[Recorded by Electronic Apparatus]
Tuesday, January 21, 1997
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[English]
The Chairman: Order, please.
The finance committee of the House of Commons is delighted to continue its hearings on Bill C-70.
We're very pleased to have with us this afternoon, from the Canadian Automobile Dealers Association, Huw Williams and Steve O'Regan, and members of that delegation from the Nova Scotia Automobile Dealers Association, John Sutherland and Mr. Lou Riccoboni. From the Canadian Association of Recycling Industries we have Leonard G. Shaw. From the Used Car Dealers Association of Ontario we have Robert G. Beattie and John Jackson. From the Recreational Vehicle Dealers Association of Canada we have Mr. Redmond and Mr. Paré.
We welcome you and thank you for being with us. We're looking forward to your opening comments of about three minutes each and then to a fruitful discussion with you.
Would you like to begin, Mr. Williams?
Mr. Huw Williams (Director, Public Affairs, Canadian Automobile Dealers Association): I'll turn it over to Steve O'Regan from Nova Scotia, who's an actual live dealer, so you can hear it from the horse's mouth, so to speak.
The Chairman: As opposed to an actual dead dealer or what?
Mr. Williams: We have a few of those.
Mr. Steve O'Regan (Secretary Treasurer, Canadian Automobile Dealers Association): Thank you, Mr. Chairman. It's our pleasure to appear before the committee today to discuss Bill C-70.
As you know, back in April of 1994, the Canadian Automobile Dealers Association appeared before this committee during the study of the GST. We're very pleased that the new harmonized sales tax incorporates five of the six recommendations that were made at that time. First of all, of course, it is harmonized. It has been simplified. It is a multi-stage, value-added tax. It's visible but included. And in the signatory provinces it is applied fairly to the sale of all used vehicles, whether they're sold privately or through dealerships.
Therefore, the Canadian Automobile Dealers Association supports the federal government's sales tax harmonization agreement. The CADA believes that Bill C-70 represents the first stage in this government's process to replace the GST and meet the commitments made in the red book.
There are, however, some concerns that our association does have. The first concern is with the application of the existing GST in the non-signatory provinces. The GST as it's presently legislated does not require tax to be levied on the private sale of used goods, including automobiles. This has resulted in a serious market imbalance between legitimate car dealers, who must apply the GST to the sale of a used automobile, and those individuals who sell used vehicles privately or in the underground economy and don't apply the GST. As a result of this unbalanced approach in taxing used vehicles, there is a widespread consumer bias against buying used cars from a legitimate registered dealer.
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To exacerbate matters, the federal government has recently removed the notional input tax credit, which acted as a counterbalance allowing dealers to better compete with the private sellers of automobiles.
By not applying the GST to used vehicles that are sold privately, it's estimated that the government is forgoing $1.35 billion in tax revenue per year.
To minimize our retailers' competitive disadvantage and to restore some level of tax fairness in provinces where the GST has not been replaced by the harmonized sales tax, CADA recommends the following: first, that the GST be applied to all used vehicle sales, whether they're sold through a dealership or privately; second, that Revenue Canada crack down on the underground sale of used vehicles by organized curbers and brokers; and third, that the harmonized sales tax be implemented in every province as soon as possible and applied equally to used car sales during the change of registration. This measure would capture all the potential tax revenue and go a long way towards eliminating the advantage enjoyed by the black market.
There is one other concern we have which I'm not going to go into now, and that is with the collection and remission of GST on the sale of vehicles through auctions. The Used Car Dealers Association represented here today will be covering that issue.
In conclusion, CADA supports the harmonized sales tax, and we will work with this government to ensure the fairest possible tax for all Canadians. Thank you.
The Chairman: Thank you very much, Mr. O'Regan.
Next, from the Canadian Association of Recycling Industries, we have Mr. Shaw.
Mr. Leonard G. Shaw (Director, Public and Government Affairs, Canadian Association of Recycling Industries): Thank you, Mr. Chairman and members of the committee. I'm appearing today on behalf of the Canadian Association of Recycling Industries and our concern about one change contained in Bill C-70: the repeal of the notional input tax credit.
CARI currently has about 170 members that work in all of the recycled commodities - plastics, papers, rubber, glass - but the vast majority deal mainly or exclusively in metals. The member companies are primarily scrap dealers ranging from individual scrap collectors to technologically advanced, capital-intensive processing plants. We also include in our membership consumers of recycled materials, traders in equipment and service providers.
The 1,000 metal recyclers alone provide direct employment to approximately 20,000 persons and an estimated 60,000 additional indirect jobs. In 1994 Canada's trade in recycled metals exceeded 4 million tonnes or $2 million, and 86% of the exports and 94% of the imports were with the United States.
Scrap dealers receive material from all sources and often from small one- or two-person operations, even the general public. These people are not GST registrants. Smaller firms deal more with this type of supplier than the larger firms, and the practice is greater in the smaller communities.
The recycling industries are not like the trade-in situation. Recycling is a secondary commodity market where prices are set by world markets, and the scrap material purchased is fundamental raw material that is input into the recycling process. It is an international market and Canadian firms compete internationally, especially with the United States, and they compete against the primary industries.
Given the international commodity structure of the industry, the repeal of the notional input tax credit is in effect an increase in operating cost for the Canadian recycling companies. It's estimated to be in the millions of dollars. It does not affect the primary industries nor our foreign competitors.
It will negatively impact the competitiveness of the Canadian recycling companies since the value of scrap sold to recyclers contains some element of tax. Scrap dealers who cannot claim a notional input tax credit will be suffering the cascading of taxes, which the GST was meant to eliminate.
Moreover, the impact will not be uniform within the industry. Smaller firms by the very nature of their business will suffer greater impact, thereby affecting the smaller communities to a greater extent. Jobs may be at stake.
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Finally, some companies will probably stop dealing with the very small recycler and the general public. At a time when all governments support environmentally positive policies and those activities that embody sustainable development, the repeal of the notional input tax credit may actually produce a negative impact on recycling and increase material disposal problems.
Thank you.
The Chairman: Thank you very much, Mr. Shaw.
Next, from the Used Car Dealers Association of Ontario, we have Mr. Beattie and Mr. Jackson.
Mr. Robert G. Beattie (Executive Director, Used Car Dealers Association of Ontario): Thank you, Mr. Chairman.
Good afternoon, members. We want to thank you for the opportunity to be able to appear before you today.
My name is Bob Beattie and I'm the executive director of the Used Car Dealers Association of Ontario, which has some 3,100 auto dealers in the province.
With me today is John Jackson, one of our members and vice-president of the Canadian Auction Group, an auction company that has eight operating divisions from Vancouver to Halifax.
Our mutual concern is proposed section 177 of Bill C-70, not the harmonization portion, which, by the way, I'd like to not just make a side issue of but support totally the CADA presentation heard just a few moments ago. The portion of proposed section 177 we're dealing with today is the one that proposes a fundamental change in the way the GST will be collected when goods are sold at auction only.
By way of background, I should note that the auctioneering of used vehicles in Canada is a major industry. We're dealing with over 300,000 vehicles sold per year. It's an industry of over$3 billion in sales. There are more than 20,000 automobile dealers in Canada, many of whom use the auction process. It's used to redistribute inventory virtually from coast to coast. It's grown dramatically over the past decade, as I'm sure John will refer to in a moment.
Our dealer members rely very much on the auction process. It's fast, efficient and good. Our concern, in fact our fear, with the proposed change is that unlike for all of the other forms of selling goods, dealers will be prohibited from collecting GST on their sales - the amount of GST that would normally be used to offset the GST they paid to purchase the vehicle. Having paid for it the day before, they ordinarily would get it when they sold it the following day.
The overriding simplicity of GST collection and payment is that you collect GST on all sales and you indeed pay on all purchases. If sales are greater than purchases - and we hope they are - the difference is remitted during the following period to Revenue Canada.
This proposal would see the businesses paying the GST for their purchases and then waiting from three months to more than a year, depending on their frequency of filing, in order to receive a refund from Revenue Canada. The result would be a permanent reduction in a dealer's cash available for inventory. Our calculations are that it would be a permanent reduction of from 20% to 60%.
I need to let you know that unlike a new car inventory in a dealer's lot, the used vehicle inventory is financed by the business, not by a financial institution. By and large, if you know the term ``floor-planning'', that does not exist for the used vehicle portion of a dealer's inventory.
The effect of the proposal would be catastrophic to thousands of dealers, and frankly for no good reason, we believe. The proposal would at best ease some bookkeeping difficulties for about 450 auctioneers in the country, but it would create chaos for the 20,000 business people, and not just automobile dealers. The heavy equipment industry is a major player using auctions throughout the country and the floral industry is primarily based on the auction process as well.
In fact Mr. Garry Watson of Flowers Canada, who, like us, only found out about the problem last week, wanted me to mention the concerns for their industry as well. I've tabled with a portion of the brief their letter in support of our position.
The key issues are a dramatic loss in equity for dealers, especially small businesses; the singling out of the auction industry for a punitive GST collection system; and a huge potential for an increase in audits, only because of the change in the single regulation. The manner in which GST has been collected and paid at auctions since GST was first introduced was never a problem for the businesses dealing at auctions, and removing this proposal is clearly needed.
I understand the Auctioneers Association of Canada, which originally sought the change, have now rethought their position and don't wish to see the proposed change go into effect either.
If I may, I'd like to ask John Jackson to address the concerns on the part of the auction industry itself in Canada.
Thank you, Mr. Chairman.
The Chairman: Thank you.
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Mr. John H. Jackson (Member, Used Car Dealers Association of Ontario; Vice-President, Marketing and Sales, Canadian Auction Group): Thank you, Bob.
Good afternoon, Mr. Chairman and members of the committee.
I'm here at the invitation of and as a member of the Used Car Dealers Association, but also as a representative of the 17 major vehicle auctions across Canada.
Our position on the proposed changes to GST regulations on withholding and remittance sections is it will impact negatively on our clients' business activities and is discriminatory in its scope and focus on one particular segment, that being vehicle auctions, in a multi-billion-dollar industry.
We are prepared to review and support our concerns during the question and answer period and to supply further information on this.
Thank you.
The Chairman: Thank you very much, Mr. Jackson.
Mr. Redmond and Mr. Paré.
Mr. Ray Paré (Chartered Accountant, Recreation Vehicle Dealers Association of Canada): Thank you. My name is Ray Paré and I'm with BDO Dunwoody in Toronto. With me is Bill Redmond of the Recreational Vehicle Dealers Association of Canada. Bill is also a dealer in Calgary with the Bucars RV Centre.
We are here as well to talk about the impact of the notional input tax credit on our businesses. Several people here have mentioned that we are looking at it from a slightly different angle.
The original intent of the notional input tax credit was to help eliminate some of the double taxation that occurs on used vehicle sales. If a dealer buys from a private individual, they can remove the GST content of it by using the notional input tax credit so that when they in turn resell it, they can apply the GST and they haven't increased their cost just for the GST. So it in essence eliminates tax cascading and makes the system work fairly in situations where we're purchasing from a private individual as opposed to another registered dealer.
This has been in place since the inception of the GST, and with good reason. Now, in Bill C-70, the government is proposing to eliminate the notional input tax credit and replace it with this concept of a trade-in approach.
The trade-in approach, I think everybody will agree, essentially produces the same result as the notional input tax credit, except it requires that there be a new car sale at the same time. If you are accepting a vehicle used and selling a new vehicle at the same time, you get to net the cost of that or whatever trade-in value you assign against the new vehicle and it reduces the GST you remit. So it produces the same effect, but it causes a severe problem in an industry where you don't normally match a new sale with the purchase of a used vehicle. That's the situation we have.
The RV industry is common in that respect. People quite often get in and out of the industry. They'll buy an RV, use it for a while and then sell it without buying a new one. Then maybe a few years later, at a different stage in their life when their kids are grown up, they decide they're going to go back in and buy again. We don't match up often. It's not the usual situation in our industry, or at least a big part of our industry is just purchasing these from individuals who are not buying a new RV at the same time.
Unfortunately, in removing the notional input tax credit, yes, the Department of Finance did solve the problem for trade-ins, but for our situation there's nothing. So that means we once again have the tax cascading over and over again as these RVs pass through the system several times.
An RV can have a useful life of upwards of 25 years, and they're very large-ticket items. Over their lives they will often trade hands five or six times, and every time that occurs now, another layer of tax will be put on whatever the sale value of that vehicle is.
When we spoke to the department they made us aware that they had some serious concerns with the notional input tax credit. I haven't heard anybody raise these, but we've been told they got rid of it because of significant abuse they were finding in certain sectors. We were not aware of that. I think the department will probably agree that it wasn't occurring in the RV sector.
We've looked at that situation and we've tried to come up with a way to better substantiate notional input tax credit claims so it would be very difficult for that abuse to occur. It's a system of documentation and verification so that people would have to substantiate clearly what they paid for the vehicle and that tax was in fact paid on it originally so that the notional input tax credit could in this instance be reinstituted.
If we don't reinstitute it, it's going to have a significant impact on our industry, we feel. It's difficult to come up with actual numbers, but we certainly believe it's going to affect our dealers in that they're not going to be able to offer the same price to individuals for their RVs when they bring them in to sell them to us. Failing that, if people are willing to accept less, then it's certainly the consumers who are going to be suffering, because they're going to get less from us.
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I think most people would prefer to deal with a dealer. Unfortunately we're not going to be able to offer them the same amount we could have before because we're not getting a notional input tax credit on that. One way or another somebody is going to be impacted by this, and really the government is collecting tax over and over again. It has to impact either the dealers or the consumers.
Our solution has been to come up with a system of documentation that we hope the committee will look at and find reasonable - reasonable enough so that the Department of Finance will feel comfortable in reinstituting the notional input tax credit so that we can eliminate the settlement of tax cascading once again, as it was for the first several years of the GST.
The Chairman: Thank you very much, Mr. Paré.
[Translation]
Mr. Pomerleau, would you lead off with the questions?
Mr. Pomerleau (Anjou - Rivière-des-Prairies): I have a question for Mr. Beattie orMr. Jackson. You say changes were made to the way the GST is collected when a car is sold at auction. I'd like to know how it was done before and what reasons the government gave to justify that change in the law.
[English]
Mr. Beattie: First let me say that the reason for the change, we understand, was a request from the Auctioneers Association of Canada, who believed they had difficulty determining who were and who were not registrants for the purpose of GST, and it created some bookkeeping difficulties for them. As I think I indicated, they have since indicated in the last couple of days that perhaps this isn't such a major problem after all.
The difference with this proposal compared with the current rate is that as a dealer today I would purchase a vehicle for $10,000. I would pay $700 GST. I might go to Mr. Jackson's auction tomorrow, sell it for $10,200 and collect $10,714 GST. So the $700 of GST that I paid yesterday is now compensated for in my cash and I can go and buy another vehicle.
Under the proposal I would still pay the $10,000 plus the $700, but when I go to Mr. Jackson's auction I will only get $10,000. Then I have to wait until I make my return to the government, to Revenue Canada, which is, if I'm a monthly filer, one month later. Then they have 21 days to send a cheque. That's the basic difference.
Mr. Jackson: I'd like to add to that. There should be some differentiation between the different types of auctions and auctioneers here in Canada, or in North America for that matter. The vehicle auctions you see in Canada - and I'm talking again representing the 17 majors. There are probably 30 to 40 car auctions in the country as compared to those auctioneers who go to estate auctions and do different types of assets other than vehicles.
In all cases, with an automobile auction, there is a known position of the GST registrants, because the only people allowed at that particular auction are dealers and used car dealers that are registered. Therefore, whoever happens to be the seller or the consignee is a GST registrant and so is the purchaser. From our standpoint, as auctioneers and as an auction house, we present an environment in which a vehicle can be sold.
We have a major concern about the number of transactions that will be impacted if in fact the proposed changes go through. As Mr. Beattie says, hold back a certain portion of those funds...albeit they will come back to that particular registrant, the buyer. Eventually it does impact his capability, and it is a cash business. These are vehicles that are not financed under a normal program as you would with a new car. Therefore the smaller and the medium-sized dealers that could be doing anywhere from 10 to 25 units a month are going to be impacted dramatically with a shrinkage of capital.
Our contracts, as are the contracts with all our competitors and the people in the auction vehicle business, very clearly define who are the registrants. The existing rules could remain without further impact to a very large segment of the used vehicle industry, and just with the 17 members we have we're talking about 25% to 27% of that multi-billion-dollar business done in used cars.
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[Translation]
The Chairman: Thank you, Mr. Pomerleau.
[English]
Mr. Solberg.
Mr. Solberg (Medicine Hat): Thank you very much, Mr. Chairman.
I suppose a lot of people don't find taxes all that sexy, but probably -
The Chairman: I do. At my age you take anything you can get.
Some hon. members: Oh, oh!
Mr. Solberg: In this particular discussion, where we're discussing the harmonized sales tax, things like tax-in pricing catch more headlines, but I think one of the sleepers in all this legislation is the notional input tax credit. From what I can divine, Mr. Chairman, the removal of the notional input tax credit will mean all kinds of new revenue for the government. Some people have suggested up to $1 billion a year, which I find amazing, considering how little public debate we've had about this.
I do want to follow up on some of the comments we've heard from Mr. Paré and alsoMr. Redmond with respect to RV dealers. With the removal of the notional input tax credit, this is going to mean a huge tax hit, I would think, on RV dealers. You will be in a situation where you're going to be bearing the full cost of this now or you're going to have to pass it on to your customers. Is that correct? Have you taken the time to figure out how much this will add up to just in your industry alone?
Mr. Paré: We are not economists and we do not have a large research staff to do those types of calculations. All we can do is rely on the testimony or the opinions of our individual members who have told us that this will have a severe impact on them. We've tried to get some kind of anecdotal evidence. We've heard stories from some of our dealers that there are people in certain areas who have already decided that they're just going to either get out of the market or close up, if they are doing primarily purchases of used RVs.
The impact really depends on how your business is set up. If you're doing a lot of used, then this is very severe for you and it will make it very difficult for you to carry on. Some of them who are doing some used and mostly new sales of RVs can shift more of their business over to the new area, so it will have less of an impact on them. Certainly it's going to have an impact on the consumer, because the consumer now is going to find that dealers aren't going to be willing to offer them as much as they could have before for their vehicles.
The other option is to deal with somebody privately or with a curbsider, as was mentioned before. I don't think that's a viable solution for a lot of individuals who would rather come to a dealer and know that they have a safety-inspected and well-warranted vehicle, that everything has been checked on it. It's going to be more difficult for them to deal with us now.
Mr. William Redmond (President, Recreation Vehicle Dealers Association of Canada): If I may respond, the RV industry is extremely competitive and tends to be made up of relatively independent individuals, so collecting statistics on the industry is somewhat difficult. In my own particular case, I do about $2.5 million a year in used sales. About $1.5 million of that I acquire through purchase from individuals. I stand to lose $1.5 million of my business. I think from the government's standpoint that means there are going to be $1.5 million worth of sales that are going to be outside of the registered portion of the industry. The GST will not be collected on those vehicles.
Mr. Solberg: This is rather obviously going to have a pretty big impact on this industry. I don't know how many people you employ. Obviously, you have a lot. There are a lot of RV dealers across the country who employ a lot of people.
You did mention that you talked to the finance department people. What kind of response are you getting? Could you expand on that a bit?
Mr. Paré: We have given them our proposal so that they can feel more comfortable that the notional input tax credit is not being abused. To be fair, we've only just had some very brief feedback from them in the last day or so, so it's not really fair for us to put their views forward. We'd like to hear from them as to whether they think our plan will work.
As far as we know from them, that was their main concern in eliminating the notional input tax credit, the fact that there was abuse in certain areas, and it was difficult for them to find it, to track it. We can't fault the Department of Finance for wanting to put an end to that abuse. That's great. It's what they should be doing, and they've tried to come up with a reasonable way to do it. Unfortunately, it does affect an awful lot of us here.
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We'd look at it from the other side and ask how we can meet their concerns and try to make this a little tighter so it can't be abused.
Mr. Solberg: I think the sector they were referring to, with apologies to people over here, was the used car sector. There were some problems with car dealerships in certain parts of the country, and if memory serves, that was one of the problems.
My understanding is - and I guess we'll talk to finance department people tonight - that there are rules that could be applied and aren't applied, anti-avoidance rules, which could be a possible solution. It seems to me that we're going to great lengths here and penalizing a huge sector of the economy, changing the rules on a huge sector of the economy, because of the abuses of the few that probably could be resolved through anti-avoidance rules. Is that accurate?
Mr. Paré: Our method has suggested documentation. We said increase the documentation. Because in our case we're dealing with big-ticket items, we don't think it's a great burden for the people involved. They'd be willing to do it.
The anti-avoidance rules are there. There's a GAAR, a general anti-avoidance rule, for GST purposes. I can't really argue with Finance's or Revenue Canada's reluctance to rely on that. I think there's a long trail through the courts that they'd have to fight before being certain that they had nabbed this and stopped it.
We prefer to approach it from the point of view of documentation. We think you can make this so that Revenue Canada is happy that the claims being made are legitimate.
Mr. Solberg: I appreciate that you've come up with your own solution. I think that's great, and hopefully the finance department people will be willing to sit down and look at it. It seems to me that it wouldn't be quite right to change the whole system on the basis of a few abuses.
Mr. Williams: Could I jump in from the franchise dealers' perspective? One thing that has to be remembered is that the notional input tax credit was originally put in place to solve the imbalance between private sellers and dealers that would be selling used cars. How this relates to the harmonized sales tax is important.
Really, the problem for dealers in Atlantic Canada has been solved by the harmonized sales tax, and if we get that system across the country we won't have to worry about the notional input tax credit any more. It's the dealers in Alberta and in Medicine Hat who are caught in the bind of having to live under the old system while the problem has been taken care of for Atlantic Canada. I don't know if that is helpful.
Mr. Solberg: I appreciate that. Frankly I don't see the tax spreading across the country any time soon. Maybe I'm being too skeptical, but I don't think that's going to happen. In the meantime something has to be done, fairly obviously.
I would just make a comment, Mr. Chairman, about the removal of the notional input tax credit in general. I know this doesn't have much to do with RVs, but one thing that strikes me - and I don't think the finance department has listened to this very well or considered this very much - is that with the removal of the notional input tax credit, used goods, things like furniture or used clothing, are going to go up in price. The people who rely on those sorts of things are the poorest people in the country.
I find it a little bit distressing that this has not been widely discussed. I'm concerned that the finance department hasn't seen fit to leave the rules as they were, considering the impact this will have on the people who make up the poorest part of society. I urge finance department officials, who I know are across the way, to consider this and be mindful of the fact that this is going to hurt a very vulnerable segment of society.
The other point I want to make is that this is a huge tax grab. Now, I'm sure people in the finance department will say it's not designed to be that, but in fact it's going to be a huge tax grab. People are already taxed to the eyeballs in this country. They don't want to pay more taxes.
With apologies to the people representing car dealers, I see that they have a proposal here where in Atlantic Canada we would see everybody taxed on everything. I appreciate what they're trying to do, and maybe it could be done if you lowered the overall tax rate. People might be willing to accept that. But when it goes into a great black hole and people don't ever see the benefits of it, I think they get a little tired of seeing every measure turn into a tax grab.
I'm going to leave it at that, Mr. Chairman. If people wish to respond to what I've said, that's fine. If not, we'll just carry on.
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The Chairman: Would anybody like to knock him down?
Mrs. Brushett.
Mrs. Brushett (Cumberland - Colchester): I would like some clarification as to the difference between the car dealer who takes the trade-in, the used car, and then sells a new car, as opposed to the impact it has on the person who deals strictly in used cars or used clothes or used goods of any kind. Could someone in the industry clarify the impact of the two different situations?
Mr. Williams: I could take a stab at it. A used car dealer who is dealing strictly in used cars is more likely to be sending more cars through an auction and to be more dependent on that sort of business. A new car dealer obviously has a franchised business and a service business, and the used cars represent a smaller portion of the overall business. I think that would be a fair answer.
Mr. Beattie: Huw's point is correct. However, there isn't a difference on the trade-in. Within the Revenue Canada rules, Finance rules, the trade-in applies regardless of whether it's a new car or a used vehicle being sold. If it were a 1993 vehicle being sold and a 1989 vehicle being traded in, the value of that 1989 vehicle would be deducted from the 1993 vehicle. It isn't just on a new goods sale.
Mrs. Brushett: If I understand the problem correctly, then, it's the impact on your cashflow that's the major problem here. You're using the GST currently to manage your cashflow, basically.
Voices: No, no.
Mr. Beattie: Are you referring to the auction?
Mrs. Brushett: I'm trying to compare notes here. There are three or four things.
Mr. Beattie: There are two different issues here. With regard to the auction, the dealer isn't using the GST to manage cashflow. It's almost the opposite, because they have put their money out to pay the GST on the first purchase. They've already paid it out of their bank account, and they ordinarily would be compensated for that amount when they resold the vehicle. In fact, they are the first level of lending money for GST purposes, not takers of GST.
Mrs. Brushett: Okay, but the used car dealer is the reverse.
Mr. Beattie: No. The used car dealer is no different from the new car dealer. They both deal in exactly the same fashion.
Mrs. Brushett: I must disagree. They make an extensive point of the loss of revenue in terms of GST. That is their big concern.
Mr. Jackson: It's not a loss of revenue; it's a shrinkage of capital.
Mrs. Brushett: Well, that's how they present it. A shrinking of capital or the immediate -
Mr. Beattie: Are you referring to our proposal?
Mr. Jackson: Which proposal are you referring to?
Mr. Williams: Are you making reference to the fact that GST isn't charged on the private sales of used vehicles, that there is a $1.3 billion shortfall?
Mrs. Brushett: This is the Used Car Dealers Association of Ontario, based on the fact that they remit in quarterly instalments. The problem is compounded if they remit semi-annually and much worse again if they remit annually. The fact is that they're using the GST for capital flow-through, for managing the cashflow.
Mr. Beattie: They never got the GST in the first place. If the dealer began business on day one with $100,000 in cash, he or she would have bought a vehicle, say, for $10,000 and would have had to pay that seller $10,700. So the dealer funds the GST in the first instance. It doesn't belong to the country; it belongs to the dealer. But that GST is now in the hands of the selling dealer, regardless of whether it's new or used.
If you simply follow from there, that $700, if you're dealing with $10,000 vehicles each time, is compounded by the fact that the following month the dealer again buys a vehicle for $10,000 and puts out a further $700 of his or her money. Now they've put out $1,400 between the two months before they apply for their credit. So they're not using any Revenue Canada funds. They're using their own funds, and in fact they're funding the whole of the GST process.
In this way, if you follow an annual filer - which wouldn't happen, because they can file more often if they wish, but a small dealer usually would not because of the paperwork - if you followed it to the ultimate, within six months they would lose almost 60% of the original $100,000 of equity they began with. They'll get it back ultimately, month by month, but it will be delayed by that period of time.
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As I mentioned earlier, our dealers don't get financing for their used vehicle inventory. They can't go to the bank and get that kind of financing. They have to do it out of their pocket, and that's how they do business.
Mr. Jackson: Part of the impact of this is under the existing situation, if you have two used car dealers who form a transaction, the flow-through with respect to the GST is clean. There's an input; there's a takeout. If that dealer decides to take that vehicle to auction and still sells, through the auction process, to that same dealer, the dealer who was the seller is now out his GST for upwards of 78 days. He has an impact and a shrinkage in his capital, and therefore it is discriminatory.
Mr. Williams: I guess to put a fine point on it, the principle is, as dealers, if it's in any portion of your used business, you collect GST on all your sales and you pay on all your purchases and there's an immediate offset. Under the proposals coming from Finance there is going to be a delay in it simply because it has been run through an auction. That's where the cashflow problem comes into effect - the delay proposed by Finance.
Mrs. Brushett: There is some clarification that needs to be made on these two issues, because it's not very -
The Chairman: The way I understand it - excuse me for interrupting you -
Mrs. Brushett: Go ahead.
The Chairman: - is that the dealer is out the GST, the 7%, or whatever amount it is, having purchased until he sells that vehicle and has time to prepare his refund and get paid.
Am I wrong on that, Mr. Jackson? You're looking askance.
Mr. Jackson: You said he's out the GST...
The Chairman: He doesn't get the GST back -
Mr. Jackson: He gets it back eventually.
The Chairman: I'm just trying to figure out exactly how long it takes him to get it back. You have to sell the car first and then you have to file your application for a refund, and then you have to wait until you're paid.
Mr. Jackson: Under the existing situation, yes.
The Chairman: Under the new situation?
Mr. Beattie: Under the proposed...
The Chairman: I think we have a lot of confusion here.
Mr. Williams: In a nutshell, using our calculations - we had our CA run through it in Toronto - the ballpark figure, and this is through the changes proposed by the Department of Finance, is that it can add an extra seven weeks' delay to the whole process.
The Chairman: I want to know what that delay is.
First of all, you don't get your refund until you've sold the vehicle. Am I correct?
Mr. Beattie: Exactly. You normally get your offset when you sell the vehicle, Mr. Chairman.
The Chairman: So you have to sell that vehicle, which is normal for everybody who buys and sells goods. The added delay is that you then have to wait to get the refund of the GST from the government, assuming you just have one vehicle and assuming you're not buying and selling on an ongoing basis and just netting the credit.
Mr. Williams: For the sake of argument, there is a one-vehicle transaction made on January 2, where a dealer has purchased the vehicle and he's paid the GST on it and then he runs it through an auction.
The Chairman: He runs it through the auction on the second?
Mr. Williams: He runs it through the auction on the third, to make it simple.
The Chairman: Okay.
Mr. Williams: He's bought the car; he's paid the GST. It's a $10,000 car and he's out $700. He's paid that tax of $700. On the third, he runs it through the auction. Under the present system, and if the auction sold it for the same amount, $10,000, he'd get the $10,000 back plus the $700 would be paid to him immediately. Under the proposed changes, he'd have to wait until the end of January to prepare his statement, and he might wait until the end of January or the end of February because he has two months to do that transaction. After he has sent in his filing, Revenue Canada has 21 days in which to reimburse him the money. In the extreme, if it was a very clean transaction with Revenue Canada and he was doing it at the end of the year, it might be a two-week delay. At the outside it might be a 14-week delay. Somewhere in the middle there is probably on average a seven-week extra delay in the new system.
Mr. Campbell (St. Paul's): Mr. Chairman, I wonder if I can shed some light on behalf of the government.
The proposed amendments to the rules relating to sales by auctioneers were developed in consultation with the auctioneering industry, if I can describe it that way. The cashflow problems you described earlier and that the chairman is speaking to now... The impact on car dealers has only recently been brought to the attention of the department. That is a matter that is being looked at and will be looked at further, because you're highlighting a very real problem, as we're seeing before this committee.
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Someone is shaking their head over here and others are nodding yes.
Mr. Jackson: I was only shaking my head because nobody in the vehicle auction business had been contacted. We checked with every single one, and nobody had been heard from. This came from a small group of auctioneer associations.
Mr. Williams: I should say for the record, Mr. Campbell, that I appreciate that, and the people at the Department of Finance have been great. It's only in the last few days, early last week, that we became aware of the problem, and they've been super with us.
Mr. Campbell: Thank you. Just in the interest of not having a lengthy discussion, it's been brought to our attention only in the last few days. It is being looked at. It is a real problem, which we recognize. We want to see if we can address it.
Mr. Beattie: We appreciate that. And I didn't mean to infer in any respect that we weren't already working with the finance department. I should have said that earlier. But certainly that was the purpose of having Mr. Jackson here today.
The Chairman: What concerned me was when I heard it could take up to 78 days or whatever. I thought there was an opportunity to file monthly in order to get your refunds.
Mr. Beattie: There would be, Mr. Chairman, but even on a monthly filer -
The Chairman: It would take up to seven weeks.
Mr. Beattie: - he or she would still be filing at the end of February for that January sale.
The Chairman: Filing at the end of January for the January sale.
Mr. Beattie: No, at the end of February. You file for the month of January by the end of February, the 30 days following.
The Chairman: Mr. Williams said it's only seven weeks.
Mr. Williams: It depends on how you do your books. Our CAs tells us that some dealers would do it at the end of January and others would do it at the end of February.
Mr. Beattie: They might. It's very hard to do your finances on the 31st day plus one. I think you'll find that Revenue Canada's form for remittance of sales tax states that it is 30 days after the end of the prior period.
Mr. Williams: That's the longest you can go, to the end of February.
Mr. Beattie: Yes, which is typically what people - unless they're in a refund position -
Mr. Williams: Absolutely.
Mr. Beattie: - would be doing.
The Chairman: I don't see any justification for not trying to cater to your cashflow needs. I think that's fair. I think there has to be a way to deal with it.
Mr. Fewchuk.
Mr. Fewchuk (Selkirk - Red River): I have one question on your purchases on your equipment, the GST, and also then on your credit sides on the sales on 30 days. You've taken the GST that you collected on the sales from the government and you've got your purchase side. At the end of the month you take purchase versus the credit, so you just pay the difference and you keep using the government's 7% for whatever number of days, 21 days or 22 days. Is there any way you could speed up the GST being collected for the government and your sales coming to directly to us? In return, there's a fair return as to what you're saying: the purchase on the other side be credited to you immediately. How can we get our money on the GST a lot faster than the 45 days or the 21 days after filling out the form?
You're getting the benefit of both sides. You get the purchase to pay out, but you also don't send the exact amount of money back in, because at the end of the month, if you've made $200,000 worth of sales and you only bought $100,000, you're getting a credit on the tax side. You've got to keep the money in the bank and at the same spend the money you put out. It's sales versus purchases.
Mr. Beattie: You wouldn't be able to sell $200,000 worth of goods to collect the GST if you only bought $1,000 worth.
Mr. Fewchuk: You guys know that when you sell your goods, you keep the money -
Mr. Beattie: We'd like to.
Mr. Fewchuk: - until the time you fill out the forms. And if your purchases are less or more you don't pay GST, because the sales offset the purchase of the used equipment. I was in business too, so let's be up front here.
Mr. Beattie: The whole matter deals not with used vehicles or heavy equipment or appliances or anything else. What you're referring to, and I don't disagree, is a matter of Revenue Canada's position, of course. They set the rules in terms of what businesses should do, and they set the rules on the basis that monthly filers should file by, as Huw Williams said, no later than 30 days after the month's end.
Now, if they wanted to bring in a new rule that said 15 days after the month's end, then they obviously could do that. But I don't think you would agree that one segment of an industry, such as automobiles or RVs or otherwise, should be dealt with differently than the rest of the country's products. That's what we're dealing with here, an auction process.
Mr. Fewchuk: No, they could be all the same.
Mr. Beattie: Yes.
Mr. Fewchuk: Fridges, stoves, no matter what it is.
Thank you.
The Chairman: Ms Whelan, please.
Ms Whelan (Essex - Windsor): I'm going to ask a question just so I understand. I heard the tax credit was a problem for two years, but I'm now hearing it was never a problem.
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Is there a line when you buy a car...? At the end, when you sit down and negotiate the price, and just before you say this is how much tax you're going to pay, so we'll take off that $700 we got as an input tax credit... Is the consumer aware of that? Is that how it is done? Is it made clear to the consumer that they're getting this benefit? Is that identified clearly?
Mr. Williams: I have to tell you that I've seen a number of different dealership forms, and a lot of the dealers I know - for example, I think of one, Murray Koch in Edmonton, who does a lot of trade-in on trucks - absolutely it's part of the form, part of the sales process. We want to sell cars that way. But I'd be disingenuous if I said that every dealer across Canada had a form that was spelled out that way.
From the dealer's point of view, it gets worked into the deal one way or the other. It's like a trade-in, you know, if I'm making sense. But they may not calculate it out of the line -
Ms Whelan: If you want to be up front and honest with the consumer, it's declared. You're telling them this is how much input tax credit we got, and this is how much we're reducing the price by.
Mr. Williams: Absolutely.
Ms Whelan: If you're not then you're using money as part of your negotiating tool that they're not aware you have.
Mr. Williams: I agree. That's why as an association our point of view is that it should have been a mandatory line item. I have to tell you that not every dealer did that, but a large portion of them did, absolutely.
Ms Whelan: I can tell you, I've received complaints over the last three years from people, after they found out about the notional input tax credit, that it wasn't disclosed to them when they sold cars, etc. As much as the dealers may have thought it was their money, it really wasn't. It was money that was supposed to have been passed on to the person buying the next vehicle as part of a trade-in.
Mr. Williams: Absolutely. That's really why the new harmonized system, if we can get it all the way across Canada, puts everybody on a level playing field, without having money coming back and forth between the government and people having to work it into deals and put it on the sales contract.
Mr. Paré: I think I'm going to take issue with my colleague over there. I look at a situation where if you are going to come to me with a $10,000 vehicle and you want to sell it to me for $10,000, I won't gross that up. I need the notional input tax credit so that I can give you that $10,000. If you're looking in one of these magazines - and all of our industries are characterized by the fact that there are readily available magazines out there that are published weekly to tell you exactly what private individuals are going to pay for a vehicle - for me to be able to offer you what you can get from a private vehicle then I need the notional input tax credit.
If you're looking in that book and you're seeing that other people are paying $10,000 for it, to pay you $10,000 I need to have that price reduced $934 by the claiming of a notional input tax credit. If I take your vehicle and turn around and sell it to this fellow, I have to apply GST, because I'm not a private seller, I'm a business. So I will have stepped up the value with no profit whatsoever unless I get that notional input tax credit.
Now, you're saying the individuals aren't aware that they're getting the benefit. When the GST was introduced, that was there so that we could continue to deal in that market and accept those; it was there for that purpose. They might not have seen an original blip in getting the amount, but certainly we were able to continue dealing with them, as opposed to having them go to a private individual. It's more to make the system equal between individuals and businesses so that businesses can compete with private sales.
People weren't getting the benefit in those terms who would have paid the prices. If I have to pay you $10,000 and not get a notional input tax credit, I now have to turn around and I have to sell that for at least $10,000 to somebody else, but I have to step it up to $10,700. So that person over there is paying an extra $700 with no profit on my part, just because the GST has applied again.
The notional input tax credit is there just to give us equity between dealers and private sales. The public was getting the benefit of it. Now, it's possible that some people would have been willing to pay $10,700, but I think we have to assume that people look at these magazines, they look at what the price of their vehicle is, and they bargain reasonably. Maybe they hear about this notional input tax credit and think they lost out on something, but I don't believe they did. I think they got treated fairly. It's there and it's needed for the system.
Ms Whelan: In the Atlantic what is happening is that used vehicles, whether sold privately or commercially, are going to be subject to a similar type of tax.
Mr. Paré: I agree, and you will have an equity system there -
Ms Whelan: So you don't need the notional input tax credit.
Mr. Paré: In the Atlantic provinces, when they bring in that system - and the provinces, as I understand it, will now levy a 15% tax at the retail level, which won't be a part of the GST, as it will be the provinces levying that - you will have equity between dealers and the private sector. That solves our problem in terms of people wanting to deal with us. It doesn't solve the consumer's problem, because that gives you tax cascading back again, which is the whole idea behind the harmonized sales tax - to get rid of tax cascading.
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It also doesn't solve the problem in Ontario or Manitoba or Saskatchewan or B.C., who will now continue to have this inequity between those two situations.
Yes, if we had a harmonized sales tax - and I think a lot of us here agree that it would sure be nice if the provinces came on side. It's not something that's going to happen. At least, it doesn't seem as though it's going to happen in Ontario very soon. By eliminating the notional input tax credit, we're going to have this competitive disadvantage that's going to make it very hard for us to stay in the market.
Ms Whelan: But aren't recreational vehicles subject to the PST in Ontario?
Mr. Paré: Yes, but not the GST. You're right. We live with it at that level and the consumer pays the tax cascading. Whether or not that's right - I don't think it is. I think the reason behind an HST is to get rid of that. I'm very disappointed that the Atlantic provinces have decided to apply this tax at the retail level when you register a vehicle.
Certainly we don't now have GST tax cascading. The notional input tax credit has taken care of that; it has gotten rid of it. Now that's being eliminated. So we are reintroducing an element of tax cascading.
What effect is that going to have? Consumers are going to pay it. They're not going to care. You could say that, but some of them may well start looking at these magazines and say ``Why should I go to a dealer when I can sell it privately or buy it privately? It's much better.'' Everything starts moving out into the private sector as opposed to the GST-registered sector, which we represent, and you lose not only the GST on those sales but the income tax, which I would think is a bigger item.
Ms Whelan: I think there are a number of things happening at the same time. Simultaneously, you're dealing with the Internet; you're dealing with faster communication and information. I sympathize with you in the sense that you're struggling against a changing world. People have information of what vehicles are available 500 miles away, which they wouldn't necessarily have had except for auto trader or vehicle trader magazines and not in such a timely fashion. There are a lot of changes taking place at the same time.
Mr. Paré: We would like the government to rethink this one and say at least don't hit us with this change, because it's one you can avoid by tightening up the system a little bit, which we're willing to help you do.
The Chairman: Mr. Solberg.
Mr. Solberg: I just want to make a further point. When you're talking about an RV, you're talking about a substantial amount of money when you talk about 7%. It's worthwhile for people to do whatever they have to do to get the best possible deal, because you're talking about so much money. I think in particular on large ticket items such as RVs it has a real profound effect.
I just want to add my support to what's been said already.
The Chairman: If I could follow up on that, Mr. Solberg, there's no typical price for an RV. That means a trailer home or a mobile home. Is that what an RV is?
Mr. Redmond: An RV is everything from a truck camper, which is not registered under anybody's motor vehicle act, up to the largest motor homes. I understand in the Vancouver show there's going to be a million-dollar motor home.
The Chairman: Without giving away any trade secrets, what's the usual mark-up to a dealer on these?
Mr. Redmond: We're very happy if, after all is said and done, we have something in the neighbourhood of 16% or 17%. That includes our sales, our service, our parts, our business office.
The Chairman: Your gross margin?
Mr. Redmond: The gross margin on the operation of the dealership -
The Chairman: If you buy it for $10,000, you would sell it for - what's 16% on $10,000?
Mr. Redmond: It's $1,600.
The Chairman: For $11,600. Right?
Mr. Redmond: That's correct.
The Chairman: So this would take away $700 of that profit?
Mr. Redmond: In theory, we'd like to add the $700 on top of that.
The Chairman: Our proposal takes away that $1,600 gross profit. Our tax would take away $700 of it, leaving you with only $900 gross profit.
Mr. Redmond: In the simplest sense of doing the mathematics, yes.
The Chairman: I'm a simple guy. I don't understand these things. Is this really a typical type of situation where...?
Mr. Solberg: That makes the assumption, of course, that it's not passed on. Either the consumer gets hit with a higher price, which you can't afford to do if you're competing with curbers, or it cuts into the margin.
Mr. Campbell: Harmonization takes care of it.
Mr. Solberg: That doesn't help people outside the harmonized areas.
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The Chairman: You're saying you probably cannot pass this tax on to the consumer because you have another market there that is not taxable. There's a lot of knowledge, you say, in the industry through the magazines and everything else, so people know what the prices are and it's very competitive.
Mr. Redmond: That's correct.
The Chairman: If you pay $10,000 for a used vehicle, the most you can charge, tax included, would be about $11,600 or $11,800.
Mr. Redmond: That's correct.
The Chairman: If this change goes through, your gross profit will go from $1,600 to $900, which is a fairly substantial cut in gross margin, right?
Mr. Redmond: That's correct.
A voice: Gross revenue.
The Chairman: No, gross margin. Your margin is $1,600.
In just a second you guys are fighting among yourselves. Be nice to one another now. You be as nice to him as Monte is to me, okay?
Mr. Redmond: You're talking about gross margin at that point, not profit.
The Chairman: That's what I said, gross margin.
Mr. Redmond: No, you said ``profit'', sir.
The Chairman: I thought I said ``margin''. I'm sorry.
Mr. Jackson: It's gross revenue on the transaction.
The Chairman: Do any of you know anything about lower-priced used goods? Supposing I buy a used book for $5. Is it the same type of impact there?
Mr. Solberg: Yes, they're all affected. If I might, Mr. Chairman, anybody who is part of the official economy and is registered has to face cascading. Therefore, these things go up in price. For instance, a university student who goes out to buy a textbook in a used bookstore will face cascading on these prices because there's no longer an NITC.
The Chairman: I guess cascading is one issue. We saw that cascading took the tax rate in Newfoundland from 19% to 19.84%. That's what cascading is - tax on tax. But a 7% tax on a 7% tax is not the major issue here, I assume. You're talking about a much bigger economic stake.
Mr. Paré: We're saying it's paying the tax over and over again on the same item. For a $30,000 RV you pay $2,100 the first time around. The next time somebody sells it at $25,000, you pay 7% of $25,000. The next time it gets sold at $20,000, you pay another $1,400. You pay the same tax over and over again.
The Chairman: I understand that. That's cascading, but I thought it was more than cascading that's your problem. I guess I'm wrong, though, because you're saying it's not.
Mr. Redmond: No, there are two issues. There's the cascading issue and there's also the competitive issue. One of the differences -
The Chairman: I understand that. Thanks very much. I was going to get to the cascading being a separate issue. Thank you.
Mrs. Brushett.
Mrs. Brushett: I have another question to Mr. O'Regan from the car dealership. You made the point that the harmonized sales tax is a good thing and you're in favour of it. You're also in favour of the tax-in pricing to come into effect on April 1. Am I understanding that clearly?
Mr. O'Regan: Yes, we're in favour of tax-in pricing as a general concept. In the Atlantic provinces it's a little complex from a few points of view, advertising being one. Although the four provinces are harmonized, if we just take the three Maritime provinces, New Brunswick is harmonized at 15%, P.E.I. is not harmonized, and Nova Scotia is harmonized at 15% plus a 2% surcharge as of April 1. So the tax-in pricing is going to be different in each of these three Maritime provinces, which complicates the issue.
I think we can handle that, but in our dealer advertising associations, where the same television advertisement may appear in the three provinces, I'm not quite sure how that will be resolved. It does complicate the issue.
Mrs. Brushett: But you are in favour of bringing the whole package in and the tax-in pricing all inclusive at the same time?
Mr. O'Regan: Yes. I think it would be much simpler that way. The general concept is a positive thing.
Mrs. Brushett: As a Canadian national association, are you then going to promote that the other provinces come on board as fast as they can because this is a good thing?
Mr. O'Regan: What can we do to do that? We'd love to.
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Mrs. Brushett: That's why it is important for your dealers to discuss this through your association and sell the concept, so that we can bring in efficiencies for every province and save on the advertising, the downside of the whole issue. Rather than have it as an issue at all, we could promote it better and faster. It's associations like yours that are capable of doing this.
Mr. Williams: As a national association that's the position we've taken, and we've asked all our provincial associations to contact their provincial counterparts with respect to that.
If I can defer to Medicine Hat for a moment, one area we have a problem with - and I'm not sure how to solve it - is the province of Alberta. You talk about the unfairness between losing the notional input tax credit in the province of Alberta and holding out harmonization to a dealer in Edmonton. There's no solution there. I don't know what the committee or the government can do with respect to Alberta, but there's an unfairness that remains there.
Mr. Beattie: The Used Car Dealers Association of Ontario certainly supports the concept of harmonization, and we are doing much the same thing within our own province as Huw has mentioned with CADA.
Mrs. Brushett: It's good news to me and this committee that we promote it as much as we can, in Ontario and all provinces. I'm told by some people in Prince Edward Island that as soon as the fixed link bridge is complete in the spring, they'll be rushing to join the team as well. I hope this effort will work on your behalf.
The Chairman: Have you told all your members that they will go to jail for 30 days or suffer a $5,000 fine if they support any candidate in the next election who doesn't support harmonization?
Mr. Williams: You're getting that down right...$5,000?
Mr. Beattie: I wasn't aware that it had been reduced to $5,000, Mr. Chairman.
The Chairman: We got rid of it.
Did anybody else want to add anything? We wanted to call on the parliamentary secretary to respond to some of these things.
Mr. Solberg: Okay, I understand what you're doing. You're not moving on. I was interested in exploring Mr. Shaw's case a little further, but -
The Chairman: Go ahead.
Mr. Solberg: In Mr. Shaw's case we're talking about all kinds of recycled items, particularly scrap metal. It seems to me I received a letter from somebody who felt their business was going to be in serious jeopardy because of the removal of the notional input tax credit. I wonder if you could expand a little on what the impact will be on people in the industry you represent.
Mr. Shaw: As I said, with the repeal of the notional input tax credit, you could have companies seeing up to hundreds of thousands of dollars' difference in their revenue intake.
In the marketplace, unlike with cars or RVs where you might have public knowledge through magazines, etc., the price that is fixed for material that ends up in the chain for recycling is fixed internationally. If you're sending stuff to a steel mill, for example, the scrap price is set in the United States. It's not even set in Canada. It's the same if you're getting used aluminum, etc. The prices are set, so you don't have the same degree of freedom to play around with. Otherwise you're just eating into your costs.
Mr. Solberg: So in the case of a scrap dealer, he pays it but he doesn't pass it on.
Mr. Shaw: He can't.
Mr. Solberg: To borrow a phrase from the chairman, he's the meat in the sandwich and it stops with him. It goes right to his bottom line. Obviously if you have fairly tight margins, then you're out of business.
Mr. Shaw: Yes. The other impact is that you're probably looking at a lot of the smaller people as non-registrants in the system. Right now we're trying to consume as much material as possible that should be recycled rather than sending it to waste disposal. If people aren't going to get what they perceive, if you as a scrap dealer are trying to cut out that price difference and not pay them, you won't receive the materials. You're going to end up with a possible impact on your disposal situation.
Mr. Solberg: Have you had discussions with Finance officials about this at all?
Mr. Shaw: We have written to the Department of Finance, actually to the minister, on a couple of occasions and just received letters about a month ago. They basically said they did not believe there would be a major impact on the recycling industry, and they declined to leave the notional input tax credit as it was.
Mr. Solberg: Well, hopefully they're listening now. I don't know.
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Just so you know, I know that my office has written on behalf of people like yourself to kind of make the point, but I'm not certain that I was listened to very much. Probably you'll have better luck.
Mr. Shaw: The other significant point I tried to make was that there is an inequity within our industry itself, and it's the smaller people who will suffer more than the larger ones. Many of the larger dealers just don't deal with non-registrants; they don't have Joe Public showing up at the door. On the other hand, the smaller guys that go around and pick up from the local communities are dealing all the time with somebody like that. It's not quite as small as say used books, etc., but it is getting down to smaller deals as they go.
The Chairman: Could I just follow up on that? Thanks for raising the question. I don't know your industry, but your problem arises only where a legitimate recycler who is a registrant buys from a non-registrant.
Mr. Shaw: Yes.
The Chairman: What percentage of the business involves buying from non-registrants?
Mr. Shaw: Frankly, I couldn't give you a specific number.
The Chairman: It's pretty important to us to have some idea of that figure. Do people save up their pop cans and put them in cardboard boxes and bring them in to you, or is this...?
Mr. Shaw: There are some people who do that, but pop cans, etc., would usually go into your blue box system that way.
The Chairman: I know, but what percentage of the supply for the recycling industry is provided by non-registrants?
Mr. Shaw: I'm not sure, but I would imagine the Department of Finance should be able to give us a calculation on the notional input tax credit on a given year for that industry.
The Chairman: Supposing it were 10% - which I would doubt, because it's a pretty sophisticated industry - your only problem is with that particular area under this new proposed regime.
Mr. Shaw: Yes, that's right.
The Chairman: What is going to happen?
Mr. Shaw: You'll have the potential that somebody who can make a living on the margin he's left with on these commodities is just going to get out of the business.
The Chairman: How is it going to affect the big, legitimate dealer who needs a constant supply? Is he going to turn to the non-registered suppliers of scrap? And who are they? Who are these non-registered suppliers who supply the scrap industry?
Mr. Shaw: You have all sorts - as you said, the mom and pop operations, somebody part-time who goes around in a pick-up truck and picks up stuff and then puts it into the chain. It's usually quite a chain. Not too often do you go straight into the larger dealers who package it or shred it or prepare it to go into a steel mill or into an Alcan or something like that. There's usually a chain reaction. It could be material coming from a municipality going into somebody who bundles it.
The Chairman: But that's not a problem.
Mr. Shaw: No.
The Chairman: The moment you have a registrant involved your problem is over.
Mr. Shaw: Right.
The Chairman: So you're saying first of all the industry is not just the non-registered to the registered end user or end distributor; it goes through a lot of chains, and one of those is bound to be a registrant because at some point you have to have size in order to compete in this thing. Rag carts and junk carts are not the way it's done any more. This is big business.
Mr. Shaw: It is when you get to the larger dealers, yes, and it's a very competitive business, but it's getting it to them.
The Chairman: I can understand the problem for the used RV dealers or car dealers who buy used cars and then sell used cars. I don't understand enough about your industry to find out where the problem arises and why we should even be concerned, because I don't understand the structure of your industry. You're telling me that theoretically something might happen, but you're also telling me that we'd have no idea of -
Mr. Shaw: No, it's not theoretical. It will happen. There are recyclers that will be impacted by the repeal of the notional input tax credit. What percentage it is -
The Chairman: Which recyclers will be affected?
Mr. Shaw: I've heard anecdotal information from some members who have said they've put in over $100,000 for notional input tax credit over the year.
The Chairman: And what would the sales of this company be?
Mr. Shaw: Frankly, I don't know. Many of these companies are family firms; they are not public, so the information is not readily available. But it would be substantial.
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If you're getting at that on the notional input tax credit alone - over $100,000 - as you said, is it 10%? Certainly for some of the larger people I would imagine it would be probably not up to that. But it could be a significant component of the small business, the one-, two- or three-man shop that's running around picking it up.
The Chairman: Can you give me an example of a small one- or two-person shop that does recycling?
Mr. Shaw: Literally you could have somebody doing it on a part-time basis with a pick-up truck.
The Chairman: I don't feel I have enough information about this industry to see it's going to make a huge difference in the recycling. Help me. Maybe you can get me some more information, Mr. Shaw, so I can feel more confident to show how this is going to impact on a particular company. I can understand theory, but I also want to see how it would work in fact, and I'd be happy to work with you further.
Mr. Shaw: Okay. I'll have to look into it. I don't have any figures with me on a specific company or group of companies.
The Chairman: Okay. Thank you.
Mr. Campbell.
Mr. Campbell: Thank you, Mr. Chairman. I have a number of items.
First, on the last point we were discussing, which obviously a number of us are concerned about, I would suggest, further to what you said, Mr. Chairman, that we continue to discuss this with the witnesses today to see if there truly is embedded tax and tax cascading or whether or not the tax, because of input tax credits, has been addressed. In any event, it's an item we should continue to look at, and I want to thank the witness for bringing it to our attention.
I'm sorry you did not have an earlier or more satisfactory response, such as ``Let's talk a little bit and see if we understand this properly''.
The CADA brief was an excellent brief that raised an issue we discussed at some length, so I needn't address it further.
The answer is the level playing field, or perhaps more appropriately the level highway or the level street, that you're looking for. As you pointed out and others agreed, this will exist as of April 1 in the harmonized provinces. The unlevel street or unlevel playing field with respect to curb-siders, as you call them, will continue to exist, unfortunately, in those provinces which are not harmonized. But there is an answer, and it's harmonization, and that's one of the reasons it is proceeding.
On behalf of the government I want to commend the Recreation Vehicle Dealers Association for the proposal, which they could only allude to briefly today but which they brought to our attention in the last few days. It is a very serious attempt to address some of the concerns with respect to notional input tax credits. As members will know, our concerns have been with possible abuses, churning, inflating invoices and the whole issue of whether or not the notional input tax credit was being passed on to consumers.
I am informed that we are in the process of studying your proposal, which is a serious one and one worthy of a look, for all the reasons you've given today.
With respect to NITCs, I want to note Mr. Solberg's outrageous comment that getting rid of the NITCs is a tax grab. First of all, I saw him nodding his head a few moments ago when I said eliminating the NITCs was to address concerns about abuse, churning, inflating invoices and whether or not consumers receive the benefit of the notional input tax credits - all things I would have thought Mr. Solberg and his party would have supported and not seen this as a tax grab.
From my perspective, the issue with respect to NITCs is were the people who were supposed to get the benefit of that getting it over somebody else getting it, and can we have a better system? That's what we all want to achieve.
What he said is nonsense for another reason: Bill C-70, looking over the whole bill, is revenue-neutral. It is not fair nor correct to isolate what's being done with respect to notional input tax credits without looking at the lower threshold for charities' zero-rating, other exemptions and other measures being taken that lead to the overall Bill C-70 being neutral.
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Lastly, with respect to auctions, I spoke to that in my earlier intervention, so I won't repeat it. We're going to look at that particular situation.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Campbell.
Mr. Solberg: Mr. Chairman, I want to respond to that.
A level playing field is important, and I think if the Province of Ontario were given $3 billion as a subsidy, as they've requested and as Atlantic Canada was given, to go along with the harmonization deal, they would view that as a step towards providing a level playing field.
``Level playing field'' means a couple of different things, and we shouldn't forget how this whole legislation came to be. It was in response to a huge political disaster the government was facing, and as a result, they visited upon people across the country all kinds of tax complexities in the form of Bill C-70. We should point that out.
With respect to the removal of the notional input tax credit, I simply don't buy... I can tell you that people aside from me - people from accounting firms in Winnipeg, who initially pointed this out, and others - point out that the used goods sector is a huge sector in this country. With the removal of the notional input tax credit, even if you take into account the fact that a lot of these people are not registered and are part of the underground economy, there are still lots of them who will be affected. Therefore we will see all kinds of new tax revenues pouring in to the government - some people suggest $1 billion a year.
If the government can prove that's not the case, that's wonderful, but people across the country have every right to be cynical about measures that are supposedly tax-neutral after three years of ever-increasing taxes.
The Chairman: Would any of our witnesses like to add anything before we close off this round?
Mr. Beattie: I'd simply to thank you again for the opportunity to be here. We look forward to working with Finance.
The Chairman: Oh, Bob, that's totally unnecessary. We want to thank you for helping us in a very difficult process that we're undertaking. It's obvious that we don't have all the answers and it's obvious that we're in a course of action where we're going to have to work very closely with you to realize our objective of having a system that not only produces the revenue we need but is fair to you, does not distort the marketplace and is the least onerous to you, in terms of the administration of it, that we can possibly have it.
As we've said to others, when you make major tax changes, you can never tell in advance exactly what the consequences are going to be. I've found this in every major tax reform I've been involved with in the private sector or the public sector. One of the lessons we should have learned from the past is that when we make changes and they don't work, we shouldn't dig our heels in. This should not be a confrontational process. It should be one in which we work together in the spirit of humility and openness to make it better. You've done a great deal today to help us go along that way.
The other thing you've helped us to achieve is to make the concept of ``notional input tax credit'' a household phrase in Canada.
On behalf of all members, I thank you for being with us.
Our next meeting will have to wait.
Mr. Campbell, can we start at 5 o'clock instead of 6 o'clock?
Mr. Campbell: Yes.
The Chairman: Is that okay with members - or even earlier, if Mr. Campbell lets us?
Mr. Campbell: I would prefer 5 o'clock, if members would be agreeable. That still is an hour earlier.
Ms Whelan: He has to practise.
The Chairman: Okay.
This meeting is adjourned.