subparagraph (30)(b), shall not be
included to the extent of any portion of the interest that is included in
computing the income of the corporation in respect of the foreign
accrual property income of a controlled foreign affiliate of the
corporation (net of any amount deductible in respect of that portion of
the interest because of the application of subsection 91(4) of the Act).
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Foreign Affiliate Dumping
(33) That, for contributed surplus that arises on or after Budget Day,
(a) clause 18(4)(a)(ii)(B) of the Act be replaced with the following:
(B) the average of all amounts each of which is the corporation’s
contributed surplus (other than any portion of such contributed
surplus that arose from a transaction or event in respect of which
subsection 212.3(2) applied) at the beginning of a calendar month
that ends in the year, to the extent that it was contributed by a
specified non-resident shareholder of the corporation, and
(b) paragraphs 84(1)(c.1) and (c.2) of the Act be replaced with
the following:
(c.1) where the corporation is an insurance corporation, any action by
which it converts contributed surplus related to its insurance business
(other than any portion of such contributed surplus that arose from a
transaction or event in respect of which subsection 212.3(2) applied)
into paid-up capital in respect of the shares of its capital stock,
(c.2) where the corporation is a bank, any action by which it converts
any of its contributed surplus that arose on the issuance of shares of
its capital stock (other than any portion of such contributed surplus
that arose from a transaction or event in respect of which
subsection 212.3(2) applied) into paid-up capital in respect of shares
of its capital stock, or
(c) subparagraphs 84(1)(c.3)(i) and (ii) of the Act be replaced with
the following:
(i) on the issuance of shares of that class or shares of another class
for which the shares of that class were substituted (other than an
issuance to which section 51, 66.3, 84.1, 85, 85.1, 86 or 87,
subsection 192(4.1), 194(4.1) or section 212.1 applied, or an
issuance in respect of which subsection 212.3(2) applied),
(ii) on the acquisition of property by the corporation (other than an
acquisition in respect of which subsection 212.3(2) applied) from a
person who at the time of the acquisition held any of the issued
shares of that class or shares of another class for which shares of that
class were substituted for no consideration or for consideration that
did not include shares of the capital stock of the corporation, or
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(34) That, effective Budget Day, references to paragraph 128.1(1)(c.3) and
section 212.3 of the Act be added to subparagraph (b)(iii) of the definition
“paid-up capital” in subsection 89(1) of the Act.
(35) That, effective Budget Day, the portion of subsection 93.1(1) of the Act
before paragraph (a), as proposed in Department of Finance news release
2011-070 (dated August 19, 2011), be replaced with the following:
Shares held by a partnership
93.1(1) For the purposes of determining whether a non-resident
corporation is a foreign affiliate of a corporation resident in Canada for
the purposes of subsections (2) and 20(12), sections 90, 93 and 113,
paragraphs 128.1(1)(c.3) and (d) and section 212.3, (and any regulations
made for the purposes of those provisions), section 95 (to the extent
that it is applied for the purposes of those provisions) and section 126,
where based on the assumptions contained in paragraph 96(1)(c), at any
time shares of a class of the capital stock of a corporation are owned by
a partnership or are deemed under this subsection to be owned by a
partnership, each member of the partnership is deemed to own at that
time the number of those shares that is equal to the proportion of all
those shares that
(36) That, effective Budget Day, subsection 93.1(3) of the Act, as proposed
in Department of Finance news release 2011-070 (dated August 19, 2011), be
amended by deleting “and” at the end of paragraph (b), by adding “and” at
the end of paragraph (c) and by adding the following after paragraph (c):
(d) section 212.3.
(37) That, in respect of taxpayers that become resident in Canada on or after
Budget Day, subsection 128.1(1) of the Act be amended by adding the
following after paragraph (c.2):
(c.3) if the taxpayer is a corporation that was, at the time (referred to in
this paragraph as the “prior time”) that is immediately before the
particular time, controlled by a particular non-resident corporation and
the taxpayer owned at the prior time one or more shares of another
non-resident corporation that, immediately after the particular time, was
– or that became, as part of a transaction or event or series of
transactions or events that includes the taxpayer having become resident
in Canada – a foreign affiliate of the taxpayer, then
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(i) in computing the paid-up capital at or after the particular time of
any particular class of shares of the capital stock of the taxpayer,
there is to be deducted that proportion of the amount that is the
lesser of the paid-up capital in respect of all of the shares of the
capital stock of the taxpayer at the particular time, computed without
reference to this paragraph, and the fair market value, at the
particular time, of the shares owned by the taxpayer of the foreign
affiliate that the paid-up capital, as so computed, in respect of the
shares of the particular class is of the paid-up capital, as so computed,
in respect of all of the issued shares of the capital stock of the
taxpayer, and
(ii) for the purposes of Part XIII, the taxpayer is deemed,
immediately after the particular time, to have paid to the particular
non-resident, and the particular non-resident is deemed, immediately
after the particular time, to have received from the taxpayer, a
dividend equal to the amount, if any, by which the fair market value,
at the particular time, of the shares owned by the taxpayer of the
foreign affiliate exceeds the paid-up capital in respect of all of the
shares of the capital stock of the taxpayer, computed without
reference to this paragraph.
(38) That, in respect of transactions or events that occur on or after
Budget Day, the Act be amended by adding the following after section 212.2:
Foreign affiliate dumping – conditions for application
212.3(1) Subsection (2) applies to an investment in a non-resident
corporation (referred to in this section as the “subject corporation”) that
is made, at any time, by a corporation resident in Canada (referred to in
this section as the “CRIC”) if
(a) the subject corporation is, immediately after that time, or
becomes, as part of a transaction or event or series of transactions or
events that includes the investment, a foreign affiliate of the CRIC;
(b) the CRIC is at that time controlled by another non-resident
corporation (referred to in this section as the “parent”); and
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(c) the investment may not reasonably be considered to have been
made by the CRIC, instead of being made or retained by the parent
or another non-resident person that does not deal at arm’s length
with the parent, primarily for bona fide purposes other than to obtain a
tax benefit (as defined in subsection 245(1)).
Foreign affiliate dumping – consequences
(2) If this subsection applies to an investment in a subject corporation,
(a) for the purposes of this Part, the CRIC is deemed to have paid to
the parent at the time the investment was made, and the parent is
deemed to have received from the CRIC at that time, a dividend
equal to the total of all amounts each of which is the fair market
value, at that time, of any property (not including, for greater
certainty, shares of the capital stock of the CRIC) transferred, or
obligation assumed or incurred, by the CRIC in respect of the
investment; and
(b) in computing the paid-up capital at any time on or after Budget
Day of any class of shares of the capital stock of the CRIC, there is to
be deducted the amount of any increase, because of the investment,
in the paid-up capital in respect of the shares of the class, computed
without reference to this section.
Investment in subject corporation
(3) For the purposes of this section, an investment made in a subject
corporation by a CRIC means any of
(a) an acquisition of shares of the capital stock of the subject
corporation by the CRIC;
(b) a contribution of capital to the subject corporation by the CRIC;
(c) a transaction under which an amount became owing by the subject
corporation to the CRIC, other than an amount owing that arises in
the ordinary course of the business of the CRIC and that is repaid
within a commercially reasonable period;
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(d) an acquisition of a debt obligation of the subject corporation by
the CRIC from another person, other than, if the acquisition was
made in the ordinary course of the business of the CRIC, an
acquisition from a person with which the CRIC dealt, at the time of
the acquisition, at arm’s length;
(e) an acquisition by the CRIC of an option in respect of, or an
interest in, or for civil law a right in, shares of the capital stock,
or a debt obligation, of the subject corporation; and
(f) any transaction or event that is similar in effect to any of the
transactions described in paragraphs (a) to (e).
Multiple controllers
(4) For the purposes of this section and paragraph 128.1(1)(c.3), a CRIC
that is controlled by more than one non-resident corporation is deemed
not to be controlled by any such non-resident that controls another
non-resident corporation that controls the CRIC, unless the application
of this subsection would otherwise result in no non-resident corporation
controlling the CRIC.
Bona fide purpose – primary factors
(5) In determining whether paragraph (1)(c) applies, the following
factors are to be given primary consideration:
(a) whether the business activities carried on by the subject
corporation and any other corporation in which the subject
corporation has, at the time referred to in subsection (1), an equity
percentage (as defined in subsection 95(4)) are at that time, and are
expected to remain, more closely connected to the business activities
carried on by the CRIC (or by a corporation resident in Canada that
is a subsidiary wholly-owned corporation of the CRIC or that is a
corporation of which the CRIC is a subsidiary wholly-owned
corporation) than to the business activities carried on by any non-
resident corporation (other than the subject corporation or any
corporation in which the subject corporation has such an equity
percentage) with which the CRIC, at that time, does not deal at
arm’s length;
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(b) whether the terms or conditions of any shares of the subject
corporation that are owned by the CRIC at that time, or any
agreement in respect of the shares or their issue, are such that the
CRIC does not fully participate in the profits of the subject
corporation or any appreciation in the value of the subject
corporation (for greater certainty, the fact that the shares owned by
the CRIC do fully participate in the profits of the subject corporation
and any appreciation in the value of the subject corporation is not a
relevant factor);
(c) whether the investment was made at the direction or request of a
non-resident corporation with which the CRIC was not, at that time,
dealing at arm’s length;
(d) whether, in the case of an investment described in paragraph
(3)(a), (d), (e) or (f), negotiations with the vendor in respect of the
investment were initiated by senior officers of the CRIC who were
resident in, and worked principally in, Canada or, if the vendor
initiated the transaction, the vendor’s principal point of contact was
an officer of the CRIC who was resident in, and worked principally
in, Canada;
(e) whether senior officers of the CRIC who were resident in, and
worked principally in, Canada had and exercised the principal
decision-making authority in respect of the making of the investment,
and have and exercise the principal decision making authority in
respect of the investment;
(f) whether the performance evaluation or compensation of senior
officers of the CRIC who are resident in, and work principally in,
Canada is connected to the results of operations of the subject
corporation to a greater extent than the performance evaluation or
compensation of any senior officers of a non-resident corporation
(other than the subject corporation or a corporation controlled by the
subject corporation) that does not deal at arm’s length with the CRIC
is so connected; and
(g) whether senior officers of the subject corporation report to,
and are functionally accountable to, senior officers of the CRIC who
are resident in, and work principally in, Canada to a greater extent
than to any senior officers of any non-resident corporation (other
than the subject corporation) that does not deal at arm’s length
with the CRIC.
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Indirect investment
(6) A particular investment by a CRIC in a subject corporation that
would, in the absence of this subsection, be excluded from the
application of subsection (2) because of paragraph (1)(c) is not to be so
excluded to the extent that one or more properties, if any, received by
the subject corporation from the CRIC as a result of the particular
investment, or property substituted for any such property, may
reasonably be considered to have been used by the subject corporation,
directly or indirectly as part of a transaction or event or series of
transactions or events that includes the particular investment, to make
another investment in a non-resident corporation that would, if the
other investment had been made by the CRIC, have been subject to
subsection (2).
Partnerships
(7) For the purposes of this section, paragraph 128.1(1)(c.3) and
subsection 219.1(2)
(a) any transaction entered into by a partnership is deemed to have
been entered into by each member of the partnership in proportion
to the fair market value of the member’s direct or indirect interest in
the partnership;
(b) property that would, in the absence of this paragraph, be owned
by a partnership is deemed to be owned by each member of the
partnership in proportion to the fair market value of the member’s
direct or indirect interest in the partnership; and
(c) amounts that would, in the absence of this paragraph, be owing by
a partnership are deemed to be owed by each member of the
partnership in proportion to the fair market value of the member’s
direct or indirect interest in the partnership.
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(39) That paragraph (38) not apply to a transaction that occurs before 2013
between persons that deal at arm’s length and that are obligated to complete
the transaction pursuant to the terms of an agreement in writing between the
persons that was entered into before Budget Day. A person will be
considered not to be obligated to complete a transaction if the person may
be excused from completing the transaction as a result of amendments to
the Act.
(40) That, in respect of taxpayers that cease to be resident in Canada
on or after Budget Day, section 219.1 of the Act be renumbered as
subsection 219.1(1) and that section 219.1 be amended by adding the
following after that subsection (1):
Foreign affiliate dumping – corporate emigration
(2) For the purposes of paragraph (1)(b), if any shareholder of the
corporation referred to in that paragraph (referred to in this subsection
as the “emigrating corporation”) is, at the time the emigrating
corporation ceases to be resident in Canada, a corporation resident in
Canada that is controlled, at that time, by a non-resident corporation,
the amount that would, in the absence of this subsection, be the paid-up
capital in respect of all of the issued and outstanding shares of each class
of the capital stock of the emigrating corporation immediately before
that time is deemed to be nil.
Overseas Employment Tax Credit
(41) That, for the 2013 and subsequent taxation years, section 122.3 of the
Act be amended by
(a) replacing the reference to “$80,000” in paragraph 122.3(1)(c) with
“the specified amount for the year”;
(b) replacing the reference to “80%” in paragraph 122.3(1)(d) with
“the specified percentage for the year”; and
(c) adding the following after subsection 122.3(1):
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Specified amount
(1.01) For the purposes of paragraph (1)(c), the specified amount for
a taxation year of an individual is
(a) for the 2013 to 2015 taxation years, determined by the
following formula:
[$80,000 x A/(A + B)] + [C x B/(A + B)]
where
A is the individual’s income described in paragraph (1)(d) for
the taxation year that is earned in connection with a contract
that was committed to in writing before Budget Day by a
specified employer of the individual,
B is the individual’s income described in paragraph (1)(d) for
the taxation year, other than income included in the
description of A, and
C is
(i) for the 2013 taxation year, $60,000,
(ii) for the 2014 taxation year, $40,000, and
(iii) for the 2015 taxation year, $20,000, and
(b) for the 2016 and subsequent taxation years, nil.
Specified percentage
(1.02) For the purposes of paragraph (1)(d), the specified percentage
for a taxation year of an individual is
(a) for the 2013 to 2015 taxation years, determined by the
following formula:
[80% x A/(A + B)] + [C x B/(A + B)]
where
A is the value of A in subsection (1.01),
B is the value of B in subsection (1.01), and
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C is
(i) for the 2013 taxation year, 60%,
(ii) for the 2014 taxation year, 40%, and
(iii) for the 2015 taxation year, 20%, and
(b) for the 2016 and subsequent taxation years, 0%.
Gifts to Foreign Charitable Organizations
(42) That, for applications made by a foreign organization on or after
the later of January 1, 2013 and the date of Royal Assent to the
enacting legislation,
(a) subparagraph (a)(v) of the definition “qualified donee” in
subsection 149.1(1) of the Act be replaced with the following:
(v) a foreign organization designated under subsection 149.1(26),
and
(b) section 149.1 of the Act be amended by adding the following after
subsection 149.1(25):
Designated foreign charitable organizations
(26) For the purposes of the definition “qualified donee” in
subsection (1),
(a) the Minister may designate, in consultation with the Minister
of Finance, a foreign organization for a 24-month period that
includes the time at which Her Majesty in right of Canada has
made a gift to the foreign organization, if
(i) the foreign organization is a charitable organization that is
not resident in Canada,
(ii) the Minister is satisfied that the foreign organization is
(A) carrying on relief activities in response to a disaster,
(B) providing urgent humanitarian aid, or
(C) carrying on activities in the national interest of Canada,
and
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(iii) the foreign organization has applied to the Minister for
designation under this subsection; and
(b) a foreign organization designated under paragraph (a) is
deemed to have been registered by the Minister at the beginning
of the 24-month period.
Charities – Enhancing Transparency and Accountability
(43) That, effective on Royal Assent to the enacting legislation,
(a) the definition “charitable purposes” in subsection 149.1(1) of the Act be
replaced with the following:
“charitable purposes” includes the disbursement of funds to a qualified
donee, other than a gift the making of which is a political activity;
(b) subsection 149.1(1) of the Act be amended by adding the following
definition in alphabetical order:
“political activity” includes the making of a gift to a qualified donee if it
can reasonably be considered that a purpose of the gift is to support the
political activities of the qualified donee;
(c) paragraphs 149.1(6)(b) and (c) of the Act be replaced with the following:
(b) it disburses income to qualified donees, other than income disbursed
by way of a gift the making of which is a political activity, if the total
amount of income of the charitable organization that is disbursed to
qualified donees in a taxation year does not exceed 50% of its income
for the year; or
(c) it disburses income to a registered charity that the Minister has
designated in writing as a charity associated with it, other than income
disbursed by way of a gift the making of which is a political activity.
(d) subsection 149.1(10) of the Act be replaced with the following:
Deemed charitable activity
(10) An amount paid by a charitable organization to a qualified donee
that is not paid out of the income of the charitable organization is
deemed to be a devotion of a resource of the charitable organization to
a charitable activity carried on by it, unless the amount paid is a gift the
making of which is a political activity.
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(e) subsection 188.2(2) of the Act be amended by deleting “or” at the end
of paragraph (c) and by adding the following after paragraph (d):
(e) in the case of a registered charity that is a charitable foundation,
if the foundation devotes resources to political activities that are not
considered under subsection 149.1(6.1) to be devoted to
charitable purposes;
(f) in the case of a registered charity that is a charitable organization,
if the organization devotes resources to political activities that are not
considered under subsection 149.1(6.2) to be devoted to charitable
activities; or
(g) in the case of a registered Canadian amateur athletic association,
if the association devotes resources to political activities that are not
considered under subsection 149.1(6.201) to be devoted to its exclusive
purpose and exclusive function.
(f) section 188.2 of the Act be amended by adding the following after
subsection (2):
Suspension – failure to report
(2.1) If a registered charity or a registered Canadian amateur athletic
association fails to report information that is required to be included in
a return filed under subsection 149.1(14), the Minister may give notice
by registered mail to the charity or association that its authority to issue
an official receipt referred to in Part XXXV of the Income Tax Regulations
is suspended from the day that is seven days after the day on which the
notice is mailed until such time as the Minister notifies the charity or
association, as the case may be, that the Minister has received the
required information in prescribed form.
(g) the portion of subsection 188.2(3) of the Act before paragraph (a) be
replaced with the following:
Effect of suspension
(3) If the Minister has issued a notice to a qualified donee under
subsection (1), (2) or (2.1), subject to subsection (4),
and
(h) subsection 188.2(4) of the Act be replaced with the following:
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Application for postponement
(4) If a notice of objection to a suspension under subsection (1), (2) or
(2.1) has been filed by a qualified donee, the qualified donee may file an
application to the Tax Court of Canada for a postponement of that
portion of the period of suspension that has not elapsed until the time
determined by the Court.
Tax Shelter Administrative Changes
(44) That, effective on Royal Assent to the enacting legislation,
paragraph 227(10)(b) of the Act be replaced with the following:
(b) subsection 237.1(7.4) or (7.5) by a person or partnership,
(45) That, for applications for identification numbers made
(a) before Budget Day, subsection 237.1(4) of the Act be replaced with
the following:
Sales prohibited
(4) A person may, at any time, whether as a principal or an agent, sell
or issue, or accept consideration in respect of, a tax shelter only if
(a) the Minister has issued before that time an identification
number for the tax shelter; and
(b) the time is before 2014.
and
(b) on or after Budget Day, paragraph 237.1(4)(b) of the Act, as enacted
in accordance with paragraph (a), be replaced with the following:
(b) the time is during the calendar year designated by the
Minister as being applicable to the number.
(46) That, in respect of applications for identification numbers made, sales or
issuances of tax shelters made and consideration in respect of tax shelters
accepted, after Royal Assent to the enacting legislation,
paragraph 237.1(7.4)(b) of the Act be replaced with the following:
(b) 25% of the greater of
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(i) the total of all amounts each of which is the consideration received
or receivable from a person in respect of the tax shelter before the
correct information is filed with the Minister or the identification
number is issued, as the case may be, and
(ii) the total of all amounts each of which is an amount stated or
represented to be the value of property that a particular person who
acquires or otherwise invests in the tax shelter could donate to a
qualified donee, if the tax shelter is a gifting arrangement and
consideration has been received or is receivable from the particular
person in respect of the tax shelter before the correct information is
filed with the Minister or the identification number is issued, as the
case may be.
(47) That, in respect of demands to file an information return that are made
and in respect of failures to report an amount in an information return filed,
after Royal Assent to the enacting legislation, section 237.1 of the Act be
amended by adding the following after subsection (7.4):
Penalty
(7.5) Every person who is required under subsection (7) to file an
information return and who fails to comply with a demand under
section 233 to file the return or to report in the return information
required under paragraph (7)(a) or (b), is liable to a penalty equal to
25% of the greater of
(a) the total of all amounts each of which is the consideration
received or receivable by the person in respect of the tax shelter from
a particular person in respect of whom information required under
paragraph (7)(a) or (b) had not been reported at or before the time
the demand was issued or the return was filed, as the case may be;
and
(b) if the tax shelter is a gifting arrangement, the total of all amounts
each of which is an amount stated or represented to be the value of
property that the particular person could donate to a qualified donee.
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NOTICE OF WAYS AND MEANS MOTION
TO AMEND THE EXCISE TAX ACT
That it is expedient to amend the Excise Tax Act as follows:
GST/HST Health Measures
1. (1) Part II of Schedule V to the Excise Tax Act is amended by adding
the following after section 7.2:
7.3 A supply of a service (other than a service described in section 4 of Part I
of Schedule VI) rendered in the practice of the profession of pharmacy by a
particular individual who is entitled under the laws of a province to practise
that profession if the service is rendered within a pharmacist-patient
relationship between the particular individual and another individual and
is provided for the promotion of the health of the other individual or for
the prevention or treatment of a disease, disorder or dysfunction of the
other individual.
(2) Subsection (1) applies to any supply made after Budget Day.
2. (1) Section 10 of Part II of Schedule V to the Act is amended by
striking out “or” at the end of paragraph (a), by adding “or” at the end
of paragraph (b) and by adding the following after that paragraph:
(c) a person that is entitled under the laws of a province to practise
the profession of pharmacy and is authorized under the laws of the
province to order such a service, if the order is made within a
pharmacist-patient relationship.
(2) Subsection (1) applies to any supply made after Budget Day.
3. (1) Paragraph 2(e) of Part I of Schedule VI to the Act is amended
by adding the following after subparagraph (vi):
(vi.1) Isosorbide-5-mononitrate,
(2) Subsection (1) applies to any supply made
(a) after Budget Day; or
(b) on or before Budget Day if no amount was charged, collected or
remitted on or before that day as or on account of tax under Part IX of
the Act in respect of the supply.
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4. (1) The definition “medical practitioner” in section 1 of Part II
of Schedule VI to the Act is repealed.
(2) Section 1 of Part II of Schedule VI to the Act is amended by adding
the following in alphabetical order:
“specified professional” means
(a) a person that is entitled under the laws of a province to practise the
profession of medicine, physiotherapy or occupational therapy, or
(b) a registered nurse.
(3) Subsections (1) and (2) apply to any supply made after
Budget Day.
5. (1) Sections 3 and 4 of Part II of Schedule VI to the Act
are replaced by the following:
3. A supply of a heart-monitoring device if the device is supplied on the
written order of a specified professional for use by a consumer with heart
disease who is named in the order.
4. A supply of a hospital bed, if the bed is supplied to the operator of a health
care facility (as defined in section 1 of Part II of Schedule V) or on the
written order of a specified professional for use by an incapacitated
individual named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
6. (1) Section 5.1 of Part II of Schedule VI to the Act is replaced by
the following:
5.1 A supply of an aerosol chamber or a metered dose inhaler for use in the
treatment of asthma if the chamber or inhaler is supplied on the written order
of a specified professional for use by a consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
7. (1) Section 7 of Part II of Schedule VI to the Act is replaced
by the following:
7. A supply of a device that is designed to convert sound to light signals if
the device is supplied on the written order of a specified professional for use
by a consumer with a hearing impairment who is named in the order.
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(2) Subsection (1) applies to any supply made after Budget Day.
8. (1) Section 9 of Part II of Schedule VI to the Act is replaced
by the following:
9. A supply of eyeglasses or contact lenses if the eyeglasses or contact lenses
are, or are to be, supplied under the authority of a prescription prepared, or
an assessment record produced, by a person for the treatment or correction
of a defect of vision of a consumer named in the prescription or assessment
record and the person is entitled under the laws of the province in which the
person practises to prescribe eyeglasses or contact lenses, or to produce an
assessment record to be used for the dispensing of eyeglasses or contact
lenses, for such purpose.
(2) Subsection (1) applies to any supply made
(a) after Budget Day; or
(b) on or before Budget Day if no amount was charged, collected or
remitted on or before that day as or on account of tax under Part IX of
the Act in respect of the supply.
9. (1) Section 14.1 of Part II of Schedule VI to the Act is replaced
by the following:
14.1 A supply of a chair that is specially designed for use by an individual
with a disability if the chair is supplied on the written order of a specified
professional for use by a consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
10. (1) Sections 21.1 and 21.2 of Part II of Schedule VI to the Act
are replaced by the following:
21.1 A supply of an extremity pump, intermittent pressure pump or similar
device for use in the treatment of lymphedema if the pump or device is
supplied on the written order of a specified professional for use by a
consumer named in the order.
21.2 A supply of a catheter for subcutaneous injections if the catheter
is supplied on the written order of a specified professional for use by a
consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
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11. (1) Section 23 of Part II of Schedule VI to the Act is replaced
by the following:
23. A supply of an orthotic or orthopaedic device that is made to order for
an individual or is supplied on the written order of a specified professional
for use by a consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
12. (1) Section 24.1 of Part II of Schedule VI to the Act is replaced
by the following:
24.1 A supply of footwear that is specially designed for use by an individual
who has a crippled or deformed foot or other similar disability, if the footwear
is supplied on the written order of a specified professional.
(2) Subsection (1) applies to any supply made after Budget Day.
13. (1) Part II of Schedule VI to the Act is amended by adding
the following after section 29:
29.1 A supply of
(a) a blood coagulation monitor or meter specially designed for use by an
individual requiring blood coagulation monitoring or metering; or
(b) blood coagulation testing strips or reagents compatible with a blood
coagulation monitor or meter referred to in paragraph (a).
(2) Subsection (1) applies to any supply made after Budget Day.
14. (1) Section 30 of Part II of Schedule VI to the Act is replaced
by the following:
30. A supply of any article that is specially designed for the use of blind
individuals if the article is supplied for use by a blind individual to or by
the Canadian National Institute for the Blind or any other bona fide
institution or association for blind individuals or on the order or certificate
of a specified professional.
(2) Subsection (1) applies to any supply made after Budget Day.
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15. (1) Sections 35 and 36 of Part II of Schedule VI to the Act
are replaced by the following:
35. A supply of a graduated compression stocking, an anti-embolic
stocking or similar article if the stocking or article is supplied on the written
order of a specified professional for use by a consumer named in the order.
36. A supply of clothing that is specially designed for use by an individual with
a disability if the clothing is supplied on the written order of a specified
professional for use by a consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
16. (1) Section 41 of Part II of Schedule VI to the Act is replaced
by the following:
41. A supply of a device that is specially designed for neuromuscular
stimulation therapy or standing therapy, if supplied on the written order of
a specified professional for use by a consumer with paralysis or a severe
mobility impairment who is named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
GST Rebate for Books to be Given Away for Free
by Prescribed Literacy Organizations
17. (1) Subsection 259.1(1) of the Act is amended by adding
the following in alphabetical order:
“specified property”
“specified property” means
(a) a printed book or an update of such a book;
(b) an audio recording all or substantially all of which is a spoken reading of
a printed book; or
(c) a bound or unbound printed version of scripture of any religion.
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(2) Subsection 259.1(2) of the Act is replaced by the following:
Rebate for printed books, etc.
(2) The Minister must, subject to subsection (3), pay a rebate to a person
that is, on the last day of a claim period of the person or of the person’s fiscal
year that includes that claim period, a specified person equal to the amount of
tax under subsection 165(1) or section 212 that became payable in the claim
period by the person in respect of the acquisition or importation of specified
property if
(a) in the case of a specified person described in paragraph (f) of the
definition “specified person”, the person acquires or imports the specified
property otherwise than for the purpose of supply by way of sale for
consideration; and
(b) in any other case, the person acquires or imports the specified property
otherwise than for the purpose of supply by way of sale.
(3) Subsections (1) and (2) apply to acquisitions and importations
of property in respect of which tax becomes payable after Budget Day.
Tax Relief for Foreign-Based Rental Vehicles
Temporarily Imported by Canadian Residents
18. (1) Subsections 212.1(2) to (4) of the Act are replaced
by the following:
Tax in participating province
(2) Subject to this Part, every person that is liable under the Customs Act to
pay duty on imported goods, or would be so liable if the goods were subject
to duty, shall pay to Her Majesty in right of Canada, in addition to the tax
imposed by section 212, a tax on the goods calculated at the tax rate for a
participating province on the value of the goods if
(a) the goods are prescribed goods imported at a place in the participating
province; or
(b) the goods are not prescribed for the purposes of paragraph (a) and the
person is resident in the participating province.
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Exception
(3) Paragraph (2)(b) does not apply to goods that are accounted for as
commercial goods under section 32 of the Customs Act, specified motor
vehicles or a mobile home or a floating home that has been used or occupied
in Canada by any individual.
Application in offshore areas
(4) Paragraph (2)(b) does not apply to goods imported by or on behalf of a
person that is resident in the Nova Scotia offshore area or the Newfoundland
offshore area unless the goods are imported for consumption, use or supply in
the course of an offshore activity or the person is also resident in a
participating province that is not an offshore area.
(2) Subsection (1) applies to goods imported on or after June 1, 2012.
19. (1) Section 261.2 of the Act is replaced by the following:
Rebate in respect of goods imported at a place in a province
261.2 If a person that is resident in a particular participating province
pays tax under subsection 212.1(2) in respect of property described in
paragraph (b) of that subsection that the person imports at a place in another
province for consumption or use exclusively in any province (other than the
particular participating province) and if prescribed conditions are satisfied,
the Minister shall, subject to section 261.4, pay a rebate to the person equal
to the amount determined in prescribed manner.
(2) Subsection (1) applies to property imported on or after
June 1, 2012.
20. (1) Schedule I to the Act is amended by adding the following
before section 6:
1. The following definitions apply in this Schedule.
“commercial goods” has the same meaning as in subsection 212.1(1)
of the Act.
“qualifying vehicle” means a vehicle (other than a racing car described in
heading No. 87.03 of the List of Tariff Provisions set out in the schedule
to the Customs Tariff) registered under the laws of a foreign jurisdiction
relating to the registration of motor vehicles that
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(a) is described in any of heading No. 87.02, subheading Nos. 8703.21
to 8703.90, 8704.21, 8704.31, 8704.90 and 8711.20 to 8711.90 and tariff
item Nos. 8716.39.30 and 8716.39.90 of that List;
(b) is described in subheading No. 8704.22 or 8704.32 of that List and has a
gross vehicle weight rating (as defined in subsection 2(1) of the Motor Vehicle
Safety Regulations) not exceeding 10 tonnes; or
(c) is described in tariff item No. 8716.10.00 of that List and is a vehicle
for camping.
(2) Subsection (1) comes into force, or is deemed to have come into
force, on June 1, 2012.
21. (1) Section 8 of Schedule I to the Act is amended by striking out
“or” at the end of paragraph (b), by adding “or” at the end of
paragraph (c) and by adding the following after paragraph (c):
(d) that is included as permanently installed equipment in an automobile,
station wagon, van or truck if the automobile, station wagon, van or truck
(i) is a qualifying vehicle,
(ii) is imported temporarily by an individual resident in Canada and not
accounted for as a commercial good under section 32 of the Customs Act,
(iii) was last supplied in the course of a vehicle rental business to the
individual by way of lease, licence or similar arrangement under which
continuous possession or use of the automobile, station wagon, van or
truck is provided for a period of less than 180 days, and
(iv) is exported within 30 days after the importation.
(2) Subsection (1) applies to any air conditioner that is included
as permanently installed equipment in an automobile, station wagon,
van or truck imported into Canada on or after June 1, 2012.
22. (1) The portion of section 10 of Schedule I to the Act before
paragraph (a) is replaced by the following:
10. Section 6 does not apply to an automobile described in that section
that is
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(2) Paragraphs 10(a) to (c) of Schedule I to the French version of the
Act are replaced by the following:
a) vendue dans des conditions qui feraient de la vente une fourniture
détaxée pour l’application de la partie IX de la Loi;
b) achetée ou importée pour servir à la police ou combattre l’incendie;
c) achetée, pour son usage personnel ou officiel, par une personne exempte
d’impôts et de taxes visée à l’article 34 de la convention figurant à l’annexe I
de la Loi sur les missions étrangères et les organisations internationales ou à l’article 49
de la convention figurant à l’annexe II de cette loi;
(3) Section 10 of Schedule I to the Act is replaced by striking out “or”
at the end of paragraph (b), by adding “or” at the end of paragraph (c)
and by adding the following after paragraph (c):
(d) a qualifying vehicle if the automobile
(i) is imported temporarily by an individual resident in Canada and not
accounted for as a commercial good under section 32 of the Customs Act,
(ii) was last supplied in the course of a vehicle rental business to the
individual by way of lease, licence or similar arrangement under which
continuous possession or use of the automobile is provided for a period
of less than 180 days, and
(iii) is exported within 30 days after the importation.
(4) Subsections (1) and (2) come into force, or are deemed to have
come into force, on June 1, 2012.
(5) Subsection (3) applies to any automobile imported into Canada
on or after June 1, 2012.
Consistent Application of the Green Levy on
Fuel-Inefficient Vehicles
23. Section 1 of Schedule I to the Act is amended by adding the
following in alphabetical order:
“qualifying data” means fuel consumption data, in respect of automobiles
described in the portion of subsection 6(1) before paragraph (a), that is
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(a) if the fuel consumption data under the EnerGuide mark is based on a
test method composed of two test — but not five test — cycles, data
published by the Government of Canada under the EnerGuide mark in
respect of those automobiles; or
(b) in any other case, data in respect of those automobiles based on a test
method composed of only two test cycles and published by the
Government of Canada, as specified by the Minister of National Revenue,
on the basis of information adjusted and provided by the Minister of
Natural Resources.
24. The descriptions of A and B in subsection 6(2) of Schedule I to
the Act are replaced by the following:
A is the city fuel consumption rating (based on the number of litres of fuel,
other than E85, per 100 kilometres) for automobiles of the same model
with the same attributes as the automobile, as determined by reference
to qualifying data, or, if no rating can be so determined that would apply
to the automobile, by reference to the best available data, which may
include the city fuel consumption rating for the most similar model and
attributes; and
B is the highway fuel consumption rating (based on the number of litres of
fuel, other than E85, per 100 kilometres) for automobiles of the same
model with the same attributes as the automobile, as determined by
reference to qualifying data, or, if no rating can be so determined that
would apply to the automobile, by reference to the best available data,
which may include the highway fuel consumption rating for the most
similar model and attributes.
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NOTICE OF WAYS AND MEANS MOTION TO AMEND
THE CUSTOMS TARIFF
That it is expedient to amend the Customs Tariff to provide among
other things:
1. That the List of Tariff Provisions set out in the schedule to the
Customs Tariff be amended to delete the reference to “Oils and
preparations thereof, having a viscosity of 7.44 mm²/sec. or more at
37.8°C” in the Description of Goods of tariff item No. 2710.19.91 in
order for these oils and preparations thereof to be classified under tariff
item 2710.19.99 that provides for a Most-Favoured-Nation Tariff rate of
customs duty of “Free”.
2. That the List of Tariff Provisions set out in the schedule to the
Customs Tariff be amended to delete the reference to “Oils and
preparations thereof, having a viscosity of 7.44 mm²/sec. or more at
37.8°C” in the Description of Goods of tariff item No. 2710.20.10 in
order for these oils and preparations thereof to be classified under tariff
item 2710.20.90 that provides for a Most-Favoured-Nation Tariff rate of
customs duty of “Free”.
3. That the Description of Goods of tariff item No. 9804.10.00 in the
List of Tariff Provisions set out in the schedule to the Customs Tariff
be amended by replacing the reference to “four hundred dollars” with
a reference to “eight hundred dollars”.
4. That the Description of Goods of tariff item No. 9804.20.00 in the
List of Tariff Provisions set out in the schedule to the Customs Tariff
be amended by replacing the reference to “seven hundred and fifty
dollars” with a reference to “eight hundred dollars”.
5. That the Description of Goods of tariff item No. 9804.40.00 in the
List of Tariff Provisions set out in the schedule to the Customs Tariff
be amended by replacing the reference to “fifty dollars” with a
reference to “two hundred dollars”.
6. That any enactment founded on sections 1 and 2 be deemed to
have come into force on March 30, 2012.
7. That any enactment founded on sections 3 to 5 be deemed to have
come into force on June 1, 2012.
Tax Measures:
Draf Amendments to Various
GST/HST Regulatons
Chapter 1
Introducton
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Draft Amendments to Various GST/HST Regulations
493
DRAFT AMENDMENTS TO VARIOUS
GST/HST REGULATIONS
Doubling GST/HST Streamlined Accounting Thresholds
Regulations Amending the Streamlined Accounting (GST/HST) Regulations
1. (1) Paragraph 16(1)(b) of the Streamlined Accounting (GST/HST)
Regulations is replaced by the following:
(b) the total threshold amount for the reporting period does not exceed
$400,000, and
(2) Paragraphs 16(2)(b) and (c) of the Regulations are replaced
by the following:
(b) the fiscal year of the registrant immediately before the first fiscal year of
the registrant that is a reporting period of the registrant for which the total
threshold amount exceeds $400,000,
(c) the first fiscal quarter of the registrant that includes a reporting period of
the registrant for which the total threshold amount exceeds $400,000, and
(3) Subsections (1) and (2) apply for the purpose of determining
the net tax of a registrant for reporting periods beginning after 2012.
2. (1) Paragraphs 21.2(1)(a) to (d) of the Regulations are replaced
by the following:
(a) the threshold amount for the fiscal year of the registrant that includes
the reporting period does not exceed $1,000,000;
(b) if the fiscal quarter of the registrant that includes the reporting period is
not the first fiscal quarter in the fiscal year, the threshold amount for the
fiscal quarter does not exceed $1,000,000;
(c) the purchase threshold for the fiscal year does not exceed $4,000,000;
(d) if the registrant is a public service body, it is reasonable to expect at the
beginning of the reporting period that the purchase threshold for
the registrant’s next fiscal year will not exceed $4,000,000; and
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(2) Paragraphs 21.2(2)(a) to (d) of the Regulations are replaced
by the following:
(a) if the threshold amount for the second or third fiscal quarter in a fiscal
year of the registrant exceeds $1,000,000, the end of the first fiscal quarter in
that fiscal year for which the threshold amount exceeds $1,000,000,
(b) if the threshold amount for a fiscal year of the registrant exceeds
$1,000,000, the end of the first fiscal quarter in that fiscal year,
(c) if the registrant is not a public service body and the purchase threshold of
the registrant for a particular day exceeds $4,000,000, the end of the
immediately preceding day,
(d) if the registrant is a public service body and the purchase threshold for a
fiscal year of the registrant exceeds $4,000,000, the end of the first fiscal
quarter in that fiscal year, and
(3) Subsections (1) and (2) apply for the purpose of determining
the net tax of a registrant for reporting periods beginning after 2012.
Regulations Amending the Public Service Body Rebate
(GST/HST) Regulations
3. (1) Paragraphs 7(1)(a) to (d) of the Public Service Body Rebate
(GST/HST) Regulations are replaced by the following:
(a) the threshold amount for the person’s fiscal year that includes the claim
period does not exceed $1,000,000;
(b) if the person’s fiscal quarter that includes the claim period is not the first
fiscal quarter in the fiscal year, the threshold amount for the fiscal quarter
does not exceed $1,000,000;
(c) the purchase threshold for the fiscal year does not exceed
$4,000,000; and
(d) it is reasonable to expect at the beginning of the claim period that
the purchase threshold for the person’s next fiscal year will not
exceed $4,000,000.
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(2) Paragraphs 7(2)(a) to (c) of the Regulations are replaced
by the following:
(a) if the threshold amount for a fiscal year of the person exceeds
$1,000,000, the end of the first fiscal quarter in that fiscal year,
(b) if the threshold amount for the second or third fiscal quarter in a fiscal
year of the person exceeds $1,000,000, the end of the first fiscal quarter in
that year for which the threshold amount exceeds $1,000,000, and
(c) if the purchase threshold for a fiscal year of the person exceeds
$4,000,000, the end of the first fiscal quarter in that fiscal year.
(3) Subsections (1) and (2) apply for the purpose of determining
rebates under section 259 of the Act in respect of claim periods
beginning after 2012.
Tax Relief for Foreign-Based Rental Vehicles Temporarily
Imported by Canadian Residents
Regulations Amending the New Harmonized Value-added Tax System
Regulations, No. 2
4. (1) The New Harmonized Value-added Tax System Regulations,
No. 2 are amended by adding the following after section 6:
Division 1.1
Tax on Importation of Goods
Prescribed goods — paragraph 212.1(2)(a)
6.1 For the purpose of paragraph 212.1(2)(a) of the Act, goods the value
of which is determined for the purposes of Division III of Part IX of the
Act under section 15 of the Value of Imported Goods (GST/HST) Regulations
are prescribed.
(2) Subsection (1) applies to goods imported on or after June 1, 2012.
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Regulations Amending the Non-Taxable Imported Goods
(GST/HST) Regulations
5. (1) Section 2 of the Non-Taxable Imported Goods
(GST/HST) Regulations is amended by adding the following
in alphabetical order:
“qualifying vehicle” means a vehicle (other than a racing car described in
heading No. 87.03 of the List of Tariff Provisions set out in the schedule to
the Customs Tariff) registered under the laws of a foreign jurisdiction relating
to the registration of motor vehicles that
(a) is described in any of heading No. 87.02, subheading Nos. 8703.21
to 8703.90, 8704.21, 8704.31, 8704.90 and 8711.20 to 8711.90 and tariff
item Nos. 8716.39.30 and 8716.39.90 of that List,
(b) is described in subheading No. 8704.22 or 8704.32 of that List and has a
gross vehicle weight rating (as defined in subsection 2(1) of the Motor Vehicle
Safety Regulations) not exceeding 10 tonnes, or
(c) is described in tariff item No. 8716.10.00 of that List and is a vehicle
for camping. (véhicule admissible)
(2) Subsection (1) comes into force, or is deemed to have come into
force, on June 1, 2012.
6. (1) Section 3 of the Regulations is amended by striking out “and”
at the end of paragraph (k), by adding “and” at the end of paragraph (l)
and by adding the following after paragraph (l):
(m) a qualifying vehicle that is imported temporarily by an individual resident
in Canada and not accounted for as a commercial good (as defined in
subsection 212.1(1) of the Act) under section 32 of the Customs Act if
(i) the qualifying vehicle was last supplied in the course of a vehicle rental
business to the individual by way of lease, licence or similar arrangement
under which continuous possession or use of the qualifying vehicle is
provided for a period of less than 180 days,
(ii) immediately before the importation, the individual was outside
Canada for an uninterrupted period of at least 48 hours, and
(iii) the qualifying vehicle is exported within 30 days after
the importation.
Tax Measures
Draft Amendments to Various GST/HST Regulations
497
(2) Subsection (1) applies to qualifying vehicles imported on or after
June 1, 2012.
Regulations Amending the Value of Imported Goods
(GST/HST) Regulations
7. (1) Subsection 2(1) of the Value of Imported Goods (GST/HST)
Regulations is amended by adding the following in alphabetical order:
“qualifying vehicle” has the same meaning as in section 2 of the
Non-Taxable Imported Goods (GST/HST) Regulations; (véhicule admissible)
(2) Subsection (1) comes into force, or is deemed to have come into
force, on June 1, 2012.
8. (1) Subsection 2(2) of the Regulations is replaced by the following:
(2) For the purposes of these Regulations, the number of months or weeks
in a period is the number of months or weeks, as the case may be, included,
in whole or in part, in the period, the first day of the first such month or
week, as the case may be, being the first day of the period.
(2) Subsection (1) comes into force, or is deemed to have come
into force, on June 1, 2012.
9. (1) The Regulations are amended by adding the following
after section 14:
15. For the purpose of subsection 215(2) of the Act, the value of a qualifying
vehicle that is imported temporarily by an individual resident in Canada, not
accounted for as a commercial good (as defined in subsection 212.1(1) of the
Act) under section 32 of the Customs Act and exported within 30 days after the
importation and that was last supplied in the course of a vehicle rental business
to the individual by way of lease, licence or similar arrangement under which
continuous possession or use of the qualifying vehicle is provided for a
period of less than 180 days is determined by the formula
(A × B) + C
Annex 4
498
where
A is
(a) if the qualifying vehicle is described in any of subheading Nos. 8703.21
to 8703.90 and 8711.20 to 8711.90 of the List of Tariff Provisions set
out in the schedule to the Customs Tariff,
(i) in the case of a truck, sport utility vehicle, minivan or van, $300,
(ii) in the case of a motorhome or similar vehicle, $1,000, and
(iii) in any other case, $200, and
(b) in any other case, $300;
B is the number of weeks during which the qualifying vehicle remains
in Canada; and
C is the remaining duties payable in respect of the qualifying vehicle.
(2) Subsection (1) applies to qualifying vehicles imported on or after
June 1, 2012.
doc_142843962.pdf
Jobs Growth And Long-term Prosperity
E C O N O M I C A C T I O N P L A N 2 0 1 2
Tabled in the House of Commons
By the Honourable
James M. Flaherty, P.C., M.P.
Minister of Finance
March 29, 2012
JOBS
GROWTH
AND
LONG-TERM PROSPERITY
Budget2012_BW_TitlePage_EN.indd 1 12-03-26 2:50 PM
©Her Majesty the Queen in Right of Canada (2012)
All rights reserved
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or any part thereof shall be addressed to
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ISBN: 978-0-660-20189-4
This document is also available n the Internet at www.fin.gc.ca
Cette publication est aussi disponible en français.
3
Chapter 1 – Introduction ................................................................. 11
Chapter 2 –Economic Developments and Prospects .......... 23
Highlights ....................................................................................................... 25
Introduction ................................................................................................... 26
Global Economic Developments and Outlook .................................................. 26
Canada’s Recent Economic Performance ........................................................ 32
Financial Market Developments ...................................................................... 38
Commodity Prices ........................................................................................... 40
Canadian Economic Outlook—Private Sector Forecasts................................... 41
Risk Assessment and Planning Assumptions.................................................... 43
Chapter 3 – Supporting Jobs and Growth
3.0 – Supporting Jobs and Growth .................................................... 47
Introduction ................................................................................................... 49
3.1 – Supporting Entrepreneurs, Innovators
and World-Class Research .................................................................... 51
Highlights ....................................................................................................... 53
Creating Value-Added Jobs Through Innovation .............................................. 53
Support for Research, Education and Training ................................................. 54
Creating Value-Added Jobs Through Innovation ............................................. 55
Helping High-Growth Firms Access Risk Capital ............................................... 60
Increasing Direct Support for Business Innovation ........................................... 61
Doubling the Industrial Research Assistance Program............................... 61
Supporting Innovative Businesses in Western Canada .............................. 62
Supporting Private and Public Sector Research Collaboration ............................ 63
Integrating High-Quality Researchers Into the Labour Market ................... 63
Strengthening Knowledge Transfer and Commercialization ....................... 65
Forestry Innovation and Market Development Support ............................. 66
Supporting Innovation Through Procurement .................................................. 66
Refocusing the National Research Council ....................................................... 68
4
Scientific Research and Experimental Development Tax Incentive Program ......... 68
Simplifying the Tax Credit Base ............................................................. 69
Increasing Cost-Effectiveness................................................................ 69
Enhancing Predictability ....................................................................... 70
Contingency Fees ................................................................................ 71
Support for Research, Education and Training ................................................ 72
Supporting Advanced Research ..................................................................... 72
Promoting Post-Secondary and Private Sector Research Collaborations ...... 73
Investing in Genomics Research ............................................................ 74
Investing in Mental Health Research ...................................................... 75
Promoting Cost-Effective Health Care ..................................................... 76
Advancing Knowledge and Treatment of Spinal Cord Injury ...................... 76
Diversifying Canada’s Medical Isotope Supply ......................................... 76
Supporting Leading-Edge Researchers ................................................... 77
Investing in Leading-Edge Research Infrastructure .......................................... 77
Canada Foundation for Innovation ......................................................... 77
Supporting Canada’s Ultra-High Speed Research Network ......................... 79
The Canadian High Arctic Research Station ............................................. 79
Extending Canada’s Participation in the International
Space Station Mission .......................................................................... 79
Revitalizing Natural Resources Canada’s Satellite Station Facilities ............. 80
Supporting Atomic Energy of Canada Limited .......................................... 80
International Education Strategy ................................................................... 81
3.2 – Improving Conditions for Business Investment ................ 83
Highlights ....................................................................................................... 85
Responsible Resource Development ............................................................... 85
Investing in Our Natural Resources................................................................ 85
Expanding Trade and Opening New Markets for Canadian Businesses ................ 85
Keeping Taxes Low for Job-Creating Businesses .............................................. 86
Improving Economic Conditions for Farmers and Fishermen ............................. 86
Strengthening Business Competitiveness........................................................ 86
Further Developing Canada’s Financial Sector Advantage ................................. 86
Improving Conditions for Business Investment .............................................. 87
Responsible Resource Development ............................................................... 88
Modernizing the Regulatory System for Project Reviews ................................... 89
Major Projects Management Office Initiative ................................................... 94
Consultation Under the Canadian Environmental Assessment Act ...................... 97
Supporting Responsible Energy Development ................................................. 97
5
Strengthening Pipeline Safety ....................................................................... 99
The Northern Pipeline Agency ....................................................................... 99
Amending Mining Regulations ....................................................................... 99
Investing in Our Natural Resources .............................................................. 100
Supporting Junior Mineral Exploration .......................................................... 100
Supporting Offshore Oil & Gas Exploration .................................................... 101
Assessing Diamonds in the North ................................................................ 101
Expanding Trade and Opening New Markets for Canadian Businesses .......... 101
Canada’s Leadership on Trade .................................................................... 102
Canada’s Trade Plan for Jobs and Growth ..................................................... 102
Canada-U. S. Border and Regulatory Action Plans .................................. 103
Deeper Canada-China Ties .................................................................. 103
Canada-EU Trade Agreement .............................................................. 104
Canada-India Trade Agreement ........................................................... 104
Trans-Pacific Partnership .................................................................... 104
Active and Ongoing Engagement in the Asia-Pacific Region ..................... 104
Canada in the Americas ...................................................................... 105
Deeper Canada-Africa Ties .................................................................. 105
Deepening Canada’s Trade and Investment Ties in Priority Markets: A Refreshed
Global Commerce Strategy ......................................................................... 106
Trade Measures to Support the Energy Industry ............................................ 107
Export Development Canada ....................................................................... 107
Streamlining Canada’s Trade Remedy System............................................... 108
Foreign Trade Zone Programming ............................................................... 108
Increasing Travellers’ Exemptions ............................................................... 108
Tax Relief for Foreign-Based Rental Vehicles ................................................. 109
International Taxation................................................................................ 110
Tax Treaties and Tax Information Exchange Agreements ........................ 111
Fostering Sustainable Global Growth............................................................ 112
Providing Stewardship in the G-20 ....................................................... 112
Strengthening the Legitimacy and Effectiveness
of the International Monetary Fund ...................................................... 112
Increasing the Impact of Canadian Development Assistance ................... 113
Refocusing Canada’s Tariff Regime for Developing Countries ................... 114
Keeping Taxes Low for Job-Creating Businesses .......................................... 114
A Competitive Business Tax System ............................................................ 114
Enhancing the Neutrality of the Tax System ................................................. 118
Phasing Out the Atlantic Investment Tax Credit—Oil & Gas and Mining ..... 118
Phasing Out the Corporate Mineral Exploration
and Development Tax Credit ............................................................... 119
6
Improving Economic Conditions for Farmers and Fishermen ....................... 119
Strengthening Agricultural Institutions ......................................................... 119
Supporting Canada’s Fisheries .................................................................... 120
Strengthening Business Competitiveness ..................................................... 120
Fostering Foreign Investment ..................................................................... 120
Reducing Red Tape .................................................................................... 121
Reducing the Tax Compliance Burden for Businesses ..................................... 123
A Doubling of the Goods and Services Tax/Harmonized Sales
Tax (GST/HST) Streamlined Accounting Thresholds ............................... 124
Simplified Administration for Partnerships ............................................. 124
Improvements to the Rules for Paying Eligible Dividends ........................ 124
Administrative Improvements That Enhance the Predictability
of the Scientific Research and Experimental Development (SR&ED)
Tax Incentive Program ....................................................................... 124
Written Responses to Business Enquiries .............................................. 125
Expansion of Web Forms for Information Returns .................................. 125
Enhancements to the CRA’s Secure My Business Account Portal .............. 125
An Improved Business Section on the CRA’s Website ............................. 125
Graduated Penalties for Late Filing....................................................... 126
Continued CRA Progress on Tax Fairness .............................................. 126
Taxation of Corporate Groups ..................................................................... 126
Further Developing Canada’s Financial Sector Advantage ............................ 127
Fostering Stable, Competitive, Fair and Efficient Capital Markets .................... 127
Preserving the Stability and Strength of Canada’s Financial Sector ................. 128
Enhancing the Governance and Oversight Framework for Canada Mortgage
and Housing Corporation ............................................................................ 128
Improving Access to Capital for Canadian Financial Institutions ...................... 129
Clarifying Federal Jurisdiction Over Banking .................................................. 130
Clarifying the Separation of Insurance and Banking ....................................... 130
Continuing to Fight Counterfeit Bank Notes .................................................. 131
3.3 – Investing in Training, Infrastructure
and Opportunity ..................................................................................... 133
Highlights ..................................................................................................... 135
Supporting Job Creation, Small Business and Skills Training ........................... 135
Improving the Employment Insurance Program ............................................. 135
Expanding Opportunities for Aboriginal Peoples to Fully Participate
in the Economy ......................................................................................... 136
Building a Fast and Flexible Economic Immigration System ............................ 136
Strengthening Canada’s Public Infrastructure ................................................ 137
7
Supporting Job Creation ............................................................................... 138
Supporting Job Creation, Small Business and Skills Training ....................... 139
Extending the Hiring Credit for Small Business .............................................. 139
Enhancing the Youth Employment Strategy .................................................. 140
ThirdQuarter Project .................................................................................. 141
Improving Labour Market Opportunities for Canadians With Disabilities ............ 142
Women on Corporate Boards ...................................................................... 143
Promoting Widespread Opportunities From Federal Shipbuilding ..................... 144
Improving the Employment Insurance Program ........................................... 145
Stable and Predictable EI Premium Rates ..................................................... 145
Connecting Canadians With Available Jobs .................................................... 146
Removing Disincentives to Work ................................................................. 147
Expanding Opportunities for Aboriginal Peoples to Fully Participate
in the Economy ............................................................................................. 148
Investments to Improve First Nations Education ........................................... 149
Helping First Nations on Reserve Access the Labour Force .............................. 150
Supporting First Nations Fishing Enterprises ................................................. 150
Urban Aboriginal Strategy .......................................................................... 151
Building a Fast and Flexible Economic Immigration System ......................... 151
Strengthening Canada’s Immigration System ............................................... 151
Temporary Foreign Worker Program ............................................................ 152
Pan-Canadian Framework for the Assessment and Recognition of Foreign
Qualifications ............................................................................................ 153
Federal Skilled Worker Fee Refund .............................................................. 154
Strengthening Canada’s Public Infrastructure .............................................. 155
Supporting Provincial, Territorial and Municipal Infrastructure ......................... 156
Territorial Borrowing Limit .......................................................................... 157
Making Important Investments in Strategic Public Infrastructure ..................... 157
Maintaining Safe and Reliable Passenger Rail Services............................ 157
Strengthening Canada’s Port System ................................................... 158
Renewing the Canadian Coast Guard Fleet ............................................ 158
Maintaining and Improving Federal Infrastructure .................................. 159
Investing in Border Infrastructure ........................................................ 159
Building a New Bridge over the St. Lawrence ........................................ 159
8
3.4 – Supporting Families and Communities ................................ 163
Highlights ..................................................................................................... 165
Protecting the Health and Safety of Canadians .............................................. 165
Investing in Communities ........................................................................... 165
Supporting Families ................................................................................... 166
Protecting Canada’s Natural Environment and Wildlife .................................... 166
Supporting Families and Communities.......................................................... 167
Protecting the Health and Safety of Canadians ............................................. 167
Health-Related Tax Measures ...................................................................... 167
Strengthening Food Safety ......................................................................... 168
Fair Compensation for Employers of Canada’s Reservists ................................ 169
Enhancing the Victims Fund ........................................................................ 169
Canadian Nuclear Safety Commission .......................................................... 170
Investing in Communities ............................................................................. 171
Improving Economic Potential on First Nations Lands ..................................... 171
Investments to Improve First Nations Water Infrastructure ............................ 172
Addressing Family Violence on Reserve ........................................................ 172
Aboriginal Mental Health Programs .............................................................. 173
Supporting Effective Government-Community Partnerships ............................ 173
Investments in Arts and Culture .................................................................. 174
Canada Council for the Arts ................................................................ 174
Commemorations for the Bicentennial of the War of 1812 ...................... 175
Official Languages ..................................................................................... 175
Encouraging Participation and Healthy Communities ...................................... 175
Strengthening Health Care in Rural and Remote Communities ........................ 176
Strengthening Access to Broadband in Rural Areas ........................................ 177
Support to Provinces and Territories for the Floods of 2011 ........................... 177
Supporting Families ...................................................................................... 178
Keeping Taxes Low for Families and Individuals ............................................ 178
Wage Earner Protection Program ................................................................. 179
Protecting Long-Term Disability Plans .......................................................... 180
Review of the Registered Disability Savings Plan ........................................... 180
Establishing Plans and Legal Representation ......................................... 182
Protecting Canada’s Natural Environment and Wildlife................................. 183
Protecting Species at Risk .......................................................................... 183
Protecting Water and Wildlife Resources ....................................................... 183
Port Hope Area Initiative ............................................................................ 184
Rouge Valley National Near-Urban Park ........................................................ 185
Expanding Tax Support for Clean Energy Generation ..................................... 185
9
Chapter 4 – Sustainable Social Programs
and a Secure Retirement ................................................................ 187
Highlights ..................................................................................................... 189
Sustainable Management of Public Finances ................................................ 190
Putting Transfers on a Long-Term, Sustainable Growth Track ......................... 190
A Strong Retirement Income System for Canadians ....................................... 192
Old Age Security Age of Eligibility ........................................................ 197
Option to Defer the OAS Pension ......................................................... 198
Proactive Enrolment for OAS and GIS Benefits ...................................... 199
Canada Pension Plan .......................................................................... 199
Federally Regulated Pension Plans ............................................................... 202
Improving Tax Fairness and Integrity .......................................................... 203
Enhancing Transparency and Accountability for Charities ................................ 204
Chapter 5 – Responsible Management
to Return to Balanced Budgets ................................................... 207
Highlights ..................................................................................................... 209
Responsible Management of Public Finances ................................................ 210
The Plan to Return to Balance ...................................................................... 210
Reductions in Departmental Spending .......................................................... 211
Refocusing Government and Programs ................................................. 217
Making It Easier for Canadians and Businesses
to Deal With Their Government ........................................................... 219
Modernizing and Reducing the Back Office ............................................ 220
Workforce Impact .............................................................................. 221
Responsible Expenditure Management ......................................................... 222
Updating Defence Capital Funding ....................................................... 223
Modernizing the Government’s Information Technology:
Shared Services Canada ..................................................................... 223
Administrative Services Review—Moving Forward .................................. 224
Parliamentary Expenses .................................................................... 224
Public Sector Compensation ................................................................ 224
Pensions of Public Servants and Parliamentarians .................................. 225
Corporate Asset Management Review................................................... 226
Greater Use of Telepresence Technology .............................................. 226
Next Steps ....................................................................................... 226
10
Chapter 6 – Fiscal Outlook ............................................................ 227
Highlights ..................................................................................................... 229
Introduction ................................................................................................. 230
Fiscal Planning Framework ........................................................................... 233
Approach to Budget Planning ...................................................................... 233
Fiscal Outlook Before the Measures Announced in Budget 2012 ...................... 233
Fiscal Impact of Measures Announced in Budget 2012 ................................... 236
Summary of Statement of Transactions ....................................................... 238
Outlook for Budgetary Revenues ................................................................. 239
Outlook for Program Expenses .................................................................... 243
Financial Source/Requirement ..................................................................... 247
Risks to the Fiscal Projections ..................................................................... 250
Sensitivity of the Budgetary Balance to Economic Shocks ............................... 250
Annex 1 –Responsible Spending ................................................ 255
Annex 2 – The Stimulus Phase of Canada’s Economic
Action Plan: A Final Report to Canadians .............................. 285
Highlights ..................................................................................................... 287
The Stimulus Phase of Canada’s Economic Action Plan ................................ 288
Results Achieved .......................................................................................... 296
Job Impact of the Stimulus Phase of the Economic Action Plan .................... 350
Conclusion .................................................................................................... 356
Annex 3 – Debt Management Strategy for 2012–13 ....... 357
Annex 4 – Tax Measures: Supplementary Information,
Notices of Ways and Means Motions and Draft
Amendments to Various GST/HST Regulations .................. 373
Chapter 1
Introducton
Chapter 1
Introducton
Introduction
13
We see Canada for what it is and what it can be—a great, good
nation, on top of the world, the True North strong and free. Our
government has been inspired by this vision from the beginning.
Today we step forward boldly, to realize it fully—hope for our
children and grandchildren; opportunity for all Canadians; a
prosperous future for our beloved country.
— The Honourable Jim Flaherty,
Minister of Finance
Chapter 1
14
Canada is emerging from the global economic recession. The economy’s
strengths provide an opportunity for the Government to take significant
actions today that will fuel the next wave of job creation and position
Canada for a secure and prosperous future. Economic Action Plan 2012
sets out a comprehensive agenda to bolster Canada’s fundamental strengths
and address the important challenges confronting the economy over the
long term.
Canada faces a fast-changing global environment, with increasing
competition from emerging market countries and a global economy that
remains fragile and uncertain. For this reason, the Government remains
focused on an agenda that will deliver high-quality jobs, economic growth
and sound public finances. Economic Action Plan 2012 will help further
unleash the potential of Canadian businesses and entrepreneurs to innovate
and thrive in the modern economy to the benefit of all Canadians for
generations to come.
Since 2006, the Government has supported the security and prosperity of
Canadians and promoted business and investment to create jobs. When the
global financial and economic crisis struck, these underlying strengths helped
Canada to avoid a deep and long-lasting recession. The Government’s sound
fiscal position prior to the crisis provided the flexibility to launch the
stimulus phase of Canada’s Economic Action Plan, which was timely,
targeted and temporary in order to have maximum impact. This plan was one
of the strongest responses to the global recession among the Group of Seven
(G-7) countries.
Economic output in Canada is now well above pre-recession levels, and
more than 610,000 jobs have been created since the recovery began in
July 2009, the best performance in the G-7.
Canadian authorities have a strong track record in managing past
economic and financial crises and delivering economic growth.
— Standard & Poor’s, October 25, 2011
Introduction
15
Canada cannot rest on this record of success. There are many challenges and
uncertainties still confronting the economy. The recovery is not complete
and too many Canadians are still looking for work. The global economy
remains fragile and any potential setbacks would have an impact on Canada.
Canadian businesses face ever-increasing competition from emerging
fast-growth countries. Our aging population will put pressure on public
finances and social programs.
Economic Action Plan 2012 takes important steps to address these structural
challenges and ensure the sustainability of public finances and social
programs for future generations. International experience shows the
importance of taking action now, rather than delaying. Economic Action
Plan 2012 focuses on the drivers of growth and job creation—innovation,
investment, education, skills and communities. Underpinning these actions
is the ongoing commitment to keeping taxes low, which is central to the
Government’s long-term economic plan.
SUPPORTING ENTREPRENEURS, INNOVATORS
AND WORLD-CLASS RESEARCH
The global economy is increasingly competitive. The pace of technological
change is creating new opportunities while making older business practices
obsolete. To succeed and thrive in this environment, Canadian businesses
need to innovate and create high-quality jobs. The Government has a strong
record of support for research and development. But Canada can and must
do better to promote innovation. The Government launched an Expert
Panel in 2010 to review federal support for research and development.
Informed by the advice of the Panel, the Government is taking action toward
a new approach to supporting innovation in Canada.
Economic Action Plan 2012 will:
• Increase funding for research and development by small and medium-
sized companies.
• Promote linkages and collaborations, including funding internships and
connecting private sector innovators to procurement opportunities in
the federal government.
• Refocus the National Research Council on research that helps Canadian
businesses develop innovative products and services.
• Enhance access to venture capital financing by high-growth companies
so that they have the capital they need to create jobs and grow.
Chapter 1
16
• Streamline and improve the Scientific Research and Experimental
Development tax incentive program, including shifting from indirect
tax incentives to more direct support for innovative private
sector businesses.
• Support research, education and training with new funding for
universities, granting councils and leading research institutions,
such as Genome Canada.
RESPONSIBLE RESOURCE DEVELOPMENT
Canada’s resource sector is an asset that will increasingly contribute to the
prosperity of all Canadians. Some $500 billion is expected to be invested in
over 500 major economic projects across Canada over the next 10 years,
driven in part by demand from emerging economies. Today, Canadian
businesses in the resource sector must navigate a maze of overlapping and
complex regulatory requirements and red tape. This leads to delays in
investment and job creation that do not contribute to better
environmental outcomes.
An efficient regulatory system provides effective protection of the interests
of Canadians while minimizing the burden on businesses. It is a vital
component of an attractive climate for investment and jobs. Since 2006, the
Government has worked to streamline and improve regulatory processes.
However, more needs to be done.
The Government is committed to reforming the regulatory system in the
resource sector so that reviews are conducted in a timely and transparent
manner, while safeguarding the environment. This will increase business
confidence and enhance investment and job creation. The Government
will continue to support responsible energy development.
Economic Action Plan 2012 will:
• Commit to bringing forward legislation to achieve the goal of
“one project, one review” in a clearly defined time period.
• Make new investments to improve regulatory reviews, streamline the
review process for major economic projects, support consultation with
Aboriginal peoples, and strengthen pipeline and marine safety.
• Continue to support the Major Projects Management Office initiative,
which has succeeded in shortening and streamlining reviews and
improving accountability.
• Ensure the safety and security of Canadians and the environment as
energy resources are developed.
Introduction
17
EXPANDING TRADE AND OPENING NEW MARKETS
FOR CANADIAN BUSINESSES
Free and open trade has long been a powerful engine for Canada’s economy.
Canadian businesses need access to key export markets in order to take
advantage of new opportunities. Over the past six years, Canada has
concluded free trade agreements with nine countries as well as foreign
investment promotion and protection agreements with ten countries.
Since 2009, Canada has eliminated all tariffs on imported machinery and
equipment and manufacturing inputs to make Canada a tariff-free zone
for industrial manufacturers, the first in the G-20 to do so.
Economic Action Plan 2012 will:
• Intensify Canada’s pursuit of new and deeper trading relationships,
particularly with large, dynamic and fast-growing economies.
• Implement the Action Plan on Perimeter Security and Economic
Competitiveness and the Action Plan on Regulatory Cooperation, which
will facilitate trade and investment flows with the United States.
• Provide support to Canadian exporters by extending the provision
of domestic financing by Export Development Canada.
INVESTING IN TRAINING, INFRASTRUCTURE
AND OPPORTUNITY
Canada’s well-trained and highly educated workforce represents one of our
key advantages in competing and succeeding in the global economy. Too
often, barriers or disincentives discourage workforce participation. Better
utilizing Canada’s workforce and making Canada’s labour market more
adaptable will help ensure Canada’s long-term economic growth.
Economic Action Plan 2012 will:
• Make investments to assist more young people in gaining tangible skills
and experience.
• Extend and expand the ThirdQuarter project to better connect workers
over the age of 50 to potential employers.
• Invest to enable more Canadians with disabilities to obtain work
experience with small and medium-sized businesses.
Chapter 1
18
• Introduce a number of targeted, common-sense changes to Employment
Insurance (EI) to make it a more efficient program that promotes job
creation, removes disincentives to work, supports unemployed Canadians
and quickly connects people to jobs.
• Support small and medium-sized businesses and their workers by making
EI premiums more stable and predictable, with annual increases limited
to five cents.
• Extend the Hiring Credit for Small Business for one year to help
small businesses to defray the costs of hiring new workers.
• Promote job creation by renewing the Canadian Coast Guard Fleet;
supporting the involvement of small and medium-sized enterprises in the
National Shipbuilding Procurement Strategy; investing in transportation
infrastructure, including railways and ports; and providing funding for
community public infrastructure facilities.
EXPANDING OPPORTUNITIES FOR ABORIGINAL PEOPLES
TO FULLY PARTICIPATE IN THE ECONOMY
The Government recognizes the contribution that Aboriginal peoples can
make to the labour force as the youngest and fastest-growing segment of
the nation’s population. Equipping First Nations people with the skills and
opportunities they need to fully participate in the economy is a priority both
for this Government and for First Nations people.
Economic Action Plan 2012 will:
• Invest in First Nations education on reserve, including early literacy
programming and other supports and services to First Nations schools
and students.
• Build and renovate schools on reserve, providing First Nations youth
with better learning environments.
• Commit to introduce a First Nation Education Act and work with willing
partners to establish the structures and standards needed to support
strong and accountable education systems on reserve.
• Improve the incentives of the on-reserve Income Assistance Program
while encouraging those who can work to access training that will
improve their prospects for employment.
• Renew the Urban Aboriginal Strategy to improve economic
opportunities for Aboriginal peoples living in urban centres.
Introduction
19
BUILDING A FAST AND FLEXIBLE
ECONOMIC IMMIGRATION SYSTEM
Since 2006, the Government has pursued much-needed reforms to focus
Canada’s immigration system on fuelling economic prosperity for Canada.
The Government has placed top priority on attracting immigrants who have
the skills and experience our economy needs. The Government is committed
to making our immigration system truly fast and flexible in a way that will
sustain Canada’s economic growth.
Economic Action Plan 2012 will:
• Realign the Temporary Foreign Worker Program to better meet labour
market demands.
• Support further improvements to foreign credential recognition
and identify the next set of target occupations beyond 2012.
• Move to an increasingly fast and flexible immigration system where
priority focus is on meeting Canada’s labour market needs.
• Return applications and fees to certain federal skilled worker
applicants who have been waiting for processing to be completed.
SUSTAINABLE SOCIAL PROGRAMS AND
A SECURE RETIREMENT
In order to ensure the sustainability of our social programs and fiscal
position for generations to come, steps are required to prepare today for the
demographic pressures that the Canadian economy will face over the longer
term. Canadians are living longer and healthier lives. Many older workers
wish to work longer and increase their retirement income.
The Government has already taken steps to ensure sound public finances
by setting a future growth path for transfers to the provinces and territories.
The growth path will provide predictable, fair and sustainable funding in
support of the provision of health care, education and other services for
all Canadians.
Chapter 1
20
Economic Action Plan 2012 will:
• Gradually increase the age of eligibility for Old Age Security (OAS)
and Guaranteed Income Supplement benefits from 65 to 67. This change
will start in April 2023, with full implementation by January 2029,
and will not affect anyone who is 54 years of age or older as of
March 31, 2012.
• Improve flexibility and choice by allowing Canadians the option of
deferring take-up of their OAS benefits to a later time and receiving
higher annual benefits.
• Ensure that pension plans for public servants and Parliamentarians are
sustainable, fair and financially responsible.
• Support the retirement income system with Pooled Registered Pension
Plans that provide an accessible, large-scale and low-cost pension option
to employers, employees and the self-employed.
RESPONSIBLE EXPENDITURE MANAGEMENT
Canadians expect value for money from their government. Over the past
year, the Government conducted a comprehensive review of approximately
$75 billion of direct program spending by federal departments and agencies.
The review identified a number of opportunities to enhance the efficiency
and effectiveness of government operations, programs and services that will
result in cost savings for the Canadian taxpayer. This will support the
Government’s commitment to return to balanced budgets over the medium
term. The Government is on track to meet its commitment to balance the
budget without cutting transfers to Canadians or to provinces.
Fiscal policy is appropriately shifting toward consolidation in the
aftermath of the effective stimulus program. The federal
government is leading the initial fiscal effort, as spending is
gradually being brought to pre-crisis levels as a share of GDP.
— International Monetary Fund
November 23, 2011
Introduction
21
Reflecting Canada’s strong economic and fiscal fundamentals, Canada will
undertake expenditure reductions that are modest compared to those being
pursued by many countries around the world. These targeted reductions
clearly contrast with the Program Review undertaken in Canada in the
mid-1990s, when transfers for health care, education and social spending
were cut.
Economic Action Plan 2012 will:
• Achieve ongoing savings of $5.2 billion, 6.9 per cent of the review base
of approximately $75 billion. This represents less than 2.0 per cent
of expected federal program spending in 2016–17, or about 0.2 per cent
of Canada’s gross domestic product (GDP) in that same year.
THE PLAN TO RETURN TO BALANCED BUDGETS
Canadians know the importance of living within their means and expect the
Government to do the same. That is why the Government is committed to
managing public finances in a sustainable and responsible manner. The
Government’s responsible financial management put Canada in a position of
strength when it came time to combat the global recession. From 2006 to
2008, the Government paid down over $37 billion in debt, significantly
contributing to Canada’s low net debt position. This enabled the Government
to quickly implement the stimulus phase of Canada’s Economic Action Plan
without leaving the country in a vulnerable fiscal position, like many
European countries.
Balancing the budget and reducing debt cuts interest costs, helps to keep
interest rates low and instills confidence in Canada’s economy, allowing
families and businesses to plan for the future. It will also ensure the
sustainability of Canada’s social programs for future generations.
Chapter 1
22
The Government is on track to return to balanced
budgets over the medium term
Chart 1.1
Budgetary Balance After Economic Action Plan 2012 Measures
Source: Department of Finance.
CONCLUSION
Economic Action Plan 2012 is a plan for jobs, growth and long-term
prosperity. By making choices now, the Government is taking the necessary
steps to reinforce the fundamental strength and promise of the Canadian
economy in order to sustain economic growth, create the high-quality jobs of
tomorrow, preserve social programs and sound public finances, and deliver
continued prosperity for generations to come.
Chapter 1
Introducton
Chapter 2
Economic Developments
and Prospects
Economic Developments and Prospects
25
HIGHLIGHTS
?
The global economic recovery remains fragile. The European
sovereign debt and banking crisis continues to weigh on
global growth.
?
The Canadian economy has remained resilient despite external
weakness, reflecting sustained growth in the domestic economy.
?
Canada has had the strongest economic growth over the recession
and recovery among Group of Seven (G-7) countries. This reflects
our solid economic fundamentals and the timely support of the
stimulus phase of Canada’s Economic Action Plan.
?
610,000 more Canadians are working now than in July 2009, the
strongest job growth among G-7 countries over the recovery.
This continues the strong performance that has resulted in over
1.1 million new jobs created since the beginning of 2006.
?
However, the fragile global economic environment will continue
to be reflected in modest growth in Canada over the near term.
?
The Department of Finance conducted a survey of private sector
economists in early March 2012. On March 5, economists met with
the Minister of Finance to discuss the economic forecast as well as
the risks associated with the outlook.
?
Private sector economists expect real gross domestic product
(GDP) growth of 2.1 per cent in 2012 and 2.4 per cent in 2013,
broadly unchanged from the November 2011 Update of Economic
and Fiscal Projections.
?
Economists also expect the level of nominal GDP—the broadest
single measure of the tax base—to be above the level anticipated
over the forecast period at the time of the November Update.
?
Private sector economists agreed that near-term risks to the outlook
have slightly moderated since the November Update, but continue
to see global economic uncertainty as the key downside risk—
in particular the potential for wider contagion of the sovereign
debt and banking crisis in Europe.
?
To reflect the downside risks surrounding the global economic
outlook, the Government is adjusting the private sector forecast
for nominal GDP downward by $20 billion in each year of the
2012–2016 forecast period.
Notes: This chapter incorporates data available up to and including March 23, 2012, unless otherwise
indicated. All rates are reported at annual rates unless otherwise noted.
Chapter 2
26
INTRODUCTION
The global economic environment remains highly uncertain. The key
challenge currently facing the global recovery remains the European
sovereign debt and banking crisis, which has weighed on financial markets
and confidence and resulted in a deterioration of the global outlook.
Nonetheless, the Canadian economy continues to expand, enjoying one
of the best performances among G-7 countries over the global economic
recession and recovery.
This chapter reviews:
• Major global economic developments since the November 2011 Update.
• Canada’s recent economic performance.
• Financial market and commodity price developments.
• The March 2012 private sector economic forecast that forms the basis
for the fiscal projections, and the risks and uncertainties surrounding
this economic forecast.
GLOBAL ECONOMIC DEVELOPMENTS AND OUTLOOK
Uncertainty surrounding the global economic recovery increased in the
second half of 2011, and the outlook for global growth has deteriorated.
The key factor underlying this deterioration is the ongoing euro-area
sovereign debt and banking crisis.
In Europe, strains in government debt markets rose between Spring 2011
and late last year, resulting in increased borrowing costs for many euro-area
governments, including record highs for some countries. This led to severe
funding pressures for most European banks, given their significant exposure
to euro-area sovereign debt and large recapitalization needs. As a result,
euro-area banks tightened credit standards and raised interest rates on loans
to households and businesses, which weighed on consumer and business
sentiment in the region. These developments pushed euro-area growth back
into negative territory in the fourth quarter of 2011, with broad-based
weakness across the region (Chart 2.1). Although indicators of business
activity suggest that the euro-area economy has broadly stabilized in the
first quarter of this year, the risk of further weakness remains.
Economic Developments and Prospects
27
Euro-area growth turned negative
in the fourth quarter of 2011
Chart 2.1
Euro-Area Real GDP Growth
Source: Eurostat.
European leaders have put in place significant policy measures to address
the sovereign debt and banking crisis. The European Central Bank has
provided significant liquidity for euro-area banks, and bank recapitalization
plans are underway. In addition, Italy and Spain have introduced important
fiscal and structural reforms, while progress has been made toward
improving broader euro-area fiscal governance. In early March, Greece also
completed its debt exchange with its private sector creditors, alleviating the
near-term risk of a disorderly default.
Together, these policy actions have helped to reduce interest rates for
euro-area governments and improve funding conditions for euro-area banks.
However, it is clear that further concrete actions by European leaders are
required, including following through on the implementation of announced
fiscal restraint measures in order to stem the crisis, stabilize the current
situation and set the stage for a return to sustained growth.
Chapter 2
28
In the United States, the economy has shown signs of renewed momentum
since Fall 2011, albeit relative to very weak growth in the first half of the
year, as real GDP grew 3.0 per cent in the fourth quarter (Chart 2.2).
Consumer confidence has generally increased since August, from near-record
lows, while business survey data point to a pickup in both manufacturing and
non-manufacturing output growth since Fall 2011.
U.S. economic growth has picked up recentl y
Chart 2.2
U.S. Real GDP Growth
Source: U.S. Bureau of Economic Analysis.
Economic Developments and Prospects
29
U.S. labour market conditions have improved, with employment gains
averaging almost 250,000 jobs per month from December 2011 through
February 2012 and the unemployment rate declining to a three-year low of
8.3 per cent in early 2012 (Chart 2.3). However, this recent improvement is
relatively modest compared to the significant job losses suffered over the
recession, while the declines in the unemployment rate also reflect workers
exiting the labour market following long-term spells of unemployment.
U.S. labour market conditions have improved
Chart 2.3
Change in U.S. Employment U.S. Unemployment Rate
Note: Last data point is February 2012.
Source: U.S. Bureau of Labor Statistics.
Chapter 2
30
The U.S. economy continues to face significant challenges stemming from
ongoing household deleveraging, necessary fiscal consolidation and spillover
effects from the European sovereign debt and banking crisis. As a result,
private sector economists continue to expect modest U.S. economic
growth (Chart 2.4).
Economists continue to expect modest U.S. growth
Chart 2.4
U.S. Real GDP Growth Outlook
Sources: U.S. Bureau of Economic Analysis; September 2011 and March 2012 Department of Finance surveys
of private sector economists.
In emerging and developing economies, growth has also slowed, reflecting
the deterioration in the external environment as well as the effects of past
tightening in domestic monetary policy. Nonetheless, growth remains strong,
led by developing Asia. In China, economic growth has eased somewhat but
remains solid. Looking ahead, slowing demand from advanced economies is
expected to result in a gradual moderation toward a more sustainable, albeit
still robust, pace of economic growth.
Economic Developments and Prospects
31
Reflecting the intensification of the euro-area sovereign debt and banking
crisis in Fall 2011 and its impact on global trade and financial markets, the
International Monetary Fund (IMF) has steadily downgraded its near-term
global outlook over the past year. The IMF now expects global real GDP
growth of 3.3 per cent in 2012, with growth in advanced economies expected
to be just 1.2 per cent. The IMF also expects modestly slower growth in
emerging economies, reflecting the worsening external environment and
a slowdown in domestic demand in key emerging economies (Chart 2.5).
Global growth prospects have weakened
Chart 2.5
IMF World Real GDP Growth Outlook
Source: IMF, World Economic Outlook Update, January 2012.
Chapter 2
32
CANADA’S RECENT ECONOMIC PERFORMANCE
Canada’s economic performance over the recession and recovery has been
solid relative to our peer countries. This reflects Canada’s sound economic,
fiscal and financial sector fundamentals, along with the significant and timely
support provided under Canada’s Economic Action Plan. As a result,
real GDP is now well above pre-recession levels—the best performance
in the G-7 (Chart 2.6).
Canada has performed better than all other G-7
economies during the global recession and the recovery
Chart 2.6
Change in Real GDP Since Pre-Recession Peak
Note: The pre-recession peak was 2007Q3 for Italy; 2007Q4 for the United States; 2008Q1 for the United Kingdom,
France, Germany and Japan; and 2008Q3 for Canada. The latest quarter is 2011Q4 for all countries.
Sources: Haver Analytics; Department of Finance calculations.
The rapid turnaround of activity and vigorous domestic demand
owes much to the government's rightly-sized and well-targeted
macroeconomic stimulus.
— International Monetary Fund,
2010 Article IV Consultation Report on Canada
Economic Developments and Prospects
33
Employment and incomes have grown faster in Canada
than any other G-7 country since 2006
In 2006, the Government launched a comprehensive economic plan
to foster strong, sustainable, long-term economic growth, building
on Canada’s key advantages. The Government followed through by
implementing broad-based tax reductions, paying down debt, and
investing in knowledge and infrastructure.
These actions put the Canadian economy on a solid foundation for
sustainable, long-term economic growth. They also placed Canada in
a stronger position than most other countries and allowed the Government
to respond quickly and effectively to support the economy and protect
Canadian jobs.
This has been reflected in a strong economic performance over the past
five years, with over 1.1 million new jobs created since the beginning
of 2006 and the strongest employment and income growth in the G-7
(Chart 2.7).
Chart 2.7
Growth in Employment
From 2006 to 2011
Growth in Real per Capita
Disposable Income
From 2006 to 2010
Note: 2011 employment data for France are the average
of 2011Q1 through 2011Q3.
Note: This chart shows gross personal per capita
disposable income deflated by the Consumer Price Index.
Note: Base year for calculations is 2005.
Sources: Haver Analytics; IMF; Department of Finance calculations.
Chapter 2
34
Canada has also posted, by far, the strongest growth in employment in the
G-7 during the recovery. These employment gains have been high-quality
jobs. 610,000 more Canadians are working today than in July 2009. Of these
jobs, about 90 per cent are in full-time positions with over three-quarters in
high-wage industries and in the private sector (Chart 2.8). It is an
encouraging sign that Canadian businesses are continuing to hire as the
temporary economic stimulus that the Government put into place during
the recession is withdrawn.
Job creation during the recovery has been in
high-wage, full-time, private-sector employment
Chart 2.8
Change in Employment Over the Recovery
July 2009 to February 2012
Notes: Calculations are based on Statistics Canada data for 105 industries. High-wage industries are defined as those
with average hourly wages above the aggregate average. Totals may not add due to rounding.
Sources: Statistics Canada; Department of Finance calculations.
Economic Developments and Prospects
35
The employment situation in Canada contrasts sharply with that of the U.S.,
where employment remains significantly below pre-recession levels. As a
result, the Canadian unemployment rate is now 0.9 percentage points below
that of the United States. The U.S. unemployment rate has exceeded that of
Canada since October 2008, a phenomenon not seen in nearly three decades.
When Canadian unemployment is measured on the same basis as in the U.S.,
the unemployment rate gap between the two countries increases to
2.0 percentage points (Chart 2.9).
1
Canada’s strong employment performance contrasts
sharpl y with that of the United States
Chart 2.9
Total Employment Unemployment Rate
Note: Last data point is February 2012.
Sources: Statistics Canada; U.S. Bureau of Labor Statistics.
1
Conceptual differences boost the Canadian unemployment rate relative to the U.S. rate.
In particular, Statistics Canada considers as unemployed those passively looking for work
(e.g. reading want ads) as well as those who will begin work in the near future, while the
U.S. Bureau of Labor Statistics does not include either group in its unemployment calculations.
In addition, the Canadian methodology includes 15-year-olds (who have a higher-than-average
unemployment rate), while the U.S. does not.
Chapter 2
36
The relatively stronger performance of the Canadian labour market is
also reflected in the long-term unemployment rate (the number of people
unemployed for a period of at least 27 weeks as a share of the labour force).
Canada’s long-term unemployment rate stood at 1.6 per cent in 2011, well
below the U.S. level of 3.9 per cent. Moreover, the Canadian labour market is
characterized by a much higher labour force participation rate (the share of
the population 15 and over in Canada, and 16 and over in the United States,
either working or actively seeking work). This indicates that there are fewer
discouraged workers, as more of the unemployed are seeking work and
finding it. In Canada, the labour force participation rate has remained
relatively high through the recession and recovery, while it declined sharply
in the U.S. to close to a three-decade low in 2011. As a result, the labour
force participation rate gap between the two countries increased to over
2.5 percentage points last year, the largest gap on record (Chart 2.10).
Structural labour market characteristics
remain solid in Canada
Chart 2.10
Long-Term Unemployment Rate Labour Force Participation Rate
Note: The long-term unemployment rate is the ratio of the
number of people unemployed for a period of at least
27 weeks to the labour force.
Note: The participation rate is the share of the
working-age population who are either working or actively
seeking work.
Sources: Statistics Canada; U.S. Bureau of Labor Statistics.
Economic Developments and Prospects
37
Since mid-2011 the labour market has been subdued. This, combined with
more individuals entering the labour market and seeking employment, has
resulted in a slight increase in the unemployment rate from a post-recession
low of 7.2 per cent in September 2011 to 7.4 per cent in February 2012.
The more moderate pace of growth in employment since mid-2011 mirrors
continued modest growth in real GDP, at 2.5 per cent in 2011. However, real
growth showed considerable variation over the course of the year as a result
of export volatility related to the Japanese earthquake and tsunami, as well
as forest fire and maintenance-related disruptions in the energy sector
(Chart 2.11). Household spending and business investment, on the other
hand, remained resilient through this period.
Real GDP growth was modest
but resilient through 2011
Chart 2.11
Real GDP Growth
Source: Statistics Canada.
Chapter 2
38
FINANCIAL MARKET DEVELOPMENTS
The deterioration of the economic outlook, along with ongoing uncertainty
related to the sovereign debt and banking crisis in Europe, continues to be
reflected in financial market weakness.
Among the most at-risk European economies, Greece has been the focus
of the crisis, as uncertainty over its fiscal sustainability and concerns over its
ability to meet its debt obligations drove Greek bond rates up sharply late
in 2011. In mid-March, Greece restructured its debt with private sector
creditors. The restructuring of Greek debt, along with a massive liquidity
injection into the euro-area banking system by the European Central Bank,
has eased market fears to some extent. However, sovereign debt concerns
remain elevated, especially for Greece, Portugal and Ireland (Chart 2.12).
Concerns over debt sustainability in Europe
have pushed up borrowing costs
Chart 2.12
10-Year Government Bond Yields
Note: Daily data up to and including March 23, 2012.
Source: Bloomberg.
Economic Developments and Prospects
39
More worrisome, however, has been instability in the sovereign debt markets
of larger European economies. In particular, yields for both Italian and
Spanish bonds rose to about 7 per cent in late 2011. The experience
of Greece, Ireland and Portugal suggests that this yield may be near the
threshold beyond which debt sustainability concerns escalate rapidly.
While bond yields in Italy and Spain have since eased, markets continue to
charge them a significant premium relative to sovereign bonds perceived as
less risky (in particular German bonds).
The heightened level of uncertainty in Europe is affecting investor
confidence globally. This has translated into significant weakness in equity
markets worldwide, with most major global stock market indices at or below
their levels of mid-2011 (Chart 2.13).
Investor uncertainty has translated into significant
weakness in equity markets
Chart 2.13
Global Equity Market Indexes
Note: Daily data up to and including March 23, 2012.
Source: Haver Analytics.
Chapter 2
40
COMMODITY PRICES
Slower-than-expected global growth and financial market weakness have
also been reflected in commodity markets (Chart 2.14). Since Budget 2011,
prices for base metals and agricultural products have fallen, while natural gas
prices continue to be depressed by increased unconventional supply in the
United States. Benchmark West Texas Intermediate crude oil prices, on the
other hand, have risen since Budget 2011, reflecting increased geopolitical
uncertainty related to political events in North Africa and prospects of an
embargo of Iranian oil exports by Europe and other regions. Despite this
rise, prices received by Canadian oil producers have fallen modestly since
Budget 2011, as surplus supply in the U.S.—the market for virtually all of
Canada’s oil exports—has constrained Canadian export volumes and prices.
Financial market uncertainty and weaker global growth
have been reflected in volatile commodity prices
Chart 2.14
Commodity Prices
(in U.S. dollars)
Change in Commodity Prices
(in U.S. dollars)
J une 6, 2011 to March 16, 2012
Note: March 2012 based on data up to and including March 16, 2012.
Sources: Commodity Research Bureau; Department of Finance calculations.
Economic Developments and Prospects
41
CANADIAN ECONOMIC OUTLOOK—
PRIVATE SECTOR FORECASTS
The average of private sector economic forecasts has been used as the basis
for fiscal planning since 1994 and introduces an element of independence
into the Government’s fiscal forecast. This practice has been supported by
international organizations such as the IMF.
The Department of Finance regularly surveys private sector economists
on their views on the outlook for the Canadian economy. The economic
forecast presented in this section is based on a survey conducted in early
March 2012 and includes the views of 14 private sector economists.
The March 2012 survey of private sector economists included Bank of
America Merrill Lynch, BMO Capital Markets, Caisse de dépôt et placement
du Québec, CIBC World Markets, the Conference Board of Canada,
Desjardins, Deutsche Bank of Canada, Laurentian Bank Securities, National
Bank Financial Group, Royal Bank of Canada, Scotiabank, TD Bank
Financial Group, UBS Securities Canada, and the University of Toronto
(Policy and Economic Analysis Program).
The outlook for Canadian real GDP growth remains largely unchanged from
the November 2011 Update of Economic and Fiscal Projections (Table 2.1).
Economists now expect real GDP to grow by 2.2 per cent in the first quarter
of 2012 and 2.1 per cent, on average, over the remainder of the year,
modestly below the pace expected in the November Update.
However, significantly stronger-than-expected GDP inflation in the latter
half of 2011 has resulted in an upward revision of the average private sector
forecast for the level of nominal GDP of about $17 billion, on average,
over the 2012–2016 period compared to the forecast at the time of the
November Update.
Private sector economists expect interest rates to be lower over most of the
forecast horizon than was expected in the November Update, and continue
to expect the Canadian dollar to remain near parity over the forecast horizon.
Economists expect the unemployment rate to gradually decline to
6.6 per cent by 2016, broadly in line with the Update forecast.
Chapter 2
42
The private sector economic outlook is consistent with continued modest
growth in the global economy. This implies an orderly, gradual resolution
of the European sovereign debt crisis, with economic conditions in Europe
gradually improving from weakness late in 2011 and early in 2012. Similarly,
the private sector outlook is consistent with a moderate and gradual
improvement of the U.S. fiscal situation.
Table 2.1
Average Private Sector Forecasts
per cent, unless otherwise indicated
2011
1
2012 2013 2014 2015 2016
2012–
2016
Real GDP growth
March 2011 survey/Budget 2011 2.9 2.8 2.7 2.5 2.5 2.4 2.6
September 2011 survey/Update 2011 2.2 2.1 2.5 2.5 2.5 2.3 2.4
March 2012 survey/Budget 2012 2.5 2.1 2.4 2.4 2.4 2.2 2.3
GDP inflation
March 2011 survey/Budget 2011 2.8 2.1 2.1 2.0 2.0 2.0 2.0
September 2011 survey/Update 2011 3.0 2.0 2.0 2.0 2.0 2.0 2.0
March 2012 survey/Budget 2012 3.3 2.4 2.0 2.1 2.0 2.0 2.1
Nominal GDP growth
March 2011 survey/Budget 2011 5.8 5.0 4.9 4.5 4.5 4.4 4.7
September 2011 survey/Update 2011 5.3 4.1 4.5 4.5 4.5 4.3 4.4
March 2012 survey/Budget 2012 5.8 4.6 4.4 4.6 4.4 4.2 4.4
Nominal GDP level
(billions of dollars)
March 2011 survey/Budget 2011 1,719 1,804 1,893 1,979 2,068 2,158 –
September 2011 survey/Update 2011 1,711 1,781 1,861 1,945 2,032 2,120 –
March 2012 survey/Budget 2012 1,719 1,798 1,877 1,963 2,050 2,136 –
Difference (March 2012 – September 2011) 8 17 16 18 18 16 17
3-month treasury bill rate
March 2011 survey/Budget 2011 1.3 2.5 3.4 3.9 4.1 4.1 3.6
September 2011 survey/Update 2011 0.9 1.2 2.0 2.9 3.5 3.7 2.7
March 2012 survey/Budget 2012 0.9 0.9 1.3 2.2 3.3 3.9 2.3
10-year government bond rate
March 2011 survey/Budget 2011 3.5 4.0 4.6 4.8 5.0 5.1 4.7
September 2011 survey/Update 2011 2.8 2.7 3.2 3.9 4.5 4.5 3.8
March 2012 survey/Budget 2012 2.8 2.2 2.8 3.6 4.3 4.5 3.5
Economic Developments and Prospects
43
Table 2.1 (cont’d)
Average Private Sector Forecasts
per cent, unless otherwise indicated
2011
1
2012 2013 2014 2015 2016
2012–
2016
Exchange rate (US cents/C$)
March 2011 survey/Budget 2011 99.7 98.8 98.1 97.4 96.5 96.2 97.4
September 2011 survey/Update 2011 101.2 102.1 102.1 98.8 97.9 98.0 99.8
March 2012 survey/Budget 2012 101.1 99.6 101.8 101.1 100.5 100.2 100.7
Unemployment rate
March 2011 survey/Budget 2011 7.5 7.2 7.0 6.7 6.5 6.4 6.8
September 2011 survey/Update 2011 7.5 7.2 7.0 6.8 6.6 6.4 6.8
March 2012 survey/Budget 2012 7.4 7.5 7.2 6.9 6.7 6.6 7.0
Consumer Price Index inflation
March 2011 survey/Budget 2011 2.4 2.1 2.0 2.0 2.0 2.0 2.0
September 2011 survey/Update 2011 2.9 2.0 2.0 2.0 2.0 2.0 2.0
March 2012 survey/Budget 2012 2.9 2.1 2.0 2.0 2.0 2.0 2.0
U.S. real GDP growth
March 2011 survey/Budget 2011 3.1 3.1 3.2 3.3 3.2 2.7 3.1
September 2011 survey/Update 2011 1.6 2.0 2.4 2.9 2.9 2.8 2.6
March 2012 survey/Budget 2012 1.7 2.3 2.4 2.8 2.9 2.8 2.6
1
Values for 2011 for the March 2012 survey/Budget 2012 are actual.
Sources: Department of Finance March 2011, September 2011 and March 2012 surveys of private sector economists.
Risk Assessment and Planning Assumptions
On March 5, 2012, the Minister of Finance met with private sector
economists to discuss the economic outlook as well as the risks associated
with the outlook. Following this meeting, the Department of Finance
surveyed these private sector economists to obtain their most up-to-date
economic projections, which include the results of the fourth-quarter
National Accounts released on March 2, 2012. The economists have agreed
that the average forecast from this survey—the March 2012 survey—
is a reasonable basis for fiscal planning. The fiscal outlook is presented
in Chapter 6.
The economists were of the view that, while there are still significant
downside risks to the outlook, these risks had moderated slightly for
the near term since the November 2011 Update.
Chapter 2
44
The economists continued to identify the European sovereign debt and
banking crisis as the main downside risk to the outlook, but felt that the risk
of a severe negative economic outcome in Europe had moderated somewhat
since November. The economists also saw the possibility that increases in
crude oil prices due to political turmoil in the Middle East could further
dampen global growth in the short run. Moreover, there remains significant
uncertainty regarding the direction of U.S. fiscal policy, particularly for 2013
and beyond, as the U.S. government continues to struggle with the daunting
challenge of implementing the sizable reduction in its budgetary deficit
required to stabilize its debt.
The main domestic risk to the outlook identified by the economists
continues to be the exposure of households to elevated levels of debt.
A negative external shock to the economy, if it translated into higher
unemployment rates, could trigger deleveraging on the part of those
households holding elevated levels of debt.
The economists also saw the potential for stronger-than-expected growth
in the U.S., particularly if recent positive momentum in labour markets
becomes more entrenched.
World prices for the major commodities produced in Canada are key
determinants of GDP inflation, and therefore nominal GDP. While there are
both upside and downside risks to the commodity price outlook, particularly
in the short term, the experience of the past decade suggests that continued
strong demand from emerging economies is likely to put upward pressure
on commodity prices over time. The private sector expectation for GDP
inflation is consistent with largely flat commodity prices. This introduces
an element of prudence into the economic-planning assumptions.
In light of ongoing downside risks surrounding the global economic outlook,
the Government has judged it appropriate to adjust downward the private
sector forecast for nominal GDP by $20 billion per year over the 2012–2016
period (Table 2.2). This adjustment for risk, representing a downward
adjustment of $3 billion in fiscal revenues in each year of the forecast,
reflects the remaining uncertainties surrounding the global economic
outlook. Relative to the November Update, this adjustment is $10 billion
lower for 2012, unchanged for 2013, and $10 billion higher per year in the
following three years.
Economic Developments and Prospects
45
The Government will continue to evaluate economic developments
and risks to determine whether or not it would be appropriate to
maintain this downward adjustment for risk in the future.
Table 2.2
Budget 2012 Planning Assumption for Nominal GDP
billions of dollars
2012 2013 2014 2015 2016
March 2012 survey of private
sector economists 1,798 1,877 1,963 2,050 2,136
Budget 2012 fiscal-planning assumption 1,778 1,857 1,943 2,030 2,116
Adjustment for risk -20 -20 -20 -20 -20
Addendum
Adjustment for risk in
November 2011 Update -30 -20 -10 -10 -10
Chapter 1
Introducton
Chapter 3
Supportng Jobs
and Growth
Supporting Jobs and Growth
49
INTRODUCTION
Our economy has shown strength and resiliency during the recent
global economic turbulence. However, Canada cannot rest on its laurels.
Our current advantage has provided an opportunity to position Canada
for sustainable, long-term economic prosperity, ensure good jobs and
provide a higher quality of life for generations to come.
Building on actions taken since 2006, Economic Action Plan 2012 announces
major and necessary steps to address structural challenges and take advantage
of new opportunities:
• Supporting Entrepreneurs, Innovators and World-Class Research
by adopting a new strategic approach to enhancing support for business
innovation and providing additional funding to help Canada reinforce its
leadership in fundamental research.
• Improving Conditions for Business Investment by streamlining
the Canadian regulatory system, particularly for major economic projects;
continuing to invest in our natural resources; expanding trade to open
new markets for Canadian businesses; keeping taxes low for job-creating
businesses; and further developing our financial sector advantage.
• Investing in Training, Infrastructure and Opportunity by
strengthening incentives for employment and skills training; improving
the Employment Insurance program; expanding opportunities for
Aboriginal peoples to fully participate in the economy; building a fast
and flexible economic immigration system; and continuing to invest in
public infrastructure.
• Supporting Families and Communities by protecting the health and
safety of all Canadians and their communities; keeping taxes low for
families and individuals; and protecting Canada’s natural environment
and wildlife for future generations.
Chapter 3
50
Table 3.0
Supporting Jobs and Growth
millions of dollars
2011–12 2012–13 2013–14 Total
Supporting Entrepreneurs, Innovators
and World-Class Research
Creating Value-Added J obs Through Innovation 255 171 426
Support for Research, Education and Training 200 141 341
Subtotal—Supporting Entrepreneurs, Innovators
and World-Class Research 454 312 767
Improving Conditions for Business Investment
Responsible Resource Development 78 87 165
Investing in Our Natural Resources 136 -24 112
Expanding Trade and Opening New Markets
for Canadian Businesses
43 47 90
Enhancing the Neutrality of the Tax System -10 -10
Improving Economic Conditions for Farmers and Fishermen 38 17 55
Further Developing Canada’s Financial Sector Advantage 3 3 6
Subtotal—Improving Conditions for Business Investment 298 120 418
Investing in Training, Infrastructure and Opportunity
Supporting J ob Creation, Small Business and Skills Training 51 186 40 277
Improving the Employment Insurance Program 177 305 482
Expanding Opportunities for Aboriginal Peoples
to Fully Participate in the Economy 92 129 221
Building a Fast and Flexible Economic Immigration System 5 4 9
Strengthening Canada’s Public Infrastructure 150 124 274
Subtotal—Investing in Training, Infrastructure and Opportunity 51 609 601 1,262
Supporting Families and Communities
Protecting the Health and Safety of Canadians 37 37 73
Investing in Communities 228 204 431
Supporting Families 4 7 12
Protecting Canada’s Natural Environment and Wildlife 29 32 60
Subtotal—Supporting Families and Communities 297 279 577
Total—Supporting Jobs and Growth 51 1,659 1,313 3,023
Less funds existing in the fiscal framework 522 436 958
Net fiscal cost 51 1,137 877 2,065
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 3.1
Supportng Entrepreneurs,
Innovators and World-Class Research
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
53
HIGHLIGHTS
Creating Value-Added Jobs Through Innovation
The Government is committed to a new approach to supporting
innovation that focuses resources on private sector needs. Economic Action
Plan 2012 proposes:
? $400 million to help increase private sector investments in early-stage risk
capital, and to support the creation of large-scale venture capital funds
led by the private sector.
? $100 million to the Business Development Bank of Canada to support its
venture capital activities.
? $110 million per year to the National Research Council to double support
to companies through the Industrial Research Assistance Program.
? $14 million over two years to double the Industrial Research and
Development Internship program.
? $12 million per year to make the Business-Led Networks of Centres
of Excellence program permanent.
? $105 million over two years to support forestry innovation and
market development.
? $95 million over three years, starting in 2013–14, and $40 million per year
thereafter to make the Canadian Innovation Commercialization Program
permanent and to add a military procurement component.
? $67 million in 2012–13 as the National Research Council refocuses on
business-led, industry-relevant research.
? Streamlining and improving the Scientific Research and Experimental
Development tax incentive program.
Chapter 3.1
54
Support for Research, Education and Training
The Government is committed to providing additional resources to support
advanced research at universities and other leading research institutions.
Economic Action Plan 2012 proposes:
? $37 million annually starting in 2012–13 to the granting councils to
enhance their support for industry-academic research partnerships.
? $60 million for Genome Canada to launch a new applied research
competition in the area of human health, and to sustain the Science
and Technology Centres until 2014–15.
? $6.5 million over three years for a research project at McMaster
University to evaluate team-based approaches to health care delivery.
? $17 million over two years to further advance the development of
alternatives to existing isotope production technologies.
? $10 million over two years to the Canadian Institute for Advanced
Research to link Canadians to global research networks.
? $500 million over five years, starting in 2014–15, to the Canada
Foundation for Innovation to support advanced research infrastructure.
? $40 million over two years to support CANARIE’s operation of
Canada’s ultra-high speed research network.
? $23 million over two years to Natural Resources Canada to enhance
satellite data reception capacity.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
55
CREATING VALUE-ADDED JOBS THROUGH INNOVATION
The Government is committed to a new approach to supporting innovation in Canada.
Economic Action Plan 2012 announces $1.1 billion over five years to directly support
research and development and $500 million for venture capital.
The global economy is changing. Competition for the brightest minds
is intensifying. The pace of technological change is creating new
opportunities while making older business practices obsolete. Canada’s
long-term economic competitiveness in this emerging knowledge economy
demands globally competitive businesses that innovate and create high-
quality jobs.
The Government supports an innovative economy and the creation of high-
quality jobs through investments in education and training, basic and applied
research, and the translation of public research knowledge to the private
sector. Since 2006, the Government has provided nearly $8 billion in new
funding for initiatives to support science, technology and the growth of
innovative firms. The Government is also sustaining a business environment
that encourages innovation by supporting financing opportunities for
businesses with the potential to become globally competitive, and creating a
regulatory environment that promotes competition, business investment and
economic growth.
Chapter 3.1
56
As demonstrated by Chart 3.1.1, supported by federal investments, Canada is
a world leader in post-secondary research, outpacing other Group of Seven
(G-7) countries on higher education investment.
Canada’s level of investment in higher education
outpaces other G-7 countries
Chart 3.1.1
R&D Investment in the Higher Education Sector
Note: Data are for 2010, which is the latest year for which they are available for all G-7 countries, except for Japan and
the United States (2009).
Source: Organisation for Economic Co-operation and Development (OECD), Main Science and Technology Indicators.
Despite strong policy fundamentals to support innovation in Canada,
Canadian businesses do not take full advantage. Canada continues to lag
behind peer countries in terms of overall innovation performance, including
private sector investment in research and development (R&D), and the
commercialization of research into products and processes that create high-
value jobs and economic growth.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
57
As demonstrated by Chart 3.1.2, Canada’s private sector has historically
lagged in terms of business investments in research relative to the size of our
economy. This trend has persisted despite Canada’s strong post-secondary
research performance in recent years. While the business sectors in the
United States and across OECD countries are increasing their relative
investments in research and development in order to improve their
competitive positions, Canada’s business sector has seen a declining trend
over the past decade. It is important that Canadian businesses begin
to address this gap in order to drive the innovation that leads to success
in a competitive global marketplace.
Business investment in R&D
in Canada lags competitors
Chart 3.1.2
Business Investment in R&D as a Share
of the Economy, 1981–2008
Source: OECD, Main Science and Technology Indicators.
The Government’s science and technology strategy, Mobilizing Science and
Technology to Canada’s Advantage, emphasizes the importance of ensuring that
federally supported research contributes to the commercialization of new
products, processes and services that create high-value jobs and economic
growth. Guided by this strategy, the Government provides significant
resources to support research, development and technology.
Chapter 3.1
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Consistent with this strategy, and to fully realize the value from our
investments in advanced research, Budget 2010 announced that the
Government would conduct a comprehensive review of federal support for
research and development. The objective was to ensure that federal support
is cost-effective and makes the maximum contribution to innovation and
economic opportunities for business and Canadian workers.
This extensive review was conducted by an Expert Panel, led by
Mr. Thomas Jenkins, Executive Chairman and Chief Strategy Officer of
OpenText Corporation of Waterloo, Ontario. The Panel’s far-reaching
consultations resulted in nearly 230 written submissions, supplemented by
in-person group sessions held across the country and a detailed survey of
more than 1,000 innovative businesses of all sizes representing a wide array
of sectors and regions. The Panel also consulted innovation leaders in other
countries to learn from their experiences.
In October 2011, the Expert Panel submitted a report to the Government,
Innovation Canada: A Call to Action, with findings and recommendations on
how to improve support for innovative businesses and help them grow into
larger, globally competitive companies.
Broadly, the Expert Panel found that:
• Canadian businesses find the Scientific Research and Experimental
Development tax incentive program to be complex, with an approval
process that can be unpredictable and costly.
• Relative to peer countries, Canada has an over-reliance on tax incentives
in the mix of federal support for business research and development
compared to direct expenditures that support innovative firms and
public-private research collaborations.
• The numerous federal programs that promote business innovation can
be difficult for companies to navigate, and may create inefficiencies.
• Canada lags behind peer countries in leveraging government
procurement to promote private sector innovation.
• Unlike peer countries, Canada lacks an organization with the capacity
to act as a central hub for business-driven research.
• Canada’s risk capital sector needs further development to effectively
support the growth of innovative companies.
• Canada needs a stronger “whole-of-government” approach
to innovation.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
59
Key Recommendations of Innovation Canada:
A Call to Action
• Shift resources from indirect support through the Scientific Research
and Experimental Development (SR&ED) tax incentive program to direct
forms of support, including the Industrial Research Assistance Program.
• Streamline the Government’s support for business innovation.
• Simplify the SR&ED tax incentive program and improve cost-
effectiveness, predictability and accountability.
• Make business innovation one of the core objectives of procurement.
• Refocus the institutes of the National Research Council on demand-driven
applied research.
• Help high-growth innovative firms access risk capital.
• Establish a clear federal voice for innovation.
Informed by this advice, the Government is committed to a new approach
to supporting innovation in Canada, by pursuing active business-led
initiatives that focus resources on better meeting private sector needs.
Economic Action Plan 2012 begins to deliver on this commitment,
announcing $1.1 billion over five years for direct research and development
support and making available $500 million for venture capital.
This new approach will promote business innovation through improved
support for high-growth companies, research collaborations, procurement
opportunities, applied research and risk financing. This will provide a solid
foundation on which Canada’s globally competitive businesses can build by
making the investments in innovation required to create high-value jobs and
long-term economic growth. In particular, the Government will:
• Double the contribution budget of the Industrial Research
Assistance Program to better support research and development by small
and medium-sized companies.
• Support private and public research collaboration through
internships for graduate students and funding for business-led
research and development.
• Support innovation through procurement by connecting small and
medium-sized companies with federal departments and agencies to
build their capacity to compete in the marketplace.
• Refocus the National Research Council on demand-driven business-
oriented research that will help Canadian businesses develop innovative
products and services.
Chapter 3.1
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• Help high-growth firms access risk capital by committing significant
funds to lever increased private sector investments in early-stage risk
capital and to support the creation of large-scale venture capital funds
led by the private sector.
• Streamline and improve the SR&ED tax incentive program by removing
capital from the expenditure base, making it more cost-effective through
design improvements and a measured rate reduction, and providing
greater predictability through administrative improvements.
The Panel’s recommendations are wide-ranging and the Government will
continue to study them carefully. In particular, the Government will explore
options to consolidate the suite of programs that supports business
innovation to make it easier for businesses to access government support
and improve efficiency. In addition, the Government will help innovative
companies have greater access to private sector risk capital. The Government
will announce further actions in response to the Panel’s recommendations in
the coming months and in Budget 2013.
Helping High-Growth Firms Access Risk Capital
Economic Action Plan 2012 will make available $400 million to help increase private
sector investments in early-stage risk capital and to support the creation of large-scale
venture capital funds led by the private sector. Also, it confirms the previous
commitment to make available an additional $100 million to the Business
Development Bank of Canada.
Young knowledge-based firms often have difficulty in accessing capital from
traditional financial institutions because they have few tangible assets beyond
their ideas. Yet some of these firms have the potential to become future
global market leaders. Facebook, Google and Research In Motion were all
start-up companies financed by venture capital. Angel investors and venture
capital funds play an important role in supporting the growth of these
high-potential firms by providing much-needed capital as well as hands-on
business advice.
The Canadian venture capital market has had mixed results in the last decade.
Further, the venture capital market faces a broad range of challenges
including a decline in fundraising, which is partially attributable to the
market’s inability to consistently attract private investors, including large,
well-funded institutional investors such as pension funds.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
61
The Government recognizes the crucial role played by private sector risk
capital in driving business growth and innovation, and has taken important
steps to strengthen its availability, including through the Business
Development Bank of Canada and by removing impediments to foreign
venture capital investments.
To help increase private sector investments in early-stage risk capital, and to
support the creation of large-scale venture capital funds led by the private
sector, Economic Action Plan 2012 proposes to make available $400 million
for venture capital activities. This will increase the amount of funding
available for growth-oriented innovative firms while focusing resources on
those that are likeliest to become global leaders. In the coming months, the
Government will consider how to structure its support in order to incent
private sector investments and management of seed and large-scale venture
capital funds.
In addition, Economic Action Plan 2012 confirms the previous commitment
to make available an additional $100 million to support the venture
capital activities of the Business Development Bank of Canada.
Increasing Direct Support for Business Innovation
Doubling the Industrial Research Assistance Program
Economic Action Plan 2012 proposes an additional $110 million per year starting
in 2012–13 to double support for companies through the Industrial Research
Assistance Program.
The National Research Council’s Industrial Research Assistance Program,
which supports research and development projects by innovative small and
medium-sized businesses, is a cornerstone of Canada’s innovation system
and is regarded worldwide as one of the best programs of its kind. Economic
Action Plan 2012 proposes an additional $110 million per year starting in
2012–13 to the National Research Council to double the Industrial Research
Assistance Program. This will allow the National Research Council to
support additional small and medium-sized businesses that create high-value
jobs, and to expand the services provided to businesses through the
program’s Industrial Technology Advisors. The National Research Council
will also create a concierge service that will provide information and
assistance to small and medium-sized businesses to help them make effective
use of federal innovation programs.
Chapter 3.1
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Industrial Research Assistance Program
Success Stories
The National Research Council’s Industrial Research Assistance Program
(NRC-IRAP) has a strong track record of providing innovative small and
medium-sized companies with financial resources, customized services
and access to highly skilled people. Recent success stories include:
Wolf Steel Inc. (Barrie, Ontario)—The firm has been able to design,
manufacture and market a new high-efficiency furnace—the only gas
furnace manufactured in Canada—with assistance and advisory services
from NRC-IRAP.
Quark Engineering and Development Inc. (Halifax, Nova Scotia)—
The firm has transformed their TetherBerry networking technology into a
multi-platform and Bluetooth-enabled device, leading to better market
penetration, new business opportunities and increased revenues, with the
assistance of NRC-IRAP.
Motion Composites Inc. (Saint-Roch-de-l’Achigan, Quebec)—
The company designed and produced a wheelchair that is lighter, more
durable and more affordable than a traditional wheelchair, with financial
support from NRC-IRAP.
Supporting Innovative Businesses in Western Canada
Economic Action Plan 2012 announces the upcoming launch of the Western
Innovation Program.
Western Economic Diversification Canada works to improve the long-term
economic competitiveness of the West and the quality of life of its citizens
by supporting a wide range of initiatives targeting inter-related project
activities—innovations, business development and community economic
development. The agency will soon be launching the Western Innovation
Program. The new program will provide financial support to innovative small
and medium-sized enterprises in Western Canada, and is consistent with
those offered in other regions such as the Business and Regional Growth
program administered by Canada Economic Development for Quebec
Regions; the Business Development Program administered by the Atlantic
Canada Opportunities Agency; and the Southern Ontario Development
Program administered by the Federal Economic Development Agency for
Southern Ontario.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
63
New Approaches to Canadian Business Innovation
The Government’s new approach to supporting business innovation provides
opportunities for businesses to commercialize breakthrough ideas and
develop global markets. For example, the Government is supporting the
new Canadian Technology Accelerator initiative in New York, N.Y., which
will help Canadian entrepreneurs access venture capital, customers and
partners in key markets in the United States to catalyze their growth.
Programs like the Canadian Technology Accelerator initiative are helping
innovative small and medium-sized companies to succeed in the
international market and create more jobs for Canadians.
Supporting Private and Public Sector
Research Collaboration
Through linkages between firms and post-secondary institutions, knowledge
generated by federal support for post-secondary research is harnessed to
address market needs. Collaborative research between post-secondary
researchers and private sector partners promotes awareness by companies
of the capabilities of post-secondary institutions and researchers, facilitates
the transfer of expertise and technology, and encourages the development
of long-term research capacity within the private sector. Economic Action
Plan 2012 proposes several measures to enhance support for high-potential
research collaborations between businesses and researchers.
Integrating High-Quality Researchers Into the Labour Market
Economic Action Plan 2012 proposes $14 million over two years to double the
Industrial Research and Development Internship program.
The Industrial Research and Development Internship program currently
helps 1,000 graduate students undertake hands-on research in innovative
Canadian firms each year. This initiative provides host firms with access
to cutting-edge research and skills, while providing students with valuable
applied research experience in a private sector setting. To double the
resources of the Industrial Research and Development Internship program,
Economic Action Plan 2012 proposes $14 million over two years. This new
funding will be administered by Mitacs, an advanced research organization
with a proven track record of helping businesses solve problems through
access to graduate students.
Chapter 3.1
64
Mitacs and the Industrial Research and Development
Internship Program Success Stories
Through the Industrial Research and Development Internship program,
which is largely delivered by Mitacs, graduate students and postdoctoral
fellows from over 50 Canadian universities apply their specialized expertise
to business-related challenges. Open to all disciplines and all industry
sectors, projects can span a wide range of areas, including manufacturing,
technical innovation, business processes, information technology and social
sciences. Research internship projects include:
• Wastewater treatment plants in northern Saskatchewan
(NexLev Solutions and the University of Saskatchewan)—NexLev
Solutions, a management services and technology company, recently
partnered with Dr. Mahshid Atapour, a postdoctoral fellow at the
University of Saskatchewan’s computer science department, to complete
a project aimed at automating the operation of wastewater treatment
plants for communities in northern Saskatchewan. As part of the project,
NexLev required a mathematician with expertise in several areas,
including modeling, probability theory and Monte Carlo simulation.
NexLev teamed up with Dr. Atapour through the Mitacs internship
program to complete these objectives, resulting in considerable cost
savings for the firm.
• Development of lipid nanoparticles (AlCana and the University of
British Columbia)—Through the Mitacs internship program, Alcana, a
biotechnology company, partnered with Dr. Josh Zaifman, a postdoctoral
fellow at the University of British Columbia’s chemistry department, to
develop its lipid nanoparticles project. Alcana believes that this project
exhibits the potential to become a new means for the targeted delivery
of therapeutics. Alcana has indicated that through this program, it was
able to significantly reduce the project’s operating costs, as Dr. Zaifman
conducted a large part of his research using the university’s resources,
which were not otherwise available to the firm.
• Complex lightshows in Montréal, Quebec (Realisations.net and the
École des Hautes Études Commerciales)—Realisations.net produces
commercial lightshows and soundscapes for major events, such as
Montreal Canadiens’ games. For the new Quartier des spectacles at the
centre of Montreal, the company needed expertise to solve problems
related to projecting light shows on buildings and putting on a production
in a public space in a way that recognizes that people live and work in the
area. Mitacs interns from the Écoles des Hautes Études Commerciales
were tasked with determining how the projected contents of the show
could be managed, as well as with drafting a business plan to ensure that
the project, while remaining respectful of its surroundings, could be
produced at a profit.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
65
Strengthening Knowledge Transfer and Commercialization
Economic Action Plan 2012 proposes $12 million per year to make the
Business-Led Networks of Centres of Excellence program permanent.
The Business-Led Networks of Centres of Excellence program supports
research on business priorities by teams of private sector researchers and
academics. The program has proven to be an effective way to link innovative
businesses to Canada’s world-class researchers, helping to create and sustain
knowledge-based jobs. To build on the success of these collaborations,
Economic Action Plan 2012 proposes $24 million over two years and
$12 million per year thereafter to make the Business-Led Networks of
Centres of Excellence program permanent.
Business-Led Networks of Centres of Excellence
Existing Networks
The inaugural Business-Led Networks of Centres of Excellence competition
in 2009 selected four networks:
• The Canadian Forest NanoProducts Network—ArboraNano
(Pointe-Claire, Quebec) is helping to develop innovative,
nanotechnology-based carbon-neutral products created from Canada’s
vast forest resource.
• Green Aviation Research & Development Network—GARDN
(Ottawa, Ontario) is promoting aerospace technologies for the
protection of the environment.
• The Quebec Consortium for Drug Discovery—CQDM (Nuns’ Island,
Quebec) is working to accelerate the drug discovery process and to
develop safer and more effective drugs.
• Sustainable Technologies for Energy Production Systems—STEPS
(Regina, Saskatchewan) is addressing hydrocarbon energy production
sustainability challenges, helping to ensure a secure and affordable supply
of clean energy for Canadians.
Chapter 3.1
66
Forestry Innovation and Market Development Support
Economic Action Plan 2012 proposes $105 million over two years to support
the continued transformation of the forestry sector.
In 2011, the forestry sector directly supported 233,000 jobs in over
200 communities across the country and accounted for 1.9 per cent of
Canadian gross domestic product. The forestry sector has faced a number
of economic challenges over the past decade. In response to these challenges,
the forestry industry has taken important steps to become more productive
and transition to higher-value activities.
The Government has provided significant support to the forestry sector
to facilitate its transformation through a suite of innovation and market
development programs. To maximize the effectiveness of federal support,
the Government will be refocusing its current programming from five
to two initiatives:
• The Expanding Market Opportunities Program will combine the
Canada Wood Export and the North American Wood First programs
and incorporate the activities previously delivered by the Leadership
for Environmental Advantage in Forestry (the LEAF Program).
• The Forest Innovation Program will combine support for the
emergence of transformative technologies, including those developed
by FPInnovations and the Canadian Wood Fibre Centre, through the
previous Promoting Forest Innovation and Investment program, and the
technology transfer activities to small and medium-sized enterprises that
were previously delivered through the Value to Wood program.
To support the continued transformation of the forestry sector, Economic
Action Plan 2012 proposes $105 million over two years. The Government
will continue to engage with the forestry industry to identify opportunities
for the private sector to increase its investment in innovation and develop
new markets for Canadian forestry products.
Supporting Innovation Through Procurement
Economic Action Plan 2012 proposes an additional $95 million over three years,
starting in 2013–14, and $40 million per year thereafter to make the Canadian
Innovation Commercialization Program permanent and to add a military
procurement component.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
67
The Canadian Innovation Commercialization Program, which was launched
in 2010 and has already shown encouraging results, connects small and
medium-sized enterprises with federal departments and agencies that have
a need for innovative products and services. By selling to the federal
government, businesses can demonstrate the value of their products and
services, increase the scale of their operations, and generate future sales
to non-federal customers. To build on the early success of this program,
Economic Action Plan 2012 proposes an additional $95 million over
three years, starting in 2013–14, and $40 million per year thereafter to
make the Canadian Innovation Commercialization Program permanent.
The program will include an added military procurement component.
Accelerating Commercialization by Small Businesses
Following the evaluation of proposals submitted under the Canadian
Innovation Commercialization Program’s first two Calls for Proposals, over
60 innovations have been pre-qualified. Public Works and Government
Services Canada has been working with the selected companies to match
their innovations with federal government departments.
Project Examples
CVT Corp (Sainte-Julie, Quebec)
CVT Corp is an internationally recognized technology company specializing
in the development and manufacture of continuously variable transmissions
for power generation, oil and gas, mining, farming and off-road equipment.
Funding will help the company in commercializing its variable speed diesel
gensets (models of 50kW and 125kW) which, when incorporated into
equipment, offer significant fuel savings, lower emissions and reduced
noise levels.
GestureTek Inc. (Toronto, Ontario)
GestureTek Inc. is a world leader in video gesture control technology
for multi-touch surfaces, signs, displays, and devices and games for
advertising, entertainment and information delivery. Funding will allow the
company to commercialize its GestPoint Maestro 3D Digital Whiteboard
Display Application—a 3D-camera system for point-control-from-a-distance,
integrated with networked whiteboard systems for collaborative dual-
location user experiences.
Virtual Marine Technology (St. John’s, Newfoundland and Labrador)
Virtual Marine Technology is a global provider of small craft training
simulators. Funding will allow the company to commercialize its
MissionQuest multi-task simulators, which help crews to train and
prepare for situations such as search and rescue exercises that are
often too expensive, rare and dangerous to replicate in the context
of on-water training.
Chapter 3.1
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Accelerating Commercialization
by Small Businesses (cont’d)
Synodon Inc. (Edmonton, Alberta)
Synodon has developed and demonstrated an advanced airborne remote
gas sensing system, enabling the monitoring and measurement of natural
releases of methane gas in the Arctic. Funding will enable the deployment
of this technology to allow Natural Resources Canada to survey the vast
Canadian Arctic.
Refocusing the National Research Council
Economic Action Plan 2012 proposes $67 million in 2012–13 to support the
National Research Council in refocusing on business-led, industry-relevant research.
The National Research Council was created in 1916 to support basic research
and the development of commercial innovations. The organization has made
an important contribution to the Canadian economy, supporting the
development of innovations, such as the pacemaker and computer animation
technology, that have created high-value jobs. To continue to play this
important role in Canada’s innovation system, the National Research Council
must adapt to business research needs, and concentrate on active business-
driven, industry-relevant applied research. To support this new direction,
Economic Action Plan 2012 proposes $67 million to the National Research
Council in 2012–13.
In consultation with businesses and university and college stakeholders,
the Government will consider ways to better focus the National Research
Council on demand-driven research, consistent with the recommendations
of the Expert Panel.
Scientific Research and Experimental Development
Tax Incentive Program
The Scientific Research and Experimental Development (SR&ED)
tax incentive program is one of the most generous systems in the
industrialized world for research and development (R&D). It is the single
largest federal program supporting business R&D in Canada, providing more
than $3.6 billion in tax assistance in 2011.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
69
Consistent with the recommendations of the Expert Panel, Economic Action
Plan 2012 is proposing a number of measures to streamline and improve the
SR&ED tax incentive program. The savings generated by these actions
will be invested in direct support programs that will reinforce business
innovation in Canada.
How Does the Scientific Research and Experimental
Development (SR&ED) Tax Incentive Program Work?
Currently, eligible expenditures include most of the costs that are directly
related to SR&ED, including salary and wages, materials, overhead,
contracts and capital expenditures (other than most buildings).
The SR&ED tax incentive program has two components:
• An income tax deduction, which allows immediate expensing
of all eligible expenditures.
• An investment tax credit:
- The general rate is 20 per cent.
- An enhanced rate of 35 per cent is provided to small and medium-sized
Canadian-controlled private corporations (CCPCs) on their first
$3 million of eligible expenditures.
- Unused credits earned in a year are generally fully refundable
for small and medium-sized CCPCs on their first $3 million of
current expenditures.
Simplifying the Tax Credit Base
Economic Action Plan 2012 proposes to simplify the SR&ED program by
removing capital from the expenditure base.
The rules regarding the eligibility of capital expenditures are the most
complex for businesses to comply with. In order to simplify the program,
Economic Action Plan 2012 proposes to narrow the base of eligible
expenditures by removing capital. The other expenditure elements will
remain eligible, including salary and wages, materials, overhead expenses
and contract payments. This proposed change will affect capital expenditures
incurred in 2014 and subsequent years.
Increasing Cost-Effectiveness
Economic Action Plan 2012 proposes to increase the cost-effectiveness of the SR&ED
program through two design improvements and a measured reduction in the general
tax credit rate.
Chapter 3.1
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In order to increase cost-effectiveness, Economic Action Plan 2012 proposes
two design improvements that will better align the tax credits received with
actual business expenditures on SR&ED projects, as well as a measured
reduction in the general tax credit rate.
The two design improvements will affect the calculation of overhead
expenditures and of arm’s length contract payments:
• To limit instances where the rules result in tax credits being provided for
overhead costs that exceed the actual costs incurred, Economic Action
Plan 2012 proposes to gradually reduce the “prescribed proxy amount”
that is used to compute overhead expenditures under the so-called “proxy
method,” from 65 per cent to 55 per cent of direct labour costs. The
55-per-cent rate will be fully phased in as of January 1, 2014.
• To remove the profit element from arm’s length contract payments,
Economic Action Plan 2012 proposes to allow only 80 per cent of these
contract payments to be used for the purposes of calculating the SR&ED
tax credits. This change is consistent with the current tax treatment
of non-arm’s length contracts, and will target the tax credits to SR&ED
expenditures incurred, and not on profit margins. It will be effective as
of January 1, 2013.
Economic Action Plan 2012 also proposes a reduction in the general
SR&ED investment tax credit rate. The recent corporate income tax rate
reductions (from 22.12 per cent in 2007 to 15 per cent in 2012) have
effectively increased the relative generosity of the SR&ED tax incentive
program and resulted in growing pools of unused investment tax credits.
Effective January 1, 2014, the general SR&ED investment tax credit rate will
be reduced from 20 per cent to 15 per cent.
Enhancing Predictability
Economic Action Plan 2012 announces actions by the Canada Revenue Agency
to improve the predictability of the SR&ED tax incentive program. The Government
will invest $4 million in 2012–13 and $2 million in 2013–14 to implement changes
to the administration of the program.
Economic Action Plan 2012 announces that the Canada Revenue Agency
(CRA) will conduct a pilot project to determine the feasibility of a formal
pre-approval process. The CRA will also:
• Enhance the existing online self-assessment eligibility tool.
Supporting Jobs and Growth
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71
• Work collaboratively with industry representatives to address
emerging issues.
• Make more frequent and effective use of “tax alerts.”
• Improve the Notice of Objection process to allow for a second review
of scientific eligibility determinations.
Administrative Improvements to the Scientific
Research and Experimental Development (SR&ED)
Tax Incentive Program
The Canada Revenue Agency (CRA) has recently implemented a number
of administrative improvements to address challenges that have been
identified by stakeholders in the areas of accessibility, predictability and
consistency. These improvements include:
• Increasing the number of technical reviewers.
• Providing additional training and establishing coordinated technical
support for the technical reviewers.
• Devoting more time to program services.
• Enhancing the quality assurance methodology.
• Reviewing dispute resolution procedures to ensure their effectiveness.
In addition, the CRA is in the process of consolidating and clarifying the
administrative policies that are currently contained in about 70 documents
pertaining to the SR&ED tax incentive program. The revised information will
ultimately be presented in a user-friendly format on the CRA website in
December 2012, with the objective of reducing complexity and
improving accessibility.
Contingency Fees
The Government announces a study of contingency fees charged by tax preparers.
Small and medium-sized businesses sometimes rely on tax preparers
charging on a contingency-fee basis to prepare their SR&ED claims.
These fees may be as high as 30 per cent of SR&ED benefits, or even
more. The Government is concerned that high contingency fees charged
by tax preparers are diminishing the benefits of the SR&ED tax incentive
program to Canadian businesses and the economy. In the coming year, the
Government will conduct a study, including consultations with taxpayers,
to better understand why firms choose to hire consultants on a contingency-
fee basis and determine whether action is required.
Chapter 3.1
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SUPPORT FOR RESEARCH, EDUCATION AND TRAINING
Supporting Advanced Research
Since 2006, the Government has provided nearly $8 billion in new funding
for initiatives to support science, technology and the growth of innovative
firms. This includes $5 billion in support for science and technology activities
performed by non-business enterprises. This funding has helped to make
Canada a world leader in post-secondary education research and to create
the knowledge and highly skilled workforce that is required for a more
prosperous economy. This support has contributed to a strong foundation
for Canada’s innovation system, ensuring that Canadian researchers can
continue to generate groundbreaking ideas and businesses have access to
the knowledge, ideas, people and resources needed to bring this knowledge
to market and create high-quality jobs.
Economic Action Plan 2012 proposes additional resources to support
advanced research at universities and other leading research institutions.
Canada Invests in Science, Technology
and Innovation Leadership
Since 2006, the Government has provided nearly $8 billion in new funding
for initiatives to support science, technology and the growth of innovative
firms in Canada, including $5 billion for advanced research, education and
training, $2 billion for post-secondary infrastructure, and $1 billion for
applied research and financing. Key examples include:
Education and Training
• $45 million over five years to establish the Banting Postdoctoral
Fellowships to attract top-level research talent to Canada.
• $100 million over five years to create the Vanier Canada Graduate
Scholarships to draw top doctoral students to Canada.
• $71 million over four years to establish the Canada Excellence Research
Chairs to attract the world’s best researchers to Canada.
Basic Research
• Nearly $1.5 billion in new resources since 2006 to support advanced
research through the federal granting councils.
• Over $600 million to support cutting-edge research infrastructure through
the Canada Foundation for Innovation.
• $2 billion for university and college infrastructure projects, including
repair, maintenance and construction, through the Knowledge
Infrastructure Program.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
73
Canada Invests in Science, Technology
and Innovation Leadership (cont’d)
Knowledge Translation
• $440 million over six years to establish the Centres of Excellence for
Commercialization and Research, to help translate knowledge into
significant commercial advantage for Canadian businesses.
• $78 million over four years to support linkages between businesses
and colleges through the College and Community Innovation Program.
Applied Research
• $200 million over two years under Canada’s Economic Action Plan to
temporarily expand contributions to small and medium-sized enterprises
through the Industrial Research Assistance Program.
• More than $470 million over four years to support strategic innovation
projects in key sectors of the Canadian economy, including the
automotive, aerospace, forestry and clean technology sectors.
Financing for Commercialization
• $40 million over two years to launch the Canadian Innovation
Commercialization pilot program to help small and medium-sized
enterprises market innovative products and services to
federal departments.
• $475 million to finance high-potential, innovative firms through
the Business Development Bank of Canada, of which $75 million
was provided through Budget 2008 and $400 million was committed
in June 2009.
Promoting Post-Secondary and Private Sector Research Collaborations
Economic Action Plan 2012 proposes $37 million annually to enhance the granting
councils’ support for industry-academic research partnership initiatives.
The federal granting councils support outstanding research and advanced
training at post-secondary institutes and research hospitals. The granting
councils have been increasing their focus on partnerships between post-
secondary researchers and companies to target research to business needs
and transfer knowledge into economic advantage.
The granting councils will be pursuing operational efficiencies and
reallocation of funding from lower-priority programs to generate savings.
The Government will fully reinvest 2012–13 savings in priority areas of
the granting councils, particularly in industry-academic partnerships.
Chapter 3.1
74
Specifically, Economic Action Plan 2012 proposes $37 million annually
starting in 2012–13 to the granting councils to enhance their support for
industry-academic research partnership initiatives. The new resources for
the councils will be allocated as follows:
• $15 million per year to the Canadian Institutes of Health Research
for its Strategy for Patient-Oriented Research.
• $15 million per year to the Natural Sciences and Engineering Research
Council for its Strategy for Partnerships and Innovation.
• $7 million per year to the Social Sciences and Humanities Research
Council for its industry-academic partnership initiatives.
Investing in Genomics Research
Economic Action Plan 2012 proposes an additional $60 million for genomics research.
Genome Canada is a not-for-profit corporation dedicated to supporting
Canada’s research leadership in genomics, a fast-growing field that has
significant potential social and economic benefits. Genomics research helps
unlock new possibilities in important areas such as health, fisheries, forestry,
agriculture and the environment.
To date, the Government has provided $980 million to Genome Canada,
which along with funding from other partners will result in close to $2 billion
in genomics research in Canada. To help achieve important future genomics
research breakthroughs, Economic Action Plan 2012 proposes an additional
$60 million for Genome Canada to launch a new applied research
competition in the area of human health, and to sustain the Science
and Technology Centres until 2014–15.
Supporting Jobs and Growth
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75
Genome Canada Success Stories
• Facilitating early screening and diagnosis to improve outcomes
for colon cancer. Researchers from Ontario and Quebec have
discovered markers that identify individuals who are at greater risk of
developing colon cancer. This knowledge led to the development of a
genetic risk assessment test for the disease. Early diagnosis reduces
the cost of treatment and improves the likelihood that treatment will
be successful.
• Increasing the competitiveness of the forest industry. Spruce
trees are the most widely used species in Canada’s forest plantations.
Researchers at Université Laval are working to develop tools and
protocols that make it possible to select high-performance spruce trees
with better quality wood and high potential to adapt to climate change.
Government and industry have partnered to transfer molecular breeding
technology to commercial application across a broader range of tree
species, to increase the competitiveness of the Canadian forest industry.
• Maximizing the value of canola. Researchers in Western Canada
have identified several important genes that have potential for
enhancing the crop performance of canola. These genes have now been
employed to produce canola plants exhibiting larger seeds, increased
seed yield and increased efficiency in nutrient use.
Investing in Mental Health Research
Economic Action Plan 2012 proposes $5.2 million in 2012–13 to establish
and integrate a network of mental health-related professionals. Research will be
centered on treating depression, with a focus on suicide prevention and post-traumatic
stress disorder.
Mental health-related illnesses impact the lives of many Canadians, at a
great social and economic cost. The advancement of research in this area,
particularly research aimed at developing more effective diagnostic and
treatment tools, is critical to improving the lives of these individuals.
Economic Action Plan 2012 proposes $5.2 million in 2012–13 to support
the Canadian Depression Research and Intervention Network. The Mood
Disorders Society of Canada, in conjunction with the Mental Health
Commission of Canada, will lead the development of the Network,
connecting over 80 of Canada’s brightest depression researchers from across
the country. Particular focus will be on suicide prevention and identifying
and treating post-traumatic stress disorder. Funding provided in the budget
will serve as a catalyst for private and public sector investment.
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Promoting Cost-Effective Health Care
Economic Action Plan 2012 proposes $6.5 million over three years for a health
research project at McMaster University.
Canadians rely on an effective, efficient and accessible public health care
system. The Government is working with partners to further improve the
delivery of health care services. Economic Action Plan 2012 proposes
$6.5 million over three years for a research project at McMaster University.
The project will evaluate ways to achieve better health outcomes for patients
while also making the health care system more cost-effective, through greater
implementation of medical teams. Federal support will be augmented by
contributions from other partners.
Advancing Knowledge and Treatment of Spinal Cord Injury
Economic Action Plan 2012 announces the Government’s commitment to support
spinal cord injury research at the Rick Hansen Institute.
May 2012 marks the 25
th
anniversary of the conclusion of the Rick Hansen
Man in Motion World Tour, which saw him visit more than 30 countries
and raise over $26 million for spinal cord research. To help improve the
lives of people living with spinal cord injuries, the Government will continue
to partner with the Rick Hansen Institute to support its work to achieve
breakthroughs in spinal cord injury research and care.
Diversifying Canada’s Medical Isotope Supply
Economic Action Plan 2012 proposes $17 million over two years to further develop
alternatives to existing isotope production technologies.
Medical isotopes are used in a variety of treatments and diagnostic
procedures that help save lives. In Budget 2010, the Government provided
$35 million over two years to Natural Resources Canada to support research
and development towards new technologies for the production of medical
isotopes to help replace reactor-based isotope supplies. Very promising
results have been demonstrated to date, but more work is required to bring
these new technologies to commercial scale. To further advance the
development of alternatives to existing isotope production technologies and
help secure the supply of medical isotopes for Canadians, Economic Action
Plan 2012 proposes an additional $17 million over two years to Natural
Resources Canada.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
77
Supporting Leading-Edge Researchers
Economic Action Plan 2012 proposes $10 million over two years to support linkages
between Canadian researchers and leading international minds.
The Canadian Institute for Advanced Research (CIFAR) is a private,
non-profit organization linking Canadian researchers with the top minds
from around the world. Its main priority is to establish and maintain global
networks of top researchers and students, enabling Canadians to participate
in and lead groundbreaking work on the international stage. To enhance the
organization’s activities and allow it to continue to link Canadian researchers
to the world, Economic Action Plan 2012 proposes $10 million over
two years to CIFAR.
CIFAR Programs
Through its research programs, CIFAR identifies areas where significant
new knowledge can be created by bringing together leading Canadian
and international researchers to focus on ”big questions.” For example:
Nanoelectronics aims to understand the power of materials at the
nanometre (one billionth of a metre) scale, which holds the potential to
create computer circuits orders of magnitude smaller than those found
on today’s microchips.
Quantum information processing unites computer scientists and
physicists in an effort to harness the unique properties of the quantum
world, with the aim of building quantum computers.
Investing in Leading-Edge Research Infrastructure
Canada Foundation for Innovation
Economic Action Plan 2012 proposes $500 million over five years to support
advanced research infrastructure.
The Canada Foundation for Innovation is a not-for-profit corporation
that supports the modernization of research infrastructure at Canadian
universities, colleges, research hospitals and other not-for-profit research
institutions across Canada. Through the Foundation, the federal government
invests with other partners in state-of-the-art facilities and equipment that
play a crucial role in attracting and retaining the world’s top minds, training
the next generation of researchers and driving cutting-edge discoveries.
Chapter 3.1
78
The federal government has allocated $5 billion to the Canada Foundation
for Innovation to date, most recently providing $750 million through
Budget 2009. The Government will sustain its investments in advanced
research infrastructure. To support the Foundation’s core activities,
Economic Action Plan 2012 proposes $500 million over five years,
starting in 2014–15, to the Canada Foundation for Innovation. The funding
will support new competitions, including for the College-Industry Innovation
Fund, with funding awarded in 2014–15.
Canada Foundation for Innovation Success Stories
Since its creation, the Canada Foundation for Innovation has supported
over 7,300 leading-edge research infrastructure projects at 130 research
institutions in 65 municipalities across Canada. Examples include:
• In Montréal, Quebec, the Canada Foundation for Innovation contributed
$8.4 million to the Université de Montréal for communications and
medical imaging equipment to conduct research on how to better treat
patients with heart and vascular diseases.
• In Oshawa, Ontario, the Canada Foundation for Innovation contributed
over $98,000 to the University of Ontario Institute of Technology to
support a cutting-edge research laboratory for integrated high-speed
broadband wireless communication systems.
• In Waterloo, Ontario, the Canada Foundation for Innovation has
contributed over $3.7 million to the University of Waterloo for
infrastructure to perform advanced research on materials and
manufacturing for lightweight automotive structures and advanced
occupant protection.
• In Halifax, Nova Scotia, the Canada Foundation for Innovation has
provided over $720,000 to Dalhousie University for equipment
to advance groundbreaking research that will enable new materials
for energy production, energy storage and sustainability.
• In Vancouver, British Columbia, the Canada Foundation for Innovation
has contributed $139,000 to the British Columbia Institute of
Technology for infrastructure at the Centre for Rehabilitation
Engineering and Technology that Enables (CREATE), which promotes
research and development in rehabilitation technologies.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
79
Supporting Canada’s Ultra-High Speed Research Network
Economic Action Plan 2012 proposes $40 million over two years to support the
operations of Canada’s ultra-high speed research network.
CANARIE is a not-for-profit organization that operates Canada’s only
ultra-high speed national research and education network, providing vital
infrastructure for world-leading research and innovation in Canada. To sustain
the evolution of the network and ensure that it continues to encourage world-
class research collaborations across the country, Economic Action Plan 2012
proposes $40 million over two years to CANARIE to support the operations
of Canada’s ultra-high speed research network.
The Canadian High Arctic Research Station
Economic Action Plan 2012 announces the Government’s ongoing commitment to
establishing the Canadian High Arctic Research Station.
Canada’s Economic Action Plan laid the groundwork to establish a world-
class research station in the North. As announced by the Prime Minister in
August 2010, the station will be located in Cambridge Bay. Once established,
the station will provide a year-round presence in the region and anchor the
network of research infrastructure across Canada’s North, making a
significant contribution towards the Government’s Northern Strategy.
The Government will be announcing next steps in the establishment of
the Canadian High Arctic Research Station in the coming months.
Extending Canada’s Participation in the International
Space Station Mission
Economic Action Plan 2012 confirms that Canada will continue its participation in
the International Space Station mission to 2020.
Canada’s participation in international space projects demonstrates its
position as a sophisticated research and innovation leader, with a global
advantage in several niche technology areas, including robotics. Beginning
with the first Canadarm, Canada has played a unique and privileged role with
respect to the operation of the International Space Station, alongside the
United States, the European Union, Russia and Japan. Using advanced
technology, Canadian astronauts such as Julie Payette and Chris Hadfield
have helped conduct world-class research on the International Space Station
in fields such as human space flight, physiology, physical science and
technology development. To sustain Canada’s leadership in space research,
the Government confirms that Canada will continue its participation in the
International Space Station mission to 2020. The Canadian Space Agency
will engage with NASA to define the terms of this continued participation.
Chapter 3.1
80
To explore how best to address key issues facing the aerospace and space
sectors, such as innovation, market access and development, skills
development, procurement, and supplier development, the Government
is proceeding with a review of federal aerospace and space programs and
policies. The Honourable David L. Emerson will head the review and will
report his findings to the Minister of Industry in late 2012.
Revitalizing Natural Resources Canada’s Satellite Station Facilities
Economic Action Plan 2012 proposes $23 million over two years for new satellite data
reception facilities and the development of a data management system.
With the second largest landmass on earth and the longest coastline in the
world, Canada relies on satellite technology to monitor its land and borders
and deliver critical activities, including emergency services (e.g. flood
mapping) and active monitoring of Canadian waters for the detection of oil
spills. Canada requires up-to-date reception capacity to reap the full benefits
from its observation satellites, including RADARSAT, in support of
sovereignty, public safety and economic competitiveness objectives. To
support the observation of Canada’s vast geography, Economic Action Plan
2012 proposes $23 million over two years to Natural Resources Canada for
new satellite data reception facilities and the development of a data
management system.
Supporting Atomic Energy of Canada Limited
Economic Action Plan 2012 proposes $107 million over two years to ensure a secure
supply of medical isotopes and maintain safe and reliable operations at Atomic Energy
of Canada Limited’s Chalk River Laboratories.
Atomic Energy of Canada Limited (AECL) is a federal Crown corporation
that specializes in a range of nuclear products and services. The Government
has taken an important step in positioning Canada’s nuclear industry
for future success with the sale of AECL’s CANDU Reactor Division last
October. The second phase of the restructuring of AECL—the restructuring
of its nuclear laboratories—is now underway. To ensure a secure supply of
medical isotopes and maintain safe and reliable operations at the Chalk River
Laboratories, Economic Action Plan 2012 proposes $107 million over
two years for AECL’s laboratory operations.
Supporting Jobs and Growth
Supporting Entrepreneurs, Innovators and World-Class Research
81
International Education Strategy
Education, innovation and knowledge are key drivers in a world economy.
Attracting more international students and researchers to Canada will create
jobs and economic growth, expand our people-to-people ties in priority
markets, showcase Canadian research excellence abroad, help produce a
more skilled workforce and foster closer ties between Canadian and
international educational institutions.
Recognizing the need for a comprehensive plan, Budget 2011 announced
Canada’s International Education Strategy. An expert Advisory Panel was
named in October 2011 and is chaired by Dr. Amit Chakma, President and
Vice-Chancellor, University of Western Ontario. The Panel has completed its
engagement with Canadian stakeholders and partners and will soon submit a
report with recommendations that will aim to deepen educational links
between Canada and international institutions and contribute to Canada’s
long-term prosperity.
Chapter 3.1
82
Table 3.1
Supporting Entrepreneurs, Innovators and World-Class Research
millions of dollars
2012–13 2013–14 Total
Creating Value-Added Jobs Through Innovation
Increasing Direct Support for Business Innovation
Doubling the Industrial Research Assistance Program
110 110 220
Supporting Private and Public Sector Research Collaboration
Integrating High-Quality Researchers Into the Labour Market
7 7 14
Strengthening Knowledge Transfer and Commercialization
12 12 24
Forestry Innovation and Market Development Support
55 50 105
Supporting Innovation Through Procurement
25 25
Refocusing the National Research Council
67 67
Scientific Research and Experimental Development
Tax Incentive Program
Increasing Cost-Effectiveness
Reduce Overhead Proxy Rate From 65 per cent to 55 per cent
-10 -10
Remove the Profit Element From Arm’s Length
Contract Payments
-25 -25
Enhancing Predictability
4 2 7
Subtotal—Creating Value-Added J obs Through Innovation 255 171 426
Support for Research, Education and Training
Supporting Advanced Research
Promoting Post-Secondary and Private Sector
Research Collaborations 37 37 74
Investing in Genomics Research
10 50 60
Investing in Mental Health Research
5
5
Promoting Cost-Effective Health Care
3 2 5
Diversifying Canada’s Medical Isotope Supply
7 10 17
Supporting Leading-Edge Researchers
5 5 10
Investing in Leading-Edge Research Infrastructure
Supporting Canada’s Ultra-High Speed Research Network
20 20 40
Revitalizing Natural Resources Canada’s Satellite
Station Facilities
8 16 23
Supporting Atomic Energy of Canada Limited
105 1 107
Subtotal—Support for Research, Education and Training
200 141 341
Total—Supporting Entrepreneurs, Innovators
and World-Class Research
454 312 767
Less funds existing in the fiscal framework 149 97 246
Net fiscal cost
306 215 521
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 3.2
Improving Conditons
for Business Investment
Supporting Jobs and Growth
Improving Conditions for Business Investment
85
HIGHLIGHTS
Responsible Resource Development
The Government is committed to improving the review process for major
economic projects to accelerate investment and job creation. Economic
Action Plan 2012 proposes:
? System-wide legislative improvements to the review process for major
economic projects to achieve the goal of “one project, one review” in
a clearly defined time period for major economic projects.
? $165 million over two years for responsible resource development that
creates jobs while protecting the environment.
Investing in Our Natural Resources
The Government is supporting the development of Canada’s natural
resource industries. Economic Action Plan 2012 proposes:
? Support for junior mineral exploration by extending the temporary
15-per-cent Mineral Exploration Tax Credit for flow-through share
investors for an additional year.
? Actions to improve access to modern, reliable seismic data for offshore
resource development.
? $12.3 million over two years to continue to assess diamonds in the North.
Expanding Trade and Opening New Markets
for Canadian Businesses
The Government is taking action to improve Canadians’ standard of living
by growing international trade and creating export opportunities for
Canadian businesses. Economic Action Plan 2012 proposes:
? Intensifying Canada’s pursuit of new and deeper international trade and
investment relationships, including updating the Government’s Global
Commerce Strategy.
? Implementing the Action Plan on Perimeter Security and Economic
Competitiveness and the Action Plan on Regulatory Cooperation, which
will facilitate trade and investment flows with the United States.
? Providing support to Canadian businesses through tariff and tax
measures, along with the extended provision of domestic financing
by Export Development Canada.
? Increasing travellers’ exemptions to modernize existing rules and facilitate
border processes for Canadians bringing goods home from abroad.
Chapter 3.2
86
Keeping Taxes Low for Job-Creating Businesses
The Government has reduced business taxes and is committed to keeping
taxes low. The Government has also taken action to enhance the neutrality
of the tax system to support growth and encourage investment to flow to its
most productive uses. Economic Action Plan 2012 proposes:
? Enhancing the neutrality of the tax system and further rationalizing
inefficient fossil fuel subsidies by phasing out tax preferences for
resource industries.
Improving Economic Conditions for Farmers and Fishermen
The Government is improving economic conditions for farmers and
fishermen. Economic Action Plan 2012 proposes:
? $44 million over two years to transition the Canadian Grain Commission
to a sustainable funding model.
? $10.5 million in 2012–13 to support key fisheries science activities.
Strengthening Business Competitiveness
The Government is taking action to improve the competitive position
of job-creating Canadian businesses. Economic Action Plan 2012 proposes:
? Reducing red tape through the “One-for-One” Rule and implementing
the Canada-United States Action Plan on Regulatory Cooperation.
? Reducing the tax compliance burden for businesses.
? Eliminating foreign investment restrictions for certain
telecommunications companies.
Further Developing Canada’s Financial Sector Advantage
The Government is proposing new initiatives that will further ensure that our
financial system remains strong and that it benefits all Canadians. Economic
Action Plan 2012 proposes:
? Introducing legislative amendments to support central clearing of
standardized over-the-counter derivative transactions, and to reinforce
Canada’s financial stability framework.
? The Government will introduce enhancements to the governance and
oversight framework for Canada Mortgage and Housing Corporation,
and is moving forward with a legislative framework for covered bonds.
Supporting Jobs and Growth
Improving Conditions for Business Investment
87
IMPROVING CONDITIONS FOR BUSINESS INVESTMENT
In a competitive global economy, Canadian entrepreneurs and businesses
need a competitive and efficient tax system, a modern regulatory system, a
well-functioning financial system and access to international markets. This
solid foundation allows Canadian firms to create jobs and growth by
exploiting opportunities at home and abroad.
The Government has a proven record of support for entrepreneurship,
investment and growth. Since 2006, the Government has worked to promote
investment and reduce regulatory impediments to business growth. As well,
the stimulus phase of Canada’s Economic Action Plan provided
unprecedented levels of funding to support the renewal of economically vital
public infrastructure across the country. It is no surprise that Forbes magazine
ranked Canada as the number one country in the world for doing business in
2011, citing our strong economic recovery and competitive tax system,
among other factors.
Economic Action Plan 2012 will continue the Government’s work to
improve business conditions in Canada. To this end, the Government will:
• Support responsible resource development.
• Invest in our natural resources.
• Expand trade and open new markets for Canadian businesses.
• Keep taxes low for job-creating businesses.
• Improve economic conditions for farmers and fishermen.
• Strengthen business competitiveness.
• Further develop Canada’s financial sector advantage.
Chapter 3.2
88
RESPONSIBLE RESOURCE DEVELOPMENT
Major economic projects create jobs and spur development across Canada.
In 2010, natural resource sectors employed over 760,000 workers in
communities throughout the country. In the next 10 years, more than
500 major economic projects representing $500 billion in new investments
are planned across Canada. A significant element of this economic boost is
represented by Canada’s unique oil sands industry, which employs over
130,000 people while generating wealth that benefits all Canadians. This
contribution is increasing: a recent study by the Canadian Energy Research
Institute estimates that in the next 25 years, oil sands growth will support, on
average, 480,000 jobs per year in Canada and will add $2.3 trillion to our
gross domestic product. Increasing global demand for resources, particularly
from emerging economies, will create new economic and job opportunities
from which all Canadians will benefit.
Canadians will only reap the benefits that come from our natural resources
if investments are made by the private sector to bring the resources to
market. Yet those who wish to invest in our resources have been facing an
increasingly complicated web of rules and bureaucratic reviews that have
grown over time, adding costs and delays that can deter investors and
undermine the economic viability of major projects.
To maximize the value that Canada draws from our natural resources, we
need a regulatory system that reviews projects in a timely and transparent
manner, while effectively protecting the environment. The Government
recognizes that the existing system needs comprehensive reform. The
Government will bring forward legislation to implement system-wide
improvements to achieve the goal of “one project, one review” in a clearly
defined time period. Economic Action Plan 2012 proposes to streamline the
review process for major economic projects, support consultation with
Aboriginal peoples, and strengthen pipeline and marine safety.
Supporting Jobs and Growth
Improving Conditions for Business Investment
89
Modernizing the Regulatory System for Project Reviews
The Government will propose legislation to streamline the review process for major
economic projects.
Since 2006, the Government has been working to streamline the review
process for major economic projects so that projects proceed in a timely
fashion while protecting the environment. For example, in 2010 the
Government amended the Canadian Environmental Assessment Act to
allow assessments to start sooner and reduce duplication, and created
participant funding programs to ensure meaningful public engagement in
the review process.
These steps have made a difference, but more needs to be done. Currently,
companies undertaking major economic projects must navigate a complex
maze of regulatory requirements and processes. Approval processes can be
long and unpredictable. Delays and red tape often plague projects with few
environmental risks. Under the current system, thousands of smaller projects
with little or no risk to the environment are caught up in the federal
environmental review process. The types of small projects that can be
needlessly subjected to lengthy reviews include construction of a new
pumping house for the expansion of a maple syrup plant, and the
replacement of an existing culvert under a causeway. By forcing these
thousands of low-risk projects to go through the review process, the current
system draws resources away from projects that have the greatest impact on
the environment. This approach is not economically sound or
environmentally beneficial.
In the federal government alone, accountability for assessments rests with
dozens of departments and agencies, each with its own mandate, processes,
information needs and timelines. This leads to duplication and a needless
waste of time and resources. For example:
• Enbridge proposed a new $2-billion pipeline connecting Hardisty,
Alberta to Gretna, Manitoba. Due to multiple approval processes, federal
departments made their decisions on the project two years after the
National Energy Board’s approval of the project.
• Areva Resources Canada has proposed the construction and operation of
a uranium mine and mining facilities in northern Saskatchewan, with
capital investment of up to $400 million and up to 200 construction jobs.
There was a 19-month delay in starting the environmental assessment.
The federal lead department changed midway through the environmental
review, which added unnecessary complexity.
Chapter 3.2
90
• The NaiKun Wind Energy Group is proposing to develop a
396-megawatt offshore wind energy project in Hecate Strait off the
northeast shores of Haida Gwaii in British Columbia. The company
estimates that the project would have a capital investment of $1.6 billion
and would create up to 200 construction jobs. The federal decision to
approve the process came 16 months after the provincial decision.
The starting point of federal environmental assessments can also be
unpredictable, which can cause lengthy delays. The Rabaska Partnership,
for instance, is proposing to construct and operate a liquefied natural gas
terminal near Beaumont and Lévis, Quebec, including a marine jetty to
receive tankers, on-shore facilities, and a new 50-kilometre pipeline to
connect to existing natural gas transmission networks. It took almost two
years before the federal panel began its review. Similarly, the federal
environmental assessment for the project began 10 months after Canpotex
Terminals Limited and Prince Rupert Port Authority submitted a project
description proposing to construct a 13-million-tonnes-per-year potash
export terminal with a deepwater marine wharf in Prince Rupert, British
Columbia. The proponents estimate that the project would have a
capital investment of $750 million and would create up to 800 jobs
during construction.
A further complication is overlapping federal and provincial regulatory
requirements and processes that require a high degree of coordination.
For example, an application for the Joslyn North Mine Project, an oil sands
mine located in northern Alberta, was submitted to the Province of Alberta
in 2006. A federal environmental assessment did not begin until 2008 and a
decision to approve the project was issued by the responsible federal
department in December 2011. The Lower Churchill Generation Project
includes two hydroelectric power generating facilities on the lower section of
the Churchill River in Labrador. A description of the project was submitted
to the federal and provincial governments in 2006, an environmental
assessment began in 2007 and the responsible federal departments approved
the project in March 2012. Under a modernized regulatory review system,
defined timelines will apply to environmental assessments, including for
panel reviews of projects such as the Lower Churchill Generation Project.
Both levels of government have recognized an urgent need to
reduce duplication.
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[Federal, provincial and territorial ministers] reaffirmed their
commitment to working toward the shared objective of one-
project/one-review for our environmental assessments and
associated regulatory processes to position Canada for long-term
growth and job creation while maintaining the highest standard of
environmental protection.
— Annual Energy and Mines Conference Communiqué, July 2011
Currently, over $3 billion in provincially approved projects are
stranded in the mire of federal process and delay. This is
unacceptable. Time is money. Duplication is waste. Tax dollars
are limited. We cannot afford to hold investment and jobs hostage.
Byzantine bureaucratic practices have no place in the 21
st
Century.
— British Columbia Speech from the Throne, February 2010
A positive area of cooperation between the federal government and
provinces was the conclusion in 2011 of the Canada-Quebec Accord for the
shared management of offshore petroleum resources. By clarifying the roles
and responsibilities of each level of government, this Accord will allow for
the development of oil and gas resources in the Gulf of St. Lawrence,
creating jobs and economic development while protecting fisheries and
the environment.
A modern regulatory system should support progress on economically viable
major economic projects and sustain Canada’s reputation as an attractive
place to invest, while contributing to better environmental outcomes.
Increased resource development activities can also offer new opportunities
for Aboriginal businesses and can generate well-paying jobs for Aboriginal
peoples near their communities. There are steps the Government can take to
improve consultations with Aboriginal peoples when it contemplates conduct
that might affect potential or established Aboriginal or Treaty rights.
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The Government will focus on four major areas to streamline the review
process for major economic projects:
• Making the review process for major projects more
predictable and timely.
• Reducing duplication and regulatory burden.
• Strengthening environmental protection.
• Enhancing consultations with Aboriginal peoples.
The Government will propose legislation to modernize the federal regulatory
system that will establish clear timelines, reduce duplication and regulatory
burdens, and focus resources on large projects where the potential
environmental impacts are the greatest.
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Summary of Key Improvements
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These measures will accelerate project development and directly lead to the
creation of high-paying, high-quality jobs including for engineers,
tradespeople and other skilled workers. The resulting economic activity will
stimulate additional job creation across the country.
Major Projects Management Office Initiative
Economic Action Plan 2012 proposes $54 million over two years to renew
the Major Projects Management Office initiative.
The Major Projects Management Office initiative has helped to transform
the approvals process for major natural resource projects by shortening
the average review times from 4 years to just 22 months, and improving
accountability by monitoring the performance of federal regulatory
departments. More than 70 major projects are currently benefitting from
the system-wide improvements made possible by the initiative (see map). To
continue to support effective project approvals through the Major Projects
Management Office initiative, Economic Action Plan 2012 proposes
$54 million over two years.
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Major Projects Management Office Initiative:
Current Projects
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Major Economic Projects Benefitting From the Major
Projects Management Office Initiati ve
Horn River Natural Gas Pipeline (British Columbia)
The Horn River Natural Gas Pipeline project connects natural gas supply
from northeastern British Columbia to an existing pipeline infrastructure.
The Major Projects Management Office initiative coordinated the federal
review of the project and approval was granted in February 2011,
17 months after receiving the description of the project.
Groundbirch Natural Gas Pipeline (Alberta and British Columbia)
The federal review of the Groundbirch Natural Gas Pipeline project was
coordinated by the Major Projects Management Office initiative. A
description of the pipeline, which would cross from Alberta into British
Columbia, was submitted to the Office in November 2008 and the project
was approved within 17 months in April 2010.
Bakken Oil Pipeline (Manitoba and Saskatchewan)
The Bakken Oil Pipeline, which will transport oil from Saskatchewan to
Manitoba, was approved by the federal government within 17 months in
March 2012. The review of the project, which was expected to trigger
statutory and regulatory obligations for several departments, was
coordinated by the Major Projects Management Office after receiving a
project description in October 2010.
Detour Lake Gold Mine (Ontario)
Approval for the Detour Lake Gold Mine project was granted by the Minister
of the Environment in December 2011. A description of the open-pit mine
project, which would be located in northeastern Ontario, was submitted in
October 2009. The Major Projects Management Office coordinated the
review of the project, which was expected to trigger statutory and
regulatory obligations for Fisheries and Oceans Canada, Natural Resources
Canada and Transport Canada, and the review of the project was completed
in 14 months.
Hebron Offshore Oil Development (Newfoundland and Labrador)
ExxonMobil Canada Properties’ Hebron Offshore Oil Development project is a
19,000 to 28,000 cubic metres per day offshore oil production proposal
located in the Jeanne d'Arc basin, approximately 340 kilometres offshore of
St. John's. The proposal consists of an offshore oil production system and
associated facilities. A project description was submitted in March 2009 and
the review was completed in January 2012.
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Major Economic Projects Benefitting From the Major
Projects Management Office Initiati ve (cont’d)
Matoush Uranium Exploration (Quebec)
The Matoush Uranium Exploration Ramp Access project involves the
excavation of an exploration ramp to determine the possibility of a uranium
mine within the James Bay and Northern Quebec Agreement territory
located approximately 260 kilometres north of Chibougamau in Quebec.
The project consists of a 2,405-metre ramp, at a maximum depth of
300 metres. Temporary structures will be built at the surface to support
the underground exploration. The project description was submitted in
September 2008 and the review was completed February 2012.
Consultation Under the Canadian Environmental
Assessment Act
Economic Action Plan 2012 proposes $13.6 million over two years to support
consultations with Aboriginal peoples.
The Government is committed to consulting with Aboriginal peoples in
the review of projects to ensure that their rights and interests are respected.
Consultations can also facilitate discussions on how Aboriginal peoples
can benefit from the economic development opportunities associated
with these projects. To support consultations with Aboriginal peoples related
to projects assessed under the Canadian Environmental Assessment Act,
Economic Action Plan 2012 proposes $13.6 million over two years to the
Canadian Environmental Assessment Agency.
Supporting Responsible Energy Development
Economic Action Plan 2012 proposes $35.7 million over two years to support
responsible energy development.
Safe navigation of oil tankers is very important to our Government. Oil
tankers have been moving safely and regularly along Canada’s West Coast
since the 1930s. For example, 82 oil tankers arrived at Port Metro Vancouver
in 2011. Nearly 200 oil or chemical tankers visited the Ports of Prince Rupert
and Kitimat over the past five years. They all did so safely.
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Oil tankers in Canada must comply with the safety and environmental
protection requirements of international conventions and, while in Canadian
waters, with Canada’s marine safety regulatory regime. These requirements
include double hulling of ships, mandatory pilotage, regular inspections and
aerial surveillance.
Any tanker built after July 6, 1993, must be double hulled to operate in
Canadian waters. A double hull is a type of hull where the bottom and sides
of a vessel have two complete layers of watertight hull surface. Tankers that
are not double hulled are being gradually phased out. And, for large crude oil
tankers, the phase-out date for single hulled vessels—like the Exxon
Valdez—was 2010, which means that all large crude tankers operating in our
waters today are double hulled.
In compulsory pilotage areas, the Pacific Pilotage Authority requires tanker
operators to take a marine pilot with local knowledge onboard before
entering a harbour or busy waterway. In special circumstances, more
stringent measures may be taken, including: requiring two pilots onboard oil
tankers; escort tugs; additional training standards; and navigational
procedures, restrictions and routing measures.
Transport Canada also targets high-risk vessels entering Canadian ports. The
department’s ship inspectors board and inspect foreign vessels, including oil
tankers, entering Canadian ports to ensure they comply with all of our rules.
In 2011, almost 1,100 inspections were carried out across Canada, 147 of
them on oil tankers.
Economic Action Plan 2012 proposes further measures to support
responsible energy development, including:
• New regulations which will enhance the existing tanker inspection regime
by strengthening vessel inspection requirements.
• Appropriate legislative and regulatory frameworks related to oil spills,
and emergency preparedness and response.
• A review of handling processes for oil products by an independent
international panel of tanker safety experts.
• Improved navigational products, such as updated charts for
shipping routes.
• Research to improve our scientific knowledge and understanding of
marine pollution risks, and to manage the impacts on marine resources,
habitats and users in the event of a marine pollution incident.
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These measures will ensure that pipelines in Canada are carefully monitored,
environmental consequences are understood and emergency response
is improved. Economic Action Plan 2012 proposes $35.7 million over
two year to further strengthen Canada’s tanker safety regime and support
responsible development.
Strengthening Pipeline Safety
Economic Action Plan 2012 proposes $13.5 million over two years to strengthen
pipeline safety.
The National Energy Board is an independent federal agency established
to regulate international and interprovincial aspects of the oil, gas and electric
utility industries, including international and interprovincial pipelines.
To increase the number of inspections of oil & gas pipelines from about
100 to 150 inspections per year, and double from 3 to 6 the number of
annual comprehensive audits to identify issues before incidents occur,
Economic Action Plan 2012 proposes $13.5 million over two years to the
National Energy Board. Funding for these activities will be fully cost-
recovered from industry.
The Northern Pipeline Agency
Economic Action Plan 2012 proposes $47 million over two years to the
Northern Pipeline Agency.
The Northern Pipeline Agency was created as a single window regulatory
body to oversee the planning and construction of a major pipeline—the
Alaska Pipeline—to transport natural gas from Alaska through Canada to
the lower 48 U.S. states. To carry out federal regulatory responsibilities
related to the Alaska Pipeline Project, Economic Action Plan 2012 proposes
$47 million over two years to the Northern Pipeline Agency. This funding
will be fully cost-recovered from industry.
Amending Mining Regulations
Economic Action Plan 2012 proposes $1 million over two years to amend metal
mining regulations.
Environment Canada is responsible for administering the key pollution
prevention provisions under the Fisheries Act, including the associated Metal
Mining Effluent Regulations. These regulations prescribe controls on the
effluents and waste rock that can be deposited into certain bodies of water.
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To address an existing regulatory gap and provide greater certainty for the
mining industry in Canada, Economic Action Plan 2012 proposes $1 million
over two years to Environment Canada to expand Metal Mining Effluent
Regulations to non-metal diamond and coal mines.
INVESTING IN OUR NATURAL RESOURCES
Canada’s rich natural resources contribute to jobs and growth in
communities across the country. The energy and mining sectors accounted
for nearly 10 per cent of Canada’s gross domestic product (GDP) in 2010,
and employed nearly 580,000 workers. Economic Action Plan 2012
announces new and renewed measures in support of energy and
mineral exploration.
Supporting Junior Mineral Exploration
Economic Action Plan 2012 proposes to extend the temporary 15-per-cent Mineral
Exploration Tax Credit for flow-through share investors for an additional year.
The temporary 15-per-cent Mineral Exploration Tax Credit for flow-through
share investors helps junior exploration companies raise capital by providing
an incentive to individuals who invest in flow-through shares issued to
finance mineral exploration. This credit is in addition to the regular
deduction provided for the exploration expenses “flowed through”
from the issuing company.
The credit is scheduled to expire on March 31, 2012. However, given
ongoing global uncertainty and in support of the exploration efforts of junior
exploration companies, Economic Action Plan 2012 proposes to extend the
credit for an additional year, until March 31, 2013.
It is estimated that the extension of this measure will result in a net reduction
of federal revenues of $100 million over the 2012–13 to 2013–14 period.
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Supporting Offshore Oil & Gas Exploration
Economic Action Plan 2012 proposes to amend the Coasting Trade Act to improve
access to modern, reliable seismic data for offshore resource development.
Offshore oil & gas developments create jobs and support economic growth
in Canada’s communities. Continued exploration activity is required to bring
new projects to communities and sustain these economic benefits over the
long term and depends on modern, reliable seismic technology and data. To
advance exploration for new developments, Economic Action Plan 2012
proposes to amend the Coasting Trade Act to improve access to modern,
reliable seismic data for offshore resource development. This will ensure
private sector companies have the information they require to
identify potential resource development opportunities.
Assessing Diamonds in the North
Economic Action Plan 2012 proposes $12.3 million over two years to continue to
assess diamonds in the North.
The natural resource sector in Canada’s North provides significant
employment and business opportunities for Aboriginal peoples and
communities. The Diamond Valuation and Royalty Assessment Program,
operated by Aboriginal Affairs and Northern Development Canada, ensures
that Canadians and Northerners benefit from the royalties associated with
diamond production in the region. To renew the Diamond Valuation and
Royalty Assessment Program, Economic Action Plan 2012 proposes
$12.3 million over two years to Aboriginal Affairs and
Northern Development Canada.
EXPANDING TRADE AND OPENING NEW MARKETS FOR
CANADIAN BUSINESSES
Our country’s prosperity is linked to reaching beyond our borders for
economic opportunities that serve to grow Canada’s trade and investment.
Open trade has long been a powerful engine for Canada’s economy. It is
even more so in these globally challenging economic times.
Our Government understands the importance of market openness to the
global economy and has shown continued leadership on the world stage by
opposing protectionism and trade-restrictive measures. Canada believes open
markets create jobs and economic growth for people around the world.
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Canada’s Leadership on Trade
Deepening Canada’s trade and investment relationships in large and fast-
growing export markets around the world is key to jobs and growth. In less
than six years, Canada has concluded new free trade agreements with nine
countries: Colombia, Jordan, Panama, Peru, the European Free Trade
Association (Iceland, Liechtenstein, Norway and Switzerland), and most
recently with Honduras. Canadian businesses and workers now have
preferred export access and a real competitive edge in key markets around
the world.
Since 2007, Canada has concluded or brought into force foreign investment
promotion and protection agreements with 10 countries (China, Peru, Latvia,
the Czech and Slovak Republics, Romania, Madagascar, Jordan, Bahrain and
Kuwait) and is in active negotiations with 10 others, including India.
Our Government recognizes that restrictions on imports and investment
stifle our exporters and undermine competitiveness. Over the past three
years, the Government has removed many of Canada’s self-imposed trade
costs to help businesses be more competitive. For example, since 2009, the
Government has eliminated all tariffs on imported machinery and
equipment, and manufacturing inputs to make Canada a tariff-free zone for
industrial manufacturers, the first in the G-20. These actions are providing
more than $410 million in annual tariff relief to Canadian businesses. Such
made-in-Canada measures have helped—and will continue to help—create
jobs for Canadians, increase investment and innovation, and
improve productivity.
Canada’s Trade Plan for Jobs and Growth
Economic Action Plan 2012 proposes to intensify Canada’s pursuit of
new and deeper trading relationships. Our Government understands that
Canadians’ standard of living and future prosperity depend on growing trade
and investment.
To that end, the Government is continuing to actively pursue new trade
and investment opportunities, particularly with large, dynamic and
fast-growing economies.
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Canada-U. S. Border and Regulatory Action Plans
In December 2011, Canada and the United States took the biggest step
forward in bilateral cooperation since the signing of the North American
Free Trade Agreement with the launch of the Action Plan on Perimeter
Security and Economic Competitiveness and the Action Plan on
Regulatory Cooperation. These agreements create a new, modern
border for a new century.
The Action Plan on Perimeter Security and Economic Competitiveness
provides a practical road map for speeding up legitimate trade and travel
across the Canada-U.S. border, while enhancing security. In a typical year,
more than $500 billion worth of two-way trade takes place between Canada
and the U. S. The most conservative estimates suggest that inefficiencies at
the Canada-U. S. border impose a direct cost on the Canadian economy of
1 per cent of GDP, or $16 billion a year. Even a modest improvement in
border efficiency will result in significant and lasting economic gains.
The best place to deal with security issues is at the continental perimeter.
Smarter systems can reduce the needless inconvenience posed to
manufacturers and travellers by multiple inspections of freight and baggage,
i.e. goods should be once screened, twice accepted. Pilot projects at Prince
Rupert and Montréal will begin soon. In addition to these pilot projects, the
Government will take other measures to implement action plan
commitments and other border improvements over the next two years.
Deeper Canada-China Ties
In order to benefit Canadian workers and businesses, our Government
continues to strengthen its ties with China, now Canada’s second largest
trading partner.
In February 2012, Canada announced that after 18 years of negotiation
Canada and China had concluded a Foreign Investment Promotion and
Protection Agreement. This landmark agreement will facilitate investment
flows between Canada and China by providing a more stable and secure
environment for investors on both sides of the Pacific. The potential for
increased Canadian investment in China is significant given that China is
expected to become the world’s largest economy by 2020.
Our Government will continue to actively engage with China to explore
how to best enhance our growing bilateral trade and economic relations.
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Canada-EU Trade Agreement
The Government is working to conclude negotiations toward a trade
agreement with the European Union (EU). This agreement will improve
access for Canadian businesses to the EU’s $18-trillion economy and
500 million consumers. The potential to Canadian workers and their families
from a Canada-EU free trade agreement include:
• A 20-per-cent boost in bilateral trade.
• A $12-billion annual boost to Canada’s economy.
Canada-India Trade Agreement
Our Government is committed to building on our strong ties with India to
create new opportunities and strengthen the economies of both countries.
In November 2010, the Prime Minister announced the start of trade
negotiations. This initiative underscores the dedication of both countries
to meeting a mutual goal of tripling bilateral trade to $15 billion annually
by 2015.
A Joint Study Report concluded that a new Canada-India trade agreement
could boost Canada’s economy by at least $6 billion, and directly benefit
Canadian businesses and workers in sectors ranging from primary
agricultural, resource-related and chemical products to transportation,
machinery and equipment, and services.
Trans-Pacific Partnership
In November 2011, the Prime Minister formally indicated Canada’s interest
in joining the Trans-Pacific Partnership (TPP) negotiations. The current TPP
members represent an export market of 505 million people and a GDP of
almost $17 trillion (2010).
Active and Ongoing Engagement in the Asia-Pacific Region
In the past few years, our Government has been aggressively expanding
commercial relations with the Asia-Pacific region to create jobs and
economic benefits. The opportunities in this dynamic region are impressive.
Asia-Pacific markets have an economic growth rate that is two to three times
the global average.
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Canada is maximizing opportunities for entrepreneurs through innovative
trade, investment, air transport, and science and technology agreements.
Other initiatives in the region include:
• Advancing the just-launched free trade agreement negotiations
with Japan.
• Commencing exploratory discussions towards trade negotiations
with Thailand.
• Adopting the Joint Declaration on Trade and Investment with the
Association of Southeast Asian Nations to increase Canada’s trade
and investment ties in the region.
• Signing air transport agreements with six Asia-Pacific countries.
Canada recently approved the issuance of a 20-year licence to export
liquefied natural gas from Kitimat, British Columbia to the Asia-Pacific
region. This initiative will allow Canada to diversify its energy exports to
growing markets in the Asia-Pacific region, further strengthening its trading
partnerships with Asian economies.
Canada in the Americas
In the Americas region, Canada has concluded trade agreements with the
United States, Mexico, Honduras, Panama, Costa Rica, Chile, Colombia
and Peru. Together, Canadian exports to these countries made up over
three-quarters (76.6 per cent) of Canada’s worldwide exports in 2010.
In June 2011, the Government announced that Canada is moving ahead
with exploratory discussions to enhance its trade relationship with South
America’s largest common market, Mercosur, whose members are Argentina,
Brazil, Paraguay and Uruguay. Mercosur countries represent an export
market of nearly 250 million consumers and account for almost three-
quarters of all economic activity in South America.
Deeper Canada-Africa Ties
Canada wants to deepen its commercial presence in Africa to create
opportunities for Canadian businesses and workers arising from Africa’s
present and future economic growth.
Opportunities in Africa for Canadian companies exist in sectors such as
telecommunications, agriculture, energy, transportation, infrastructure,
natural resources and education.
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In October 2011, Canada began negotiations towards a free trade agreement
with Morocco, Canada’s first with an African country.
Deepening Canada’s Trade and Investment Ties in Priority
Markets: A Refreshed Global Commerce Strategy
Economic Action Plan 2012 proposes to refresh the Global Commerce Strategy
through extensive consultations with Canada’s business community.
In 2007, the Government launched the Global Commerce Strategy to
respond to changes in the global economy and position Canada for
long-term prosperity. The Global Commerce Strategy identified 13 priority
markets around the world where Canadian opportunities and interests had
the greatest potential for growth. This led to five years of Canadian
leadership on the world stage in support of open trade, job creation,
economic growth and prosperity for Canadians.
Economic Action Plan 2012 proposes to refresh the Global Commerce
Strategy through extensive consultations with Canada’s business community,
including the very critical small and medium-sized businesses. An updated
Global Commerce Strategy will align Canada’s trade and investment
objectives with specific high-growth priority markets with an eye to ensuring
that Canada is branded to its greatest advantage within each of those
markets. In what remains a fragile global economic climate, the new Global
Commerce Strategy will be announced in 2013, and guide Canada’s trade
plan in priority markets going forward.
New Market Opportunities
Trading Partner
Population
(millions, 2010)
Gross Domestic Product
(billions of
US dollars, 2011)
Economic Growth
(per cent)
2010 2011
European Union 494 17,960 1.8 1.7
India 1,191 1,843 10.1 7.8
J apan 128 5,855 4.0 -0.5
TPP 505 17,804 3.5 1.9
Mercosur 244 3,025 8.0 4.8
Notes: Values for 2011 are estimates. Economic growth for the TPP and Mercosur is weighted by share of world output
at purchasing power parity, as per convention. TPP = Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore,
United States and Vietnam. Mercosur = Argentina, Brazil, Paraguay and Uruguay.
Sources: International Monetary Fund; Organisation for Economic Co-operation and Development (OECD).
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Trade Measures to Support the Energy Industry
Economic Action Plan 2012 proposes to restore the duty-free status of certain
imported fuels used as manufacturing inputs in energy and electricity production.
Canada’s energy sector is a vital component of the Canadian economy.
Recently, certain imported fuels used as manufacturing inputs in energy
and electricity production became subject to a 5-per-cent tariff as a result
of a Canada Border Services Agency ruling. Economic Action Plan 2012
proposes to restore the duty-free status of these inputs. Eliminating this tariff
will lower business costs by $30 million annually, improve the
competitiveness of the energy industry, including electricity generation
in Newfoundland and Labrador, and maintain the Government’s
commitment to make Canada a tariff-free zone for industrial manufacturers.
Export Development Canada
Economic Action Plan 2012 extends the temporary domestic powers provided
to Export Development Canada for an additional year.
Since 2009, Export Development Canada (EDC) has provided additional
financing support to Canadian exporters who were facing difficulties in
meeting their financing needs due to the financial crisis. While credit
conditions have continued to improve, credit availability remains limited in
some areas, in part due to the impact of developments outside Canada on
foreign banks. Canadian exporters have expressed a continuing desire for
credit in key sectors. Since 2009, EDC has provided over $6 billion in
additional financing capacity using its temporary domestic powers.
On March 8, 2012, the Government extended the temporary domestic
powers provided to EDC under Canada’s Economic Action Plan for an
additional year (until March 12, 2013) to help meet the financing needs of
Canadian exporters. The extension of EDC’s temporary domestic powers
until March 2013 will support further assessment and consultation with
stakeholders on EDC’s role in the domestic market. EDC will continue to
focus its domestic lending activities on filling gaps in a manner that is
coordinated with the Business Development Bank of Canada and
complements the activity of private sector financial institutions.
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Streamlining Canada’s Trade Remedy System
Economic Action Plan 2012 proposes to consolidate Canada’s trade remedy
investigation functions into one organization, under the Canadian International
Trade Tribunal.
Canada’s continued support for trade liberalization is complemented by
a strong and effective trade remedy system, which acts as an important
safety valve for Canadian manufacturers harmed by unfairly traded imports.
Canada’s trade remedy system is currently jointly administered by the
Canada Border Services Agency and the Canadian International
Trade Tribunal (CITT).
In Budget 2011, the Government committed to proposing initiatives
to ensure Canada operates an efficient trade remedy system. To deliver
on this commitment, the Government will introduce legislation to
consolidate Canada’s trade remedy investigation functions into one
organization, under the CITT. This restructuring will create efficiencies
that will help the Government maintain and sustain an effective trade remedy
system. This initiative will also cut red tape, making it less cumbersome for
Canadian businesses to take action against unfair trade, and will result in
cost savings.
Foreign Trade Zone Programming
In Budget 2011, the Government committed to review Canada’s foreign
trade zone (FTZ)-like policies and programs to ensure that they are
competitive, well marketed and efficiently administered. Consultations
concluded in February 2012.
The Government is carefully reviewing submissions to identify opportunities
to reduce red tape and costs, facilitate access to existing programs, and
improve efforts to promote our FTZ-like policies and programs as an
integral part of Canada’s tax and tariff advantages. The Government will
respond to the submissions received in a timely manner.
Increasing Travellers’ Exemptions
Economic Action Plan 2012 proposes to increase the value of goods that may be
imported duty- and tax-free by Canadian residents returning from abroad after a
24-hour and 48-hour absence to $200 and $800, respectively.
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Every year, Canadians take some 30 million overnight trips outside of
Canada, often returning with goods purchased abroad. Modernization of the
rules applied to these purchases is long overdue. Economic Action Plan 2012
proposes the most significant increase in the duty- and tax-free travellers’
exemptions in decades. The travellers’ exemption allows Canadians to bring
back goods up to a specified dollar limit without having to pay duties or
taxes, including customs duty, Goods and Services Tax/Harmonized Sales
Tax, federal excise levies and provincial sales and product taxes.
The Government proposes to increase the value of goods that may be
imported duty- and tax-free by Canadian residents returning from abroad
after a 24-hour and 48-hour absence to $200 and $800, harmonizing them
with U.S. levels. This measure will facilitate cross-border travel by
streamlining the processing of returning Canadian travellers who have made
purchases while outside Canada. This change will be effective beginning on
June 1, 2012. It is estimated that this measure will reduce federal revenues by
$13 million in 2012–13 and by $17 million in 2013–14.
New Travellers’ Exemption Limits
Length of Absence Current Limits Limits as of June 1, 2012
More than 24 hours $50 $200
More than 48 hours $400 $800
More than 7 days $750 $800
Tax Relief for Foreign-Based Rental Vehicles
Economic Action Plan 2012 proposes tax relief for Canadian residents
temporarily importing foreign-based rental vehicles to facilitate access to
Canadian tourism destinations.
To facilitate access to Canadian tourism destinations, Economic Action
Plan 2012 proposes to eliminate or reduce taxes on foreign-based rental
vehicles temporarily imported by Canadian residents, consistent with the
Government’s commitment under the Federal Tourism Strategy. These
changes will make it easier for Canadians who have been travelling abroad to
return to Canada to continue their touring and travelling activities with a
foreign-based rental vehicle. For example, a Canadian who takes a cruise
from British Columbia to Alaska and has been outside Canada for at least
48 hours would be able to rent a vehicle in Alaska and then enter the Yukon
for touring purposes without having to pay taxes on that vehicle at the
border. These changes will be effective starting June 1, 2012.
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International Taxation
Economic Action Plan 2012 proposes improvements to Canada’s system
of international taxation.
Canada’s system of international taxation plays a key role in providing
the right environment for cross-border trade and investment. In 2007,
the Government established the Advisory Panel on Canada’s System of
International Taxation, chaired by Mr. Peter Godsoe, with a mandate to
provide recommendations to improve the fairness and competitiveness of
Canada’s international tax rules.
The Panel’s December 2008 report concluded that Canada’s system
of international taxation is a good one that has served Canada well.
At the same time, given that the competitiveness landscape is continually
shifting, Canada’s international tax rules must constantly adapt to maintain
an appropriate balance of competitiveness, simplicity, fairness, efficiency
and protection of the tax base.
The Government has acted on a number of the Panel’s recommendations
and made other incremental improvements to the system of international
taxation. These past actions include:
• Repealing section 18.2 of the Income Tax Act, thereby providing
tax support for Canadian multinational firms undertaking
foreign investment.
• Narrowing the definition of taxable Canadian property, thereby
improving the ability of Canadian businesses, including innovative
high-growth companies that contribute to job creation and economic
growth, to attract foreign venture capital.
• Ensuring that taxpayers have an opportunity to apply for refunds
of tax withheld under section 105 of the Income Tax Regulations
and section 116 of the Income Tax Act after a reassessment by the
Canada Revenue Agency.
• Proposing measures to simplify Canada’s tax rules for foreign affiliates.
• Proposing simplified and more targeted rules for foreign investment
entities and non-resident trusts.
• Proposing measures to counter schemes, often referred to as “foreign tax
credit generators,” that were designed to shelter tax otherwise payable by
artificially increasing foreign tax credits.
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Improving Conditions for Business Investment
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Economic Action Plan 2012 introduces several additional improvements to
respond to the report of the Panel. Details of these measures can be found in
Annex 4. Going forward, the Government will continue to evaluate the
report of the Panel and consider additional improvements to Canada’s
international taxation rules.
Tax Treaties and Tax Information Exchange Agreements
The Government is actively negotiating and concluding tax treaties to reduce
tax barriers to international trade and investment, strengthen Canada’s
bilateral economic relationships, and create enhanced opportunities for
Canadian businesses abroad. Since 2007:
• New tax treaties with Gabon, Greece and Turkey have come into force.
• Updated tax treaties and protocols with Finland, Italy, Korea, Mexico,
Switzerland and the United States have come into force.
• New tax treaties with Colombia and Namibia have been signed.
• New protocols to update tax treaties with Austria, Barbados, France,
and Singapore have been signed.
• Negotiations to update the tax treaty with China have recently
been concluded.
• Negotiations for a new tax treaty with Hong Kong have begun.
• Negotiations to update tax treaties with Israel, the Netherlands,
New Zealand, Poland, Spain and the United Kingdom have begun.
Canada now has 89 tax treaties in force, 7 tax treaties and protocols signed
but not yet in force, and 11 tax treaties under negotiation.
The Government is committed to combating international tax evasion and to
ensuring tax fairness by implementing the standard developed by the
Organisation for Economic Co-operation and Development for the effective
exchange of tax information. The Government, in its 2007 budget, extended
the exemption for dividends received out of active business income earned
by foreign affiliates resident in tax treaty countries to also include active
business income earned by foreign affiliates established in a jurisdiction that
has agreed to a tax information exchange agreement (TIEA) with Canada.
This provided non-tax treaty jurisdictions an incentive to enter into TIEAs
with Canada. Since 2007, the Government has brought into force 13 TIEAs,
signed 3 other TIEAs, and is actively negotiating TIEAs with 14 other
jurisdictions, including negotiations recently launched with Panama.
Chapter 3.2
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Fostering Sustainable Global Growth
Persistent economic and financial difficulties in Europe and other parts of
the world are hindering economic recovery. Canada is playing a leadership
role in formulating global policy responses through institutions such as the
G-20 and the International Monetary Fund (IMF), and through its leadership
of the Financial Stability Board, which is chaired by Bank of Canada
Governor Mark Carney. Canada is also helping address development
challenges through focused programs and initiatives that meet the needs of
the developing world.
Providing Stewardship in the G-20
In September 2009, as part of its response to the global economic crisis, the
G-20 created the Framework for Strong, Sustainable and Balanced Growth.
The G-20 Framework is a forum where members identify and assess global
economic risks and vulnerabilities, and coordinate policies designed to foster
stronger, more sustainable and balanced economic growth. Canada and India
have co-chaired the Framework Working Group since its launch at the 2009
Pittsburgh Summit. In its capacity as co-chair, Canada has led the
development of action plans that deal with pressing global economic
concerns, and promote growth and prosperity across the globe.
The considerable progress achieved through this process culminated in the
Action Plan for Growth and Jobs agreed by Leaders in Cannes, France in
November 2011, which set out a broad range of reforms covering the key
policy areas across G-20 members. Looking ahead in 2012, Canada will
continue to provide leadership in developing an action plan for Leaders at
the upcoming G-20 Summit in Los Cabos, Mexico. The plan will monitor
progress in meeting past commitments and develop new commitments as
appropriate to address current global economic risks and vulnerabilities.
Strengthening the Legitimacy and Effectiveness of the
International Monetary Fund
The IMF is a key global institution in assisting the international community
through economic crises. In order to support its continuing role, the
Government of Canada is delivering on its commitment to ratify a historic
quota and governance reform agreement reached in 2010, which enhances
the IMF’s capacity to provide support to the global economy. These actions
should continue to strengthen the legitimacy and effectiveness of the IMF.
Supporting Jobs and Growth
Improving Conditions for Business Investment
113
To support accountability to Canadians, the Government is enhancing the
timeliness of its reporting on Canadian priorities and activities of the IMF
and World Bank by aligning the timing of its annual report to Parliament and
the public with the annual report on development assistance tabled annually
in the Fall.
Increasing the Impact of Canadian Development Assistance
Canadians want to help the world’s poor, but they want assurances that their
tax dollars are making a real difference in the lives of the people they are
intended to help. In Budget 2007, the Government committed to an
ambitious agenda to maximize the effectiveness of Canada’s international
assistance efforts. Considerable progress has been made in delivering on our
promise to make Canada’s aid more effective, particularly in the areas of
accountability for resources and results, transparency, and the use of
innovation to maximize the impact of aid.
Last year, Canada was the first to meet its G-8 commitment to double
investments in sustainable agricultural development. Currently, we are
leading global efforts on maternal, newborn and child health, as agreed at the
G-8 meeting in Muskoka in 2010. The Canadian International Development
Agency now delivers over 80 per cent of its bilateral assistance in a more
focused set of countries, which allows Canada to play a more influential role
in achieving enduring impacts in these countries. The Government has also
taken significant steps to improve the transparency of our spending to
Canadians and other countries, for example by joining the Open
Government Partnership and the International Aid Transparency Initiative.
In addition, Canada has supported development innovation, pioneering new
approaches to maximize impact and leverage private sector capital to address
global development challenges. Canada’s strategic investments over the past
several years are showing promising results including the accelerated
introduction of pneumococcal vaccines to protect the lives of the world’s
poorest children through the Advanced Market Commitment; progress by
Grand Challenges Canada in tackling critical barriers to solving some of the
most pressing global health challenges; and enhanced support for applied
research that demonstrates sustained and measurable impacts on food
security in developing countries through the Canadian International Food
Security Research Fund.
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Refocusing Canada’s Tariff Regime for Developing Countries
Economic Action Plan 2012 proposes to review Canada’s preferential tariff regime
for developing countries.
Since 1974, Canada has granted preferential market access to imports
from developing countries as a means to promote their economic growth
and export diversification. The global economic landscape has changed
considerably since then, including significant shifts in the income levels
and trade competitiveness of certain developing countries. To respond to
these developments and ensure that this form of development assistance
is appropriately aligned with our development policy objectives, the
Government will undertake a comprehensive review of Canada’s
General Preferential Tariff regime.
KEEPING TAXES LOW FOR JOB-CREATING BUSINESSES
A Competitive Business Tax System
This Government has implemented broad-based tax reductions that support
investment and growth across the Canadian economy. The Government is
delivering more than $60 billion of tax relief to job-creating businesses over
2008–09 and the following five fiscal years. Key actions include the following:
• To spur business investment and improve productivity, the Government
reduced the federal general corporate income tax rate to 15 per cent on
January 1, 2012, from 22.12 per cent in 2007. These tax reductions
include the elimination of the corporate surtax in 2008 for
all corporations.
• To help small businesses retain more of their earnings for investment,
expansion and job creation, the Government cut the small business tax
rate to 11 per cent in 2008 and increased the amount of income eligible
for this lower rate to $500,000 in 2009.
• To further spur investment in small businesses, the Government
increased the Lifetime Capital Gains Exemption on qualified small
business shares to $750,000 from $500,000 in Budget 2007, the first
increase in the exemption since 1988.
• To remove a disincentive for business investment, the Government
eliminated the federal capital tax in 2006. The Government also provided
the provinces with a temporary financial incentive to encourage them to
eliminate their general capital taxes and to eliminate or replace their
capital taxes on financial institutions with a minimum tax. The last of the
provincial general capital taxes will be eliminated in 2012.
Supporting Jobs and Growth
Improving Conditions for Business Investment
115
• To better support cross-border trade and investment and Canada’s
participation in the global economy, the Government has improved
Canada’s system of international taxation.
• To encourage investment to flow to its most productive uses and reduce
the tax burden on capital investment, the Government improved the
neutrality of the tax system by better aligning capital cost allowance rates
with the useful life of assets. For example, in 2007, the capital cost
allowance rate for manufacturing and processing buildings was increased
to 10 per cent from 4 per cent, and the rate for computers was increased
to 55 per cent from 45 per cent.
Lower general corporate income tax rates and other tax changes have
increased the expected rate of return on investment and reduced the cost
of capital (Chart 3.2.1), giving businesses strong incentives to invest and hire
in Canada.
Canada leads the G-7 with the lowest overall
tax rate on new business investment
Chart 3.2.1
Marginal Effective Tax Rate¹ on New Business Investment, 2014
1
The marginal effective tax rate (METR) on new business investment takes into account federal, provincial and
territorial statutory corporate income tax rates, deductions and credits available in the corporate tax system and
other taxes paid by corporations, including provincial capital taxes and retail sales taxes on business inputs.
The methodology for calculating METRs is described in the 2005 edition of Tax Expenditures and Evaluations
(Department of Finance). The METR includes measures announced as of January 1, 2012.
It excludes the resource and financial sectors and tax provisions related to research and development.
2
OECD average excludes Canada.
Source: Department of Finance.
Chapter 3.2
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The competitiveness of Canada’s business tax system is supported by
third-party analysis.
• KPMG’s publication Competitive Alternatives 2010 rigorously analyzed
the impact of federal, state, provincial and municipal taxes on business
operations, concluding that business tax costs in the United States
are more than 55 per cent higher than in Canada.
• According to the 2011 Forbes magazine feature, “The Best Countries
for Business,” Canada is the number one jurisdiction for doing business
among 134 countries studied.
• Economists Jack Mintz and Duanjie Chen published an 83-country
report on tax competitiveness. Their most recent report shows that
Canada went from being the least tax competitive G-7 country in 2005
to the most tax competitive country in the G-7 in 2011.
As shown in Chart 3.2.2, overall business investment in non-residential
construction and machinery and equipment in 2011 exceeded the pre-
downturn peak of 2008, and investment intentions for 2012 are
even stronger. This business investment increases the amount of machinery,
equipment, information technology and other physical capital in the
economy. A larger stock of capital, in turn, increases Canada’s productive
capacity, creates jobs and raises living standards.
Supporting Jobs and Growth
Improving Conditions for Business Investment
117
Low taxes are supporting record-high business
investment intentions
Chart 3.2.2
Business Investment in Canada
Note: Includes business investment in non-residential construction and machinery and equipment.
Source: Statistics Canada, Public and Private Investment Intentions.
Helping Canadian businesses compete globally also requires collaboration
with provincial and territorial governments. A number of provinces have
taken important actions to enhance Canada’s tax competitiveness and
contribute to a strong foundation for future growth. In addition, the
Government of Canada has a number of tax agreements with its provincial
and territorial partners that result in greater efficiency and simplicity of the
tax system, and work is ongoing to improve and enhance the application and
administration of these agreements.
Keeping taxes low for Canadian businesses is a cornerstone of this
Government’s long-term plan for jobs, growth and prosperity.
Chapter 3.2
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Enhancing the Neutrality of the Tax System
In 2009, along with other members of the G-20, the Government committed
to “rationalize and phase out over the medium term inefficient fossil fuel
subsidies.” This builds on the Government’s 2006 commitment to examine
opportunities to make the tax system more neutral across sectors, in order to
help ensure that investment is directed towards its most productive uses. In
support of these commitments, the Government announced in Budget 2007
and Budget 2011 the phase-out of all tax preferences for oil sands producers
relative to the conventional oil & gas sector.
Economic Action Plan 2012 proposes to further Canada’s efforts toward
rationalizing fossil fuel subsidies, reducing tax distortions and improving the
allocation of investment and capital within the Canadian economy by phasing
out tax preferences for resource industries.
Phasing Out the Atlantic Investment Tax Credit—Oil & Gas and Mining
Economic Action Plan 2012 proposes to phase out the Atlantic Investment Tax
Credit for investments in the oil & gas and mining sectors.
The Atlantic Investment Tax Credit is a 10-per-cent credit available for
certain investments in new buildings, machinery and equipment used in
the Atlantic region and the Gaspé Peninsula. Currently, the credit supports
investments in farming, fishing, logging, manufacturing and processing, oil
& gas, and mining.
The Canadian oil & gas and mining sectors have generally been performing
well, and investment by these industries in the Atlantic region is robust and
growing. Recognizing this, Economic Action Plan 2012 proposes to phase
out the Atlantic Investment Tax Credit for investments in the oil & gas, and
mining sectors.
The change will help improve the neutrality of the tax system for the oil
& gas, and mining sectors across Canada and constitutes further action by
Canada in support of the commitment by G-20 Leaders to rationalize and
phase out inefficient fossil fuel subsidies over the medium term.
Supporting Jobs and Growth
Improving Conditions for Business Investment
119
Phasing Out the Corporate Mineral Exploration and
Development Tax Credit
Economic Action Plan 2012 proposes to phase out the Corporate
Mineral Exploration and Development Tax Credit.
The mining sector has historically benefited from a number of targeted
income tax preferences. As a first step in meeting the objective of making
the tax system more neutral across mining and other industries, Economic
Action Plan 2012 proposes to phase out the 10-per-cent Corporate Mineral
Exploration and Development Tax Credit.
Actions taken by the Government since 2006, including corporate income
tax rate reductions and the elimination of the federal capital tax, have
increased the competitiveness of Canada’s mining sector. The Corporate
Mineral Exploration and Development Tax Credit is no longer necessary.
This change is expected to increase federal revenues by approximately
$10 million over the 2012–13 to 2013–14 period.
IMPROVING ECONOMIC CONDITIONS FOR
FARMERS AND FISHERMEN
Strengthening Agricultural Institutions
Economic Action Plan 2012 proposes $44 million over two years to transition the
Canadian Grain Commission to a sustainable funding model.
The agriculture sector was one of the most resilient through the economic
downturn. The near- and medium-term outlook for agricultural commodity
prices and farm income is strong. In 2009, the agriculture and agri-food
sector accounted for approximately 2 million jobs and 8 per cent of total
GDP. With nearly $35.5 billion in exports, Canada is the world’s fifth-largest
exporter of agriculture and food products.
The coming year will see a focus on setting the right conditions for farmers
and businesses in the agriculture and agri-food sector to compete and adapt.
The Government will work with its provincial and territorial partners,
and with industry, to develop a new federal-provincial-territorial agricultural
policy framework to replace the current Growing Forward agreement in
2013. The new five-year framework agreement will set out policies and
programs to support a modern, innovative and market-oriented sector. This
will include a refocused suite of Business Risk Management programs.
Chapter 3.2
120
The Government is delivering on its long-standing promise to give Western
Canadian farmers the freedom to market their own wheat and barley on the
open market. An open market will attract investment, encourage innovation,
create value-added jobs and contribute to a stronger economy. The
monopoly on the sale of Western Canadian wheat and barley for export and
domestic human consumption will end as of August 1, 2012. The
Government is committed to a smooth transition for farmers, which includes
a viable, voluntary Canadian Wheat Board as part of an open and competitive
Canadian grain market.
Efforts continue to modernize key institutions within the grain sector. To
support its transition to a sustainable funding model, Economic Action Plan
2012 proposes $44 million over two years to the Canadian Grain
Commission as it updates its fee structure.
Supporting Canada’s Fisheries
Economic Action Plan 2012 proposes $10.5 million in 2012–13 to support
key fisheries science activities.
Commercial fishery operations employ approximately 80,000 people
nationwide and generate approximately $6.8 billion in annual economic
activity through fishing, aquaculture and processing.
Scientific monitoring activities of key commercial stocks support
conservation and sustainability objectives while increasing economic
opportunity for fishermen by allowing higher catch levels to be set with
greater confidence. To support scientific activities of importance to industry,
Economic Action Plan 2012 proposes $10.5 million in 2012–13 for the
Department of Fisheries and Oceans. The Government will also take steps
to allow the use of fishery resources to help generate revenues to pay for
scientific activities.
STRENGTHENING BUSINESS COMPETITIVENESS
Fostering Foreign Investment
The Government will introduce targeted improvements to the foreign ownership review
process and be introducing legislative amendments to lift foreign investment restrictions
in the telecommunications sector for companies that hold less than a 10 per cent share
of the total Canadian telecommunications market.
Supporting Jobs and Growth
Improving Conditions for Business Investment
121
Foreign investment provides significant benefits to Canada through
knowledge, capital, access to new markets and the creation of high-value jobs
across the country. The Government is committed to an open investment
framework that encourages foreign investment in Canada as well as
Canadian business investment abroad, while safeguarding Canada’s interests.
The Investment Canada Act requires the review of significant foreign
investments in Canada in order to ensure that the investments bring a
net benefit to our country. To help strengthen investor confidence, the
Government will introduce targeted improvements to the administration
of the Act in the interests of greater transparency while preserving
investor confidentiality.
With respect to the telecommunications sector in particular, the
Government consulted with industry and consumer stakeholders on how
to increase foreign investment in a way that would maximize economic and
social benefits for Canadians.
The Government heard that liberalization of foreign investment in
the telecommunications sector can encourage greater competition by
strengthening the position of new entrants, improving access to capital
and enabling closer strategic partnerships. Liberalization could also
increase choice and lower costs for consumers, encourage innovation and
improve productivity.
The Government will be introducing amendments to the
Telecommunications Act to lift the foreign investment restrictions in that
Act for telecommunications companies that hold less than a 10 per cent
share of the total Canadian telecommunications market.
This targeted action will remove a barrier to investment for the companies
that need it most, a key consideration as the upcoming wireless auction
planned for 2013 is expected to be highly competitive and capital-intensive.
Reducing Red Tape
The Government is continuing to reduce regulatory burden faced by businesses.
Red tape hampers economic growth and erodes trust between government
and citizens. The Government is committed to removing bureaucratic
obstacles to businesses’ efforts to create jobs and growth.
Chapter 3.2
122
In January 2011, the Government created the Red Tape Reduction
Commission, fulfilling a Budget 2010 commitment. After a year of
extensive Canada-wide consultations, the Commission brought forward
recommendations to reduce irritants to business that impede growth,
competitiveness and innovation.
The Government responded earlier this year by implementing the
“One-for-One” Rule. Under this rule, every time the Government adopts
a new regulation, it must eliminate an existing one. When a new or amended
regulation increases administrative burden on business, the Government will
offset—from existing regulations—an equal amount of administrative
burden costs on business.
The President of the Treasury Board will develop an Action Plan to address
the Commission’s Recommendations Report in the coming months to
deliver better regulations that reduce frustration and lower costs for
Canadian business.
Red Tape Reduction Commission Membership
The Red Tape Reduction Commission was composed of Parliamentarians
and members of the private sector:
• The Honourable Tony Clement, President of the Treasury Board,
Lead Minister
• The Honourable Maxime Bernier, Minister of State (Small Business and
Tourism), Chair of the Commission
• William Aho, Central Mechanical Systems, Ltd.
• Dean Allison, Member of Parliament (Niagara West–Glanbrook)
• Bernard Bélanger, Premier Tech
• Lois Brown, Member of Parliament (Newmarket–Aurora)
• Stirling MacLean, WearWell Garments, Ltd.
• Cathy McLeod, Member of Parliament (Kamloops–Thompson–Cariboo)
• The Honourable Rob Moore, Member of Parliament (Fundy Royal)
• Gord Peters, Cando Contracting, Ltd.
• Denis Prud’homme, former owner of Prud’homme Trucking
• Catherine Swift, Canadian Federation of Independent Business
• Chris Warkentin, Member of Parliament (Peace River)
Supporting Jobs and Growth
Improving Conditions for Business Investment
123
The Government is also committed to implementing the Canada-United
States Action Plan on Regulatory Cooperation, announced on
December 7, 2011, by Prime Minister Harper and President Obama.
The Action Plan contains 29 initiatives to align the regulatory approaches
between Canada and the United States in areas of agriculture and food,
transportation, health and personal care products, chemical management,
the environment, and other cross-sectoral areas, without compromising
health, safety or environmental protection standards. The Action Plan will
help reduce barriers to trade, lower costs for consumers and business, and
create economic opportunities on both sides of the border.
Reducing the Tax Compliance Burden for Businesses
Economic Action Plan 2012 proposes measures to reduce the tax compliance burden
for small businesses and announces a number of administrative improvements by the
Canada Revenue Agency.
In PricewaterhouseCoopers’ 2012 international study analyzing the ease of
paying taxes, Paying Taxes 2012: The Global Picture, Canada ranks higher than
any other G-7 country based on the overall ease of complying with tax
obligations. PricewaterhouseCoopers also identified Canada as a potential
model for other countries’ tax systems from the perspective of a company
filing and paying taxes.
Reducing the Tax Compliance Burden Has
Positive Results
• The Canada-Ontario Tax Collection Agreement was amended to provide
for federal administration of Ontario’s corporate taxes for taxation years
that end after 2008. PricewaterhouseCoopers estimated that this change
reduces compliance costs by more than $135 million annually for Ontario
businesses, by allowing for a single annual tax form, a single tax collector
and one set of income tax rules.
• The frequency of tax remittance and filing requirements for small
businesses in the areas of income taxes, source deductions and sales
taxes was reduced by measures introduced in Budget 2007. More than
600,000 small businesses are able to benefit from these changes, with
the total number of filings and remittances for small businesses reduced
by more than one-third.
• The definition of taxable Canadian property was narrowed in
Budget 2010, thereby eliminating the need for tax reporting under
section 116 of the Income Tax Act for many investments. This improves
the ability of Canadian businesses, including innovative high-growth
companies that contribute to job creation and economic growth,
to attract foreign venture capital.
Chapter 3.2
124
Through ongoing review and revision of the tax system and its administration,
the Government is continuing to reduce the tax compliance burden, including
the following actions proposed or announced in Economic Action Plan 2012.
A Doubling of the Goods and Services Tax/Harmonized Sales Tax
(GST/HST) Streamlined Accounting Thresholds
The GST/HST streamlined accounting methods simplify compliance for
small businesses and public service bodies. Economic Action Plan 2012
proposes to double the thresholds for eligibility to use these methods
so that more small businesses and public service bodies have access to these
simplified approaches.
Simplified Administration for Partnerships
In order to reduce the workload for partnerships that want to file waivers,
Economic Action Plan 2012 proposes to amend the Income Tax Act to
provide the authority for a single designated partner to sign a waiver on
behalf of all partners.
Improvements to the Rules for Paying Eligible Dividends
Under existing rules, if a corporation wishes to pay dividends, and only a
portion of those dividends would be eligible for an enhanced dividend tax
credit, that portion must be paid as a separate dividend in order for investors
to be eligible to claim the enhanced dividend tax credit. Economic Action
Plan 2012 proposes amendments, for dividends paid on or after Budget Day,
to allow a corporation to pay a single dividend and designate a portion of it
as an eligible dividend.
Administrative Improvements That Enhance the Predictability
of the Scientific Research and Experimental Development (SR&ED)
Tax Incentive Program
Economic Action Plan 2012 announces administrative changes to the
SR&ED tax incentive program that will improve its predictability and reduce
the tax compliance burden. These initiatives will complement the SR&ED
Policy Review Project currently underway, which will consolidate and clarify
the administrative policies that are contained in about 70 documents
pertaining to the SR&ED tax incentive program.
Supporting Jobs and Growth
Improving Conditions for Business Investment
125
Written Responses to Business Enquiries
As of April 16, 2012, businesses will be able to submit questions and receive
answers to their specific business enquiries electronically using the Canada
Revenue Agency’s (CRA’s) secure My Business Account portal. These
written responses will provide businesses with increased confidence in
the information provided by the CRA and thus greater certainty in their
tax affairs.
Expansion of Web Forms for Information Returns
The CRA’s Web Forms electronic filing application for information returns
is an online service enabling the creation and secure filing of encrypted
returns over the Internet, including the filing of original, additional, amended
and cancelled slips. The CRA’s Web Forms service also validates data in real
time, prompts the user to correct errors before filing slips, automatically
calculates totals for the summary, and prints slips for recipients. Web Forms
now accepts 11 additional types of returns, and the limit on the number of
each type of form (e.g. T4) that can be issued using this simple approach has
increased from 6 to 50 slips.
Enhancements to the CRA’s Secure My Business Account Portal
The CRA’s My Business Account portal is a secure and convenient way to
access business accounts online and perform certain transactions. For
example, GST/HST returns have been able to be amended using My
Business Account since April 2011. As of April 16, 2012, business owners
will have the option to input an address change online, and balances such as
Non-Capital Losses and Refundable Dividend Tax on Hand from the last
five tax year-ends will be automatically displayed.
An Improved Business Section on the CRA’s Website
Modifications to the CRA’s website provide a “one-stop shop” for
businesses and a clear path to available electronic services with a new task-
based web page. By improving the ability of businesses to find and use
information and services on the CRA’s website, this initiative responds
to concerns raised during consultations held by the Red Tape
Reduction Commission.
Chapter 3.2
126
Graduated Penalties for Late Filing
The Government recognizes that Canadians and businesses, particularly
small businesses, invest time and effort to voluntarily comply with tax laws.
Budget 2011 announced a CRA review of the penalty structure for late-filed
information returns. After working with the Canadian Federation of
Independent Business and other organizations representing small businesses,
the CRA has instituted a new administrative policy to ensure that these
penalties are charged in a manner that is both fair and reasonable. Where a
business is unable to comply in a timely manner with a reporting obligation
related to certain information returns, such as T4s, reduced penalties will be
applied when the number of late-filed returns is small.
Continued CRA Progress on Tax Fairness
Information on complaints and disputes is now easier to access on the CRA
website through revised web pages that are simpler to use and were put in
place in December 2011. Visibility will be further improved by adding
information on recourse mechanisms to notices of assessment and
reassessment. The CRA is also updating publications related to tax fairness
and developing new content and new types of content, such as webinars on
redress mechanisms.
Taxation of Corporate Groups
Economic Action Plan 2012 reaffirms the Government’s commitment to continue
exploring whether new rules for the taxation of corporate groups could improve the
functioning of the corporate tax system.
Budget 2010 announced that the Government would explore whether new
rules for the taxation of corporate groups—such as the introduction of a
formal system of loss transfers or consolidated reporting—could improve
the functioning of the corporate tax system. Public consultations held
between November 2010 and April 2011 provided important feedback
from stakeholders that will be helpful going forward. Discussions with
stakeholders, including the provinces and territories, are ongoing.
As a new system for the taxation of corporate groups would constitute a
fundamental change to the Canadian corporate tax system, the Government
will be taking into account the potential effects on taxpayers and the
complexity of the tax system, any potential revenue impacts for federal,
provincial and territorial governments, and the impact that a new system
of group taxation could have on federal-provincial and federal-territorial
tax arrangements.
Supporting Jobs and Growth
Improving Conditions for Business Investment
127
If as a result of this exercise a new system of group taxation should be
proposed, stakeholders will be consulted again on the specific design
of the new system.
FURTHER DEVELOPING CANADA’S FINANCIAL
SECTOR ADVANTAGE
Canada’s financial system is widely considered to be one of the soundest,
most resilient and best regulated financial systems in the world. For the
fourth year in a row, the World Economic Forum has recognized our
banking system as the soundest in the world. Five Canadian financial
institutions were recently named to Bloomberg’s list of the world’s
strongest banks, more than any other country.
The Government has implemented a number of measures to maintain
Canada’s financial sector advantage and reinforce the stability of the sector.
Economic Action Plan 2012 proposes new initiatives that will build on the
significant steps taken since 2008 to further ensure that our financial system
remains strong and that it benefits all Canadians.
Fostering Stable, Competitive, Fair
and Efficient Capital Markets
In light of the Supreme Court’s securities reference, the Government is consulting with
provinces and territories, a number of which have reaffirmed their interest in working on
a cooperative basis towards a common securities regulator.
As part of the initiative to establish a Canadian securities regulator, in
May 2010 the Government referred the proposed Canadian Securities Act
to the Supreme Court of Canada for an opinion as to whether Parliament
has the constitutional authority to enact the proposed legislation. On
December 22, 2011, the Supreme Court determined that the proposed Act
as drafted was not constitutionally valid under the general branch of the
federal power to regulate trade and commerce. The Government of Canada
respects this decision and will act in accordance with it.
Chapter 3.2
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The Supreme Court also found that Parliament has a role with matters of
genuine national importance and scope, including management of systemic
risk and in ensuring fair and efficient capital markets nationally. The Supreme
Court indicated that “[t]he common ground that emerges is that each level of
government has jurisdiction over some aspects of the regulation of securities
and each can work in collaboration with the other to carry out its
responsibilities”. Accordingly, the Government is consulting with provinces
and territories, a number of which have reaffirmed their interest in working
on a cooperative basis towards a common securities regulator.
A common securities regulator would give Canada a competitive advantage
by reducing unnecessary compliance costs for issuers, strengthening our
ability to respond to financial instability, enhancing enforcement and better
serving the needs of all Canadians.
Preserving the Stability and Strength
of Canada’s Financial Sector
The Government will introduce legislative amendments to support central clearing
of standardized over-the-counter derivative transactions and to reinforce Canada’s
financial stability framework.
A well-capitalized financial sector and sound regulatory and supervisory
system meant that financial institutions in Canada were better able to weather
the 2008 global financial crisis than those in many other countries.
The Government remains committed to maintaining this advantage.
Canada has made significant progress in implementing the G-20 financial
sector reform agenda and will continue to play a leadership role in promoting
sound financial sector regulation internationally. Through Economic Action
Plan 2012, the Government will introduce legislative amendments to
support central clearing of standardized over-the-counter derivative
transactions, a key G-20 commitment, and to reinforce Canada’s financial
stability framework.
Enhancing the Governance and Oversight Framework
for Canada Mortgage and Housing Corporation
The Government will introduce enhancements to the governance and oversight
framework for Canada Mortgage and Housing Corporation. The Government
is also moving forward with a legislative framework for covered bonds.
Supporting Jobs and Growth
Improving Conditions for Business Investment
129
The Government continuously monitors housing finance risks and takes
action when necessary. Adjustments to the rules for government-backed
insured mortgages were announced in July 2008, February 2010 and
January 2011. In addition, in June 2011 Parliament approved legislation to
formalize arrangements with private mortgage insurers and Canada Mortgage
and Housing Corporation (CMHC), enhancing the Government’s ability to
manage risks arising from the mortgage insurance sector.
As part of the Government’s continuous efforts to strengthen the housing
finance system, the Government will introduce enhancements to the
governance and oversight framework for CMHC, contributing to the stability
of the housing market and benefitting all Canadians. The Government will
propose legislative amendments to strengthen oversight of CMHC and to
ensure its commercial activities are managed in a manner that promotes the
stability of the financial system.
The Government is moving forward with a legislative framework for covered
bonds. A legislative framework will support financial stability by helping
lenders find new sources of funding and by making the market for Canadian
covered bonds more robust. CMHC will be the administrator of this
covered bond program, which will be available to federally and provincially
regulated mortgage lenders in Canada.
Improving Access to Capital for Canadian
Financial Institutions
The Government will introduce legislative amendments to allow public sector
investment pools that satisfy certain criteria, including pursuing commercial objectives,
to directly invest in a Canadian financial institution, subject to approval by the
Minister of Finance.
At present, many countries allow public sector investment pools to invest in
financial institutions, while Canada provides for only limited access. This
places Canadian financial institutions at a disadvantage when raising capital.
However, public sector investment pools are currently allowed to invest in
other sectors of the Canadian economy. Permitting these pools of capital to
invest in Canadian financial institutions provides these institutions access to
new sources of stable long-term investment, which promotes financial stability.
Chapter 3.2
130
The Government will propose legislative amendments to allow public pools of
capital that satisfy certain criteria, including pursuing commercial objectives, to
make limited direct investments in a financial institution, subject to approval
by the Minister of Finance. The Minister of Finance’s approval would be
guided by factors such as the best interest of the financial sector and national
security considerations.
Clarifying Federal Jurisdiction Over Banking
The Government will introduce a preamble into the Bank Act to clarify the intent
that all banking activities throughout Canada be governed exclusively by the same
high-quality federal standards that have served Canadians so well.
Canadians benefit from one of the best-regulated banking sectors in the
world. Canada’s banking regulatory framework rests on stringent prudential
rules that ensure that our banking sector remains safe and sound and on
consumer protection rules that stress consumer choice and transparent
disclosure. These rules are enforced consistently by federal regulatory
agencies including the Office of the Superintendent of Financial Institutions
and the Financial Consumer Agency of Canada. The Government will
introduce a preamble into the Bank Act to clarify the intent that all banking
activities throughout Canada be governed exclusively by the same high-
quality federal standards that have served Canadians so well, and to avoid the
creation of local and potentially inconsistent rules that threaten the uniform
application of the federal banking regulatory framework.
Clarifying the Separation of Insurance and Banking
As previously announced in December 2011, the Government will propose a legislative
amendment to clarify the prohibition against banks offering life annuities or products
of a similar nature.
The Government has a long-standing policy of separating the business
of insurance from the business of banking. This ensures that financial
institutions are subject to the regulatory regime that properly addresses
the risk that they undertake. In line with this policy, and as announced by
the Minister of Finance in December 2011, the Government will propose a
legislative amendment to clarify the prohibition against banks offering life
annuities or products of a similar nature.
Supporting Jobs and Growth
Improving Conditions for Business Investment
131
Continuing to Fight Counterfeit Bank Notes
Economic Action Plan 2012 provides $9.6 million over three years to the Royal
Canadian Mounted Police to continue the National Counterfeit Enforcement Strategy.
In 2011, the Bank of Canada began to issue more-secure polymer bank
notes. In transitioning to these new notes, the Government must guard
against the risk that counterfeiters will attempt to liquidate their inventory of
older notes or seek to take advantage of the unfamiliarity of Canadians with
the new notes. Economic Action Plan 2012 provides $9.6 million over three
years to ensure that the Royal Canadian Mounted Police has the funding
necessary to continue the National Counterfeit Enforcement Strategy, first
announced in Budget 2006. The National Counterfeit Enforcement Strategy
provides dedicated resources for the enforcement, prosecution and
prevention of currency counterfeiting. Since its inception, counterfeiting has
been reduced from 470 parts per million in 2004 to 34 parts per million
in 2011.
Chapter 3.2
132
Table 3.2
Improving Conditions for Business Investment
millions of dollars
2012–13 2013–14 Total
Responsible Resource Development
Major Projects Management Office Initiative 27 27 54
Consultation Under the Canadian Environmental
Assessment Act
7 7 14
Supporting Responsible Energy Development 12 24 36
Strengthening Pipeline Safety 7 6 14
The Northern Pipeline Agency 24 23 47
Amending Mining Regulations 1 1 1
Subtotal—Responsible Resource Development 78 87 165
Investing in Our Natural Resources
Supporting J unior Mineral Exploration 130 -30 100
Assessing Diamonds in the North 6 6 12
Subtotal—Investing in Our Natural Resources 136 -24 112
Expanding Trade and Opening New Markets for
Canadian Businesses
Trade Measures to Support the Energy Industry 30 30 60
Increasing Travellers’ Exemptions 13 17 30
Tax Relief for Foreign-Based Rental Vehicles - - -
Subtotal—Strengthening Canada's Trading Relationships
and Supporting Sustainable Global Growth 43 47 90
Keeping Taxes Low for Job-Creating Businesses
Enhancing the Neutrality of the Tax System
Phasing Out the Corporate Mineral Exploration and
Development Tax Credit -10 -10
Improving Economic Conditions
for Farmers and Fishermen
Strengthening Agricultural Institutions 27 17 44
Supporting Canada’s Fisheries 11 11
Subtotal—Improving Economic Conditions for Farmers
and Fishermen
38 17 55
Further Developing Canada’s Financial Sector Advantage
Continuing to Fight Counterfeit Bank Notes 3 3 6
Total—Improving Conditions for Business Investment
298 120 418
Less funds existing in the fiscal framework 85 71 156
Net fiscal cost 212 50 262
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 3.3
Investng in Training,
Infrastructure and Opportunity
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
135
HIGHLIGHTS
Supporting Job Creation, Small Business and Skills Training
The Government is committed to supporting job creation by small
businesses and opportunities for under-represented groups in the workforce.
Economic Action Plan 2012 proposes:
? Investing $205 million to extend the temporary Hiring Credit for Small
Business for one year.
? Providing an additional $50 million over two years to the Youth
Employment Strategy to assist more young people in gaining tangible
skills and experience.
? Providing $6 million over three years to extend and expand the
ThirdQuarter project to key centres across the country.
? Improving labour market opportunities for Canadians with disabilities
by investing $30 million over three years in the Opportunities Fund
and by creating a panel on labour market opportunities for persons
with disabilities.
? Promoting the involvement of small and medium-sized enterprises
in shipbuilding projects.
Improving the Employment Insurance Program
The Government is committed to making targeted, common-sense
changes to make Employment Insurance (EI) a more efficient program
that is focused on job creation and opportunities. Economic Action
Plan 2012 proposes:
? Limiting EI premium rate increases to 5 cents each year until the
EI Operating Account is balanced.
? Providing $21 million over two years to enhance the content and
timeliness of the job and labour market information that is provided
to Canadians who are searching for employment.
? Investing $74 million over two years to ensure that EI claimants
benefit from accepting work.
? Investing $387 million over two years to align the calculation of
EI benefit amounts with local labour market conditions.
Chapter 3.3
136
Expanding Opportunities for Aboriginal Peoples to Fully
Participate in the Economy
The Government is committed to expanding opportunities for
Aboriginal peoples to fully participate in the labour market. Economic
Action Plan 2012 proposes:
? Providing $275 million over three years to support First Nations
education and build and renovate schools on reserve.
? Committing to work with willing partners toward passage of legislation
that will establish the structures and standards to support strong and
accountable education systems on reserve.
? Announcing the Government’s commitment to improve the incentives in
the on-reserve Income Assistance Program while encouraging those who
can work to access training so they are better equipped for employment.
? Providing $33.5 million in 2012–13 to extend the Atlantic Integrated
Commercial Fisheries Initiative and the Pacific Integrated Commercial
Fisheries Initiative.
? Providing $27 million over two years to renew the Urban
Aboriginal Strategy.
Building a Fast and Flexible Economic Immigration System
The Government is committed to transitioning to a faster and more flexible
economic immigration system. Economic Action Plan 2012 proposes:
? Announcing the Government’s intention to better align the Temporary
Foreign Worker Program with labour market demands and to ensure that
businesses look to the domestic labour force before accessing the
Temporary Foreign Worker Program.
? Signalling the Government’s intention to support further improvements
to foreign credential recognition and to work with provinces and
territories to identify the next set of target occupations for inclusion,
beyond 2012, under the Pan-Canadian Framework for the Assessment
and Recognition of Foreign Qualifications.
? Proposing to return applications and refund up to $130 million in fees
paid by certain federal skilled worker applicants who applied under
previous criteria established prior to February 27, 2008.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
137
Strengthening Canada’s Public Infrastructure
The Government is building on recent actions to modernize Canada’s public
infrastructure. Economic Action Plan 2012 proposes:
? $150 million over two years for a new Community Infrastructure
Improvement Fund to support repairs and improvements to existing
community facilities.
? Amendments to the Yukon Act, the Northwest Territories Act
and the Nunavut Act to create new regulations that will ensure
consistent treatment of borrowing across the three territories and with
their Public Accounts.
? $105 million in 2012–13 on a cash basis to support VIA Rail Canada’s
operations and capital projects.
? $27.3 million over two years to support the divestiture of regional ports
and the continued operation and maintenance of federally owned ports.
? $5.2 billion over the next 11 years on a cash basis to renew the Canadian
Coast Guard fleet.
? $101 million over the next five years on a cash basis to restore and
modernize the Esquimalt Graving Dock.
Chapter 3.3
138
SUPPORTING JOB CREATION
Canada’s well-trained and highly educated workforce is one of our key
advantages in competing and succeeding in the global economy. However,
too often barriers or disincentives discourage workforce participation. Better
utilizing Canada’s workforce and making Canada’s labour market more
adaptable will help ensure our long-term economic growth.
That is why, since 2006, the Government has placed a strong emphasis
on access to skills training, support for post-secondary education, building a
fast and flexible economic immigration system, and developing untapped
potential in the labour market.
The Government makes considerable investments in support of families
and individuals, labour market development, labour force attachment and
job readiness. This includes $16.7 billion in Employment Insurance benefits,
$10.1 billion annually in support of post-secondary education and $2.5 billion
annually for labour market agreements with the provinces and territories.
Canada’s immigration system supports a vibrant workforce by attracting
skilled workers who will contribute to the growth of our economy. The
Government also encourages under-represented groups to participate in the
labour market through initiatives such as the Youth Employment Strategy,
the Targeted Initiative for Older Workers, the Opportunities Fund for
Persons with Disabilities, and the Aboriginal Skills and Employment
Training Strategy.
Economic Action Plan 2012 builds on these initiatives with an enhanced
labour market focus and a number of targeted investments that will help
respond to current labour market challenges and meet longer-term labour
market needs. The Government will introduce measures to streamline
processes and increase funding to better integrate certain under-represented
groups in the labour force, including immigrants, persons with disabilities,
youth, Aboriginal peoples and older Canadians.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
139
SUPPORTING JOB CREATION, SMALL BUSINESS
AND SKILLS TRAINING
Economic Action Plan 2012 announces a number of measures to address
short-term labour market challenges and meet long-term market needs.
Extending the Hiring Credit for Small Business
Economic Action Plan 2012 proposes $205 million to extend the Hiring Credit
for Small Business for one year.
Small businesses are the engine of job creation in Canada, and are
indispensable in their role as job creators. In recognition of the challenges
faced by small businesses across the country, Budget 2011 announced a
temporary Hiring Credit for Small Business of up to $1,000 per employer.
This credit provided needed relief to small businesses by helping defray the
costs of hiring new workers and allowing them to take advantage of
emerging economic opportunities.
As the economy continues to recover amid continuing global economic
uncertainty, Economic Action Plan 2012 proposes to extend the temporary
Hiring Credit for Small Business for one year. A credit of up to $1,000
against a small employer’s increase in its 2012 EI premiums over those paid
in 2011 would be provided. This temporary credit would be available to
approximately 536,000 employers, whose total EI premiums were at or
below $10,000 in 2011, reducing small business 2012 payroll costs by about
$205 million.
It [the Hiring Credit for Small Business] is a popular measure
among all SMEs [small and medium-sized enterprises] but is
particularly important among growing firms as it helps them
strengthen business performance.
— Canadian Federation of Independent Business,
December 2011
Chapter 3.3
140
How the Hiring Credit for Small Business Works
Drew and Ali own a small pizza parlour. They employed five people in 2011
and had a total payroll of $125,000. Their total EI premiums in 2011 were
$3,108. Since business is improving in 2012, they have hired a new
employee, which will bring their total payroll to $150,000. The Hiring Credit
for Small Business will provide them with a credit of $732, equal to what
would otherwise have been the increase in their 2012 EI premiums over
those paid in 2011.
The Canada Revenue Agency will automatically calculate the Hiring Credit
when Drew and Ali file their 2012 tax return. They do not need to apply,
avoiding red tape and needless delays.
Enhancing the Youth Employment Strategy
Economic Action Plan 2012 proposes $50 million over two years to enhance
the Youth Employment Strategy.
Young workers entering the workforce are facing an uncertain job market.
At the same time, some sectors are facing growth-limiting labour shortages,
which young Canadians should be equipped to fill. The Government
currently invests more than $330 million annually to support young
Canadians through the Youth Employment Strategy, including youth at risk
and recent post-secondary graduates. Last year alone, this investment helped
to connect nearly 70,000 Canadian youth with the work experience and skills
training they need to build a foundation for success in the job market.
Economic Action Plan 2012 builds on this investment by providing an
additional $50 million over two years to assist more young people in gaining
tangible skills and experience. This funding will focus on connecting young
Canadians with jobs in fields that are in high demand.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
141
Helping Canadian Youth Gain Skills and Experience
Through the Youth Employment Strategy
The Centre for Skills Development & Training in Burlington, Ontario provided
employability skills interventions to 62 youth with barriers to employment
under a Skills Link project. The participants benefited from hands-on
workshops in the skilled trades of construction, manufacturing and
electrical. At the end of the project, 70 per cent of the participants were
either employed or had returned to school.
In 2010–11, the reachAbility Association provided employability skills
interventions to 10 youth with barriers to employment in Halifax, Nova
Scotia under a Skills Link project. The participants benefited from various
hands-on workshops that focused on subjects such as computer use,
research and networking. At the end of the project, 80 per cent of the
participants were employed or had returned to school.
From September 7, 2010 to June 10, 2011, the YMCA of Greater
Vancouver provided career-related work experiences to 73 unemployed
or underemployed post-secondary graduates across British Columbia.
The participants gained 4 to 6 months of work experience in green sectors
of the economy. At the end of the project, 74 per cent of the participants
were employed and 3 per cent had returned to school.
From October 25, 2010 to May 31, 2011, the Canadian Media Production
Association provided career-related work experience to 40 unemployed or
underemployed post-secondary graduates in eight provinces across Canada.
The participants gained 24 weeks of hands-on work experience in the field
of film, television, and the interactive media production industry. At the end
of the project, 82 per cent of the participants were employed and 2 per cent
had returned to school.
ThirdQuarter Project
Economic Action Plan 2012 proposes $6 million over three years to extend and
expand the ThirdQuarter project to key centres across the country.
Older workers face particular challenges in finding employment, despite their
skills and experience being valuable assets to employers and the labour
market. The Targeted Initiative for Older Workers is a federal-provincial-
territorial employment program that provides a range of employment
activities for unemployed older workers in vulnerable communities with
populations of less than 250,000 to help them stay in the workforce.
Budget 2011 provided $50 million over two years to extend this program
until 2013–14, helping to ensure that displaced older workers have access to
the training and employment programs they need to secure new employment.
Chapter 3.3
142
The ThirdQuarter project is an innovative initiative, led by the Manitoba
Chamber of Commerce, to help employers find experienced workers who
are over 50. It provides an online forum that makes it easier for individuals
to find jobs that match their skills, while helping businesses and
organizations narrow the field of potential employees to those who have
the skills they are seeking. ThirdQuarter was initially launched in
14 communities in British Columbia, Saskatchewan, Manitoba and the
Atlantic provinces, where it has successfully connected employers with the
experienced workers they had been seeking, leading to 900 older workers
being hired.
In addition to the measures the Government has in place to support the
employment of older Canadians who wish to remain in the workforce,
Economic Action Plan 2012 is providing flexibility in the Old Age Security
(OAS) program for those who wish to defer retirement. Starting on
July 1, 2013, the Government will allow for the voluntary deferral of the
OAS pension, for up to five years, allowing Canadians the option of
deferring take-up of their OAS pension to a later time and receiving a higher,
annual pension. In addition, Economic Action Plan 2012 provides the option
to work longer and receive higher annual benefits.
Improving Labour Market Opportunities for
Canadians With Disabilities
Economic Action Plan 2012 proposes $30 million over three years to the
Opportunities Fund and announces the creation of a panel on labour market
opportunities of persons with disabilities to improve their labour market participation.
Canadians with disabilities are disproportionately impacted by economic
turbulence and encounter unique challenges in finding jobs during a period
of economic recovery. Many employers have experienced first-hand the
invaluable contribution Canadians with disabilities make to their businesses.
This Government recognizes that economic growth and prosperity requires
greater participation of Canadians with disabilities in the job market.
The Government supports the participation of persons with disabilities in
the economy through transfers to the provinces and territories such as
the Labour Market Agreements for Persons with Disabilities ($218 million
annually) and the Labour Market Agreements ($500 million annually).
The Government also invests $30 million annually through the
Opportunities Fund for Persons with Disabilities to connect individuals with
the skills and work experience needed to participate fully in the economy.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
143
Economic Action Plan 2012 will invest an additional $30 million over three
years in the Opportunities Fund to enable more Canadians with disabilities
to obtain work experience with small and medium-sized businesses, and to
ensure employers are aware of the invaluable contribution persons with
disabilities can make to their business and the Canadian economy.
The Government will also establish a panel on the labour market
opportunities of persons with disabilities. The panel will identify private
sector successes and best practices with regard to the labour market
participation of persons with disabilities. The Minister of Finance and the
Minister of Human Resources and Skills Development will review the panel’s
report by the end of 2012.
Helping Canadians With Disabilities Gain Employment
and Work Experience Through the Opportunities Fund
From April 1, 2008 to March 31, 2011, the Canadian Council on
Rehabilitation and Work provided employment services to 1,607 people
with disabilities in British Columbia, Saskatchewan, Manitoba, New
Brunswick, and Newfoundland and Labrador under a $2.6-million
Opportunities Fund project. At the end of the project, 572 participants
were employed and 45 had returned to school.
From April 1, 2008 to March 31, 2011, the Neil Squire Society provided
employment services to 571 people with disabilities in British Columbia,
Saskatchewan, Ontario and New Brunswick under a $3.5-million
Opportunities Fund project. At the end of the project, 201 participants
were employed and 77 had returned to school.
The participants in both these initiatives benefited from interventions that
focused on skills development and work experience—often using wage
subsidies to help employers hire people with disabilities.
In 2010, SPHERE-Québec received $8.6 million over three years from the
Opportunities Fund for the coordination of projects aimed at helping persons
with disabilities in Quebec acquire a wide range of skills and work
experiences. In 2010, the Government also contributed $157,094 to the
organization for its project Imagine…ton avenir!, which aims to give youth
with disabilities a better chance at finding jobs.
Women on Corporate Boards
Economic Action Plan 2012 announces the creation of an advisory council of
leaders from the private and public sectors to promote the participation of women
on corporate boards.
Chapter 3.3
144
Canadian women have high levels of education and business experience.
Many lead successful businesses and are active members of corporate boards.
Yet they remain under-represented on boards of directors and in top
leadership positions. Increasing opportunities for women to serve on
corporate boards makes good business sense for Canadian women and for
Canada’s economy. The Minister for Status of Women will work with the
private sector to promote the participation of women on corporate boards
and champion their leadership. Through the creation of an advisory council
of leaders from the private and public sectors, the Government will work
with the private sector to link corporations to a network of women with
professional skills and experience.
Promoting Widespread Opportunities
From Federal Shipbuilding
Economic Action Plan 2012 confirms measures to promote the involvement of small
and medium-sized enterprises in shipbuilding projects.
In 2010, the Government announced the $35-billion National Shipbuilding
Procurement Strategy. A major milestone was reached in February 2012 with
the signing of umbrella agreements with Irving Shipyard of Halifax and
Vancouver Shipyards for the large combat and non-combat ship
construction work valued at $33 billion. These shipyards were selected
through an open, fair and transparent competition. Contracts for small vessel
construction, valued at $2 billion, will be awarded to other Canadian
shipyards, and ongoing refit and repair work valued at $500 million annually
will be open to all shipyards through a competitive process. Together, these
investments will revitalize the marine industry in Canada and deliver the vital
equipment required by Canada’s naval and Coast Guard personnel to defend
our sovereignty and national security, as well as advance Canadian
interests abroad.
The National Shipbuilding Procurement Strategy is expected to provide
thousands of high-value jobs over the next 20 to 30 years, providing stability
for shipbuilders across the country. The Canadian Association of Defence
and Security Industries has estimated that 15,000 direct and indirect jobs may
be created over the coming decades. Economic benefits from the
shipbuilding will flow to the broader marine industry, generating employment
for skilled workers in a variety of sectors, such as steel manufacturing,
information technology and defence systems.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
145
The Government wants small and medium-sized enterprises to have all the
information they need to be ready to take advantage of opportunities arising
from the building of federal ships. The result is the Atlantic Shipbuilding
Action Plan and the Western Canada Shipbuilding Action Plan. These Action
Plans are designed to promote the active participation of small and medium-
sized businesses in the supply chains that will result from the building of the
ships and thus create growth and jobs throughout the regions.
IMPROVING THE EMPLOYMENT INSURANCE PROGRAM
Employment Insurance (EI) is Canada’s single largest labour market
program, providing income replacement to help individuals and their
families, as well as training and other labour market supports to help
Canadians return to employment. As Canada’s economy and labour market
context change over time, the Government must ensure EI remains effective
and efficient in support of job creation and economic growth. Economic
Action Plan 2012 proposes a number of targeted, common-sense changes to
make EI a more efficient program that promotes job creation, removes
disincentives to work, supports unemployed Canadians and quickly connects
people to jobs.
Stable and Predictable EI Premium Rates
Economic Action Plan 2012 ensures stable, predictable EI premium rates by
limiting premium rate increases to 5 cents each year until the EI Operating
Account is in balance, and then moving to a seven-year break-even rate.
In response to the economic downturn in 2009 and 2010, the Government
froze the EI premium rate in 2010 at the lowest rate since 1982, leaving more
than $3.5 billion in the pockets of workers and employers. In 2011 and 2012,
the Government limited the maximum annual premium rate change to
5 cents—a full 10 cents lower than the allowable annual increase limit—to
help protect Canadian jobs during a period of fragile recovery. In 2011,
Shelly Glover, Parliamentary Secretary to the Minister of Finance, and Kellie
Leitch, Parliamentary Secretary to the Minister of Human Resources and
Skills Development, also undertook cross-country consultations with
Canadians on how the EI rate-setting mechanism could be further improved.
The consultations indicated that Canadians want stable and predictable
EI premium rates, and a transparent rate-setting process.
Chapter 3.3
146
In response to the consultations, the Government will introduce legislation
to ensure predictability and stability in the EI premium rate. Over the next
few years, the Canada Employment Insurance Financing Board (CEIFB) will
continue to set the rate, but the Government will limit rate increases to no
more than 5 cents each year until the EI Operating Account is balanced.
Once the Account has achieved balance, the EI premium rate will be set
annually at a seven-year break-even rate to ensure that EI premiums are no
higher than needed to pay for the EI program. After the seven-year rate is
set, annual adjustment to the rate will also be limited to 5 cents. These
improvements will ensure affordability for premium payers while offering
ongoing predictability and stability.
The Government will also introduce legislation to allow the premium rate to
be set earlier in the Fall to provide longer notice to employers and workers.
In light of this new approach to rate setting, the Government will review
the size and structure of the CEIFB to ensure that independent rate setting
is done in the most cost-effective manner possible.
Connecting Canadians With Available Jobs
Economic Action Plan 2012 proposes $21 million over two years to connect
unemployed Canadians with jobs.
Matching workers with available jobs is critical to supporting economic
growth and productivity, as well as quality of life for Canadians. Economic
Action Plan 2012 makes targeted new investments of $21 million over two
years to help unemployed Canadians find jobs more quickly. These
investments will enhance the content and timeliness of the job and labour
market information that is provided to Canadians who are searching for
employment. This Government recognizes that providing EI claimants with
relevant and timely job information is essential for a quick return to work.
Along with providing relevant and timely job information, the Government
will introduce legislation to strengthen and clarify what is required of
claimants who are receiving regular EI benefits and are looking for work. In
the coming months, the Minister of Human Resources and Skills
Development will announce fair and transparent guidelines for compliance,
which take into account local labour market conditions and an individual’s
past history with the EI program.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
147
The Government will also coordinate the Temporary Foreign Worker
Program with efforts to connect unemployed Canadians with available jobs.
In addition to the improvements to the Temporary Foreign Worker Program
described later in this chapter, the Government is developing approaches to
notify EI claimants when employers are looking for workers, and to inform
employers if there are EI claimants in the same region who match the open
positions. Creating a link between the EI program and the Temporary
Foreign Worker Program will help make local and qualified Canadian
workers aware of vacancies and available to fill them, while ensuring
temporary foreign workers are employed where they are most needed.
Each year, the federal government transfers $1.95 billion from the
EI program to the provinces and territories to support skills training
activities and job search supports for EI claimants. Over the next 12 months,
the Government will work with provincial and territorial governments to
make skills training and job search supports available to EI claimants earlier
in their claim period.
Removing Disincentives to Work
Economic Action Plan 2012 proposes $74 million over two years to introduce a new
national Working While on Claim EI pilot project and proposes $387 million
over two years to align the calculation of EI benefit amounts with local labour
market conditions.
EI claimants who stay active in and remain connected to the labour market
find permanent employment faster than those who do not. The existing
Working While on Claim pilot project reduces claimants’ EI benefits dollar-
for-dollar once they have earned a certain amount, discouraging them from
accepting additional work. Economic Action Plan 2012 proposes to invest
$74 million over two years in a new, national EI pilot project that will ensure
claimants are not discouraged from accepting work while receiving EI
benefits. This new pilot project will cut the current clawback rate in half and
apply it to all earnings made while on claim. This new pilot will ensure that
EI claimants always benefit from accepting work by allowing them to
keep more of what they earn while on EI and supporting their search
for permanent employment.
Chapter 3.3
148
How the New Working While on Claim Pilot Project
Benefits Claimants
Jennifer is a dental hygienist who has been laid off and is receiving EI
benefits of $450 per week. She has found part-time work in a dental clinic
that pays a total of $600 per week.
Under the current Working While on Claim pilot project, Jennifer can earn
up to 40 per cent of her weekly benefits, $180, with no reduction in her EI
benefit payment. Earnings above this level reduce her benefit payment
dollar-for-dollar. Jennifer’s combined earnings and EI benefit would
be $630.
Under the new pilot project, Jennifer’s EI benefit will only be reduced by
50 per cent of her earnings from working while she is on claim. Her
combined weekly income would be $750, an increase of $120 per week.
Economic Action Plan 2012 also proposes to invest $387 million over
two years to align the calculation of the value of EI benefits with local labour
market conditions. This new approach will reduce disincentives to accepting
all available work prior to applying to the EI program by permanently
revising the way benefits are calculated. Beginning in April 2013, all claimants
will have their EI benefit amount calculated based on the highest weeks of
earnings over the preceding year. The number of weeks that will be used will
range from 14 to 22, depending on the unemployment rate in the particular
EI region. This approach to calculating the value of EI benefits will make the
program more responsive to changes in the local labour market and ensure
that those living in regions with similar labour market conditions receive
similar benefits. While this new approach is being put in place, the current
Best 14 Weeks pilot project will be extended, until April 2013.
EXPANDING OPPORTUNITIES FOR ABORIGINAL PEOPLES
TO FULLY PARTICIPATE IN THE ECONOMY
Since 2001, the Aboriginal population has increased by 25 per cent,
compared with 6 per cent for the Canadian population as a whole. About
25,000 Aboriginal youth turn 15 each year and this number is expected to
increase after 2016, markedly so in some provinces. Over the coming
decades, Aboriginal peoples will become an increasingly important source
of Canada’s labour force growth.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
149
The Government recognizes the contribution that Aboriginal peoples can
make to the labour market as the youngest and fastest-growing segment
of the nation’s population. The investments in this budget will help
Aboriginal peoples participate more fully in Canada’s economy and
benefit from its growth.
Investments to Improve First Nations Education
Economic Action Plan 2012 commits the Government to introduce legislation,
and explore new funding mechanisms, for First Nations elementary and
secondary education, and proposes $275 million over three years to support
First Nations education.
In Budget 2010 the Government committed to work with First Nations
to develop options, including new legislation, to improve the governance
framework and clarify accountability for First Nations elementary and
secondary education. In 2011, the Government and the Assembly of
First Nations launched a National Panel, which made a number
of recommendations for reforming First Nations education in its
February 2012 report.
In response to the Panel’s report, the Government will work with willing
partners to introduce a First Nation Education Act and have it in place for
September 2014. The purpose of this legislation is to establish the structures
and standards to support strong and accountable education systems on
reserve. This will set the stage for more positive education outcomes for
First Nations children and youth. The Government will also work to explore
mechanisms to ensure stable, predictable and sustainable funding for
First Nations elementary and secondary education.
To help ensure readiness for the new First Nations education system
to be outlined in legislation, this budget will invest $100 million over three
years for First Nations education to provide early literacy programming
and other supports and services to First Nations schools and students,
and to strengthen their relationships with provincial school systems.
To complement these investments in First Nations education programming,
this budget will invest $175 million over three years to build and renovate
schools on reserve, providing First Nations youth with better learning
environments. This will build on investments in on-reserve school
infrastructure made as part of Canada’s Economic Action Plan between
2009 and 2011.
Chapter 3.3
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Helping First Nations on Reserve Access the Labour Force
Economic Action Plan 2012 announces the Government’s commitment to improve
the incentives in the on-reserve Income Assistance Program while encouraging those
who can work to access training so they are better equipped for employment.
Since 2006, the Government has made substantial investments to improve
Aboriginal labour market outcomes. Over $400 million annually is invested
in Aboriginal skills and training through the Aboriginal Skills and
Employment Training Strategy and the Skills and Partnership Fund, and
over $300 million per year supports First Nations and Inuit in their post-
secondary studies through the Post-Secondary Student Support Program
and the University and College Entrance Preparation Program.
Equipping First Nations people with the skills and opportunities they need
to fully participate in the economy is a priority for this Government and First
Nations. In many areas of the country, First Nations communities are ideally
placed to contribute to and benefit from large economic projects.
Through Economic Action Plan 2012, the Government is committing
to make progress by better aligning its on-reserve Income Assistance
Program with provincial systems through improved compliance with
program requirements. The Government will also work with First Nations
to encourage those who can work to access training and, more broadly,
to improve the incentives for labour market participation in this program.
Canada’s young Aboriginal population has tremendous potential for
long-term success and economic prosperity, and our Government is
committed to helping them achieve their full potential.
Supporting First Nations Fishing Enterprises
Economic Action Plan 2012 proposes $33.5 million in 2012–13 to extend the
Atlantic Integrated Commercial Fisheries Initiative and the Pacific Integrated
Commercial Fisheries Initiative.
The Atlantic and Pacific Integrated Commercial Fisheries Initiatives
are designed to integrate First Nations fishing enterprises into existing
commercial fisheries. Through these and related programs, the Government
has invested approximately $700 million to provide access to commercial
fisheries and business development and co-management activities for
First Nations fishing enterprises. To continue promoting integrated
commercial fisheries, Economic Action Plan 2012 proposes $33.5 million
in 2012–13 to the Department of Fisheries and Oceans to extend
these initiatives.
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151
Urban Aboriginal Strategy
Economic Action Plan 2012 proposes $27 million over two years to renew
the Urban Aboriginal Strategy.
The Government is committed to working with other levels of government,
Aboriginal organizations and the private sector to improve economic
opportunities for Aboriginal peoples living in urban centres.
Through the Urban Aboriginal Strategy, the Government partners with
Aboriginal communities and local organizations, municipal and provincial
governments, and the private sector to support projects that respond to
local priorities and activities such as job training, skills and entrepreneurship
initiatives. For instance, the Strategy provided $200,000 to Winnipeg’s
Urban Circle Training Centre, where for over 20 years around 350 urban
Aboriginal people annually have received employment counselling and
accredited training.
BUILDING A FAST AND FLEXIBLE ECONOMIC
IMMIGRATION SYSTEM
Since 2006, the Government has pursued much-needed reforms to focus
Canada’s immigration system on fuelling economic prosperity for Canada.
For example, the Government has placed a high priority on finding people
who have the skills and experience required to meet Canada’s economic
needs. Temporary foreign workers have been given greater opportunities to
contribute to the success of our economy, and provinces and territories now
have the capacity to address their labour shortages through an expanded role
in selecting immigrants.
Strengthening Canada’s Immigration System
Economic Action Plan 2012 announces the Government’s intention build a fast and
flexible economic immigration system whose primary focus is on meeting Canada’s
labour market needs.
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By complementing recent reforms, Economic Action Plan 2012 will
enable Canada to transition to an increasingly fast and flexible economic
immigration system. In the future, the Government will explore with
provinces, territories and employers approaches to developing a pool of
skilled workers who are ready to begin employment in Canada. To ensure
that immigrants are ready to work, the assessment of educational credentials
will be strengthened and the federal skilled worker point system will be
reformed to reflect the importance of younger immigrants with Canadian
work experience and better language skills.
The Government will provide further incentives to retain educated and
experienced talent through the Canadian Experience Class and introduce
a new stream to facilitate the entry of skilled tradespersons. The Business
Immigration Program will target more active investment in Canadian growth
companies and more innovative entrepreneurs. The Provincial Nominee
Program will be improved by focusing on economic immigration streams
in order to respond quickly to regional labour market demand. In short,
the Government is committed to strengthening the immigration system to
make it truly proactive, targeted, fast and efficient in a way that will sustain
Canada’s economic growth and deliver prosperity for the future.
Temporary Foreign Worker Program
Economic Action Plan 2012 announces the Government’s intention to better align the
Temporary Foreign Worker Program with labour market demands and to ensure that
businesses look to the domestic labour force before accessing the Temporary Foreign
Worker Program.
Canada’s labour market faces high unemployment rates in some regions
and labour shortages in other regions as well as in certain sectors. Where
there are acute needs in the labour market that are not easily filled by the
domestic labour force, temporary foreign workers are an important resource
for Canadian businesses. To meet employer demand and improve the
responsiveness of the Temporary Foreign Worker Program, the Government
of Canada reduced the paper burden on employers and shortened processing
times. The Government has also taken steps to enhance protection for
temporary foreign workers.
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Investing in Training, Infrastructure and Opportunity
153
Going forward, the Government will continue to consider additional
measures to ensure that the Temporary Foreign Worker Program supports
our economic recovery and growth by better aligning the program with
labour market demands. At the same time, the Government will look at
ways to ensure that businesses have made all reasonable efforts to recruit
from the domestic labour force before accessing the Temporary Foreign
Worker Program.
Pan-Canadian Framework for the Assessment and
Recognition of Foreign Qualifications
Economic Action Plan 2012 signals the Government’s intention to support further
improvements to foreign credential recognition and to work with provinces and territories
to identify the next set of target occupations for inclusion, beyond 2012, under the Pan-
Canadian Framework for the Assessment and Recognition of Foreign Qualifications.
Ensuring that foreign credentials are quickly and fairly assessed in Canada
helps highly skilled newcomers find work related to their training, allowing
them to quickly contribute to Canada’s economy. Budget 2009 provided
funding to support work on developing the Pan-Canadian Framework for
the Assessment and Recognition of Foreign Qualifications, whereby foreign-
trained professionals in priority occupations will have their qualifications
assessed within one year, anywhere in the country. While the Framework is
intended over time to apply to all regulated occupations, eight groups were
identified in the Framework for inclusion by December 31, 2010. An
additional six target occupations were identified in the Framework for
inclusion by December 31, 2012.
2010 Target Occupations
Architects
Engineers
Medical Laboratory Technologists
Occupational Therapists
Pharmacists
Physiotherapists
Registered Nurses
Financial Auditors and Accountants
2012 Target Occupations
Dentists
Engineering Technicians
Licensed Practical Nurses
Medical Radiation Technologists
Physicians
Teachers (K-12)
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The commitment in the Framework with respect to the 2010 target
occupations has been met, and work is ongoing with respect to meeting
the December 2012 timeline for the additional six priority groups. The
Government will continue working with provinces, territories and other
stakeholders to support further improvements to foreign credential
recognition, including identifying a third set of target occupations for
inclusion under the Framework after 2012.
The Government is taking further steps to help internationally trained
professionals enter the workforce quickly through the Foreign Credential
Recognition Loans Pilot, which was launched in February 2012. The Pilot
will provide funding to community-based partners—such as non-
government and non-profit organizations—to increase their capacity to
deliver financial assistance to eligible professionals seeking to have their
credentials recognized in Canada. The loans will make it easier for
internationally trained professionals to complete the credential recognition
process and find jobs that best suit their skills and experience.
Federal Skilled Worker Fee Refund
Economic Action Plan 2012 proposes to return applications and refund up to
$130 million in fees to certain federal skilled worker applicants who applied prior
to February 27, 2008 and have been waiting for processing to be completed.
Canada needs to select immigrants who are ready, willing and able to fully
integrate into Canada’s labour market and fill gaps in our economy,
particularly where we have existing skills shortages. Canada has a number
of economic immigration programs, the largest one being the Federal Skilled
Worker Program, which is the main avenue to permanent immigration
to Canada.
The large backlog of applications that has accumulated under the
Federal Skilled Worker Program is impeding the responsiveness of
Canada’s immigration system. The Government recognized the backlog
problem several years ago and has taken actions to eliminate it through our
2008 Action Plan for Faster Immigration. Before the Action Plan was
introduced, the backlog had swelled to over 640,000 applicants, many of
whom faced wait times of up to seven years. Through the judicious use of
measures introduced by the Action Plan, the backlog has been cut to less
than 300,000 applicants since 2008—a reduction of more than 50 per
cent. Wait times for new applicants are now closer to 18 months on average,
with some applicants waiting as little as 6 to 12 months.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
155
Faster action is still required, however, in order to more immediately
direct our efforts toward better addressing modern labour market realities.
Canada risks losing the global talent competition for the world’s best and
brightest as potential immigrants choose to take their skills to other countries
with more responsive immigration systems rather than remain in the queue
to have their application processed in Canada.
Economic Action Plan 2012 therefore proposes to return applications and
refund up to $130 million in fees, on a cash basis, paid by certain federal
skilled worker applicants who applied under previous criteria established
prior to February 27, 2008.
STRENGTHENING CANADA’S PUBLIC INFRASTRUCTURE
The Government recognizes the importance of investments in public
infrastructure. Efficient and modern public infrastructure helps move people,
goods and services to markets and supports business competitiveness, job
creation and economic growth.
The federal government plays an important role in the provision of
public infrastructure in Canada. It is the custodian of an infrastructure
portfolio with strategic national importance, including a wide range of
transportation-related assets such as airports, ports and bridges. The
Government also provides funding to support provincial, territorial and
municipal infrastructure.
Since 2007, the Government has made significant investments in public
infrastructure. Under the $33-billion, seven-year Building Canada plan, the
Government provides major support for provincial, territorial and municipal
infrastructure for investments in priority areas such as highways, roads,
bridges, public transit, water infrastructure and broadband. This includes:
• Federal funding of $8.8 billion under the Building Canada Fund, of
which an estimated $5 billion will continue to flow beyond 2011–12 to
municipalities, provinces and territories to reflect project timelines.
• Predictable and long-term funding for municipalities under the Gas Tax
Fund and the Goods and Services Tax rebate for municipalities. The
Government has made the $2-billion annual allocation under the Gas
Tax Fund a permanent legislated measure.
• Investments to strengthen trade-related infrastructure through the
Gateways and Border Crossings Fund and the Asia-Pacific Gateway and
Corridor Initiative.
Chapter 3.3
156
The Government also made $11 billion available for infrastructure stimulus
initiatives under the stimulus phase of Canada’s Economic Action Plan.
Supporting Provincial, Territorial and Municipal Infrastructure
Economic Action Plan 2012 proposes $150 million over two years to support repairs
and improvements to existing small public infrastructure facilities through the
Community Infrastructure Improvement Fund.
The Government is taking concrete steps to deliver on its commitment to
work with provinces, territories, the Federation of Canadian Municipalities
and other stakeholders on the development of a long-term plan for public
infrastructure that extends beyond the expiry of the Building Canada plan
in 2014.
Consultations are underway with our partners and stakeholders. Together,
we will explore broad directions and priorities for a new plan that will focus
on investments in infrastructure that support long-term economic growth
and prosperity, while encouraging greater private sector involvement and
increasing the use of public-private partnerships where they can generate
better value for taxpayers. A new plan will be designed to leverage funding
from all governments and the private sector and ensure affordability and
sustainability over the long term.
Over the next two years, the Government will spend nearly $12 billion
to support provincial, territorial and municipal infrastructure through
existing initiatives.
Community-based facilities contribute to the quality of life in small
communities and large urban centres across Canada. To support repairs and
improvements to existing facilities, such as community centres, Economic
Action Plan 2012 proposes $150 million over two years for the establishment
of a Community Infrastructure Improvement Fund. This new Fund will
improve the quality of facilities enjoyed by Canadians while supporting job
creation in communities across the country.
The Fund will be delivered by the regional development agencies and will
support projects on a cost-shared basis in partnership with municipalities,
community organizations and not-for-profit entities. Projects will be selected
on the basis of their readiness to proceed and the anticipated economic
benefits, including job creation.
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Investing in Training, Infrastructure and Opportunity
157
Territorial Borrowing Limit
Economic Action Plan 2012 is confirming the introduction of amendments to the
Yukon Act, the Northwest Territories Act and the Nunavut Act to create new
regulations that will ensure consistent treatment of borrowing across the three territories
and with their Public Accounts.
The Government of Canada is committed to supporting the three territorial
governments in developing their economic potential. An important aspect
of this support is providing clear rules by which territorial governments may
borrow to undertake investments in their future. The Government of Canada
will introduce amendments to the Yukon Act, the Northwest Territories Act
and the Nunavut Act to create new regulations that will ensure consistent
treatment of borrowing across the three territories and with their Public
Accounts. This will provide certainty to territorial governments as they
plan for their future.
In addition, the three territorial borrowing limits have been increased
to $800 million, $400 million and $400 million respectively for the
Government of the Northwest Territories, the Government of Yukon and
the Government of Nunavut. This provides additional capacity for the
three governments to borrow in support of their priorities, such as major
infrastructure projects.
Making Important Investments in Strategic Public Infrastructure
Maintaining Safe and Reliable Passenger Rail Services
Economic Action Plan 2012 proposes $105 million in 2012–13 on a cash basis to
support VIA’s operations and capital projects.
VIA Rail Canada operates the country’s national passenger rail service. In
2010, VIA served over 4 million passengers and connected 450 communities
across Canada. To support VIA’s operations and investments in track
signalling systems, track components, station repairs and information
technology projects, Economic Action Plan 2012 proposes $105 million in
2012–13 on a cash basis for VIA Rail Inc. These investments will enhance
the safety and efficiency of VIA Rail Canada’s operations.
Chapter 3.3
158
Strengthening Canada’s Port System
Economic Action Plan 2012 proposes $27.3 million over two years to support the
divestiture of regional port facilities and the continued operation and maintenance of
federally owned ports.
Canada’s ports are an integral part of the national transportation system and
play an important role in Canada’s international trade. The Government has
recently announced up to $85.6 million in funding for capital projects and
other modernization initiatives at the Ports of Montreal, Saguenay, and
Sept-Îles. These investments will support the role of these ports as gateways
to global markets and promote jobs and growth in the region.
Under the National Marine Policy, the Government has taken steps to
strengthen the public port system by establishing dedicated and independent
port authorities for Canada’s largest ports and divesting smaller regional
ports to local interests. Port divestiture improves the efficiency of Canadian
marine transportation by rationalizing the port system and placing decision
making and operations in the hands of users and local interests. This will
allow communities to own and control the use of their facilities and
determine service and maintenance levels appropriate to their circumstances.
To support the divestiture of regional port facilities and the continued
operation and maintenance of federally owned ports, Economic Action
Plan 2012 proposes $27.3 million over two years for Transport Canada.
Renewing the Canadian Coast Guard Fleet
Economic Action Plan 2012 proposes $5.2 billion over the next 11 years on
a cash basis to renew the Fleet of the Canadian Coast Guard.
This year, the Canadian Coast Guard celebrates 50 years of dedicated service.
The Coast Guard plays a key role in supporting the safety of Canadians,
promoting uninterrupted shipping to Canadian port gateways, and facilitating
trade flows. It delivers search and rescue programs, provides marine
pollution responses, and supports science and other government maritime
activities. The Canadian Coast Guard is Canada’s main maritime presence,
especially in the high Arctic.
To renew the Canadian Coast Guard Fleet to make it more adaptable,
capable and cost-efficient, Economic Action Plan 2012 proposes $5.2 billion
over the next 11 years on a cash basis. The procurement of new vessels and
helicopters for the Canadian Coast Guard, as well as work related to
repairing and refitting existing vessels, will support jobs and generate
significant economic benefits.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
159
Maintaining and Improving Federal Infrastructure
Economic Action Plan 2012 provides $101 million on a cash basis to restore
and modernize the Esquimalt Graving Dock.
The Esquimalt Graving Dock, which was originally constructed in 1927, is
the largest deep-sea shipbuilding and repair facility on Canada’s West Coast.
It generates economic benefits totaling $183 million annually for British
Columbia and it supports an estimated 1,300 jobs in the Greater
Victoria Area.
Budget 2011 provided $148 million, on a cash basis, over five years to carry
out capital expenditures to maintain and improve a number of engineering
assets, such as bridges, dams and other specialized assets, across Canada.
Building on this commitment, Economic Action Plan 2012 proposes an
additional $101 million, on a cash basis, over the next five years for Public
Works and Government Services Canada to restore and modernize the
Esquimalt Graving Dock. This investment will help maintain jobs and
support economic activity in southern British Columbia.
Investing in Border Infrastructure
Under the Beyond the Border Action Plan, announced in Fall 2011, the
Government will modernize and expand capacity at priority border facilities
in Western and Central Canada. Investment in modern infrastructure at key
land ports of entry will ensure that our border crossings have the capacity
to support the volume of commercial and passenger traffic resulting from
economic growth and job creation.
The Windsor-Detroit trade corridor is North America’s most important land
crossing. The Government will continue to work with the State of Michigan,
the U.S. Government and the Province of Ontario to make timely progress
toward the construction of a new crossing.
Building a New Bridge over the St. Lawrence
The Government is building a new bridge to replace the existing Champlain
Bridge in Montréal. It will span the St. Lawrence River to connect the Island
of Montréal to the South Shore. This is the busiest crossing in Canada
for cars, trucks and buses, and is vital to the regional and national
economies with an estimated $20 billion in international trade crossing
the bridge annually.
Chapter 3.3
160
There are many components to the project, including environmental
assessment, design work and financial analysis. In January, the Government
formally launched the federal environmental assessment phase of the project.
The Government will continue close collaboration with key stakeholders,
including the Government of Quebec and municipalities in the region, as the
project moves forward. The new bridge is expected to open in 2021–2022.
The Government has invested in the safety and security of the Champlain
Bridge. Investments totalling $380 million since 2009 will keep the bridge
safe until the new crossing is complete.
Supporting Jobs and Growth
Investing in Training, Infrastructure and Opportunity
161
Table 3.3
Investing in Training, Infrastructure and Opportunity
millions of dollars
2011–12 2012–13 2013–14 Total
Supporting Job Creation, Small Business
and Skills Training
Extending the Hiring Credit for Small Business 51 154 205
Enhancing the Youth Employment Strategy 25 25 50
ThirdQuarter Project
2 2 4
Improving Labour Market Opportunities for Canadians
with Disabilities 5 13 18
Subtotal—Supporting J ob Creation, Small Business
and Skills Training 51 186 40 277
Improving the Employment Insurance Program
Connecting Canadians With Available J obs 11 10 21
Removing Disincentives to Work
New National Working While on Claim EI Pilot Project 28 46 74
Aligning Benefits With Local Labour Market Conditions 138 249 387
Subtotal—Improving the Employment Insurance Program 177 305 482
Expanding Opportunities for Aboriginal Peoples to
Fully Participate in the Economy
Investments to Improve First Nations Education 45 115 160
Supporting First Nations Fishing Enterprises
34
34
Urban Aboriginal Strategy 14 14 27
Subtotal—Expanding Opportunities for Aboriginal
Peoples to Fully Participate in the Economy 92 129 221
Building a Fast and Flexible Economic
Immigration System
Federal Skilled Worker Fee Refund 5 4 9
Strengthening Canada’s Public Infrastructure
Supporting Provincial, Territorial and Municipal Infrastructure 75 75 150
Making Important Investments in Strategic
Public Infrastructure
Maintaining Safe and Reliable Passenger Rail Services 49 9 58
Strengthening Canada’s Port System
16 11 27
Renewing the Canadian Coast Guard Fleet 9 29 38
Maintaining and Improving Federal Infrastructure - 1 1
Subtotal—Strengthening Canada's Public Infrastructure 150 124 274
Total—Investing in Training, Infrastructure
and Opportunity 51 609 601 1,262
Less funds existing in the fiscal framework 72 53 125
Net fiscal cost 51 537 549 1,137
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 3.4
Supportng Families
and Communites
Supporting Jobs and Growth
Supporting Families and Communities
165
HIGHLIGHTS
Protecting the Health and Safety of Canadians
The Government is committed to promoting safe communities and
protecting the health of individual Canadians. Economic Action Plan
2012 proposes:
? Expanding health-related tax relief under the Goods and Services
Tax/Harmonized Sales Tax (GST/HST) and income tax systems to
better meet the health care needs of Canadians.
? $51.2 million over the next two years to strengthen Canada’s food
safety system.
? Financial support for employers of Canada’s military reservists to offset
costs incurred when part-time reservists sign up for full-time duty.
? Announcing enhanced support for the Victims Fund in the
coming months.
Investing in Communities
The Government is committed to preserving Canada’s diverse cultural
treasures and improving the quality of life in communities across the country.
Economic Action Plan 2012 proposes:
? Announcing the Government’s intent to explore with interested
First Nations the option of moving forward with legislation that would
allow private property ownership within current reserve boundaries.
? Providing $330.8 million over two years to build and renovate on-reserve
water infrastructure and support the development of a long-term strategy
to improve water quality in First Nations communities.
? Providing $11.9 million in 2012–13 to support shelter services and
violence prevention programming on reserves.
? Continuing to explore social finance instruments as a way to further
encourage the development of government-community partnerships.
? Supporting major exhibitions at Canadian museums and
galleries by modernizing the Canada Travelling Exhibitions
Indemnification Program.
? Continuing support to ParticipACTION and Le Grand défi
Pierre Lavoie.
Chapter 3.4
166
? Providing up to $99.2 million over three years to assist the provinces
and territories with the cost of permanent flood mitigation measures
undertaken for the 2011 floods.
Supporting Families
The Government is committed to expanding government support for
families, students, seniors and pensioners, and persons with disabilities.
Economic Action Plan 2012 proposes:
? Providing $1.4 million annually to ensure that Wage Earner Protection
Program applicants receive the benefits they are entitled to when they
need them.
? Requiring federally regulated private sector employers to insure,
on a go-forward basis, any long-term disability plans they offer to
their employees.
? Helping Canadians with severe disabilities and their families by
improving the Registered Disability Savings Plan.
Protecting Canada’s Natural Environment and Wildlife
The Government is committed to preserving Canada’s natural beauty.
Economic Action Plan 2012 proposes:
? $50 million over two years to protect wildlife species at risk.
? The creation of Canada’s first national near-urban park in the Rouge
Valley in Ontario.
? Expanding the eligibility for the accelerated capital cost allowance for
clean energy generation equipment to include a broader range of
bioenergy equipment.
Supporting Jobs and Growth
Supporting Families and Communities
167
SUPPORTING FAMILIES AND COMMUNITIES
Economic Action Plan 2012 builds on previous measures the Government
has taken since 2006 to create a safe and clean environment for all
Canadians. Some of these measures are designed to preserve Canada’s natural
heritage, such as protecting species at risk and creating Canada’s first national
near-urban park.
The recent Crown-First Nations Gathering underscored the Government’s
commitment to work with First Nations on shared priorities. Economic
Action Plan 2012 supports this commitment by introducing initiatives to
enhance economic potential on First Nations lands, improve water quality in
First Nations communities, and address family violence on reserves.
Economic Action Plan 2012 will expand on investments to promote the
health and safety of individual Canadians and families, including providing
GST/HST and income tax relief on several health-related goods and services,
and supporting the employers of military reservists.
Building on significant tax relief provided since 2006, the Government
continues to invest in measures to support Canada’s families. Economic
Action Plan 2012 delivers on this priority, for example, through
improvements to the Registered Disability Savings Plan.
The Government also provides significant funding to provinces in support of
health, education and other programs and services. In 2012–13, federal
support to provinces and territories through major transfers and other direct
targeted support will reach an all-time high of $60.9 billion—an increase of
43 per cent since 2005–06.
PROTECTING THE HEALTH AND SAFETY OF CANADIANS
Health-Related Tax Measures
Economic Action Plan 2012 proposes to expand health-related tax relief under the
GST/HST and income tax systems to better meet the health care needs of Canadians.
Economic Action Plan 2012 proposes a number of changes to the tax
treatment of health-related goods and services in order to reflect the evolving
nature of the health sector and the health care needs of Canadians, including:
• Exempting pharmacists’ professional services from the GST/HST, other
than prescription drug dispensing services, which are already zero-rated
under the GST/HST.
Chapter 3.4
168
• Expanding the list of health care professionals who can order certain
medical and assistive devices zero-rated under the GST/HST to reflect
the increasing involvement of health care professionals, such as nurses,
in giving orders for these devices.
• Expanding the list of GST/HST zero-rated medical and assistive
devices and the list of expenses an individual may claim for income
tax purposes under the Medical Expense Tax Credit (METC) to
include blood coagulation monitors for use by individuals who
require anti-coagulation therapy.
The changes to the GST/HST health-related measures will generally be
effective March 30, 2012. It is estimated that these changes will reduce
federal revenues by $3 million in each of 2012–13 and 2013–14.
Changes to the METC will apply for the 2012 and subsequent taxation years,
and are estimated to reduce federal revenues by a small amount in each of
2012–13 and 2013–14.
Strengthening Food Safety
Economic Action Plan 2012 proposes $51.2 million over the next two years to
continue measures to strengthen Canada’s food safety system.
Following the release of the Weatherill Report to address food safety risks,
the Government launched several measures in 2009 to enhance surveillance
and early detection and improve response capabilities to food-borne illness
emergencies. To support the ongoing effectiveness of Canada’s food safety
system, Economic Action Plan 2012 proposes $51.2 million over the next
two years for the Canadian Food Inspection Agency, the Public Health
Agency of Canada and Health Canada to continue these measures. The
Government is also pursuing complementary activities to strengthen
Canada’s food safety system, including plans to streamline and accelerate
the process by which foods are regulated.
Supporting Jobs and Growth
Supporting Families and Communities
169
Fair Compensation for Employers of Canada’s Reservists
Economic Action Plan 2012 proposes action to provide financial support to employers
of reservists, to offset costs incurred when part-time reservists sign up for full-time duty.
Canada’s reservists make an extraordinary commitment and many personal
sacrifices to keep Canadians safe. They are called upon to serve abroad for
extended periods, which can place significant financial strain on their
employers—particularly small businesses. With assistance from Canada
Company: Many Ways to Serve, which builds the bridge between business
and community leaders and the Canadian Forces, the Government is
working to ensure our reservists remain gainfully employed and that
members of our military receive the widest support, care and recognition
they deserve for the important contributions they make to Canada.
Building on the Government’s commitment to support the men and women
of our armed forces, Economic Action Plan 2012 commits to providing
financial support to employers of reservists to offset costs such as the hiring
and training of replacement workers or increasing overtime hours for existing
employees. Details of this program will be announced by the Government in
the coming months.
Enhancing the Victims Fund
Economic Action Plan 2012 proposes to build on the Budget 2011 investment
and will announce enhanced support for the Victims Fund in the coming months.
Victims of crime deserve to have a strong and effective voice in the federal
justice and corrections systems. Budget 2011 renewed the Federal Victims
Strategy, which enhanced programming and supported the Federal
Ombudsman for Victims of Crime. The Government will announce
further support to the Victims Fund in the coming months.
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Supporting Victims of Crime
Since 2006, the Government has increased support for victims of crime
to ensure they have an effective voice in the federal justice and
corrections systems:
• Budget 2006 provided $65 million over five years for a Federal Victims
Strategy. This included the creation of the Office of the Federal
Ombudsman for Victims of Crime and enhancing the Victims Fund to
increase access to the justice system.
• Budget 2010 provided $16.5 million over five years for additional
programs for victims of crime, including support for Child
Advocacy Centres.
• Budget 2010 also provided $25 million over five years to address the high
number of missing and murdered Aboriginal women. This funding includes
support for victims.
• Budget 2011 renewed, and made permanent, the Federal Victims
Strategy at a funding level of $13 million per year.
Canadian Nuclear Safety Commission
Economic Action Plan 2012 proposes $8 million per year to cover the costs of licensing
nuclear equipment and substances at educational institutions, medical institutions and
government departments.
As Canada’s nuclear regulator, the Canadian Nuclear Safety Commission
protects the health, safety and security of Canadians and supports Canada’s
international commitments on the peaceful use of nuclear energy. To cover
the costs associated with licensing nuclear equipment and substances at
educational institutions, medical institutions and government departments,
Economic Action Plan 2012 proposes $8 million per year for the Canadian
Nuclear Safety Commission.
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INVESTING IN COMMUNITIES
Improving Economic Potential on First Nations Lands
Economic Action Plan 2012 announces the Government’s intent to explore with
interested First Nations the option of moving forward with legislation that would
allow private property ownership within current reserve boundaries.
The Government of Canada continues to work with First Nations to
create conditions to accelerate economic development opportunities.
At the historic Crown-First Nations Gathering, the Prime Minister and
the National Chief of the Assembly of First Nations agreed to launch
within three months an economic task force that would report back in
a timely fashion with recommendations to further unlock the economic
potential of First Nations peoples.
This work will build on steps the Government has already taken to enable
interested First Nations to assume greater control over their reserve lands,
resources and environment, notably through the First Nations Land
Management Act. First Nations that opt in to this Act can better pursue and
seize economic opportunities. This puts First Nations in more direct control
of their economic development, helping them build a brighter future in
which their communities are self-sufficient and prosperous.
Budget 2011 reaffirmed the Government’s commitment to expand the
First Nations Land Management regime by committing to reallocate up
to $20 million over two years to respond to the growing interest from First
Nations leaders to participate. This allowed the Government to introduce
18 new entrants to the regime in January 2012, bringing the total number
of First Nations that are operating or developing their own land codes to 56.
Some First Nations have expressed an interest in exploring the possibility
of legislation that would allow private property ownership within current
reserve boundaries. Economic Action Plan 2012 announces the
Government’s intent to explore with interested First Nations the option
of moving forward with legislation that would allow for this. The
Government will continue to work with First Nations to address barriers
to economic development on reserve.
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Investments to Improve First Nations Water Infrastructure
Economic Action Plan 2012 proposes $330.8 million over two years to build
and renovate water infrastructure on reserve and to support the development
of a long-term strategy to improve water quality in First Nations communities.
Many First Nations continue to face challenges ensuring access to safe water
in their communities despite significant investments by the Government
to help improve water systems. Since 2006, the Government has invested
around $2.5 billion to assist First Nations in the construction, maintenance
and operation of water and wastewater systems in their communities. This
includes the completion of over 130 major projects and funding for the
operation and maintenance of over 1,200 water or wastewater systems.
The Government remains committed to improving the health and safety
of First Nations communities.
Earlier this year, the Government introduced the Safe Drinking Water
for First Nations Act to ensure First Nations have access to safe and reliable
drinking water. This bill will allow the Government, in collaboration with
First Nations, to develop federal regulations for access to safe drinking water,
and to ensure the effective treatment of wastewater and the protection of
sources of drinking water on reserve.
Addressing Family Violence on Reserve
Economic Action Plan 2012 proposes $11.9 million for the Family Violence
Prevention Program in 2012–13, bringing the total budget for the program to
$30.4 million for an additional year.
The Government has taken steps to improve the lives of women and
children on reserve. Budget 2010 invested $25 million over five years to
address the high number of missing and murdered Aboriginal women.
In addition, legislation was introduced in 2011 to provide fairer treatment
of marital property on reserve upon the dissolution of a marriage.
That said, numerous First Nations communities continue to experience
family violence that threatens the ability to safely raise a family.
Ensuring shelter services and violence prevention programming are available
to on-reserve communities is an important element of addressing these
serious security concerns.
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Aboriginal Mental Health Programs
Economic Action Plan 2012 commits to working with Aboriginal communities
and organizations, provinces and territories to improve the mental health and well-being
of Aboriginal peoples in Canada.
Health Canada currently invests over $100 million annually to support mental
health programs and services for Aboriginal peoples through community-
level mental health initiatives, addiction and substance abuse treatment
centres, and the National Aboriginal Youth Suicide Prevention Strategy.
The Government has also provided significant support to Health Canada’s
Indian Residential Schools Resolution Health Support Program, which
provides mental health and emotional support services to former students
and their families.
Supporting Effective Government-Community Partnerships
Economic Action Plan 2012 announces that the Government will continue to explore
social finance instruments as a way to further encourage the development of government-
community partnerships.
The Minister of Human Resources and Skills Development is modernizing
the administration of grants and contributions to reduce red tape and make
it easier to access funding. The Minister is also testing ways to maximize the
impact of federal spending to support community-level partnerships,
including pay-for-performance agreements and encouraging leveraging
of private sector resources.
Building on these partnerships and the work of the Canadian Task Force
on Social Finance, the Government will continue to support the momentum
building around social finance initiatives and will explore social finance
instruments. For example, social impact bonds hold promise as a tool to
further encourage the development of government-community partnerships.
Details will be announced by the Minister of Human Resources and Skills
Development over the coming months.
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Investments in Arts and Culture
Economic Action Plan 2012 proposes additional support to museums and galleries
through the Canada Travelling Exhibitions Indemnification Program to help attract
new exhibitions.
The Government recognizes that arts and culture is an important generator
of jobs and growth. In challenging economic times, Canada’s Economic
Action Plan included investments in culture, such as periodicals and the
audiovisual sector. The Government also chose to increase funding for arts
and culture during the global economic recession, providing economic
stimulus through additional cultural infrastructure funding. The Government
believes that supporting the arts is essential to supporting Canada’s economy
and quality of life and will continue strong support for Canadian culture.
Economic Action Plan 2012 proposes to further support Canada’s museums
by strengthening the Canada Travelling Exhibitions Indemnification
Program, which helps Canadian museums and art galleries reduce their
insurance costs when hosting major exhibitions. To achieve this, the
Government will introduce legislation to raise the indemnification limit from
$1.5 billion to $3 billion. This increased support will be complemented by a
change to the calculation period and an increase in the maximum level of
support per exhibition, from $450 million to $600 million. These important
modernization initiatives will help art galleries and museums attract more
internationally acclaimed treasures to Canada. Canadians are proud of their
museums. Taken together, national and local museums in communities all
across Canada are some of the best in the world. The Government created
two new national museums: the Canadian Museum of Immigration at Pier 21
in Halifax and the Canadian Museum for Human Rights in Winnipeg.
Canadians value museums, the stories they tell, the collections they house,
and the role they play in preserving culture. Because of this, Economic
Action Plan 2012 will maintain funding for Canada’s national museums.
Canada Council for the Arts
While continuing to recognize the importance of cultural institutions to
Canada’s social and cultural fabric, the Government is maintaining funding
for the Canada Council for the Arts. For over 50 years, the Canada Council
for the Arts has been the leading supporter of Canadian artists. The
Government has increased funding for the Canada Council to its highest
funding level ever. Economic Action Plan 2012 will maintain record support
for the Canada Council for the Arts by providing cultural communities with
funding stability.
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Commemorations for the Bicentennial of the War of 1812
Important commemorations for the 200th anniversary of the War of 1812
will boost tourism and allow Canadians to celebrate their history. The 200th
anniversary of the War of 1812 is also an opportunity for Canadians to take
pride in their history. Over the next four years, the Government’s
investments will increase Canadians’ awareness of this defining moment in
Canada’s history.
The 200th anniversary of the War of 1812 is just one of many events that are
bringing Canadians together as the country moves closer to Canada’s
150
th
anniversary in 2017, which will also include celebrations around the
Queen’s Diamond Jubilee.
Official Languages
Canada’s two official languages are an integral part of Canadian history and
identity. The Government’s commitment to official languages has been
recognized internationally. In 2009, the Prime Minister was honoured with
the highest international award of merit for support to the Francophonie.
The Government’s five-year “Roadmap for Canada’s Linguistic Duality
2008–2013” represents the most comprehensive investment in Canada's
official languages in Canada’s history. Economic Action Plan 2012 will
continue support for official languages by maintaining funding to protect,
celebrate and enhance Canada’s linguistic duality.
Encouraging Participation and Healthy Communities
Economic Action Plan 2012 proposes continued support to ParticipACTION
and to Le Grand défi Pierre Lavoie.
The Government recognizes the role that participation in sport plays in
promoting more active lifestyles and healthier, stronger communities.
Since coming to office, the Government has ensured that Canadian athletes
are provided the support needed to reach the podium at every opportunity
possible. This includes significant investment in high-performance sport
including support to athletes, national sport organizations, and hosting of
major international sporting events.
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In 2015, Canada will again play host as Toronto welcomes the Americas for
the Pan American and Parapan American Games. To ensure these Games
are a success, the Government of Canada will invest, as its contribution, over
$450 million to give our world-class athletes the opportunity to compete in
state-of-the-art sport facilities. This significant investment will leave a lasting
sport legacy for Canadians for years to come, and will bring economic
prosperity throughout the Greater Toronto Area.
As announced in Budget 2011, the Government has increased its ongoing
support to Special Olympics Canada to help enrich the lives of Canadians
with an intellectual disability through sport and competition in Special
Olympics events.
In addition, Economic Action Plan 2012 continues investments in
ParticipACTION, which works with provincial and local partners to deliver
community-based physical activity and fitness programs. Economic Action
Plan 2012 also confirms further support to Le Grand défi Pierre Lavoie.
Details on both initiatives will be announced in the coming months.
The Government is proud to make these investments, which will contribute
to the well-being of Canadians across the country and the communities
in which they live.
Strengthening Health Care in Rural and Remote Communities
To expand the provision of primary health services to Canadians in rural and
remote communities, Budget 2011 announced that the Government would
forgive a portion of Canada Student Loans for new family physicians, nurses
and nurse practitioners who practise in underserved rural or remote
communities, including communities that provide health services to
First Nations, Inuit and Métis populations.
Starting in 2012–13, family physicians who meet the program criteria,
including family medical residents in training with an accredited medical
school in Canada, will be eligible for federal Canada Student Loan
forgiveness of up to $8,000 per year to a maximum of $40,000, while nurse
practitioners and nurses will be eligible for Canada Student Loan forgiveness
of up to $4,000 per year to a maximum of $20,000.
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Strengthening Access to Broadband in Rural Areas
The Government will act to ensure that Canadians living in rural Canada have access
to the same high-quality broadband services as other Canadians.
As part of the stimulus phase of Canada’s Economic Action Plan,
$225 million was provided to Industry Canada over three years to
develop and implement a strategy to extend broadband coverage to as many
underserved households as possible. The biggest component of this strategy
is the Broadband Canada: Connecting Rural Canadians program, which has
helped provide broadband access to over 210,000 additional households.
The Government recognizes that high-quality broadband networks are
essential for enhancing local economic opportunities and for providing
access to valuable services. In 2013, the Government plans to hold spectrum
auctions for the 700 MHz and 2,500 MHz spectrum bands. In the spectrum
auction involving the 700 MHz band, the Government will be implementing
specific measures to ensure that Canadians living in rural Canada are able to
receive the same high-quality services that are available to the rest of
Canadians. Companies that have access to more than one block of the
700 MHz band, through the auction or through spectrum sharing, will be
required to deploy new advanced services to 90 per cent of the population in
their coverage area within five years and to 97 per cent within seven years.
Support to Provinces and Territories
for the Floods of 2011
Economic Action Plan 2012 proposes up to $99.2 million over three years for
permanent flood mitigation measures undertaken for the 2011 floods.
The Government is providing support to the many communities affected
by recent natural disasters, and is committed to working with other levels
of government to build safer and more resilient communities. The
Government has worked with the provinces and territories to identify
permanent mitigation measures that were undertaken for the floods of 2011.
Economic Action Plan 2012 proposes up to $99.2 million over three years
to assist the provinces and territories with the cost of permanent flood
mitigation measures undertaken for the 2011 floods.
The Government is also committed to discussing with the provinces and
territories the development of a national disaster mitigation program,
recognizing that mitigation can lessen the impact of natural disasters on
vulnerable communities and reduce the costs associated with these events.
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178
SUPPORTING FAMILIES
Since 2006, this Government has introduced measures targeted to help
families, students, seniors and pensioners, workers, persons with disabilities,
and communities, including an ambitious agenda of personal income tax
relief. Economic Action Plan 2012 also proposes a number of measures to
improve the Registered Disability Savings Plan.
Keeping Taxes Low for Families and Individuals
Since 2006, the Government has implemented an ambitious agenda of tax
relief for families and individual Canadians, aimed at creating a tax system
that fuels job creation and growth in the economy and allowing Canadians
to keep more of their hard-earned money. Tax reductions have also rewarded
Canadians for realizing their full potential, and have given individuals and
families the flexibility to make the choices that are right for them.
In total, the Government is providing almost $160 billion in tax relief for
individuals and families over 2008–09 and the following five fiscal years.
For instance:
• The Government reduced the GST rate by 2 percentage points,
benefiting all Canadians—even those who do not earn enough to pay
personal income tax. Maintaining the GST Credit level while reducing the
GST rate by 2 percentage points translates into more than $1.1 billion in
GST Credit benefits annually for low- and modest-income Canadians.
• The Government increased the amount of income that all Canadians can
earn before paying federal income tax. Those who earn enough to pay tax
also benefit from the reduction in the lowest personal income tax rate to
15 per cent from 16 per cent. Taxpayers can also earn more before being
subject to higher income tax rates because of the increase in the income
thresholds at which the 22-per-cent rate and the 26-per-cent rate begin
to apply.
• The Government introduced the Working Income Tax Benefit (WITB)
in Budget 2007 and effectively doubled it under the stimulus phase of
Canada’s Economic Action Plan. The WITB lowers the “welfare wall”
and strengthens work incentives for low-income Canadians already
working, while encouraging other low-income Canadians to enter
the workforce.
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• The Government introduced the Tax-Free Savings Account (TFSA)—
a flexible, registered, general-purpose savings vehicle available since
2009—that allows Canadians to earn tax-free investment income,
improving incentives to save and allowing Canadians to more easily meet
their lifetime savings needs. The response to the TFSA has been
overwhelmingly positive. Approximately 8.2 million TFSA accounts have
been opened, with more than $40 billion of assets growing tax-free.
With these actions, the Government has fulfilled commitments to reduce
taxes on savings, lower the “welfare wall” for low- and modest-income
earners, and reduce taxes for all Canadians.
Tax Relief for Canadians Since 2006
In total, the Government has introduced more than 140 tax relief measures
since 2006. As a result of actions taken by the Government, the average
family of four is saving more than $3,100 per year in taxes, and seniors and
pensioners are receiving about $2.5 billion in targeted tax relief for the
2012–13 fiscal year. Due to measures taken since 2006, more than 1 million
low-income Canadians, including about 380,000 seniors, have been removed
from the tax rolls in 2012.
The federal tax burden for all Canadians is now the lowest it has been in
50 years. Going forward, the Government is committed to keeping taxes low
for families and individuals.
Wage Earner Protection Program
Economic Action Plan 2012 proposes $1.4 million annually to ensure that Wage
Earner Protection Program applicants receive the benefits they are entitled to when they
need them.
The Wage Earner Protection Program (WEPP) was introduced in 2008 to
provide timely compensation to workers for unpaid wages and vacation pay
earned in the six months preceding an employer bankruptcy or receivership.
In Budget 2009, WEPP was expanded to include severance and termination
pay, and in Budget 2011 it was again expanded to cover employees who lose
their jobs when their employer’s attempt at restructuring takes longer than
six months and is subsequently unsuccessful. Economic Action Plan 2012 is
committing $1.4 million annually to ensure that WEPP applicants receive the
benefits they are entitled to when they need them.
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Protecting Long-Term Disability Plans
The Government commits to introduce legislation to require federally regulated
private sector employers to insure, on a go-forward basis, the long-term disability
plans offered to employees.
In the March 2010 Speech from the Throne, the Government announced
that it would explore ways to better protect workers when their employers
go bankrupt. Today, the Government is committing to introduce legislation
to require federally regulated private sector employers to insure, on a
go-forward basis, any long-term disability plans they offer to their employees.
Once the proposed legislation takes effect, employees with disabilities
working in federally regulated sectors will be assured that the long-term
disability benefits they have been promised will be fully protected.
Review of the Registered Disability Savings Plan
Economic Action Plan 2012 proposes measures to ensure that Registered Disability
Savings Plans continue to meet the needs of Canadians with severe disabilities and
their families.
In July 2006, the Minister of Finance appointed the Expert Panel on
Financial Security for Children with Severe Disabilities to consider how best
to ensure the financial security of children with severe disabilities. The Panel
submitted its report, A New Beginning, in December 2006.
The Government acted on the Panel’s recommendations by announcing the
introduction of a new tax-assisted Registered Disability Savings Plan (RDSP)
in Budget 2007, which became available in December 2008.
The RDSP is widely regarded as a major policy innovation and positive
development in helping to ensure the long-term financial security of children
with severe disabilities. Since becoming available in 2008, nearly
55,000 RDSPs have been opened. This is due in part to the considerable
efforts of financial institutions to make these plans available to Canadians.
RDSPs are offered by 11 different financial institutions across the country,
all of which have made a significant investment to offer the program.
Beneficiaries, their families and others have contributed over $220 million
to these plans, and the Government has provided approximately $450 million
in support through Canada Disability Savings Grants (CDSGs) and Canada
Disability Savings Bonds (CDSBs).
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In Budget 2011, the Government announced that it would undertake a
review of the RDSP program in 2011, consistent with the commitment in
Budget 2008 to review the program in three years to ensure that RDSPs are
meeting the needs of Canadians with severe disabilities and their families.
The RDSP review was launched in October 2011. As part of the review,
a consultation paper was released, which included a number of questions
on which Canadians were invited to provide feedback. In response, the
Government received more than 280 submissions from individuals and
organizations. In addition, consultations were held with representatives
from disability groups, financial institutions, and provincial and territorial
governments, including public guardians and trustees. The Government
wishes to thank those who participated in the review for their thoughtful
input and suggestions.
Based on the feedback received during the review, Economic Action
Plan 2012 proposes a number of measures to improve the RDSP.
These measures will:
• Provide greater access to RDSP savings for small withdrawals by
replacing the requirement to repay any CDSGs and CDSBs paid into
an RDSP within the 10 years preceding a withdrawal from the plan
with a requirement to repay CDSGs and CDSBs at a fixed ratio to
the amount withdrawn.
• Provide greater flexibility to make withdrawals from certain RDSPs by
increasing the annual maximum withdrawal limit that applies to these
RDSPs, and ensure that RDSP assets are used to support a beneficiary
during their lifetime by requiring a minimum amount to be withdrawn
from all RDSPs beginning the year a beneficiary attains 60 years of age.
• Provide greater flexibility for parents who save in Registered Education
Savings Plans (RESPs) for children with disabilities by allowing
investment income earned in an RESP to be transferred on a tax-free
basis to an RESP beneficiary’s RDSP.
• Provide greater continuity for long-term saving by RDSP beneficiaries
who cease to qualify for the Disability Tax Credit in certain
circumstances by extending the period that their plans may remain open.
• Improve the administration of the RDSP for financial institutions
and beneficiaries by amending certain RDSP administrative rules.
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182
Establishing Plans and Legal Representation
The RDSP has been highly successful due in part to the cooperation of
provinces and territories in ensuring that RDSP benefits are not clawed
back by reductions in social assistance payments.
However, a number of adults with disabilities have experienced problems in
establishing a plan because their capacity to enter into a contract is in doubt.
Questions of appropriate legal representation in these cases are a matter of
provincial and territorial responsibility. In many provinces and territories,
the only way that an RDSP can be opened in these cases is for the individual
to be declared legally incompetent and have someone named as their legal
guardian—a process that can involve a considerable amount of time and
expense on the part of concerned family members, and that may have
significant repercussions for the individual.
Some provinces and territories have instituted more streamlined processes
to allow for the appointment of a trusted person, such as a parent, other
relative, or friend, to manage resources on behalf of an individual with a
disability, or have otherwise indicated that their system already provides
sufficient flexibility to address these concerns. The Government of Canada
recognizes and appreciates the leadership shown by the Governments of
British Columbia, Saskatchewan, Manitoba, Newfoundland and Labrador,
and Yukon in this regard. In addition, the Government of Canada is pleased
that the Government of Alberta has recently indicated that it will examine
ways to simplify access to the RDSP program.
The Government of Canada continues to encourage the Governments of
Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, the
Northwest Territories and Nunavut to examine whether streamlined
processes would be suitable for their jurisdiction.
Given the importance of this issue to the success of the RDSP program, the
Government of Canada will work with provinces and territories to develop a
standardized, streamlined process that provinces and territories could adopt
in order to facilitate and simplify the process of opening RDSPs for
beneficiaries who lack contractual competence.
In the interim, while these processes are being developed, Economic Action
Plan 2012 proposes to temporarily expand the definition of who may be the
plan holder of an RDSP. Specifically, a beneficiary’s spouse, common-law
partner, or parent will be able to become the plan holder and open an RDSP
on behalf of an adult who might not be able to open a plan due to concerns
Supporting Jobs and Growth
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183
about their ability to enter into a contract. These rules will be in place until
the end of 2016, to provide provinces and territories time to develop more
appropriate, long-term solutions to address RDSP legal representation issues.
The changes to the RDSP will cost $3 million in 2012–13 and $6 million
in 2013–14.
PROTECTING CANADA’S NATURAL ENVIRONMENT
AND WILDLIFE
Since 2006, significant new resources have been provided to create new
National Parks and expand existing ones, enhance water quality and protect
wildlife, support environmental remediation of contaminated sites, protect
the Great Lakes, improve air quality and address climate change. The
Government is taking additional actions to protect and enrich our unique
environmental heritage, so that it can be enjoyed and treasured by current
and future generations of Canadians. These include new investments to
safeguard wildlife species at risk, protect water resources, create Canada’s
first national near-urban park and support clean energy generation.
Protecting Species at Risk
Economic Action Plan 2012 proposes $50 million over two years to protect wildlife
species at risk.
The Species at Risk Act is one of the Government’s main conservation tools
to protect wildlife species, maintain healthy ecosystems and preserve
Canada’s natural heritage. To continue to protect Canada’s diverse species
and help secure the necessary conditions for their recovery, Economic
Action Plan 2012 proposes $50 million over two years to support the
implementation of the Species at Risk Act.
Protecting Water and Wildlife Resources
The Government will continue to pursue water quality and ecosystem
health improvements.
The Government is working together with partners to protect and restore
Canada’s water resources for the benefit of all Canadians. Going forward,
the Government will continue to pursue water quality and ecosystem health
improvements in lakes and other bodies of water, such as Lake Winnipeg and
Lake Simcoe.
Environment Canada is also working towards establishing a hunting and
wildlife advisory panel. Details are to be announced in the coming months.
Chapter 3.4
184
Port Hope Area Initiative
Economic Action Plan 2012 proposes $8 million over two years to compensate
property owners and municipalities.
The Government is committed to safely clean up and store historical
low-level radioactive waste in Port Hope and Clarington, Ontario.
New facilities are being constructed in both communities where the waste
will be safely managed. Economic Action Plan 2012 proposes $8 million
over two years to help compensate property owners and municipalities
for potential losses related to remediation efforts associated with the
low-level waste.
Expanding Canada’s National Parks and Marine
Conservation Areas
The Government has taken steps that will add more than 150,000 square
kilometres to the lands and waters administered by Parks Canada—a more
than 50-per-cent increase since 2006. Examples include:
Gwaii Haanas National Marine Conservation Area Reserve in
British Columbia
The Gwaii Haanas National Marine Conservation Area Reserve and Haida
Heritage Site extends about 10 kilometres offshore from the existing Gwaii
Haanas National Park Reserve. It encompasses roughly 3,500 square
kilometres of the Hecate Strait and Queen Charlotte Shelf natural marine
regions. Combined with the existing park reserve, the new marine
conservation area will protect over 5,000 square kilometres of spectacular
wilderness from alpine mountain tops to the deep sea beyond the
continental shelf—a first for Canada, North America and the world.
Nahanni National Park Reserve in the Northwest Territories
The Nahanni National Park Reserve was expanded six-fold in June 2009
and is the third largest park in Canada. It protects over 30,000 square
kilometres (a little less than the size of Vancouver Island), which is
approximately 91 per cent of the Greater Nahanni Ecosystem in the
Dehcho region. The expansion of the Nahanni enhanced its UNESCO
World Heritage Site designation as a protected area and Canada’s leadership
in international protected area conservation. Globally unique caves, canyons
and rock towers can all be found within the expanded park as well as critical
habitat for grizzly bears, woodland caribou and Dall’s sheep.
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185
Rouge Valley National Near-Urban Park
The Government will take action on the creation of Canada’s first national
near-urban park in the Rouge Valley in Ontario.
National Parks generate significant economic activity by attracting visitors
from Canada and abroad, and provide Canadians with access to our natural
heritage. To provide opportunities for local residents and visitors to enjoy,
discover and learn about the Rouge Valley’s rich natural and cultural heritage,
the Government will be taking steps towards the creation of Canada’s first
national near-urban park in the Rouge Valley in Ontario.
Expanding Tax Support for Clean Energy Generation
Economic Action Plan 2012 proposes to expand the eligibility for the accelerated
capital cost allowance for clean energy generation equipment to include a broader
range of bioenergy equipment.
The tax system encourages businesses to invest in clean energy generation
and energy efficiency equipment by providing an accelerated capital cost
allowance (CCA) rate. CCA Class 43.2 includes a variety of stationary
equipment that generates or conserves energy by using renewable sources
or fuels from waste, or by using fuel more efficiently. It allows the cost
of eligible assets to be deducted for tax purposes at a rate of 50 per cent
per year on a declining balance basis—which is faster than would be implied
by the useful life of the assets.
Economic Action Plan 2012 proposes to expand the eligibility for accelerated
CCA under Class 43.2 to include:
• Waste-fuelled thermal energy equipment used for space and water
heating applications.
• Equipment that is part of a district energy system that distributes
thermal energy primarily generated by waste-fuelled thermal
energy equipment.
• Equipment that uses residue of plants (e.g. straw) to generate
electricity and heat.
It is estimated that these measures will reduce federal revenues by about
$2 million over the next two years.
Chapter 3.4
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Table 3.4
Supporting Families and Communities
millions of dollars
2012–13 2013–14 Total
Protecting the Health and Safety of Canadians
Health-Related Tax Measures 3 3 6
Strengthening Food Safety 26 26 51
Canadian Nuclear Safety Commission 8 8 16
Subtotal—Protecting the Health and Safety of Canadians 37 37 73
Investing in Communities
Investments to Improve First Nations Water Infrastructure 165 165 331
Addressing Family Violence on Reserve 12 12
Support to Provinces and Territories for the Floods of 2011 50 38 88
Subtotal—Investing in Communities 228 204 431
Supporting Families
Wage Earner Protection Program 1 1 3
Review of the Registered Disability Savings Plan 3 6 9
Subtotal—Supporting Families 4 7 12
Protecting Canada’s Natural Environment
and Wildlife
Protecting Species at Risk 25 25 50
Port Hope Area Initiative 4 4 8
Expanding Tax Support for Clean Energy Generation – 2 2
Subtotal—Protecting Canada’s Natural Environment
and Wildlife
29 32 60
Total—Supporting Families and Communities 297 279 577
Less funds existing in the fiscal framework 216 216 432
Net fiscal cost 81 63 145
Note: Totals may not add due to rounding.
Chapter 1
Introducton
Chapter 4
Sustainable Social Programs
and a Secure Retrement
Sustainable Social Programs and a Secure Retirement
189
HIGHLIGHTS
?
The Government is taking the necessary steps to ensure that
Canada’s social programs remain sustainable over the long term.
?
The Government has already set the future growth path of
transfers to provinces and territories that will provide sustainable,
predictable and record funding in support of health care, education
and other services for Canadians.
?
To ensure that Old Age Security (OAS) remains sustainable and
reflects demographic realities, the Government will adjust the age
of eligibility requirement for OAS, which will begin to
be implemented in 2023 and will be fully implemented in 2029.
?
To improve flexibility and choice, starting on July 1, 2013,
the Government will allow for the voluntary deferral of the OAS
pension, for up to five years, allowing Canadians the option of
deferring take-up of their OAS pension to a later time and receiving
a higher annual pension.
?
The Government is improving the integrity and fairness of the tax
system by closing tax loopholes that allow some businesses and
individuals to avoid paying their fair share of tax.
?
The Government is introducing measures to ensure that charities
devote their resources primarily to charitable, rather than political,
activities, and to enhance public transparency and accountability
in this area.
Chapter 4
190
SUSTAINABLE MANAGEMENT OF PUBLIC FINANCES
Putting Transfers on a Long-Term, Sustainable Growth Track
Economic Action Plan 2012 reaffirms the Government’s commitment to sustainable
and predictable transfers to provinces and territories in support of health care, education
and other programs and services.
The Government of Canada provides significant financial support to
provincial and territorial governments on an ongoing basis to assist them
in the provision of programs and services. Major transfers to provinces
and territories will reach a record level of $59 billion in 2012–13, accounting
for about a quarter of the Government’s total program spending (Chart 4.1).
Major transfers to provinces and territories
will total almost one quarter of federal
program spending in 2012–13
Chart 4.1
Major Transfers to Other Levels of Government
as a Share of Total Program Spending
Source: Department of Finance.
Sustainable Social Programs and a Secure Retirement
191
The Government recognizes the important role major transfers play within
the federation, and is committed to ensuring that transfers to other levels
of government grow in a manner that is affordable and sustainable and
reflects taxpayers’ ability to pay.
In December 2011, the Government set the future growth path of transfers
to provinces and territories to provide sustainable and predictable funding in
support of the provision of health care, education and other programs and
services for all Canadians.
Legislation will be introduced to ensure the current 6-per-cent annual
escalator for the Canada Health Transfer (CHT) will continue for five more
years. Starting in 2017–18, the CHT will grow in line with a three-year
moving average of nominal GDP growth, with funding guaranteed to
increase by at least 3 per cent per year.
This growth path demonstrates the Government’s commitment to a publicly
funded, universally accessible health care system that respects the principles
of the Canada Health Act and recognizes that health care is an area of
provincial jurisdiction. Funding for health care will continue to grow from
$27 billion in 2011–12 to a minimum of $38 billion by 2018–19. This health
care funding will provide certainty and stability to the provinces and
territories as they take action to put their respective health care systems on
sustainable spending paths. The CHT will be reviewed in 2024.
The Canada Social Transfer (CST) provides financial support to provinces
and territories for post-secondary education, social assistance and social
services, as well as programs for children. Recognizing the importance of this
funding for the delivery of social programs, the Government will introduce
legislation to continue the 3-per-cent escalator for the CST for 2014–15 and
subsequent years. The CST will also be reviewed in 2024.
In Budget 2007, the Government legislated equal per capita cash support for
both the CST and the CHT in order to provide comparable treatment for all
Canadians, regardless of where they live. CST equal per capita cash
allocations began in 2007–08. To provide provinces and territories the time
to prepare, legislation set 2014–15 as the year when CHT equal per capita
cash allocations would begin.
The Government will introduce legislation to ensure that the transition is
fiscally responsible by providing protection so that no province or territory
will receive less than its 2013–14 CHT cash allocation in subsequent years as
a result of the move to equal per capita cash.
Chapter 4
192
The Government also announced in December 2011 that Equalization
will continue to grow in line with GDP and Territorial Formula Financing
(TFF) will continue to grow based on its current formula. Federal-provincial-
territorial officials will complete the review of the technical aspects of
Equalization and TFF in time for their renewal in 2014–15.
A Strong Retirement Income System for Canadians
The Government is committed to ensuring the retirement security
of Canadians.
Canada has a strong, three-pillar retirement income system (see box).
Since 2006, the Government has taken many steps to strengthen the system,
including increasing the Guaranteed Income Supplement for the most
vulnerable seniors, introducing pension income splitting, increasing the
Age Credit and creating innovative programs such as the Tax-Free Savings
Account and Pooled Registered Pension Plans.
Economic Action Plan 2012 takes action to ensure the retirement security
of all Canadians now and into the future by:
• Placing the first pillar, Old Age Security (OAS) and the Guaranteed
Income Supplement (GIS), on a sustainable path.
• Confirming that the Canada Pension Plan is sustainable at the current
contribution rate of 9.9 per cent of pensionable earnings.
• Confirming that the Government is moving forward on the timely
implementation of Pooled Registered Pension Plans.
Sustainable Social Programs and a Secure Retirement
193
Canada’s Three-Pillar Retirement Income System
Pillar 1: Old Age Security Program
The Old Age Security (OAS) program is financed from the Government
of Canada’s general revenues and provides a monthly pension to most
Canadians 65 years of age or over. The maximum annual OAS pension
is $6,481.
The Government provides additional support to low-income seniors through
the Guaranteed Income Supplement (GIS). The maximum annual
GIS benefit is $8,788 for single seniors and $11,654 for couples.
The OAS program provides approximately $38 billion per year in benefits
to 4.9 million individuals.
Economic Action Plan 2012 introduces changes to the age of eligibility
for OAS benefits, to be phased in gradually, starting in 2023. As well,
Economic Action Plan 2012 introduces the option to defer the OAS pension
and receive an actuarially adjusted pension, starting on July 1, 2013.
Pillar 2: Canada Pension Plan and Québec Pension Plan
The Canada Pension Plan (CPP) and the Québec Pension Plan (QPP) provide
a basic level of earnings replacement in retirement for all Canadian workers.
The CPP and the QPP are financed by contributions from workers and
employers. The maximum annual CPP and QPP retirement benefits
are $11,840.
The CPP and QPP also provide supplementary benefits, which include
survivor benefits and disability benefits.
The CPP and QPP provide approximately $44 billion per year in benefits
to 6.5 million individuals. Economic Action Plan 2012 confirms that the CPP
is sustainable at the current contribution rate of 9.9 per cent of
pensionable earnings.
Chapter 4
194
Canada’s Three-Pillar Retirement Income System (cont’d)
Pillar 3: Voluntary tax-assisted savings opportunities
To help Canadians accumulate additional savings for retirement,
the Government provides tax-assisted savings opportunities through
Registered Pension Plans, Registered Retirement Savings Plans and
Registered Retirement Income Funds. The Tax-Free Savings Account
(TFSA), introduced by the Government in Budget 2008, also provides tax
assisted savings opportunities. It is a general-purpose savings plan that
may be used for any savings purpose, including retirement saving. The
TFSA provides greater savings incentives for low- and modest-income
individuals since neither TFSA investment income nor withdrawals affect
eligibility for federal income-tested benefits and credits, such as OAS and
GIS benefits.
The Government is adding to the pillar by introducing Pooled Registered
Pension Plans, which will provide an accessible, large-scale and low-cost
pension option to employers, employees and the self-employed.
The OAS program is the single largest program of the Government of
Canada. It was put in place at a time when Canadians were not living the
longer, healthier lives that they are now. It was designed for a much different
demographic future than Canada faces today. In the 1970s, there were seven
workers for every one person over the age of 65. There are currently four
workers per senior, and in 20 years, there will be only two.
Sustainable Social Programs and a Secure Retirement
195
The number of workers per senior will decline to nearl y
half its current level by 2030
Chart 4.2
Ratio of Working-Age People to Seniors
Source: 9
th
Actuarial Report on the Old Age Security Program.
In addition, in 1970, life expectancy was age 69 for men and 76 for women.
Today, it is 79 for men and 83 for women. The baby boom generation (born
between 1946 and 1964) is also the largest age cohort in history. At the same
time, Canada’s birth rate is falling. Given these demographic changes, the
cost of the OAS program will grow from $38 billion in 2011 to $108 billion
in 2030.
Chapter 4
196
The life expectancy of Canadians continues to rise
Chart 4.3
Life Expectancy at Birth
Source: Statistics Canada.
Many countries are increasing the age of eligibility of their public pension
programs. Of the 34 Organisation for Economic Co-operation and
Development countries, the following have recently increased or announced
plans to increase the eligibility ages: Australia, Austria, Belgium, the Czech
Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Ireland,
Israel, Italy, Japan, Korea, the Netherlands, the Slovak Republic, Slovenia,
Spain, Turkey, the United Kingdom and the United States.
Also, as Canadians are living longer and healthier lives, many may prefer to
work longer. The OAS program should reflect this new reality and provide
the option for individuals to work longer and receive higher
retirement benefits.
Economic Action Plan 2012 takes action to ensure that the OAS program
is on a sustainable path. These actions will ensure OAS remains strong and
is there for future generations when they need it, as it is for all seniors who
currently receive these benefits.
Sustainable Social Programs and a Secure Retirement
197
Old Age Security Age of Eligibility
Economic Action Plan 2012 puts the OAS program on a sustainable path by
proposing legislation to raise the age of eligibility for OAS and GIS benefits
gradually from 65 to 67 starting in April 2023. This will be fully implemented
by January 2029.
The age of eligibility for OAS and GIS will be gradually increased from
65 to 67, starting in April 2023, with full implementation by January 2029.
An 11-year notification period, followed by a 6-year phase-in period, is being
provided to ensure that individuals have significant advance notification to
plan their retirement and make adjustments.
This proposed legislative change to the age of OAS/GIS eligibility
will not affect anyone who is 54 years of age or older as of March 31, 2012.
Thus, individuals who were born on March 31, 1958 or earlier will not be
affected. Those who were born on or after February 1, 1962 will have an
age of eligibility of 67. Those who were born between April 1, 1958 and
January 31, 1962 will have an age of eligibility between 65 and 67.
For example, as shown in Table 4.2, someone born in April 1960
will be eligible for OAS/GIS at age 66 and one month.
Table 4.2
OAS/GIS Age of Eligibility by Date of Birth
Year of Birth
1958 1959 1960 1961 1962
Month of Birth OAS/GIS Eligibility Age
J an. 65 65 +5 mo 65 +11 mo 66 +5 mo 66 +11 mo
Feb. – Mar. 65 65 +6 mo 66 66 +6 mo 67
Apr. – May 65 +1 mo 65 +7 mo 66 +1 mo 66 +7 mo
J une – J uly 65 +2 mo 65 +8 mo 66 +2 mo 66 +8 mo
Aug. – Sept. 65 +3 mo 65 +9 mo 66 +3 mo 66 +9 mo
Oct. – Nov. 65 +4 mo 65 +10 mo 66 +4 mo 66 +10 mo
Dec. 65 +5 mo 65 +11 mo 66 +5 mo 66 +11 mo
Note: mo = months.
In line with the increase in age of OAS/GIS eligibility, the ages at which
the Allowance and the Allowance for the Survivor are provided will also
gradually increase from 60-64 today to 62-66 starting in April 2023.
This change will not affect anyone who is 49 years of age or older as
of March 31, 2012.
Chapter 4
198
The Government will ensure that certain federal programs, including
programs provided by Veterans Affairs Canada and Aboriginal Affairs and
Northern Development Canada that currently provide income support
benefits until age 65, are aligned with changes to the OAS program. Without
such an alignment, individuals receiving benefits from these programs would
stop receiving them at age 65 and face an income gap until age 67 when they
become eligible for OAS and GIS. The alignment will ensure that these
individuals do not face a gap in income at ages 65 and 66.
The Government will discuss the impact of the changes to the OAS program
on Canada Pension Plan (CPP) disability and survivor benefits with
provinces and territories, who are joint stewards of the CPP, in the course of
the next triennial review. The Government will compensate provinces and
territories for net additional costs they face resulting from the increase in the
age of eligibility for OAS benefits.
Option to Defer the OAS Pension
Economic Action Plan 2012 proposes to give individuals the option to defer take-up
of their OAS pension to a later time and subsequently receive an actuarially adjusted
higher pension.
To improve flexibility and choice in the OAS program, starting on
July 1, 2013, the Government will allow for the voluntary deferral of the
OAS pension, for up to five years, allowing Canadians the option of
deferring take-up of their OAS pension to a later time and receiving a higher,
actuarially adjusted, annual pension. For example, individuals could continue
to work longer and defer taking up their OAS pension beyond age 65,
resulting in an actuarially adjusted pension starting in a subsequent year.
The adjusted pension will be calculated on an actuarially neutral basis, as
is done with the CPP. This means that, on average, individuals will receive
the same lifetime OAS pension whether they choose to take it up at the
earliest age of eligibility or defer it to a later year. The annual pension will
be higher if they choose to defer. GIS benefits, which provide additional
support to the lowest-income seniors, will not be eligible for
actuarial adjustment.
Sustainable Social Programs and a Secure Retirement
199
Example of One-Year
OAS Deferral
Example of Fi ve-Year
OAS Deferral
Michael will be turning 65
in September 2013.
Instead of taking up his OAS pension
at age 65, he plans to continue
working a year longer and defer the
pension until age 66.
When he takes up his OAS
pension at age 66, his annual
pension will be $6,948 instead
of $6,481 (in 2012 dollars).
Rita will be turning 65
in December 2013.
She plans to continue working as
long as she can. She prefers to forgo
her OAS pension for the maximum
deferral period of five years so that
she can have a substantially higher
annual pension amount, starting at
age 70.
When she takes up her OAS
pension at age 70, her annual
pension will be $8,814 instead
of $6,481 (in 2012 dollars).
Proactive Enrolment for OAS and GIS Benefits
Economic Action Plan 2012 proposes to put in place a proactive enrolment regime for
OAS and GIS.
As part of the Administrative Services Review, initiated in Budget 2010,
the Government is pursuing additional standardization and consolidation
opportunities to improve the way it delivers services to Canadians while
generating operational savings. In the context of this initiative, the
Government will improve services for seniors by putting in place a proactive
enrolment regime that will eliminate the need for many seniors to apply for
OAS and GIS. This measure will reduce the burden on seniors of completing
application processes and will reduce the Government’s administrative costs.
Proactive enrolment will be implemented in a phased-in approach from 2013
to 2015.
Canada Pension Plan
Economic Action Plan 2012 announces that the 2010–2012 triennial review of the
CPP confirms the financial sustainability of the Plan for at least the next 75 years at
the current contribution rate of 9.9 per cent of pensionable earnings.
Federal, provincial and territorial Ministers of Finance have completed their
2010–2012 triennial review of the CPP. In accordance with the legislation
governing the CPP, Finance Ministers review the financial state of the CPP
every three years and make recommendations as to whether benefits or the
contribution rate or both should be changed.
Chapter 4
200
Economic Action Plan 2012 announces that the 2010–2012 triennial review
of the CPP confirms the financial sustainability of the Plan for at least the
next 75 years at the current contribution rate of 9.9 per cent of pensionable
earnings. Thus, there will be no change to the contribution rate.
Finance Ministers also agreed to a number of technical amendments
to the CPP legislation and to the CPP Investment Board regulations.
The proposed CPP amendments range from consequential changes to the
reforms that were made to modernize the CPP in the previous 2007–2009
triennial review to amendments that will ensure consistency within the
different parts of the CPP legislation. The technical amendments will not
change the level of CPP benefits or have an impact on the contribution rate.
The Government’s Record on Seniors
As a result of actions taken to date by the Government, seniors and
pensioners will receive $2.5 billion in additional targeted tax relief for
the 2012–13 fiscal year. In particular, since 2006, the Government has:
• Increased the Age Credit amount by $1,000 in 2006 and by another
$1,000 in 2009.
• Doubled the maximum amount of income eligible for the Pension Income
Credit to $2,000.
• Introduced pension income splitting.
• Increased the age limit for maturing pensions and Registered Retirement
Savings Plans (RRSPs) to 71 from 69 years of age.
In 2012, a single senior can earn at least $19,542 and a senior couple
at least $39,084 before paying federal income tax. As a result of actions
taken since 2006, 380,000 seniors have been removed from the tax rolls.
In addition, the Government has strengthened the pillars of the retirement
income system. The Government:
• Created a new Guaranteed Income Supplement top-up benefit for
Canada’s most vulnerable seniors. Budget 2011 announced additional
annual benefits of up to $600 for single seniors and $840 for couples
for more than 680,000 low-income seniors.
• Increased, in Budget 2008, the amount that can be earned before
the GIS is reduced to $3,500, so GIS recipients can keep more of
their hard-earned money without any reduction in GIS benefits.
Sustainable Social Programs and a Secure Retirement
201
The Government’s Record on Seniors (cont’d)
• In 2009, the Canada Pension Plan was modernized to make it more
flexible for those transitioning out of the workforce and to better reflect
the way Canadians currently live, work and retire.
• Built a better framework for federally regulated Registered Pension Plans
(RPPs)—including ensuring that an employer fully funds benefits if the
pension plan is terminated.
• Introduced several improvements to the tax rules for RPPs and RRSPs
to support work and saving by older Canadians and to provide sponsors
of defined benefit pension plans with more funding flexibility.
• Expanded pension options with the introduction of Pooled Registered
Pension Plans for millions of Canadians who have not previously had
access to a large-scale, low-cost, professionally administered company
pension plan.
• Amended the Canadian Human Rights Act and the Canada Labour Code
to prohibit federally regulated employers from setting a mandatory
retirement age unless there is a bona fide occupational requirement.
This allows Canadians to choose how long they wish to remain active
in the labour force.
• Introduced the Tax-Free Savings Account (TFSA) in Budget 2008. The
TFSA is especially beneficial to seniors as neither the income earned in
a TFSA nor withdrawals from it affect eligibility for federal income-tested
benefits and credits, such as the Age Credit, OAS and GIS benefits.
The TFSA also benefits seniors by providing them with a savings vehicle
to meet their ongoing savings needs, something to which they have only
limited access once they are over age 71 and are required to begin
drawing down their registered retirement savings.
Finally, the Government has also strengthened direct support to seniors:
• Budget 2011 provided $10 million over two years to increase funding
for the New Horizons for Seniors Program, which funds organizations that
help ensure that seniors can benefit from, and contribute to, the quality
of life in their communities through active living and participation in social
activities. This was in addition to $5 million per year provided
in Budget 2010 and $10 million per year provided in Budget 2007.
• Budget 2009 provided $400 million over two years for the construction
of new housing units for low-income seniors.
• Budget 2008 invested $13 million over three years to help seniors and
others recognize the signs and symptoms of elder abuse and to provide
information on what support is available.
• Since 2006, $210 million has been invested in the Targeted Initiative for
Older Workers, a federal-provincial-territorial employment program that
provides a range of employment activities for unemployed older workers
in vulnerable communities.
Chapter 4
202
Federally Regulated Pension Plans
The Government has introduced legislation to implement Pooled Registered Pension
Plans, which will provide a new, accessible, large-scale and low-cost pension option to
employers, employees and the self-employed.
The Government is implementing changes to Canada’s pension landscape
that will make saving for retirement easier for millions of Canadians.
On November 17, 2011, the Government introduced the Pooled Registered
Pension Plans Act (the PRPP Act). PRPPs will provide a new, accessible,
large-scale and low-cost pension option to employers, employees and the
self employed.
The PRPP Act will apply to employees in industries that are federally
regulated. It will also apply to all individuals employed in the Yukon,
Northwest Territories and Nunavut. Provinces must introduce
enabling legislation in their own jurisdictions to make PRPPs available
throughout Canada.
The Government will continue to work closely with the provinces to
encourage implementation of the framework in a timely manner to help
Canadians reach their retirement objectives. A high level of harmonization
of regulations across jurisdictions will be instrumental in increasing the
availability of PRPPs and achieving lower costs.
In December 2011, the federal government also released for public comment
a package of draft amendments to the Income Tax Act and Income Tax
Regulations to accommodate PRPPs under the tax rules. The tax rules for
PRPPs will apply to all PRPPs, whether federally or provincially regulated.
Comments received during the consultation period, which ended on
February 14, 2012, are being reviewed. The tax rules for PRPPs will
be implemented in 2012.
The Government will also introduce technical amendments to strengthen
the Pension Benefits Standards Act, 1985.
Sustainable Social Programs and a Secure Retirement
203
Improving Tax Fairness and Integrity
Economic Action Plan 2012 proposes new measures to close tax loopholes in order
to improve the fairness and integrity of the tax system and to help keep tax rates low.
In the 2010 Speech from the Throne, the Government committed to take
aggressive steps to close tax loopholes that allow a few businesses and
individuals to take advantage of hard-working Canadians who pay their fair
share of tax. By broadening and protecting the tax base, these actions also
help to keep Canadian tax rates competitive and low, thereby improving
incentives to work, save and invest in Canada.
Since 2006, the Government has introduced over 40 measures to improve
the integrity of the tax system, raising over $2 billion in revenues for the
federal government in both 2013–14 and 2014–15. These measures also
help protect provincial tax revenues on our shared tax bases.
The Government is taking further action through Economic Action
Plan 2012 to improve the fairness and integrity of the tax system by:
• Restricting the ability of foreign-based multinational corporations to
transfer, or “dump”, foreign affiliates into their Canadian subsidiaries
with a view to creating tax-deductible interest or distributing cash free
of withholding tax, without providing any economic benefit to Canada.
• Improving the effectiveness of Canada’s thin capitalization rules, which
seek to prevent Canadian corporate profits from being distributed to
certain non-resident shareholders free of Canadian income tax by way
of interest payments on excessive debt.
• Preventing the avoidance of corporate income tax through the
use of partnerships to convert income gains into capital gains.
• Modifying the penalty for making unreported tax shelter sales
to better match the penalty to the purported tax savings of the
unreported tax shelter.
• Tightening the rules applicable to Retirement Compensation
Arrangements to prevent certain schemes designed to inappropriately
reduce tax liabilities.
• Tightening the rules applicable to Employees Profit Sharing Plans
to discourage excessive contributions for employees with a close tie
to their employer.
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204
Economic Action Plan 2012 proposals to improve tax fairness and integrity
will yield $120 million in savings in 2012–13, rising to $320 million by
2013–14. Further details on these proposals can be found in Annex 4.
Enhancing Transparency and Accountability for Charities
Economic Action Plan 2012 proposes measures to ensure that charities devote their
resources primarily to charitable, rather than political, activities, and to enhance public
transparency and accountability in this area.
The Government of Canada provides registered charities with generous
assistance under the tax system in recognition of the valuable work that they
perform. Registered charities are exempt from tax on their income and may
issue official donation receipts for gifts received. In turn, donors can use
those receipts to reduce their taxes by claiming the Charitable Donations
Tax Credit (for individuals) or Charitable Donations Tax Deduction (for
corporations). In 2011, federal tax assistance for the charitable sector was
approximately $2.9 billion. At the request of the Government, the House of
Commons Standing Committee on Finance is studying current and proposed
incentives for charitable giving to ensure that the tax incentives are as
effective as possible.
Canadians have shown that they are willing to donate generously to support
charities, but want to be assured that charities are using their resources
appropriately. In this regard, charities are required by law to operate
exclusively for charitable purposes and to devote their resources exclusively
to charitable activities.
Given their unique perspectives and expertise, it is broadly recognized that
charities make a valuable contribution to the development of public policy
in Canada. Accordingly, under the Income Tax Act charities may devote
a limited amount of their resources to non-partisan political activities that
are related to their charitable purposes.
Recently, concerns have been raised that some charities may not be
respecting the rules regarding political activities. There have also been calls
for greater public transparency related to the political activities of charities,
including the extent to which they may be funded by foreign sources.
Sustainable Social Programs and a Secure Retirement
205
The Canada Revenue Agency (CRA), as administrator of the tax system,
is responsible for ensuring that charities follow the rules. Accordingly,
to enhance charities’ compliance with the rules with respect to political
activities, Economic Action Plan 2012 proposes that the CRA:
• Enhance its education and compliance activities with respect to political
activities by charities.
• Improve transparency by requiring charities to provide more information
on their political activities, including the extent to which these are funded
by foreign sources.
These administrative changes will cost $5 million in 2012–13 and $3 million
in 2013–14.
It is also proposed that the Income Tax Act be amended to restrict the extent
to which charities may fund the political activities of other qualified donees,
and to introduce new sanctions for charities that exceed the limits on
political activities, or that fail to provide complete and accurate information
in relation to any aspect of their annual return.
Chapter 1
Introducton
Chapter 5
Responsible Management to
Return to Balanced Budgets
Responsible Management to Return to Balanced Budgets
209
HIGHLIGHTS
?
In Budget 2011, the Government reiterated its commitment
to generate ongoing savings from operating efficiencies and
improving productivity by announcing a review of departmental
spending. The results of this review are presented in this budget.
?
Canada’s economic and fiscal fundamentals are strong. The scale
of Canada’s efforts to reduce the deficit is modest compared to
the expenditure restraint efforts being pursued by many countries
around the world and relative to that undertaken in Canada in
the mid-1990s, which included reduced transfers to provinces
for health care and education.
?
The Government’s economic management strikes the right
balance between supporting economic growth and job creation
and returning to budget balance over the medium term.
?
That is why the Government remains committed to returning
to balanced budgets at an appropriate pace as the economy
continues to recover from the global economic crisis.
?
The Government’s plan to return to balanced budgets over
the medium term is on track.
?
Measures initiated in Budget 2010 and Budget 2011 to restrain
growth in federal spending have proven to be highly successful,
contributing to a projected return to budgetary balance over the
medium term, while ensuring continued and growing funding for
the programs and services that are a priority for Canadians.
?
The Government is not reducing transfers to persons, including
those for seniors, children and the unemployed, or transfers to
other levels of government in support of health care and
social services.
?
The results of the Government’s review of departmental spending
will yield savings of $5.2 billion on an ongoing basis. The planned
reduction in spending represents less than 2.0 per cent of federal
program spending in 2016–17, or 0.2 per cent of Canada’s gross
domestic product (GDP) in that same year.
Chapter 5
210
RESPONSIBLE MANAGEMENT OF PUBLIC FINANCES
Canadians know the importance of living within their means and expect the
Government to do the same. That is why the Government is committed to
managing public finances in a sustainable and responsible manner. The
Government’s responsible financial management put Canada in a position
of strength when it came time to combat the global recession. From 2006
to 2008, the Government paid down over $37 billion in debt, significantly
contributing to Canada’s low net debt position. This enabled the
Government to quickly implement the stimulus phase of Canada’s Economic
Action Plan without leaving the country in a vulnerable fiscal position like
many European countries.
But Canadians know that responsible fiscal management—balancing the
budget and reducing debt—does far more than just provide room to
manoeuvre when the economy is negatively affected by developments
outside our borders. Responsible fiscal management contributes to strong
economic growth and job creation over the long term. Reducing debt:
• Frees up tax dollars otherwise absorbed by interest costs, which can
be reinvested in other priorities such as health care, public services or
lower taxes.
• Keeps interest rates low, encouraging businesses to invest for the future.
• Signals that public services are sustainable over the long run.
• Strengthens the country’s ability to respond to challenges such as
population aging.
• Preserves Canada’s low-tax plan, fostering the long-term growth that
generates high-quality jobs for all Canadians.
THE PLAN TO RETURN TO BALANCE
The Government’s medium-term fiscal plan is founded on returning to
balanced budgets. The means to achieve this goal have been well established,
beginning in Budget 2009 with the launch of the stimulus phase of Canada’s
Economic Action Plan, which was explicitly designed to be temporary. The
plan was then augmented in Budget 2010, which announced targeted actions
to control the growth in direct program spending, including: restraining the
growth in defence spending; capping the International Assistance Envelope;
freezing departmental operating budgets for two years; and freezing the
salaries of the Prime Minister, Ministers, Members of Parliament and
Senators until 2013.
Responsible Management to Return to Balanced Budgets
211
Budget 2011 further augmented the plan. First, it delivered on the
2010 strategic review, which, combined with the results of the reviews
of the previous three years, resulted in $2.8 billion in ongoing savings.
Second, it launched a comprehensive review of departmental spending with
the objective of achieving at least $4 billion in annual savings by 2014–15.
Over the past year, the Government assessed approximately $75 billion of
direct program spending by departments and agencies. Federal organizations
were asked to look at the efficiency and effectiveness of their programs and
operations to ensure value for money, as well as to rethink business
processes and service delivery platforms. Major transfers to persons and
transfers to other levels of government were excluded from the scope of the
review. In fact, transfers will continue to increase to record high levels in
2012–13 and going forward.
The following section provides an overview of the results of the review.
It highlights key measures the Government is taking to find efficiencies in
its operations and achieve greater relevance and effectiveness in government
programs and services.
The [Canadian] authorities have appropriately shifted toward fiscal
consolidation. The federal government is leading the initial fiscal
effort, and regional governments are expected to follow suit.
[IMF] Staff supports the [Canadian] authorities’ objective of
returning to a stronger fiscal position in the medium term.
— International Monetary Fund, November 2011
Reductions in Departmental Spending
The results of the Government’s review of departmental spending amount
to roughly $5.2 billion in ongoing savings, representing 6.9 per cent of an
aggregate review base of $75.3 billion.
These measures represent modest and measured action on the part of the
Government to help ensure a return to balanced budgets over the medium
term. In fact, the reduction in spending represents less than 2.0 per cent of
expected federal program spending in 2016–17, or about 0.2 per cent of
Canada’s GDP that same year (Chart 5.1).
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212
Relative to total program spending of over $250 billion,
planned departmental spending reductions are modest
Chart 5.1
Planned Spending Reductions Relative to Total
Program Spending and Review Base
Departmental Spending Reductions—Value Departmental Spending Reductions—Share
Note: The review base is 2011–12 direct program spending (excludes major transfers to provinces and major transfers
to persons), on a cash basis, net of temporary Economic Action Plan measures, respendable revenues and Treasury
Board central votes, expenditures related to liabilities already recorded in the Public Accounts and flow-through
revenues transferred to provinces.
As Table 5.1 demonstrates, this was not an exercise in across-the-board
spending reductions. The Government focused instead on finding savings
that would reflect the primary goal of achieving efficiencies in operations and
enhancing productivity, as well as those that would better align spending with
the priorities of Canadians. As a result, the savings achieved relative to
existing spending vary across portfolios. Further, almost 70 per cent of the
total ongoing savings are due to operating efficiencies. An overview of
savings for each participating government portfolio appears in Annex 1.
Responsible Management to Return to Balanced Budgets
213
Table 5.1
Planned Reductions in Departmental Spending
millions of dollars, accrual basis
Portfolio 2012–13 2013–14 2014–15 Ongoing
Review
Base
Per Cent
of Review
Base
1
Per Cent of
Total
Program
Spending
1
Aboriginal Affairs and
Northern Development 26.9 60.1 165.6 165.6 6,223.2 2.7 0.06
Agents of Parliament 8.3 8.8 16.4 16.4 – – 0.01
Agriculture and Agri-Food 17.1 168.5 309.7 309.7 3,092.3 10.0 0.12
Canada Revenue Agency
2
14.8 87.0 225.4 253.1 3,641.2 6.9 0.09
Citizenship and Immigration 29.8 65.2 84.3 84.3 1,581.5 5.3 0.03
Environment 19.5 56.4 88.2 88.2 1,062.2 8.3 0.03
Finance
2
20.6 32.6 34.6 38.6 229.4 16.8 0.01
Fisheries and Oceans 3.8 13.4 79.3 79.3 1,360.1 5.8 0.03
Foreign Affairs and
International Trade 72.4 116.6 169.8 169.8 1,916.2 8.9 0.06
Health 111.7 218.5 309.9 309.9 4,811.7 6.4 0.12
Heritage 52.2 130.7 191.1 191.1 2,773.7 6.9 0.07
Human Resources and
Skills Development 10.6 64.7 286.7 286.7 7,589.8 3.8 0.11
Industry 89.2 182.7 217.3 217.3 3,454.4 6.3 0.08
International Assistance
Envelope 180.7 242.1 377.6 377.6 3,896.8 9.7 0.14
J ustice 21.2 69.0 76.9 76.9 898.3 8.6 0.03
National Defence 326.8 706.1 1,119.8 1,119.8 15,069.0 7.4 0.42
Natural Resources 68.3 86.0 108.3 108.3 1,079.6 10.0 0.04
Privy Council Office 3.7 6.5 12.2 12.2 102.6 11.9 0.00
Public Safety 179.4 370.7 687.9 687.9 6,940.6 9.9 0.26
Public Service Commission 2.2 4.5 9.0 9.0 89.9 10.0 0.00
Public Works and
Government Services
2
1.5 28.1 85.3 177.6 1,848.6 9.6 0.07
Regional Development
Agencies 26.7 73.4 86.9 86.9 996.2 8.7 0.03
Shared Services Canada 74.7 104.5 150.0 150.0 1,493.4 10.0 0.06
Transport 63.4 97.2 152.6 152.6 1,428.8 10.7 0.06
Treasury Board 10.4 18.6 30.2 30.2 281.1 10.7 0.01
Veterans Affairs
2
36.1 49.3 66.7 36.9 3,487.6 1.1 0.01
Total Portfolio Savings 1,472.1 3,061.2 5,141.5 5,235.7 75,348.1 6.9 1.9
Note: Totals may not add due to rounding.
1
Ongoing savings as a percentage of the review base and 2016–17 total program spending across the Government.
2
Savings associated with the Canada Revenue Agency’s and the Department of Finance Canada’s spending reduction
measures will continue to grow in value beyond 2014–15. Given that a large portion of its spending is fixed over the
short term (e.g. through lease agreements and contracts), Public Works and Government Services Canada has until
2018–19 to achieve its savings target. The lower ongoing savings for Veterans Affairs Canada reflects the accrual
impact of some of its savings measures, which are fully amortized by 2015–16.
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214
This modest approach reflects Canada’s sound fiscal and economic
fundamentals, and is in stark contrast to more significant expenditure
restraint measures that many other countries have had to put in place
to stabilize their fiscal positions.
Countries such as the United Kingdom and euro-area members including
Greece, Portugal, Italy and Spain, for example, are drastically reducing
funding and services for their citizens. The planned measures in many
of these countries represent the deepest spending reductions in decades,
and are accompanied by hundreds of thousands of lost public sector jobs,
tax increases and postponed infrastructure projects.
Chart 5.2 compares the spending track underlying the Government’s plan
to return to balance over the medium term, including the reductions in
departmental spending announced in this budget, with those being
implemented in Spain, the U.K., Italy, France and Germany. Up to 2014–15,
planned spending restraint is expected to result in a decline in program
spending as a share of GDP of 1.0 percentage point.
1
The actions the Government is currently undertaking to reduce the
growth in spending are also modest compared to those implemented in
the mid-1990s. Between 1993-94 and 1997-98, federal program spending
was reduced by 3.8 percentage points of GDP, from 16.8 per cent to
13.0 per cent of GDP, and included reductions in Employment
Insurance benefits and funding for the provinces and territories for
health care and education.
This is significantly less
than the expenditure restraint measures being taken in other countries, where
program spending as a per cent of GDP is being reduced by between 2.4
percentage points, in the case of Germany, and 4.5 percentage points in the
case of Spain.
1
Includes the impact of measures undertaken in Budget 2010, Budget 2011 and Budget 2012
to restrain growth in program spending.
Responsible Management to Return to Balanced Budgets
215
Planned spending restraint is modest
Chart 5.2
Decline in Program Spending as a per cent of GDP
(2011–12 to 2014–15)
Notes: Estimates for Canada are for the federal government only. Based on provincial budget outlooks, aggregate
spending restraint at the provincial level is expected to total 1.2 per cent of GDP over the 2011–2014 period.
Sources: National forecasts; European Commission; U.K. Office for Budget Responsibility; International Monetary Fund;
Department of Finance calculations.
Unlike the significant fiscal consolidation exercise in the mid-1990s, major
transfers to persons and other levels of government for health care and
education and other social programs will not be cut. On the contrary, major
transfers to provinces, territories and individuals will grow over the forecast
period. In 2014–15, once the planned reductions in departmental spending
have been fully implemented, federal program spending is projected to be
roughly 6 per cent higher than in 2010–11. This will be fuelled by continued
growth in transfers to provinces for the provision of health care, education
and social services and to individuals for Old Age Security and
children’s benefits.
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216
However, growth in spending is expected to be less than that of the
economy. As a consequence, total program spending as a per cent
of GDP is expected broadly to return to pre-recession levels over
the budget horizon (Chart 5.3).
Including the departmental spending reductions
detailed in this budget, program spending is expected
to broadl y return to pre-recession levels
Chart 5.3
Program Spending as a Share of GDP
Sources: Department of Finance: Statistics Canada.
The planned reductions in departmental spending announced in this budget
are modest and focused on making government operations leaner and more
efficient, while preserving fundamental programs, services and transfers for
Canadian individuals and families. Indeed, these spending reductions will
result in a more productive, efficient and responsive government by:
• Refocusing government and programs.
• Making it easier for Canadians and businesses to deal
with their government.
• Modernizing and reducing the back office.
Responsible Management to Return to Balanced Budgets
217
This section provides some examples of the savings measures that will be
implemented in these areas, and Annex 1 contains additional details. Once
departments and agencies have had the opportunity to communicate cost
savings measures contained in this budget to their employees and collective
bargaining agents, they will begin to implement these measures and
communicate accordingly.
Refocusing Government and Programs
The Government is committed to reducing unnecessary spending by
focusing on providing programs that are consistent with federal roles and
responsibilities, ensuring programs are delivered by those best positioned to
do so, and refocusing program funding based on achievable objectives and
the needs of Canadians. In particular, the Government’s review of
departmental spending has identified opportunities to better align program
funding with citizen and business demand.
? The Government will introduce legislation to modernize Canada’s
currency set by eliminating the penny from Canada’s coinage system.
The Government will no longer distribute pennies as of Fall 2012.
However, the penny will retain its value indefinitely and can continue to
be used in payments. The penny has weak purchasing power and costs
the Government 1.6 cents to produce. Other countries, such as New
Zealand, Australia, the Netherlands, Norway, Finland and Sweden,
have made smooth transitions to a penny-free economy. The
Government expects that businesses will apply rounding for cash
transactions in a fair and transparent manner. Canadians will be able
to redeem pennies for full value. The Government will work in
collaboration with institutions and charitable organizations that may wish
to organize fundraising activities around the elimination of the penny.
? Domestic coinage denominations have been shifting from metal alloys to
plated steel cores. The $1 and $2 coins are the last of the denominations
to be converted to the new plating technology. The Government will
adjust the metal composition of these coins, significantly reducing their
unit production costs.
? The Government is eliminating the Public Appointments Commission
Secretariat as the Government has significantly strengthened the rigour
and accessibility of the public appointments system over the past
five years. Improvements put in place to strengthen the public
appointments system include advertising public appointment
opportunities on a dedicated website and conducting open selection
processes for leadership and full-time positions.
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218
? In recent years, the Government has made major, necessary investments
in the country’s military capabilities. Going forward, defence contracting
and internal processes will be streamlined to achieve savings. However,
Canadian Forces regular and reserve force strength will be maintained
at 68,000 and 27,000, respectively, preserving the balance across the four
Canada First Defence Strategy pillars upon which military capabilities
are built—personnel, equipment, readiness and infrastructure.
? The Government will update the terms and conditions of employment
abroad to make them comparable to benefits provided in the private
sector or by other public sector counterparts. Based on international
standards, rent ceilings for leased accommodations will be lowered
moderately. Extending some postings will help deepen Canadians’
contacts on the ground and will also reduce the administrative
costs associated with frequent relocation.
? The Government will also sell some official residences abroad and move
to smaller ones, generating capital revenue of $80 million. More modest
quarters will not impact the ability of our diplomats to do their jobs
and will reduce the number of required staff, resulting in further
operating savings.
? While the National Round Table on the Environment and the Economy
(NRTEE) filled an important need in the past, a mature and expanded
community of environmental policy stakeholders has demonstrated the
capacity to provide analysis and policy advice for the Government of
Canada. As a result, the Government will introduce legislation to
eliminate the NRTEE. Environment Canada will continue to offer
effective programs to protect Canada’s natural environment.
? The Government will eliminate the Katimavik program. Our
Government is committed to giving our young people the opportunities
they deserve, and we will achieve that by funding programs that benefit
large numbers of young people at a reasonable cost rather than
concentrating available funding on a very small number of participants at
an excessive per-person cost. Our Government is proud to continue to
invest in affordable, effective programming that engages youth, including
Encounters with Canada, Forum for Young Canadians, and
organizations that support youth, like the YMCA. Canadian Heritage will
continue to invest over $105 million in youth programming to allow
almost 100,000 young people to learn about their country.
Responsible Management to Return to Balanced Budgets
219
? The Government will eliminate the Advanced Leadership Program at the
Canada School of Public Service. While the program has been successful
in building senior leader capacity, it is no longer a cost-effective learning
tool. The school will continue to offer other relevant, affordable and
quality learning experiences to support capacity building.
? The Government will introduce legislation to wind down Assisted
Human Reproduction Canada, with final closure of operations by
March 31, 2013. The winding down of the Agency responds to the
2010 ruling of the Supreme Court of Canada that significantly reduced
the federal role in assisted human reproduction. Health Canada will take
over responsibility for any remaining federal functions such
as compliance and enforcement, and outreach.
Making It Easier for Canadians and Businesses
to Deal With Their Government
The Government is maintaining its commitment to reduce unnecessary
red tape to allow businesses to focus on creating high-quality jobs and
contribute to Canada’s economic growth. Specifically, the Government will
expand electronic services available to Canadians and Canadian businesses
and introduce regulatory changes that will cut unnecessary red tape for
citizens and employers, placing greater flexibility and control in their hands.
? The Government will consolidate Agriculture and Agri-Food Canada’s
grants and contribution programs across the Department and streamline
management of the Farm Debt Mediation Service. Delivering all of its
programs out of one branch will allow the Department to offer more
efficient services with fewer people. Farmers and the industry will
benefit from this change, which will simplify the application process
and reduce paperwork and other redundancies, while reducing costs.
? The Government will change how the Canadian Food Inspection Agency
(CFIA) monitors and enforces non-health and non-safety food labelling
regulations. The CFIA will introduce a web-based label verification tool
that encourages consumers to bring validated concerns directly to
companies and associations for resolution. The Government will also
repeal regulations related to container standards to enable industry to
take advantage of new packaging formats and technologies, while
removing an unnecessary barrier for the importation of new products
from international markets.
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220
? The Government will streamline and modernize Human Resources and
Skills Development Canada’s administration and delivery of grants and
contributions, which will improve services and reduce red tape. Ongoing
savings will be achieved by consolidating, standardizing and automating
administrative functions to reduce duplication and increase capacity to
offer advanced services and transactions online.
? The Government will replace the existing contribution agreements for
the housekeeping and grounds maintenance components of the Veterans
Independence Program (VIP) with annual grants. This will simplify the
process for more than 96,000 Veterans, primary caregivers and survivors,
who will continue to receive the financial support they need for
housekeeping and grounds maintenance services, but will no longer have
to obtain, track and submit receipts to be reimbursed. As a result, almost
2.5 million transactions each year related to these reimbursements under
VIP will be eliminated.
? The Government is taking action to more quickly give doctors and
patients access to drugs that have already passed a rigorous safety review,
including removing the requirement for regulatory amendments to
declare prescription status for new drugs, or to switch their status from
prescription to non-prescription. This measure is purely about reducing
the red tape that blocks drugs shown to be safe from getting on the
market and is consistent with the Government’s broader red tape
reduction efforts.
Modernizing and Reducing the Back Office
The Government is committed to streamlining, consolidating and
standardizing administrative functions and operations within and across
organizations. The Government has identified opportunities to consolidate
administrative functions including human resources and financial services,
real property maintenance, information technology, communications and
contracting within portfolios and across similar organizations. It has also
identified ways to reduce travel expenses by using virtual tools such as
teleconferencing, videoconferencing and virtual presence.
? Environment Canada and Natural Resources Canada will reduce travel
activities and will reduce their fleets by a total of 160 vehicles.
? A number of departments and agencies with similar mandates and
program and policy goals, such as the regional development agencies,
Health Canada and the Public Health Agency of Canada, and Agriculture
and Agri-Food Canada and the Canadian Food Inspection Agency,
will achieve savings by merging their back office functions.
Responsible Management to Return to Balanced Budgets
221
? Public Works and Government Services Canada will introduce new
office space standards in Crown-owned and federal government
occupied buildings. The new, more efficient and effective office
accommodation standards are consistent with industry best practices.
? Shared Services Canada (SSC) will now deliver email, data centre and
network services to 43 federal organizations. SSC will realize significant
cost savings by moving to a single email system, consolidating data
centres, and utilizing its collective purchasing power.
Workforce Impact
As the largest employer in Canada, the Government is managing the impact
of these spending reductions on its workforce responsibly.
The planned reduction in departmental spending is expected to eliminate
about 12,000 government positions over a three-year-period, with affected
individuals qualifying for collectively bargained workforce adjustment
measures. This number takes into account attrition—largely retirement
or other voluntary departures. In total, federal employment will be reduced
by about 19,200 or 4.8 per cent. To the largest extent possible, the
Government will use these vacancies towards redeploying individuals whose
jobs have been affected by the spending reduction.
The planned reduction in employment includes the elimination of about
600 executive positions, or 7.4 per cent of the executive workforce,
bringing the level of management overhead more in line with private
sector best practices.
To put the total planned reduction in employment in perspective,
the 4.8 per cent, or 19,200, reduction is about one-third of that
experienced during the 1990s Program Review, which saw a reduction
in federal employment of about 14 per cent or about 50,000.
Further, the planned reduction in employment would reverse only about
20 per cent of the increase in federal public sector employment that has
occurred since the late 1990s. Indeed, between 1998 and 2011, federal
employment grew by approximately one-third, or 95,000, from just
under 300,000 in 1998 to just under 400,000 in 2011.
A large proportion of full-time-equivalent reductions will occur in the
National Capital Region. The regional distribution of employment in the
federal public service will be largely unaffected by the implementation of the
departmental spending reductions.
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222
It is expected that the proposed reduction in employment, which represents
only 0.1 per cent of all jobs in Canada, will be marginal compared to the
expected job growth in the wider economy over the course of the three
years in which the reductions will be implemented.
In addition, the Government is taking actions in this budget, as part of its
plan for jobs and growth, that will offset some of the reduction in public
service employment, while at the same time creating an environment for
private sector job creation.
The Government will make every effort to manage the employment
reductions resulting from the reduction in departmental spending in a
manner that treats federal employees fairly and minimizes disruptions to
Canadians. The collectively bargained Workforce Adjustment Directive for
unionized employees and the Directive on Career Transition for Executives
set out the options and benefits available to employees whose position will
be affected by a workforce adjustment situation.
Where possible, the Government will use natural attrition and internal
redeployments to mitigate the impact on permanent federal employees.
The Government will strengthen workforce information sharing across
federal departments to ensure that hiring managers can be easily linked
with affected employees.
The overall cost of workforce adjustment measures resulting from the
planned reduction in departmental spending is estimated to be $0.9 billion.
Consistent with government accounting practices, which are based on
independently set standards, these costs are accrued in the 2011–12
fiscal year.
Responsible Expenditure Management
In addition to the measures described above, and as part of its commitment
to responsible and sustainable public finances, the Government is
implementing several other initiatives that will improve the efficiency and
reduce the costs of service delivery, streamline its reporting procedures by
eliminating unnecessary and duplicative reports, as well as better align
planned spending with expected needs.
Responsible Management to Return to Balanced Budgets
223
Updating Defence Capital Funding
The Government of Canada has made significant progress towards the
implementation of the Canada First Defence Strategy, which outlines a
comprehensive, long-term plan to provide the Canadian Forces with the
people, equipment and support they need to carry out their core missions
in Canada and elsewhere in North America and abroad. The Government
will continue to replace key equipment, including purchasing new ships built
in Canada through the National Shipbuilding Procurement Strategy, as well
as by acquiring an affordable replacement for Canada’s aging CF-18 fleet to
better equip Canada’s men and women in uniform. In order to ensure that
funding for major capital equipment procurements is available when it is
needed, the Government is adjusting the National Defence funding profile
to move $3.54 billion over seven years into the future period in which
purchases will be made.
Modernizing the Government’s Information Technology:
Shared Services Canada
Shared Services Canada was established on August 4, 2011, as a
demonstration of the Government’s commitment to generating
operational efficiencies and ensuring value for Canadian taxpayers.
The new department’s mandate is to consolidate information technology
(IT) infrastructure, including email, data centres and networks, across
43 departments and agencies. Through this initiative, the Government will
produce savings and reduce the Government’s footprint, strengthen the
security and safety of government data to ensure Canadians are protected,
and make it more cost-effective to modernize IT services. The new
organization has already identified upfront, ongoing savings. It will continue
to generate savings for taxpayers as it carries out its mandate.
The Government will introduce legislation establishing Shared Services
Canada with a mandate to deliver value for money for Canadian taxpayers
and giving it the necessary authorities to maintain the integrity of its
mission-critical operations and to realize the efficiencies for which it
was created.
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224
Administrative Services Review—Moving Forward
Building on the administrative services review from Budget 2010,
the Government set out a direction in Budget 2011 to improve services
and realize efficiencies by examining government-wide solutions that
standardize, consolidate and re-engineer the way it does business. As
discussed above, the Government is moving forward with the creation
of Shared Services Canada, with a mandate to lower costs by streamlining
information technology networks, data centres and email systems.
Moving forward, the Government will pursue additional standardization
and consolidation opportunities, continuing to improve the way it delivers
services to Canadians while generating operational savings. For example, as
discussed in Chapter 4, the Government plans to improve services to seniors,
while reducing its own administrative costs, by putting in place a proactive
enrolment regime that would eliminate the need for many seniors to
apply for Old Age Security and the Guaranteed Income Supplement
if they meet the eligibility requirements.
Parliamentary Expenses
The House of Commons Board of Internal Economy and the Senate Board
of Internal Economy, Budgets and Administration have undertaken
reviews of Parliamentary spending in order to find efficiencies and provide
better value for taxpayers. These boards have found efficiencies through
new policies and process improvements, and submitted their results to
the Government.
Public Sector Compensation
The Government is also taking specific action to bring federal public service
compensation in line with that of other public and private sector employers.
This includes eliminating the accumulation of severance benefits for
voluntary resignation and retirement, which to date has been eliminated
for about 230,000 unionized and non-unionized federal government
employees, including members of the Royal Canadian Mounted Police,
the Canadian Forces and all executives in the core public administration.
Other federal public sector employers are pursuing similar approaches.
Starting on April 1, 2012 and on a go-forward basis, the prior years of service
of former members of the Canadian Forces who join the public service will
be recognized for the purpose of calculating vacation entitlements.
Responsible Management to Return to Balanced Budgets
225
Pensions of Public Servants and Parliamentarians
In Budget 2010, the Government indicated that it would engage public
sector bargaining agents and assess measures taken by other jurisdictions
in Canada to ensure that the total costs of compensation are reasonable.
Employee pension plans represent a significant element of the Government’s
total compensation expenses.
The Government is committed to respecting its pension obligations.
The Government will take steps to ensure that plans are sustainable,
financially responsible and broadly consistent with the pension products
offered by other jurisdictions as well as fair relative to those offered in the
private sector.
The Government proposes to adjust the Public Service Pension Plan so
that public service employee contributions equal, over time, those of the
employer (50/50). Comparable changes to the contribution rates will be
made to the pension plans for the Canadian Forces, the Royal Canadian
Mounted Police and Parliamentarians.
In addition, it is proposed that, for those employees who join the federal
public service starting in 2013, the normal age of retirement will be raised
from 60 to 65.
Adjustments to the pension plan of Parliamentarians will take effect in the
next Parliament.
The Government will also work with Crown corporations to ensure that
their employee pension plans are financially sustainable and broadly aligned
with those available to federal employees.
The Government will be consulting with key stakeholders on all of these
changes in the coming months.
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226
Corporate Asset Management Review
Since 2009, the Government has been undertaking a systematic review of
corporate assets as a normal part of good governance, which can contribute
to the ongoing reallocation of financial resources to high priorities in order
to maximize benefits to taxpayers. The review assesses selected assets,
with a view to improve their efficiency and effectiveness and to ensure that
government resources are employed in ways that focus on the priorities
of Canadians. There are a number of potential outcomes from this process
that may be adopted or implemented, ranging from the status quo to
amendments to current mandates or governance, and even possibly
divestment. The Government will continue to review its corporate assets
to ensure value for taxpayers.
Greater Use of Telepresence Technology
The Government will explore ways to increase its productivity by using
telepresence and other remote conferencing technologies more extensively.
Telepresence technology is similar to videoconferencing; however, it enables
participants to see life-size, full-motion video with high-quality sound.
The Government will develop a strategy to expand the use of telepresence
technology and other remote meeting solutions. Investments in this
technology will be financed by reductions in travel expenses.
Next Steps
The section above has described the numerous measures that the
Government has taken to date to achieve its medium-term objective of
returning to balanced budgets. Following a deliberate and measured review
of departmental spending, the Government is taking action to refocus
federal efforts on relevant and effective programs that are required to meet
long-standing needs in the primary areas of federal responsibility. It will also
ensure that all government operations are performed as efficiently
as possible.
Over the coming year, the Government will continue to examine new ways
to reduce costs, modernize how government works and ensure value for
taxpayers’ money, including in the areas of service delivery, corporate asset
management, travel and administrative systems.
Chapter 1
Introducton
Chapter 6
Fiscal Outlook
Fiscal Outlook
229
HIGHLIGHTS
?
The Government’s plan for returning to balanced budgets over
the medium term is on track.
?
The deficit in 2011–12 is projected to be $8.5 billion lower than
it was in 2010–11, and it is projected to decrease by an additional
$3.8 billion in 2012–13. The deficit is projected to continue to
decline to $1.3 billion in 2014–15.
?
Over the forecast period, the budgetary balance is projected to
improve by a total of $39.6 billion compared to the November
2011 Update of Economic and Fiscal Projections, reflecting both
the improved economic outlook and the Government’s strong
fiscal management.
?
As a share of gross domestic product (GDP), program
expenses are projected to decline from 14.7 per cent in 2010–11
to 12.7 per cent in 2016–17, which represents a return to
pre-recession spending ratios.
?
The federal debt is projected to decline to 28.5 per cent of GDP
in 2016–17, in line with its pre-recession level.
?
Canada expects to achieve, well ahead of schedule, its Group of
Twenty (G-20) commitments to halve deficits by 2013 and stabilize
or reduce total government debt-to-GDP ratios by 2016, as agreed
to by G-20 leaders at their summit in Toronto in June 2010.
?
Canada continues to hold a significant fiscal advantage over other
G-7 countries. The International Monetary Fund projects that by
2016, Canada’s total government net debt-to-GDP ratio will remain
at about one-third of the G-7 average and more than 20 percentage
points of GDP below that of Germany, the G-7 country with the
next-lowest ratio.
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230
INTRODUCTION
The economy is the Government’s top priority. Responsible and sustainable
fiscal management is a key element of the Government’s plan to create jobs
and growth over the long term. Economic Action Plan 2012 reaffirms the
Government’s commitment to returning to balanced budgets over
the medium term and putting the debt-to-GDP ratio on a downward track.
Chart 6.1 indicates that the projected budgetary balance has improved over
the entire forecast horizon, reflecting both the improved economic outlook
and the Government’s strong fiscal management. Over the current year and
the next five years, the projected budgetary balance has improved by a total
of $39.6 billion compared to the projection at the time of the November 2011
Update of Economic and Fiscal Projections. The Government projects that it
will return to balanced budgets over the medium term.
Government remains on track to return
to balanced budgets over the medium term
Chart 6.1
Projected Budgetary Balance
November 2011 Update versus Budget 2012
Source: Department of Finance.
Fiscal Outlook
231
An important measure of fiscal sustainability is the debt-to-GDP ratio.
Before the global financial crisis, the Government reduced its debt by
over $37 billion between 2006 and 2008. The resulting reductions in the
debt-to-GDP ratio provided Canada with the flexibility to implement
measures to support the economy as part of the stimulus phase of Canada’s
Economic Action Plan without jeopardizing Canada’s fiscal sustainability.
Returning to balanced budgets over the medium term will ensure that the
federal debt, measured in relation to the size of the economy, resumes its
downward track (Chart 6.2). Canada’s federal debt in relation to the economy
is expected to decline to 28.5 per cent of GDP by 2016–17, in line with its
pre-recession level.
As a result, Canada expects to achieve, well ahead of schedule, its G-20
commitments to halve deficits by 2013 and stabilize or reduce total
government debt-to-GDP ratios by 2016, as agreed to by G-20 Leaders
at their summit in Toronto in June 2010.
The federal debt-to-GDP ratio is projected
to resume its downward track
Chart 6.2
Federal Debt-to-GDP Ratio
Note: This chart has been changed to reflect a data change in table 6.4.
Sources: Department of Finance; Statistics Canada.
Chapter 6
232
Canada continues to maintain a fiscal advantage over other G-7 economies.
The International Monetary Fund projects that Canada’s total government
net debt-to-GDP ratio (which includes federal, provincial and territorial debt,
as well as the Canada Pension Plan and Québec Pension Plan) will remain the
lowest among the G-7 countries, falling to 33.3 per cent in 2016 (Chart 6.3).
This ratio would be about one-third of the G-7 average (92.9 per cent of
GDP), and significantly lower than Germany, which would have the second-
lowest net debt-to-GDP ratio in the G-7 (55.3 per cent of GDP).
Canada will maintain a significant fiscal
advantage over other G-7 countries
Chart 6.3
Projected Total Government Net Debt, 2016
Notes: Total government net debt is total liabilities net of financial assets of the central, state and local levels
of government, as well as those in social security funds. In Canada, total government includes the federal,
provincial/territorial and local government sectors, as well as the Canada Pension Plan and Québec Pension Plan.
For international comparability, adjustments are made to unfunded public pension liabilities.
Source: International Monetary Fund, Fiscal Monitor, September 2011.
Fiscal Outlook
233
FISCAL PLANNING FRAMEWORK
Approach to Budget Planning
To ensure objectivity and transparency, the economic forecast underlying
the Government’s fiscal projections is based on an average of private sector
economic forecasts. This process has been followed for nearly two decades.
This budget maintains that approach.
However, as described in Chapter 2, although the March 2012 private sector
survey is considered to be a reasonable basis for fiscal planning purposes, the
global economic outlook remains uncertain and, as a result, the Government
has judged it appropriate to maintain a downward adjustment to the private
sector forecast for nominal GDP. With this adjustment for risk, the revenue
projections are reduced by $3.0 billion in each year from 2012–13 to 2016–17
(Table 6.1).
Table 6.1
Planning Assumptions for Budget 2012
billions of dollars
2012–13 2013–14 2014–15 2015–16 2016–17
Adjustment for risk to revenues
1
-3.0 -3.0 -3.0 -3.0 -3.0
1
A negative number implies a deterioration in the budgetary balance. A positive number implies an improvement
in the budgetary balance.
Fiscal Outlook Before the Measures
Announced in Budget 2012
Table 6.2 provides a summary of the changes in the fiscal projections
between the November 2011 Update and this budget. The $24.4 billion
deficit projected for 2011–12, before measures announced in this budget, is
$6.6 billion lower than the $31.0-billion deficit projected in the 2011 Update,
which reflects in part the removal of the adjustment for risk since the fiscal
year has essentially ended and the risks have not materialized. In addition,
revenues are expected to be $1.6 billion higher than forecast in the Update,
while the projections for program expenses and public debt charges are
lower by $1.6 billion and $0.5 billion, respectively.
Chapter 6
234
The budgetary balance over the remainder of the projection period has also
improved since the Update, as higher revenues and lower public debt charges
are expected to more than offset an increase in projected program expenses.
Table 6.2
Summary of Changes in the Fiscal Outlook Since the November 2011 Update
of Economic and Fiscal Projections
billions of dollars
2011–12 2012–13 2013–14 2014–15 2015–16 2016–17
November 2011 Update budgetary balance -31.0 -27.4 -17.0 -7.5 -3.4 0.5
Revenue effect of adjustment for risk -3.0 -4.5 -3.0 -1.5 -1.5 -1.5
November 2011 Update budgetary balance
before adjustment for risk -28.0 -22.9 -14.0 -6.0 -1.9 2.0
Impact of economic and fiscal developments
Decisions since the November Update
-0.1 -0.7 0.0 0.0 0.0 0.0
Budgetary revenues
1.6 2.1 2.0 2.2 2.3 2.3
Budgetary expenses
1
1.6 1.3 -0.8 -1.6 -1.3 -1.0
Public debt charges
1
0.5 1.0 2.1 2.1 1.6 1.6
Total economic and fiscal developments
3.6 3.7 3.4 2.6 2.5 2.9
Revenue effect of adjustment for risk -3.0 -3.0 -3.0 -3.0 -3.0
Revised status quo budgetary balance
(before budget measures) -24.4 -22.2 -13.7 -6.3 -2.4 1.9
Note: Totals may not add due to rounding.
1
A negative number implies an increase in spending and a deterioration in the budgetary balance. A positive number
implies a decrease in spending and an improvement in the budgetary balance.
Fiscal Outlook
235
Decisions taken since the November Update include the Government’s
commitment to provide transfer protection payments to provinces in
2012–13 to ensure that no province experiences a decline in its combined
entitlements under the Canada Health Transfer, Canada Social Transfer and
Equalization and additional funding for Atomic Energy of Canada Limited
to support its ongoing operations.
Budgetary revenues have been revised upward over the entire projection
period from the November Update, primarily reflecting better-than-expected
year-to-date results and the improvement in the economic outlook.
Budgetary expenses are projected to be below the level projected in the
November Update in 2011–12 and 2012–13, but higher from 2013–14
onward. Lower projected spending in 2011–12 and 2012–13 is a result of
lower year-to-date Employment Insurance benefits, lower offshore resource
revenue being transferred to the provinces, and lower infrastructure spending
as funding is being shifted to future years. Higher projected spending from
2013–14 onward reflects higher elderly and children’s benefits due to higher
projected population growth and inflation, as well as the realignment of
funding for infrastructure and the reassessment of government liabilities.
The decrease in public debt charges over the forecast horizon reflects a
downward revision to projected interest rates, as well as the decrease in
debt associated with an improved budgetary balance.
Chapter 6
236
Fiscal Impact of Measures Announced in Budget 2012
Table 6.3 sets out the impact of the measures introduced in this budget.
Table 6.3
Fiscal Outlook With Measures
billions of dollars
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
November 2011 Update budgetary balance -31.0 -27.4 -17.0 -7.5 -3.4 0.5
Economic and fiscal developments
(including decisions since the Update
and change to adjustment for risk)
6.6 5.2 3.4 1.1 1.0 1.4
Revised status quo budgetary balance
(before budget measures) -24.4 -22.2 -13.7 -6.3 -2.4 1.9
Budget measures
Revenue measures
Closing tax loopholes
0.0 0.1 0.3 0.4 0.4 0.5
Phasing out/eliminating tax preferences
0.0 0.0 0.1 0.2 0.2 0.3
Employment Insurance changes
-0.1 -0.3 -0.8 -1.1 -0.2 -0.2
Other measures
0.0 -0.2 0.0 0.2 0.4 0.4
Total revenue measures
-0.1 -0.4 -0.4 -0.2 0.9 1.1
Expense measures
1
Supporting jobs and growth
0.0 -0.8 -0.9 -0.8 -0.6 -0.6
Reductions in departmental spending
-0.9 1.8 3.5 5.3 5.2 5.2
Updating defence capital funding
0.4 0.5 1.3 0.7 0.3 0.1
Total expense measures
-0.5 1.4 3.9 5.3 4.9 4.8
Total budget measures -0.5 1.1 3.5 5.0 5.8 5.9
Budgetary balance (after budget measures) -24.9 -21.1 -10.2 -1.3 3.4 7.8
Note: Totals may not add due to rounding.
1
A negative number implies an increase in spending and a deterioration in the budgetary balance. A positive number
implies a decrease in spending and an improvement in the budgetary balance.
The new policy measures in this budget have a negative impact on the
budgetary balance of $0.5 billion in 2011–12, largely due to the recording
of a liability for estimated workforce adjustment costs associated with the
departmental spending reductions announced in this budget. For the
remainder of the forecast horizon, budget measures have a positive impact
on the budgetary balance, rising from $1.1 billion in 2012–13 to $5.9 billion
in 2016–17.
Fiscal Outlook
237
Revenue measures announced in this budget will lower revenues by
$0.1 billion in 2011–12, by $0.4 billion in 2012–13 and 2013–14, and by
$0.2 billion in 2014–15. They will raise revenues by $0.9 billion in 2015–16
and by $1.1 billion in 2016–17. Revenues are raised in all years by actions to
close tax loopholes and phase out or eliminate tax preferences. The higher
revenues from these actions are more than offset over the 2011–12 to
2014–15 period by the impact of Employment Insurance (EI) measures on
EI premium revenues. EI premium revenues are lowered by the extension of
the EI Hiring Credit for Small Business and limiting increases in the premium
rate to 5 cents per year until the EI Operating Account is balanced.
The budget also announces actions to support jobs and growth. These
measures cost a total of $3.6 billion over the next five years. At the same
time, the budget will reduce departmental spending by $20.1 billion between
2011–12 and 2016–17 after taking into account workforce adjustment costs,
which departments are expected to fund internally. Program expenses are
also reduced by the alignment of defence funding with expected
requirements. Overall, on a net basis, budget measures will reduce
spending by $20.8 billion over 2011–12 and the next five years.
The fiscal projections in Chart 6.4 show that the Government remains
on track to eliminate the deficit over the medium term.
The Government is on track to return to balanced
budgets over the medium term
Chart 6.4
Budgetary Balance After Measures
Source: Department of Finance.
Chapter 6
238
Summary of Statement of Transactions
Table 6.4 summarizes the Government’s financial position,
including measures announced in this budget.
Table 6.4
Summary Statement of Transactions
billions of dollars
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Budgetary revenues 237.1 248.0 255.0 270.4 285.5 300.0 312.5
Program expenses 239.6 241.9 245.3 249.4 253.9 261.7 268.6
Public debt charges 30.9 31.0 30.8 31.1 33.0 34.9 36.1
Total expenses 270.5 272.9 276.1 280.6 286.9 296.6 304.7
Budgetary balance -33.4 -24.9 -21.1 -10.2 -1.3 3.4 7.8
Federal debt
1
550.3 581.3 602.4 612.5 613.9 610.4 602.6
Per cent of GDP
Budgetary revenues
14.6 14.4 14.3 14.6 14.7 14.8 14.8
Program expenses
14.7 14.1 13.8 13.4 13.1 12.9 12.7
Public debt charges
1.9 1.8 1.7 1.7 1.7 1.7 1.7
Budgetary balance
-2.1 -1.4 -1.2 -0.5 -0.1 0.2 0.4
Federal debt
33.9 33.8 33.9 33.0 31.6 30.1 28.5
Note: Totals may not add due to rounding.
1
The projected level of federal debt for 2011–12 includes an estimate of other comprehensive income, as well as
estimated transitional adjustments related to enterprise Crown corporations’ adoption of International Financial
Reporting Standards.
The numbers in blue italics in Table 6.4 above and in the paragraph below were updated
from the print version of the Budget Plan released on March 29, 2012.
As a result of the improved economic outlook and actions taken in this
budget to support jobs and growth and to return to balanced budgets over
the medium term, the budgetary balance is projected to improve from a
$24.9-billion deficit in 2011–12 to a surplus of $7.8 billion in 2016–17. As a
percentage of GDP, the budgetary balance is projected to improve from a
deficit of 1.4 per cent in 2011–12 to a surplus of 0.4 per cent in 2016–17.
The federal debt-to-GDP ratio (accumulated deficit) stood at 33.9 per cent
in 2010–11, less than half of its peak of 68.4 per cent in 1995–96. The debt
ratio is projected to fall to 28.5 per cent in 2016–17, in line with its
pre-recession level.
Fiscal Outlook
239
Outlook for Budgetary Revenues
Table 6.5
The Revenue Outlook Budget 2012
billions of dollars
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Income taxes
Personal income tax 113.5 120.9 125.4 133.9 142.0 149.8 157.0
Corporate income tax 30.0 32.6 32.4 34.3 36.5 37.9 39.9
Non-resident income tax 5.1 5.2 5.5 6.0 6.5 7.0 7.4
Total income tax 148.6 158.6 163.3 174.2 184.9 194.7 204.3
Excise taxes/duties
Goods and Services Tax 28.4 29.1 30.9 32.4 34.0 35.6 37.3
Customs import duties
3.5 4.0 4.1 4.3 4.5 4.7 4.9
Other excise taxes/duties
11.0 10.9 10.9 10.9 11.0 10.9 10.7
Total excise taxes/duties
42.9 44.1 45.9 47.6 49.5 51.2 52.9
Total tax revenues 191.5 202.7 209.2 221.8 234.4 245.9 257.2
Employment Insurance
premium revenues 17.5 18.7 20.1 21.5 23.0 24.2 23.6
Other revenues 28.1 26.6 25.7 27.0 28.2 30.0 31.6
Total budgetary revenues 237.1 248.0 255.0 270.4 285.5 300.0 312.5
Per cent of GDP
Personal income tax
7.0 7.0 7.1 7.2 7.3 7.4 7.4
Corporate income tax
1.8 1.9 1.8 1.8 1.9 1.9 1.9
Goods and Services Tax
1.7 1.7 1.7 1.7 1.8 1.8 1.8
Total tax revenues 11.8 11.8 11.8 11.9 12.1 12.1 12.2
Employment Insurance
premium revenues 1.1 1.1 1.1 1.2 1.2 1.2 1.1
Other revenues 1.7 1.5 1.4 1.5 1.4 1.5 1.5
Total 14.6 14.4 14.3 14.6 14.7 14.8 14.8
Note: Totals may not add due to rounding.
Table 6.5 sets out the Government’s projection for budgetary revenues
reflecting both Budget 2012 measures and the adjustment for risk, which
for planning purposes is applied to tax revenues and other revenues.
Revenues are expected to increase by 4.6 per cent in 2011–12 based on
year-to-date results and the economic projections. Over the remainder of the
forecast horizon, revenues are projected to grow at an average annual rate of
4.7 per cent.
Chapter 6
240
Personal income tax revenues—the largest component of budgetary
revenues—are projected to increase by $7.4 billion, or 6.5 per cent, to
$120.9 billion in 2011–12. Over the remainder of the projection period,
personal income tax revenues increase somewhat faster than growth in GDP,
averaging 5.4 per cent annual growth, reflecting the progressive nature of the
income tax system combined with real income gains.
Corporate income tax revenues are projected to increase by 8.8 per cent to
$32.6 billion in 2011–12. Over the remainder of the projection period,
corporate income tax revenues are projected to grow at an average annual
rate of 4.1 per cent, based on projected profit growth and measures
announced in this budget.
Non-resident income tax revenues are projected to grow at an average rate
of 6.3 per cent over the forecast horizon, reflecting projected growth in
dividend and interest payments.
Goods and Services Tax (GST) revenues are projected to grow by
2.7 per cent in 2011–12 based on projected growth in taxable consumption
and year-to-date results. Annual growth in GST revenues is projected to
average 5.1 per cent over the remainder of the projection period, in line with
growth in taxable consumption.
Customs import duties are projected to increase by $0.5 billion, or
14.9 per cent, in 2011–12, reflecting year-to-date results and lower customs
import duties in 2010–11 due to the duty remission framework for certain
imported ships announced on October 1, 2010. Over the remainder of the
projection period, annual growth in customs import duties is projected to
average 4.1 per cent, based on projected growth in imports and the tariff
relief for manufacturers announced on November 27, 2011.
Based on year-to-date results, other excise taxes and duties are projected
to be $10.9 billion in 2011–12 and remain close to that level over the
remainder of the projection period.
EI premium revenues are projected to grow by 6.8 per cent in 2011–12.
Based on the economic outlook and measures announced in this budget,
including the new EI rate-setting mechanism, it is projected that the annual
growth in EI revenues will average 4.8 per cent over the remainder of the
forecast horizon and that the EI Operating Account will return to cumulative
balance by 2016.
Fiscal Outlook
241
Employment Insurance Operating Account
Employment Insurance Operating Account
Projections Including All Budget 2012 Measures
billions of dollars
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
EI premium revenues 18.7 20.1 21.5 23.0 24.2 23.6
EI benefits
1
17.5 18.7 19.3 19.3 19.5 19.8
2011 2012 2013 2014 2015 2016
EI Operating Account annual balance
2
-0.6 -0.3 0.3 1.9 3.2 3.4
EI Operating Account cumulative balance
2
-8.5 -8.8 -8.4 -6.6 -3.4 0.0
Reference:
Projected premium rate (per $100 of
insurable earnings) 1.78 1.83 1.88 1.93 1.98 1.95
Projected premium rate without the changes
to the premium rate-setting mechanism
announced in this budget (per $100
of insurable earnings) 1.78 1.83 1.93 2.03 2.10 2.00
1
EI benefits include regular EI benefits, sickness, maternity, parental, compassionate care, fishing and work-sharing
benefits, and employment benefits and support measures. These represent 90 per cent of total EI program
expenses. The remaining EI costs relate mainly to administration and are included in direct program spending.
2
The EI Operating Account annual and cumulative balances are on a calendar-year basis since the EI premium rate
is set on a calendar-year basis.
In this budget, the Government is taking steps to respond to employers’
and employees’ concerns by ensuring the stability and predictability
of EI premiums and limiting increases to 5 cents per year until the
EI Operating Account is balanced. Further, the Government is pursuing
a number of reforms to the EI program that will provide support for job
creation, help unemployed Canadians find work and remove disincentives
to work.
The global recession increased total benefit expenditures over a relatively
short period of time, resulting in a projected cumulative deficit in the
EI Operating Account of $8.5 billion in 2011. Over the next few years, the
Canada Employment Insurance Financing Board will continue to set the rate,
but the Government will limit rate increases to 5 cents each year until the
EI Operating Account is balanced. Under the proposed new EI rate-setting
mechanism, the EI Operating Account is projected to return to balance in
2016. To achieve this, the premium rate is projected to increase by 5 cents
per year until 2015 to reach $1.98 per $100 of insurable earnings and then
decrease to $1.95 in 2016. Without the changes to the premium rate-
setting mechanism announced in this budget, the premium rate would have
been higher in every year of the forecast horizon. Canada will continue to
have one of the lowest payroll contribution rates in the OECD.
Chapter 6
242
Other revenues include those of consolidated Crown corporations, net
income from enterprise Crown corporations, foreign exchange revenues,
returns on investments and proceeds from the sales of goods and services.
Other revenues are projected to fall by $1.5 billion, or 5.4 per cent, to
$26.6 billion in 2011–12, as a number of one-time factors which raised
2010–11 revenues are not expected to reoccur in 2011–12. These include
lower provisions for credit losses, unrealized gains on derivatives held under
the Insured Mortgage Purchase Program, gains realized on the Government’s
sale of common shares in General Motors, and foreign exchange gains.
Growth in other revenues is expected to average 3.5 per cent per year over
the remainder of the projection period.
Chart 6.5 shows that the revenue-to-GDP ratio decreased sharply from
16.3 per cent in 2006–07 to 14.3 per cent in 2009–10 due to the impact of
the global recession and tax reductions. Revenues as a share of GDP rose to
14.6 per cent in 2010–11. Over the remainder of the forecast period, the
revenue-to-GDP ratio is projected to remain relatively stable at that level.
Revenue-to-GDP ratio steady over the projection period
Chart 6.5
Revenue-to-GDP Ratio
Sources: Department of Finance; Statistics Canada.
Fiscal Outlook
243
Outlook for Program Expenses
Table 6.6
The Program Expenses Outlook
billions of dollars
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Major transfers to persons
Elderly benefits 35.6 38.1 40.4 42.6 45.0 47.5 50.1
Employment Insurance (EI) benefits
1
19.9 17.5 18.7 19.3 19.3 19.5 19.8
Children’s benefits 12.7 12.8 13.2 13.5 13.8 14.0 14.1
Total 68.1 68.5 72.2 75.5 78.1 81.0 84.0
Major transfers to other
levels of government
Canada Health Transfer 25.4 27.0 28.6 30.3 32.1 34.0 36.1
Canada Social Transfer 11.2 11.5 11.9 12.2 12.6 13.0 13.3
Other health and social transfers
2
0.6 0.2 0.3 0.3
Fiscal arrangements
3
16.4 16.9 17.8 18.7 19.5 20.3 21.1
Canada’s cities and communities 1.8 2.3 2.0 2.0 2.0 2.0 2.0
Other transfers
4
0.7 2.3 1.1 0.4 0.3 0.3 0.2
Alternative Payments for
Standing Programs -3.1 -3.2 -3.4 -3.6 -3.8 -4.0 -4.2
Total 53.0 56.9 58.4 60.3 62.8 65.6 68.5
Direct program expenses
Operating expenses subject to freeze 54.7 54.9 53.6 53.3 53.3 54.8 55.6
Other operating expenses 22.5 22.7 23.2 23.2 23.4 24.4 24.4
Transfer payments 36.8 34.0 32.5 31.6 30.4 30.0 29.8
Capital amortization 4.4 4.9 5.3 5.5 5.8 6.0 6.1
Total 118.5 116.5 114.7 113.7 113.0 115.1 116.1
Total program expenses 239.6 241.9 245.3 249.4 253.9 261.7 268.6
Chapter 6
244
Table 6.6 (cont’d)
The Program Expenses Outlook
per cent of GDP
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Major transfers to persons 4.2 4.0 4.1 4.1 4.0 4.0 4.0
Major transfers to other levels
of government 3.3 3.3 3.3 3.2 3.2 3.2 3.2
Direct program expenses 7.3 6.8 6.5 6.1 5.8 5.7 5.5
Total program expenses 14.7 14.1 13.8 13.4 13.1 12.9 12.7
Note: Totals may not add due to rounding.
1
EI benefits include regular EI benefits, sickness, maternity, parental, compassionate care, fishing and work-sharing
benefits, and employment benefits and support measures. These represent 90 per cent of total EI program expenses.
The remaining EI costs relate mainly to administration and are included in direct program spending.
2
Other health and social transfers include the Wait Time Reduction Transfer and other health-related transfers.
3
Fiscal arrangements include Equalization, Territorial Formula Financing, the Youth Allowances Recovery and
statutory subsidies.
4
Other major transfers to other levels of government include transitional payments; transfer protection payments in
2010–11, 2011–12 and 2012–13; payments under the 2005 Offshore Accords; the recognition of repayment by
British Columbia of the transitional assistance it received from the Government of Canada for sales tax harmonization;
and a provision in 2011–12 in support of the Memorandum of Agreement between the Government of Canada and the
Government of Quebec regarding sales tax harmonization.
Table 6.6 provides an overview of the projections for program expenses
by major component, including the measures announced in this budget.
Program expenses consist of major transfers to persons, major transfers
to other levels of government and direct program expenses.
Major transfers to persons consist of elderly, EI and children’s benefits.
Elderly benefits are comprised of Old Age Security, Guaranteed Income
Supplement and Spousal Allowance payments to qualifying seniors,
with Old Age Security payments representing approximately 80 per cent
of these expenditures. Elderly benefits are projected to grow from
$38.1 billion to $50.1 billion over the planning period, or approximately
5.6 per cent per year—significantly faster than nominal GDP, which averages
4.4 per cent growth per year. This increase is due to consumer price inflation,
to which benefits are fully indexed, and a projected increase in the seniors’
population from 4.8 million to 6.0 million over the planning period, or an
average increase of 3.6 per cent per year.
Fiscal Outlook
245
EI benefits are projected to decrease by 11.6 per cent to $17.5 billion in
2011–12, based in large part on year-to-date results. EI benefits are projected
to grow modestly over the remainder of the planning period, averaging
2.4 per cent per year, as the fiscal cost of new measures and higher average
weekly benefits are offset by lower projected unemployment rates.
Children’s benefits, including the Canada Child Tax Benefit and the
Universal Child Care Benefit, are projected to increase moderately
over the forecast horizon, reflecting population growth and adjustments
for inflation.
Major transfers to other levels of government include transfers in support of
health and social programs, Equalization and Territorial Formula Financing.
Legislation will be introduced to ensure the current 6-per-cent annual
escalator for the Canada Health Transfer (CHT) will continue for five more
years. Starting in 2017–18, the CHT will grow in line with a three-year
moving average of nominal GDP growth, with funding guaranteed to
increase by at least 3 per cent per year. The Government will introduce
legislation to continue the 3-per-cent escalator for the Canada Social Transfer
for 2014–15 and subsequent years.
Other major transfers to other levels of government in 2011–12 include
recognition of the repayment by British Columbia of the transitional
assistance it received from the Government of Canada for sales tax
harmonization, as well as a provision in support of the Memorandum of
Agreement between the Government of Canada and the Government of
Quebec regarding sales tax harmonization. Additionally, other major
transfers to other levels of government include total transfer protection
payments to provinces in 2010–11, 2011–12 and 2012–13.
Direct program expenses include operating expenses of National
Defence and other departments, expenses of Crown Corporations,
transfers administered by departments for farm income support, natural
resource royalties paid to provinces, and student financial assistance.
Some of these expenses are subject to the operating freeze announced in
Budget 2010. These include the wages and salaries of federal employees,
professional services contracts, telecommunications, leases, utilities (heat and
hydro), materials and supplies. These expenses are projected to decline from
2011–12 to 2013–14 due to the cost containment measures introduced in
previous budgets and reductions to departmental spending announced in
this budget.
Chapter 6
246
Other operating expenses include costs for employee pensions and other
benefits, non-wage expenses of National Defence and amounts for items
such as the allowance for bad debt. The projections for this expense item
reflect the reallocation of resources to better align funding that will support
the Canada First Defence Strategy. They also reflect departmental spending
reductions announced in this budget.
Transfers are projected to decline over the projection period, reflecting the
wind-down of the stimulus phase of Canada’s Economic Action Plan, a
reduction in activity under the Building Canada Fund and departmental
spending reductions announced in this budget.
Amounts for capital expenses are presented on an accrual basis. The amount
of capital amortization is expected to increase over the next five years as a
result of new investments and upgrades to existing capital.
Table 6.7
Savings Measures Since Budget 2010
millions of dollars
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017 Total
Budget 2010
Spending restraint 452 1,586 3,481 4,425 5,130 5,130 5,130 25,334
Tax fairness—closing tax loopholes 355 440 500 565 625 625 625 3,735
Total for Budget 2010 807 2,026 3,981 4,990 5,755 5,755 5,755 29,069
Budget 2011
Spending restraint
194 271 569 525 534 534 2,627
Tax fairness—closing tax loopholes
240 730 1,095 1,040 990 990 5,085
Total for Budget 2011
434 1,001 1,664 1,565 1,524 1,524 7,712
Budget 2012
Reductions in departmental spending
-900 1,762 3,481 5,332 5,175 5,219 20,069
Tax fairness—closing tax loopholes
120 320 415 440 490 1,785
Total for Budget 2012
-900 1,882 3,801 5,747 5,615 5,709 21,854
Total savings 807 1,560 6,864 10,455 13,067 12,894 12,988 58,635
Note: Totals may not add due to rounding.
Fiscal Outlook
247
Chart 6.6 shows program expenses as a share of GDP. The stimulus phase of
Canada’s Economic Action Plan, which strengthened Canada’s economy and
supported Canadians during the global recession, resulted in a temporary
increase in the program expenses-to-GDP ratio. However, as a result of the
targeted savings measures announced since Budget 2010, program expenses
as a share of GDP decline in all years of the forecast horizon. As a share
of GDP, program expenses are projected to decline from 14.7 per cent in
2010–11 to 12.7 per cent in 2016–17, which represents a return to
pre-recession spending ratios.
Program expenses-to-GDP ratio to return
to its pre-recession level
Chart 6.6
Program Expenses-to-GDP Ratio
Sources: Department of Finance; Statistics Canada.
Financial Source/Requirement
The budgetary balance is presented on a full accrual basis of accounting,
recording government liabilities and assets when they are incurred or
acquired, regardless of when the cash is paid or received.
Chapter 6
248
In contrast, the financial source/requirement measures the difference
between cash coming in to the Government and cash going out.
This measure is affected not only by the budgetary balance but also by
the Government’s non-budgetary transactions. These include changes
in federal employee pension accounts; changes in non-financial assets;
investing activities through loans, investments and advances; changes
in other financial assets and liabilities; and foreign exchange activities.
Table 6.8
The Budgetary Balance, Non-Budgetary Transactions
and Financial Source/Requirement
billions of dollars
Projection
2010–
2011
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017
Budgetary balance -33.4 -24.9 -21.1 -10.2 -1.3 3.4 7.8
Non-budgetary transactions
Pensions and other accounts
7.0 4.8 6.2 5.3 4.0 2.9 2.9
Non-financial assets
-3.2 -2.3 -1.0 -1.1 -0.7 -0.5 -0.3
Loans, investments and advances
Enterprise Crown corporations
-9.2 -4.5 -4.3 -4.7 -4.3 -5.6 -4.3
Insured Mortgage
Purchase Program
5.2 3.4 2.4 41.9 10.6 0.0 0.0
Other
0.3 1.2 -0.4 -0.3 -0.3 -0.2 -0.2
Total
-3.7 0.1 -2.2 36.8 5.9 -5.9 -4.5
Other transactions -12.9 -7.7 -5.2 -0.6 1.2 1.4 1.2
Total -12.8 -5.1 -2.2 40.4 10.4 -2.1 -0.7
Financial source/requirement -46.2 -30.0 -23.3 30.2 9.1 1.3 7.1
Note: Totals may not add due to rounding.
As shown in Table 6.8, significant financial requirements are projected
in 2011–12 and 2012–13 ($30.0 billion in 2011–12 and $23.3 billion in
2012–13), followed by financial sources of $30.2 billion in 2013–14,
$9.1 billion in 2014–15, $1.3 billion in 2015–16 and $7.1 billion in 2016–17.
The requirements in 2011–12 and 2012–13 mainly reflect the budgetary
balance, whereas the financial sources expected over the 2013–14 to 2016–17
period mainly reflect the improvement of the budgetary balance and the
repayment of principal on assets maturing under the Insured Mortgage
Purchase Program.
Fiscal Outlook
249
The financial source associated with pensions and other accounts is expected
to be $6.2 billion in 2012–13. Pensions and other accounts include the
activities of the Government of Canada’s employee superannuation plans,
as well as those of federally appointed judges and Members of Parliament.
Since April 2000, the net amount of contributions less benefit payments
related to post-March 2000 service has been invested in capital markets.
Contributions and payments pertaining to pre-April 2000 service are
recorded in the pension accounts. The Government also sponsors a variety
of future benefit plans, such as health care and dental plans and disability
and other benefits for war veterans and others.
Financial requirements for non-financial assets mainly reflect the difference
between cash outlays for the acquisition of new tangible capital assets and
the amortization of capital assets that are included in the budgetary balance.
They also include the proceeds from the net losses or gains of tangible capital
assets, losses on the disposal of tangible capital assets, the change in
inventories, and prepaid expenses. A net cash requirement of $1.0 billion
is estimated for 2012–13.
Loans, investments and advances include the Government’s investments
in enterprise Crown corporations, such as Canada Mortgage and Housing
Corporation (CMHC), Canada Post Corporation, Export Development
Canada and the Business Development Bank of Canada (BDC). They also
include loans, investments and advances to national and provincial
governments and international organizations, and for government programs.
The requirements for enterprise Crown corporations projected from
2011–12 to 2016–17 reflect the Government’s decision in Budget 2007 to
meet all the borrowing needs of CMHC, BDC and Farm Credit Canada
through its own domestic debt issuance. The financial source in the
projection period under the Insured Mortgage Purchase Program is due to
the winding down in March 2010 of purchases of insured mortgage pools
under the plan and the subsequent repayments of principal as the assets
under the plan mature.
Other transactions include the payment of tax refunds and other accounts
payable, the collection of taxes and other accounts receivable, the conversion
of other accrual adjustments included in the budgetary balance into cash,
as well as foreign exchange activities. A portion of the $5.2-billion net cash
requirement in 2012–13 reflects borrowings to improve prudential liquidity
management, announced as part of the prudential liquidity plan in
Budget 2011.
Chapter 6
250
Risks to the Fiscal Projections
Risks to the economic outlook are the greatest source of uncertainty to
the fiscal projections. Private sector economists consider global economic
uncertainty as the principal economic risk—in particular the potential for
wider contagion of the sovereign debt and banking crisis in Europe. To
help illustrate how the fiscal outlook could be affected by changes in the
economic outlook, tables illustrating the sensitivity of the budgetary balance
to a number of economic shocks are provided below.
Beyond the economic outlook, there remain upside and downside risks
associated with the fiscal projections, as several key drivers of the fiscal
outlook are not directly linked to economic variables (such as the relationship
between personal income taxes and personal income or the extent to which
departments and agencies do not fully use all of the resources appropriated
by Parliament).
Sensitivity of the Budgetary Balance to Economic Shocks
Changes in economic assumptions affect the projections for revenues and
expenses. The following tables illustrate the sensitivity of the budgetary
balance to a number of economic shocks:
• A one-year, 1-percentage-point decrease in real GDP growth driven
equally by lower productivity and employment growth.
• A decrease in nominal GDP growth resulting solely from a one-year,
1-percentage-point decrease in the rate of GDP inflation.
• A sustained 100-basis-point increase in all interest rates.
These sensitivities are generalized rules of thumb that assume
any decrease in economic activity is proportional across income
and expenditure components.
Fiscal Outlook
251
Table 6.9
Estimated Impact of a One-Year, 1-Percentage-Point
Decrease in Real GDP Growth on Federal Revenues,
Expenses and Budgetary Balance
billions of dollars
Year 1 Year 2 Year 5
Federal revenues
Tax revenues
Personal income tax -1.8 -1.9 -2.2
Corporate income tax -0.4 -0.4 -0.4
Goods and Services Tax -0.3 -0.3 -0.4
Other -0.2 -0.2 -0.3
Total tax revenues -2.7 -2.9 -3.3
Employment Insurance premium revenues -0.1 -0.1 1.0
Other revenues 0.0 0.0 0.0
Total budgetary revenues -2.9 -3.0 -2.3
Federal expenses
Major transfers to persons
Elderly benefits 0.0 0.0 0.0
Employment Insurance benefits 0.8 0.9 0.9
Children’s benefits 0.0 0.0 0.0
Total 0.8 0.9 0.9
Other program expenses -0.1 0.0 -0.3
Public debt charges 0.0 0.1 0.4
Total expenses 0.7 0.9 1.0
Budgetary balance -3.6 -3.9 -3.4
Note: Totals may not add due to rounding.
A 1-percentage-point decrease in real GDP growth reduces the budgetary
balance by $3.6 billion in the first year, $3.9 billion in the second year and
$3.4 billion in the fifth year (Table 6.9).
• Tax revenues from all sources fall by a total of $2.7 billion in the
first year and by $2.9 billion in the second year. Personal income tax
revenues decrease as employment and wages and salaries fall. Corporate
income tax revenues fall as output and profits decrease. GST revenues
decrease as a result of lower consumer spending associated with the fall
in employment and personal income.
Chapter 6
252
• EI premium revenues decrease in the early years as employment and
wages and salaries fall before increasing in Year 5, when the premium
rate is raised to recoup the cost of higher benefit payments and return
the EI Operating Account to balance. This also reflects the rate-setting
mechanism announced in this budget.
• Expenses rise, mainly reflecting higher EI benefits (due to an increase in
the number of unemployed) and higher public debt charges (reflecting a
higher stock of debt due to the lower budgetary balance).
Table 6.10
Estimated Impact of a One-Year, 1-Percentage-Point
Decrease in GDP Inflation on Federal Revenues,
Expenses and Budgetary Balance
billions of dollars
Year 1 Year 2 Year 5
Federal revenues
Tax revenues
Personal income tax -1.8 -1.4 -1.5
Corporate income tax -0.4 -0.4 -0.4
Goods and Services Tax -0.3 -0.3 -0.4
Other -0.2 -0.2 -0.3
Total tax revenues -2.7 -2.4 -2.6
Employment Insurance premium revenues -0.2 -0.3 0.4
Other revenues -0.1 -0.1 -0.1
Total budgetary revenues -3.0 -2.8 -2.3
Federal expenses
Major transfers to persons
Elderly benefits -0.2 -0.4 -0.5
Employment Insurance benefits -0.1 -0.1 -0.2
Children’s benefits -0.1 -0.1 -0.1
Total -0.5 -0.7 -0.8
Other program expenses -0.4 -0.4 -0.8
Public debt charges -0.4 0.0 0.2
Total expenses -1.2 -1.0 -1.4
Budgetary balance -1.8 -1.8 -0.9
Note: Totals may not add due to rounding.
Fiscal Outlook
253
A 1-percentage-point decrease in nominal GDP growth resulting solely from
lower GDP inflation (assuming that the Consumer Price Index moves in line
with GDP inflation) lowers the budgetary balance by $1.8 billion in the
first year, $1.8 billion in the second year and $0.9 billion in the
fifth year (Table 6.10).
• Lower prices result in lower nominal income and, as a result, personal
income tax, corporate income tax and GST revenues all decrease,
reflecting declines in the underlying nominal tax bases. For the other
sources of tax revenue, the negative impacts are similar under the real
and nominal GDP shocks.
• EI premium revenues decrease marginally in the early years in response
to lower earnings, but are higher in Year 5, consistent with the principle
of breaking even over time and the new rate-setting mechanism
announced in this budget, the EI premium rate adjusts to return the
EI Operating Account to balance. Unlike the real GDP shock,
EI benefits do not rise since unemployment is unaffected by
price changes.
• Partly offsetting lower revenues are the declines in the cost of statutory
programs that are indexed to inflation, such as elderly benefit payments
and the Canada Child Tax Benefit, as well as declines in federal wage and
non-wage expenses that are indirectly linked to inflation. Payments under
these programs are smaller if inflation is lower. Public debt charges
decline in the first year due to lower costs associated with Real Return
Bonds, then rise due to the higher stock of debt.
Table 6.11
Estimated Impact of a Sustained 100-Basis-Point
Increase in All Interest Rates on Federal Revenues,
Expenses and Budgetary Balance
billions of dollars
Year 1 Year 2 Year 5
Federal revenues 1.1 1.5 2.0
Federal expenses 1.7 2.8 3.9
Budgetary balance -0.6 -1.3 -1.9
Chapter 6
254
An increase in interest rates decreases the budgetary balance by $0.6 billion in
the first year, $1.3 billion in the second year and $1.9 billion in the fifth year
(Table 6.11). The decline stems entirely from increased expenses associated
with public debt charges. The impact on debt charges rises through time as
longer-term debt matures and is refinanced at higher rates. Moderating the
overall impact is an increase in revenues associated with the increase in the
rate of return on the Government’s interest-bearing assets, which are
recorded as part of other revenues.
Chapter 1
Introducton
Annex 1
Responsible Spending
Responsible Spending
257
In 2007, the Government established a new standard for managing
government spending focused on efficiency and effectiveness, core roles and
delivering results for Canadians. Strategic reviews were introduced to support
sound expenditure management and responsible spending. Between 2007–08
and 2010–11, over $2.8 billion in ongoing savings were generated from
strategic reviews.
Building on the strategic reviews with a commitment to delivering ongoing
priority programs and services in a financially responsible manner, the
Government announced a review of departmental spending in Budget 2011.
PLANNED REDUCTIONS IN DEPARTMENTAL SPENDING
Over the past year, the Government assessed hundreds of savings proposals
put forward by government organizations. Guided by experts from outside
government, organizations were asked to focus on achieving efficiencies in
their operations, as well as to refocus business processes and service
delivery platforms.
As part of the review, organizations examined their spending from
the following perspectives:
• Operating efficiency—To what extent are results being achieved
efficiently? Can this activity be delivered at a lower cost or in a more
effective way?
• Internal services—Are internal services (e.g. human resources
management, financial management, communications) as efficient
as possible? Can improvements be made to reduce any overlap
and duplication?
• Effectiveness—To what extent is this program, activity or service
achieving the expected results for which it was designed?
• Affordability—Is the program, activity or service a priority,
and is it affordable during a period of fiscal restraint?
• Relevance and need—To what extent is there still a need for
this program, activity or service?
• Federal role—To what extent is this program, activity or service
consistent with the federal government’s roles and responsibilities?
• Organizational role—Would greater efficiencies be achieved if another
department or agency, a government service provider, or the private
sector delivered the program, activity or service?
Annex 1
258
The review encouraged departments to ensure that government programs
and services remain relevant and effective, while achieving value for
taxpayers’ money. These changes will:
• Refocus government and programs by eliminating or reducing
programs that can be delivered in other ways, for which demand is lower
or which are no longer needed.
• Make it easier for Canadians and businesses to deal with their
government by providing effective and efficient programs and services
to Canadians at a lower cost and by reducing unnecessary red tape to
allow businesses to focus on creating jobs and contributing to Canada’s
economic growth.
• Modernize and reduce the back office by streamlining, consolidating
and standardizing administrative functions and operations within and
across organizations.
Total savings under the review ramp up to roughly $5.2 billion ongoing,
representing 6.9 per cent of an aggregate review base of $75.3 billion. This
represents less than 2.0 per cent of expected federal program spending
in 2016–17.
Reflecting Canada’s strong economic growth and fiscal fundamentals, the
scale of Canada’s efforts to reduce the deficit is modest compared to the
expenditure restraint efforts being pursued by many other countries around
the world or relative to the Program Review undertaken in Canada in the
mid-1990s.
The Government will be introducing legislative and regulatory amendments
required to implement the identified reductions in spending of departments,
agencies and agents of Parliament. What follows is a description of the
actions being taken by federal organizations to find efficiencies in their
operations and re-engineer the way they do business.
Responsible Spending
259
ABORIGINAL AFFAIRS AND NORTHERN
DEVELOPMENT PORTFOLIO
Aboriginal Affairs and Northern Development Canada (AANDC) is
achieving savings through restructuring, operational efficiencies and
changes to business processes, in order to improve service delivery to
Aboriginal communities.
The Department will work with Aboriginal peoples to make it easier for
them to access program funding by simplifying the application process,
agreements and reporting requirements. Steps will also be taken to provide
qualified recipients with more flexibility and management control, while
eliminating red tape for both recipients and the Department.
AANDC will continue to refocus the Department in keeping with
developments such as a reduction in the backlog of specific claims
and devolution of responsibilities to the Northwest Territories.
Table A1.1
Planned Savings—Aboriginal Affairs and Northern Development Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Aboriginal Affairs and Northern
Development portfolio 26.9 60.1 165.6 165.6
Aboriginal Affairs and Northern
Development Canada 24.4 55.1 160.6 160.6
First Nations Statistical Institute 2.5 5.0 5.0 5.0
Note: Totals may not add due to rounding.
Annex 1
260
AGENTS OF PARLIAMENT
Although not initially part of the review, Agents of Parliament adhered
to the spirit and intent of the exercise and will pursue a series of measures,
such as streamlining, consolidating and standardizing administrative
functions, and improving business processes, to achieve operating
savings. The Commissioner of Official Languages will contribute to
the Government’s expenditure restraint efforts by reallocating operating
savings towards necessary information technology investments.
Table A1.2
Planned Savings—Agents of Parliament
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Agents of Parliament 8.3 8.8 16.4 16.4
Auditor General of Canada 0.0 0.0 6.7 6.7
Chief Electoral Officer of Canada 7.5 7.5 7.5 7.5
Office of the Privacy Commissioner of Canada 0.7 0.7 1.1 1.1
Commissioner of Official Languages – – – –
Commissioner of Lobbying 0.0 0.2 0.2 0.2
Public Sector Integrity Commissioner of Canada 0.0 0.0 0.3 0.3
Office of the Information Commissioner of Canada 0.1 0.3 0.5 0.5
Note: Totals may not add due to rounding.
Responsible Spending
261
AGRICULTURE AND AGRI-FOOD PORTFOLIO
Agriculture and Agri-Food portfolio organizations will streamline their
operations and reduce operating costs, while making sure services are
provided to farmers and the agriculture industry in the most cost-effective
and efficient way. For example, Agriculture and Agri-Food Canada and the
Canadian Food Inspection Agency will merge their back-office functions and
will integrate scientific research capacity and expertise through co-location
and collaboration, making it easier for farmers and industry to get the
information on technological advances they need to succeed. Agriculture
and Agri-Food Canada will also consolidate the delivery of grants and
contribution programs across the Department and streamline management
of the Farm Debt Mediation Service.
Portfolio organizations are also taking steps to improve service delivery,
making it easier for farmers, food processors and other clients to access
programs and services. For example, the Canadian Food Inspection Agency
(CFIA) will transform its service delivery approach by providing a single
window for client applications for permits, licences and registration, as well
as for the provision of technological, interpretive and specialized advice.
The Government will also change how the CFIA monitors and enforces
non-health and safety food labelling regulations. The CFIA will introduce
a web-based label verification tool that encourages consumers to bring
validated concerns directly to companies and associations for resolution.
The Government will also repeal regulations related to container standards
to enable industry to take advantage of new packaging formats and
technologies, while removing an unnecessary barrier for the importation
of new products from international markets.
Table A1.3
Planned Savings—Agriculture and Agri-Food Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Agriculture and Agri-Food Portfolio 17.1 168.5 309.7 309.7
Agriculture and Agri-Food Canada 14.9 158.4 252.9 252.8
Canada Agriculture Review Tribunal 0 0 0.1 0.1
Canadian Dairy Commission 0.0 0.0 0.4 0.4
Canadian Food Inspection Agency 2.1 10.0 56.1 56.1
Farm Products Council of Canada 0.1 0.1 0.3 0.3
Note: Totals may not add due to rounding.
Annex 1
262
CANADA REVENUE AGENCY
The Canada Revenue Agency continues to modernize its operations and
reduce red tape to enhance services to Canadians while reducing its overall
costs. It is increasingly providing services electronically to make it easier for
Canadians and businesses to interact with the Agency at the lowest possible
cost. By simplifying the way it collects taxes and distributes benefit payments,
the Agency will ensure Canadians and small and medium-sized enterprises
receive the benefits and credits to which they are entitled as efficiently and
quickly as possible. In addition, the Agency will leverage the expertise of tax
professionals to improve the effectiveness of its operations.
Table A1.4
Planned Savings—Canada Revenue Agency
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Canada Revenue Agency 14.8 87.0 225.4 253.1
Note: Savings associated with the Canada Revenue Agency’s spending reduction measures will continue to grow in value
beyond 2014–15.
Responsible Spending
263
CITIZENSHIP AND IMMIGRATION PORTFOLIO
Citizenship and Immigration Canada and the Immigration and Refugee
Board of Canada are making it easier for Canadians, immigrants and refugees
to interact with them. They are also aligning their services with demand.
For example, Citizenship and Immigration Canada will change the way it
operates in Canada and abroad by reducing overhead costs and continuing
to streamline operations and program delivery to provide better value for
Canadians. In this regard, it will continue to take steps to more efficiently
process immigration applications by centralizing part of its visa processing,
which will reduce duplication and overlap, and allowing in-Canada applicants
to be processed in Canada.
These actions, together with the measures announced in Economic Action
Plan 2012, will contribute to making the immigration system truly proactive,
fast and flexible in a manner that will be responsive to labour market needs.
The Immigration and Refugee Board is making changes to ensure operational
sustainability and maintain the quality and fairness of services to the public.
Table A1.5
Planned Savings—Citizenship and Immigration Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Citizenship and Immigration Portfolio 29.8 65.2 84.3 84.3
Citizenship and Immigration Canada 26.5 59.0 71.2 71.2
Immigration and Refugee Board of Canada 3.3 6.3 13.1 13.1
Note: Totals may not add due to rounding.
Annex 1
264
ENVIRONMENT PORTFOLIO
Environment Canada and the Parks Canada Agency will achieve efficiencies
and savings through the consolidation and streamlining of administrative
functions, program management, planning, and reporting requirements
within each organization. As well, effective partnerships will be forged within
the portfolio to eliminate redundancies, reduce costs and improve service
to Canadians, including in the areas of environmental enforcement and
monitoring. Both organizations are focusing on their core mandates, aligning
their programs and services accordingly and partnering to deliver services.
For example, while the National Round Table on the Environment and
the Economy (NRTEE) filled an important need in the past, a mature
and expanded community of environmental stakeholders has demonstrated
the capacity to provide analysis and policy advice to the Government.
As a result, the Government will introduce legislation to eliminate
the NRTEE.
Table A1.6
Planned Savings—Environment Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Environment Portfolio 19.5 56.4 88.2 88.2
Environment Canada 13.3 31.5 53.8 53.8
National Round Table on the Environment
and the Economy 0.2 5.2 5.2 5.2
Parks Canada 6.0 19.7 29.2 29.2
Note: Totals may not add due to rounding.
Responsible Spending
265
FINANCE PORTFOLIO
The Department of Finance Canada will generate savings by reconfiguring
and modernizing its internal services and policy analysis functions.
It is also taking a further significant step to reduce coinage procurement
costs by changing the metal composition of $1 and $2 coins from metal
alloys to plated steel cores and eliminating the penny. In contrast to other
coin denominations, the Government loses money on every new penny
produced. It costs the Government 1.6 cents to produce each new penny,
which exceeds the penny’s face value by 0.6 cents. The estimated cost to
the Government of supplying pennies to the economy is about $11 million
per year.
Table A1.7
Planned Savings—Finance Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Finance Portfolio 20.6 32.6 34.6 38.6
Department of Finance Canada 19.5 30.9 32.4 36.4
CITT 0.0 0.0 0.5 0.5
PPP Canada Inc. 0.3 0.5 0.5 0.5
FINTRAC 0.9 1.3 1.3 1.3
Note: Totals may not add due to rounding. Savings associated with the Department of Finance Canada’s spending
reduction measures will continue to grow in value beyond 2014–15.
Annex 1
266
FISHERIES AND OCEANS CANADA
Fisheries and Oceans Canada will restructure its operations, consolidate
internal services and leverage technology to realize efficiencies and achieve
savings. It will also reduce its motor vehicle fleet, which will not only lower
costs but also help green its operations.
The Department will consolidate its operations and make changes to its
programming to provide more cost-effective services to Canadians. For
example, it will refocus its research activities by leveraging, where it can,
academia and other independent facilities. As committed in 2000, Fisheries
and Oceans Canada will complete the transfer of responsibility for managing
and maintaining Arctic ports to the Northwest Territories and Nunavut.
Table A1.8
Planned Savings—Fisheries and Oceans Canada
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Fisheries and Oceans Canada 3.8 13.4 79.3 79.3
Responsible Spending
267
FOREIGN AFFAIRS AND INTERNATIONAL TRADE PORTFOLIO
Organizations within the Foreign Affairs and International Trade portfolio
will modernize and align their operations to best advance Canadian values
and priorities while reducing the costs of maintaining their presence in
Canada and abroad, without affecting services to Canadians. Steps will be
taken to consolidate and streamline internal services in Canada and in
missions abroad, reduce the vehicle fleet, review and update allowances, and
extend the duration of postings. For example, the Foreign Service Directives
for Canada-Based Staff serving around the world will be updated to better
align them with current conditions and make them comparable to benefits
provided in the private sector or by other public sector counterparts.
Foreign Affairs and International Trade Canada will also restructure its
Canadian offices, foreign properties and missions to provide better value
for money and results for Canadians. For instance, the Government will sell
some official residences abroad and move to more practical and economical
ones, generating capital revenue of $80 million.
Canada will also examine its participation in some international organizations
to ensure that they are relevant to Canada’s interests and priorities.
The National Capital Commission, which reports to Parliament through the
Minister of Foreign Affairs, plays an integral role in making Canada’s Capital
Region a source of national pride and significance. Following a review
of its services, the National Capital Commission will also streamline and
modernize its operations by leveraging new technologies and equipment.
Table A1.9
Planned Savings—Foreign Affairs and International Trade Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Foreign Affairs and
International Trade Portfolio 72.4 116.6 169.8 169.8
Foreign Affairs and International
Trade Canada 71.8 115.7 168.0 168.0
National Capital Commission 0.6 1.0 1.8 1.8
Note: Totals may not add due to rounding.
Annex 1
268
HEALTH PORTFOLIO
By enhancing coordination, consolidating operations and eliminating
redundant activities, Health portfolio organizations will deliver improved
services to Canadians. For example, Health Canada and the Public Health
Agency of Canada will transform how they manage grants and contributions
to achieve administrative efficiencies and generate savings, while maintaining
service delivery to Canadians. Health Canada will also enhance its regional
presence in the North, opening offices in Iqaluit and Yellowknife to deliver
services locally rather than from Ottawa.
Health Canada and the Public Health Agency of Canada will adopt a
shared services model, eliminating duplication and overlap between their
respective organizations through the consolidation of internal services and
the standardization of policies and processes.
Savings will also be achieved through organizational simplification. The
Government will introduce legislation to wind down Assisted Human
Reproduction Canada and will integrate it within Health Canada. A stand-
alone agency for this reduced role is no longer justified. Health Canada will
assume responsibility for compliance and enforcement related to federal
responsibilities, and outreach activities.
The Canadian Institutes of Health Research, consistent with the two granting
councils under the Industry portfolio, has ensured that programming in
support of basic research, student scholarships, and industry-related research
initiatives and collaborations are preserved. This approach sends a strong
signal of the Government’s commitment to these priority areas. In addition,
the Government will fully reinvest 2012–13 savings in priority areas of the
granting councils, particularly in industry-academic partnerships.
Table A1.10
Planned Savings—Health Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Health Portfolio 111.7 218.5 309.9 309.9
Assisted Human Reproduction Canada 8.0 9.5 9.5 9.5
Canadian Institutes of Health Research 15.0 30.0 30.0 30.0
Hazardous Materials Information
Review Commission 0.0 0.8 0.8 0.8
Health Canada 74.2 141.5 200.6 200.6
Patented Medicine Prices Review Board 0.8 0.9 1.0 1.0
Public Health Agency of Canada 13.7 35.7 68.0 68.0
Note: Totals may not add due to rounding.
Responsible Spending
269
HERITAGE PORTFOLIO
Organizations within the Canadian Heritage portfolio will streamline
corporate support functions, consolidate office space and improve the
efficiency of operating processes, improve processes for managing programs
and operations, and prioritize grants and contributions. Canadian Heritage
will move to a more integrated policy framework that focuses on the socio-
economic benefits that their programs offer to Canadians and their
communities. The Department will also focus on funding that leverages
contributions from partners.
For example, the Government is eliminating the Katimavik program, as it
reaches a relatively small number of participants annually at a relatively high
cost per participant due to the nature and duration of the experience.
Canadian Heritage will continue to invest in youth programming and provide
opportunities for more youth to learn about their country.
The Canada Council for the Arts, the National Gallery of Canada and
national museums will not see any reductions in resources as a result of
the review process.
Table A1.11
Planned Savings—Heritage Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Heritage Portfolio 52.2 130.7 191.1 191.1
Canada Council for the Arts – – – –
Canada Science and
Technology Museum – – – –
Canadian Broadcasting Corporation 27.8 69.6 115.0 115.0
Canadian Heritage 17.8 42.2 46.2 46.2
Canadian Museum of Civilization – – – –
Canadian Museum for Human Rights – – – –
Canadian Museum of Nature – – – –
Canadian Radio-television and
Telecommunications Commission 0.0 0.4 0.4 0.4
Library and Archives of Canada 3.5 6.6 9.6 9.6
National Arts Centre Corporation 0.1 1.8 1.9 1.9
National Battlefields Commission 0.2 0.8 0.8 0.8
National Film Board of Canada 0.1 3.3 6.7 6.7
National Gallery of Canada – – – –
Telefilm Canada 2.7 6.0 10.6 10.6
Note: Totals may not add due to rounding.
Annex 1
270
HUMAN RESOURCES AND SKILLS DEVELOPMENT PORTFOLIO
Organizations within the Human Resources and Skills Development
portfolio will continue to modernize their operations to improve services
to Canadians at a reduced cost. The Department will also streamline its
organization, modernize its internal services, and consolidate and
strengthen its policy and research capacity.
Human Resources and Skills Development Canada will transform the
administration of grants and contributions to enhance online delivery
and reduce red tape and the paper burden for applicants and recipients,
thereby improving results for Canadians.
The Minister will introduce legislative amendments to eliminate
administrative duplication in appeals and tribunal services by replacing
the current administrative tribunal system for major federal social security
programs with a single-window decision body. The new Social Security
Tribunal will continue to provide a fair, credible and accessible appeals
process for Canadians.
Table A1.12
Planned Savings—Human Resources and Skills Development Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Human Resources and Skills
Development Portfolio 10.6 64.7 286.7 286.7
Canada Mortgage
and Housing Corporation 4.4 24.2 102.4 102.4
Human Resources and Skills
Development Canada 6.3 39.4 183.2 183.2
National Council of Welfare 0.0 1.1 1.1 1.1
Note: Totals may not add due to rounding.
Responsible Spending
271
INDUSTRY PORTFOLIO
Industry Canada has ensured that core activities related to government
priorities, such as regulatory compliance and enforcement, grants and
contributions that foster the knowledge-based economy, and support for
key industries, are preserved. Industry Canada’s savings measures target
reductions in administrative expenditures, office consolidations and more
efficient research and analysis functions.
Statistics Canada will responsibly manage its resources and priorities while
maintaining the collection and analysis of data relevant to public policy
development, implementation and evaluation, and meeting the priority
needs of Canadian institutions.
Organizations within the portfolio related to science and technology
(the National Research Council of Canada and two of the three federal
granting councils) have ensured that programming in support of basic
research, student scholarships, and industry-related research initiatives
and collaborations are preserved. This approach sends a strong signal
of the Government’s commitment to these priority areas as identified
by the Government and the research stakeholder community. In addition,
Economic Action Plan 2012 is proposing $368.5 million over two years
in new resources for priority initiatives delivered by these organizations.
Consistent with the objectives of the Federal Tourism Strategy, the Canadian
Tourism Commission will adjust its activities to focus resources on markets
of strategic importance to Canada’s tourism industry.
Table A1.13
Planned Savings—Industry Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Industry Portfolio 89.2 182.7 217.3 217.3
Canadian Space Agency 7.9 24.7 29.5 29.5
Canadian Tourism Commission 0.5 14.2 14.2 14.2
Industry Canada 49.2 65.2 79.5 79.5
Natural Sciences and Engineering Research
Council of Canada 15.0 30.0 30.0 30.0
National Research Council of Canada 1.3 16.3 16.3 16.3
Social Sciences and Humanities Research
Council of Canada 7.0 14.0 14.0 14.0
Statistics Canada 8.3 18.3 33.9 33.9
Note: Totals may not add due to rounding.
Annex 1
272
INTERNATIONAL DEVELOPMENT ASSISTANCE PORTFOLIO
The Canadian International Development Agency, Foreign Affairs and
International Trade Canada, the International Development Research
Centre, the Royal Canadian Mounted Police and Natural Resources Canada
will streamline administrative services and ensure more efficient program
delivery. The Canadian International Development Agency will restructure
and streamline management and internal services.
The Government of Canada will take steps to improve the effectiveness of
Canada’s aid by strengthening its focus, improving efficiency and increasing
accountability. In this regard, the Canadian International Development
Agency will restructure its operations to reduce its operational costs and
concentrate its efforts where it can have the greatest impact. The Agency
and other portfolio organizations will adjust their programming in keeping
with the ability of partners and regional institutions to implement programs,
thus ensuring that Canada achieves sustainable results and improves the
effectiveness of its aid.
Table A1.14
Planned Savings—International Assistance Envelope
millions of dollars
2012–13 2013–14 2014–15 Ongoing
International Assistance Envelope (IAE) 180.7 242.1 377.6 377.6
Canadian International Development Agency 152.7 191.6 319.2 319.2
Foreign Affairs and International Trade Canada (IAE only) 15.5 28.8 29.1 29.1
International Development Research Centre 6.2 15.3 23.0 23.0
Royal Canadian Mounted Police (IAE only) 1.3 1.3 1.3 1.3
Natural Resources Canada (IAE only) 5.0 5.0 5.0 5.0
Note: Totals may not add due to rounding.
Responsible Spending
273
JUSTICE PORTFOLIO
The Department of Justice, the Public Prosecution Service of Canada and
the Courts Administration Service are modernizing their operations to focus
on core mandates and new ways of doing business while safeguarding
Canada’s system of justice.
Following a review of its internal services, the Department of Justice will
consolidate and streamline the delivery of administrative and legal services
to eliminate duplication and reduce costs, and will improve service through
the adoption of best practices and the creation of centres of expertise.
This approach will enable it to provide more streamlined legal advice
and maintain its standards of excellence.
The three organizations in this portfolio will increasingly leverage technology
to modernize their operations and reduce costs. For example, the
Department of Justice will rely to a greater extent on digital information
holdings and electronic communications for meetings and publications
to realize efficiencies and savings.
Table A1.15
Planned Savings—Justice Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Justice Portfolio 21.2 69.0 76.9 76.9
Courts Administration Service 0.5 0.5 1.0 1.0
Department of J ustice 12.3 60.2 67.5 67.5
Public Prosecution Service of Canada 8.4 8.4 8.4 8.4
Note: Totals may not add due to rounding.
Annex 1
274
NATIONAL DEFENCE PORTFOLIO
Significant progress has been made in modernizing the Canadian Forces
through major, necessary investments in the country’s military capabilities.
To improve the efficiency and effectiveness of the organization, the
Department of National Defence and the Canadian Forces will improve
contracting processes, streamline the procurement of support equipment and
spare parts, centralize real property management, and centralize and enhance
human resources management to achieve better value for money.
As the Department of National Defence and the Canadian Forces transition
to a lower pace of operations following the end of the combat mission in
Afghanistan, Canadian Forces regular and reserve force strength will be
maintained at 68,000 and 27,000, respectively. This will preserve balance
across the four Canada First Defence Strategy pillars upon which military
capabilities are built—personnel, equipment, readiness and infrastructure.
Table A1.16
Planned Savings—National Defence Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
National Defence Portfolio 326.8 706.1 1,119.8 1,119.8
Communications Security Establishment Canada 7.9 13.7 13.7 13.7
National Defence 318.8 692.4 1,106.1 1,106.1
Note: Totals may not add due to rounding.
Responsible Spending
275
NATURAL RESOURCES PORTFOLIO
Natural Resources Canada and the Canadian Nuclear Safety Commission
will focus on their core roles and responsibilities, and will align their
activities accordingly.
Natural Resources Canada will reduce internal corporate services and
rationalize its organizational structure and operations to be more efficient.
In focusing on its core mandate, Natural Resources Canada and the
Canadian Nuclear Safety Commission will reduce or eliminate activities of
low relevance, effectiveness, efficiency, or affordability. These changes will
not have an impact on the health, safety and security of Canadians and
the environment.
Table A1.17
Planned Savings—Natural Resources Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Natural Resources Portfolio 68.3 86.0 108.3 108.3
Canadian Nuclear Safety Commission 0.5 1.3 1.3 1.3
Natural Resources Canada 67.8 84.7 107.0 107.0
Note: Totals may not add due to rounding.
Annex 1
276
PRIVY COUNCIL OFFICE PORTFOLIO
The Privy Council Office is transforming some of its operations and
looking at innovative ways to achieve efficiencies. In addition, some support
in non-critical areas will be removed to focus on core roles of advice to the
Prime Minister and ministers, support to the Cabinet, and integration and
leadership of the public service. For example, the Government is eliminating
the Public Appointments Commission and Secretariat as it has significantly
strengthened the rigour and accessibility of the public appointments system
over the past five years, particularly for full-time and leadership positions.
Table A1.18
Planned Savings—Privy Council Office Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Privy Council Office Portfolio 3.7 6.5 12.2 12.2
Privy Council Office 1.4 4.0 9.2 9.2
Canadian Intergovernmental
Conference Secretariat 0.5 0.6 0.7 0.7
Public Appointments Commission Secretariat 1.1 1.1 1.1 1.1
Transportation Safety Board of Canada 0.7 0.8 1.3 1.3
Note: Totals may not add due to rounding.
Responsible Spending
277
PUBLIC SAFETY PORTFOLIO
With the heaviest focus placed on maintaining service and preserving
programs that are critical to protecting the safety of Canadians, Public
Safety Canada will reduce spending in areas of declining necessity
and derive savings from business transformation and organizational
restructuring.
The Royal Canadian Mounted Police will be pursuing administrative
and operational support efficiencies, with minimal impacts on direct
policing operations.
The Canada Border Services Agency will streamline internal services
and low-performing processes.
The Correctional Service of Canada will find efficiencies in its operations and
will continue to use existing facilities. The Government has not built a single
new prison since 2006 and has no intention of building any new prisons.
Table A1.19
Planned Savings—Public Safety Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Public Safety Portfolio 179.4 370.7 687.9 687.9
Canada Border Services Agency 31.3 72.8 143.4 143.4
Canadian Security Intelligence Service 13.7 20.2 24.5 24.5
Correctional Service of Canada 85.5 170.2 295.4 295.4
Parole Board of Canada 1.6 2.7 4.8 4.8
Public Safety Canada 2.9 15.8 24.7 24.7
Royal Canadian Mounted Police 44.4 89.1 195.2 195.2
Note: Totals may not add due to rounding.
Annex 1
278
PUBLIC SERVICE COMMISSION OF CANADA
By streamlining internal operations and making greater use of technology,
the Public Service Commission of Canada will restructure and reduce
its internal services, aligning with the Commission’s program changes
and rationalization.
These actions are being undertaken without compromising the Commission’s
role of providing assurance of the integrity of the staffing system in the
federal public service.
Table A1.20
Planned Savings—Public Service Commission of Canada
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Public Service Commission of Canada 2.2 4.5 9.0 9.0
Responsible Spending
279
PUBLIC WORKS AND GOVERNMENT SERVICES CANADA
Public Works and Government Services Canada is transforming how it
does business to better serve its clients through increased efficiency and
effectiveness. In this regard, the Department will modernize its information
technology infrastructure to reduce annual licensing, maintenance and
operating costs. In addition, the Department will transition to electronic
publications and will increasingly adopt online service delivery to Canadians
and businesses.
The Department will also rationalize redundant services and consolidate
its operations while meeting the needs of other federal government
organizations and ultimately Canadians. It will also introduce new office
space standards in Crown-owned and federal government occupied
buildings. The new, more efficient and effective office accommodation
standards are consistent with industry best practices.
Table A1.21
Planned Savings—Public Works and Government Services Canada
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Public Works and Government
Services Canada 1.5 28.1 85.3 177.6
Note: Given that a large portion of its spending is fixed over the short term (e.g. through lease agreements
and contracts), Public Works and Government Services Canada has until 2018–19 to achieve its savings target.
Annex 1
280
REGIONAL DEVELOPMENT AGENCIES
Following a review of their internal services, the regional development
agencies will consolidate offices, internal services, procurement and
environmental assessment services to eliminate duplication and reduce
operating costs, while continuing to deliver quality services to entrepreneurs
and communities. Aligning with private sector and community demand, they
will focus on supporting projects with the greatest economic growth and job
creation potential in communities across Canada.
Table A1.22
Planned Savings—Regional Development Agencies
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Regional Development Agencies 26.7 73.4 86.9 86.9
Atlantic Canada Opportunities Agency 2.1 13.8 17.9 17.9
Canada Economic Development
for Quebec Regions 7.4 26.7 28.1 28.1
Canadian Northern Economic
Development Agency 0.2 2.4 2.4 2.4
Federal Economic Development
Agency for Southern Ontario 10.4 21.3 22.1 22.1
Western Economic Diversification Canada 6.6 9.3 16.3 16.3
Note: Totals may not add due to rounding.
Responsible Spending
281
SHARED SERVICES CANADA
Created in August 2011, Shared Services Canada has a mandate to
streamline and reduce duplication in the Government’s information
technology (IT) services while strengthening the security of government
and Canadian data. Shared Services Canada is standardizing and re-
engineering IT services across government to provide more cost-effective
and efficient government operations.
Through Shared Services Canada, the Government will move to a single
e-mail system, consolidate its data centres from over 300 to less than 20 and
streamline its electronic networks. Shared Services Canada will now deliver
e-mail, data centre and network services to 43 organizations. Shared Services
Canada will also support the Government’s Workplace 2.0 efforts, enabling
a more mobile, connected, collaborative and efficient work force. This will
improve services to Canadians, make IT more secure and reliable, and save
taxpayers’ dollars.
Table A1.23
Planned Savings—Shared Services Canada
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Shared Services Canada
74.7 104.5 150.0 150.0
Annex 1
282
TRANSPORT PORTFOLIO
Organizations in the Transport portfolio identified a combination of
productivity-enhancing and transformative measures that change the way
programs and services are delivered and support the Government’s agenda
of refocusing government and reducing red tape. Non-core activities will
be reduced while maintaining capacity related to core mandates in order to
protect the safety of Canadians and support economic growth.
For example, VIA Rail Canada Inc. will pursue productivity improvements
such as augmenting the performance of the heating, ventilation and air
conditioning systems on board trains to reduce maintenance costs, reduce
energy consumption, and increase passenger comfort. It will also implement
automation projects such as electronic ticketing and invoicing systems.
Table A1.24
Planned Savings—Transport Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Transport Portfolio 63.4 97.2 152.6 152.6
Canadian Air Transport Security Authority 19.4 32.4 59.7 59.7
Marine Atlantic Inc. 0.5 2.2 10.9 10.9
The J acques Cartier and Champlain
Bridges Incorporated 0.0 0.5 0.5 0.5
Transport Canada 37.0 47.0 61.8 61.8
VIA Rail Canada Inc. 6.5 15.1 19.6 19.6
Notes: The Government is committed to balance air travel security expenses with Air Travellers Security Charge
revenues over time. Totals may not add due to rounding.
Responsible Spending
283
TREASURY BOARD PORTFOLIO
The Treasury Board Secretariat and the Canada School of Public Service will
align their organizational structures and resources with their core mandates
by scaling back where appropriate. For example, the Secretariat is moving to
electronic reporting and making better use of technology to provide guidance
on management policies. The Canada School of the Public Service is
eliminating the Advanced Leadership Program. With these changes, the
Secretariat and the School are sharpening their focus on supporting
management excellence and accountability across government.
Table A1.25
Planned Savings—Treasury Board Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Treasury Board Portfolio 10.4 18.6 30.2 30.2
Canada School of Public Service 2.8 3.5 6.6 6.6
Treasury Board Secretariat 7.6 15.1 23.6 23.6
Note: Totals may not add due to rounding.
Annex 1
284
VETERANS AFFAIRS CANADA
Veterans Affairs Canada will continue to make it easier for Veterans and their
families to receive the benefits and services they are entitled to in the shortest
possible time. For instance, replacing the existing contribution agreements
for the housekeeping and grounds maintenance components of the Veterans
Independence Program with annual grants will simplify the process for
more than 96,000 Veterans, primary caregivers and survivors.
Changes will also be made to eliminate duplication and overlap between
Veterans Affairs and the Department of National Defence to better serve
Canadian Forces Members and Veterans.
Table A1.26
Planned Savings—Veterans Affairs Portfolio
millions of dollars
2012–13 2013–14 2014–15 Ongoing
Veterans Affairs Portfolio 36.1 49.3 66.7 36.9
Veterans Affairs Canada 36.1 49.3 66.7 36.9
Veterans Review and Appeal Board – – – –
Note: The lower ongoing savings for Veterans Affairs Canada reflects the accrual impact of some of its savings measures,
which are fully amortized by 2015–16.
Chapter 1
Introducton
Annex 2
The Stmulus Phase of
Canada’s Economic Acton Plan:
A Final Report to Canadians
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
287
HIGHLIGHTS
?
The stimulus phase of Canada’s Economic Action Plan steered the
economy through the deepest global recession since the 1930s
and has positioned Canada to succeed in a highly competitive
global economy.
?
Over 30,000 projects were completed under the stimulus phase of
the Economic Action Plan. These projects have contributed to a
strong labour market recovery, with over 610,000 net new jobs
created since July 2009.
?
This performance reflects the Government’s commitment to
create jobs and opportunities for Canadians. Since January 2006,
employment in Canada has increased by over 1.1 million, the
strongest performance of any Group of Seven (G-7) country
over this period.
?
The Government was flexible in responding to the needs of
Canadians during the economic recovery:
? The Government strengthened Employment Insurance (EI)
benefits and froze EI premium rates in 2010. In 2011 and 2012,
EI premium increases were limited to 5 cents per $100 of
insurable earnings.
? The Government extended the deadline for infrastructure
projects under four Economic Action Plan funds from
March 31, 2011 to October 31, 2011.
?
This additional flexibility gave the Government’s partners more
time to complete infrastructure projects funded during the stimulus
phase of the Economic Action Plan. It is estimated that almost
$3.5 billion was spent in the 2011–12 fiscal year as a result of the
Government’s prudent management.
?
The stimulus phase of Canada’s Economic Action Plan was
successful in securing the recovery by protecting jobs and families,
while making important investments to contribute to Canada’s
long-term economic prosperity.
?
The next phase of Canada’s Economic Action Plan builds on
the momentum created in the stimulus phase by continuing to
focus on jobs and growth, while solidifying Canada’s long-term
fiscal sustainability.
Annex 2
288
THE STIMULUS PHASE OF CANADA’S
ECONOMIC ACTION PLAN
By providing over $63 billion in timely fiscal stimulus, Canada’s Economic
Action Plan made important investments that will contribute to Canada’s
long-term economic prosperity while supporting those most affected by
the global recession. Taxes have been reduced for Canadian families and
job-creating businesses; EI benefits were enhanced for the unemployed;
thousands of infrastructure projects were completed across the country;
significant support was provided for science and technology, industries
and communities; and extraordinary actions were taken to improve access
to financing.
The implementation of the stimulus phase of the Economic Action Plan was
timely and completed as planned. The Government carefully designed and
managed the stimulus to ensure the sound stewardship of taxpayer funds.
We found that the programs we examined were designed in a
manner to allow for timely implementation while maintaining
suitable controls.
— Fall 2010 Report of the Auditor General of Canada
to the House of Commons
The Government reported regularly to Canadians on the implementation
of the stimulus phase of Canada’s Economic Action Plan. To date,
the Government has released seven reports focusing on substantive
milestones—dollars spent and outcomes achieved—and provided an
additional update to Canadians as part of Budget 2011.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
289
Table A2.1
Reports to Canadians Date
Stimulus phase of Canada’s Economic Action Plan launch J anuary 2009
First Report to Canadians March 2009
Second Report to Canadians J une 2009
Third Report to Canadians September 2009
Fourth Report to Canadians December 2009
Fifth Report to Canadians (Budget 2010) March 2010
Sixth Report to Canadians September 2010
Seventh Report to Canadians J anuary 2011
Final Report to Canadians (Budget 2012) March 2012
Temporary stimulus has now been wound down, and the Government is
reporting to Canadians for a final time. As the Government moves forward
with the next phase of Canada’s Economic Action Plan, this annex provides
details on overall results achieved since the launch of the stimulus phase in
January 2009.
The stimulus phase of the Action Plan stimulated economic growth by:
• Reducing the Tax Burden for Canadians: Providing Canadians
with significant, permanent personal income tax relief and encouraging
businesses to make the type of productivity-enhancing investments that
result in sustained economic growth.
• Helping the Unemployed: Providing more resources for EI benefits
to support those who lost their jobs and supporting training and skills
development programs to help Canadians get the additional skills they
need for the jobs of tomorrow. This included offering additional benefits
to long-tenured workers. It also included providing support to Canadian
workers participating in work-sharing agreements.
• Building Infrastructure to Create Jobs: Investing in new infrastructure
and stimulating housing construction to create jobs and help ensure that
Canada emerged from the global economic downturn with a modern
and greener infrastructure and more affordable and safe housing for
lower-income Canadians. The stimulus phase of the Economic Action
Plan also provided additional support to the housing sector through
the Home Renovation Tax Credit.
Annex 2
290
• Advancing Canada’s Knowledge Economy and Creating Better
Jobs: Improving infrastructure at colleges, universities, federal
laboratories and research facilities; introducing additional support
for graduate students and internships; commercializing new ideas;
and strengthening research and technology leadership in Canada.
• Supporting Industries and Communities: Supporting local economies
and protecting jobs in regions, communities and sectors that were most
affected by the global economic downturn.
• Improving Access to Financing and Strengthening Canada’s
Financial System: Ensuring the continued stability of the Canadian
financial system and improving access to financing for Canadian
households and businesses.
Overall, more than $60 billion in stimulus and tax reductions were delivered
to the economy in 2009–10 and 2010–11, and it is estimated that almost
$3.5 billion was delivered in 2011–12 (Table A2.2).
Table A2.2
Canada’s Economic Action Plan—Results Achieved
millions of dollars
2009–10 2010–11 2011–12 Total
Reducing the Tax Burden for Canadians 3,020 3,180 6,200
Helping the Unemployed 3,348 5,005 8,353
Building Infrastructure to Create J obs 6,021 7,462 1,051 14,534
Advancing Canada’s Knowledge Economy
and Creating Better J obs 1,550 1,469 250 3,269
Supporting Industries and Communities 10,979 2,023 13,003
Total federal stimulus measures 24,918 19,140 1,301 45,359
Leveraged provincial and territorial actions 8,553 7,679 2,164 18,395
Total Economic Action Plan stimulus
33,471 26,819 3,465 63,755
Notes: Totals may not add due to rounding. Amounts for 2009–10 and 2010–11 are actual cash expenditures, while
amounts for 2011–12 reflect estimated expenditures only for the four extended infrastructure programs. As a result of
the extension of these programs, some funds originally planned for 2010–11 will be recorded in 2011–12. Final numbers
will be released in the Public Accounts of Canada in Fall 2012.
At the federal level, it is estimated that over $45 billion was delivered through
the stimulus phase of the Economic Action Plan, generating a significant
boost to jobs and growth.
From the outset of the stimulus phase of the Economic Action Plan in
early 2009, the Government worked closely with partners in provinces
and territories to identify priority and shovel-ready infrastructure projects.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
291
For many stimulus programs, the Government required that federal
contributions be matched by equal or greater contributions from provinces
territories and municipalities, thereby ensuring maximum impact from the
Economic Action Plan.
In many cases, provinces, territories and municipalities chose to contribute
more than the amounts required under program contribution agreements,
thereby allowing larger and more ambitious infrastructure projects to be
funded through the Plan. Taking into account these additional contributions,
it is estimated that over $63 billion in stimulus and tax reductions were
delivered to the economy between 2009–10 and 2011–12.
Prudent and Flexible Management
In order for the stimulus to be effective, it had to deliver important
economic and job-creating results when Canada needed it the most.
The Government worked with provincial, territorial and municipal partners
to ensure that stimulus funds were spent effectively and in a timely manner
so that communities benefited from the economic recovery.
While the majority of infrastructure projects were completed by
March 31, 2011, consultations with provinces, territories and municipalities
in Fall 2010 revealed that a number of infrastructure projects were at risk
of not being completed by the March 31
st
deadline. In response to these
concerns, the Government extended the project completion deadline
to October 31, 2011 under four cost-shared infrastructure programs,
providing additional flexibility to its partners and extending stimulus benefits
by an additional construction season. While this extension had some impact
on the timing of expenditures between fiscal years 2010–11 and 2011–12,
it did not impose any additional costs on the Government, as it entailed a
change in the profile of budgeted funds and not new allocations of funding.
Canada has emerged from the recession of 2008-2009 as a leader
in the pack of industrialized nations. And while it is important not to
rest on our laurels, Canadian economic and fiscal fundamentals are
a rightful source of pride for our business and political leaders.
(The Finance Minister) has guided the economy through the
recession with a deft hand, and is now set to return his
government to the important path of fiscal sustainability.
— Richard Gauthier, CEO, Canadian Automobile Dealers Association
March 9, 2011, Globe and Mail
Annex 2
292
This additional flexibility gave the Government’s partners more time to
complete infrastructure projects funded during the stimulus phase of the
Economic Action Plan. It is estimated that 2,270 projects were completed
as a result of the extension.
Over 30,000 Projects Have Been Completed
In total, based on the most recent reports received, 30,200 projects have
been completed with support from Canada’s Economic Action Plan, since
January 2009. These included:
• Roughly 7,500 provincial, territorial and municipal infrastructure projects,
including almost 4,000 Infrastructure Stimulus Fund projects and over
1,900 Recreational Infrastructure Canada projects.
• Over 500 projects to improve infrastructure at colleges and universities
across the country.
• 258 projects to improve small craft harbours.
• Over 1,850 projects to assist communities hardest hit by the recession
through the Community Adjustment Fund.
• 147 cultural infrastructure projects.
• Over 200 projects to upgrade facilities at National Parks and National
Historic Sites.
• 249 projects to modernize federal laboratories.
• Roughly 1,800 projects to renovate and repair federal buildings.
• Over 300 projects to enhance the accessibility of Crown-owned
buildings for persons with disabilities.
• 97 First Nations infrastructure projects.
• An estimated 16,500 social housing and First Nations housing projects.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
293
The Stimulus Phase of Canada’s Economic Action Plan
Protected Canadian Jobs
Economic developments since the introduction of the stimulus phase of
Canada’s Economic Action Plan underscore its success in protecting
Canadian jobs through strong support to the domestic economy. As a result,
there are more than 610,000 Canadians working today than in July 2009,
and Canada has posted the strongest growth in employment among
G-7 countries (Chart A2.1).
Canada has experienced the strongest growth in
employment among G-7 countries during the recovery
Chart A2.1
Improvement in Employment During the Recovery
Note: Monthly data for Canada (July 2009 to January 2012), the United States (February 2010 to January 2012),
Germany (July 2009 to January 2012), Italy (August 2010 to January 2012) and Japan (August 2011 to January 2012).
Quarterly data for France (2009Q4 to 2011Q3) and the United Kingdom (2010Q1 to 2011Q4).
Sources: Haver Analytics; Department of Finance calculations.
The Economic Action Plan was a partnership between governments
to protect Canadians during a global crisis—and that partnership
has delivered results. Municipalities are co-funding $10 billion worth
of stimulus projects that will keep 100,000 Canadians on the job
and supporting their families.
— Hans Cunningham, Past President of the Federation
of Canadian Municipalities, December 2010
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294
This performance was remarkable given that the global recession posed
a particularly significant challenge for the Canadian economy. We faced
losses in the value of our exports not only from weaker demand from our
trading partners, but also from sharply lower commodity prices. These
factors, along with the negative impact of the global financial market crisis
on Canadian credit and equity markets, resulted in sharp declines in
consumer and business confidence during the early stages of the
global recession.
With the implementation of the stimulus phase of the Economic Action Plan
in early 2009, however, Canada’s economic situation stabilized, and output
and jobs began to grow again. This resulted in a rebound in consumer and
business confidence, despite ongoing external weakness in the global
economy. Stronger confidence, in turn, was reflected in:
• A solid rebound in consumer spending growth, which averaged close to
3 per cent per quarter over the stimulus phase of the Economic Action
Plan, reflecting in part the positive impacts of tax relief and stimulus
spending, as well as support for the unemployed through enhanced
EI benefits and training programs.
• Strong growth in residential investment, bolstered by temporary
measures introduced to support the housing market. In particular,
with support from the Home Renovation Tax Credit, which provided
Canadian homeowners with approximately $2.3 billion in tax relief, home
renovation spending growth averaged over 18 per cent per quarter from
the second quarter of 2009 through the first quarter of 2010.
• A resurgence in private business investment growth, which returned to
positive territory in early 2010 and averaged over 16 per cent per quarter
over the remainder of the stimulus phase of the Economic Action Plan.
• Finally, government investments in infrastructure were key to the success
of the Economic Action Plan, with average government investment
growth of almost 15 per cent per quarter during the stimulus phase of the
Economic Action Plan.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
295
The Government’s Policies Are Supporting
a Strong Job Market
The Government’s sound policies and prudent management have
contributed to significant job growth in Canada. Since January 2006,
employment in Canada has increased by over 1.1 million, the strongest
performance of any G-7 country over this period.
• Over 610,000 jobs have been created since July 2009, more than
offsetting all of the jobs lost during the recession.
• About 90 per cent of the jobs created since July 2009 have been full-time
jobs and over 75 per cent have been high-quality jobs in high-wage
industries and in the private sector.
Canada’s labour market has performed better than its G-7 peers,
with Canada posting the strongest employment growth among
G-7 countries over the recovery (Chart A2.1).
In the last few years, Canada has got every major decision right.
Look at the facts. Not a single Canadian bank fell or faltered during
the global banking crisis. Canada got to grips with its deficit and
was running surpluses and paying down debt before the recession,
fixing the roof while the sun was shining. Your economic leadership
has helped the Canadian economy to weather the global storms far
better than many of your international competitors.
— David Cameron, Prime Minister, United Kingdom,
September 22, 2011
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296
RESULTS ACHIEVED
The following section reports on key overall results achieved under the
stimulus phase of Canada’s Economic Action Plan. Actions taken during
the stimulus phase are divided into six themes:
• Reducing the Tax Burden for Canadians
• Helping the Unemployed
• Building Infrastructure to Create Jobs
• Advancing Canada’s Knowledge Economy and Creating Better Jobs
• Supporting Industries and Communities
• Improving Access to Financing and Strengthening Canada’s
Financial System
Reducing the Tax Burden for Canadians
The tax reductions provided during the stimulus phase of Canada’s
Economic Action Plan were an essential part of the Government’s effort to
boost economic growth and establish a competitive business environment,
which helps create more and better-paying jobs and increase living standards
for Canadians. The tax reductions built on actions taken since 2006 and
reinforced the Government’s ambitious agenda of creating a tax system
that fuels investment and job creation in Canada.
Actions taken by the Government since 2006, including those in the
stimulus phase of the Economic Action Plan, will reduce taxes on
individuals, families and businesses by an estimated $220 billion over
2008–09 and the following five fiscal years. In total, the Government
has introduced more than 140 tax relief measures since 2006.
Tax relief for Canadian families and individuals (not including
housing-related tax relief) provided under the stimulus phase of the
Economic Action Plan from 2008–09 to 2010–11 totalled $6.9 billion.
These permanent measures provide tax relief on an ongoing basis.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
297
Table A2.3
Reducing the Tax Burden for Canadians
millions of dollars
2008–09 2009–10 2010–11 Total
Personal income tax relief for all taxpayers 470 1,885 1,950 4,305
Increases to the National Child Benefit supplement
and the Canada Child Tax Benefit 230 310 540
Enhancing the Working Income Tax Benefit 145 580 580 1,305
Targeted relief for seniors 80 325 340 745
Total–Reducing the Tax Burden for Canadians
695 3,020 3,180 6,895
Notes: Totals may not add due to rounding. The Canada Child Tax Benefit and the National Child Benefit supplement are
considered expenditures for budgetary purposes and thus should not be included in calculations of total tax relief.
Tax Relief for Individuals and Families
The stimulus phase of the Economic Action Plan introduced significant
new personal income tax reductions that have provided relief, particularly
for low- and middle-income Canadians, as well as measures to help
Canadians purchase or improve their homes. These tax reductions allow
individuals and families to keep more of their hard-earned money and
improve incentives to work, save and invest, while also contributing
to the Government’s long-term economic agenda. For example,
the Government:
• Increased the amount of income that Canadians can earn before paying
federal income tax, and increased the top of the two lowest income tax
brackets so that Canadians can earn more income before being subject
to higher tax rates.
• Introduced the Working Income Tax Benefit in Budget 2007,
and effectively doubled it in the stimulus phase of Canada’s Economic
Action Plan. This enhancement lowered the “welfare wall,” further
strengthening work incentives for low-income Canadians already in the
workforce and encouraging other low-income Canadians to enter the
workforce. Canadians have been able to receive enhanced benefits since
filing their 2009 tax return.
• Raised the level at which the National Child Benefit supplement for
low-income families is fully phased out and the level at which the
Canada Child Tax Benefit begins to be phased out, which is providing a
benefit of up to $443 per year (in the 2011–12 benefit year) for a family
with two children. Additional monthly benefits under these programs
began to be paid to families with children in July 2009.
Annex 2
298
• Increased the Age Credit amount by $1,000 in 2009 to provide tax relief
to low- and middle-income seniors. With indexation, this means
additional tax savings of up to $157 for low-income seniors in 2012.
• Introduced a new tax credit of up to $750 to assist first-time home
buyers and provided them with additional access to their Registered
Retirement Savings Plan savings to purchase or build a home.
Tax Relief for Families Since 2006: Example
Michael and Kate are a couple with two children. Michael earns $40,000 and
Kate earns $60,000. As a result of actions taken by the Government since
2006, they are expected to pay $2,145 less in personal income tax and
$960 less in GST, for a total of $3,105 in tax relief in 2012. Michael and Kate
also receive an additional $81 in child benefits.
Supporting Families With Children
Since 2006, the Government has significantly increased support for families
to better assist them with the costs of raising children:
• The Universal Child Care Benefit, available since July 2006, gives families
with young children more choice in child care by providing $100 per month
for each child under age 6.
• The Child Tax Credit, available since 2007, recognizes the expenses
associated with raising children by providing personal income tax relief
of up to $329 in 2012 for each child under age 18.
• The Children’s Fitness Tax Credit, available since 2007, promotes physical
fitness among children through a 15-per-cent credit on up to $500 in
eligible fees for the enrolment of a child under age 16 in an eligible
program of physical activity.
• The Children’s Arts Tax Credit, available since 2011, promotes children’s
participation in artistic, cultural, recreational or developmental activities
through a 15-per-cent credit on up to $500 in eligible fees for the
enrolment of a child under age 16 in an eligible program.
• The amount that families can earn before the National Child Benefit
supplement is fully phased out—or before the base benefit under the
Canada Child Tax Benefit begins to be phased out—was increased starting
in July 2009. As a result, a low-income family with two children receives
an additional benefit of up to $443 in the 2011–12 benefit year.
• The spousal and other related amounts were increased to equal the basic
personal amount so that single-earner families, including single parents,
receive the same tax treatment as two-earner families, effective 2007.
The Stimulus Phase of Canada’s Economic Action Plan:
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299
Supporting Families With Children (cont’d)
• To help families with children with disabilities, the Government introduced
the Registered Disability Savings Plan (RDSP) starting in 2008, and
increased the Child Disability Benefit component of the Canada Child Tax
Benefit as of July 2006. Families with infirm children may also claim the
new Family Caregiver Tax Credit, a 15-per-cent credit on an amount of
$2,000 available starting in 2012. Budget 2012 introduces several
measures to improve the RDSP. These measures will give RDSP
beneficiaries and their families increased flexibility to establish, contribute
to and access savings from their plans.
• To help families with education costs, the Government took several actions
to strengthen Registered Education Savings Plans and expand and
enhance the Canada Student Loans Program, and launched the new
consolidated Canada Student Grants Program. The Government also
exempted scholarship and bursary income from tax and introduced the
Textbook Tax Credit.
• Families are major beneficiaries of the substantial tax relief the
Government has provided to all Canadians, such as the 2-percentage-
point reduction in the Goods and Services Tax, broad-based personal
income tax reductions, and the introduction of the Tax-Free Savings
Account, which helps Canadians meet lifetime savings needs.
• In addition, many families are benefiting from other more targeted tax
measures introduced since 2006, such as the Working Income Tax Benefit,
the Canada Employment Credit, the Public Transit Tax Credit and the
First-Time Home Buyers’ Tax Credit.
• The average family of four is now saving more than $3,100 per year in
taxes, and more than 1 million low-income Canadians have been removed
from the tax rolls in 2012.
• Altogether, actions taken since 2006 will provide about $160 billion of
tax relief for individuals and families over 2008–09 and the following
five fiscal years.
Annex 2
300
Supporting Low-Income Working Canadians
Canada’s tax system ensures that people with lower incomes contribute a
smaller proportion of their income in taxes. Indeed, more than 40 per cent of
all taxpayers pay no net tax; that is, their tax liabilities are either nil or
offset by income-tested benefits such as the Canada Child Tax Benefit and
the GST Credit. In addition, low-income Canadians now pay significantly less
tax and receive more benefits due to actions taken by the Government since
2006. In fact, in 2012, one third of the personal income tax relief provided
by the Government will go to Canadians with incomes under $41,544, even
though they pay about 13 per cent of taxes.
Since it was introduced in 2007, the Working Income Tax Benefit (WITB) has
lowered the welfare wall, so that low-income individuals may keep more of
their earnings. In 2012, if the WITB had not been introduced, a typical low-
income single parent in Nova Scotia would have only kept about 28 cents of
each additional dollar earned between $3,000 and $10,000, due to reduced
benefits from federal and provincial income-tested programs and taxes. As a
result of the enhanced WITB, the same family will keep about 53 cents of
each additional dollar earned.
Other tax relief provided by the Government has also helped low-income
working Canadians. For example, the amount that a single parent with one
child can earn in 2012 before paying taxes has increased by $5,324 to
$26,557 as a result of the introduction of the Canada Employment Credit,
the Child Tax Credit and legislated increases to the basic personal amount,
and the Eligible Dependant Credit.
Tax Relief for Job-Creating Businesses
A competitive business tax system is essential for creating an environment
that encourages new investment, growth and job creation in Canada. In 2007,
Parliament passed a bold tax reduction plan that lowered the federal general
corporate income tax rate from 22.12 per cent in 2007 (including the
corporate surtax that was eliminated in 2008) to 15 per cent in 2012. The
stimulus phase of the Economic Action Plan built on these corporate income
tax reductions to help position businesses to weather the effects of global
economic challenges, invest in Canada, and spur innovation and growth—
thereby creating more and better-paying jobs for Canadian workers. Stimulus
measures included:
• Help for businesses to adopt newer technology at a faster pace:
a temporary 100-per-cent capital cost allowance (CCA) rate was
introduced for computers acquired after January 27, 2009 and
before February 1, 2011.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
301
• Help for businesses in manufacturing and processing industries to
restructure and retool to position themselves for long-term success: the
temporary 50-per-cent straight-line accelerated CCA rate for investments
in manufacturing or processing machinery and equipment was extended
to include investments undertaken in 2010 and 2011. This measure was
first introduced in Budget 2007 and was extended, most recently in
Budget 2011, to include investments undertaken before 2014.
• Support for small businesses: the amount of small business income
eligible for the reduced federal income tax rate was further increased
to $500,000 effective January 1, 2009, following a previous increase
to $400,000 from $300,000 as of January 1, 2007.
• Support for mineral exploration activity across Canada: the temporary
Mineral Exploration Tax Credit was extended.
These measures provided immediate economic stimulus, while also
encouraging the type of productivity-enhancing investments that result
in sustained growth.
Including measures in the stimulus phase of the Economic Action Plan,
the Government has introduced business tax relief totalling roughly
$60 billion over 2008–09 and the following five fiscal years.
Business tax cuts are benefiting Canadians in very important
ways … If governments had not provided tax relief for Canadian
businesses, the recession would have been deeper and
unemployment would have certainly been higher … (now) we have
a corporate sector that is better poised to take advantage of
new market opportunities, which will, in turn, continue to
generate job growth.
— Jayson Myers, President & CEO,
Canadian Manufacturers and Exporters
January 25, 2012 press release
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302
Supporting Small Businesses
The tax system provides considerable support to small businesses through a
lower corporate income tax rate, incentives for investors, enriched financial
support for research and development (R&D) and simplified compliance.
Since 2006, the Government has introduced a large number of tax measures to
support investment, innovation and growth by small businesses, including:
• To help small businesses retain more of their earnings for investment,
expansion and job creation, the lower small business tax rate was reduced to
11 per cent from 12 per cent in 2008. The amount of income eligible for this
lower rate was increased from $300,000 to $400,000 in 2007, and then to
$500,000 in 2009.
• To spur investment in small businesses, Budget 2007 increased the Lifetime
Capital Gains Exemption on qualified small business shares to $750,000 from
$500,000, the first increase in the exemption since 1988.
• To enhance support for R&D through the Scientific Research and Experimental
Development tax incentive program, Budget 2008 increased the amount of
expenditures eligible for the higher, refundable tax credit to $3 million and
extended eligibility to medium-sized companies by increasing the taxable
capital and income limits.
• To help innovative companies attract venture capital, Budget 2010 narrowed
the definition of taxable Canadian property, thereby eliminating the need for
tax reporting under section 116 of the Income Tax Act for many investments.
This improves the ability of Canadian businesses, including innovative high-
growth companies that contribute to job creation and economic growth, to
attract foreign venture capital.
• To encourage hiring in the small businesses sector, Budget 2011 announced a
temporary Hiring Credit for Small Business of up to $1,000 against a small
employer’s increase in its 2011 EI premiums over those paid in 2010. This
temporary credit was available to approximately 525,000 employers whose
total EI premiums were at or below $10,000 in 2010, reducing their 2011
payroll costs by about $165 million.
• To assist employers facing challenges, Budget 2011 also made available
an extension of up to 16 weeks for active or recently terminated
EI work-sharing agreements.
Budget 2012 further supports small businesses by announcing:
• An extension of the Hiring Credit for Small Business for one year, which will
provide a credit of up to $1,000 against a small employer’s increase in its 2012
EI premiums over those paid in 2011.
• A new approach to setting EI premium rates that will ensure predictability and
stability by limiting rate increases to 5 cents per year until the EI Operating
Account is balanced, after which the Canada Employment Insurance Financing
Board will be mandated to set a seven-year break-even rate to be recalculated
every year.
• Actions to reduce the tax compliance burden for small businesses. This includes
doubling the thresholds for eligibility to use the GST/HST streamlined
accounting methods, simplifying administration for partnerships, and improving
the rules for paying eligible dividends.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
303
As a result of federal and provincial business tax changes, Canada has
an overall tax rate on new business investment
that is lower than that in any
other G-7 country and below the average of the member countries of the
Organisation for Economic Co-operation and Development (OECD)
(Chart A2.2).
Canada leads the G-7 with the lowest overall
tax rate on new business investment
Chart A2.2
Marginal Effective Tax Rate
1
on New Business Investment, 2014
1
The marginal effective tax rate (METR) on new business investment takes into account federal, provincial and
territorial statutory corporate income tax rates, deductions and credits available in the corporate tax system and
other taxes paid by corporations, including provincial capital taxes and retail sales taxes on business inputs.
The methodology for calculating METRs is described in the 2005 edition of Tax Expenditures and Evaluations
(Department of Finance).The METR includes measures announced as of January 1, 2012.
It excludes resource and financial sectors and tax provisions related to research and development.
2
OECD average excludes Canada.
Source: Department of Finance.
The government's commitment to reducing the general corporate
income tax rate to 15% by 2012 is important to our ongoing
economic recovery and should be applauded.
— Gabe Hayos, Canadian Institute of Chartered Accountants
House of Commons Standing Committee on Finance
October 18, 2011
Annex 2
304
Improving the competitiveness of the Canadian tax system requires
collaboration among all governments to help Canadian businesses compete
globally. Provinces and territories have also taken action to enhance Canada’s
business tax advantage (Chart A2.3.). These actions are helping Canada build
a strong foundation for future economic growth, job creation and higher
living standards for Canadians.
Combined, federal and provincial tax changes have
improved Canada’s tax competiti veness
Chart A2.3
Marginal Effective Tax Rates¹ by Province, 2014
1
The marginal effective tax rate reflects actions taken since 2006 by federal and provincial governments, and
includes measures announced as of January 1, 2012. It excludes resource and financial sectors and tax provisions
related to research and development.
Source: Department of Finance.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
305
Table A2.4
Reducing the Tax Burden for Canadians
millions of dollars
2008–09 2009–10 2010–11 Total
Personal income tax relief for all taxpayers 470 1,885 1,950 4,305
Increases to the National Child Benefit supplement
and the Canada Child Tax Benefit 230 310 540
Enhancing the Working Income Tax Benefit 145 580 580 1,305
Targeted relief for seniors 80 325 340 745
Total–Reducing the Tax Burden for Canadians 695 3,020 3,180 6,895
Reference:
Tax and Tariff Measures to Support
Housing and Business
Home Renovation Tax Credit 2,265 2,265
Increasing withdrawal limits under the Home Buyers’ Plan 15 15 30
First Time Home Buyers’ Tax Credit 130 115 245
Mineral Exploration Tax Credit for flow-through
share investors 70 -15 55
Increasing the income limit for the small business tax rate 45 80 125
Temporary 100-per-cent capital cost allowance
rate for computers 340 355 695
Tariff relief on machinery and equipment 76 81 157
Temporary acceleration of the capital cost allowance rate
for manufacturing or processing machinery and equipment
Notes: Totals may not add due to rounding. The Canada Child Tax Benefit and the National Child Benefit supplement
are considered expenditures for budgetary purposes and thus should not be included in calculations of total tax relief.
Annex 2
306
Helping the Unemployed
The stimulus phase of Canada’s Economic Action Plan included $8.4 billion
over two years to support workers most affected by the global recession.
Because of the quick and decisive measures taken by the Government,
Canada’s economy has more than recovered all of the jobs lost during the
downturn. As temporary stimulus measures began to wind down, the
Government took additional steps to secure the recovery by limiting
Employment Insurance (EI) premium rate increases to 5 cents per $100
of insurable earnings for 2011 and 2012 and 10 cents for subsequent years.
Table A2.5
Helping the Unemployed
millions of dollars
2009–10 2010–11 Total
Strengthening benefits for Canadian workers 1,259 1,680 2,938
Enhancing the availability of training 896 948 1,844
Keeping EI rates frozen for 2010 1,193 2,378 3,571
Total–Helping the Unemployed
3,348 5,005 8,353
Note: Totals may not add due to rounding.
Over the course of the downturn, the EI program provided Canadians
with needed temporary support. In 2009–10, the Government spent
approximately $5.3 billion more in EI benefits than during the previous year.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
307
Supporting Workers
The Government of Canada provides significant support to Canadian
workers, including programs and services for those looking to first enter the
labour market, those looking to upgrade their skills and training, and those
in need of support during periods of unemployment.
Since 2006, the Government has introduced important measures aimed
at ensuring a more skilled and inclusive workforce. Investments
have included:
• Putting in place the Targeted Initiative for Older Workers in 2006 to
support a range of employment activities for unemployed older workers
in vulnerable communities. Canada’s Economic Action Plan provided an
additional $60 million over three years for the Targeted Initiative for Older
Workers to help older workers remain active and productive participants in
the labour market. Budget 2011 then provided $50 million over two years
to extend the Initiative until 2013–14.
• Introducing a new labour market training architecture in Budget 2007,
making available $3 billion over six years to provinces and territories
for the design and delivery of labour market programs with a focus
on assisting groups under-represented in the labour force, including
persons with disabilities, Aboriginal peoples, recent immigrants and
older workers.
• Providing $7 billion over two years, under the Economic Action Plan,
for direct support to workers most affected by the recession. The Canada
Skills and Transition Strategy included investments to: strengthen
EI benefits, work-sharing and wage protection benefits; significantly
expand the availability of training opportunities, including for older
workers, youth and Aboriginal peoples; encourage completion of
apprenticeships; facilitate the recognition of foreign credentials;
and freeze EI premium rates for two years.
Budget 2010 announced additional, targeted actions to protect Canadian
workers and their jobs from the effects of the global economic recession by:
• Temporarily extending the maximum length of work-sharing agreements
to protect jobs, allowing more workers to keep their jobs while employers
retained skilled employees with years of experience.
• Providing $108 million over three years to assist young people looking
to gain skills and experience. This included a one-year $30-million
increase in funding for the Career Focus component of the Youth
Employment Strategy as well as $20 million in support of Pathways
to Education Canada’s work to support disadvantaged youth.
• Budget 2011 provided additional support by extending for up to 16 weeks
active or recently terminated work-sharing agreements, further protecting
workers’ jobs.
Annex 2
308
Supporting Workers (cont’d)
The Government has also introduced a number of tax measures to support
Canadian workers, including:
• The Canada Employment Credit, introduced in Budget 2006, provides
tax recognition for work-related expenditures such as home computers,
uniforms and supplies.
• The Tradesperson’s Tools Deduction, introduced in Budget 2006, allows
tradespersons to deduct from their income part of the cost of tools they
must acquire as a condition of employment.
• The Apprenticeship Job Creation Tax Credit, introduced in Budget 2006,
encourages employers to hire new apprentices in eligible trades.
• The Working Income Tax Benefit, introduced in Budget 2007, strengthens
work incentives for low-income Canadians already in the workforce and
encourages low-income Canadians to enter the workforce. The Economic
Action Plan effectively doubled the tax relief provided by the Working
Income Tax Benefit for 2009 and future years.
• This tax relief builds on the support provided to apprentices through the
Apprentice Incentive Grant provided in Budget 2006 and the
Apprenticeship Completion Grant, which was introduced in Budget 2009.
In addition, Budget 2012 provides:
• $50 million over two years to enable the Youth Employment Strategy to
help more young Canadians get the information and gain the skills, work
experience and abilities they need to make a successful transition to
the workplace.
• $21.3 million over two years to help unemployed Canadians get back
to work more quickly by enhancing the content and timeliness of labour
market information that is provided to them. The Government will also
clarify what is expected of Canadians with respect to their job search
activities while they are receiving regular EI benefits.
• $74.0 million over two years to introduce a new, national three-year
EI pilot project that will allow claimants to earn more money while
receiving EI benefits. This new pilot project will mean those working while
on EI claim will see their benefits reduced by only 50 per cent of earnings.
This change means that claimants will be able to earn more and have a
higher total income while they are on claim.
• An improved way to calculate EI benefits that will reduce disincentives to
taking all available work. Beginning April 2013, claimants will have their
EI benefits calculated based on the highest weeks of earnings over the
year preceding a claim. The number of weeks will vary from 14 to 22,
depending on the unemployment rate in the claimant’s EI region.
• A commitment to protect long-term disability benefits of employees in
the federally regulated private sector by requiring employers to insure,
on a go-forward basis, any long-term disability plans they offer to
their employees.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
309
In addition to much-needed temporary assistance, the stimulus phase of the
Economic Action Plan invested in training for Canadian workers so they
can take advantage of new opportunities as the economy recovers. The
Plan’s support for the unemployed included:
• An extra five weeks of EI benefits were provided to more than
1.2 million EI claimants.
• EI premium rates in 2010 were frozen at $1.73 per $100 of insurable
earnings—their lowest level since 1982.
• Nearly 12,000 long-tenured unemployed workers have received
additional assistance through the Career Transition Assistance program
in order to participate in long-term training.
• To date, almost 225,000 long-tenured workers have received
5 to 20 weeks of additional EI benefits.
• In December 2011, over 13,000 Canadians were participating in more
than 550 work-sharing agreements. At its peak in October 2009, over
165,000 Canadians were participating in work-sharing agreements.
In order to support a continued recovery for Canadian businesses and
workers, the Government announced, as part of the November 2011
Update of Economic and Fiscal Projections, an additional extension
of up to 16 weeks for active, recently terminated or new work-sharing
agreements. The extension will be phased out by October 2012.
• Since April 1, 2009, payments have been made to more than
40,600 claimants under the Wage Earner Protection Program.
• The Government provided $750 million per year to the provinces
and territories in 2009–10 and 2010–11 in support of training and
skills development programs, which has benefited more than
200,000 Canadians annually.
• Projects under the enhanced Targeted Initiative for Older Workers
provided support to over 12,000 older workers. Due to the success
of the initiative, Budget 2011 provided $50 million over two years to
extend the program.
• Training and skills development was provided to close to
19,800 Aboriginal people through the Aboriginal Skills and
Employment Partnership program and the Aboriginal Skills
and Training Strategic Investment Fund.
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310
• Support is being provided to implement the Pan-Canadian Framework
for the Assessment and Recognition of Foreign Qualifications. To date,
funding has supported 67 contribution agreements, including projects
with seven provincial and territorial governments and 21 different
professions, to assist with the implementation of the Framework.
• Funding has supported 1,008 youth internships in not-for-profit and
community service organizations through the YMCA and YWCA,
91 per cent of which have an environmental focus.
The number of Canadian workers benefiting from
work-sharing has fallen as the recovery takes hold
Chart A2.4
Canadian Workers Participating in Active
Work-Sharing Agreements
Source: Human Resources and Skills Development Canada.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
311
Canada’s Economic Action Plan:
Working for Canadians
Aboriginal Skills and Employment
Partnership Program
Edmonton, Alta.—Sean Mangal got a solid foothold in the pipes trade
through Trade Winds to Success, an 18-week pre-apprenticeship training
program that ensures Aboriginal peoples are positioned to benefit from
Alberta’s construction industry in occupations such as boilermakers,
ironworkers, carpenters and pipe/steamfitters. Trade Winds to Success
enabled Sean to obtain a job in his chosen field as a pipefitter with Arpi’s
North Inc., working on projects such as the Edmonton International
Airport expansion.
Enhanced Work Sharing
Mississauga, Ont.—Since being founded in 1936, the Mascot Truck Parts
company has become one of the largest heavy-duty specialists in North
America, applying its expertise to rebuilding all makes of transmissions,
differentials and steering gears. The economic downturn hit the
manufacturing and automotive industry hard and Mascot felt the impact.
To avoid layoffs, the company signed a work-sharing agreement that
allowed it to keep 107 employees and the business running.
Apprenticeship Grants
Vancouver, B.C.—Ross Redeker’s love for working with his hands has
led him to become a successful and well-paid plumber. His previous job
as a warehouse manager was not giving him the sort of job satisfaction
he had been looking for, and he wanted to make a change. He left the
warehouse job to become a plumber apprentice. Currently employed at
Bridge Mechanical, the company that hired him four years ago, Ross is
grateful to the Government of Canada for providing the apprenticeship
grants. “I want to thank you for making these programs available. It has
not only given me financial assistance to obtain a job that I enjoy, but it
has given me a sense of pride. When people ask what I do for a living,
I can say ‘I am a certified plumber.’”
Annex 2
312
Table A2.6
Helping the Unemployed
millions of dollars
2009–10 2010–11 Total
Strengthening Benefits
An extra 5 weeks of EI benefits 796 796 1,592
EI—long-tenured workers
(Career Transition Assistance program) 15 83 98
EI—long tenured workers
(extension of regular benefits) 215 731 946
EI—work sharing 211 49 260
Wage Earner Protection Program 22 21 43
Subtotal—Strengthening Benefits 1,259 1,680 2,938
Enhancing the Availability of Training
EI training programs 500 500 1,000
Strategic Training and Transition Fund 250 250 500
Canada Summer J obs Program 10 10 20
Federal public service student employment program 10 10 20
YMCA/YWCA 15 15
Targeted Initiative for Older Workers 5 21 26
Apprenticeship Completion Grant 39 40 79
Foreign Credential Recognition program 12 22 35
Aboriginal Skills and Employment Partnership program 7 48 56
Aboriginal Skills and Training Strategic Investment Fund 24 46 70
Aboriginal Human Resource Development Strategy 23 23
Subtotal—Enhancing the Availability of Training 896 948 1,844
Keeping EI rates frozen for 2010 1,193 2,378 3,571
Total—Helping the Unemployed
3,348 5,005 8,353
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
313
Building Infrastructure to Create Jobs
State-of-the-art transportation infrastructure helps move people and goods
to markets, and improves business competitiveness, allowing the economy
to grow and prosper. Other types of public infrastructure, such as clean
drinking water systems and cultural and recreational facilities, improve public
health and enhance the quality of life for Canadian families.
Table A2.7
Building Infrastructure to Create Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Building Infrastructure
Investments in provincial, territorial
and municipal infrastructure 852 3,469 1,051 5,373
Investments in First Nations infrastructure 229 280 510
Federal infrastructure 943 713 1,657
Subtotal—Building Infrastructure 2,025 4,463 1,051 7,540
Stimulating Housing Construction
Support for home ownership and
the housing industry 2,596 321
2,917
Investments in social housing for Canadians 1,399 2,678
4,077
Subtotal—Stimulating Housing Construction 3,995 2,999 6,994
Total—Building Infrastructure to Create Jobs
6,021 7,462 1,051 14,534
Total—With provincial contributions
8,019 13,934 2,816 24,769
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
Amounts for 2009–10 and 2010–11 are actual cash expenditures, while amounts for 2011–12 reflect estimated
expenditures for the four extended infrastructure programs. As a result of the extension of these programs, some funds
originally planned for 2010–11 will be recorded in 2011–12. Final numbers will be released in the Public Accounts of
Canada in Fall 2012. The budgetary impact may be somewhat smaller because some of these expenditures relate to
construction and renovation costs of federal assets (for which only depreciation is recorded on a budgetary basis) and
loans to third parties (where there is a budgetary impact only in the event that there is a risk of loss).
In the shorter term, infrastructure and housing investments are widely
recognized as an effective means to boost economic activity and put people
to work. That is why the Government delivered about $14.5 billion during
the stimulus phase of Canada’s Economic Action Plan to modernize a broad
range of infrastructure including our roads, bridges, public transit, parks and
water treatment facilities, and to support home ownership, help stimulate the
housing sector, and improve housing across Canada. These investments,
including those in new infrastructure and the rehabilitation of existing assets,
helped to create and maintain jobs across Canada during the economic
downturn, and will continue to benefit all Canadians for many years.
Annex 2
314
While the majority of projects announced as part of the stimulus phase of
Canada’s Economic Action Plan were completed by March 31, 2011, a
number of provincial/territorial, municipal and not-for-profit projects facing
scheduling challenges benefited from a one-time seven-month extension to
the deadline for completing infrastructure projects. This flexibility provided
the Government’s partners with an additional construction season to
complete projects under the following four programs: the Infrastructure
Stimulus Fund, the Building Canada Fund Communities Component
Top-Up, the Knowledge Infrastructure Program and the Recreational
Infrastructure Canada program. As a result of the extension, almost
$3.5 billion in stimulus was invested in the economy in 2011–12, and it is
estimated that roughly 2,270 projects under the four extended programs
were completed after March 31, 2011.
Investments in Provincial, Territorial and Municipal Infrastructure
As part of the stimulus phase of Canada’s Economic Action Plan, the
Government launched a number of new initiatives to stimulate additional
investment in provincial, territorial and municipal infrastructure. These
new stimulus initiatives consisted of the Infrastructure Stimulus Fund,
the Building Canada Fund Communities Component Top-Up, the Green
Infrastructure Fund, the Recreational Infrastructure Canada program and
funding for recreational trails.
By working closely with each province and territory to approve projects
quickly, the Government allocated close to $5.4 billion in stimulus funding
towards almost 7,000 projects across the country. Provinces, territories,
municipalities and other partners also contributed to these projects, thereby
generating a total investment in public infrastructure of about $14 billion at
a critical time.
In addition to launching new stimulus initiatives, the Government took steps
to accelerate funding under Building Canada initiatives that were announced
in Budget 2007. These steps were designed to further increase investment
when support for the economy was needed most.
Some of these projects, particularly larger-scale projects being funded under
the Major Infrastructure Component of the Building Canada Fund, are
ongoing and continue to support long-term economic growth.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
315
In the last few years, federal investments have helped
municipalities put police on the streets, repair social housing
and rebuild the roads, bridges, water systems and public transit
Canada needs to support families, businesses and long-term
economic growth.
— Federation of Canadian Municipalities,
February 2012
Infrastructure Stimulus Fund: Through the Infrastructure Stimulus Fund,
the Government made $4 billion in funding available for infrastructure
projects that could get underway quickly and thus provide much-needed
economic stimulus to the Canadian economy. Working with provinces,
territories, municipalities and the private sector, more than 4,000 projects
were completed under this program. In total, these projects represented an
investment of about $10 billion in Canada’s public infrastructure.
Canada’s Economic Action Plan:
Working for Canadians
Examples of Completed Infrastructure
Stimulus Fund Projects
St. Lunaire-Griquet, N.L.—With the help of $1.25 million from the
Infrastructure Stimulus Fund, Newfoundland and Labrador improved
access to one of its prime tourist destinations, L’Anse aux Meadows. The
Route 436 approach to this UNESCO World Heritage site, Canada’s earliest
known Viking settlement, was resurfaced and widened. A culvert was also
replaced. The benefits of this project include improved safety and traffic
flow and lower maintenance costs, all of which contribute to the promotion
of tourism and economic growth in the region.
Chatham, Ont.—The Chatham-Kent Women’s Centre provides shelter,
counselling, education and housing support to victims of domestic abuse.
To accommodate growing demand, the centre received $322,475 from the
Infrastructure Stimulus Fund to expand the facility and make the building
accessible to persons with disabilities. Now double its original size, the
centre no longer has to rely on hotels or community partners to house their
clients, freeing up the time and money to focus on programs to help women
and children threatened by domestic abuse.
Annex 2
316
Canada’s Economic Action Plan:
Working for Canadians
Examples of Completed Infrastructure
Stimulus Fund Projects (cont’d)
Spirit River, Alta.—Elevator and Cargill roads are important access routes
that contribute to the Central Peace Region’s economic development. The
roads support an average of 1,020 truckloads a year, translating into more
than $120 million in annual regional revenues. Both roads were restored
and repaved thanks to $336,761 from the Infrastructure Stimulus Fund.
This project helped sustain jobs in the area, while also increasing road
safety for truckers. It also improved access to the industrial and agricultural
network to enhance the flow of goods crucial to the regional economy.
Carmacks, Y.T.—Running through the Town of Carmacks, Freegold Road
is a primary supply route to and from many northern mining projects. A
single-lane wooden bridge across the Nordenskiold River had been causing
bottlenecks on this important local artery. With a $1-million contribution
from the Infrastructure Stimulus Fund, a new steel bridge is now in place.
It is large enough to handle two lanes of traffic as well as heavy vehicles
and includes a sidewalk. The new bridge supports continued resource
development in the region.
Bonus for Community Projects: The stimulus provided under Canada’s
Economic Action Plan included $500 million to top up the more than
$1 billion in initial funding that was made available under the Communities
Component of the Building Canada Fund. More than 500 projects were
completed as a result of this top-up, representing a total investment of
approximately $1.5 billion in community infrastructure.
Green Infrastructure Fund: The Green Infrastructure Fund supports
sustainable energy generation and transmission, modernized wastewater
infrastructure and better management of solid waste. To date, the
Government has committed $617 million towards 17 Green Infrastructure
Fund projects. Provinces, territories, municipalities and the private sector
are also contributing funding towards these projects, bringing the total
investment to over $2 billion. Projects under the Green Infrastructure Fund
are mainly long-term strategic initiatives that not only have been creating
stimulus in the short term but will lead to a more sustainable economy in
the coming years.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
317
Canada’s Economic Action Plan:
Working for Canadians
Annex 2
318
National Recreational Trails: The stimulus phase of the Economic Action
Plan made $25 million in funding available in 2009–10 to the National Trails
Coalition to help build and renew recreational trails for walking, running,
cross-country skiing and biking, as well as snowmobile and all-terrain vehicle
trails. The funding supported a total of 474 projects that were completed
by March 31, 2010.
Recreational Infrastructure Canada: Hockey arenas, soccer fields, tennis
courts and swimming pools provide Canadians and their families with the
benefits of physical activity and community-based experience. The stimulus
phase of Canada’s Economic Action Plan provided $500 million for the
Recreational Infrastructure Canada program, supporting the construction of
new facilities and upgrades to existing ones across the country. These funds
were matched by contributions from other levels of government and
recipients, thereby increasing the impact on local employment. In total,
1,919 projects were completed, creating significant new economic activity
in all parts of Canada.
Canada’s Economic Action Plan:
Working for Canadians
Examples of Community Projects
Arichat, N.S.—Thanks to $250,000 from the Building Canada Fund
Communities Component Top-Up, the Village of Arichat replaced five aging
and malfunctioning wastewater pumping stations that were installed in the
1970s and had become impossible to maintain. The work has made the
community’s wastewater collection system more efficient and reliable. The
work has also benefited the environment by preventing raw sewage from
discharging into the Arichat harbour, as had occurred when the old sewage
pumps malfunctioned.
Sayabec, Que.—For the Town of Sayabec’s residents, improving the
community centre was a key goal. The centre is the hub of local activities
and one of few in the region able to host events such as exhibitions,
performances and conferences. With $593,630 from the Building Canada
Fund Communities Component Top-Up, the centre renovated its storage
and stage areas. The building’s roof and siding were also replaced, and
more parking spaces were added to accommodate a growing clientele.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
319
Canada’s Economic Action Plan:
Working for Canadians
Examples of Community Projects (cont’d)
Langford, B.C.—The City of Langford was in need of a new arena for some
time. With only two skating rinks to serve 66,000 residents, ice time was
constantly booked. To solve this problem, the city received over $4.4 million
from the Building Canada Fund Communities Component Top-Up to build a
new recreational facility. The City Centre Park Sportsplex includes an ice
rink and bowling alley. It also features a one-of-a-kind ”ice river” that
connects the new 500-seat arena to an outdoor skating area that can be
converted into a children’s splash park in Summer.
Lorette, Man.—Previously served by only three municipal wells and
numerous private wells, Lorette residents had to put up with recurring
boil-water orders. With the help of $600,000 from the Building Canada Fund
Communities Component Top-Up, the town built a one-million-litre concrete
reservoir and pumping station with filtration and disinfection capacity. The
system also has sufficient capacity to accommodate future community
growth. Thanks to the stimulus provided, everyone in the town is now linked
to a modern potable water system that has improved drinking water quality
and reliability.
First Nations Infrastructure
During the stimulus phase of Canada’s Economic Action Plan, the
Government spent $510 million to support infrastructure projects in three
priority areas: schools, water and wastewater projects, and health and police
facilities in First Nations communities. In total, these funds supported
97 major projects, all of which were completed.
Investments, such as the following, spurred significant job creation and
economic development in First Nations communities, many of which
are rural:
• $173-million investment in 12 school projects.
• $188-million investment in 23 water and wastewater projects.
• $134-million investment in health service infrastructure, including
40 major projects and 135 minor projects.
• $15-million investment in 22 First Nations policing infrastructure projects.
Annex 2
320
Funding to Upgrade and Modernize Federal Infrastructure
Federal infrastructure stimulus projects under the Plan included investments
in faster and more reliable passenger rail services, safer bridges and highways,
refurbished harbours for small crafts and more efficient border crossings.
Reliable Passenger Rail Services: The stimulus phase of Canada’s
Economic Action Plan provided funding for a wide range of projects
designed to modernize rail passenger services through improvements to
infrastructure, locomotives, passenger cars, stations and related facilities.
• VIA Rail was able to accelerate its capital projects as a result of
investments made through the stimulus phase of Canada’s Economic
Action Plan, including completing upgrades to rail car safety systems,
tracks and stations.
• The stimulus phase of the Action Plan also supported two remote
passenger rail services: Keewatin Railway, which operates between
The Pas and Pukatawagan (northern Manitoba), and Tshiuetin Rail
Transportation, which operates between Sept-Îles and Schefferville
(northern Quebec) as well as in Labrador.
Federal Bridges: Through the stimulus phase of Canada’s Economic
Action Plan, the Government invested more than $89 million over
two years in the rehabilitation and repair of the following bridges:
• Blue Water Bridge in Sarnia.
• Peace Bridge in Fort Erie.
• Champlain Bridge in Montréal.
• Alexandra Bridge and the Chaudière Crossing in the National
Capital Region.
• The LaSalle Causeway in Kingston and the Burlington Lift Bridge
in Burlington.
The funding ensures that bridges and other transportation infrastructure
continue to be safe and serve the needs of commuters.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
321
Federal Buildings: The stimulus phase of the Plan delivered significant
funds to repair and renovate the federal government’s building portfolio.
About 2,000 repair and renovation projects were completed. In addition,
funding was provided to over 300 projects to enhance the accessibility of
Crown-owned buildings for persons with disabilities. During project
selection, priority was given to facilities where services were provided directly
to Canadians.
Canada’s Economic Action Plan:
Working for Canadians
Examples of Federal Bridges
National Capital Region—The work done on the Alexandra Bridge in the
National Capital Region exemplifies the positive outcomes of green-based
approaches to asset rehabilitation. This rehabilitation project involved
strengthening the steel structure and increasing its seismic capacity as well
as replacing the deck, guardrail and wooden boardwalk. The work done on
the century-old bridge was closely managed to maximize the recycling of
all salvageable materials and, as a result, achieved over 88 per cent
diversion from landfill. The pressure-treated wood previously used in the
bridge’s boardwalk was replaced with planks made from non-treated
durable wood species. Screw fasteners now hold the planks in place instead
of traditional nails. The screws ensure fewer planks will need to be replaced
each year.
Burlington, Ont.—The original, lead-based paint on the Burlington Lift
Bridge, dating back to 1962, had begun to flake and peel off the bridge,
producing an increased risk of contamination to the surrounding
environment. There was also a need to paint the lift span in order to
mitigate the structural deterioration resulting from its exposure to road
salt, which had accelerated the rate of peeling and corrosion. In addition,
structural deficiencies due to corrosion were repaired. All the repair work
was completed within 20 months and the bridge was shut down only twice
throughout the duration of the work.
Alaska Highway: On sections of the Alaska Highway from Summit Lake,
British Columbia, to the Yukon border, deck repairs to eight bridges were
completed, 28 kilometres of asphalt road surface were repaved, and an
intersection was rebuilt to make it safer. These investments totalled
$13 million and were all completed on budget during the short northern
Summer construction period.
Annex 2
322
Twinning of the Trans-Canada Highway in Banff National Park:
The project involved two separate design/build tenders, one for the
Icefields Interchange and a second for the twinning of six kilometres of
the Trans-Canada Highway between the Interchange and the Alberta-
British Columbia border. Funding was provided over three years and
construction is expected to be completed in Fall 2012.
Small Craft Harbours: The stimulus phase of Canada’s Economic Action
Plan provided $200 million to Fisheries and Oceans Canada to undertake
repairs of small craft harbours through 272 projects. To date, repair,
maintenance and dredging has been completed for 258 projects. Projects
that remain underway will be completed in the future with existing
departmental funding.
Fisheries and Oceans Canada was also provided with $17 million to
accelerate the construction of the Pangnirtung harbour in Nunavut.
Stimulus funding spent totalled $11.2 million. The remaining $5.8 million
was approved for spending in 2011–12.
Canada’s Economic Action Plan:
Working for Canadians
Small Craft Harbours
Port Saunders, N.L.—A wharf reconstruction project at the commercial
fishing harbour of Port Saunders has restored the capacity of the harbour
to support the economic sustainability of this community. The harbour,
which is used by 140 commercial fishing vessels, is important to the
economic viability of the seafood industry in the Gulf of St. Lawrence.
The Economic Action Plan’s $2.5-million project protected over
500 full-time seasonal jobs in the harvesting and processing sectors.
Berens River, Man.—Berens River is a remote Aboriginal community
located 280 kilometres northeast of Winnipeg, Manitoba. It is an active
fishing community with over 65 commercial fishers; fishing is the primary
economic endeavour. Thanks to Canada’s Economic Action Plan, a contract
for $185,000 was awarded to Lindell and Dymterko Ltd. for a new timber
crib wharf. The community now has access to an improved vessel berthing
for the commercial fishers and increased landing capacity.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
323
Federal Contaminated Sites: Through the stimulus phase of Canada’s
Economic Action Plan, the Government accelerated work to assess
and remediate federal contaminated sites. Departments completed over
210 accelerated remediation projects and over 2,400 site assessments in
2009–10 and 2010–11.
Supporting Home Ownership and Jobs in Housing Construction
The housing industry is an important source of economic activity and job
creation in Canada, as it promotes demand for building materials and other
goods and services. For many Canadians, their homes are their most
important investment. To protect and create jobs, the Government
provided significant support for home ownership and renovations.
Canadians who undertook eligible renovations to their homes after
January 27, 2009 and before February 1, 2010 were entitled to receive up
to $1,350 in tax relief from the temporary Home Renovation Tax Credit
(HRTC) introduced in the stimulus phase of Canada’s Economic Action
Plan. The HRTC expired as planned on January 31, 2010.
The HRTC helped more than 3 million Canadians—about one out of every
three owner-occupied households—improve their homes while boosting
Canada’s economic growth.
The stimulus phase of Canada’s Economic Action Plan also provided
additional tax support to first-time home buyers, who continue to benefit
from greater access to their Registered Retirement Savings Plan savings to
purchase or build a home, as well as up to $750 in tax relief from the First-
Time Home Buyers’ Tax Credit.
Further, thanks to Canada’s Economic Action Plan, homeowners benefited
from the enhanced ecoENERGY Retrofit – Homes program to make
energy efficiency improvements to their homes. The program experienced
strong demand during the stimulus phase of the Economic Action Plan and
was renewed until March 31, 2012.
Investments in Social Housing
The stimulus phase of Canada’s Economic Action Plan included historic
investments in social housing that contributed to supporting Canada’s
housing construction and renovation industries. Federal support of roughly
$2 billion helped Canadian families access suitable and affordable housing,
while putting Canadians back to work.
Annex 2
324
In addition, provincial and territorial governments, which were responsible
for program design and delivery, contributed over $1.5 billion toward
this two-year investment. This joint investment in social housing allows for
the construction and renovation of 16,500 housing units for low income
families across the country. This includes 430 construction projects for
low-income seniors and persons with disabilities, and over 11,350 existing
social housing renovation projects administered by provinces and
territories nationwide.
The Government of Canada also invested $150 million to renovate and
retrofit federally administered social housing. In total, almost 1,310 projects
were completed. These projects support some of the most vulnerable in our
communities: single-parent families, recent immigrants, and Aboriginal
peoples living off reserve.
Through the stimulus phase of the Economic Action Plan, the Government
invested $400 million over two years to build and renovate housing in
First Nations communities. Close to 500 communities benefited from more
than 3,200 projects. A further $200 million was also invested in the North to
address the territories’ housing needs, which supported 210 projects.
In addition to direct funding for social housing, municipalities undertook
housing-related infrastructure projects supported by 272 low-cost loans
totalling $2 billion.
Funds from the Affordable Housing Initiative were used by the
Quebec government to fund subsidized housing through the
provincial program AccèsLogis. These funds, coupled with money
for housing provided through Canada’s Economic Action Plan,
totalled $85.6 million last year, enough to build 1,223 social-
housing units. These new homes were a lifeline for the increasing
number of people who are forced to resort to food banks and who
find themselves evicted from their apartments for being unable to
pay their rent.
— Cathy Inouye, Project Genesis; Paula Kline,
Montreal City Mission; John Eric Feliciano,
Face à Face Listening and Intervention Centre.
June 2011
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
325
Canada’s Economic Action Plan:
Working for Canadians
Investments in Housing for Low-Income Seniors
and Persons with Disabilities
Prince Albert, Sask.—The Prince Albert Community Housing Society
(PACH) completed a project in Prince Albert that provides 18 much-needed
affordable housing units for seniors, allowing them to stay in their
community close to family and friends. PACH received $2.3 million in
combined federal and provincial funding under Canada’s Economic Action
Plan. This investment has helped provide residents with quality, affordable
housing that meets their needs while contributing to the economic and
social well-being of the entire community.
Prince Albert Community Housing was delighted when the proposal
for these units was approved with $2.3 million in funding provided
by the federal and provincial governments. It is now a beautiful
home for seniors with extremely happy residents who have a place
they can call home.
— Linda Boyer, Manager, Prince Albert Housing Society Inc.
Investments in First Nations and Northern Housing
Fort Smith, N.W.T.—A small community located along the banks of the
Slave River in the Northwest Territories has benefited from new housing
as a result of $600,000 in federal assistance through Canada’s Economic
Action Plan. The Town of Fort Smith added four new affordable housing
units for low-income families to the community’s housing stock thanks to
the funding, which also contributed to the sustainability of the community.
The investments being made are an important part of our efforts to
ensure the sustainability of our communities through the provision
of affordable housing.
— Robert C. McLeod, Minister Responsible for
the Northwest Territories Housing Corporation
Annex 2
326
Canada’s Economic Action Plan:
Working for Canadians (cont’d)
Renovation and Retrofit of Existing Social Housing (Federal)
Charlottetown, P.E.I.—Gateway Co-op, Charlottetown’s largest co-op,
received new windows thanks to a federal investment through Canada’s
Economic Action Plan. It received over $169,000 in federal funding to
replace windows in the 28-unit building, improving its energy efficiency
and creating local jobs.
Without this initiative, co-ops would not be as able to make many
of the repairs they need. Government funding initiatives for
affordable housing have helped to consolidate co-ops’ success in
delivering affordable, mixed-income housing programs at a
reasonable cost.
— Nicholas Gazzard, Executive Director,
Co-operative Housing Federation of Canada
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
327
Table A2.8
Building Infrastructure to Create Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Investments in Provincial, Territorial
and Municipal Infrastructure
Accelerating payments: Provincial/Territorial Base
Funding Initiative 179 158 337
Infrastructure Stimulus Fund 525 2,635 807 3,967
Bonus for Community Projects 30 303 163 497
Green Infrastructure Fund 5 42 47
National recreation trails 25 25
Recreational Infrastructure Canada 87 331 82 501
Investments in First Nations Infrastructure
School construction 82 91 173
Water and wastewater projects 69 119 188
Critical community services (health facilities) 67 67 134
Critical community services (police facilities) 12 3 15
Federal infrastructure
An improved rail system 138 213 352
Trans-Canada Highway 16 29 45
Federal bridges 39 50 89
Alaska Highway 13 13
Small craft harbours 117 93 210
Repair and restoration of federal buildings 171 151 322
Enhancing accessibility of federal buildings 16 22 38
Manège Militaire in the City of Québec 1 1 2
Accelerating action on federal contaminated sites 88 127 216
Border facilities 2 20 22
Aviation security 343 7 350
Subtotal—Building Infrastructure 2,025 4,463 1,051 7,540
Support for Home Ownership
and the Housing Industry
Home Renovation Tax Credit 2,265 2,265
Home Buyers’ Plan withdrawal limit 15 15 30
First-Time Home Buyers’ Tax Credit 130 115 245
ecoENERGY Retrofit – Homes program 186 191 377
Annex 2
328
Table A2.8 (cont’d)
Buidling Infrastructure to Create Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Investments in Social Housing
for Canadians
Renovation and retrofit of social housing
(provincial/territorial) 433 417 850
Renovation and retrofit of
social housing (federal)
1
67 82 149
First Nations housing—Canada Mortgage
and Housing Corporation
1
123 126 249
First Nations housing—Aboriginal Affairs
and Northern Development Canada 75 79 154
Northern housing 100 100 200
Housing for low-income seniors 200 200 400
Housing for persons with disabilities 25 50 75
Loans to municipalities:
housing-related infrastructure 376 1,624 2,000
Subtotal—Stimulating
Housing Construction 3,995 2,999 6,994
Total—Building Infrastructure
to Create Jobs 6,021 7,462 1,051 14,534
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
Amounts for 2009–10 and 2010–11 are actual cash expenditures, while amounts for 2011–12 reflect estimated
expenditures for the four extended infrastructure programs. As a result of the extension of these programs, some funds
originally planned for 2010–11 will be recorded in 2011–12. Final numbers will be released in the Public Accounts of
Canada in Fall 2012. The budgetary impact may be somewhat smaller because some of these expenditures relate to
construction and renovation costs of federal assets (for which only depreciation is recorded on a budgetary basis) and
loans to third parties (where there is a budgetary impact only in the event that there is a risk of loss).
1
Approximately $1 million in spending was reprofiled to 2011–12.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
329
Advancing Canada’s Knowledge Economy
and Creating Better Jobs
While providing stimulus across the country, Canada’s Economic Action
Plan also contributed to long-term growth and prosperity by helping to build
Canada’s capacity for innovation.
The stimulus phase of Canada’s Economic Action Plan included more than
$3 billion over two years for post-secondary education and research,
technology and innovation, and environmental science. These measures were
consistent with the Government’s long-term plan to strengthen Canada’s
capacity for excellence in research by creating world-leading facilities for
research and advanced training and better preparing young Canadians for
the jobs of tomorrow. The stimulus phase of the Plan also included measures
to create jobs, promote business opportunities and provide support for small
and medium-sized companies. Other investments improved Canadians’
access to broadband Internet, modernized federal laboratories, and
strengthened Canada’s position as a global leader in clean energy.
. . . the Knowledge Infrastructure Program (KIP) was a tremendous
success, but Canadians got so much more from this investment of
their tax dollars. The KIP program strengthened Canada's research,
innovation and education capacity in ways that will benefit
Canadians for generations to come.
— Paul Davidson, President,
Association of Universities and Colleges of Canada, October 2011
Annex 2
330
Table A2.9
Advancing Canada’s Knowledge Economy
and Creating Better Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Action to Invest in Post-Secondary
Education and Research
Improving infrastructure
at universities and colleges 991 746 250 1,987
Other 86 154 240
Subtotal—Action to Invest in Post-Secondary
Education and Research 1,077 900 250 2,227
Investing in Science and Technology
Renewing federal laboratories 85 149 234
Clean energy and the environment 358 274 632
Other 30 146 176
Subtotal—Investing in Science and Technology 473 569 1,042
Total—Advancing Canada’s Knowledge
Economy and Creating Better Jobs 1,550 1,469 250 3,269
Total—With provincial contributions 3,128 2,677 649 6,454
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
Amounts for 2009–10 and 2010–11 are actual cash expenditures, while amounts for 2011–12 reflect estimated
expenditures for the four extended infrastructure programs. As a result of the extension of these programs, some funds
originally planned for 2010–11 will be recorded in 2011–12. Final numbers will be released in the Public Accounts of
Canada in Fall 2012. The budgetary impact may be somewhat smaller because some of these expenditures relate to
construction and renovation costs of federal assets (for which only depreciation is recorded on a budgetary basis) and loans
to third parties (where there is a budgetary impact only in the event that there is a risk of loss).
The Government is helping to build a strong, innovative economy through
science, technology and research excellence, while training new generations
of highly skilled individuals for better jobs. This support underlines the
Government’s commitment to making innovation a long-term strategic
priority. Canada needs this new wave of highly qualified workers to
prosper in a global economy that depends more and more on knowledge
and innovation as a key driver of long-term competitiveness, growth
and employment.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
331
Post-Secondary Education and Research
Through the Knowledge Infrastructure Program, close to $2 billion
was spent on the repair, maintenance and construction of university
and college facilities. By leveraging $3.2 billion from project partners,
the program has led to a $5.2-billion investment in infrastructure at
post-secondary institutions.
A total of 515 projects were completed under the Knowledge Infrastructure
Program. The program deadline was extended to October 31, 2011, and all
but five of the projects that were funded through the program have reached
completion. The remaining five projects are being completed without
additional federal funding.
Arctic Research Infrastructure: The stimulus phase of Canada’s Economic
Action Plan provided $84 million to improve existing research facilities that
support Arctic science and technology and to begin work in support of a
new, world-class Canadian High Arctic Research Station. All 21 projects
were completed over the two years of the Action Plan.
Canada’s Economic Action Plan:
Working for Canadians
Infrastructure Investments at Universities
and Colleges Completed Projects
Halifax, N.S.—Renovations at the Nova Scotia College of Art & Design
University improved research and technology development facilities for film
and media arts. Funding of just under $2 million from the Government of
Canada enables the university to train an additional 110 students per year
in a premier facility for the testing and creation of new ideas and
technologies in cinema. The renovations preserved the architectural
integrity of a 133-year-old building, while bringing it up to current health
and safety standards, developing its data infrastructure and connections to
high-speed research networks, and incorporating more energy-efficient
systems that reduce greenhouse gas emissions and reduce operating costs.
Edmonton, Alta.—Thanks to Canada’s Economic Action Plan, $10 million
was provided to the University of Alberta to renovate three floors of the 40-
year-old Chemical and Materials Engineering Building. Upgrades to
54 research and teaching labs were made, asbestos was removed, safety
and building code deficiencies were corrected and more energy-efficient
mechanical and electrical systems were installed. By addressing these
critical health and safety deficiencies, previously unusable space now
accommodates an additional 20 professors, 100 graduate students,
50 research administrative staff and 150 undergraduate students.
Annex 2
332
Canada’s Economic Action Plan:
Working for Canadians
Fredericton, N.B.—The newly constructed Richard J. Currie Center at the
University of New Brunswick, which the Government of Canada supported
with an $8-million investment, enables an interdisciplinary team of
researchers to come together to form a critical mass of expertise in human
performance, biomechanics, health promotion and chronic disease
management. Combined with the Institute of Biomedical Engineering, the
facility creates a centre of excellence on human performance, biomechanics,
chronic disease management and health promotion, allowing Canada to
compete with the best in the world. As a result of the project, the institution
anticipates that it has increased its training capacity by more than
400 students annually.
Investing in Science and Technology
As part of its effort to ensure Canada’s long-term economic prosperity
and sustainability, the stimulus phase of Canada’s Economic Action Plan
provided support for science and technology through investments to
modernize federal laboratories, spur research in clean energy and
space technology, and improve broadband access.
Renewing Federal Laboratories: The Government delivered over
$234 million to upgrade and modernize federal laboratories doing research
in a wide array of fields, including health, safety, security, transportation,
environmental protection and heritage. These projects provided near-term
stimulus in regions across Canada, and helped federal departments to better
deliver their core regulatory responsibilities, improve science and technology
capacity, and enhance the health and safety of Canadians.
Clean Energy and the Environment: The stimulus phase of Canada’s
Economic Action Plan established the $1-billion, five-year, Clean Energy
Fund, including up to $150 million for clean energy research and
development and $850 million for clean energy demonstration projects.
The projects being supported by the fund assist in increasing the deployment
of renewable and clean technologies. To date, federal funding totalling over
$610 million has been announced for projects under the fund. In addition,
in response to unprecedented demand under the ecoENERGY Retrofit –
Homes program, $205 million under the fund was allocated to finance up
to 120,000 additional retrofits for Canadian homeowners.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
333
Broadband: As part of the stimulus phase of Canada’s Economic Action
Plan, $225 million was provided to Industry Canada over three years to
develop and implement a strategy to extend broadband coverage to as many
underserved households as possible. The biggest component of this strategy
is the Broadband Canada: Connecting Rural Canadians program. This program has
helped provide broadband access to over 210,000 additional households.
Table A2.10
Advancing Canada’s Knowledge Economy
and Creating Better Jobs
millions of dollars
2009–10 2010–11 2011–12 Total
Action to Invest in Post-Secondary
Education and Research
Improving infrastructure at universities
and colleges 991 746 250 1,987
Canada Foundation for Innovation 50 50
Institute for Quantum Computing 17 17 34
Arctic research Infrastructure 32 51 84
Canadian Graduate Scholarships program 35 35 70
Industrial Research and Development
Internship program 3 1 4
Subtotal—Action to Invest in Post-Secondary
Education and Research 1,077 900 250 2,227
Investing in Science and Technology 0
Modernizing federal laboratories 85 149 234
Clean Energy Fund 65 274 339
Canadian Environmental
Sustainability Indicators 8 8
Strengthening Canada’s nuclear advantage 285 285
Canada’s space industry 10 45 55
Canada Health Infoway 58 58
Extending access to broadband
in rural communities 20 43 63
Subtotal—Investing in Science
and Technology 473 569 1,042
Total—Advancing Canada’s Knowledge
Economy and Creating Better Jobs 1,550 1,469 250 3,269
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
Amounts for 2009–10 and 2010–11 are actual cash expenditures, while amounts for 2011–12 reflect estimated
expenditures for the four extended infrastructure programs. As a result of the extension of these programs, some funds
originally planned for 2010–11 will be recorded in 2011–12. Final numbers will be released in the Public Accounts of
Canada in Fall 2012. The budgetary impact may be somewhat smaller because some of these expenditures relate to
construction and renovation costs of federal assets (for which only depreciation is recorded on a budgetary basis) and
loans to third parties (where there is a budgetary impact only in the event that there is a risk of loss).
Annex 2
334
Supporting Industries and Communities
The stimulus phase of Canada’s Economic Action Plan provided over
$13 billion to create and protect jobs in the regions, communities and
industries of the Canadian economy that were the most affected by the global
recession. This support addressed the economic challenges faced by
traditional industries such as forestry, agriculture and manufacturing, which
continue to play important roles in the economies of many communities
across the country. In addition to providing targeted support, the stimulus
helped industries bolster their competitiveness and position themselves
for long-term success, both within Canada and in the global economy.
Table A2.11
Supporting Industries and Communities
millions of dollars
2009–10 2010–11 Total
Support for Industries
Forestry 59 102 162
Agriculture 14 74 88
Mineral exploration 70 -15 55
Small businesses 166 193 360
Tourism 136 149 285
Shipbuilding 82 93 175
Culture 150 157 306
Tax and tariff relief
Temporary 100-per-cent capital cost allowance
rate for computers
340 355 695
Tariff relief on machinery and equipment 76 81 157
Subtotal—Support for Industries 1,093 1,190 2,283
Support for Communities
Helping all regions prosper 596 655 1,251
Strengthening partnerships with Aboriginal peoples 135 179 314
Subtotal—Support for Communities 731 834 1,565
Total—Supporting Industries and Communities
1,824 2,023 3,848
Federal support to auto sector
1
9,155 – 9,155
Total—Supporting Industries and Communities
10,979 2,023 13,003
Total—With provincial contributions
15,955 2,513 18,468
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
The budgetary impact may be somewhat smaller because some of these expenditures relate to construction and renovation
costs of federal assets (for which only depreciation is recorded on a budgetary basis) and loans to third parties (where there
is a budgetary impact only in the event that there is a risk of loss).
1
Includes $250 million, which was disbursed to Chrysler on March 30, 2009.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
335
Support for Communities: The Government took significant actions to
enable the development of strong Canadian communities in a time of crisis.
The stimulus phase of Canada’s Economic Action Plan included:
• An investment of over $930 million over two years through the
Community Adjustment Fund to support economic diversification in
communities affected by challenges facing local industries.
• Establishing the Federal Economic Development Agency for Southern
Ontario with over $1 billion provided over five years to support
economic development in Southern Ontario communities.
• Providing $50 million over five years to establish the Canadian Northern
Economic Development Agency and a further $90 million over five years
to renew the Strategic Investments in Northern Economic Development
program to strengthen economic activity in Northern communities.
Canada’s Economic Action Plan:
Working for Canadians
Support for Communities
The Government has taken significant actions to enable the development
of strong Canadian communities. These include:
• Establishing the $1-billion Community Development Trust in
January 2008 to support provincial and territorial initiatives aimed
at assisting vulnerable communities.
• Providing $1 billion over two years for the Community Adjustment Fund,
as part of the Economic Action Plan, to support economic diversification
in communities affected by challenges facing local industries.
• Providing $500 million over two years through the Economic Action Plan
for the Recreational Infrastructure Canada program to support the
construction of new recreational facilities and upgrades to existing ones
in communities across Canada.
• Establishing the Federal Economic Development Agency for
Southern Ontario with over $1 billion over five years, as part of the
Economic Action Plan, to support economic development in Southern
Ontario communities.
• Providing $50 million over five years through the Economic Action Plan
to establish the Canadian Northern Economic Development Agency and
a further $90 million over five years to renew the Strategic Investments
in Northern Economic Development program to strengthen economic
activity in Northern communities.
Annex 2
336
Canada’s Economic Action Plan:
Working for Canadians
Support for Communities (cont’d)
• Providing close to $50 million per year in permanent resources through
Budget 2010 to strengthen the activities of the regional economic
development agencies in promoting growth in communities across
Canada. Budget 2010 also provided $11 million per year, on an ongoing
basis, for the Community Futures Program to help create new economic
opportunities and promote innovation in rural communities.
• Providing $1.9 billion over five years starting in September 2008, for
the Affordable Housing Initiative ($125 million per year), the Residential
Rehabilitation Assistance Program ($128 million per year) and the
Homelessness Partnering Strategy ($135 million per year). In addition,
the Economic Action Plan provided $2.1 billion towards the construction
and renovation of affordable housing units, and $2 billion in low-cost
loans were made available to municipalities.
• Encouraging individuals to make a sustained commitment to public
transit use through the introduction of the Public Transit Tax Credit.
Budget 2012 continues to support communities by providing $150 million
over two years for repairs or improvements to community facilities in all
regions of Canada.
Budget 2012 also provides up to $99.2 million over three years for
permanent flood mitigation measures undertaken by communities affected
by major flooding in 2011.
Canada’s Economic Action Plan:
Working for Canadians
Examples of Community Adjustment Fund Projects
Victoria, P.E.I.—Thousands of visitors flock to the seaside village of
Victoria, Prince Edward Island every year to enjoy the tourist attractions
the island community has to offer. Thanks to an investment of $220,000
from the Government of Canada through the Community Adjustment Fund,
Victoria’s popularity as a summertime destination has been enhanced even
further. The stimulus funding supported a number of capital improvements
to Victoria’s seaside tourism landscape, including general landscaping,
curbing and lighting. The project has allowed the community to provide
more amenities to existing clientele and attract a further influx of tourists
and businesses along Victoria’s waterfronts.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
337
Canada’s Economic Action Plan:
Working for Canadians
Examples of Community Adjustment Fund Projects (cont’d)
Grand Falls-Windsor, N.L.—The Town of Grand Falls-Windsor received
$3 million to assist the Central Newfoundland Region to create new
opportunities in the cranberry industry. The project involved the
development of up to 120 additional acres of production with 10 private
sector operators. It also included site selection analysis for the Exploits
Region, and the development of a comprehensive report outlining
opportunities for future commercial development. Thanks to the stimulus
phase of Canada’s Economic Action Plan, total acreage in the province is
expected to reach 500 acres by 2015 with up to 20 growers in the industry.
Winnipeg, Man.—The Bruce D. Campbell Farm & Food Discovery Centre
is Canada’s first hands-on educational centre to explore the importance of
nutrition and food production. This newly constructed 8,280-square-foot
building includes interactive exhibits that will lead visitors on a journey from
the farmer’s wheat field to the kitchen table. The centre expects to receive
30,000 visitors a year, many of them middle-year students and teachers.
Tailored to the school curriculum, the indoor and outdoor exhibits will
highlight the increasing importance of science and technology in agricultural
practices and Canada’s world leadership in food safety and production. The
centre, located at the University of Manitoba’s Glenlea Research Station
south of Winnipeg, received more than $2.3 million in funding from the
Community Adjustment Fund.
Northwest Territories—Through the Community Adjustment Fund, the
Tulita Dene Band Council received $488,000 in federal funding. Working
in cooperation with the Norman Wells Land Corporation, the Band Council
oversaw the gathering and removal of communications wire on the Canol
Heritage Trail. The wire was left behind after the original construction of
the Canol Heritage Trail in the 1940s and was considered a hazard to
wildlife and people that use the trail. The funding enhanced community
recreational use, and supported the further development of eco-tourism
activities in the area.
Automotive Sector: The automotive sector has faced significant challenges
as a result of the global economic recession. In 2009, the governments of
Canada and Ontario provided $13.7 billion of financial support for the
restructuring of General Motors and Chrysler, with the federal share of this
support being two thirds. The governments of Canada and Ontario received
ownership stakes in the restructured firms. It is estimated that approximately
52,000 Canadian jobs were protected by government action to support the
automotive industry.
Annex 2
338
Canada exited from its investment in Chrysler in July 2011. The Government
of Canada continues to manage its remaining stake in General Motors to
maximize the return for taxpayers, while reducing its ownership as quickly
as is appropriate.
The Government of Canada has begun to reduce its ownership in General
Motors. In connection with the initial public offering by General Motors
in November 2010, Canada sold over 35 million shares. This sale reduced
Canada’s ownership stake in General Motors to 9.34 per cent. On
January 14, 2011, General Motors announced it would inject US$2 billion
worth of stock into its company pension plan, resulting in Canada’s
ownership stake in General Motors being reduced to 8.98 per cent.
Canada’s Economic Action Plan:
Working for Canadians
Support for the Aerospace Sector
The aerospace sector is a leading employer in the high technology
sector. Since 2006, the Government has taken significant actions,
including through the Economic Action Plan, to promote the competitiveness
of the aerospace sector. These include:
• Establishing in 2007 the Strategic Aerospace and Defence Initiative to
support advanced research and development projects by the aerospace
and defence industries, with about $900 million available over five years.
In 2009, an additional $200 million over four years was provided to
the program.
• Providing the Canadian Space Agency with $110 million over three years,
as part of the Economic Action Plan, to support the development of
advanced robotics and other space technologies.
• Launching the Review of Aerospace and Space Programs and Policies.
Headed by the Honourable David Emerson and assisted by a three-
member advisory council, the review will explore how government,
industry and other key stakeholders can address the key issues facing the
aerospace and space sectors, such as innovation, market access and
development, skills development, procurement and supplier development.
• Committing in Budget 2012 to the continuation of Canada’s participation
in the International Space Station mission to 2020 alongside the United
States, the European Union, Russia and Japan. Using advanced
technology, Canadian astronauts will continue to help conduct world-class
research on the station in fields such as human spaceflight, physiology,
physical science and technology development. The aerospace sector will
benefit from Canada’s technology contribution to the mission.
These initiatives help to create or maintain highly skilled Canadian jobs,
encourage public and private partnerships, and keep Canada at the forefront
of the international aerospace industry.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
339
Forestry: In recent years, the forestry sector faced a number of important
challenges, including the collapse of the U.S. housing market and declines in
newsprint demand. Under the stimulus phase of the Economic Action Plan,
over $160 million was spent by Natural Resources Canada to support market
diversification and innovation activities in the forestry sector. These
investments have created real value for the forestry sector, with novel
products that secure Canada’s position as a technological leader. In addition,
the funding has enabled Canadian producers to increase exports to key
markets such as China and maintain their positions in established markets
such as Japan and Europe.
Canada’s Economic Action Plan:
Working for Canadians
Support for Forestry
The forestry sector is an important contributor to the Canadian economy,
forming the economic base in many regions. Canada’s forest product
companies have encountered intense competitive pressures, including
greater competition from low-cost producers, higher input and energy
costs, a variable Canadian dollar and low productivity.
Since 2006, the Government has put in place significant support, including
through the Economic Action Plan, to help the forestry sector address these
challenges and become more competitive. This includes:
• Negotiating the Canada-United States Softwood Lumber Agreement
in 2006, restoring access to the United States market and resulting in
the return of over $5 billion in duty deposits to Canadian producers.
• Providing $200 million through Budget 2006 to combat the pine
beetle infestation.
• Providing $170 million over two years through Budget 2009 and an
additional $60 million through Budget 2011, to support market
diversification and innovation initiatives in the forestry sector. These
activities built on the $127.5-million Forest Industry Long-Term
Competitiveness Initiative announced in Budget 2006 to help the forestry
sector shift toward higher-value products and tap into new markets.
• Establishing the $1-billion Pulp and Paper Green Transformation Program
in June 2009 to support capital projects in the forestry sector that offer
demonstrable environmental benefits.
• Providing $100 million over four years through Budget 2010 for the
Investments in Forest Industry Transformation Program to support
the development, commercialization and implementation of advanced
clean energy technologies in the forestry sector.
Budget 2012 builds on these sustained efforts by providing $105 million
over two years to promote innovation and market development and to
support continued transformation in the forestry sector.
Annex 2
340
Forestry: Support for Innovation and Market
Diversification Across Canada
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
341
Agriculture: The Government worked closely with farmers, the agri-food
industry and the provinces and territories to deliver on the agricultural
measures included in the stimulus phase of the Economic Action Plan.
• Through to the end of 2011–12, $226 million of the Agricultural
Flexibility Fund will have been spent on initiatives that help the
agricultural sector adapt to pressures, improve environmental
sustainability, support innovative processes and products, and address
market challenges. Initiatives under the Agricultural Flexibility Fund
will continue to support the sector over the remaining two years of
the program.
• The stimulus phase of the Economic Action Plan included investments
to improve the operations of livestock and processing plants. A total of
$48 million will have been spent on 18 projects by the end of 2011–12,
the last year of the program.
• Since the new Canadian Agricultural Loans Act took effect in
Summer 2009, 6,141 loans, totalling more than $338 million,
have been granted. Of these loans, 464 were registered to beginning
farmers for a total of $40 million and 120 loans were issued for
amounts greater than $250,000.
Small Business: Canada’s small and medium-sized companies are an
important engine of our economy, driving innovation, productivity, job
creation and economic growth. In addition to other target supports for small
and medium-sized enterprises, the stimulus phase of Canada’s Economic
Action Plan allocated $200 million over two years to the Industrial Research
Assistance Program to enable it to temporarily expand its initiatives for small
and medium-sized enterprises. The National Research Council moved
quickly to spend the $200 million allocated in 2009–10 and 2010–11 to help
firms innovate and to hire new post-secondary graduates.
Tourism: In 2009–10 and 2010–11, the Marquee Tourism Events Program
provided support to events across Canada, such as the Charlottetown
Festival, Carnaval de Québec, Niagara Wine Festival, Red River Exhibition
and Pacific National Exhibition, in order to stimulate the economy and help
promote Canada as a global destination of choice. Through this program,
79 organizations responsible for 107 events received funding over two years.
The program helped draw tourists to host cities and regions and increase
tourism-related spending in Canadian restaurants, hotels, retailers and
transportation companies.
Annex 2
342
The Government of Canada also provided nearly $50 million through
the Canadian Tourism Commission for additional promotional activities
domestically and in priority international markets for the Canadian
tourism industry.
Our vast National Parks and numerous National Historic Sites help attract
a large number of visitors from abroad each year, generating significant
economic activity and bringing our natural heritage closer to Canadians.
Under the stimulus phase of Canada’s Economic Action Plan, Parks Canada
spent $147 million over two years to build and upgrade facilities, including
visitor centres and campgrounds, as well as roads at National Parks and
National Historic Sites throughout the country.
Shipbuilding: The stimulus phase of Canada’s Economic Action Plan
provided $175 million to the Canadian Coast Guard to purchase 98 new
boats and to repair and refit 40 existing large vessels. To date, the
procurement and repair of all boats and vessels has been completed with the
exception of three new inshore fisheries science vessels, which are currently
under construction and are expected to be delivered in the Spring 2012.
Budget 2012 is investing $5.2 billion over the next 11 years on a cash basis to
replace and refit the Canadian Coast Guard’s vessel and helicopter fleet. This
will contribute to job creation and ensure the Canadian Coast Guard can
continue to carry out its mandated activities.
Culture: The Government has delivered unprecedented levels of investment
in Canada’s cultural industries, creating jobs and supporting the creative
economy. Through the stimulus phase of Canada’s Economic Action Plan,
the Government charted a course that allowed our creative industries to
navigate the changing technological and economic landscapes, with over
$300 million in support for culture and the arts.
• The Canada Cultural Spaces Fund spent almost $60 million over
2009–10 and 2010–11 to support 147 cultural infrastructure
projects across Canada.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
343
• In 2009–10 the Canada Arts Training Fund provided $6 million to
27 organizations, and in 2010–11 the Fund invested $13 million to help
34 of the highest calibre institutions in Canada train the most talented
emerging artists for professional careers.
• In 2009–10, $14 million was transferred to Canada Post, which helped
more than 1,000 magazines and community newspaper companies mail
169 million copies of their publications to Canadian readers in all regions
of the country. In 2010–11, the redesigned program, the Canada
Periodical Fund, disbursed $15 million to 928 Canadian magazine and
community newspaper titles to help them to create and distribute a
diverse range of publications to Canadians.
• In 2009–10, a $100-million investment in the Canadian Television Fund
supported projects, in partnership with the broadcasting industry, to
produce high quality, distinctively Canadian television programs. The
revamped program, renamed the Canada Media Fund, combined the
former Canadian Television Fund and the Canada New Media Fund, and
expanded on this work through a $100-million investment in 2010–11 by
supporting content creation for Canadian television, as well as for
software applications for current and emerging digital platforms.
Canada’s Economic Action Plan:
Working for Canadians
Support for Rural Canadians
Since 2006, the Government has taken action to support the rural economy
and made investments that improve the quality of life of rural Canadians.
The Government has provided support to important sectors of the
rural economy:
• Supporting the Competitiveness and Long-Term Profitability of the
Agricultural Sector—Since 2006, the Government has provided targeted
assistance to support the competitiveness of the sector and enhance
market access through initiatives such as the Slaughter Improvement
Program, the Hog Industry Loan Loss Reserve Program, the Hog Farm
Transition Program and the Market Access Secretariat.
• Under the federal/provincial/territorial Growing Forward policy framework,
the Government has provided $6.2 billion over the past four years to
assist with business risk management challenges facing farm businesses.
This included support in 2010 and in 2011 for grain and livestock farmers
following floods in Western Canada and Quebec.
Annex 2
344
Canada’s Economic Action Plan:
Working for Canadians
Support for Rural Canadians (cont’d)
• Building a Competitive Fisheries Sector—The federal government has
invested significant resources to promote the economic well-being of
the commercial fishing industry and small coastal communities,
including through:
- $39 million to advance fisheries science and research.
- $22 million to improve regulatory science in support of
the aquaculture sector.
- $225 million to repair core small craft harbours across Canada and to
accelerate the construction of the Pangnirtung Harbour in Nunavut.
- $72 million to repair storm-damaged harbours to ensure they remain
in a safe and functional state.
- $230 million to integrate Aboriginal fishers into Atlantic and Pacific
commercial fisheries.
• Supporting the Transformation of the Forestry Sector—The
Economic Action Plan provided $170 million over two years through
Budget 2009 and an additional $60 million through Budget 2011 for forest
innovation and market development. In addition, the Government
introduced the $1-billion Pulp and Paper Green Transformation Program
to support innovation and environmentally friendly investments in
Canadian mills.
• Promoting Competitiveness and Environmental Responsibility
in Energy and Mining Operations—The Major Projects Management
Office was created to streamline and accelerate the federal regulatory
review process for new projects in energy and mining, creating
investment and new jobs in rural communities. Going forward, more than
$500 billion is forecast to be invested in major natural resource projects
across Canada over the next 10 years. Budget 2012 also supports mineral
exploration by junior mining companies by extending the temporary
15-per-cent Mineral Exploration Tax Credit for investors in flow-through
shares for an additional year, to March 31, 2013.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
345
Canada’s Economic Action Plan:
Working for Canadians
Support for Rural Canadians (cont’d)
In addition, the Government has taken action to improve the quality of life
of Canadians in rural areas.
• Physical remoteness means greater costs for transportation and
infrastructure for rural communities. Under the Economic Action Plan,
$15.7 billion was spent to modernize a broad range of infrastructure
including roads, bridges, public transit, parks, water treatment facilities
and harbours. The $500-million Communities Component Top-Up of the
Building Canada Fund targets infrastructure stimulus for communities with
populations of less than 100,000.
• As part of Canada’s Economic Action Plan, $225 million was provided
to Industry Canada over three years to develop and implement a strategy
to extend broadband coverage to as many unserved and underserved
households as possible. The biggest component of this strategy is
the Broadband Canada: Connecting Rural Canadians program. By
March 31, 2012, over 210,000 additional households in rural and remote
regions will have broadband access.
• Through the Knowledge Infrastructure Program, the Government has
provided close to $2 billion over two years for university and college
infrastructure, including repair, maintenance and construction projects at
rural colleges such as the Northern Lights College in Dawson Creek (British
Columbia), Portage College in Lac La Biche (Alberta), the Strait Area
Campus at the Nova Scotia Community College in Port Hawkesbury, and
Aurora College in Tsiigehtchic (Northwest Territories). These projects
strengthened the ability of colleges in rural areas to deliver advanced
knowledge and skills training. The projects also supported numerous jobs
during the construction period.
• In Budget 2010, the Government provided $11 million per year, on an
ongoing basis, for the Community Futures Program. This funding will
help create new economic opportunities and promote innovation in rural
communities across Canada.
Budget 2012 provides renewed funding for the Major Projects Management
Office Initiative, to continue to streamline and accelerate the federal
regulatory review process for new projects in energy and mining, creating
investment and new jobs in rural communities.
• Budget 2012 also provides $105 million over two years to promote
innovation and market development and to support continued
transformation in the forestry sector.
Annex 2
346
Tax and Tariff Relief: In addition to supporting key industries, the stimulus
phase of the Economic Action Plan included permanent and temporary
measures that built on broad-based tax reductions passed by Parliament
in 2007 that lowered the federal general corporate income tax rate to
15 per cent in 2012.
The stimulus provided under the Economic Action Plan also helped
Canadian firms create jobs, modernize their operations and better compete
globally through the temporary accelerated capital cost allowance rates for
computers and for manufacturing or processing machinery and equipment,
and the elimination of all remaining tariffs on imported machinery and
equipment and industrial manufacturing inputs. A first phase of tariff relief,
focusing on machinery and equipment, was implemented in Budget 2009,
providing $157 million over two years in duty savings. Budget 2010
implemented a second phase of tariff relief, eliminating all remaining tariffs
on industrial inputs, which provides $300 million in additional annual savings
to Canadian businesses.
With these measures, the Government has made Canada a tariff-free zone
for industrial manufacturers, a first in the G-20. Since the measures were
implemented, Canadian businesses have benefited from tariff relief on over
$50 billion of imports. These initiatives increase investment, foster
innovation and productivity, and increase overall prosperity.
By continuing to pursue an ambitious trade strategy, the federal
government is helping to position Canada for increased success in
the global economy. Your plan to make Canada a tariff-free zone
for industrial manufacturers is enhancing the ability of Canadian-
based firms to compete in domestic and foreign markets
— John Manley, Canadian Council of Chief Executives
March 2012
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
347
Table A2.12
Supporting Industries and Communities
millions of dollars
2009–10 2010–11 Total
Support for the automotive sector
1
9,155 9,155
Support for Industries
Forestry
Forestry (marketing and innovation) 59 102 162
Agriculture
Agriculture flexibility program 6 58 64
Investment in cattle processing plants 8 16 24
Mineral Exploration
Extending the Mineral Exploration Tax Credit 70 -15 55
Small Businesses
Reducing taxes for small businesses 45 80 125
Industrial Research Assistance Program 98 100 198
Canada Youth Business Foundation 10
10
Canadian Business Networks 14 13 27
Tourism
Canadian Tourism Commission
2
20 20 40
Marquee Tourism Events Program 48 49 97
Parks Canada 67 80 147
Shipbuilding
Shipbuilding 82 93 175
Culture
Cultural infrastructure 30 29 59
Canada Prizes for the Arts and Creativity
Canada Arts Training Program 6 13 19
Community newspapers and magazines 14 15 29
Canada Media Fund 100 100 200
Tax and Tariff Relief
Temporary 100-per-cent capital
cost allowance rate for computers 340 355 695
Tariff relief on machinery and equipment 76 81 157
Subtotal—Support for Industries 1,093 1,190 2,208
Annex 2
348
Table A2.12 (cont'd)
Supporting Industries and Communities
millions of dollars
2009–10 2010–11 Total
Support for Communities
Helping All Regions Prosper
Community Adjustment Fund 417 513 931
Federal Economic Development Agency
for Southern Ontario 128 108 236
Eastern Ontario Development Program 10 10 19
Strengthening economic development in the North 3 8 12
Strategic Investments in Northern Economic Development 10 16 26
Promoting energy development in Canada’s North 28 0 28
Strengthening Partnerships With Aboriginal peoples
First Nations and Inuit health programs 131 165 296
First Nations child and family services 4 14 18
Subtotal—Support for Communities 731 834 1,565
Total—Supporting Industries and Communities
10,979 2,023 13,003
Notes: Totals may not add due to rounding. Spending figures exclude employee benefit plan and accommodation costs.
The budgetary impact may be somewhat smaller because some of these expenditures relate to construction and renovation
costs of federal assets (for which only depreciation is recorded on a budgetary basis) and loans to third parties (where there
is a budgetary impact only in the event that there is a risk of loss).
1
Includes $250 million which was disbursed to Chrysler on March 30, 2009.
2
The 2010–11 figure does not include an $8-million transfer from the Marquee Tourism Events Program to the Canadian
Tourism Commission.
Improving Access to Financing and
Strengthening Canada’s Financial System
Canada’s financial system showed exceptional stability throughout the global
financial crisis, with its banking system being recognized as the soundest in
the world. However, Canada was not immune to the global crisis, and the
Government took timely and effective measures to provide extraordinary
liquidity to the financial system and mitigate the impact of the global credit
crunch on the Canadian economy. While the Canadian financial system
withstood the global financial crisis better than most, the crisis made it
difficult for Canadian banks and other lenders to obtain funds from
international markets at reasonable costs. To soften the impact of the crisis,
the stimulus phase of Canada’s Economic Action Plan included measures to
provide up to $200 billion to support lending to Canadian households and
businesses through the Extraordinary Financing Framework (EFF).
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
349
The EFF measures included: the Insured Mortgage Purchase Program
(IMPP); a new 10-year maturity in the ongoing Canada Mortgage Bond
program; the Canadian Secured Credit Facility; support for the Bank of
Canada’s emergency liquidity measures; increased flexibilities and capacities
for financial Crown corporations, including the introduction of the Business
Credit Availability Program; and assurance facilities for banks and life
insurance companies. All of this support was offered on a commercial basis
to protect taxpayers.
The Government’s actions under the EFF contributed significantly to
improved credit conditions following its implementation. For example,
during 2010, aided by the Canadian Secured Credit Facility, $12.5 billion
of securities backed by vehicle and equipment loans and leases, floorplan
financing and credit card receivables was issued, the most since 2006. This
market remained strong in 2011, with $10.9 billion of securities issued
during the year.
Credit growth in Canada remains stronger
than in the U.S.
Chart A2.5
Total Credit Growth
Sources: Bank of Canada; U.S. Federal Reserve Board. Last data point is 2011Q4.
Annex 2
350
Our financial system, the strongest in the world, supports national
growth at a time when banking problems in many developed
countries have become an impediment to the revitalization of
economic activity.
— Warren Jestin, Senior Vice-President
& Chief Economist, Scotiabank,
December 2011
In addition, through the IMPP, the Government purchased $69 billion in
insured residential mortgage pools from Canadian financial institutions to
help them to continue lending to Canadian consumers and businesses. The
program operated at no financial cost or additional risk to taxpayers since the
mortgages were already contingent liabilities of the Government of Canada.
In fact, to date, the IMPP has generated more than $1.2 billion in net
revenues. By the time the program ends in 2014–2015, it will have generated
an estimated $2.5 billion in net revenues that will benefit Canada’s budgetary
balance. Overall, the IMPP, together with the other measures included in the
EFF, allowed Canadian households and businesses continued access to
financing at a reasonable cost during the global credit crisis.
JOB IMPACT OF THE STIMULUS PHASE
OF THE ECONOMIC ACTION PLAN
The objective of the stimulus phase of Canada’s Economic Action Plan was
to protect jobs and safeguard individual Canadians in the face of the worst
global financial and economic crisis since the 1930s. This section provides a
final assessment of the economic impact of the stimulus phase of the
Economic Action Plan.
Measuring the Job Impact of the Stimulus Phase
of the Economic Action Plan
To estimate the total number of jobs maintained or created by the stimulus
phase of the Economic Action Plan, all stimulus actions—infrastructure
stimulus, tax reductions, Employment Insurance (EI) measures and other
actions—need to be taken into account. Job impacts cannot be observed
directly for all elements of the Action Plan (i.e. tax reductions and
EI measures) since they are not related to specific projects or activities but
rather support income and overall economic activity.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
351
For elements of the stimulus phase of the Economic Action Plan that are
project-based, project managers can normally estimate the number of jobs
related to each project. However, project-level data cannot readily be
aggregated to determine an overall job impact because:
• Where data is available, it is often not presented in a consistent
manner—for example, on a full-time-equivalent basis.
• Even if complete project-level data were available on a consistent basis,
the data would only account for the direct impact in the construction
industry. Indirect jobs created or maintained in industries providing
inputs to the construction industry and induced jobs created or
maintained in all industries by the additional economic activity in the
construction industry would not be accounted for.
As a result, the job impacts of the stimulus phase of the Economic Action
Plan are estimated using the Department of Finance’s Canadian Economic
and Fiscal Model (CEFM), which provides “multipliers” for different
categories of expenditure and tax measures that account for first-round,
indirect and induced impacts on the economy. Further details on the
underlying assumptions and methodology of this model-based approach can
be found in the Seventh Report to Canadians (January 2011).
This approach is in line with that taken by international organizations
and other governments, including the United States.
1
• Peter Dungan, Director, and Steve Murphy, Research Associate, Policy
and Economic Analysis Program, Rotman School of Management,
University of Toronto.
It was also reviewed
and validated by well-respected economic experts from the private sector
and academia:
• Glen Hodgson, Senior Vice-President and Chief Economist, and Pedro
Antunes, Director of the National and Provincial Forecast, Conference
Board of Canada.
• Stéfane Marion, Chief Economist and Strategist, National Bank
Financial Group.
1
See, for example, Congressional Budget Office, Estimated Impact of the American Recovery
and Reinvestment Act on Employment and Economic Output from October 2011 Through
December 2011 (February 2012).
Annex 2
352
The assumptions underlying these estimates are prudent. The multipliers
used in assessing the economic impact of the stimulus phase of the
Economic Action Plan are similar to or lower than those used by the U.S.
Council of Economic Advisers in assessing the impact of the American
Recovery and Reinvestment Act and those found in models of leading
Canadian private sector forecasters.
2
In addition, recent economic research
suggests that fiscal multipliers are larger than those used in this analysis when
the policy interest rate has reached its effective lower bound, as was the case
in Canada from April 2009 to May 2010.
3
The Job Impact of the Stimulus Phase
of the Economic Action Plan
To assess the impact of the stimulus phase of the Economic Action Plan on
jobs maintained or created, the economic activity multipliers in the CEFM
are combined with information on the amount of stimulus flowing in the
economy. Estimates take into account provincial and territorial leverage
reported by partners. In some cases, reported leverage exceeds levels
required by program parameters at the outset of the stimulus phase of the
Economic Action Plan. These provincial and territorial contributions are
shown in Table A2.2 of this annex.
Table A2.13 shows the resulting estimated stimulus flowing in the economy
as of March 2011, to each area of the stimulus phase of the Economic
Action Plan. The analysis that follows reviews the economic and job impacts
of the stimulus phase of the Economic Action Plan through March 2011, the
last month in which the majority of the stimulus measures in the Plan were
in effect.
2
Executive Office of the President, Council of Economic Advisers. Christina Romer and J ared
Bernstein. “The J ob Impact of the American Recovery and Reinvestment Plan” (J anuary 2009)
and Government of Canada, Budget 2009, Annex 1.
3
Lawrence Christiano, Martin Eichenbaum and Sergio Rebelo. “When is the Government Spending
Multiplier Large?” National Bureau of Economic Research Working Paper No. 15394 (2009).
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
353
Table A2.13
Economic Action Plan Funds Flowing
in the Economy
millions of dollars
Dollars Flowing
as of March 2011
Reducing the Tax Burden for Canadians 6,288
Helping the Unemployed 8,477
Building Infrastructure to Create J obs
1
21,794
Advancing Canada’s Knowledge
Economy and Creating Better J obs
1
5,463
Supporting Industries and Communities
1
18,730
Total 60,752
Note: Totals may not add due to rounding
1
Includes provincial and territorial leverage.
It is estimated that close to $15 billion was devoted to reducing the tax
burden and helping the unemployed. Over $21 billion was invested in
new public and housing infrastructure. More than $5 billion was invested
in knowledge infrastructure and science and technology to help create
better jobs. Finally, over $18 billion was disbursed to support industries
and communities.
Combining the amounts flowing for each of the measures in the Economic
Action Plan with the appropriate activity multipliers for production and
employment discussed earlier provides an estimate of the Action Plan’s
economic impact.
The implementation of the stimulus phase of the Economic Action Plan has
had a substantial beneficial impact on output and employment (Table A2.14).
On average, the funds disbursed are estimated to have boosted Canada’s real
gross domestic product (GDP) growth by 1.2 percentage points per quarter
between the second quarter of 2009 and the first quarter of 2011.
Annex 2
354
Improved economic growth translates into a higher level of employment.
Indeed, the stimulus phase of the Economic Action Plan reduced the size
of the contraction in employment in the second quarter of 2009, prevented
another contraction in the third quarter of 2009, and contributed to the
increase in employment from the last quarter of 2009 through the first
quarter of 2011. The Department of Finance estimates that the stimulus
phase of the Economic Action Plan had created or maintained almost
250,000 jobs as of March 2011, and that the job impact remained close
to this level through the remainder of 2011.
Table A2.14
Impact of Economic Action Plan Measures
on Real GDP and Employment
per cent, period to period at annual rates, unless otherwise indicated
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
March
2011
Real GDP Growth
Actual -3.7 1.7 5.0 5.6 2.3 2.5 3.1 3.7 –
Without Economic Action Plan
(EAP) measures -5.1 0.1 3.1 3.6 2.1 1.4 2.3 2.9 –
Impact of the EAP
(percentage points) 1.4 1.6 1.9 2.0 0.2 1.1 0.8 0.8 –
Employment Growth
Actual -1.8 0.0 1.8 1.3 3.1 1.3 1.0 2.2 –
Without EAP measures -2.3 -0.6 0.9 0.4 2.5 0.7 0.4 1.6 –
Impact of the EAP
(percentage points) 0.6 0.6 0.9 0.9 0.6 0.6 0.6 0.6 –
Employment level (thousands) 27 53 92 130 156 185 213 239 248
Table A2.15 breaks down the jobs estimated to have been created or
maintained according to the five elements of the stimulus phase of the
Economic Action Plan.
Table A2.15
Jobs Estimated to Have Been Created
or Maintained According to Each Element
of the Economic Action Plan
March 2011
Reducing the Tax Burden for Canadians 24,000
Helping the Unemployed 33,000
Building Infrastructure to Create J obs 96,000
Advancing Canada’s Knowledge Economy and Creating Better J obs 28,000
Supporting Industries and Communities 68,000
Total 248,000
Note: Totals may not add due to rounding.
The Stimulus Phase of Canada’s Economic Action Plan:
A Final Report to Canadians
355
Sectoral Impact of the Stimulus Phase
of the Economic Action Plan on Jobs
The manufacturing and construction sectors were particularly hard hit
by the economic slowdown. The stimulus phase of the Economic Action
Plan responded with several measures to support these sectors directly,
particularly through infrastructure investment and funding to support
housing as well as industries and communities.
Employment in construction increased strongly following the
implementation of the stimulus phase of the Action Plan, recovering all of
the jobs lost during the recession, contrasting sharply with the recessions of
the 1980s and 1990s when employment in this industry continued to decline
in the early stages of recovery. Employment in manufacturing stabilized with
weak U.S. demand and the appreciation of the Canadian dollar limiting
employment growth in the manufacturing sector. Employment in the service
sector increased significantly and is now well above pre-recession levels.
Table A2.16 provides a sectoral breakdown of the jobs estimated to have
been created or maintained by the stimulus phase of the Economic
Action Plan.
4
Table A2.16
Sectoral Breakdown of the Number of Jobs
Estimated to Have Been Created or Maintained
by the Economic Action Plan
March 2011
Primary and utilities 5,000
Construction 60,000
Manufacturing 39,000
Services 143,000
Total 248,000
Note: Totals may not add due to rounding.
4
The results are based on estimates from the CEFM and simulations from an input-output model
of the Canadian economy.
Annex 2
356
CONCLUSION
The performance of the Canadian economy through the global financial
crisis shows that the stimulus phase of Canada’s Economic Action Plan
worked—it played a key role in supporting the domestic economy through
a period of significant global weakness. The stimulus phase of the Economic
Action Plan provided a vital boost to confidence and significant support
to those industries most affected by the recession, thereby creating or
preserving jobs that would otherwise have been lost.
Chapter 1
Introducton
Annex 3
Debt Management Strategy
for 2012–13
Debt Management Strategy for 2012–13
359
PURPOSE
The Debt Management Strategy sets out the Government of Canada’s objectives,
strategy and plans for the management of its domestic and foreign debt,
other financial liabilities and related assets. Borrowing activities support the
ongoing refinancing of government debt coming to maturity, the execution
of the budget plan and other financial operations of the Government,
including investing in financial assets needed to establish a prudent liquidity
position and borrowing on behalf of some Crown corporations.
The Financial Administration Act requires that the Government table in
Parliament, prior to the start of the fiscal year, a report on the anticipated
borrowing to be undertaken in the year ahead, including the purposes for
which the money will be borrowed.
Annex 3
360
HIGHLIGHTS OF THE FEDERAL DEBT
MANAGEMENT STRATEGY
• For 2012–13, net issuance of domestic marketable bonds is planned to be
approximately $97 billion, up from $94 billion in 2011–12. At the end of
2012–13, the stock of marketable bonds is projected to be $481 billion.
• The foundation for this year’s debt program is the medium-term debt
strategy announced in Budget 2011. However, with long-term interest
rates at historic lows and a narrower differential between long- and
short-term interest rates than in recent years, the debt strategy for
2012–13 includes a temporary increase in 10-year bond issuance.
• By the end of 2012–13, the treasury bill stock is projected to be
$159 billion, about $4 billion lower than the year-end level for
2011–12. The treasury bill stock is projected to decline significantly
in 2013–14 when mortgage securities purchased under the Insured
Mortgage Purchase Program begin to mature.
• This year’s debt strategy, together with the changes to bond maturity
dates announced as part of the medium-term debt strategy in
Budget 2011 and the projected drop in the stock of treasury bills
in 2013–14, will lead to a substantial decline in refinancing risk.
• The Government’s prudential liquidity management plan, presented in
Budget 2011, is on track to achieve the desired $35-billion target increase
in liquid holdings, comprising both domestic cash balances and foreign
reserve assets, by the end of 2013–14. During the past year, foreign
exchange reserves have increased by about $10 billion.
• In 2012–13, a number of changes will be made to the Retail Debt
Program to improve the efficiency of the program and better align
product offerings to the needs of today’s investors.
Debt Management Strategy for 2012–13
361
Medium-Term Debt Strategy
The modelling analysis supporting the debt management strategy for 2012–13
reflects a wide range of economic and interest rate scenarios drawn from
historical experience. This analysis continues to suggest that portfolios
weighted towards more short- and medium-term bonds improve the cost-risk
characteristics of the debt structure.
The medium-term debt strategy includes a new prudential liquidity plan and
four new bond maturity dates. Over time, the implementation of the strategy
is expected to lead to a more balanced debt structure profile (Chart A3.1) and
a reduced exposure to debt rollover risk. Further, the current yield curve differs
substantially from past history, and long-term bond rates are at record low
levels. Accordingly, some adjustments to the debt program for 2012–13,
discussed in more detail below, are being implemented to reflect this interest
rate environment, while maintaining a portfolio generally weighted towards
more short- and medium-term bonds.
Taken together, these actions will help to insulate the Government’s financial
position in case of future financial shocks. However, the transition to the
new debt structure will take many years. During this transition period,
the strategy will be monitored and, if necessary, adjusted to respond to
changing circumstances.
Chart A3.1
Composition of Market Debt by Instrument Type
By Original Term at Issuance
Annex 3
362
The share of bonds with original terms of 30 years is expected to increase
from 18 per cent to 28 per cent of the stock of market debt over the next
decade. At that time, the share of longer-term debt is expected to stabilize
as long bonds issued in the 1990s begin to mature. Over the coming decade,
the share of bonds with original terms of 10 years or more is projected to
increase from about 37 per cent to around 45 per cent.
Refinancing risk is being prudently managed, as evidenced by key metrics.
It is projected that the net annual refixing share of debt, which measures the
proportion of all interest-bearing debt net of financial assets that matures or
needs to be repriced within one year, will fluctuate between 33 and
36 per cent over the coming decade (Chart A3.2)
Chart A3.2
Projected Evolution of the Refixing Share of Interest-Bearing Debt
as a Percentage of the Stock of Interest-Bearing Debt
Debt Management Strategy for 2012–13
363
It is also projected that the average term to maturity (ATM) of the market
debt net of financial assets will gradually increase (Chart A3.3).
Chart A3.3
Projected Evolution of the ATM of the Marketable
Debt Portfolio
Prudential Liquidity Management
The Government holds liquid financial assets in the form of domestic
cash deposits and foreign exchange reserves to safeguard its ability to meet
payment obligations in situations where normal access to funding markets
may be disrupted or delayed. This also supports investor confidence in
Canadian government debt. In Budget 2011, the Government announced
its intention to increase its liquidity position. Once fully implemented, the
Government’s overall liquidity levels will cover at least one month of the net
projected cash flows, including coupon payments and debt refinancing needs.
During 2011–12, the Government took steps towards implementing the new
liquidity plan. Liquid foreign exchange reserves have increased by about
US$10 billion and exceed the minimum target level of 3 per cent of nominal
gross domestic product established under the strategy. Government deposits
held with financial institutions and the Bank of Canada are scheduled to
grow to about $25 billion before the end of 2013–14.
Annex 3
364
Information on cash balances and foreign exchange assets is available
in The Fiscal Monitor (http://www.fin.gc.ca/pub/fm-rf-index-eng.asp).
Information on the management of Canada’s reserves held in the Exchange
Fund Account is available in the Report on the Management of Canada’s Official
International Reserves (http://www.fin.gc.ca/purl/efa-eng.asp).
Planned Borrowing Activities for 2012–13
Borrowing Authority
For 2012–13, the aggregate borrowing limit that is being requested from
the Governor in Council to meet Budget 2012 financial requirements
and provide a margin for prudence will be $315 billion.
Actual borrowing and uses of funds compared with those forecast will be
reported in the 2012–13 Debt Management Report, and detailed information
on outcomes will be provided in the 2013 Public Accounts of Canada. Both
documents will be tabled in Parliament in Fall 2013.
Sources of Borrowing
The aggregate principal amount of money required to be borrowed by
the Government from financial markets in 2012–13 to finance Budget 2012
refinancing needs and other financial requirements is projected to be
$268 billion.
Uses of Borrowing
Refinancing Needs
In 2012–13, refinancing needs are projected to be approximately $234 billion.
The main source of refinancing needs during the year stems from the
turnover of the treasury bill stock, which has a term to maturity of one year
or less, and bonds that will mature in 2012–13. Other lesser amounts include
retail debt (Canada Savings Bonds and Canada Premium Bonds) and foreign-
currency-denominated bonds that will mature in 2012–13.
Financial Source/Requirement
The other main determinant of borrowing needs is the Government’s
financial source or requirement. If the Government has a financial source,
it can use the source for some of its refinancing needs. If it has a financial
requirement, then it must meet that requirement along with its
refinancing needs.
Debt Management Strategy for 2012–13
365
The financial source/requirement measures the difference between
cash coming into the Government and cash going out. This measure is
affected not only by the budgetary balance but also by the Government’s
non-budgetary transactions.
The budgetary balance is presented on a full accrual basis of accounting,
recording government liabilities and assets when they are incurred or
acquired, regardless of when the cash is paid or received.
Non-budgetary transactions include changes in federal employee pension
accounts; changes in non-financial assets; investing activities through loans,
investments and advances (including loans to three Crown corporations—
the Business Development Bank of Canada, Farm Credit Canada and Canada
Mortgage and Housing Corporation); and other transactions (e.g. changes
in other financial assets and liabilities, and foreign exchange activities).
For 2012–13, a budgetary deficit of $21 billion and a financial requirement
of $23 billion are projected. The liquidity plan will increase borrowing
in 2012–13 by about $8 billion. As the amount the Government plans to
borrow is higher than the planned uses of borrowings, the year-end cash
position is projected to increase by $10 billion (Table A3.1).
Actual borrowing for the year may differ from the forecast due to uncertainty
associated with economic and fiscal projections, the timing of cash
transactions and other factors, such as changes in foreign reserve needs
and Crown borrowings.
Annex 3
366
Table A3.1
Planned Sources and Uses of Borrowings for 2012–13
billions of dollars
Sources of Borrowings
Payable in Canadian currency
Treasury bills
1
159
Bonds 99
Retail debt 2
Total payable in Canadian currency 260
Payable in foreign currencies 8
Total cash raised through borrowing activities 268
Uses of Borrowings
Refinancing needs
Payable in Canadian currency
Treasury bills 163
Bonds 67
Of which:
Regular bond buybacks 6
Retail debt 2
Canada Pension Plan (CPP) bonds and notes 0
Total payable in Canadian currency 232
Payable in foreign currencies 3
Total refinancing needs 235
Financial source/requirement
Budgetary balance 21
Non-budgetary transactions
Pension and other accounts -6
Non-financial assets 1
Loans, investments and advances
Enterprise Crown corporations 4
Insured Mortgage Purchase Program (net of redemptions) -2
Other 0
Total loans, investments and advances 2
Other transactions
2
5
Total non-budgetary transactions 2
Total financial source/requirement 23
Total uses of borrowings 258
Other unmatured debt transactions
3
Net Increase or Decrease (-) in Cash
10
Notes: Numbers may not add due to rounding. A negative sign denotes a financial source.
1
These securities are rolled over, or refinanced, a number of times during the year. This results in a larger number
of new issues per year than the stock outstanding at the end of the fiscal year, which is presented in the table.
2
Other transactions primarily comprise the conversion of accrual adjustments into cash, such as tax and other account
receivables, provincial and territorial tax collection agreements, tax payables and other liabilities, and changes in the
foreign exchange account.
3
These transactions comprise cross-currency swap revaluation, unamortized discounts on debt issues and obligations
related to capital leases.
Debt Management Strategy for 2012–13
367
DEBT MANAGEMENT STRATEGY FOR 2012–13
Objectives
The fundamental objective of debt management is to raise stable and
low-cost funding to meet the financial needs of the Government of
Canada. An associated objective is to maintain a well-functioning market
in Government of Canada securities, which helps to keep debt costs low
and stable.
Raising Stable Low-Cost Funding
Achieving stable low-cost funding involves striking a balance between
the cost and the risk associated with the debt structure.
Over the medium term, debt management decisions will be taken with a view
to keeping debt costs low and maintaining refinancing risks at prudent levels,
while reserving sufficient flexibility to adapt to changing circumstances.
Maintaining a Well-Functioning Government Securities Market
Having access to a well-functioning government securities market ensures
that funding can be raised efficiently to meet the Government’s needs
regardless of economic conditions. To support a liquid and well-functioning
Government of Canada securities market, the Government strives
to maintain transparent, regular and diversified borrowing programs.
Market Consultations
As in previous years, market participants were consulted periodically in
2011–12. Consultations held in November and December were focused
on obtaining feedback regarding the effectiveness of the Government’s debt
distribution framework to ensure that auction and intermediation processes
continue to promote the debt strategy objectives of stable, low-cost funding
and a well-functioning market for government securities. Additionally,
market participants’ views were sought regarding trends affecting the
Government of Canada securities market, the effectiveness of
communications with market participants, and the changing profile
of participants at auctions.
Further details on the subjects of discussion and the views expressed
during the consultations can be found on the Bank of Canada website
(http://www.bankofcanada.ca/publications-research/market-notices/).
Annex 3
368
Adapting to Low Historic Interest Rates
Long-term interest rates have fallen to historically low levels and the
differential between long-term and short-term interest rates is narrower
than in recent years. Given this environment, it is advantageous and prudent
for the Government to lock in additional long-term funding at these
attractive rates.
Consequently, in 2012–13, the Government plans to increase issuance of
10-year bonds, reduce the stock of treasury bills and reduce issuance of
short-term bonds compared to 2011–12. An additional 10-year bond auction
will be conducted in the first quarter of 2012–13. In addition, regular bond
buyback operations on a cash basis for the 10-year sector will be
discontinued. This will contribute to a reduction in refinancing risk at a low
cost, consistent with the key objectives of the medium-term debt strategy.
Composition of Market Debt
The stock of market debt increased by $117 billion between 2008–09
and 2011–12 (Table A3.2). However, since a significant proportion of market
debt issued since 2008–09 was used to acquire interest-bearing investments,
such as insured mortgage-backed securities through the Insured Mortgage
Purchase Program (IMPP), the increase in the federal debt (accumulated
deficit) is much lower. IMPP asset maturities are projected to be $42 billion
in 2013–14, with approximately another $10 billion of assets maturing
in 2014–15.
Table A3.2
Change in Composition of Market Debt
billions of dollars
2008–09
Actual
2009–10
Actual
2010–11
Actual
2011–12
Projected
2012–13
Planned
Treasury bills 192 176 163 163 159
Marketable bonds 295 368 416 445 481
Retail debt 13 12 10 9 9
Foreign debt 10 8 8 11 13
CPP bonds 0.5 0.5 0 0 0
Total market debt 511 564 597 628 662
Debt Management Strategy for 2012–13
369
Bond Program
In 2012–13, the level of net bond issuance is planned to be about $97 billion,
$3 billion higher than the $94 billion issued in 2011–12 (Table A3.3).
Table A3.3
Bond Issuance Plan for 2012–13
billions of dollars
2008–09
Actual
2009–10
Actual
2010–11
Actual
2011–12
Projected
2012–13
Planned
Gross bond issuance 75 102 96 100 99
Buybacks -6 -2 -4 -6 -2
Net issuance 69 100 92 94 97
Maturing bonds and adjustments
1
-27 -27 -44 -66 -67
Change in bond stock 42 73 48 28 30
1
Includes cash management bond buybacks and the inflation adjustment for Real Return Bonds.
Maturity Dates and Benchmark Bond Target Range Sizes
The addition of four new maturity dates, implemented in 2011–12, has
helped smooth the cash flow profile of upcoming maturities by reducing
the size of June 1 and December 1 maturities and related coupon payments.
The move to eight maturity dates also gives the debt program additional
capacity to absorb potential increases in funding requirements.
For 2012–13, no additional changes to the bond maturity pattern and
benchmark target range sizes are planned, thus preserving the structure
implemented in 2011–12. Table A3.4 shows the projected bond maturity
pattern and benchmark size ranges for 2012–13. These amounts do not
include coupon payments.
Table A3.4
Size of Maturity Dates and Benchmark Size Ranges
billions of dollars
Feb. Mar. May June Aug. Sept. Nov. Dec.
2-year 8-12 8-12 8-12 8-12
3-year 8-12 8-12
5-year 10-13
10-13
10-year 10-14
30-year 12-15
Real Return Bond
1
10-16
Total
16-24 10-13 8-12 10-14 16-24 10-13 8-12 10-16
1
Includes estimate for inflation adjustment. The 30-year nominal bond and Real Return Bond do not mature in
the same year.
Annex 3
370
Bond Auction Schedule
In 2012–13, there will be quarterly auctions of 2-, 3-, 5- and 10-year bonds
and Real Return Bonds (RRBs). Three 30-year bond auctions will occur—
one in each of the first, third and fourth quarters of 2012–13. The order of
bond auctions within each quarter may be adjusted to support the borrowing
program, and there may be multiple auctions of the same benchmarks in
some quarters. The dates of each auction will continue to be announced
through the Quarterly Bond Schedule that is published on the Bank of Canada
website prior to the start of each quarter
(http://www.bankofcanada.ca/stats/cars/f/bd_auction_schedule.html).
Bond Buyback Programs
Two types of bond buyback operations will be conducted in 2012–13: regular
bond buybacks on a cash basis and on a switch basis, and cash management
bond buybacks.
Regular Bond Buyback Operations
In 2011–12, regular bond buyback operations on a switch basis were used
in the 2-year sector to facilitate the transition to new benchmark dates
and in the 30-year sector to support liquidity in long bonds. Having
successfully made the transition to the revised maturity structure, 2-year
switch buybacks will cease to be used in 2012–13. A 30-year switch buyback
operation will continue to be used in each quarter when no 30-year bond
auction is planned. Additional 30-year switch buyback operations may
also be considered.
Regular bond buyback operations on a cash basis, introduced as a temporary
measure in 2011–12 to support gross long bond issuance in the 10- and
30-year sectors, will be discontinued for the 10-year sector in 2012–13.
Cash bond buybacks will continue in the 30-year sector, subject to
market conditions.
Cash Management Bond Buyback Operations
The cash management bond buyback program helps manage government
cash requirements by reducing the high levels of cash balances needed
ahead of large bond maturities. In light of the success of these operations
in 2011–12 and taking into account feedback received during market
consultations, weekly cash management bond buyback operations
will be continued in 2012–13.
Debt Management Strategy for 2012–13
371
Treasury Bill Program
Bi-weekly issuance of 3-, 6- and 12-month maturities will be continued.
By the end of 2012–13, the treasury bill stock is projected to be
$159 billion, approximately $4 billion lower than the end-of-year level
for 2011–12. The treasury bill stock is being held at this level so that it can
be managed lower in order to absorb large cash inflows in 2013–14 related
to asset maturities from the IMPP. This action is being taken in an effort to
ensure that the treasury bill market continues to function well while keeping
the size of the bond program roughly stable in 2013–14.
Cash management bills (i.e. short-dated treasury bills) help manage
government cash requirements in an efficient manner. These instruments
will also continue to be used in 2012–13.
Retail Debt Program
Almost 3 million Canadians hold Canada Savings Bonds (CSBs) or Canada
Premium Bonds (CPBs). This past year, around 750,000 Canadians
purchased bonds through the payroll savings option offered by more than
11,000 employers across Canada, while over 50,000 Canadians purchased
bonds directly with cash. Investors repeatedly cite the safety and security
of CSBs and CPBs as key attributes, with payroll deduction providing a
convenient automatic savings option.
In 2012–13, a number of changes will be made to the Retail Debt Program
to improve the efficiency of the program and better align product offerings
to the needs of today’s investors.
Beginning with the Fall 2012 campaign, the Retail Debt Program will offer
one product per sales channel (i.e. cash purchases and payroll deductions).
The CPB will continue to be sold through the cash channel by financial
institutions, investment dealers and direct phone sales. CPBs will be
enhanced with a cashability feature—they will be redeemable throughout
the year with interest earned up to the last anniversary date of purchase.
All outstanding CPBs will also benefit from this feature. The term to
maturity of all new CPBs will be shortened to three years from ten years
to align with their three-year step-up coupon pricing. This will also make
the CPB’s term to maturity comparable with other retail products.
Annex 3
372
CSBs will be offered exclusively through the Payroll Savings Program,
which is how the vast majority of CSBs are currently sold. The term to
maturity of all new CSBs will also be shortened to three years to match
the term of CPBs.
Further information on the Retail Debt Program is available on the Canada
Savings Bonds website (http://www.csb.gc.ca).
Foreign Currency Funding
The purpose of the Exchange Fund Account (EFA) is to aid in the control
and protection of the external value of the Canadian dollar. Assets held
in the EFA are managed to provide foreign currency liquidity, support
market confidence, and promote orderly conditions for the Canadian
dollar in the foreign exchange markets, if required. The prudential liquidity
plan instituted in Budget 2011 calls for liquid foreign exchange reserves
to be maintained at a level at or above 3 per cent of nominal gross
domestic product.
The Government has access to a range of direct sources of funding for its
foreign currency assets. These include a short-term US-dollar paper program,
medium-term note issuance in various markets, international bond issues,
purchases and sales of Canadian dollars in foreign exchange markets, and
cross-currency swaps involving the exchange of domestic liabilities for
foreign-currency-denominated liabilities. In February 2012, the Government
issued a US$3-billion global bond to help meet the requirements of the
prudential liquidity plan. This was Canada’s first US-dollar global bond
issuance since September 2009.
The debt management strategy for 2012–13 assumes that all foreign liabilities
maturing during the year will be refinanced. The actual amount of gross
foreign currency funding may vary from this assumption, depending on
market conditions and the Government’s foreign currency needs. The mix
of funding sources used to finance the reserves in 2012–13 will depend on
a number of considerations, including relative cost, market conditions, and
the objective of maintaining a prudent foreign-currency-denominated debt
maturity structure.
Further information on managing foreign currency reserves and funding
objectives is provided in the Report on the Management of Canada’s Official
International Reserves, which is available on the Department of Finance website.
Chapter 1
Introducton
Annex 4
Tax Measures:
Supplementary Informaton,
Notces of Ways and Means Motons
and Draf Amendments to Various
GST/HST Regulatons
Tax Measures
Supplementary Information
375
TABLE OF CONTENTS
Tax Measures: Supplementary Information
Overview ................................................................................................................ 379
Personal Income Tax Measures ............................................................................ 382
Medical Expense Tax Credit .................................................................................................. 382
Registered Disability Savings Plans ....................................................................................... 382
Mineral Exploration Tax Credit for Flow-Through Share Investors .............................. 392
Eligible Dividends – Split-Dividend Designation and Late Designation ....................... 392
Group Sickness or Accident Insurance Plans ..................................................................... 394
Retirement Compensation Arrangements ........................................................................... 395
Employees Profit Sharing Plans ............................................................................................ 399
Salary of the Governor General of Canada ......................................................................... 400
Life Insurance Policy Exemption Test ................................................................................. 400
Business Income Tax Measures ............................................................................ 403
Clean Energy Generation Equipment: Accelerated Capital Cost Allowance ................ 403
Corporate Mineral Exploration and Development Tax Credit ........................................ 406
Atlantic Investment Tax Credit ............................................................................................. 407
Scientific Research and Experimental Development Program ........................................ 410
Tax Avoidance Through the Use of Partnerships .............................................................. 414
Partnership Waivers ................................................................................................................. 416
International Taxation ........................................................................................... 417
Transfer Pricing Secondary Adjustments ............................................................................. 417
Thin Capitalization Rules ........................................................................................................ 418
Foreign Affiliate Dumping ..................................................................................................... 423
Base Erosion Rules – Canadian Banks ................................................................................. 425
Overseas Employment Tax Credit ........................................................................................ 426
Sales and Excise Tax Measures ............................................................................. 428
GST/HST Health Measures ................................................................................................... 428
GST Rebate for Books to be Given Away for Free
by Prescribed Literacy Organizations ................................................................................ 431
Doubling GST/HST Streamlined Accounting Thresholds .............................................. 431
Tax Relief for Foreign-Based Rental Vehicles
Temporarily Imported by Canadian Residents................................................................. 433
Consistent Application of the Green Levy on Fuel-Inefficient Vehicles ....................... 434
Other Tax Measures .............................................................................................. 435
Gifts to Foreign Charitable Organizations .......................................................................... 435
Charities – Enhancing Transparency and Accountability ................................................. 436
Tax Shelter Administrative Changes ..................................................................................... 437
Aboriginal Tax Policy .............................................................................................................. 439
Customs Tariff Measures ...................................................................................... 441
Trade Measures to Support the Energy Industry ............................................................... 441
Travellers’ Exemptions ............................................................................................................ 441
Previously Announced Measures........................................................................... 442
Annex 4
376
Notices of Ways and Means Motions
Notice of Ways and Means Motion to Amend the Income Tax Act ....................................... 445
Notice of Ways and Means Motion to Amend the Excise Tax Act ....................................... 480
Notice of Ways and Means Motion to Amend the Customs Tariff ......................................... 490
Draft Amendments to Various GST/HST Regulations .................... 493
Chapter 1
Introducton
Tax Measures:
Supplementary
Informaton
Tax Measures
Supplementary Information
379
OVERVIEW
This annex provides detailed information on each of the tax measures
proposed in the Budget.
Table A4.1 lists these measures and provides estimates of their
budgetary impact.
The annex also provides Notices of Ways and Means Motions to amend
the Income Tax Act, the Excise Tax Act (and related regulations) and the
Customs Tariff.
In this annex, references to “Budget Day” are to be read as references to
the day on which this Budget is presented.
Annex 4
380
Table A4.1
Cost of Proposed Tax and Tariff Measures
1
Fiscal Costs (millions of dollars)
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017 Total
Personal Income Tax Measures
Medical Expense Tax Credit – – – – – – –
RDSP – Plan Holders
2
– 1 2 3 3 2 11
RDSP – Proportional Repayment Rule – – – – – – –
RDSP – Maximum and Minimum Withdrawals – – – – – – –
RDSP – Rollover of RESP Investment Income
2
– – 1 – – – 1
RDSP – Termination of an RDSP
following Cessation of Eligibility
for the DTC
2
– 1 2 4 5 10 22
RDSP – Administrative Changes
2
– 1 1 1 – – 3
Mineral Exploration Tax Credit for
Flow-Through Share Investors – 130 (30) – – – 100
Eligible Dividends – Split-Dividend Designation
and Late Designation – – – – – – –
Group Sickness or Accident Insurance Plans – (20) (85) (95) (100) (105) (405)
Retirement Compensation Arrangements – – – – – – –
Employees Profit Sharing Plans – (10) (35) (40) (40) (40) (165)
Salary of the Governor General of Canada – – – – – – –
Life Insurance Policy Exemption Test
Business Income Tax Measures
Clean Energy Generation Equipment: Accelerated
Capital Cost Allowance – – 2 3 4 4 13
Corporate Mineral Exploration and Development
Tax Credit – – (10) (25) (25) (30) (90)
Atlantic Investment Tax Credit – Oil and
Gas and Mining Activities – – – (15) (35) (85) (135)
Atlantic Investment Tax Credit – Electricity
Generation Equipment – – 1 1 1 1 4
SR&ED Investment Tax Credit Rate – – – (190) (285) (295) (770)
SR&ED Capital Expenditures – – – (15) (40) (40) (95)
SR&ED Overhead Expenditures – – (10) (55) (95) (100) (260)
SR&ED Contract Payments – – (25) (55) (60) (65) (205)
Tax Avoidance Through the Use of Partnerships – – – – – – –
Partnership Waivers – – – – – – –
Tax Measures
Supplementary Information
381
Table A4.1 (cont’d)
Cost of Proposed Tax and Tariff Measures
1
Fiscal Costs (millions of dollars)
2011–
2012
2012–
2013
2013–
2014
2014–
2015
2015–
2016
2016–
2017 Total
International Taxation
Transfer Pricing Secondary Adjustments – – – – – – –
Thin Capitalization – Debt-to-Equity Ratio – – (60) (110) (75) (65) (310)
Thin Capitalization – Partnerships – – – – – – –
Thin Capitalization – Disallowed
Interest Treated as a Dividend – – (1) (1) (1) (1) (4)
Thin Capitalization – Foreign Affiliate Loans – – – – – – –
Foreign Affiliate Dumping – (110) (225) (265) (325) (385) (1,310)
Base Erosion Rules – Canadian Banks
Overseas Employment Tax Credit – – (10) (35) (65) (95) (205)
Sales and Excise Tax Measures
GST/HST Health Measures – 3 3 4 4 4 18
GST Rebate for Books to be Given
Away for Free by Prescribed Literacy
Organizations – – – – – – –
Doubling GST/HST Streamlined
Accounting Thresholds – – – – – – –
Tax Relief for Foreign-Based Rental Vehicles
Temporarily Imported by Canadian Residents – – – – – – –
Consistent Application of the Green Levy
on Fuel-Inefficient Vehicles – – – – – – –
Other Measures
Gifts to Foreign Charitable Organizations – – – – – – –
Charities – Enhancing Transparency and
Accountability – – – – – – –
Tax Shelter Administrative Changes – – – – – – –
Aboriginal Tax Policy – – – – – – –
Customs Tariff Measures
Trade Measures to Support
the Energy Industry – 30 30 30 30 30 150
Travellers’ Exemptions – 13 17 18 18 19 85
1
A “–” indicates a nil amount, a small amount (less than $1 million) or an amount that cannot be determined in respect of
a measure that is intended to protect the tax base.
2
The cost of this measure is attributable to program expenditure.
Annex 4
382
PERSONAL INCOME TAX MEASURES
Medical Expense Tax Credit
The Medical Expense Tax Credit recognizes the effect of above-average
medical and disability-related expenses on a taxpayer’s ability to pay income
tax. The Medical Expense Tax Credit provides federal income tax relief equal
to 15 per cent of eligible medical and disability-related expenses in excess of a
threshold that is the lesser of 3 per cent of the taxpayer’s net income and an
indexed dollar amount ($2,109 in 2012).
The list of expenses eligible for the Medical Expense Tax Credit is
regularly reviewed and updated in light of new technologies and other
disability-specific or medically-related developments. Budget 2012 proposes
to add to the list blood coagulation monitors for use by individuals who
require anti-coagulation therapy, including associated disposable peripherals
such as pricking devices, lancets and test strips. The cost of these devices will
be eligible for the Medical Expense Tax Credit when they are prescribed by a
medical practitioner.
This measure will apply to expenses incurred after 2011.
Registered Disability Savings Plans
To ensure the ongoing effectiveness of Registered Disability Savings Plans
(RDSPs), and in response to stakeholder comments received during the
recent review of the RDSP, Budget 2012 proposes a number of changes to
the rules governing these plans.
An RDSP may be established for an individual who is eligible for the
Disability Tax Credit (DTC). The individual eligible for the DTC is the plan
beneficiary. The plan holder is the individual who generally opens the RDSP
and makes decisions regarding contributions, investments, and withdrawals.
The plan holder can be the beneficiary or, if the plan is opened for a minor
child, a parent. The plan holder can also be a legal representative of
the beneficiary.
Parents, beneficiaries and others wishing to save on behalf of the beneficiary
are allowed to contribute to an RDSP. Contributions to an RDSP are limited
to a lifetime maximum of $200,000. Contributions are permitted until the
end of the year in which a beneficiary attains 59 years of age.
Tax Measures
Supplementary Information
383
Annual RDSP contributions attract Canada Disability Saving Grants
(CDSGs) at matching rates of 100, 200, or 300 per cent, depending on the
beneficiary’s family income and the amount contributed, up to a lifetime
maximum of $70,000. An RDSP is eligible to receive CDSGs until the end
of the year in which the beneficiary attains 49 years of age. The Government
also provides up to $1,000 in Canada Disability Savings Bonds (CDSBs)
annually to RDSPs established by low- and modest-income families, up to a
lifetime maximum of $20,000. CDSBs are paid into RDSPs until the end of
the year in which the beneficiary attains 49 years of age.
Contributions to an RDSP are not deductible and are not included in the
beneficiary’s income when withdrawn. Investment income earned in an
RDSP grows tax-free. CDSGs, CDSBs and investment income earned in
an RDSP are included in the beneficiary’s income for tax purposes when
withdrawn from the RDSP. Each withdrawal from an RDSP comprises a
taxable portion and a non-taxable portion based on the relative proportion
of taxable assets (including CDSGs, CDSBs, and investment income) and
non-taxable assets (private contributions) in the plan. RDSP withdrawals
must commence by the end of the year in which the beneficiary attains
60 years of age.
Plan Holders
Under current rules, when an RDSP is established for a beneficiary who has
attained the age of majority, the plan holder must be either the beneficiary or,
if the beneficiary lacks the capacity to enter into a contract, the beneficiary’s
guardian or other legal representative.
However, a number of adults with disabilities have experienced difficulties in
establishing a plan because their capacity to enter into a contract is in doubt.
Questions of appropriate legal representation in these cases are a matter of
provincial and territorial responsibility. In many provinces and territories, the
only way that an RDSP can be opened in these cases is for the individual to
be declared legally incompetent and have someone named as their legal
guardian – a process that can involve a considerable amount of time and
expense on the part of concerned family members, and that may have
significant repercussions for the individual.
Annex 4
384
While these provinces and territories develop more appropriate, long term
solutions to address RDSP legal representation issues, Budget 2012 proposes
to allow, on a temporary basis, certain family members to become the plan
holder of the RDSP for an adult individual who might not be able to enter
into a contract. This measure will ensure that individuals in all provinces and
territories who might not be contractually competent and who do not have a
legal representative may still benefit from RDSPs.
Specifically, where, in the opinion of an RDSP issuer, an individual’s ability
to enter into a contract is in doubt, the spouse, common-law partner, or
parent of the individual will be considered a “qualifying family member”
and will be eligible to establish an RDSP for the individual (i.e., be the plan
holder of the RDSP). Budget 2012 also proposes to provide that no action
will lie against an RDSP issuer who, being of the opinion that a beneficiary’s
ability to enter into a contract is in doubt, allows a qualifying family member
to establish and become the holder of an RDSP for the beneficiary.
RDSP issuers will be required to notify an individual when a qualifying family
member establishes an RDSP for which the individual is the beneficiary.
If, subsequently, the issuer no longer has doubt regarding the individual’s
contractual competence, or the individual is determined to be contractually
competent by a public agency or tribunal authorized to make such a
determination in the relevant jurisdiction, the individual may replace the
qualifying family member as plan holder.
If, after an RDSP has been opened by a qualifying family member, a legal
representative (i.e., a guardian, tutor, curator or other person who is legally
authorized to act on behalf of the individual) is named in respect of an
individual, the legal representative will replace the qualifying family member
as plan holder.
This measure will not apply in circumstances where an RDSP has already
been established for an individual or where an individual already has a
legal representative.
This measure will apply from the date of Royal Assent to the enacting
legislation until the end of 2016. A qualifying family member who becomes
a plan holder under this measure will be able to remain the plan holder
after 2016.
Tax Measures
Supplementary Information
385
Proportional Repayment Rule
Under current rules, any CDSGs and CDSBs paid into an RDSP in the
preceding 10 years generally must be repaid to the Government on any of
the following events:
• any amount is withdrawn from the RDSP;
• the RDSP is terminated or deregistered; or
• the RDSP beneficiary ceases to be eligible for the DTC or dies.
This is known as the “10-year repayment rule”. To ensure that RDSP funds
are available to meet potential obligations under this rule, RDSP issuers must
set aside an “assistance holdback amount” equal to the total CDSGs and
CDSBs paid into the RDSP in the preceding 10 years less any CDSGs and
CDSBs already repaid in respect of that 10-year period. When one of the
events described above occurs, the required repayment is equal to the
amount of the assistance holdback amount immediately preceding the event.
To provide greater access to RDSP savings for small withdrawals, while still
supporting the long-term savings objective of these plans, Budget 2012
proposes to introduce a proportional repayment rule that will apply when
a withdrawal is made from an RDSP. This rule will replace the
10-year repayment rule only in respect of RDSP withdrawals. The existing
10-year repayment rule will continue to apply where the RDSP is terminated
or deregistered, or the RDSP beneficiary ceases to be eligible for the
DTC or dies.
The proportional repayment rule will require that, for each $1 withdrawn
from an RDSP, $3 of any CDSGs or CDSBs paid into the plan in the
10 years preceding the withdrawal be repaid, up to a maximum of the
assistance holdback amount. Repayments will be attributed to CDSGs or
CDSBs that make up the assistance holdback amount based on the order
in which they were paid into the RDSP, beginning with the oldest amounts.
Annex 4
386
This measure will apply to withdrawals made from an RDSP after 2013.
Example
Jeff opens an RDSP in 2009 and contributes $1,500 to his plan annually,
attracting the maximum amount of CDSGs ($3,500) each year. In 2014,
the assistance holdback amount for his plan equals $21,000.
In 2014, Jeff withdraws $600 from his RDSP. Under the 10-year repayment
rule, the entire assistance holdback amount ($21,000) would have to be
repaid. Under the proportional repayment rule, $1,800 of the assistance
holdback amount will be repaid (approximately 9 per cent of the repayment
required under the 10-year repayment rule). The $1,800 repayment will
come from CDSGs paid into Jeff’s RDSP in 2009 and the plan’s assistance
holdback amount will be reduced to $19,200.
Maximum and Minimum Withdrawals
Budget 2012 proposes changes to the rules governing maximum and
minimum withdrawals from RDSPs. These changes will provide greater
flexibility in making withdrawals from an RDSP and ensure that RDSP assets
are used to support the RDSP beneficiary during their lifetime.
There are two types of withdrawals that may be made from an RDSP: a
discretionary disability assistance payment, which may be made at any time,
subject to the plan terms and certain restrictions under the tax rules; and a
lifetime disability assistance payment (LDAP), which provides an ongoing
stream of payments from the RDSP for a beneficiary.
LDAPs may commence at any time. Once started, they must be paid at least
annually until either the RDSP is terminated or the beneficiary dies. LDAPs
must begin no later than the end of the year in which the beneficiary attains
60 years of age, so that the assets in the plan provide for the long-term
financial security of the beneficiary during their lifetime. The maximum
LDAP that can be withdrawn from the RDSP each year is determined by a
formula (the LDAP formula) that is based on the age of the beneficiary and
the fair market value of the assets held in the RDSP.
Specific rules limit the maximum amount that may be withdrawn annually
from RDSPs where CDSGs and CDSBs paid into the plan exceed private
contributions made to the plan. Such RDSPs are known as primarily
government-assisted plans (PGAPs). Total withdrawals from a PGAP in a
calendar year may not exceed the amount determined by the LDAP formula
for the year. No such maximum withdrawal limits apply to non-PGAPs.
Tax Measures
Supplementary Information
387
Budget 2012 proposes to increase the maximum annual limit for withdrawals
from PGAPs to the greater of the amount determined by the LDAP formula
and 10 per cent of the fair market value of plan assets at the beginning of the
calendar year. A PGAP beneficiary will continue to be eligible for the existing
exemption from the maximum annual limit for withdrawals if a medical
doctor certifies in writing that the beneficiary’s state of health is such that,
in the doctor’s opinion, the beneficiary has a life expectancy of five years
or less.
PGAPs are also subject to a minimum annual withdrawal requirement
commencing with the calendar year in which the beneficiary attains 60 years
of age. For that calendar year and subsequent years, the total withdrawals
from a PGAP must be at least equal to the amount determined by the LDAP
formula for the year. For other RDSPs, there is no specified minimum
withdrawal amount.
Budget 2012 proposes to extend to all RDSPs the minimum annual
withdrawal requirement that currently applies only to PGAPs. Accordingly,
once an RDSP beneficiary attains 60 years of age, the total withdrawals from
the RDSP in a calendar year must be at least equal to the amount determined
by the LDAP formula for the year.
These measures will apply after 2013.
Rollover of RESP Investment Income
To provide greater flexibility for parents who save in a Registered
Education Savings Plan (RESP) for a child with a severe disability,
Budget 2012 proposes to allow investment income earned in an RESP to be
transferred on a tax-free (or “rollover”) basis to an RDSP if the plans share a
common beneficiary.
In order to qualify for this measure, the beneficiary must meet the existing
age and residency requirements in relation to RDSP contributions. As well,
one of the following conditions must be met:
• the beneficiary has a severe and prolonged mental impairment that
can reasonably be expected to prevent the beneficiary from pursuing
post-secondary education;
• the RESP has been in existence for at least 10 years and each
beneficiary is at least 21 years of age and is not pursuing post-secondary
education; or
• the RESP has been in existence for more than 35 years.
Annex 4
388
These are the existing conditions for receiving an accumulated income
payment (AIP) from an RESP. An AIP is a lump-sum distribution of
investment income earned in an RESP to the RESP subscriber,
generally made in circumstances where the RESP beneficiary does not
pursue post-secondary education and the RESP is being terminated. The
AIP is included in the income of the RESP subscriber for regular income
tax purposes and is also subject to an additional 20-per-cent tax. An RESP
subscriber may reduce the amount of the AIP subject to tax by contributing
a portion of the AIP to a Registered Retirement Savings Plan under
specified conditions.
Under this proposal, when RESP investment income is rolled over to an
RDSP, contributions in the RESP will be returned to the RESP subscriber
on a tax-free basis. The subscriber can contribute these amounts to the
RDSP (immediately or over time) if they so choose, potentially attracting
CDSGs.
1
The amount of RESP investment income rolled over to an RDSP may not
exceed, and will reduce, the beneficiary’s available RDSP contribution room.
The rollover amount will be considered a private contribution for the
purpose of determining whether the RDSP is a PGAP, but will not attract
CDSGs. The rollover amount will be included in the taxable portion of
RDSP withdrawals.
In addition, Canada Education Savings Grants and Canada
Learning Bonds in the RESP will be required to be repaid to the
Government and the RESP terminated by the end of February of the year
after the year during which the rollover is made. As in the case of a
contribution of an AIP to a Registered Retirement Savings Plan, the rollover
amount will not be subject to regular income tax or the additional
20-per-cent tax.
This measure will apply to rollovers of RESP investment income made
after 2013.
1
The carry forward of RDSP grants and bonds introduced in Budget 2010 allows RDSP
beneficiaries to claim unused entitlements for CDSGs and CDSBs for the preceding 10 years
(starting from 2008, the year RDSPs became available).
Tax Measures
Supplementary Information
389
Termination of an RDSP following Cessation of Eligibility for the DTC
An RDSP may be established only for a beneficiary who is eligible for the
Disability Tax Credit (DTC). If a beneficiary’s condition factually improves
such that the beneficiary does not qualify for the DTC for a taxation year
(i.e., the beneficiary is DTC-ineligible throughout a full calendar year), the
RDSP must be terminated by the end of the following year. No contributions
may be made to, and no CDSGs or CDSBs may be paid into, the RDSP once
the beneficiary is DTC-ineligible. In addition, the 10-year repayment rule
applies (with the required repayment being equal to the amount of the
assistance holdback amount immediately preceding the beneficiary
becoming DTC-ineligible) and any assets remaining in the RDSP must be
paid to the beneficiary.
A beneficiary who becomes DTC-ineligible might, due to the nature of their
condition, be eligible for the DTC for some later year and would be able to
establish a new RDSP. Contribution room and repaid CDSGs and CDSBs
are not restored in these circumstances.
To reduce the administrative burden on these beneficiaries and ensure
greater continuity in their long-term saving, Budget 2012 proposes to extend,
in certain circumstances, the period for which an RDSP may remain open
when a beneficiary becomes DTC-ineligible.
This measure will apply to RDSPs where the beneficiary has become
DTC-ineligible. In addition, a medical practitioner must certify in writing
that the nature of the beneficiary’s condition makes it likely that the
beneficiary will, because of the condition, be eligible for the DTC in
the foreseeable future.
Election
If an RDSP plan holder decides to take advantage of this measure, the plan
holder will be required to elect in prescribed form and submit the election,
along with the written certification, to the RDSP issuer. The RDSP issuer will
then be required to notify Human Resources and Skills Development Canada
that the election has been made. The election must be made on or before
December 31
st
of the year following the first full calendar year for which the
beneficiary is DTC-ineligible.
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Results of an Election
Where an election is made, the following rules will apply commencing with
the first full calendar year for which the beneficiary is DTC-ineligible:
• No contributions to the RDSP will be permitted, including under the
proposed rule for the rollover of RESP investment income. However, a
rollover of proceeds from a deceased individual’s Registered Retirement
Savings Plan or Registered Retirement Income Fund to the RDSP of a
financially dependent infirm child or grandchild will still be permitted.
• No new CDSGs or CDSBs will be paid into the RDSP. If a beneficiary
dies after an election has been made, the existing 10-year repayment rule
will apply (with the required repayment being equal to the amount of the
assistance holdback amount immediately preceding the beneficiary
becoming DTC-ineligible, less any repayments made during or after the
first full calendar year for which the beneficiary is DTC-ineligible).
• No new entitlements will be generated for the purpose of the carry-
forward of CDSGs and CDSBs for years for which the beneficiary is
DTC-ineligible.
• Withdrawals from the RDSP will be permitted, and will be subject to the
proposed proportional repayment rule and the proposed maximum and
minimum withdrawal rules as applicable. For years for which the
beneficiary is DTC-ineligible, the assistance holdback amount will be
equal to the amount of the assistance holdback amount immediately
preceding the beneficiary becoming DTC-ineligible less any repayments
made during or after the first full calendar year for which the beneficiary
is DTC-ineligible.
Neither the certification required for an election, nor the election itself, will
have any bearing on any determination of an individual’s eligibility for the
DTC. The sole purpose of the certification and election is to allow an RDSP
to remain open for the years under election.
Duration of an Election
An election will generally be valid until the end of the fourth calendar year
following the first full calendar year for which a beneficiary is DTC-ineligible.
The RDSP must be terminated by the end of the first year for which there is
no longer a valid election.
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If a beneficiary becomes eligible for the DTC while an election is valid,
the usual RDSP rules will apply commencing with the year for which the
beneficiary becomes eligible. For example, contributions will be permitted
and new CDSGs and CDSBs may be paid into the RDSP. Should the
beneficiary become DTC-ineligible at some later time, a new election
could be made.
This measure will apply to elections made after 2013.
RDSPs, that under current rules would have to be terminated before 2014
because the beneficiary has become DTC-ineligible and that have not yet
been terminated, will not be required to be terminated until the end of 2014.
Plan holders of such RDSPs may take advantage of this measure if they
obtain the required medical certification and make an election on or before
December 31, 2014.
Administrative Changes
Under current rules, when an RDSP is established, the issuer of the plan
must notify Human Resources and Skills Development Canada within
60 days. When an RDSP is transferred from one RDSP issuer to another,
the transfer must be completed within 120 days of the new plan being
established. Budget 2012 proposes to replace these deadlines with a
requirement that an RDSP issuer act “without delay” in notifying Human
Resources and Skills Development Canada or the establishment of transfer
of an RDSP. The elimination of these deadlines is intended to give issuers
greater flexibility in complying with their obligations.
When an RDSP is transferred to a new issuer, the issuer of the original plan
is required to provide a large amount of information to the new issuer.
Issuers are also required to file this information on a regular basis with
Human Resources and Skills Development Canada. To reduce the
administrative burden for issuers, Budget 2012 also proposes that Human
Resources and Skills Development Canada, rather than the issuer of the
original plan, be responsible for providing this information to the issuer of
the new plan when an RDSP transfer occurs.
These measures will apply on Royal Assent to the enacting legislation.
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In addition, Budget 2012 proposes that the Canada Disability Savings Regulations
be amended to eliminate the 180-day deadline for an RDSP issuer to submit
an application for a CDSG or a CDSB.
This measure will apply on and after the day that the regulation amending the
Canada Disability Savings Regulations is registered.
Mineral Exploration Tax Credit for Flow-Through Share Investors
Flow-through shares allow companies to renounce or “flow through” tax
expenses associated with their Canadian exploration activities to investors,
who can deduct the expenses in calculating their own taxable income. This
facilitates the raising of equity to fund exploration by enabling companies
to sell their shares at a premium. The Mineral Exploration Tax Credit is an
additional benefit, available to individuals who invest in flow-through shares,
equal to 15 per cent of specified mineral exploration expenses incurred in
Canada and renounced to flow-through share investors.
Budget 2012 proposes to extend eligibility for the mineral exploration tax
credit for one year, to flow-through share agreements entered into on or
before March 31, 2013. Under the existing “look-back” rule, funds raised in
one calendar year with the benefit of the credit can be spent on eligible
exploration up to the end of the following calendar year. Therefore, for
example, funds raised with the credit during the first three months of 2013
can support eligible exploration until the end of 2014.
Mineral exploration, as well as new mining and related processing activity
that could follow from successful exploration efforts, can be associated with
a variety of environmental impacts to soil, water, and air and, as a result,
could have an impact on the goals of the Federal Sustainable Development
Strategy. All such activity, however, is subject to applicable federal and
provincial environmental regulations, including project-specific
environmental assessments where required.
Eligible Dividends – Split-Dividend Designation and
Late Designation
Corporate income is generally subject to two levels of tax – the corporate
level and personal shareholder level when corporate profits are distributed
as taxable dividends. In order to relieve against double taxation, the
Income Tax Act integrates the corporate and personal income tax systems
by crediting individuals through the Dividend Tax Credit (DTC) with their
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proportionate share of income tax assumed to have been payable at the
corporate level on taxable dividends they receive.
The amount of this DTC depends on the type of dividend paid by a
corporation to a shareholder. If the dividend is an “eligible dividend”, i.e.,
a dividend paid out of income that was taxed at the general corporate
income tax rate (currently 15 per cent federally), the shareholder qualifies
for an enhanced DTC. A taxable dividend that is not an eligible dividend, i.e.,
a dividend paid out of income that was taxed at a lower rate (in most cases
being the small business income tax rate), qualifies for the regular DTC.
The enhanced DTC is available only if, at the time the dividend is paid,
the corporation notifies each shareholder in writing that the dividend is
designated as an eligible dividend. If a corporation fails to designate a
dividend as an eligible dividend, despite the corporation having had sufficient
income to make an eligible dividend designation, the corporation cannot file
a late eligible dividend designation. In contrast, a corporation that makes an
excessive eligible dividend designation may correct the designation by paying
a special 20-per-cent tax in respect of the amount of the excessive
designation or by filing a valid election under which the shareholders accept
that the excess amount that they have received is a separate taxable dividend
that qualifies for the regular DTC.
Budget 2012 proposes to simplify the manner in which a corporation
resident in Canada pays and designates eligible dividends by allowing the
corporation to designate, at the time it pays a taxable dividend, any portion
of the dividend to be an eligible dividend. The portion of a taxable dividend
that is designated to be an eligible dividend will qualify for the enhanced
DTC, and the remaining portion will qualify for the regular DTC.
Simplifying the administrative compliance involved in designating a
dividend to be an eligible dividend will support the objectives of the
Red Tape Reduction Commission.
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Budget 2012 also proposes to allow the Minister of National Revenue to
accept a corporation’s late designation of a taxable dividend to be an eligible
dividend. Under the proposal, the Minister will be allowed to accept a late
designation of an eligible dividend if the corporation makes the late
designation within the three-year period following the day on which the
designation was first required to be made. In addition, the Minister must be
of the opinion that accepting the late eligible dividend designation would be
just and equitable in the circumstances, including to affected shareholders.
This measure will therefore improve tax fairness for any corporation that
pays a non-eligible taxable dividend to the extent that it is determined that
the corporation had, when the dividend was paid, income taxed at the general
corporate income tax rate to support an eligible dividend designation, and
that the above conditions are met.
These measures will apply to taxable dividends paid on or after Budget Day.
Group Sickness or Accident Insurance Plans
Employment benefits, whether provided in cash or in-kind, are generally
included in an employee’s income for tax purposes. Subject to a number of
exceptions, if an employer contributes to a group insurance plan in respect of
an employee, an amount is included in the employee’s income either when
the employer contributions are made to the plan or when benefits are
received under the plan.
Currently, wage-loss replacement benefits payable on a periodic basis under
a group sickness or accident insurance plan to which an employer has
contributed are included in an employee’s income for tax purposes when
those benefits are received. However, no amount is included in an
employee’s income, either when the employer contributions are made or
the benefits are received, to the extent that:
• benefits are not payable on a periodic basis; or
• benefits are payable in respect of a sickness or accident when there is
no loss of employment income.
To provide for more neutral and fair tax treatment of beneficiaries under a
group sickness or accident insurance plan, Budget 2012 proposes to include
the amount of an employer’s contributions to a group sickness or accident
insurance plan in an employee’s income for the year in which the
contributions are made to the extent that the contributions are not in
respect of a wage-loss replacement benefit payable on a periodic basis.
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This measure will not affect the tax treatment of private health services
plans or other plans described in paragraph 6(1)(a) of the Income Tax Act.
This measure will apply in respect of employer contributions made on or
after Budget Day to the extent that the contributions relate to coverage after
2012, except that such contributions made on or after Budget Day and
before 2013 will be included in the employee’s income for 2013.
Retirement Compensation Arrangements
Under the Income Tax Act, a retirement compensation arrangement (RCA) is
a type of employer-sponsored, funded retirement savings arrangement. RCAs
are normally used to fund the portion of a higher-income employee’s pension
benefit that exceeds the maximum pension benefit permitted under the
Registered Pension Plan (RPP) contribution limits. The RCA rules were
introduced in the 1980s to ensure consistent tax treatment across all
employers for pension arrangements above the RPP limits.
RCAs are exempt from regular Part I income tax, and contributions made
to an RCA are generally deductible in computing income. A refundable RCA
tax (RCA tax) is imposed at a rate of 50 per cent on contributions to an
RCA, as well as on income and gains earned or realized by an RCA. The
RCA tax is generally refunded as taxable distributions are made from the
RCA. However, a special rule assists taxpayers in circumstances where the
RCA has suffered investment losses and the ability of the RCA to make
distributions is significantly impaired. Under this rule, the RCA may obtain
a refund of the RCA tax even if the property held in the RCA has lost some
or all of its value.
The Canada Revenue Agency has identified a number of arrangements
that seek to take advantage of various features of the RCA rules in order
to obtain unintended tax benefits. For example, some arrangements involve
the deduction of large contributions that are indirectly returned to the
contributors through a series of steps ending with the purported RCA
having little or no assets but still being able to claim the refundable tax
using the impaired asset exception. Other arrangements use insurance
products to allocate costs to the arrangement for benefits that arise outside
the arrangement.
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The Government is challenging these tax-motivated arrangements, which are
not consistent with the policy intent of the RCA rules. Since these challenges
are both time-consuming and costly, the Government is acting now to
introduce specific legislative measures to prevent the use of similar schemes
in future.
Budget 2012 proposes new prohibited investment and advantage rules to
directly prevent RCAs from engaging in non-arm’s length transactions.
These rules will be based very closely on existing rules for Tax-Free Savings
Accounts and Registered Retirement Savings Plans (RRSPs). As well,
Budget 2012 proposes a new restriction on RCA tax refunds in
circumstances where RCA property has lost value.
Prohibited Investments
Budget 2012 proposes that the new prohibited investment rules apply in
respect of RCAs that have a “specified beneficiary”. In general terms, a
specified beneficiary of an RCA will be an employee entitled to benefits
under the RCA who has a significant interest in their employer. The
custodian of an RCA will be liable to pay a 50-per-cent tax on the fair market
value of any prohibited investment acquired or held by the RCA. A specified
beneficiary of an RCA that participates in the acquisition or holding of a
prohibited investment by the RCA will be jointly and severally, or solidarily,
liable, to the extent of their participation, for the tax.
This tax will be refundable if the RCA disposes of the prohibited investment
by the end of the year following the year in which it was acquired (or such
later time as the Minister of National Revenue considers reasonable) unless
any of the persons liable for the tax knew or ought to have known that the
investment was a prohibited investment. The Minister will also have the
power to waive or cancel the tax where the Minister is satisfied that it is just
and equitable to do so, having regard to all the circumstances.
This measure will apply in respect of investments acquired, or that become
prohibited investments, on or after Budget Day.
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397
Advantages
Budget 2012 also proposes that the definition of “advantage” be adapted to
address the specific forms of tax planning that have been identified in
relation to RCAs. For example, if an RCA buys a high-value property and
that value is later intentionally eroded or transferred from the RCA without
adequate consideration, an “RCA strip” transaction will be considered to
have taken place and to constitute an advantage. An “RCA strip” will be a
new definition similar to the existing definition of “RRSP strip” in the RRSP
rules, with such modifications as the circumstances require to apply to
transactions involving RCAs. RCA strips will include situations where an
RCA holds a promissory note issued by a non-arm’s length debtor in respect
of the RCA and the debtor fails to make commercially reasonable payments
of principal and interest on the promissory note.
As is the case under the existing advantage rules, an RCA advantage will be
subject to a special tax equal to the fair market value of the advantage. The
custodian of the RCA will be liable for the special tax. A specified beneficiary
of the RCA that participates in extending the advantage will be jointly and
severally, or solidarily, liable, to the extent of their participation, for the
special tax.
The Minister of National Revenue will have the power to waive or cancel the
special tax where the Minister is satisfied that it is just and equitable to do so,
having regard to all the circumstances.
The special tax will generally apply to advantages extended, received or
receivable on or after Budget Day, including advantages that relate to RCA
property acquired, or transactions occurring, before Budget Day. However,
advantages that relate to property acquired, or transactions occurring, before
Budget Day will be eligible for special transitional rules on an elective basis,
as is the case under the existing advantage rules.
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Transitional Rules
If RCA property acquired, or transactions occurring, before Budget Day
cause an advantage to be obtained by a specified beneficiary of the RCA (or a
person who does not deal at arm’s length with the specified beneficiary) on or
after Budget Day, then the amount of the advantage will not be subject to the
special tax provided that the amount is included in computing the income of
the specified beneficiary. For example, if on or after Budget Day a specified
beneficiary of an RCA proceeds with steps, such as the removal of assets from
a debtor corporation, that cause a pre-Budget Day promissory note to lose its
value, the amount of the decline in value will be treated as an “RCA strip” and
therefore as an advantage subject to the special tax, unless the specified
beneficiary includes the amount of the advantage in their income.
If RCA property acquired, or transactions occurring, before Budget Day
cause an advantage to be obtained (such as income earned, and capital gains
accrued and realized, on a prohibited investment) by the RCA on or after
Budget Day, the amount of the advantage will not be subject to the special
tax provided that the amount is distributed from the RCA and included in
the income of a beneficiary or an employer in respect of the RCA. Such
distributions will be treated as regular taxable distributions for the purpose of
determining RCA tax.
RCA Tax Refunds
Budget 2012 proposes that, if RCA property has declined in value, the RCA
tax be refunded only in circumstances where the decline in value of the
property is not reasonably attributable to prohibited investments or
advantages, unless the Minister of National Revenue is satisfied that it is just
and equitable to refund the RCA tax, having regard to all the circumstances.
This measure will apply in respect of RCA tax on RCA contributions made
on or after Budget Day.
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Employees Profit Sharing Plans
Employees Profit Sharing Plans (EPSPs) are trust arrangements that enable
employers to share profits with employees, assist employees to save, and
better align the economic interests of management and labour. Under an
EPSP, an employer may make tax-deductible contributions to a trust and
the trustee is required to allocate to beneficiaries each year all employer
contributions, profits from trust property, capital gains and losses, and
certain amounts in respect of forfeitures. These EPSP allocations, with
certain exceptions, are included in computing the income of the beneficiaries
for the taxation year in which they are allocated. Once amounts are allocated,
payments are made by the trustee to the beneficiaries in accordance with the
terms of the plan (for example, immediately, after a minimum vesting period,
or on retirement or termination). Because the allocations are taxable,
payments out of the trust are generally not subject to tax when received by
the beneficiaries.
Recently, EPSPs have been used increasingly as a means for some business
owners to direct profits to members of their families in order to reduce or
defer the payment of income tax on these profits. Budget 2011 announced
that the Government would review EPSPs and undertake consultations to
ensure that any changes to the tax rules (to limit the potential for abuse)
continue to accommodate appropriate uses of EPSPs. The consultations
took place from August to October 2011. Participants in the consultations
generally recognized the importance of having reasonable limitations on
EPSP contributions, particularly in respect of non-arm’s length employees.
To ensure that EPSPs are used for their intended purposes, Budget 2012
proposes a targeted measure to discourage excessive employer contributions.
This proposal introduces a special tax payable by a specified employee
2
2
“Specified employee” is defined in subsection 248(1) of the Income Tax Act and generally includes
an employee who has a significant equity interest in their employer or who does not deal at arm’s
length with their employer.
on an
“excess EPSP amount”. In general terms, an “excess EPSP amount” will be
the portion of an employer’s EPSP contribution, allocated by the trustee to a
specified employee, that exceeds 20 per cent of the specified employee’s
salary received in the year by the specified employee from the employer.
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The special tax will be made up of two components. The first component
will be equal to the top federal marginal tax rate of 29 per cent. The second
component will be equal to the top marginal tax rate of the province of
residence of the specified employee
3
A mechanism will be introduced to authorize the Minister of National
Revenue to waive or cancel the application of these excess EPSP amount
rules if the Minister considers that it is just and equitable to do so, having
regard to all the circumstances. In such cases, the normal rules will apply.
and will be shared with provinces and
territories participating in a Tax Collection Agreement. A new deduction will
be introduced to ensure that an excess EPSP amount is not also subject to
regular income tax. A specified employee will, however, not be able to claim
any other deductions or credits in respect of an excess EPSP amount.
This measure will apply in respect of EPSP contributions made by an
employer on or after Budget Day, other than contributions made before
2013 pursuant to a legally binding obligation arising under a written
agreement or arrangement entered into before Budget Day.
Salary of the Governor General of Canada
Following consultations between the Governor General and the
Government, both have agreed that the income tax exemption for the
Governor General’s salary should end and that the Governor General’s
salary, as adjusted, paid under the Governor General’s Act should be subject
to tax in the same manner as the salary of other Canadians.
This treatment is consistent with recent measures in other Commonwealth
countries to make the salary of their Governors General subject to income
tax (i.e., Australia in 2001 and New Zealand in 2010).
This measure will apply to the 2013 and subsequent taxation years.
Life Insurance Policy Exemption Test
Life insurance plays an important role in meeting the financial needs of
Canadians by helping to protect against the financial risks of premature
death. Life insurance policies may provide both a protection (i.e., insurance)
and savings component. The income earned on the savings component of a
life insurance policy that is an exempt policy, as determined under the
Income Tax Regulations, is not subject to accrual taxation in the hands of
the policyholder.
3
The second component will be zero if the specified employee’s province of residence is Quebec.
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The exemption test that determines whether a life insurance policy is an
exempt policy was implemented in the early 1980s and is intended to
differentiate protection-oriented life insurance policies from investment-
oriented life insurance policies. A life insurance policy is an exempt policy
when the savings accumulating in the policy does not exceed the savings in
a benchmark policy. The benchmark policy is generally defined as a policy
where the death benefit is payable on the earlier of death and the age of 85
years (the endowment time) and premiums are payable 20 years after the
issuance of the policy (the pay period). Depending on the type of coverage,
the savings in the benchmark policy are calculated using prescribed mortality
and interest rates, the rates used in determining the premiums, or the cash
surrender value of the actual policy.
4
The savings in an actual policy are
measured using an amount that is equal to the greater of the cash surrender
value of the policy and the modified net premium reserve in respect of
the policy.
5
As the exemption test was implemented almost 30 years ago, the
Government has reviewed the test to ensure that it continues to serve
the intended purpose. The review indicates that technical improvements are
required to update and simplify the test. Budget 2012 proposes to implement
the following changes to the exemption test:
• measuring the savings in an actual policy and the benchmark policy using
the Canadian Institute of Actuaries 1986-1992 mortality tables and an
interest rate of 3.5 per cent to better reflect mortality rates and
investment returns while improving consistency between the
measurement of the savings in an actual policy and the measurement
of the savings in the benchmark policy;
• increasing the endowment time of the benchmark policy from age
85 years to age 90 years to reflect increased life expectancy;
• measuring the savings in an actual policy using the greater of the cash
surrender value of the policy (before the application of surrender
charges) and the net premium reserve in respect of the policy to capture
all savings in an actual policy while improving consistency between the
measurement of the savings in the policy and the measurement of the
savings in the benchmark policy; and
4
The cash surrender value is the amount available to the policyholder on surrender of the policy
during lifetime.
5
The modified net premium reserve is equal to the present value of future benefits minus the
present value of future modified net premiums.
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• reducing the pay period of the benchmark policy to 8 years from 20 years
to better reflect current industry practices and the pay period used in
other countries.
Also, Budget 2012 proposes that the Investment Income Tax (IIT) levied on
life insurers be recalibrated where appropriate to neutralize impacts of the
proposed technical improvements on the IIT base.
Over the coming months, the Government will undertake consultations
with key stakeholders on the proposed technical improvements and the
recalibration of the IIT base.
Amendments to the tax provisions arising from these consultations will apply
to life insurance policies issued after 2013.
Tax Measures
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BUSINESS INCOME TAX MEASURES
Clean Energy Generation Equipment: Accelerated Capital
Cost Allowance
Under the capital cost allowance (CCA) regime in the income tax system,
Class 43.2 of Schedule II to the Income Tax Regulations provides an accelerated
CCA rate (50 per cent per year on a declining balance basis) for investment
in specified clean energy generation and conservation equipment. The class
incorporates by reference to Class 43.1
6
• using a renewable energy source (for example, wind, solar, small hydro);
a detailed list of eligible equipment
that generates or conserves energy by:
• using fuels from waste (for example, landfill gas, wood waste,
manure); or
• making efficient use of fossil fuels (for example, high efficiency
cogeneration systems, which simultaneously produce electricity and
useful heat).
Providing accelerated CCA in this context is an exception to the general
practice of setting CCA rates based on the useful life of assets. Accelerated
CCA provides a financial benefit by deferring taxation. This incentive for
investment is premised on the environmental benefits of low-emission or no-
emission energy generation equipment.
In addition, if the majority of the tangible property in a project is eligible
for inclusion in Class 43.2, certain intangible project start-up expenses (for
example, engineering and design work and feasibility studies) are treated as
Canadian Renewable and Conservation Expenses. These expenses may be
deducted in full in the year incurred, carried forward indefinitely for use in
future years, or transferred to investors using flow-through shares.
Budget 2010 expanded Class 43.2 to broaden the eligible range of
applications for which heat recovery equipment and equipment of a district
energy system can be used. Equipment that generates electricity using waste
heat was added to Class 43.2 in Budget 2011.
6
Class 43.1 was introduced in 1994 and provides an accelerated CCA rate of 30 per cent (per year
on a declining balance basis) for properties acquired after February 21, 1994. Class 43.2 was
introduced in 2005 and it is available for properties acquired after February 22, 2005 and before
2020. The eligibility criteria for these two CCA classes are generally the same, except that
cogeneration systems that use fossil fuels must meet a higher efficiency standard in order to
qualify for Class 43.2.
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Budget 2012 proposes to further expand Class 43.2 with respect to waste-
fuelled thermal energy equipment, and equipment of a district energy system
that uses thermal energy provided primarily by eligible waste-fuelled thermal
energy equipment. Budget 2012 also proposes to expand Class 43.2 to
include equipment that uses the residue of plants – generally produced by the
agricultural sector – to generate electricity and heat.
These measures will encourage investment in technologies that can
contribute to a reduction in emissions of greenhouse gases and air pollutants,
in support of Canada’s targets set out in the Federal Sustainable
Development Strategy. These measures could also contribute to the
diversification of Canada’s energy supply.
Waste-Fuelled Thermal Energy Equipment
Waste-fuelled thermal energy equipment produces heat using wastes (for
example, wood waste) and fuels from waste (for example, biogas and bio-oil).
Currently, Class 43.2 includes waste-fuelled thermal energy equipment,
subject to the requirement that the heat energy generated from the
equipment is used in an industrial process or a greenhouse.
Budget 2012 proposes to expand Class 43.2 by removing this requirement.
This change will allow waste-fuelled thermal energy equipment to be used in
a broad range of applications, including space and water heating. For
example, wood waste could be used as an alternative to heating oil for space
and water heating in a shopping centre.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date.
Equipment of a District Energy System
District energy systems transfer thermal energy between a central generation
plant and a group or district of buildings by circulating steam, hot water
or cold water through a system of underground pipes. Thermal energy
distributed by a district energy system can be used for heating, cooling or
in an industrial process. Certain equipment that is part of a district energy
system is currently included in Class 43.1 or Class 43.2, if the system
distributes thermal energy primarily generated by one or more of an eligible
cogeneration system, a ground source heat pump, active solar heating
equipment and heat recovery equipment.
Tax Measures
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Building on the proposed expansion of Class 43.2 to include waste-fuelled
thermal energy equipment used for a broader range of applications, Budget
2012 also proposes to expand Class 43.2 by adding equipment that is part of
a district energy system that distributes thermal energy primarily generated by
waste-fuelled thermal energy equipment (that is itself eligible for inclusion in
Class 43.2). For example, in a remote community a district energy system that
uses heat generated by waste-fuelled thermal energy equipment could provide
an alternative to equipment that uses only fossil fuels.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date.
Energy Generation from Residue of Plants
The residue of plants (for example, straw, corn cobs, leaves and similar
organic waste produced by the agricultural sector) can be used in a number
of ways, including the production of heat, electricity, biofuels and other
bioproducts. Subject to certain requirements, equipment that uses these
residues to produce biogas or bio-oil is currently eligible for inclusion in
Class 43.2.
Budget 2012 proposes to add the residue of plants to the list of eligible waste
fuels (i.e., biogas, bio-oil, digester gas, landfill gas, municipal waste, pulp and
paper waste, and wood waste) that can be used in waste-fuelled thermal
energy equipment included in Class 43.2 or a cogeneration system included in
Class 43.1 or Class 43.2. For example, a greenhouse could produce heat for
its operations using a heating system fuelled by the residue of plants.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date.
Environmental Compliance
If equipment using fuels from waste does not comply with environmental
regulations, there could, in some instances, be an increased risk of the release
of pollutants. To ensure that taxpayers who benefit from Class 43.1 or 43.2
do so in an environmentally responsible manner, Budget 2012 proposes that
equipment using eligible waste fuels not be eligible under Class 43.1 or
Class 43.2 if the applicable environmental laws and regulations of Canada
or of a province, territory, municipality, or a public or regulatory body are
not complied with at the time the equipment first becomes available for use.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date.
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Corporate Mineral Exploration and Development Tax Credit
A corporate tax credit is available at the rate of 10 per cent for pre-
production mining expenditures incurred in respect of certain mineral
resources in Canada. The term “pre-production mining expenditure” in
subsection 127(9) of the Income Tax Act sets out the expenses that are eligible
for the credit:
• exploration expenses described in paragraph (f) of the definition of
“Canadian exploration expense” in subsection 66.1(6) of the
Income Tax Act; and
• pre-production development expenses described in paragraph (g) of the
definition of “Canadian exploration expense”.
Qualifying minerals for purposes of the credit are diamonds, base or precious
metals and industrial minerals that become base or precious metals
through refining.
Budget 2012 proposes to phase out the corporate tax credit for pre-
production mining expenditures. The credit will apply at a rate of 10 per cent
for exploration expenses incurred in 2012, and at a rate of 5 per cent for such
expenses incurred in 2013. The credit will not be available for exploration
expenses incurred after 2013.
The corporate tax credit will apply at a rate of 10 per cent for pre-production
development expenses incurred before 2014, at a rate of 7 per cent for such
expenses incurred in 2014, and at a rate of 4 per cent for such expenses
incurred in 2015. The credit will not be available for pre-production
development expenses incurred after 2015.
Additional transitional relief will be provided in recognition of the long
timelines involved in developing mines. The corporate tax credit will apply at
a rate of 10 per cent for pre-production development expenses incurred by a
taxpayer before 2016 either:
• under a written agreement entered into by the taxpayer before Budget
Day; or
• as part of the development of a new mine where
? the construction of the new mine was started by, or on behalf of,
the taxpayer before Budget Day, or
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? the engineering and design work for the construction of the new
mine, as evidenced in writing, was started by, or on behalf of, the
taxpayer before Budget Day.
Activities such as obtaining permits or regulatory approvals, conducting
environmental assessments, community consultations, impact benefit studies
and similar activities will not be considered construction or engineering and
design work.
Exploration and pre-production development expenses will continue to
qualify as Canadian exploration expenses, and as such will continue to be
fully deductible in the year incurred.
Mineral exploration as well as new mining and related processing activity that
could follow from successful exploration efforts, can be associated with a
variety of environmental impacts to soil, water and air and, as a result, could
have an impact on the goals of the Federal Sustainable Development
Strategy. All such activity, however, is subject to applicable federal and
provincial environmental regulations, including project-specific
environmental assessments where required.
Atlantic Investment Tax Credit
The Atlantic Investment Tax Credit (AITC) is a 10-per-cent credit available
for qualifying acquisitions of new buildings, machinery and equipment, used
primarily in farming, fishing, logging, mining, oil and gas, and manufacturing
and processing in the Atlantic provinces, the Gaspé Peninsula and their
associated offshore regions.
Oil and Gas and Mining Activities
Budget 2012 proposes to phase out the AITC for oil and gas and mining
activities over a four-year period. In particular, this proposal will apply
to assets acquired on or after Budget Day for use in any of the
following activities:
• operating an oil or gas well;
• extracting petroleum or natural gas from a natural accumulation of
petroleum or natural gas;
• extracting minerals from a mineral resource;
• processing ore from a mineral resource to any stage that is not beyond
the prime metal stage or its equivalent;
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• processing iron ore from a mineral resource to any stage that is not
beyond the pellet stage or its equivalent;
• processing tar sands ore from a mineral resource to any stage that is not
beyond the crude oil stage or its equivalent;
• producing industrial minerals;
• processing heavy crude oil recovered from a natural reservoir to a stage
that is not beyond the crude oil stage or its equivalent;
• Canadian field processing;
• exploring or drilling for petroleum or natural gas; and
• prospecting or exploring for or developing a mineral resource.
The availability of the AITC for assets acquired for use in other activities will
not be affected.
The AITC will apply at a rate of 10 per cent for assets acquired before 2014
for use in any of the activities listed above and at a rate of 5 per cent for such
assets acquired in 2014 and 2015. The AITC will not be available for such
assets acquired after 2015.
Transitional relief will be provided in recognition of the long timelines
involved in some oil and gas and mining projects. The AITC will apply at a
rate of 10 per cent for assets acquired by a taxpayer before 2017 either:
• under a written agreement entered into by the taxpayer before Budget
Day; or
• as part of a project phase where
? the construction of the project phase was started by, or on behalf of,
the taxpayer before Budget Day, or
? the engineering and design work for the construction of the project
phase, as evidenced in writing, was started by, or on behalf of, the
taxpayer before Budget Day.
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For this purpose, a phase of a project is a discrete expansion in the
extraction, processing or production capacity of the project to attain the
planned capacity level that was the demonstrated intention of the taxpayer
immediately before Budget Day. Construction undertaken to maintain or
restore a capacity level that had been reached before Budget Day is not
considered a discrete expansion. Activities such as obtaining permits or
regulatory approvals, conducting environmental assessments, community
consultations, impact benefit studies and similar activities will not be
considered construction or engineering and design work.
Along with other members of the G-20, Canada has committed to rationalize
and phase out over the medium-term inefficient fossil fuel subsidies. The
Government announced in Budget 2007 and in Budget 2011 the phase-out
of tax preferences for oil sands producers, which supports the G-20
commitment and align the tax treatment of oil sands with the conventional
oil and gas sector (moreover, the Income Tax Act does not include any tax
preferences specific to oil sands producers). The phase out of the AITC for
oil and gas and mining sectors builds on these measures and is a further
action that the Government is taking in support of the G-20 commitment.
The change will also improve the neutrality of the tax system for Canada’s
resource sector.
Resource development can be associated with a variety of environmental
impacts to soil, water and air and, as a result, could have an impact on the
goals of the Federal Sustainable Development Strategy. All such activity,
however, is subject to applicable federal and provincial environmental
regulations, including project-specific environmental assessments
where required.
Electricity Generation Equipment
Equipment is generally eligible for the AITC if the equipment is a qualified
property. Electricity generation equipment described in Class 1, 8, 29 or 41,
paragraph (c) of Class 43.1 or paragraph (a) of Class 43.2, of Schedule II to
the Income Tax Regulations used in the Atlantic region primarily in an eligible
activity is a qualified property.
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Budget 2012 proposes to improve the neutrality of the AITC by amending
the Income Tax Act and section 4600 of the Income Tax Regulations so that
qualified property will include certain electricity generation equipment and
clean energy generation equipment used primarily in an eligible activity (i.e.,
farming, fishing, logging, and manufacturing and processing). In particular,
“qualified property” will include the following equipment, if it is used in the
Atlantic region primarily in an eligible activity set out in paragraph (c) of the
definition of “qualified property” in subsection 127(9) of the Income Tax Act:
• electricity generation equipment described in Class 17 or 48; and
• clean energy generation and conservation equipment described in
Class 43.1 or 43.2.
This measure will apply to assets acquired on or after Budget Day that have
not been used or acquired for use before that date, except that the measure
will not apply to acquisitions of assets that are used primarily in oil and gas or
mining activities.
This measure is not expected to have a significant impact on either the
environment or achieving the targets of the Federal Sustainable
Development Strategy.
Scientific Research and Experimental Development Program
In October 2010, the Government mandated the Expert Review Panel on
Research and Development to review all federal support for business
research and development with a view to maximizing the effect of federal
programs that contribute to innovation and create economic opportunities
for business. The expert panel submitted its report to the Government in
October 2011. It makes a series of recommendations that call for a simplified
and more focused approach to the Government’s support for business
research and development, including the Scientific Research and
Experimental Development (SR&ED) tax incentive program. To support the
key objectives identified by the expert panel, Budget 2012 proposes several
changes to the SR&ED tax incentive program to make it simpler, and more
cost effective and predictable.
The SR&ED tax incentive program provides broad-based support for
SR&ED performed in every industrial sector in Canada, and supports small
businesses in the performance of SR&ED. Under the SR&ED program,
allowable current and capital expenditures are fully deductible. In addition,
qualified SR&ED expenditures incurred in Canada are included in computing
a taxpayer’s SR&ED qualified expenditure pool at the end of each taxation
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year. In general, the amount of this pool at the end of a taxation year is equal
to all the qualified expenditures incurred by the taxpayer in the year, plus any
amount transferred to the taxpayer in respect of certain non-arm’s length
SR&ED contracts less any amount transferred by the taxpayer in respect of
such contracts to another person. The balance in the SR&ED qualified
expenditure pool at the end of a taxation year is generally eligible for an
investment tax credit. There are two investment tax credit rates for SR&ED
qualified expenditure pool balances. The general rate is 20 per cent and there
is an enhanced rate of 35 per cent for eligible Canadian-controlled private
corporations (CCPCs).
CCPCs are eligible to claim the enhanced investment tax credit at the
rate of 35 per cent on up to $3 million of qualified SR&ED expenditures
annually. For these taxpayers, unused investment tax credits are refundable in
respect of the first $3 million of expenditures each year; current expenditures
are eligible for a 100-per-cent refund and capital expenditures are eligible for
a 40-per-cent refund. All expenditures above the $3 million limit are eligible
for an investment tax credit at the rate of 20 per cent and qualify for a 40-
per-cent refund. The $3 million expenditure limit is phased out for CCPCs
whose taxable income for the previous taxation year is between $500,000 and
$800,000 or whose taxable capital employed in Canada for the previous
taxation year is between $10 million and $50 million.
SR&ED Investment Tax Credit Rate
Budget 2012 proposes to reduce the general 20-per-cent SR&ED investment
tax credit rate applicable to SR&ED qualified expenditure pool balances at
the end of a taxation year to 15 per cent. The 15-per-cent investment tax
credit rate will apply in respect of taxation years that end after 2013, except
that, for a taxation year that includes January 1, 2014, the 5-percentage-point
reduction in the investment tax credit rate will be pro-rated based
on the number of days in the taxation year that are after 2013. The enhanced
35-per-cent SR&ED investment tax credit rate applicable in respect of
eligible CCPCs will remain unchanged on up to $3 million of qualified
SR&ED expenditures annually.
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SR&ED Capital Expenditures
As indicated above, allowable current and capital expenditures in respect of
SR&ED are fully deductible, and qualifying SR&ED expenditures are eligible
for an investment tax credit. Budget 2012 proposes to exclude expenditures
of a capital nature (including payments in respect of the use or the right to
use property that would, if it were acquired by the taxpayer, be capital
property of the taxpayer) from eligibility for SR&ED deductions and
investment tax credits. This measure will apply to property acquired on or
after January 1, 2014, and to amounts paid or payable in respect of the use
of, or the right to use, property during any period that is after 2013.
This measure will also apply to exclude otherwise eligible contract payments
made by a taxpayer from benefiting from SR&ED tax incentives to the
extent that the payment is in respect of a capital expenditure made in
fulfillment of the contract.
Expenditures that have been excluded because of this measure from the
SR&ED tax incentives will be accorded the treatment otherwise applicable
to such expenditures under the Income Tax Act.
SR&ED Overhead Expenditures
Itemized overhead expenditures directly attributable to the conduct
of SR&ED are currently eligible for the SR&ED tax incentives. In lieu of
itemizing such overhead expenditures, taxpayers can elect to use a simplified
proxy method for the calculation of these expenditures. Under the proxy
method, a taxpayer can generally include in the taxpayer’s SR&ED qualified
expenditure pool for a taxation year, which is eligible for SR&ED investment
tax credits, an amount equal to 65 per cent of the total of the eligible portion
of salaries and wages of the taxpayer’s employees directly engaged in the
conduct of SR&ED in Canada in the taxation year.
Budget 2012 proposes to reduce the rate at which the prescribed proxy
amount is calculated to 60 per cent (from 65 per cent) for 2013 and to
55 per cent after 2013. The proxy rate that will apply for taxation years that
include days in 2012, 2013 or 2014 will be pro-rated based on the number
of days in the taxation year that are in each of those calendar years.
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SR&ED Contract Payments
Where a taxpayer (the payer) contracts to have SR&ED performed by a
non-arm’s length person (the performer), the total qualified expenditures
on which either the performer or the payer can claim SR&ED investment tax
credits are currently restricted to the amount of the qualified SR&ED
expenditures incurred by the performer in fulfillment of the contract. These
rules ensure that investment tax credits are not earned on the profit element
of non-arm’s length SR&ED contracts.
In the case of arm’s length SR&ED contract payments, however, the payer is
currently entitled to SR&ED investment tax credits in respect of the entire
amount of the contract payment, while the amount of the contract payment
is netted against the qualifying SR&ED expenditures of the performer.
Budget 2012 proposes to disallow from the expenditure base for investment
tax credits the profit element of arm’s length SR&ED contracts. For
simplicity, it is proposed that this be achieved by way of a proxy, under
which only 80 per cent of the cost to a payer of arm’s length SR&ED
contracts will be eligible for SR&ED investment tax credits.
This measure will apply to expenditures incurred on or after January 1, 2013.
Consistent with the measures described above concerning SR&ED capital
expenditures, the amount of an arm’s length contract payment eligible for
SR&ED tax incentives for the payer will also exclude any amount paid in
respect of a capital expenditure incurred by the performer in fulfillment
of the contract. SR&ED contract performers will be required to inform
the contract payers of these amounts. Once that measure is in force
(beginning in 2014), the exclusion with respect to capital expenditures will
reduce the amount of the contract payment before the 80-per-cent eligibility
ratio is applied.
In addition, the amount that the performer is required to net against its
qualifying SR&ED expenditures because of the contract payment will be
reduced by the amount received by the performer that is in respect of capital
expenditures by the performer.
Expenditures that have been excluded because of this measure from the
SR&ED tax incentives will be accorded the treatment otherwise applicable
to such expenditures under the Income Tax Act.
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Tax Avoidance Through the Use of Partnerships
Section 88 of the Income Tax Act contains rules that enable a taxable Canadian
corporation (the Parent) that has acquired control of another taxable
Canadian corporation (the Subsidiary) to increase the cost of certain capital
assets acquired by the Parent on a vertical amalgamation with, or winding-up
of, the Subsidiary (the section 88 bump). The section 88 bump recognizes
that, in such cases, the amount paid by the Parent for the shares of the
Subsidiary represents the cost of the assets of the Subsidiary and allows
the Parent, within limits, to add the amount paid for the shares to the cost
of certain capital assets acquired on the amalgamation or winding-up.
Capital assets, such as land, shares of a corporation or an interest in a
partnership, may be eligible for the section 88 bump. Assets that if sold could
produce income (as distinguished from producing only capital gains) are not
eligible for the section 88 bump. These income assets include eligible capital
property, depreciable property, inventory and resource property.
In recent years, corporate partnership structures have been used with
increasing frequency to attempt to circumvent the denial of the section
88 bump in respect of a Subsidiary’s income assets. Instead of the Subsidiary
holding income assets directly, the income assets are held indirectly through
a partnership. Upon the acquisition of control of the Subsidiary, the Parent
amalgamates with, or winds up, the Subsidiary and then claims an increase
(or “bump”) to the cost of the partnership interest, even in circumstances
where all of the fair market value of the partnership interest is derived from
income assets.
A second concern arises in respect of section 100 of the Income Tax Act,
which is meant to ensure that income assets held by a partnership are fully
taxable on the sale of the partnership by a taxpayer to a tax-exempt person
(since the tax-exempt person could wind up the partnership without paying
any income tax). This rule does not currently apply to a sale of a partnership
to a non-resident even though the income from a disposition of an income
asset owned by the partnership may be exempt from Canadian income tax
under either domestic law or one of Canada’s tax treaties. As well, some
taxpayers have sought to take advantage of the fact that section 100 does
not expressly refer to indirect sales of partnership interests to a
tax-exempt person.
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The Canada Revenue Agency challenges these partnership structures where
appropriate under the existing provisions of the Income Tax Act, including
the general anti-avoidance rule. However, specific legislative action is
warranted to explicitly prohibit the use of these and similar structures.
Budget 2012 proposes two measures to ensure that partnerships cannot be
used to circumvent the intended application of sections 88 and 100. The first
measure will generally deny a section 88 bump in respect of a partnership
interest to the extent that the accrued gain in respect of the partnership
interest is reasonably attributable to the amount by which the fair market
value of income assets exceed their cost amount. This measure will apply
where the income assets are held directly by the partnership or indirectly
through another partnership. For this purpose, assets directly owned by a
taxable Canadian corporation, shares of which are held by the partnership,
will not be considered to be indirectly held by the partnership.
This measure will apply to amalgamations that occur, and windings-up that
begin, on or after Budget Day. An exception will be provided where a taxable
Canadian corporation amalgamates with its subsidiary before 2013, or begins
to wind up its subsidiary before 2013. This exception will apply only if,
before Budget Day, the corporation had acquired control, or was obligated as
evidenced in writing to acquire control, of the subsidiary and the corporation
had the intention, as evidenced in writing, to amalgamate with, or wind up,
the subsidiary. A corporation will not be considered to be obligated to
acquire control where the corporation may be excused from the obligation if
an amendment is made to the Income Tax Act.
Budget 2012 also proposes to extend the application of section 100 of the
Income Tax Act to the sale of a partnership interest to a non-resident person,
unless the partnership is carrying on business in Canada through a permanent
establishment in which all of the assets of the partnership are used. In such
cases, the income assets remain within the Canadian income tax base. This
measure will also clarify that section 100 applies to dispositions made
directly, or indirectly as part of a series of transactions, to a tax-exempt or
non-resident person.
This measure will apply to dispositions, of interests in partnerships, that
occur on or after Budget Day. An exception will be provided for an arm’s
length disposition made by a taxpayer before 2013 that the taxpayer is
obligated to make pursuant to a written agreement entered into by the
taxpayer before Budget Day. A taxpayer will not be considered to be
obligated to make the disposition where the taxpayer may be excused from
the obligation if an amendment is made to the Income Tax Act.
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Partnership Waivers
The Income Tax Act provides that the Canada Revenue Agency (CRA) may,
for a fiscal period of a partnership, make a determination (which includes a
redetermination) under section 152(1.4) of the Income Tax Act of any income,
loss, deduction or other amount in respect of the partnership. The CRA is
precluded from determining an amount if more than three years have elapsed
since the later of the deadline for filing the relevant partnership information
return and the day it is actually filed. Where the CRA obtains a waiver from
each partner, however, the time period for making a determination is
extended. If one or more of the partners does not provide a waiver, and, as
a result, the period cannot be extended, a determination will need to be made
by the CRA using only the information that is available to it at that time.
The provision of a waiver is at the discretion of the taxpayer.
There are circumstances under which it is advantageous to both the CRA
and the partners of a partnership to waive the three-year time limit.
Obtaining the required waivers from all members of the partnership
can, however, be difficult.
Under current rules, the members of a partnership may designate a partner
who is authorized to file an objection on behalf of all its partners, to a
determination under the Income Tax Act. Budget 2012 proposes that a single
designated partner of a partnership may also be empowered to waive, on
behalf of all its partners, the three-year time limit for making a determination.
This measure will apply on Royal Assent to the enacting legislation.
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INTERNATIONAL TAXATION
Transfer Pricing Secondary Adjustments
The expression “transfer prices” has become known internationally as
the tax term that refers to the prices at which goods, services and intangibles
are traded across international borders between persons who do not deal
with each other at arm’s length. Section 247 of the Income Tax Act contains
transfer pricing rules, which apply in respect of transactions or series of
transactions between parties who do not deal at arm’s length. Where the
terms or conditions of a transaction or series of transactions do not reflect
arm’s length terms and conditions, the Canada Revenue Agency (CRA) may
adjust for tax purposes amounts related to the transaction or series to reflect
arm’s length terms and conditions. This is commonly referred to as a
“primary adjustment”.
Once a primary adjustment has been made, a “secondary adjustment” is
generally required to account for the benefit conferred on non-residents
participating in the transaction or series of transactions. For example, if a
Canadian corporation buys goods from its non-resident parent corporation
for $100 but parties dealing at arm’s length would have charged $80, the
primary adjustment would reduce by $20 the cost of the goods to the
Canadian taxpayer. A secondary adjustment should also arise to reflect the
$20 benefit that was conferred on the non-resident parent (i.e., the amount
by which the non-resident parent was overpaid for the goods).
A number of provisions in the Income Tax Act, such as section 15 and
paragraph 214(3)(a), can apply to treat a benefit conferred on a non-resident
as a dividend subject to withholding tax under Part XIII of the Act and it is
the policy of the CRA to assess these secondary adjustments. There is,
however, no specific provision in the transfer pricing rules regarding
secondary adjustments. The Transfer Pricing Subcommittee of the Advisory
Panel on Canada’s System of International Taxation recommended that
legislative changes be made to clarify the treatment of secondary adjustments
as constructive dividends.
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Budget 2012 proposes to amend section 247 of the Income Tax Act to
confirm that secondary adjustments will be treated as dividends for
Part XIII tax purposes. A Canadian corporation subject to a primary
adjustment will also be deemed to have paid a dividend to each non-arm’s
length non-resident participant in the transaction or series of transactions in
proportion to the amount of the primary adjustment that relates to the non-
resident, regardless of whether the non-resident is a shareholder of the
Canadian corporation.
Budget 2012 also proposes, consistent with CRA administrative practice, to
clarify that a non-resident is allowed to repatriate to a Canadian corporation
that has been subject to a primary adjustment an amount equal to the portion
of the primary adjustment that relates to the non-resident. If the repatriation
is made by the non-resident with the concurrence of the Minister of National
Revenue no deemed dividend will arise in respect of that non-resident. In
addition, no deemed dividend will arise if the non-resident is a controlled
foreign affiliate (as defined in subsection 17(15) of the Income Tax Act) of the
Canadian corporation. In this instance, the benefit conferred on the non-
resident is more akin to a capital contribution than a dividend.
This measure will apply to transactions (including transactions that are part
of a series of transactions) that occur on or after Budget Day.
Thin Capitalization Rules
The thin capitalization rules limit the deductibility of interest expense of a
Canadian-resident corporation in circumstances where the amount of debt
owing to certain non-residents exceeds a 2-to-1 debt-to-equity ratio. The
thin capitalization rules protect the Canadian tax base from erosion through
excessive interest deductions in respect of debt owing to these non-residents.
These rules apply to debts owing to a specified shareholder (a person or
group owning shares representing more than 25 per cent of the votes or
value of the corporation) that is not resident in Canada and any other
non-resident who does not deal at arm’s length with a specified shareholder.
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The Advisory Panel on Canada’s System of International Taxation
(the Advisory Panel) made a number of recommendations relating to the thin
capitalization rules, including reducing the debt-to-equity ratio from 2-to-1
to 1.5-to-1 and extending the rules to partnerships, trusts and Canadian
branches of non-resident corporations. The Advisory Panel also encouraged
the Government to review the treatment of interest expense that is not
deductible under Canada’s thin capitalization rules (disallowed interest
expense) in order to ensure that non-resident investors are prevented from
inappropriately reducing their Canadian withholding tax obligations.
Budget 2012 proposes to improve the integrity and fairness of the thin
capitalization rules by:
• reducing the debt-to-equity ratio from 2-to-1 to 1.5-to-1;
• extending the scope of the thin capitalization rules to debts of
partnerships of which a Canadian-resident corporation is a member;
• treating disallowed interest expense under the thin capitalization rules as
dividends for Part XIII withholding tax purposes; and
• preventing double taxation in certain circumstances where a Canadian-
resident corporation borrows money from its controlled foreign affiliate.
Debt-to-Equity Ratio
The intent of the thin capitalization rules generally, and the debt-to-equity
ratio in particular, is to allow Canadian corporations to finance themselves
using a reasonable amount of debt owing to certain non-residents, while
protecting the tax base against excessive interest deductions in respect of
such debt. A useful guidepost for setting the debt-to-equity ratio is the typical
capital structure of Canadian corporations generally. The Advisory Panel
concluded that the permitted 2-to-1 debt-to-equity ratio is high compared to
actual industry ratios in the Canadian economy, suggesting it allows
inappropriately high levels of foreign related party debt. Analysis by the
Government indicates that this conclusion continues to hold.
Canada’s debt-to-equity ratio also appears high relative to world standards
because the ratios in many other countries apply to broader measures of debt
(which the Advisory Panel also noted). For example, some countries include
in their ratios third-party debt which is guaranteed by a foreign parent
corporation, while others take into account all debt owing to third parties.
In order to better protect the tax base, Budget 2012 proposes to reduce the
debt-to-equity ratio in the thin capitalization rules from 2-to-1 to 1.5-to-1.
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This measure will apply to corporate taxation years that begin after 2012.
Partnerships
Partnerships are not taxable under the Income Tax Act. A partnership
calculates its income or loss as if it were a separate person resident in Canada
and the income or loss is then allocated to its partners.
While Canada’s thin capitalization rules restrict the deductibility of interest
expense incurred by Canadian-resident corporations, the rules do not
reference interest expense incurred by partnerships. The Advisory Panel
recommended that the scope of the thin capitalization rules be extended
to partnerships.
Budget 2012 proposes to extend the thin capitalization rules to debts owed
by partnerships of which a Canadian-resident corporation is a member. In
particular, for the purpose of determining the corporation’s debt-to-equity
ratio under the thin capitalization rules, debt obligations of the partnership
will be allocated to its members based on their proportionate interest in
the partnership.
In circumstances where a corporate partner’s permitted debt-to-equity ratio
is exceeded, the partnership’s interest deduction will not be denied but an
amount will be included in computing the income of the partner from a
business or property, as appropriate. The source of this income inclusion will
be determined by reference to the source against which the interest is
deductible at the partnership level. This inclusion will equal the amount of
the interest on the portion of the allocated partnership debt that exceeds the
permitted debt-to-equity ratio.
Tax Measures
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Example
Canco 1 and Canco 2 are Canadian-resident corporations and are equal
partners in a partnership that earns income from a business. Canco 1 is
wholly owned by Forco, a non-resident corporation. The Canco 1 shares
owned by Forco have paid-up capital of $4,000 but Canco 1 has no other
capital for the purposes of the thin capitalization rules. Forco lends $3,000
to the partnership and lends $8,500 directly to Canco 1.
Canco 1 has a 50-per-cent interest in the partnership and will therefore be
allocated 50 per cent of the partnership loan ($1,500) for thin capitalization
purposes. Canco 1 has capital of $4,000 and is considered to have
outstanding debts to a specified non-resident (Forco) of $10,000
($8,500 debt owed by Canco 1 to Forco plus $1,500 in debt allocated
from the partnership).
With a permitted debt-to-equity ratio of 1.5-to-1, Canco 1 has $4,000 of
total excess debt – that is, ($10,000 – 1.5 x $4,000)/10,000, or 2/5, of
$10,000. This 2/5 ratio is applied to interest on the debt owed directly to
Forco by Canco 1 as well as the debt allocated from the partnership to
determine how much interest is denied, or added back to income,
respectively. Accordingly, 2/5 of the interest deduction in respect of the
$8,500 direct loan from Forco will be denied and an amount equal to 2/5 of
the deductible interest expense in respect of the $1,500 debt allocated
from the partnership will be required to be included in computing the
income of Canco 1 from the partnership’s business.
This measure will apply in respect of debts of a partnership that are
outstanding during corporate taxation years that begin on or after Budget Day.
Disallowed Interest Treated as a Dividend
The Advisory Panel encouraged the Government to review the withholding
tax treatment of interest that is disallowed under the thin capitalization rules.
Interest expense of a corporation that is not deductible as a result of the
application of the thin capitalization rules is, for income computation
purposes under Part I of the Income Tax Act, treated the same as a non-
deductible return on equity (i.e., a dividend). It is nevertheless treated as
interest for withholding tax purposes under Part XIII of the Income Tax Act.
Consistent with the treatment of disallowed interest for income computation
purposes, Budget 2012 proposes to recharacterize disallowed interest
expense (including for this purpose any amount that is required to be
included in computing the income of a corporation in respect of an amount
deductible by a partnership of which the corporation is a member)
as a dividend for non-resident withholding tax purposes.
Annex 4
422
The calculations required for compliance with the thin capitalization rules are
required to be made after the end of a corporation’s taxation year. Under this
proposal, disallowed interest expense of a corporation for a taxation year will
be allocated to specified non-residents in proportion to the corporation’s
debt owing in the taxation year to all specified non-residents (taking into
account debts owing by partnerships of which the corporation is a member).
The corporation will be allowed to allocate the disallowed interest expense
to the latest interest payments made to any particular specified non-resident
in the taxation year. Where the disallowed interest expense has not been paid
by the end of the taxation year of the corporation, the disallowed interest
expense will be deemed to have been paid as a dividend by the corporation
at the end of that taxation year.
The relevant withholding tax will be due at the time that it would have been
due if the deemed dividend had been paid at the time the disallowed interest
expense was paid or deemed to have been paid. In circumstances where the
amount withheld exceeds the withholding tax payable, the non-resident
creditor will be able to obtain a refund of the excess.
This measure will apply to taxation years that end on or after Budget Day.
For taxation years that include Budget Day, the measure will apply to an
amount of disallowed interest expense that is based on a pro-ration for
the number of days in the taxation year that are on or after Budget Day.
Foreign Affiliate Loans
Under the existing definition of “outstanding debts to specified
non-residents” in subsection 18(5) of the Income Tax Act, the thin
capitalization rules can, in some circumstances, apply to loans made to
a Canadian-resident corporation from a controlled foreign affiliate of
the corporation.
The Canadian tax system also contains rules that protect the tax base by
preventing taxpayers from shifting passive income to low-tax jurisdictions.
Under these rules, foreign accrual property income (FAPI), which includes
certain interest income earned by controlled foreign affiliates of a taxpayer, is
taxable in the hands of the taxpayer on an accrual basis.
Tax Measures
Supplementary Information
423
The combination of these rules can result in double taxation where, for
example, a particular Canadian-resident corporation that is owned by a
widely held Canadian public company has borrowed money from its
controlled foreign affiliate. In these circumstances the particular corporation
may be prevented from deducting interest on the loan under the thin
capitalization rules while at the same time the interest is taxable in its hands
as FAPI.
Budget 2012 proposes to exclude interest expense of a Canadian-resident
corporation from the application of the thin capitalization rules to the extent
that a portion of that interest is taxable in the hands of the corporation in
respect of the FAPI of a controlled foreign affiliate of the corporation.
This measure will apply to taxation years, of Canadian-resident corporations,
that end on or after Budget Day.
Foreign Affiliate Dumping
The Government strongly supports cross-border trade and investment.
However, it is important to ensure that cross-border investment is not used
as a tool to erode the corporate tax base. The Advisory Panel on Canada’s
System of International Taxation (the Advisory Panel) identified certain types
of foreign affiliate “dumping” transactions as being abusive: such
transactions reduce the Canadian tax base without providing any significant
economic benefit to Canadians. The Advisory Panel recommended that a
targeted measure be introduced to curtail these transactions while ensuring
that bona fide business transactions are not affected.
Foreign affiliate dumping transactions often involve a Canadian subsidiary
using borrowed funds to acquire shares of a foreign affiliate from its foreign
parent corporation. These transactions are carried out in the expectation that
interest paid by the Canadian subsidiary on such borrowed money is
deductible in computing income for tax purposes while, at the same time,
most dividends received by the Canadian subsidiary on the shares of the
foreign affiliate are exempt from taxation, resulting in the erosion of the
Canadian corporate tax base. The thin capitalization rules, including the
amendments proposed in this Budget, do not provide adequate protection
against these transactions.
Annex 4
424
The Government also has concerns with variations of these transactions,
including, for example:
• acquisitions of shares of a foreign affiliate that are made with internal
funds of the Canadian subsidiary – such transactions provide a
mechanism for foreign parent corporations to extract earnings from their
Canadian subsidiaries free of Canadian dividend withholding tax;
• acquisitions of newly-issued shares of a foreign affiliate, whether financed
with internal or borrowed funds, where previously-issued shares of the
foreign affiliate are owned by the foreign parent or another non-resident
member of the same corporate group;
• acquisitions of foreign affiliate shares from a foreign subsidiary of the
foreign parent; and
• acquisitions of foreign affiliate shares from an arm’s length party at the
request of the foreign parent.
Although existing anti-avoidance rules in the Income Tax Act may apply in
some cases to foreign affiliate dumping transactions, immediate action is
being taken to discourage such transactions from being undertaken in
the future.
Consistent with the Advisory Panel’s recommendation, Budget 2012
proposes to implement a measure that will curtail foreign affiliate dumping
while at the same time preserving the ability of Canadian subsidiaries of
foreign parents to undertake legitimate expansions of their Canadian-based
businesses. This measure proposes that, where certain conditions are met, a
dividend will be deemed to be paid by a Canadian subsidiary to its foreign
parent to the extent of any non-share consideration given by the Canadian
subsidiary for the acquisition of the shares of a foreign affiliate. Any deemed
dividend will be subject to non-resident withholding tax, as reduced by any
applicable tax treaty. It further proposes to disregard the paid-up capital of
any shares of the Canadian subsidiary that are given as consideration. This
measure effectively extends an existing cross-border surplus stripping rule to
cover transactions involving foreign affiliates.
Tax Measures
Supplementary Information
425
This measure will not apply to transactions that meet a “business purpose”
test. The primary factors to consider in applying this test are non-tax factors
that will be set out in the Income Tax Act and explained further in the
accompanying explanatory notes. In general, the factors are intended to assist
in determining whether it is reasonable to conclude that the investment in,
and ownership of, the foreign affiliate belongs in the Canadian subsidiary
more than in any other entity in the foreign parent’s group. If it is reasonable
to so conclude, then this measure will not apply. The Government
recognizes that distinguishing between foreign affiliate dumping transactions
and transactions that are undertaken with a view to the legitimate expansion
of a Canadian-based business is not straightforward. Accordingly, to assist
with the finalization of the legislation to implement this measure, the
Government invites stakeholders to submit comments concerning the details
of the proposed “business purpose” test, as set out in the Notice of Ways
and Means Motion for this measure, before June 1, 2012.
This measure will apply to transactions that occur on or after Budget Day,
other than transactions that occur before 2013 between parties that deal at
arm’s length and that are obligated to complete the transaction pursuant to
the terms of an agreement in writing between the parties that is entered into
before Budget Day. A party will be considered not to be obligated to
complete a transaction if the party may be excused from completing the
transaction as a result of amendments to the Income Tax Act.
As indicated above, the Government’s intention is to curtail foreign affiliate
dumping. The Government will monitor developments in this area to
determine whether further action is warranted.
Base Erosion Rules – Canadian Banks
Budget 2012 proposes that amendments be made to the so-called “base
erosion” rules in the Income Tax Act’s foreign accrual property income regime.
Amendments will be developed to alleviate the tax cost to Canadian banks of
using excess liquidity of their foreign affiliates in their Canadian operations.
Amendments will also be developed to ensure that certain securities
transactions undertaken in the course of a bank’s business of facilitating
trades for arm’s length customers are not inappropriately caught by the base
erosion rules.
These amendments will be developed in conjunction with industry
representatives and will include appropriate safeguards to ensure the
Canadian tax base is adequately protected.
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426
Overseas Employment Tax Credit
Employees who are residents of Canada and who qualify for the Overseas
Employment Tax Credit (OETC) are entitled to a tax credit equal to the
federal income tax otherwise payable (calculated using the employee’s
average tax rate) on 80 per cent of their qualifying foreign employment
income, up to a maximum foreign employment income of $100,000.
The OETC is deductible in determining the employee’s tax payable.
Generally, the OETC is available where:
• the employee is employed outside Canada for a period of more than six
consecutive months by a person resident in Canada (or a foreign affiliate
of such a person); and
• the employee’s foreign employment income is derived from employment
in connection with the exploration for or exploitation of certain natural
resources, activities performed under a contract with the United Nations,
or construction, installation, engineering or agricultural activities.
The OETC was originally introduced in Budget 1979 (as a deduction in
computing income) as a targeted measure to maintain the competitiveness
of Canadian firms in certain sectors in bidding for overseas contracts. At the
time, the tax legislation of many of Canada’s foreign competitors provided
some degree of similar tax relief. The environment in which the OETC
operates has changed significantly since then. In particular, the Government
has implemented substantial, broad-based tax reductions that support
investment and growth in all sectors of the economy and most of Canada’s
foreign competitors (for example, the United States, United Kingdom and
France) do not have analogous tax preferences. In addition, recent court
decisions have expanded the application of the OETC beyond its
original intent.
Budget 2012 proposes to phase out the OETC over four taxation years,
beginning with the 2013 taxation year. During the phase-out period, the
factor (currently 80 per cent) applied to an employee’s qualifying foreign
employment income in determining the employee’s OETC will be reduced to
60 per cent for the 2013 taxation year, 40 per cent for the 2014 taxation year
and 20 per cent for the 2015 taxation year. The OETC will be eliminated for
the 2016 and subsequent taxation years.
Tax Measures
Supplementary Information
427
These phase-out rules will not apply with respect to qualifying foreign
employment income earned by an employee in connection with a project or
activity to which the employee’s employer had committed in writing before
Budget Day. For example, if an employer has tendered an irrevocable bid in
writing for a project before Budget Day, the employer will be considered to
have committed in writing to the project irrespective of whether the bid has
been accepted before Budget Day. In such instances, the factor applied to an
employee’s qualifying foreign employment income in determining the
employee’s OETC will remain at 80 per cent for the 2013, 2014 and 2015
taxation years. The OETC will be eliminated for the 2016 and subsequent
taxation years.
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SALES AND EXCISE TAX MEASURES
GST/HST Health Measures
Basic health care services are treated as exempt from the Goods and Services
Tax/Harmonized Sales Tax (GST/HST). Exempt treatment means that
suppliers of exempt health care services do not charge GST/HST to patients,
but they cannot claim input tax credits to recover the GST/HST paid on
inputs in relation to these supplies. In addition, certain medical devices,
prescription drugs and certain other drugs used to treat life-threatening
conditions are zero-rated. Zero-rating means that suppliers do not charge
purchasers GST/HST on these medical devices and drugs and are entitled to
claim input tax credits to recover the GST/HST paid on inputs in relation to
these supplies.
Budget 2012 proposes to improve the application of the GST/HST to a
number of health care services, drugs and medical devices to reflect the
evolving nature of the health care sector.
Pharmacists’ Services
Pharmacists’ professional practice has traditionally been limited to
performing the services of dispensing prescription drugs. To ensure that no
tax applies to prescription drugs, pharmacists’ drug dispensing services and
prescription drugs have both been zero-rated since the inception of the GST.
A number of provincial governments have recently expanded the health care
services that pharmacists are authorized to perform in the course of their
professional practice beyond those of dispensing drugs. Examples of non-
dispensing health care services that pharmacists are authorized to provide in
certain provinces include:
• ordering and interpreting lab tests (e.g., to determine if a medication is
creating an adverse reaction);
• administering medications and vaccinations (e.g., administering
flu vaccines);
• changing drug dosages; and
• prescribing drugs for minor ailments.
Tax Measures
Supplementary Information
429
Budget 2012 proposes to exempt from the GST/HST services rendered by
pharmacists within a pharmacist-patient relationship for the promotion of
the patient’s health or for the prevention or treatment of a disease, disorder
or dysfunction of the patient. The proposal will result in an exemption for
the non-dispensing health care services that pharmacists are authorized to
provide in the course of their professional practice. Pharmacists’ services of
dispensing prescription drugs will continue to be zero-rated.
Under the current rules, a prescribed list of diagnostic health care services,
such as blood tests, are exempt when ordered by certain health care
professionals, such as physicians or registered nurses. Budget 2012 proposes
to expand the exemption for these diagnostic services to include those
ordered by pharmacists when the pharmacists are authorized to issue such
orders under the laws of a province.
These measures will apply to supplies made after Budget Day.
Corrective Eyewear
Under the GST/HST, corrective eyewear that is supplied on the written
order of an eye care professional authorized by provincial law to prescribe
eyeglasses or contact lenses is zero-rated.
Under recent provincial law changes, opticians have been authorized in
certain circumstances to conduct vision assessments and produce records of
the assessment that authorize dispensing of corrective eyewear. Budget 2012
proposes to zero-rate corrective eyeglasses or contact lenses supplied under
the authority of an assessment record produced by a person who is entitled
under the laws of the province in which the person practices to produce the
record authorizing dispensing of corrective eyewear.
This measure will apply to supplies made after Budget Day and to supplies
made on or before that day if GST/HST was not charged, collected or
remitted in respect of the supply.
Medical and Assistive Devices
Medical and assistive devices that are specially-designed to assist an individual
in coping with a chronic disease or illness or a physical disability are zero-
rated under the GST/HST. The medical devices eligible for zero-rating are
listed in the GST/HST legislation.
Annex 4
430
Blood Coagulation Monitoring Devices
Included in the list of zero-rated medical and assistive devices are certain
monitoring or metering devices (e.g., blood-sugar monitoring or metering
devices and associated test strips and reagents that assist individuals in
determining their appropriate dosage of insulin).
Budget 2012 proposes to add blood coagulation monitoring or metering
devices and associated test strips and reagents to the zero-rated medical
device list. These devices are specially-designed for use by individuals
requiring blood coagulation monitoring or metering, for example to
determine appropriate levels of medications that alter their rate of blood
coagulation to prevent strokes caused by blood clots.
This measure will apply to supplies made after Budget Day.
Medical and Assistive Devices Supplied on Written Order
In the case of certain medical and assistive devices, the devices are eligible for
zero-rating only when supplied on the written order of a medical practitioner.
This requirement is intended to ensure that tax relief is specifically targeted
to individuals with a chronic disease or illness or a physical disability.
Registered nurses, occupational therapists and physiotherapists do not qualify
as medical practitioners for purposes of these rules. However, they are
increasingly involved in assessing when medical and assistive devices are
needed. Accordingly, Budget 2012 proposes to zero-rate supplies of the
devices, that currently qualify for zero-rating only when supplied on the
written order of a medical practitioner, when supplied on the written order of
a registered nurse, occupational therapist or physiotherapist as part of their
professional practice.
This measure will apply to supplies made after Budget Day.
Drugs
Under the GST/HST, prescription drugs and a list of non-prescription drugs
that are used to treat life-threatening diseases are zero-rated.
Budget 2012 proposes to add the drug “Isosorbide-5-mononitrate” to the list
of zero-rated non-prescription drugs. This drug is similar in chemical
composition and effect to the currently listed drug “Isosorbide dinitrate” and
both are used to treat congestive heart failure.
Tax Measures
Supplementary Information
431
This measure will apply to supplies made after Budget Day and to supplies
made on or before that day if GST/HST was not charged, collected or
remitted in respect of the supply.
GST Rebate for Books to be Given Away for Free by Prescribed
Literacy Organizations
To promote literacy, a rebate of the GST (and the federal portion of the
HST) is provided for printed books (including audio recordings of printed
books and printed versions of religious scriptures) acquired by public
libraries, educational institutions, as well as charities and qualifying non-profit
organizations prescribed by regulation and whose primary purpose is the
promotion of literacy. Currently, the rebate does not apply to tax paid on
printed books purchased to be sold or given away.
Budget 2012 proposes to allow charity and qualifying non-profit literacy
organizations prescribed by regulation to claim a rebate of the GST (and the
federal portion of the HST) they pay to acquire printed books to be given
away. This change will allow literacy organizations, if prescribed by
regulation, to claim a rebate of tax paid on printed books that are, for
example, purchased to be given to children from low income households
who might not otherwise be able to afford them. Information on the process
for charity and qualifying non-profit literacy organizations to apply to be
prescribed by regulation for this purpose is available from the Canada
Revenue Agency.
This measure will apply to acquisitions and importations of printed books in
respect of which tax becomes payable after Budget Day.
Doubling GST/HST Streamlined Accounting Thresholds
Most small businesses and most public service bodies (PSBs) can elect to use
the Quick or Special Quick Method of accounting respectively to determine
the amount of GST/HST to remit. These methods are intended to simplify
GST/HST compliance. Under these methods, taxpayers multiply eligible
GST/HST-included sales by a specified remittance rate and remit that
amount to the Canada Revenue Agency in lieu of tracking GST/HST paid
on purchases and GST/HST collected on sales. Generally, small businesses
may elect to use the Quick Method if their annual taxable sales (including
those of their associates) do not exceed $200,000 (GST/HST-included).
Under the Special Quick Method that PSBs can generally elect to use, no
sales threshold restriction applies.
Annex 4
432
Most small businesses and most small PSBs can also elect to use the
Streamlined Input Tax Credit Method, which provides a simplified process
for determining input tax credits (ITCs). The Streamlined Input Tax Credit
Method is generally available to a business or a PSB with annual taxable sales
(including the sales of associates) not exceeding $500,000 and annual taxable
purchases (excluding zero-rated purchases) not exceeding $2 million.
Under this method, rather than tracking the actual GST/HST paid on eligible
business purchases in order to determine the ITCs they can claim, businesses
(or PSBs) can calculate their ITCs based on a portion of their eligible total
business purchases subject to tax, including the amounts of GST, HST and
non-refundable provincial sales tax paid or payable (referred to as tax-
included business purchases). The portion, or tax factor, used to calculate
ITC entitlements is based on the tax rate applicable to the purchases. For
instance, where all purchases were subject to only the 5-per-cent GST, the
business (or PSB) would multiply the sum of their tax-included business
purchases by a “5/105” tax factor. The result of that calculation would be the
amount of ITCs the business (or PSB) can claim. For purchases made in
HST provinces, the current tax factors are: 12/112 for British Columbia,
13/113 for Ontario, New Brunswick and Newfoundland and Labrador, and
15/115 for Nova Scotia. As well, most PSBs that fall under the same
thresholds may use the Prescribed Method for Calculating Rebates, a similar
simplified method for calculating their PSB rebate entitlement.
To further simplify GST/HST compliance for small businesses and PSBs,
and in support of the objectives of the Red Tape Reduction Commission’s report
presented to the Government on January 18, 2012, Budget 2012 proposes to
double the existing streamlined accounting thresholds. Specifically:
• the annual taxable sales threshold at or below which eligible businesses
can elect to use the Quick Method will increase to $400,000 (from
$200,000) of GST/HST-included taxable sales; and
• the annual taxable sales and taxable purchases thresholds at or below
which eligible businesses or PSBs can elect to use the Streamlined Input
Tax Credit Method and eligible PSBs can elect to use the Prescribed
Method for Calculating Rebates will increase:
? to $1,000,000 (from $500,000) of taxable sales, and
? to $4,000,000 (from $2,000,000) of taxable purchases.
This measure will be effective in respect of a GST/HST reporting period of
a person (or a claim period of a person, in the case of the Prescribed Method
for Calculating Rebates) beginning after 2012.
Tax Measures
Supplementary Information
433
Tax Relief for Foreign-Based Rental Vehicles Temporarily
Imported by Canadian Residents
Currently, rental vehicles that are registered in another country (foreign-
based rental vehicles) and temporarily imported by Canadian residents are
generally subject to full taxes at the border (i.e., the GST on the full value of
the vehicle, the Green Levy and the automobile air conditioner tax apply).
Such importations were, until recently, also prohibited under federal vehicle
safety rules unless it could be shown that the vehicle in question satisfied all
Canadian standards. Generally, no taxes or similar restrictions apply to
foreign-based rental vehicles temporarily imported by foreign residents
visiting Canada.
As part of the Federal Tourism Strategy, the Government committed to
review existing restrictions that make it difficult for Canadian residents to
drive foreign-based rental vehicles into Canada and consider how
these restrictions can be eased. Federal vehicle safety rules were amended
in Bill C-13, Keeping Canada’s Economy and Jobs Growing Act, which came into
force on December 15, 2011, to generally enable the temporary importation
of these rental vehicles for a period not exceeding 30 days.
Following a review of existing tax provisions, Budget 2012 proposes changes
to the tax treatment of rental vehicles temporarily imported by Canadian
residents. Specifically, Budget 2012 proposes to:
• fully relieve GST/HST on foreign-based rental vehicles temporarily
imported by Canadian residents who have been outside Canada for at
least 48 hours;
• levy GST/HST on a partial basis, as described below, on foreign-based
rental vehicles temporarily imported by Canadian residents who have not
been outside Canada for at least 48 hours; and
• fully relieve the Green Levy and the automobile air conditioner tax on all
foreign-based rental vehicles temporarily imported by Canadian residents.
In the case of a Canadian resident who has been outside Canada for less than
48 hours and who temporarily imports a foreign-based rental vehicle, the
GST/HST will be levied on fixed monetary values, intended to approximate
the average cost of a weekly rental of the same type of vehicle in Canada, for
each week or part of a week that the vehicle is in Canada. These weekly fixed
monetary values will be set out in regulations and will generally be as follows:
• $200 for cars;
• $300 for pickup trucks, sport utility vehicles and vans; and
Annex 4
434
• $1,000 for recreational vehicles, such as motor homes.
Where GST/HST applies on these rental vehicles, the GST/HST rate
applicable will be that of the province where the vehicle enters Canada. For
example, travellers who enter Canada at Windsor, Ontario would pay the
Ontario HST rate of 13 per cent at the time of entry.
This reduced tax treatment will apply only to foreign-based rental vehicles
temporarily imported for a period not exceeding 30 days, which is consistent
with the revised federal vehicle safety rules that now permit the temporary
importation of these vehicles for a period not exceeding 30 days.
This measure will apply to foreign-based rental vehicles temporarily imported
by Canadian residents on or after June 1, 2012.
Consistent Application of the Green Levy on
Fuel-Inefficient Vehicles
The Green Levy applies on certain fuel-inefficient vehicles, in accordance
with the vehicle’s fuel efficiency rating. The Green Levy applies to
automobiles that have a weighted average (i.e., 55 per cent city/45 per cent
highway) fuel consumption rating of 13 or more litres per 100 kilometres, as
determined in accordance with information published by the Government of
Canada under the EnerGuide mark.
On February 17, 2012, the Minister of Natural Resources announced that
Canada will change the vehicle fuel consumption testing requirements to
better align with those in the United States.
To ensure that this change does not affect the application of the Green Levy,
Budget 2012 proposes that the Excise Tax Act be amended so that the
weighted average fuel consumption rating for the purposes of the Green
Levy continues to be determined by reference to the current test method.
The necessary legislative amendments will apply on Royal Assent to the
enacting legislation.
Tax Measures
Supplementary Information
435
OTHER TAX MEASURES
Gifts to Foreign Charitable Organizations
In general, donations made by Canadians to foreign charities are not eligible
for the Charitable Donations Tax Credit or Deduction. However, a foreign
charitable organization that receives a gift from the Government of Canada
may register as a qualified donee under the Income Tax Act. As a qualified
donee, a foreign charitable organization may issue an official donation receipt
for a gift received from a Canadian donor, entitling the donor to a credit or
deduction in computing Canadian income or tax. A Canadian registered
charity may also make a gift to a foreign charitable organization that is a
qualified donee.
Budget 2012 proposes to modify the rules for registering certain foreign
charitable organizations as qualified donees. Foreign charitable organizations
that receive a gift from the Government may apply for qualified donee status
if they pursue activities:
• related to disaster relief or urgent humanitarian aid; or
• in the national interest of Canada.
After consultation with the Minister of Finance, the Minister of National
Revenue will have the discretionary power to grant qualified donee status to a
foreign charitable organization that meets these criteria. Qualified donee
status will be made public, and will be granted for a 24-month period that
begins on the date chosen by the Minister of National Revenue, which
normally would be no later than the date of the gift from the Government.
Granting qualified donee status in these situations will ensure that Canadians
receive tax relief for donations made to approved foreign charitable
organizations that carry out activities of significance to, and in the interest of,
the Canadian public. The Canada Revenue Agency will develop guidance
regarding the administration of this measure.
Foreign charitable organizations that have received qualified donee status
under the existing rules will continue to be qualified donees until the
expiration of the period of their current status.
This measure will apply to applications made by foreign charitable
organizations on or after the later of January 1, 2013 and Royal Assent to
the enacting legislation.
Annex 4
436
Charities – Enhancing Transparency and Accountability
Under the Income Tax Act, registered charities are required to operate
exclusively for charitable purposes and to devote their resources exclusively
to charitable activities. Charitable purposes include the relief of poverty, the
advancement of education or religion and certain other purposes as
recognized by the courts.
A charity is, however, allowed to engage in political activity as long as the
activities represent a limited portion of its resources, are non-partisan and
are ancillary and incidental to its charitable purposes and activities.
Concerns have been raised that some charities may be exceeding these
limitations and that there is currently no requirement for a charity to
disclose the extent to which it receives funding from foreign sources for
political activities.
To support the administrative measures proposed in this Budget to enhance
compliance and increase disclosure by charities regarding political activities,
Budget 2012 also proposes to provide additional enforcement tools to the
Canada Revenue Agency (CRA). These measures will also apply to registered
Canadian amateur athletic associations.
These measures will apply on Royal Assent to the enacting legislation.
Intermediate Sanctions
Where a charity does not comply with its obligations under the
Income Tax Act, the CRA generally takes a graduated approach to addressing
non-compliance. First, the CRA works with the charity and provides it with
an opportunity to comply voluntarily. If compliance issues become more
serious, the CRA may apply intermediate sanctions, such as monetary
penalties or a one-year suspension of the charity’s tax-receipting privileges.
The CRA may also revoke the registration of a charity. Intermediate
sanctions are not, however, currently available in the context of
political activities.
Tax Measures
Supplementary Information
437
Budget 2012 proposes to grant to the CRA the authority to suspend for one
year the tax-receipting privileges of a charity that exceeds the limitations on
political activities. Further, to ensure that charities are accurately reporting in
respect of all the activities in which they engage, the CRA will be granted the
authority to suspend the tax-receipting privileges of a charity that provides
inaccurate or incomplete information in its annual information return until
the charity provides the required information.
Funding of Political Activities
Where a charity makes a gift to another qualified donee, the Income Tax Act
currently treats the amount of the gift to have been devoted to its charitable
purposes and activities, even if the gift is earmarked for political activities.
This treatment allows a charity to indirectly pursue political activities beyond
what would be permitted if it engaged in those activities directly.
Budget 2012 proposes that, where a gift is made by a charity and it can
reasonably be considered that a purpose of the gift is to support the political
activities of a qualified donee, the gift will be considered to be an expenditure
made by the charity on political activities.
Tax Shelter Administrative Changes
The registration of tax shelters and the reporting requirements imposed on
tax shelter promoters are important tools that assist the Canada Revenue
Agency (CRA) in identifying, investigating and challenging abusive tax
planning arrangements. Budget 2012 proposes to encourage tax shelter
registration and reporting by:
• modifying the calculation of the penalty applicable to a promoter when
a person participates in an unregistered charitable donation tax shelter;
• introducing a new penalty for a promoter who fails to meet their
reporting obligations with respect to annual information returns; and
• limiting the period for which a tax shelter identification number is valid
to one calendar year.
Charitable Donation Tax Shelters
The Income Tax Act imposes a penalty on any person (normally the tax shelter
promoter) who sells an interest in, or accepts consideration in respect of, a
tax shelter that is not registered with the CRA, or who files false information
in an application to register a tax shelter. Where this penalty applies, a
participant in the tax shelter cannot make any related claim or deduction until
the tax shelter is registered and the penalty is paid.
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438
Currently, the penalty is the greater of $500 and 25 per cent of the
consideration received or receivable in respect of the tax shelter. For
example, if a participant were to pay $12,000 to acquire from a promoter a
property that is an unregistered tax shelter, the penalty to the promoter
would equal $3,000. This penalty is intended to encourage compliance by
making a promoter liable for a significant proportion of the tax savings that
the promoter asserts are available to participants in the tax shelter.
In the context of some charitable donation tax shelters, the cost to
participants of the property acquired is relatively small in relation to the tax
savings that the promoter asserts are available to participants. In these cases,
the penalty may be less effective in encouraging compliance by the promoter.
Budget 2012 therefore proposes that, in the case of a charitable donation
tax shelter, this penalty be the greater of the amount determined under
the existing rules and 25 per cent of the amount asserted by the promoter
to be the value of property that participants in the tax shelter can transfer
to a donee.
This measure will generally apply on Royal Assent to the enacting legislation.
Unreported Tax Shelter Sales
A promoter who accepts consideration, or acts as a principal or agent, in
respect of a tax shelter is required to file an annual information return, which
must include the amount paid by each participant who has acquired an
interest in the tax shelter. The penalty for not filing this return on time is the
greater of $100 and $25 multiplied by the number of days that the return is
outstanding, to a maximum of $2,500. Since one of the primary purposes of
the tax shelter registration system is to provide timely and accurate
information regarding tax shelters to the CRA, there is a need for a stronger
incentive for promoters to provide the required information.
Budget 2012 proposes that an additional penalty be imposed if a promoter
fails to either:
• file an annual information return in response to a demand by the CRA
to file the return; or
• report in the return an amount paid by a participant in respect of the
tax shelter.
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The new penalty will equal 25 per cent of the consideration received or
receivable by a promoter in respect of all interests in the tax shelter that
should have been, but were not, reported in an annual information return, or,
in the case of a charitable donation tax shelter for which amounts paid by the
participants are not reported, the greater of 25 per cent of the consideration
received or receivable by the promoter and the amount asserted by the
promoter to be the value of the property that those participants can transfer
to a donee.
This measure will apply:
• in the case of the failure to file an annual information return, to
demands to file made by the CRA after Royal Assent to the enacting
legislation; and
• in the case of the failure to report in an annual information return an
amount paid by a participant, to returns filed after Royal Assent to the
enacting legislation.
Tax Shelter Identification Numbers
A tax shelter identification number does not have an expiration date,
meaning that a promoter may market for an indefinite period a tax shelter for
which an identification number has been issued. As a result, when an annual
information return in respect of a tax shelter has not been filed, the CRA
may need to allocate resources to determine whether the return has not been
filed because the promoter is not complying with their filing obligations, or
because no interests in the tax shelter were sold in the year.
Budget 2012 proposes that a tax shelter identification number be valid only
for the calendar year identified in the application for the number filed with
the CRA.
This measure will apply to applications made on or after Budget Day. Tax
shelter identification numbers issued as a result of applications made before
Budget Day will be valid until the end of 2013.
Aboriginal Tax Policy
Taxation is an integral part of good governance as it promotes greater
accountability and self-sufficiency and provides revenues for important
public services and investments. Therefore, the Government of Canada
supports initiatives that encourage the exercise of direct taxation powers
by Aboriginal governments.
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To date, the Government of Canada has entered into 33 sales tax
arrangements under which Indian Act bands and self-governing Aboriginal
groups levy a sales tax within their reserves or their settlement lands. In
addition, 12 arrangements respecting personal income taxes are in effect with
self-governing Aboriginal groups under which they impose a personal
income tax on all residents within their settlement lands. The Government
reiterates its willingness to discuss and put into effect direct taxation
arrangements with interested Aboriginal governments.
The Government of Canada also supports direct taxation arrangements
between interested provinces or territories and Aboriginal governments and
has enacted legislation to facilitate such arrangements.
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CUSTOMS TARIFF MEASURES
Trade Measures to Support the Energy Industry
Budget 2012 proposes tariff relief to support the energy industry. In keeping
with the Government’s commitment to make Canada a tariff-free zone for
industrial manufacturers, Budget 2012 will eliminate the 5 percent Most-
Favoured-Nation (MFN) rate of duty on certain imported oils used as
production inputs in gas and oil refining as well as electricity production.
Eliminating these duties will improve the competitiveness of certain
manufacturers of goods such as gasoline, diesel, electricity and jet fuel.
This tariff elimination will be given effect by amendments to the
Customs Tariff and will be effective in respect of goods imported on or after
March 30, 2012.
Travellers’ Exemptions
Under existing provisions in the Customs Tariff, Canadian travellers may
qualify for an exemption which allows returning residents to bring back
goods valued up to a specified dollar limit without having to pay duties or
taxes, including customs duty, GST/HST and federal excise levies. Further,
the provinces generally provide a matching exemption from provincial sales
and product taxes.
Budget 2012 proposes to increase the travellers’ exemption to $200 from $50
for returning Canadian residents who are out of the country for 24 hours or
more. Budget 2012 similarly proposes to increase exemption levels for
travellers who are out of the country for 48 hours or more to $800. This new
threshold will replace the current 48-hour exemption of $400 and the current
7-day exemption of $750.
There will continue to be no duty or tax exemptions for absences of less than
24 hours. Volume and quantity limits on alcohol and tobacco products also
remain unchanged.
The new exemption levels, to be given effect by amendments to the Customs
Tariff, will be effective in respect of travellers returning to Canada on or after
June 1, 2012.
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PREVIOUSLY ANNOUNCED MEASURES
Budget 2012 confirms the Government’s intention to proceed with the
following previously announced tax and related measures, as modified to
take into account consultations and deliberations since their release:
• Legislative proposals released on July 16, 2010 relating to income tax
technical and bijuralism amendments;
• Legislative proposals released on August 27, 2010 (including measures
announced in the March 4, 2010 Budget and those relating to
foreign affiliates);
• Legislative proposals released on November 5, 2010 relating to income
tax technical amendments;
• Legislative proposals released on December 16, 2010 relating to real
estate investment trusts;
• Proposed changes to certain GST/HST rules relating to financial
institutions released on January 28, 2011;
• Legislative proposals released on March 16, 2011 relating to the
deductibility of contingent amounts, withholding tax on interest paid
to certain non-residents, and the tax treatment of certain life insurance
corporation reserves;
• Measures announced on July 20, 2011 relating to specified investment
flow-through entities, real estate investment trusts and publicly
traded corporations;
• Legislative proposals released on August 19, 2011 relating to
foreign affiliates;
• Legislative proposals released on October 31, 2011 relating to income tax
and sales and excise tax technical amendments;
• Measures announced on November 10, 2011 relating to improving the
caseload management of the Tax Court of Canada;
• Income tax and GST/HST amendments to accommodate the
introduction of Pooled Registered Pension Plans (including legislative
proposals released on December 14, 2011);
• Automobile expense amounts for 2012 announced on
December 29, 2011; and
• Measures announced on February 17, 2012 relating to transitional rules
for the elimination of the Harmonized Sales Tax in British Columbia.
Budget 2012 also reaffirms the Government’s commitment to move
forward as required with technical amendments to improve the operation
of the tax system.
Tax Measures:
Notces of Ways and
Means Motons
Chapter 1
Introducton
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NOTICE OF WAYS AND MEANS MOTION
TO AMEND THE INCOME TAX ACT
That it is expedient to amend the Income Tax Act to provide among
other things:
Registered Disability Savings Plans
(1) That the provisions of the Act relating to registered disability savings
plans be modified in accordance with the proposals described in the budget
documents tabled by the Minister of Finance in the House of Commons on
Budget Day.
Mineral Exploration Tax Credit for Flow-Through Share Investors
(2) That, for expenses renounced under a flow-through share agreement
entered into after March 2012,
(a) paragraph (a) of the definition “flow-through mining expenditure”
in subsection 127(9) of the Act be replaced with the following:
(a) that is a Canadian exploration expense incurred by a corporation
after March 2012 and before 2014 (including, for greater certainty, an
expense that is deemed by subsection 66(12.66) to be incurred before
2014) in conducting mining exploration activity from or above the
surface of the earth for the purpose of determining the existence,
location, extent or quality of a mineral resource described in
paragraph (a) or (d) of the definition “mineral resource” in
subsection 248(1),
and
(b) paragraphs (c) and (d) of the definition “flow-through mining
expenditure” in subsection 127(9) of the Act be replaced with
the following:
(c) an amount in respect of which is renounced in accordance with
subsection 66(12.6) by the corporation to the taxpayer (or a
partnership of which the taxpayer is a member) under an agreement
described in that subsection and made after March 2012 and before
April 2013, and
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(d) that is not an expense that was renounced under
subsection 66(12.6) to the corporation (or a partnership of which
the corporation is a member), unless that renunciation was under
an agreement described in that subsection and made after
March 2012 and before April 2013.
Eligible Dividends – Split-Dividend Designation and Late Designation
(3) That, for dividends paid on or after Budget Day, the Act be amended by
(a) replacing paragraph (a) of the definition “eligible dividend” in
subsection 89(1) with the following:
(a) the amount that is equal to the portion of a taxable dividend
that is received by a person resident in Canada, paid after 2005 by
a corporation resident in Canada and designated, as provided under
subsection (14), to be an eligible dividend, and
(b) replacing subsection 89(14) with the following:
Dividend designation
(14) A corporation designates a particular portion of a dividend it
pays at any time to be an eligible dividend by notifying in writing at
that time each person or partnership to whom it pays all or any part
of the dividend that the particular portion of the dividend is an
eligible dividend.
and
(c) adding the following after subsection 89(14):
Late designation
(14.1) Where, in the opinion of the Minister, the circumstances of a
case are such that it would be just and equitable to permit a
designation under subsection (14) to be made before the day that is
three years after the day on which the designation was required to be
made under that subsection, the designation is deemed to have been
made on the day the designation was required to be made.
Group Sickness or Accident Insurance Plans
(4) That, for the 2013 taxation year, subsection 6(1) of the Act be amended
by adding the following after paragraph (e):
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(e.1) the total of
(i) all amounts (or the portions of those amounts) contributed by the
taxpayer’s employer on or after Budget Day and before 2013 that are
attributable to the taxpayer’s coverage after 2012 under a group
sickness or accident insurance plan, except to the extent that the
contributions (or portions of those contributions) are attributable to
benefits under the plan that, if received by the taxpayer, would be
included in the taxpayer’s income under paragraph (f) in the year the
benefits are received if that paragraph were read without regard to its
subparagraph (v), and
(ii) all amounts contributed in 2013 in respect of the taxpayer by the
taxpayer’s employer to a group sickness or accident insurance plan,
except to the extent that the contributions are attributable to benefits
under the plan that, if received by the taxpayer, would be included in
the taxpayer’s income under paragraph (f) in the year the benefits are
received if that paragraph were read without regard to its
subparagraph (v).
(5) That, for the 2014 and subsequent taxation years, paragraph 6(1)(e.1) of
the Act be replaced with the following:
(e.1) the total of all amounts contributed in the year in respect of the
taxpayer by the taxpayer’s employer to a group sickness or accident
insurance plan, except to the extent that the contributions are
attributable to benefits under the plan that, if received by the taxpayer,
would be included in the taxpayer’s income under paragraph (f) in the
year the benefits are received if that paragraph were read without regard
to its subparagraph (v).
Retirement Compensation Arrangements
(6) That, in respect of retirement compensation arrangements, the Act be
amended by adding
(a) definitions “advantage”, “prohibited investment”, “significant
interest” and “swap transaction”, similar to the existing definitions
in Part XI.01 of the Act, with such modifications as the
circumstances require;
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(b) a definition “RCA strip”, similar to the existing definition “RRSP
strip” in Part XI.01 of the Act, with such modifications as the
circumstances require; and
(c) a definition “specified beneficiary” that refers to an individual who
has an interest or right in respect of a retirement compensation
arrangement and who has a significant interest in an employer in respect
of the arrangement.
(7) That the Act be amended to require a custodian of a retirement
compensation arrangement to pay a tax equal to 50 per cent of the fair
market value of a prohibited investment acquired or held by the arrangement,
similar to the existing tax in section 207.04 of the Act, with such
modifications as the circumstances require.
(8) That the Act be amended to require a custodian of a retirement
compensation arrangement to pay a tax equal to the fair market value of any
advantage obtained by a specified beneficiary of the arrangement or a person
who does not deal at arm’s length with the specified beneficiary, similar to
the existing tax in section 207.05 of the Act, with such modifications as the
circumstances require.
(9) That the Act be amended to provide that a specified beneficiary of a
retirement compensation arrangement that participates in acquiring or
holding a prohibited investment, or in extending an advantage, in respect of
the arrangement be jointly and severally, or solidarily, liable, to the extent of
their participation, for the tax payable in relation to the prohibited
investment or the advantage.
(10) That,
(a) subject to subparagraphs (b) and (c), paragraphs (6) and (9) apply on
and after Budget Day;
(b) paragraph (7) apply in respect of investments acquired, or that
become prohibited investments, on or after Budget Day; and
(c) paragraph (8) apply to advantages extended, received or receivable on
or after Budget Day, other than an advantage that relates to property
acquired, or transactions occurring, before Budget Day
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(i) if the advantage is obtained by a specified beneficiary of the
retirement compensation arrangement (or a person who does not
deal at arm’s length with the specified beneficiary) and the amount of
the advantage is included in computing the income of the specified
beneficiary, or
(ii) if the advantage is obtained by a retirement compensation
arrangement and the amount of the advantage is distributed from the
arrangement and included in computing the income of a beneficiary
or an employer in respect of the arrangement.
(11) That, in respect of refundable tax on contributions made to a retirement
compensation arrangement on or after Budget Day, section 207.5 of the Act
be amended so that the election in subsection 207.5(2) is available only in
circumstances where
(a) a decline in value of property of the retirement compensation
arrangement is not reasonably attributable to a prohibited investment or
an advantage, or
(b) the Minister of National Revenue is satisfied that it is just and
equitable to accept the election having regard to all the circumstances
(including the extent to which tax has been paid under another
provision of the Act).
Employees Profit Sharing Plans
(12) That, for the 2012 and subsequent taxation years, subsection 8(1) of the
Act be amended by adding the following after paragraph (o.1):
(o.2) an amount that is an excess EPSP amount (as defined in subsection
207.8(1)) of the taxpayer for the year, except to the extent that the
taxpayer’s tax for the year under subsection 207.8(2) in respect of the
excess EPSP amount is waived or cancelled.
(13) That, in respect of payments made on or after Budget Day to a trust
governed by an employees profit sharing plan, the Act be amended by adding
the following after Part XI.3:
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Part XI.4 – Tax on Excess EPSP Amounts
Excess EPSP amount
207.8(1) In this Part, “excess EPSP amount”, of a specified employee
for a taxation year in respect of an employer, means the amount
determined by the formula
A – (20% x B)
where
A is the portion of the total of all amounts paid by the employer of the
specified employee (or by a corporation with which the employer
does not deal at arm’s length) to a trust governed by an employees
profit sharing plan that is allocated for the year to the specified
employee; and
B is the specified employee’s total income for the year from
employment with the employer computed without reference to
paragraph 6(1)(d) and sections 7 and 8.
Tax payable
(2) If a specified employee has an excess EPSP amount for a taxation
year, the specified employee shall pay, for the year, a tax equal to the
amount determined by the formula
(A+B) x C
where
A is 29%;
B is
(i) if the specified employee is resident in the Province of Quebec at
the end of the year, 0%,
(ii) if the specified employee is resident in a province other than
Quebec at the end of the year, the highest provincial personal income
tax rate that applies for the year to a resident of the province, or
(iii) in any other case, 14%; and
C is the total of all excess EPSP amounts of the specified employee for
the year.
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Waiver or cancellation
(3) If a specified employee would otherwise be liable to pay a tax under
subsection (2), the Minister may waive or cancel all or part of the liability
if the Minister considers it just and equitable to do so having regard to
all the circumstances.
(14) That paragraphs (12) and (13) not apply in respect of payments made
before 2013 to a trust governed by an employees profit sharing plan pursuant
to a legal obligation arising under a written agreement or arrangement
entered into before Budget Day.
Salary of the Governor General of Canada
(15) That, for the 2013 and subsequent taxation years, paragraph 81(1)
ofthe Act be replaced with the following:
income from the office of Governor General of Canada, other thansalary under the Governor General’s Act.
Life Insurance Policy Exemption Test
(16) That the provisions of the Act, and the Income Tax Regulations, with
respect to life insurance policies be modified in accordance with the
proposals related to the life insurance policy exemption test described in the
budget documents tabled by the Minister of Finance in the House of
Commons on Budget Day.
Corporate Mineral Exploration and Development Tax Credit
(17) That, for expenditures incurred on or after Budget Day,
subsection 127(9) of the Act be amended by
(a) replacing paragraph (a.3) of the definition “investment tax credit”
with the following:
(a.3) where the taxpayer is a taxable Canadian corporation, the
total of
(i) the specified percentage of the taxpayer’s pre-production
mining expenditure described in subparagraph (a)(i) of the
definition “pre-production mining expenditure”, and
(ii) the specified percentage of the taxpayer’s pre-production
mining expenditure described in subparagraph (a)(ii) of the
definition “pre-production mining expenditure”,
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(b) replacing paragraph (a) of the definition “pre-production mining
expenditure” with the following:
(a) would be an expense
(i) described in paragraph (f) of the definition “Canadian
exploration expense” in subsection 66.1(6) if the expression
“mineral resource” in that paragraph were defined to mean a
mineral deposit from which the principal mineral to be extracted
is diamond, a base or precious metal deposit, or a mineral
deposit from which the principal mineral to be extracted is an
industrial mineral that, when refined, results in a base or precious
metal, or
(ii) described in paragraph (g), and not described in paragraph (f),
of the definition “Canadian exploration expense” in
subsection 66.1(6) if the expression “mineral resource” in that
paragraph were defined to mean a mineral deposit from which
the principal mineral to be extracted is diamond, a base or
precious metal deposit, or a mineral deposit from which the
principal mineral to be extracted is an industrial mineral that,
when refined, results in a base or precious metal, and
and
(c) deleting “and” at the end of paragraph (i) and by replacing
paragraph (j) of the definition “specified percentage” with the following:
(j) in respect of a pre-production mining expenditure of the taxpayer
described in subparagraph (a)(i) of the definition “pre-production
mining expenditure” that is incurred
(i) before 2013, 10%,
(ii) in 2013, 5%, and
(iii) after 2013, 0%, and
(k) in respect of a pre-production mining expenditure of the taxpayer
described in subparagraph (a)(ii) of the definition “pre-production
mining expenditure” that is incurred
(i) before 2014, 10%,
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(ii) after 2013 and before 2016, 10% if the expenditure
is incurred
(A) under a written agreement entered into by the taxpayer
before Budget Day, or
(B) as part of the development of a new mine and
(I) the construction of the mine was started by, or on
behalf of, the taxpayer before Budget Day (and for this
purpose construction does not include obtaining permits
or regulatory approvals, conducting environmental
assessments, community consultations or impact benefit
studies, and similar activities), or
(II) the engineering and design work for the construction
of the mine, as evidenced in writing, was started by, or on
behalf of, the taxpayer before Budget Day (and for this
purpose engineering and design work does not include
obtaining permits or regulatory approvals, conducting
environmental assessments, community consultations or
impact benefit studies, and similar activities), and
(iii) in any other case,
(A) in 2014, 7%,
(B) in 2015, 4%, and
(C) after 2015, 0%.
Atlantic Investment Tax Credit – Oil and Gas and Mining Activities
(18) That, in respect of property acquired on or after Budget Day,
subsection 127(9) of the Act be amended by
(a) replacing the portion of the definition “qualified property” before
paragraph (a) with the following:
“qualified property”, of a taxpayer, means property (other than a
qualified resource property) that is
(b) replacing subparagraphs (c)(iv) to (xiii) of the definition “qualified
property” with the following:
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(iv) storing grain, or
(v) harvesting peat,
(c) replacing the reference to “subparagraphs (c)(i) to (xiii)” in
paragraph (d) of the definition “qualified property” with
“subparagraphs (c)(i) to (v)”,
(d) adding the following after paragraph (a) of the definition
“specified percentage”:
(a.1) in respect of a qualified resource property acquired by a taxpayer
primarily for use in the Province of Nova Scotia, New Brunswick,
Prince Edward Island or Newfoundland and Labrador, the Gaspé
Peninsula or the prescribed offshore region and that is acquired
(i) on or after Budget Day and before 2014, 10%,
(ii) after 2013 and before 2017, 10% if the property
(A) is acquired by the taxpayer under a written agreement
of purchase and sale entered into by the taxpayer before
Budget Day, or
(B) is acquired as part of a project phase and
(I) the construction of the phase was started by, or on
behalf of, the taxpayer before Budget Day (and for this
purpose construction does not include obtaining permits
or regulatory approvals, conducting environmental
assessments, community consultations or impact benefit
studies, and similar activities), or
(II) the engineering and design work for the construction
of the phase, as evidenced in writing, was started by, or on
behalf of, the taxpayer before Budget Day (and for this
purpose engineering and design work does not include
obtaining permits or regulatory approvals, conducting
environmental assessments, community consultations or
impact benefit studies, and similar activities), and
(iii) in any other case,
(A) in 2014 and 2015, 5%, and
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(B) after 2015, 0%,
and
(e) adding the following definitions in alphabetical order:
“project phase” means a phase of a project of a taxpayer that is
a discrete expansion in the extraction, processing or production
capacity of the project beyond a capacity level that was attained
before Budget Day and which expansion in capacity was the
taxpayer’s demonstrated intention immediately before Budget Day;
“qualified resource property”, of a taxpayer, means property that is a
prescribed building or prescribed machinery and equipment, that is
acquired by the taxpayer on or after Budget Day, that has not been
used, or acquired for use or lease, for any purpose whatever before it
was acquired by the taxpayer and that is
(a) to be used by the taxpayer in Canada primarily for the
purpose of any of the activities referred to in
subparagraphs (c)(iv) to (xi) of the definition “qualified property”
as that definition read immediately before Budget Day, or
(b) to be leased by the taxpayer to a lessee (other than a person
exempt from tax under this Part because of section 149) that can
reasonably be expected to use the property in Canada primarily
for the purpose of any of the activities referred to in
subparagraphs (c)(iv) to (xi) of the definition “qualified property”
as that definition read immediately before Budget Day, but this
paragraph does not apply to prescribed machinery and
equipment unless use of the property by the first person to
whom it was leased begins on or after Budget Day and
(i) the property is leased in the ordinary course of carrying on
a business in Canada by a corporation whose principal
business is leasing property, lending money, purchasing
conditional sales contracts, accounts receivable, bills of sale,
chattel mortgages or hypothecary claims on movables, bills of
exchange or other obligations representing all or part of the
sale price of merchandise or services, or any combination of
these activities,
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(ii) the property is manufactured and leased in the ordinary
course of carrying on a business in Canada by a corporation
whose principal business is manufacturing property that it
sells or leases, or
(iii) the property is leased in the ordinary course of carrying
on business in Canada by a corporation whose principal
business is selling or servicing property of that type.
Atlantic Investment Tax Credit – Electricity Generation Equipment
(19) That, in respect of property acquired on or after Budget Day,
(a) the definition “qualified property” in subsection 127(9) of the Act be
amended by
(i) deleting “or” at the end of paragraph (a), by adding “or” at the end
of paragraph (b) and by adding the following after paragraph (b):
(b.1) prescribed energy generation and conservation property
acquired by the taxpayer on or after Budget Day,
and
(ii) replacing the portion of paragraph (c.1) before subparagraph (i)
with the following:
(c.1) property (other than prescribed energy generation and
conservation property) to be used by the taxpayer in Canada
primarily for the purpose of producing or processing electrical
energy or steam in a prescribed area, where
and
(b) that for the purposes of the definition “qualified property” in
subsection 127(9) of the Act, prescribed energy generation and
conservation property be depreciable property (other than property that
is a prescribed building or prescribed machinery and equipment) of the
taxpayer included in Class 43.1, 43.2 or 48 or in Class 17 because of
subparagraph (a.1)(i) of that Class, of Schedule II to the
Income Tax Regulations.
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Scientific Research and Experimental Development Program
(20) That,
(a) for taxation years that end after 2013, the reference to “20%” in
paragraph (a.1) of the definition “investment tax credit” in
subsection 127(9) of the Act be replaced with “15%”, except that for
taxation years that include January 1, 2014, it shall be read as a reference
to the percentage that is the total of
(i) 20% multiplied by the proportion that the number of days that are
in the taxation year and before 2014 is of the number of days in the
taxation year, and
(ii) 15% multiplied by the proportion that the number of days that
are in the taxation year and after 2013 is of the number of days in the
taxation year;
(b) for taxation years that end after 2013, the reference to “15%” in
subsection 127(10.1) of the Act be replaced with “20%”, except that for
taxation years that include January 1, 2014, it shall be read as a reference
to the percentage that is the total of
(i) 15% multiplied by the proportion that the number of days that are
in the taxation year and before 2014 is of the number of days in the
taxation year, and
(ii) 20% multiplied by the proportion that the number of days that
are in the taxation year and after 2013 is of the number of days in the
taxation year;
(c) for expenditures incurred after 2012, subparagraph (a)(ii) of the
definition “qualified expenditure” in subsection 127(9) of the Act be
amended to include only 80% of an expenditure that
(i) would otherwise be included under that subparagraph,
(ii) is for scientific research and experimental development performed
for or on behalf of the taxpayer by another person or partnership
with whom the taxpayer deals at arm’s length, and
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(iii) has been reduced to exclude any amount of a capital nature
incurred by the other person or partnership in the performance of
the scientific research and experimental development;
(d) the percentage at which the prescribed proxy amount, for a taxation
year, referred to in paragraph (b) of the definition “qualified
expenditure” in subsection 127(9) of the Act is calculated be, for
taxation years that end after 2012, the percentage that is the total of
(i) 65% multiplied by the proportion that the number of days that are
in the taxation year and before 2013 is of the number of days in the
taxation year,
(ii) 60% multiplied by the proportion that the number of days that
are in the taxation year and in 2013 is of the number of days in the
taxation year, and
(iii) 55% multiplied by the proportion that the number of days that
are in the taxation year and after 2013 is of the number of days in the
taxation year;
and
(e) for expenditures made by a taxpayer after 2013,
(i) section 37 of the Act be amended to exclude an expenditure in
respect of the use or the right to use property that would, if it were
acquired by the taxpayer, be capital property of the taxpayer,
(ii) paragraph 37(1)(b) of the Act be repealed,
(iii) subparagraphs (a)(i) and (iii) of the definition “qualified
expenditure” in subsection 127(9) of the Act be repealed, and
(iv) section 127 of the Act be amended to exclude from the SR&ED
qualified expenditure pool an expenditure in respect of the use or the
right to use property that would, if it were acquired by the taxpayer,
be capital property of the taxpayer.
(21) That such other amendments to the Act be made as are necessary to
give effect to the proposals relating to scientific research and experimental
development described in the budget documents tabled by the Minister of
Finance in the House of Commons on Budget Day.
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Tax Avoidance Through the Use of Partnerships
(22) That paragraph 88(1)(d) of the Act be amended by deleting “and” at the
end of subparagraph (ii) and by adding the following after subparagraph (ii):
(ii.1) for the purpose of calculating the amount in subparagraph (ii) in
respect of an interest of the subsidiary in a partnership, the fair market
value of the interest at the time the parent last acquired control of the
subsidiary is deemed to be the amount determined by the formula
A – B
where
A is the fair market value of the interest at that time, and
B is the portion of the amount by which the fair market value of
the interest at that time exceeds its cost amount as may
reasonably be regarded as being attributable at that time to the
total of all amounts each of which is
(A) in the case of a depreciable property held directly by the
partnership or held indirectly by the partnership through one or
more other partnerships, the amount by which the fair market
value (determined without reference to liabilities) of the
property exceeds its cost amount,
(B) in the case of a Canadian or foreign resource property held
directly by the partnership or held indirectly by the partnership
through one or more other partnerships, the fair market value
(determined without reference to liabilities) of the property, or
(C) in the case of a property that is neither a capital property or
resource property and that is held directly by the partnership or
held indirectly by the partnership through one or more other
partnerships, the amount by which the fair market value
(determined without reference to liabilities) of the property
exceeds its cost amount, and
(23) That paragraph (22) apply to amalgamations that occur and windings-up
that begin on or after Budget Day, other than – where a taxable Canadian
corporation (referred to in this paragraph as the “parent corporation”) that
has acquired control of another taxable Canadian corporation (referred to in
this paragraph as the “subsidiary corporation”) – an amalgamation of the
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parent corporation and the subsidiary corporation that occurs before 2013,
or a winding-up of the subsidiary corporation into the parent corporation
that begins before 2013, if
(a) the parent corporation acquired control of the subsidiary corporation
before Budget Day, or was obligated as evidenced in writing before
Budget Day to acquire control of the subsidiary (except that the parent
corporation shall not be considered to be obligated if, as a result of
amendments to the Act, it may be excused from the obligation to
acquire control), and
(b) the parent corporation had the intention as evidenced in writing
before Budget Day to amalgamate with, or wind up, the
subsidiary corporation.
(24) That section 100 of the Act be amended by
(a) replacing the portion of subsection 100(1) before paragraph (a) with
the following:
Disposition – partnership to tax-exempt or non-resident
100(1) If, as part of a transaction or event or series of transactions
or events, a taxpayer disposes of an interest in a partnership and that
interest is acquired by a person exempt from tax under section 149
or by a non-resident person, notwithstanding paragraph 38(a), the
taxpayer’s taxable capital gain for a taxation year from the disposition
of the interest is deemed to be
and
(b) adding the following after subsection 100(1):
Exception – non-resident person
(1.1) Subsection (1) does not apply to a taxpayer’s disposition of an
interest in a partnership to a non-resident person if the partnership,
immediately before and immediately after the acquisition of the
interest by the non-resident person, uses all the property of the
partnership in carrying on business through a permanent
establishment in Canada.
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(25) That paragraph (24) apply to dispositions of an interest in a partnership
made by a taxpayer on or after Budget Day, other than an arm’s length
disposition by the taxpayer before 2013 if the taxpayer is obligated to dispose
of the interest pursuant to a written agreement entered into by the taxpayer
before Budget Day. A taxpayer shall not be considered to be obligated if,
as a result of amendments to the Act, the taxpayer may be excused from
the obligation.
(26) That such other amendments to the Act be made as are necessary to
give effect to the proposals relating to the avoidance of tax through the use
of partnerships that hold income assets described in the budget documents
tabled by the Minister of Finance in the House of Commons on Budget Day.
Partnership Waivers
(27) That, effective on Royal Assent to the enacting legislation, section 152
of the Act be amended by adding the following after subsection (1.8):
Waiver of determination limitation period
(1.9) A waiver in respect of the period during which the Minister may
make a determination under subsection (1.4) in respect of a partnership
for a fiscal period may be made by one member of the partnership if
that member is
(a) designated for that purpose in the information return made under
section 229 of the Income Tax Regulations for the fiscal period; or
(b) otherwise expressly authorized by the partnership to so act.
Transfer Pricing Secondary Adjustments
(28) That, for transactions that occur on or after Budget Day, section 247
of the Act be amended by adding the following after subsection (11):
Deemed dividends to non-residents
(12) For the purposes of Part XIII, if a particular corporation would
have a transfer pricing capital adjustment or a transfer pricing income
adjustment, for a taxation year, if the particular corporation, or a
partnership of which the particular corporation is a member, had
undertaken no transactions or series of transactions other than those in
which a particular non-resident person that does not deal at arm’s length
with the particular corporation (other than a corporation that was a
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controlled foreign affiliate, as defined in subsection 17(15), of
the particular corporation throughout the period during which
the transaction or series of transactions occurred) was a participant,
(a) a dividend is deemed to have been paid by the particular
corporation and received by the particular non-resident person at
the end of that taxation year; and
(b) the amount of the dividend is the amount, if any, by which
(i) the amount that would be the portion of the total of the
particular corporation’s transfer pricing capital adjustment, and
transfer pricing income adjustment, for the taxation year that
could reasonably be considered to relate to the particular non-
resident person if
(A) the only transactions or series of transactions undertaken
by the particular corporation were those in which the
particular non-resident person was a participant, and
(B) the definition “transfer pricing capital adjustment” in
subsection (1) were read without reference to the references
therein to “1/2 of” and “3/4 of”
exceeds
(ii) the amount that would be the portion of the total of the
particular corporation’s transfer pricing capital setoff adjustment,
and transfer pricing income setoff adjustment, for the taxation
year that could reasonably be considered to relate to the
particular non-resident person if
(A) the only transactions or series of transactions undertaken
by the particular corporation were those in which the
particular non-resident person was a participant, and
(B) the definition “transfer pricing capital adjustment” in
subsection (1) were read without reference to the references
therein to “1/2 of” and “3/4 of”.
Repatriation
(13) Where a dividend is deemed by paragraph (12)(a) to have been paid
by a corporation and received by a non-resident person, and an amount
has been paid, with the concurrence of the Minister, by the non-resident
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person to the corporation, the amount of the dividend may be reduced
to the amount that the Minister considers appropriate, having regard to
all the circumstances, including the amount of the dividend and the
amount of the payment.
Repatriation – interest
(14) Where the amount of a dividend has been reduced because of the
application of subsection (13), interest on the amount of the dividend
(calculated without reference to subsection (13)) payable in respect of
insufficient payments of tax under Part XIII on the amount of the
dividend so calculated shall remain payable for the period that begins at
the time the dividend was deemed by subsection (12) to have been paid
and that ends at the time at which the payer of the dividend received the
amount referred to in subsection (13) from a non-resident person in
respect of the dividend.
Repatriation – interest
(15) Where the amount of a dividend has been reduced because of
the application of subsection (13), the amount of interest payable by
a taxpayer because of subsection (14) may be reduced to the amount
that the Minister considers appropriate, having regard to all the
circumstances, including whether the country in which the
non-resident person described in subsection (13) is resident
provides reciprocal treatment.
Non-application of ss. 15, 56(2) and 246
(16) Section 15, subsection 56(2) and section 246 do not apply in
respect of an amount in respect of which a dividend is deemed by
paragraph (12)(a) to have been paid by a corporation and received by
a non-resident person.
Thin Capitalization – Debt-to-Equity Ratio
(29) That, for taxation years that begin after 2012, the reference to “two”
in subparagraph 18(4)(a)(ii) of the Act be replaced with “1.5”.
Thin Capitalization – Partnerships
(30) That, for taxation years that begin on or after Budget Day,
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(a) in determining whether the debt-to-equity ratio of a corporation
resident in Canada exceeds the debt-to-equity ratio set out in
subsection 18(4) of the Act, each member of a partnership be deemed
to owe that member’s specified proportion, within the meaning
proposed to be assigned by subsection 248(1) of the Act as set out in
Department of Finance news release 2010-068 (dated July 16, 2010), of
the debts owed by the partnership; and
(b) there be included in computing the income of the corporation an
amount equal to the interest on the portion of the debts owing by
the partnership to specified non-residents, that are allocated to the
corporation under subparagraph (a), that exceeds the debt-to-equity
ratio set out in subsection 18(4) of the Act.
Thin Capitalization – Disallowed Interest Treated as a Dividend
(31) That, for taxation years that end on or after Budget Day,
(a) for the purposes of Part XIII of the Act, interest paid or credited,
by a corporation resident in Canada or by a partnership of which the
corporation is directly or indirectly a member (referred to in this
paragraph as the “payer”), in a taxation year of the corporation to a
non-resident person be deemed to have been paid by the corporation as
a dividend and, except for this paragraph, not to have been paid or
credited by the payer as interest to the extent that
(i) the interest is not deductible to the corporation because of the
application of subsection 18(4) of the Act, or
(ii) an amount in respect of the interest is included in computing the
income of the corporation because of the application of any measure
giving effect to subparagraph (30)(b);
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(b) for the purposes of this paragraph, interest that is payable at a time
that is in the taxation year referred to in subparagraph (a) but that has
not been paid or credited in that taxation year be deemed to have been
paid immediately before the end of that taxation year and not at any
other time;
(c) for the purpose of determining the time at which a deemed dividend,
that arises because of the application of subparagraph (a) to a
taxation year, is considered to have been paid to a particular specified
non-resident, the corporation may designate, on or before the
corporation’s filing-due date for the taxation year, which amounts paid
or credited in the taxation year as interest to the particular specified
non-resident are to be recharacterized as dividends; and
(d) where the taxation year includes Budget Day, the amount of each
dividend deemed by subparagraph (a) to have been paid in the taxation
year be the proportion of the amount of the dividend otherwise
determined that the number of days that are in the taxation year that
are on or after Budget Day is of the number of days that are in the
taxation year.
Thin Capitalization – Foreign Affiliate Loans
(32) That, for taxation years that end on or after Budget Day,
(a) an amount of interest, the deductibility of which by a corporation
resident in Canada would otherwise be denied because of the application
of subsection 18(4) of the Act, shall not be denied to the extent of any
portion of the interest that is included in computing the income of the
corporation in respect of the foreign accrual property income of a
controlled foreign affiliate of the corporation (net of any amount
deductible in respect of that portion of the interest because of the
application of subsection 91(4) of the Act); and
(b) an amount in respect of interest, that would otherwise be required
to be included in computing the income of a corporation resident in
Canada because of the application of subparagraph (30)(b), shall not be
included to the extent of any portion of the interest that is included in
computing the income of the corporation in respect of the foreign
accrual property income of a controlled foreign affiliate of the
corporation (net of any amount deductible in respect of that portion of
the interest because of the application of subsection 91(4) of the Act).
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Foreign Affiliate Dumping
(33) That, for contributed surplus that arises on or after Budget Day,
(a) clause 18(4)(a)(ii)(B) of the Act be replaced with the following:
(B) the average of all amounts each of which is the corporation’s
contributed surplus (other than any portion of such contributed
surplus that arose from a transaction or event in respect of which
subsection 212.3(2) applied) at the beginning of a calendar month
that ends in the year, to the extent that it was contributed by a
specified non-resident shareholder of the corporation, and
(b) paragraphs 84(1)(c.1) and (c.2) of the Act be replaced with
the following:
(c.1) where the corporation is an insurance corporation, any action by
which it converts contributed surplus related to its insurance business
(other than any portion of such contributed surplus that arose from a
transaction or event in respect of which subsection 212.3(2) applied)
into paid-up capital in respect of the shares of its capital stock,
(c.2) where the corporation is a bank, any action by which it converts
any of its contributed surplus that arose on the issuance of shares of
its capital stock (other than any portion of such contributed surplus
that arose from a transaction or event in respect of which
subsection 212.3(2) applied) into paid-up capital in respect of shares
of its capital stock, or
(c) subparagraphs 84(1)(c.3)(i) and (ii) of the Act be replaced with
the following:
(i) on the issuance of shares of that class or shares of another class
for which the shares of that class were substituted (other than an
issuance to which section 51, 66.3, 84.1, 85, 85.1, 86 or 87,
subsection 192(4.1), 194(4.1) or section 212.1 applied, or an
issuance in respect of which subsection 212.3(2) applied),
(ii) on the acquisition of property by the corporation (other than an
acquisition in respect of which subsection 212.3(2) applied) from a
person who at the time of the acquisition held any of the issued
shares of that class or shares of another class for which shares of that
class were substituted for no consideration or for consideration that
did not include shares of the capital stock of the corporation, or
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(34) That, effective Budget Day, references to paragraph 128.1(1)(c.3) and
section 212.3 of the Act be added to subparagraph (b)(iii) of the definition
“paid-up capital” in subsection 89(1) of the Act.
(35) That, effective Budget Day, the portion of subsection 93.1(1) of the Act
before paragraph (a), as proposed in Department of Finance news release
2011-070 (dated August 19, 2011), be replaced with the following:
Shares held by a partnership
93.1(1) For the purposes of determining whether a non-resident
corporation is a foreign affiliate of a corporation resident in Canada for
the purposes of subsections (2) and 20(12), sections 90, 93 and 113,
paragraphs 128.1(1)(c.3) and (d) and section 212.3, (and any regulations
made for the purposes of those provisions), section 95 (to the extent
that it is applied for the purposes of those provisions) and section 126,
where based on the assumptions contained in paragraph 96(1)(c), at any
time shares of a class of the capital stock of a corporation are owned by
a partnership or are deemed under this subsection to be owned by a
partnership, each member of the partnership is deemed to own at that
time the number of those shares that is equal to the proportion of all
those shares that
(36) That, effective Budget Day, subsection 93.1(3) of the Act, as proposed
in Department of Finance news release 2011-070 (dated August 19, 2011), be
amended by deleting “and” at the end of paragraph (b), by adding “and” at
the end of paragraph (c) and by adding the following after paragraph (c):
(d) section 212.3.
(37) That, in respect of taxpayers that become resident in Canada on or after
Budget Day, subsection 128.1(1) of the Act be amended by adding the
following after paragraph (c.2):
(c.3) if the taxpayer is a corporation that was, at the time (referred to in
this paragraph as the “prior time”) that is immediately before the
particular time, controlled by a particular non-resident corporation and
the taxpayer owned at the prior time one or more shares of another
non-resident corporation that, immediately after the particular time, was
– or that became, as part of a transaction or event or series of
transactions or events that includes the taxpayer having become resident
in Canada – a foreign affiliate of the taxpayer, then
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(i) in computing the paid-up capital at or after the particular time of
any particular class of shares of the capital stock of the taxpayer,
there is to be deducted that proportion of the amount that is the
lesser of the paid-up capital in respect of all of the shares of the
capital stock of the taxpayer at the particular time, computed without
reference to this paragraph, and the fair market value, at the
particular time, of the shares owned by the taxpayer of the foreign
affiliate that the paid-up capital, as so computed, in respect of the
shares of the particular class is of the paid-up capital, as so computed,
in respect of all of the issued shares of the capital stock of the
taxpayer, and
(ii) for the purposes of Part XIII, the taxpayer is deemed,
immediately after the particular time, to have paid to the particular
non-resident, and the particular non-resident is deemed, immediately
after the particular time, to have received from the taxpayer, a
dividend equal to the amount, if any, by which the fair market value,
at the particular time, of the shares owned by the taxpayer of the
foreign affiliate exceeds the paid-up capital in respect of all of the
shares of the capital stock of the taxpayer, computed without
reference to this paragraph.
(38) That, in respect of transactions or events that occur on or after
Budget Day, the Act be amended by adding the following after section 212.2:
Foreign affiliate dumping – conditions for application
212.3(1) Subsection (2) applies to an investment in a non-resident
corporation (referred to in this section as the “subject corporation”) that
is made, at any time, by a corporation resident in Canada (referred to in
this section as the “CRIC”) if
(a) the subject corporation is, immediately after that time, or
becomes, as part of a transaction or event or series of transactions or
events that includes the investment, a foreign affiliate of the CRIC;
(b) the CRIC is at that time controlled by another non-resident
corporation (referred to in this section as the “parent”); and
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(c) the investment may not reasonably be considered to have been
made by the CRIC, instead of being made or retained by the parent
or another non-resident person that does not deal at arm’s length
with the parent, primarily for bona fide purposes other than to obtain a
tax benefit (as defined in subsection 245(1)).
Foreign affiliate dumping – consequences
(2) If this subsection applies to an investment in a subject corporation,
(a) for the purposes of this Part, the CRIC is deemed to have paid to
the parent at the time the investment was made, and the parent is
deemed to have received from the CRIC at that time, a dividend
equal to the total of all amounts each of which is the fair market
value, at that time, of any property (not including, for greater
certainty, shares of the capital stock of the CRIC) transferred, or
obligation assumed or incurred, by the CRIC in respect of the
investment; and
(b) in computing the paid-up capital at any time on or after Budget
Day of any class of shares of the capital stock of the CRIC, there is to
be deducted the amount of any increase, because of the investment,
in the paid-up capital in respect of the shares of the class, computed
without reference to this section.
Investment in subject corporation
(3) For the purposes of this section, an investment made in a subject
corporation by a CRIC means any of
(a) an acquisition of shares of the capital stock of the subject
corporation by the CRIC;
(b) a contribution of capital to the subject corporation by the CRIC;
(c) a transaction under which an amount became owing by the subject
corporation to the CRIC, other than an amount owing that arises in
the ordinary course of the business of the CRIC and that is repaid
within a commercially reasonable period;
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(d) an acquisition of a debt obligation of the subject corporation by
the CRIC from another person, other than, if the acquisition was
made in the ordinary course of the business of the CRIC, an
acquisition from a person with which the CRIC dealt, at the time of
the acquisition, at arm’s length;
(e) an acquisition by the CRIC of an option in respect of, or an
interest in, or for civil law a right in, shares of the capital stock,
or a debt obligation, of the subject corporation; and
(f) any transaction or event that is similar in effect to any of the
transactions described in paragraphs (a) to (e).
Multiple controllers
(4) For the purposes of this section and paragraph 128.1(1)(c.3), a CRIC
that is controlled by more than one non-resident corporation is deemed
not to be controlled by any such non-resident that controls another
non-resident corporation that controls the CRIC, unless the application
of this subsection would otherwise result in no non-resident corporation
controlling the CRIC.
Bona fide purpose – primary factors
(5) In determining whether paragraph (1)(c) applies, the following
factors are to be given primary consideration:
(a) whether the business activities carried on by the subject
corporation and any other corporation in which the subject
corporation has, at the time referred to in subsection (1), an equity
percentage (as defined in subsection 95(4)) are at that time, and are
expected to remain, more closely connected to the business activities
carried on by the CRIC (or by a corporation resident in Canada that
is a subsidiary wholly-owned corporation of the CRIC or that is a
corporation of which the CRIC is a subsidiary wholly-owned
corporation) than to the business activities carried on by any non-
resident corporation (other than the subject corporation or any
corporation in which the subject corporation has such an equity
percentage) with which the CRIC, at that time, does not deal at
arm’s length;
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(b) whether the terms or conditions of any shares of the subject
corporation that are owned by the CRIC at that time, or any
agreement in respect of the shares or their issue, are such that the
CRIC does not fully participate in the profits of the subject
corporation or any appreciation in the value of the subject
corporation (for greater certainty, the fact that the shares owned by
the CRIC do fully participate in the profits of the subject corporation
and any appreciation in the value of the subject corporation is not a
relevant factor);
(c) whether the investment was made at the direction or request of a
non-resident corporation with which the CRIC was not, at that time,
dealing at arm’s length;
(d) whether, in the case of an investment described in paragraph
(3)(a), (d), (e) or (f), negotiations with the vendor in respect of the
investment were initiated by senior officers of the CRIC who were
resident in, and worked principally in, Canada or, if the vendor
initiated the transaction, the vendor’s principal point of contact was
an officer of the CRIC who was resident in, and worked principally
in, Canada;
(e) whether senior officers of the CRIC who were resident in, and
worked principally in, Canada had and exercised the principal
decision-making authority in respect of the making of the investment,
and have and exercise the principal decision making authority in
respect of the investment;
(f) whether the performance evaluation or compensation of senior
officers of the CRIC who are resident in, and work principally in,
Canada is connected to the results of operations of the subject
corporation to a greater extent than the performance evaluation or
compensation of any senior officers of a non-resident corporation
(other than the subject corporation or a corporation controlled by the
subject corporation) that does not deal at arm’s length with the CRIC
is so connected; and
(g) whether senior officers of the subject corporation report to,
and are functionally accountable to, senior officers of the CRIC who
are resident in, and work principally in, Canada to a greater extent
than to any senior officers of any non-resident corporation (other
than the subject corporation) that does not deal at arm’s length
with the CRIC.
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Indirect investment
(6) A particular investment by a CRIC in a subject corporation that
would, in the absence of this subsection, be excluded from the
application of subsection (2) because of paragraph (1)(c) is not to be so
excluded to the extent that one or more properties, if any, received by
the subject corporation from the CRIC as a result of the particular
investment, or property substituted for any such property, may
reasonably be considered to have been used by the subject corporation,
directly or indirectly as part of a transaction or event or series of
transactions or events that includes the particular investment, to make
another investment in a non-resident corporation that would, if the
other investment had been made by the CRIC, have been subject to
subsection (2).
Partnerships
(7) For the purposes of this section, paragraph 128.1(1)(c.3) and
subsection 219.1(2)
(a) any transaction entered into by a partnership is deemed to have
been entered into by each member of the partnership in proportion
to the fair market value of the member’s direct or indirect interest in
the partnership;
(b) property that would, in the absence of this paragraph, be owned
by a partnership is deemed to be owned by each member of the
partnership in proportion to the fair market value of the member’s
direct or indirect interest in the partnership; and
(c) amounts that would, in the absence of this paragraph, be owing by
a partnership are deemed to be owed by each member of the
partnership in proportion to the fair market value of the member’s
direct or indirect interest in the partnership.
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(39) That paragraph (38) not apply to a transaction that occurs before 2013
between persons that deal at arm’s length and that are obligated to complete
the transaction pursuant to the terms of an agreement in writing between the
persons that was entered into before Budget Day. A person will be
considered not to be obligated to complete a transaction if the person may
be excused from completing the transaction as a result of amendments to
the Act.
(40) That, in respect of taxpayers that cease to be resident in Canada
on or after Budget Day, section 219.1 of the Act be renumbered as
subsection 219.1(1) and that section 219.1 be amended by adding the
following after that subsection (1):
Foreign affiliate dumping – corporate emigration
(2) For the purposes of paragraph (1)(b), if any shareholder of the
corporation referred to in that paragraph (referred to in this subsection
as the “emigrating corporation”) is, at the time the emigrating
corporation ceases to be resident in Canada, a corporation resident in
Canada that is controlled, at that time, by a non-resident corporation,
the amount that would, in the absence of this subsection, be the paid-up
capital in respect of all of the issued and outstanding shares of each class
of the capital stock of the emigrating corporation immediately before
that time is deemed to be nil.
Overseas Employment Tax Credit
(41) That, for the 2013 and subsequent taxation years, section 122.3 of the
Act be amended by
(a) replacing the reference to “$80,000” in paragraph 122.3(1)(c) with
“the specified amount for the year”;
(b) replacing the reference to “80%” in paragraph 122.3(1)(d) with
“the specified percentage for the year”; and
(c) adding the following after subsection 122.3(1):
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Specified amount
(1.01) For the purposes of paragraph (1)(c), the specified amount for
a taxation year of an individual is
(a) for the 2013 to 2015 taxation years, determined by the
following formula:
[$80,000 x A/(A + B)] + [C x B/(A + B)]
where
A is the individual’s income described in paragraph (1)(d) for
the taxation year that is earned in connection with a contract
that was committed to in writing before Budget Day by a
specified employer of the individual,
B is the individual’s income described in paragraph (1)(d) for
the taxation year, other than income included in the
description of A, and
C is
(i) for the 2013 taxation year, $60,000,
(ii) for the 2014 taxation year, $40,000, and
(iii) for the 2015 taxation year, $20,000, and
(b) for the 2016 and subsequent taxation years, nil.
Specified percentage
(1.02) For the purposes of paragraph (1)(d), the specified percentage
for a taxation year of an individual is
(a) for the 2013 to 2015 taxation years, determined by the
following formula:
[80% x A/(A + B)] + [C x B/(A + B)]
where
A is the value of A in subsection (1.01),
B is the value of B in subsection (1.01), and
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C is
(i) for the 2013 taxation year, 60%,
(ii) for the 2014 taxation year, 40%, and
(iii) for the 2015 taxation year, 20%, and
(b) for the 2016 and subsequent taxation years, 0%.
Gifts to Foreign Charitable Organizations
(42) That, for applications made by a foreign organization on or after
the later of January 1, 2013 and the date of Royal Assent to the
enacting legislation,
(a) subparagraph (a)(v) of the definition “qualified donee” in
subsection 149.1(1) of the Act be replaced with the following:
(v) a foreign organization designated under subsection 149.1(26),
and
(b) section 149.1 of the Act be amended by adding the following after
subsection 149.1(25):
Designated foreign charitable organizations
(26) For the purposes of the definition “qualified donee” in
subsection (1),
(a) the Minister may designate, in consultation with the Minister
of Finance, a foreign organization for a 24-month period that
includes the time at which Her Majesty in right of Canada has
made a gift to the foreign organization, if
(i) the foreign organization is a charitable organization that is
not resident in Canada,
(ii) the Minister is satisfied that the foreign organization is
(A) carrying on relief activities in response to a disaster,
(B) providing urgent humanitarian aid, or
(C) carrying on activities in the national interest of Canada,
and
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(iii) the foreign organization has applied to the Minister for
designation under this subsection; and
(b) a foreign organization designated under paragraph (a) is
deemed to have been registered by the Minister at the beginning
of the 24-month period.
Charities – Enhancing Transparency and Accountability
(43) That, effective on Royal Assent to the enacting legislation,
(a) the definition “charitable purposes” in subsection 149.1(1) of the Act be
replaced with the following:
“charitable purposes” includes the disbursement of funds to a qualified
donee, other than a gift the making of which is a political activity;
(b) subsection 149.1(1) of the Act be amended by adding the following
definition in alphabetical order:
“political activity” includes the making of a gift to a qualified donee if it
can reasonably be considered that a purpose of the gift is to support the
political activities of the qualified donee;
(c) paragraphs 149.1(6)(b) and (c) of the Act be replaced with the following:
(b) it disburses income to qualified donees, other than income disbursed
by way of a gift the making of which is a political activity, if the total
amount of income of the charitable organization that is disbursed to
qualified donees in a taxation year does not exceed 50% of its income
for the year; or
(c) it disburses income to a registered charity that the Minister has
designated in writing as a charity associated with it, other than income
disbursed by way of a gift the making of which is a political activity.
(d) subsection 149.1(10) of the Act be replaced with the following:
Deemed charitable activity
(10) An amount paid by a charitable organization to a qualified donee
that is not paid out of the income of the charitable organization is
deemed to be a devotion of a resource of the charitable organization to
a charitable activity carried on by it, unless the amount paid is a gift the
making of which is a political activity.
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(e) subsection 188.2(2) of the Act be amended by deleting “or” at the end
of paragraph (c) and by adding the following after paragraph (d):
(e) in the case of a registered charity that is a charitable foundation,
if the foundation devotes resources to political activities that are not
considered under subsection 149.1(6.1) to be devoted to
charitable purposes;
(f) in the case of a registered charity that is a charitable organization,
if the organization devotes resources to political activities that are not
considered under subsection 149.1(6.2) to be devoted to charitable
activities; or
(g) in the case of a registered Canadian amateur athletic association,
if the association devotes resources to political activities that are not
considered under subsection 149.1(6.201) to be devoted to its exclusive
purpose and exclusive function.
(f) section 188.2 of the Act be amended by adding the following after
subsection (2):
Suspension – failure to report
(2.1) If a registered charity or a registered Canadian amateur athletic
association fails to report information that is required to be included in
a return filed under subsection 149.1(14), the Minister may give notice
by registered mail to the charity or association that its authority to issue
an official receipt referred to in Part XXXV of the Income Tax Regulations
is suspended from the day that is seven days after the day on which the
notice is mailed until such time as the Minister notifies the charity or
association, as the case may be, that the Minister has received the
required information in prescribed form.
(g) the portion of subsection 188.2(3) of the Act before paragraph (a) be
replaced with the following:
Effect of suspension
(3) If the Minister has issued a notice to a qualified donee under
subsection (1), (2) or (2.1), subject to subsection (4),
and
(h) subsection 188.2(4) of the Act be replaced with the following:
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Application for postponement
(4) If a notice of objection to a suspension under subsection (1), (2) or
(2.1) has been filed by a qualified donee, the qualified donee may file an
application to the Tax Court of Canada for a postponement of that
portion of the period of suspension that has not elapsed until the time
determined by the Court.
Tax Shelter Administrative Changes
(44) That, effective on Royal Assent to the enacting legislation,
paragraph 227(10)(b) of the Act be replaced with the following:
(b) subsection 237.1(7.4) or (7.5) by a person or partnership,
(45) That, for applications for identification numbers made
(a) before Budget Day, subsection 237.1(4) of the Act be replaced with
the following:
Sales prohibited
(4) A person may, at any time, whether as a principal or an agent, sell
or issue, or accept consideration in respect of, a tax shelter only if
(a) the Minister has issued before that time an identification
number for the tax shelter; and
(b) the time is before 2014.
and
(b) on or after Budget Day, paragraph 237.1(4)(b) of the Act, as enacted
in accordance with paragraph (a), be replaced with the following:
(b) the time is during the calendar year designated by the
Minister as being applicable to the number.
(46) That, in respect of applications for identification numbers made, sales or
issuances of tax shelters made and consideration in respect of tax shelters
accepted, after Royal Assent to the enacting legislation,
paragraph 237.1(7.4)(b) of the Act be replaced with the following:
(b) 25% of the greater of
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(i) the total of all amounts each of which is the consideration received
or receivable from a person in respect of the tax shelter before the
correct information is filed with the Minister or the identification
number is issued, as the case may be, and
(ii) the total of all amounts each of which is an amount stated or
represented to be the value of property that a particular person who
acquires or otherwise invests in the tax shelter could donate to a
qualified donee, if the tax shelter is a gifting arrangement and
consideration has been received or is receivable from the particular
person in respect of the tax shelter before the correct information is
filed with the Minister or the identification number is issued, as the
case may be.
(47) That, in respect of demands to file an information return that are made
and in respect of failures to report an amount in an information return filed,
after Royal Assent to the enacting legislation, section 237.1 of the Act be
amended by adding the following after subsection (7.4):
Penalty
(7.5) Every person who is required under subsection (7) to file an
information return and who fails to comply with a demand under
section 233 to file the return or to report in the return information
required under paragraph (7)(a) or (b), is liable to a penalty equal to
25% of the greater of
(a) the total of all amounts each of which is the consideration
received or receivable by the person in respect of the tax shelter from
a particular person in respect of whom information required under
paragraph (7)(a) or (b) had not been reported at or before the time
the demand was issued or the return was filed, as the case may be;
and
(b) if the tax shelter is a gifting arrangement, the total of all amounts
each of which is an amount stated or represented to be the value of
property that the particular person could donate to a qualified donee.
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NOTICE OF WAYS AND MEANS MOTION
TO AMEND THE EXCISE TAX ACT
That it is expedient to amend the Excise Tax Act as follows:
GST/HST Health Measures
1. (1) Part II of Schedule V to the Excise Tax Act is amended by adding
the following after section 7.2:
7.3 A supply of a service (other than a service described in section 4 of Part I
of Schedule VI) rendered in the practice of the profession of pharmacy by a
particular individual who is entitled under the laws of a province to practise
that profession if the service is rendered within a pharmacist-patient
relationship between the particular individual and another individual and
is provided for the promotion of the health of the other individual or for
the prevention or treatment of a disease, disorder or dysfunction of the
other individual.
(2) Subsection (1) applies to any supply made after Budget Day.
2. (1) Section 10 of Part II of Schedule V to the Act is amended by
striking out “or” at the end of paragraph (a), by adding “or” at the end
of paragraph (b) and by adding the following after that paragraph:
(c) a person that is entitled under the laws of a province to practise
the profession of pharmacy and is authorized under the laws of the
province to order such a service, if the order is made within a
pharmacist-patient relationship.
(2) Subsection (1) applies to any supply made after Budget Day.
3. (1) Paragraph 2(e) of Part I of Schedule VI to the Act is amended
by adding the following after subparagraph (vi):
(vi.1) Isosorbide-5-mononitrate,
(2) Subsection (1) applies to any supply made
(a) after Budget Day; or
(b) on or before Budget Day if no amount was charged, collected or
remitted on or before that day as or on account of tax under Part IX of
the Act in respect of the supply.
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4. (1) The definition “medical practitioner” in section 1 of Part II
of Schedule VI to the Act is repealed.
(2) Section 1 of Part II of Schedule VI to the Act is amended by adding
the following in alphabetical order:
“specified professional” means
(a) a person that is entitled under the laws of a province to practise the
profession of medicine, physiotherapy or occupational therapy, or
(b) a registered nurse.
(3) Subsections (1) and (2) apply to any supply made after
Budget Day.
5. (1) Sections 3 and 4 of Part II of Schedule VI to the Act
are replaced by the following:
3. A supply of a heart-monitoring device if the device is supplied on the
written order of a specified professional for use by a consumer with heart
disease who is named in the order.
4. A supply of a hospital bed, if the bed is supplied to the operator of a health
care facility (as defined in section 1 of Part II of Schedule V) or on the
written order of a specified professional for use by an incapacitated
individual named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
6. (1) Section 5.1 of Part II of Schedule VI to the Act is replaced by
the following:
5.1 A supply of an aerosol chamber or a metered dose inhaler for use in the
treatment of asthma if the chamber or inhaler is supplied on the written order
of a specified professional for use by a consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
7. (1) Section 7 of Part II of Schedule VI to the Act is replaced
by the following:
7. A supply of a device that is designed to convert sound to light signals if
the device is supplied on the written order of a specified professional for use
by a consumer with a hearing impairment who is named in the order.
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(2) Subsection (1) applies to any supply made after Budget Day.
8. (1) Section 9 of Part II of Schedule VI to the Act is replaced
by the following:
9. A supply of eyeglasses or contact lenses if the eyeglasses or contact lenses
are, or are to be, supplied under the authority of a prescription prepared, or
an assessment record produced, by a person for the treatment or correction
of a defect of vision of a consumer named in the prescription or assessment
record and the person is entitled under the laws of the province in which the
person practises to prescribe eyeglasses or contact lenses, or to produce an
assessment record to be used for the dispensing of eyeglasses or contact
lenses, for such purpose.
(2) Subsection (1) applies to any supply made
(a) after Budget Day; or
(b) on or before Budget Day if no amount was charged, collected or
remitted on or before that day as or on account of tax under Part IX of
the Act in respect of the supply.
9. (1) Section 14.1 of Part II of Schedule VI to the Act is replaced
by the following:
14.1 A supply of a chair that is specially designed for use by an individual
with a disability if the chair is supplied on the written order of a specified
professional for use by a consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
10. (1) Sections 21.1 and 21.2 of Part II of Schedule VI to the Act
are replaced by the following:
21.1 A supply of an extremity pump, intermittent pressure pump or similar
device for use in the treatment of lymphedema if the pump or device is
supplied on the written order of a specified professional for use by a
consumer named in the order.
21.2 A supply of a catheter for subcutaneous injections if the catheter
is supplied on the written order of a specified professional for use by a
consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
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11. (1) Section 23 of Part II of Schedule VI to the Act is replaced
by the following:
23. A supply of an orthotic or orthopaedic device that is made to order for
an individual or is supplied on the written order of a specified professional
for use by a consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
12. (1) Section 24.1 of Part II of Schedule VI to the Act is replaced
by the following:
24.1 A supply of footwear that is specially designed for use by an individual
who has a crippled or deformed foot or other similar disability, if the footwear
is supplied on the written order of a specified professional.
(2) Subsection (1) applies to any supply made after Budget Day.
13. (1) Part II of Schedule VI to the Act is amended by adding
the following after section 29:
29.1 A supply of
(a) a blood coagulation monitor or meter specially designed for use by an
individual requiring blood coagulation monitoring or metering; or
(b) blood coagulation testing strips or reagents compatible with a blood
coagulation monitor or meter referred to in paragraph (a).
(2) Subsection (1) applies to any supply made after Budget Day.
14. (1) Section 30 of Part II of Schedule VI to the Act is replaced
by the following:
30. A supply of any article that is specially designed for the use of blind
individuals if the article is supplied for use by a blind individual to or by
the Canadian National Institute for the Blind or any other bona fide
institution or association for blind individuals or on the order or certificate
of a specified professional.
(2) Subsection (1) applies to any supply made after Budget Day.
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15. (1) Sections 35 and 36 of Part II of Schedule VI to the Act
are replaced by the following:
35. A supply of a graduated compression stocking, an anti-embolic
stocking or similar article if the stocking or article is supplied on the written
order of a specified professional for use by a consumer named in the order.
36. A supply of clothing that is specially designed for use by an individual with
a disability if the clothing is supplied on the written order of a specified
professional for use by a consumer named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
16. (1) Section 41 of Part II of Schedule VI to the Act is replaced
by the following:
41. A supply of a device that is specially designed for neuromuscular
stimulation therapy or standing therapy, if supplied on the written order of
a specified professional for use by a consumer with paralysis or a severe
mobility impairment who is named in the order.
(2) Subsection (1) applies to any supply made after Budget Day.
GST Rebate for Books to be Given Away for Free
by Prescribed Literacy Organizations
17. (1) Subsection 259.1(1) of the Act is amended by adding
the following in alphabetical order:
“specified property”
“specified property” means
(a) a printed book or an update of such a book;
(b) an audio recording all or substantially all of which is a spoken reading of
a printed book; or
(c) a bound or unbound printed version of scripture of any religion.
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(2) Subsection 259.1(2) of the Act is replaced by the following:
Rebate for printed books, etc.
(2) The Minister must, subject to subsection (3), pay a rebate to a person
that is, on the last day of a claim period of the person or of the person’s fiscal
year that includes that claim period, a specified person equal to the amount of
tax under subsection 165(1) or section 212 that became payable in the claim
period by the person in respect of the acquisition or importation of specified
property if
(a) in the case of a specified person described in paragraph (f) of the
definition “specified person”, the person acquires or imports the specified
property otherwise than for the purpose of supply by way of sale for
consideration; and
(b) in any other case, the person acquires or imports the specified property
otherwise than for the purpose of supply by way of sale.
(3) Subsections (1) and (2) apply to acquisitions and importations
of property in respect of which tax becomes payable after Budget Day.
Tax Relief for Foreign-Based Rental Vehicles
Temporarily Imported by Canadian Residents
18. (1) Subsections 212.1(2) to (4) of the Act are replaced
by the following:
Tax in participating province
(2) Subject to this Part, every person that is liable under the Customs Act to
pay duty on imported goods, or would be so liable if the goods were subject
to duty, shall pay to Her Majesty in right of Canada, in addition to the tax
imposed by section 212, a tax on the goods calculated at the tax rate for a
participating province on the value of the goods if
(a) the goods are prescribed goods imported at a place in the participating
province; or
(b) the goods are not prescribed for the purposes of paragraph (a) and the
person is resident in the participating province.
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Exception
(3) Paragraph (2)(b) does not apply to goods that are accounted for as
commercial goods under section 32 of the Customs Act, specified motor
vehicles or a mobile home or a floating home that has been used or occupied
in Canada by any individual.
Application in offshore areas
(4) Paragraph (2)(b) does not apply to goods imported by or on behalf of a
person that is resident in the Nova Scotia offshore area or the Newfoundland
offshore area unless the goods are imported for consumption, use or supply in
the course of an offshore activity or the person is also resident in a
participating province that is not an offshore area.
(2) Subsection (1) applies to goods imported on or after June 1, 2012.
19. (1) Section 261.2 of the Act is replaced by the following:
Rebate in respect of goods imported at a place in a province
261.2 If a person that is resident in a particular participating province
pays tax under subsection 212.1(2) in respect of property described in
paragraph (b) of that subsection that the person imports at a place in another
province for consumption or use exclusively in any province (other than the
particular participating province) and if prescribed conditions are satisfied,
the Minister shall, subject to section 261.4, pay a rebate to the person equal
to the amount determined in prescribed manner.
(2) Subsection (1) applies to property imported on or after
June 1, 2012.
20. (1) Schedule I to the Act is amended by adding the following
before section 6:
1. The following definitions apply in this Schedule.
“commercial goods” has the same meaning as in subsection 212.1(1)
of the Act.
“qualifying vehicle” means a vehicle (other than a racing car described in
heading No. 87.03 of the List of Tariff Provisions set out in the schedule
to the Customs Tariff) registered under the laws of a foreign jurisdiction
relating to the registration of motor vehicles that
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(a) is described in any of heading No. 87.02, subheading Nos. 8703.21
to 8703.90, 8704.21, 8704.31, 8704.90 and 8711.20 to 8711.90 and tariff
item Nos. 8716.39.30 and 8716.39.90 of that List;
(b) is described in subheading No. 8704.22 or 8704.32 of that List and has a
gross vehicle weight rating (as defined in subsection 2(1) of the Motor Vehicle
Safety Regulations) not exceeding 10 tonnes; or
(c) is described in tariff item No. 8716.10.00 of that List and is a vehicle
for camping.
(2) Subsection (1) comes into force, or is deemed to have come into
force, on June 1, 2012.
21. (1) Section 8 of Schedule I to the Act is amended by striking out
“or” at the end of paragraph (b), by adding “or” at the end of
paragraph (c) and by adding the following after paragraph (c):
(d) that is included as permanently installed equipment in an automobile,
station wagon, van or truck if the automobile, station wagon, van or truck
(i) is a qualifying vehicle,
(ii) is imported temporarily by an individual resident in Canada and not
accounted for as a commercial good under section 32 of the Customs Act,
(iii) was last supplied in the course of a vehicle rental business to the
individual by way of lease, licence or similar arrangement under which
continuous possession or use of the automobile, station wagon, van or
truck is provided for a period of less than 180 days, and
(iv) is exported within 30 days after the importation.
(2) Subsection (1) applies to any air conditioner that is included
as permanently installed equipment in an automobile, station wagon,
van or truck imported into Canada on or after June 1, 2012.
22. (1) The portion of section 10 of Schedule I to the Act before
paragraph (a) is replaced by the following:
10. Section 6 does not apply to an automobile described in that section
that is
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(2) Paragraphs 10(a) to (c) of Schedule I to the French version of the
Act are replaced by the following:
a) vendue dans des conditions qui feraient de la vente une fourniture
détaxée pour l’application de la partie IX de la Loi;
b) achetée ou importée pour servir à la police ou combattre l’incendie;
c) achetée, pour son usage personnel ou officiel, par une personne exempte
d’impôts et de taxes visée à l’article 34 de la convention figurant à l’annexe I
de la Loi sur les missions étrangères et les organisations internationales ou à l’article 49
de la convention figurant à l’annexe II de cette loi;
(3) Section 10 of Schedule I to the Act is replaced by striking out “or”
at the end of paragraph (b), by adding “or” at the end of paragraph (c)
and by adding the following after paragraph (c):
(d) a qualifying vehicle if the automobile
(i) is imported temporarily by an individual resident in Canada and not
accounted for as a commercial good under section 32 of the Customs Act,
(ii) was last supplied in the course of a vehicle rental business to the
individual by way of lease, licence or similar arrangement under which
continuous possession or use of the automobile is provided for a period
of less than 180 days, and
(iii) is exported within 30 days after the importation.
(4) Subsections (1) and (2) come into force, or are deemed to have
come into force, on June 1, 2012.
(5) Subsection (3) applies to any automobile imported into Canada
on or after June 1, 2012.
Consistent Application of the Green Levy on
Fuel-Inefficient Vehicles
23. Section 1 of Schedule I to the Act is amended by adding the
following in alphabetical order:
“qualifying data” means fuel consumption data, in respect of automobiles
described in the portion of subsection 6(1) before paragraph (a), that is
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(a) if the fuel consumption data under the EnerGuide mark is based on a
test method composed of two test — but not five test — cycles, data
published by the Government of Canada under the EnerGuide mark in
respect of those automobiles; or
(b) in any other case, data in respect of those automobiles based on a test
method composed of only two test cycles and published by the
Government of Canada, as specified by the Minister of National Revenue,
on the basis of information adjusted and provided by the Minister of
Natural Resources.
24. The descriptions of A and B in subsection 6(2) of Schedule I to
the Act are replaced by the following:
A is the city fuel consumption rating (based on the number of litres of fuel,
other than E85, per 100 kilometres) for automobiles of the same model
with the same attributes as the automobile, as determined by reference
to qualifying data, or, if no rating can be so determined that would apply
to the automobile, by reference to the best available data, which may
include the city fuel consumption rating for the most similar model and
attributes; and
B is the highway fuel consumption rating (based on the number of litres of
fuel, other than E85, per 100 kilometres) for automobiles of the same
model with the same attributes as the automobile, as determined by
reference to qualifying data, or, if no rating can be so determined that
would apply to the automobile, by reference to the best available data,
which may include the highway fuel consumption rating for the most
similar model and attributes.
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NOTICE OF WAYS AND MEANS MOTION TO AMEND
THE CUSTOMS TARIFF
That it is expedient to amend the Customs Tariff to provide among
other things:
1. That the List of Tariff Provisions set out in the schedule to the
Customs Tariff be amended to delete the reference to “Oils and
preparations thereof, having a viscosity of 7.44 mm²/sec. or more at
37.8°C” in the Description of Goods of tariff item No. 2710.19.91 in
order for these oils and preparations thereof to be classified under tariff
item 2710.19.99 that provides for a Most-Favoured-Nation Tariff rate of
customs duty of “Free”.
2. That the List of Tariff Provisions set out in the schedule to the
Customs Tariff be amended to delete the reference to “Oils and
preparations thereof, having a viscosity of 7.44 mm²/sec. or more at
37.8°C” in the Description of Goods of tariff item No. 2710.20.10 in
order for these oils and preparations thereof to be classified under tariff
item 2710.20.90 that provides for a Most-Favoured-Nation Tariff rate of
customs duty of “Free”.
3. That the Description of Goods of tariff item No. 9804.10.00 in the
List of Tariff Provisions set out in the schedule to the Customs Tariff
be amended by replacing the reference to “four hundred dollars” with
a reference to “eight hundred dollars”.
4. That the Description of Goods of tariff item No. 9804.20.00 in the
List of Tariff Provisions set out in the schedule to the Customs Tariff
be amended by replacing the reference to “seven hundred and fifty
dollars” with a reference to “eight hundred dollars”.
5. That the Description of Goods of tariff item No. 9804.40.00 in the
List of Tariff Provisions set out in the schedule to the Customs Tariff
be amended by replacing the reference to “fifty dollars” with a
reference to “two hundred dollars”.
6. That any enactment founded on sections 1 and 2 be deemed to
have come into force on March 30, 2012.
7. That any enactment founded on sections 3 to 5 be deemed to have
come into force on June 1, 2012.
Tax Measures:
Draf Amendments to Various
GST/HST Regulatons
Chapter 1
Introducton
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Draft Amendments to Various GST/HST Regulations
493
DRAFT AMENDMENTS TO VARIOUS
GST/HST REGULATIONS
Doubling GST/HST Streamlined Accounting Thresholds
Regulations Amending the Streamlined Accounting (GST/HST) Regulations
1. (1) Paragraph 16(1)(b) of the Streamlined Accounting (GST/HST)
Regulations is replaced by the following:
(b) the total threshold amount for the reporting period does not exceed
$400,000, and
(2) Paragraphs 16(2)(b) and (c) of the Regulations are replaced
by the following:
(b) the fiscal year of the registrant immediately before the first fiscal year of
the registrant that is a reporting period of the registrant for which the total
threshold amount exceeds $400,000,
(c) the first fiscal quarter of the registrant that includes a reporting period of
the registrant for which the total threshold amount exceeds $400,000, and
(3) Subsections (1) and (2) apply for the purpose of determining
the net tax of a registrant for reporting periods beginning after 2012.
2. (1) Paragraphs 21.2(1)(a) to (d) of the Regulations are replaced
by the following:
(a) the threshold amount for the fiscal year of the registrant that includes
the reporting period does not exceed $1,000,000;
(b) if the fiscal quarter of the registrant that includes the reporting period is
not the first fiscal quarter in the fiscal year, the threshold amount for the
fiscal quarter does not exceed $1,000,000;
(c) the purchase threshold for the fiscal year does not exceed $4,000,000;
(d) if the registrant is a public service body, it is reasonable to expect at the
beginning of the reporting period that the purchase threshold for
the registrant’s next fiscal year will not exceed $4,000,000; and
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(2) Paragraphs 21.2(2)(a) to (d) of the Regulations are replaced
by the following:
(a) if the threshold amount for the second or third fiscal quarter in a fiscal
year of the registrant exceeds $1,000,000, the end of the first fiscal quarter in
that fiscal year for which the threshold amount exceeds $1,000,000,
(b) if the threshold amount for a fiscal year of the registrant exceeds
$1,000,000, the end of the first fiscal quarter in that fiscal year,
(c) if the registrant is not a public service body and the purchase threshold of
the registrant for a particular day exceeds $4,000,000, the end of the
immediately preceding day,
(d) if the registrant is a public service body and the purchase threshold for a
fiscal year of the registrant exceeds $4,000,000, the end of the first fiscal
quarter in that fiscal year, and
(3) Subsections (1) and (2) apply for the purpose of determining
the net tax of a registrant for reporting periods beginning after 2012.
Regulations Amending the Public Service Body Rebate
(GST/HST) Regulations
3. (1) Paragraphs 7(1)(a) to (d) of the Public Service Body Rebate
(GST/HST) Regulations are replaced by the following:
(a) the threshold amount for the person’s fiscal year that includes the claim
period does not exceed $1,000,000;
(b) if the person’s fiscal quarter that includes the claim period is not the first
fiscal quarter in the fiscal year, the threshold amount for the fiscal quarter
does not exceed $1,000,000;
(c) the purchase threshold for the fiscal year does not exceed
$4,000,000; and
(d) it is reasonable to expect at the beginning of the claim period that
the purchase threshold for the person’s next fiscal year will not
exceed $4,000,000.
Tax Measures
Draft Amendments to Various GST/HST Regulations
495
(2) Paragraphs 7(2)(a) to (c) of the Regulations are replaced
by the following:
(a) if the threshold amount for a fiscal year of the person exceeds
$1,000,000, the end of the first fiscal quarter in that fiscal year,
(b) if the threshold amount for the second or third fiscal quarter in a fiscal
year of the person exceeds $1,000,000, the end of the first fiscal quarter in
that year for which the threshold amount exceeds $1,000,000, and
(c) if the purchase threshold for a fiscal year of the person exceeds
$4,000,000, the end of the first fiscal quarter in that fiscal year.
(3) Subsections (1) and (2) apply for the purpose of determining
rebates under section 259 of the Act in respect of claim periods
beginning after 2012.
Tax Relief for Foreign-Based Rental Vehicles Temporarily
Imported by Canadian Residents
Regulations Amending the New Harmonized Value-added Tax System
Regulations, No. 2
4. (1) The New Harmonized Value-added Tax System Regulations,
No. 2 are amended by adding the following after section 6:
Division 1.1
Tax on Importation of Goods
Prescribed goods — paragraph 212.1(2)(a)
6.1 For the purpose of paragraph 212.1(2)(a) of the Act, goods the value
of which is determined for the purposes of Division III of Part IX of the
Act under section 15 of the Value of Imported Goods (GST/HST) Regulations
are prescribed.
(2) Subsection (1) applies to goods imported on or after June 1, 2012.
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496
Regulations Amending the Non-Taxable Imported Goods
(GST/HST) Regulations
5. (1) Section 2 of the Non-Taxable Imported Goods
(GST/HST) Regulations is amended by adding the following
in alphabetical order:
“qualifying vehicle” means a vehicle (other than a racing car described in
heading No. 87.03 of the List of Tariff Provisions set out in the schedule to
the Customs Tariff) registered under the laws of a foreign jurisdiction relating
to the registration of motor vehicles that
(a) is described in any of heading No. 87.02, subheading Nos. 8703.21
to 8703.90, 8704.21, 8704.31, 8704.90 and 8711.20 to 8711.90 and tariff
item Nos. 8716.39.30 and 8716.39.90 of that List,
(b) is described in subheading No. 8704.22 or 8704.32 of that List and has a
gross vehicle weight rating (as defined in subsection 2(1) of the Motor Vehicle
Safety Regulations) not exceeding 10 tonnes, or
(c) is described in tariff item No. 8716.10.00 of that List and is a vehicle
for camping. (véhicule admissible)
(2) Subsection (1) comes into force, or is deemed to have come into
force, on June 1, 2012.
6. (1) Section 3 of the Regulations is amended by striking out “and”
at the end of paragraph (k), by adding “and” at the end of paragraph (l)
and by adding the following after paragraph (l):
(m) a qualifying vehicle that is imported temporarily by an individual resident
in Canada and not accounted for as a commercial good (as defined in
subsection 212.1(1) of the Act) under section 32 of the Customs Act if
(i) the qualifying vehicle was last supplied in the course of a vehicle rental
business to the individual by way of lease, licence or similar arrangement
under which continuous possession or use of the qualifying vehicle is
provided for a period of less than 180 days,
(ii) immediately before the importation, the individual was outside
Canada for an uninterrupted period of at least 48 hours, and
(iii) the qualifying vehicle is exported within 30 days after
the importation.
Tax Measures
Draft Amendments to Various GST/HST Regulations
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(2) Subsection (1) applies to qualifying vehicles imported on or after
June 1, 2012.
Regulations Amending the Value of Imported Goods
(GST/HST) Regulations
7. (1) Subsection 2(1) of the Value of Imported Goods (GST/HST)
Regulations is amended by adding the following in alphabetical order:
“qualifying vehicle” has the same meaning as in section 2 of the
Non-Taxable Imported Goods (GST/HST) Regulations; (véhicule admissible)
(2) Subsection (1) comes into force, or is deemed to have come into
force, on June 1, 2012.
8. (1) Subsection 2(2) of the Regulations is replaced by the following:
(2) For the purposes of these Regulations, the number of months or weeks
in a period is the number of months or weeks, as the case may be, included,
in whole or in part, in the period, the first day of the first such month or
week, as the case may be, being the first day of the period.
(2) Subsection (1) comes into force, or is deemed to have come
into force, on June 1, 2012.
9. (1) The Regulations are amended by adding the following
after section 14:
15. For the purpose of subsection 215(2) of the Act, the value of a qualifying
vehicle that is imported temporarily by an individual resident in Canada, not
accounted for as a commercial good (as defined in subsection 212.1(1) of the
Act) under section 32 of the Customs Act and exported within 30 days after the
importation and that was last supplied in the course of a vehicle rental business
to the individual by way of lease, licence or similar arrangement under which
continuous possession or use of the qualifying vehicle is provided for a
period of less than 180 days is determined by the formula
(A × B) + C
Annex 4
498
where
A is
(a) if the qualifying vehicle is described in any of subheading Nos. 8703.21
to 8703.90 and 8711.20 to 8711.90 of the List of Tariff Provisions set
out in the schedule to the Customs Tariff,
(i) in the case of a truck, sport utility vehicle, minivan or van, $300,
(ii) in the case of a motorhome or similar vehicle, $1,000, and
(iii) in any other case, $200, and
(b) in any other case, $300;
B is the number of weeks during which the qualifying vehicle remains
in Canada; and
C is the remaining duties payable in respect of the qualifying vehicle.
(2) Subsection (1) applies to qualifying vehicles imported on or after
June 1, 2012.
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