(Deputy Chair) in the chair.

[Translation]

I would like to welcome all of the senators, as well as the viewers across the country who are watching us on sencanada.ca. My name is Éric Forest, and I represent the senatorial division of the Gulf, in Quebec. I am the deputy chair of the Standing Senate Committee on National Finance.

I will now ask my fellow senators to introduce themselves, beginning with the senator to my left.

I am Clément Gignac, and I represent the senatorial division of Kennebec, in Quebec.

[English]

Good morning and welcome. Pat Duncan, senator from the Yukon.

[Translation]

Good morning and welcome. I am Tony Loffreda, and I represent the senatorial division of Shawinegan, in Quebec.

[English]

Welcome. Good to see you again — some of you. Marty Deacon, senator from Ontario.

Larry Smith, Quebec.

Elizabeth Marshall, Newfoundland and Labrador.

[Translation]

I am Jean-Guy Dagenais, and I represent the senatorial division of Victoria, in Quebec.

I would also like to acknowledge our clerk, Mireille Aubé, as well as our analysts, Shaowei Pu and André Léonard. The committee relies on their professional and capable support.

Honourable senators, today we are beginning our study of Bill C-241, An Act to amend the Income Tax Act (deduction of travel expenses for tradespersons), which was referred to the committee by the Senate of Canada on June 8, 2023.

We are pleased to have the Parliamentary Budget Officer, Yves Giroux, back with us. He is joined by Nora Nahornick, Senior Analyst. We also have two officials from the Department of Finance Canada, Pierre Leblanc, Director General, Personal Income Tax Division, and Mark Maxson, Senior Director, Employment and Education.

Welcome, and thank you for accepting the invitation to appear before the Standing Senate Committee on National Finance.

[English]

We will start with opening remarks from Mr. Giroux, followed by Mr. Leblanc.

[Translation]

Mr. Deputy Chair and honourable senators, thank you for inviting me today to participate in your study of Bill C-241. As the deputy chair mentioned, I am joined today by Senior Analyst Nora Nahornick, who prepared the cost estimates for this bill and its predecessors.

I’d like to start with some context.

In May 2022, we published a costing note on the labour mobility tax deduction measure proposed in Budget 2022 to introduce a tax deduction of up to $4,000 per year for travel and relocation expenses for eligible tradespersons and apprentices.

We estimated that the labour mobility tax deduction would cost $459 million over five years beginning in 2021-22, and $108 million per year beginning in 2023-24, with an annual growth rate of approximately 2%.

The labour mobility tax deduction was introduced in Bill C-19, known as Budget Implementation Bill, 2022, No. 1, which received Royal Assent on June 23, 2022. The measure has been in effect since 2022.

I will now switch languages.

[English]

In December 2022, we published a note on the cost assessment of Bill C-241. Bill C-241 proposes an amendment to the Income Tax Act. It aims to allow tradespersons and indentured apprentices to deduct expenses incurred when travelling to construction job sites. These sites must be at least 120 kilometres away from their ordinary place of residence instead of the 150 kilometres under the current Labour Mobility Deduction.

It’s worth noting that Bill C-241 proposes no limit on eligible travel expenses compared to the existing $4,000 limit under the Labour Mobility Deduction.

All things considered, Bill C-241 would be very similar to the existing deduction in section 8(1)(t) of the Income Tax Act.

When considered with the existing Labour Mobility Deduction, we estimated that it will cost $19 million more from 2022-23 to 2026-27 to remove the $4,000 cap, and bring the minimum distance to 120 kilometres instead of the current 150 kilometres.

In conclusion, I’d like to highlight potential issues associated with Bill C-241. It could cause confusion for taxpayers forced to choose between two nearly identical deductions that serve the same purpose.

Furthermore, the absence of a specified cap on annual deductions for travel expenses and the added complexity that could result in administrative complications for the Canada Revenue Agency, or CRA, also add to the issues with this bill. Different amendments to the Income Tax Act could achieve the same goal as Bill C-241 without these administrative issues.

That concludes my opening remarks. My colleague and I would be pleased to answer any questions the committee members might have.

[Translation]

Thank you.

Thank you, Mr. Giroux. Over to you now, Mr. Leblanc.

[English]

Thanks for the invitation to appear today. The bill before you today — Bill C-241 — would introduce a tax deduction to allow tradespeople and apprentices to deduct from income amounts spent for travel to and from a job site where they are employed in a construction activity. In 2022, Parliament passed Bill C-19, which included amendments to the Income Tax Act to enact the Labour Mobility Deduction for Tradespeople. That was initially proposed in Budget 2022. As a result, tradespeople have been able to deduct expenses associated with their relocations for work starting with the 2022 tax year, and will continue to be able to do so under current law.

[Translation]

Compared with the deduction that would be enacted by Bill C-241, the Labour Mobility Deduction for Tradespeople that is already in law provides greater clarity on the definitions of some concepts and includes safeguards that contain its scope.

For instance, Bill C-241 does not define the terms “travel expenses” or “construction activity.” If the bill is enacted, we expect that the Canada Revenue Agency, or CRA, would eventually provide guidance on how to interpret the relevant concepts. However, the CRA has to interpret the legislation as written, and its interpretation could be broader or narrower than was intended.

Bill C-241 also requires no minimum period of relocation, places no limit on the number of trips or the amount of expenses that could be deducted in the year, does not require that the travel be away from the area where the taxpayer is ordinarily employed, and does not require that the individual have earned any amount of income from the job for which they travel.

[English]

One result of these differences is that taxpayers may be able to deduct expenses for daily travel between their usual place of residence and their usual place of work if the commute is sufficiently long. This could create an unfair situation relative to other employees, given that commuting is generally considered a personal expense that is not deductible for income tax purposes.

Another result is that tradespeople might be permitted to deduct their travel to and from a location that is at least 120 kilometres away from their ordinary residence, so long as one purpose of the travel is to perform a job — however small — in that location. The deduction that’s currently in law limits the deduction to 50% of the amount earned at the temporary work location.

To conclude, typical scenarios outlined by stakeholders for tradespeople travelling to take temporary jobs away from their usual place of employment are already receiving tax relief under current tax law. Bill C-241 would add a second deduction for that same purpose, but risks also providing tax relief in other scenarios that may be unintended.

The introduction of a second deduction for the same purpose would make the tax system complex, and we have heard several times at this committee that the complexity of the tax system is a concern for senators. This would likely result in administrative challenges for the Canada Revenue Agency and confusion for tax filers, particularly given that this bill would be retroactive to 2022, and the 2023 tax filing season is about to begin.

We will be happy to answer any questions that you may have on this bill or the issues therein. Thank you.

Thank you very much for your statement.

[Translation]

We will now begin the question and answer portion. Senators, please note that you will have a maximum of seven minutes each for the first round and three minutes each for the second round, so please be direct when asking your questions.

Witnesses, please respond concisely. The clerk will inform me when the senator’s time is up.

[English]

Thank you to the witnesses for being here today. I will start with Mr. Giroux. I want to ask some questions about the estimated cost that’s in your briefing note.

For the Labour Mobility Deduction, the budget estimated quite a significant amount more than what you are estimating: $25 million in 2021-22; $110 million in 2022-23; and $110 million in 2023-24. But your numbers are noticeably smaller.

I know that you said in your costing note that it’s the uncertainty that relates to the assumptions. Can you bridge those two amounts? You must have assumed something else. You must have assumed that most people would deduct under the Labour Mobility Deduction as opposed to under Bill C-241. Could you explain that?

I’m happy to explain that.

The costing note that we published for Bill C-241 is the incremental cost that we had assumed when we heard that this would be an amendment rather than two separate costings. You need to consider the original cost of Bill C-19 to the budget labour deduction that was passed in addition to the $19 million that we had estimated.

You assumed the same number of people — because the bill is much more generous than what already exists. It seemed like it wasn’t a lot of money, especially since the data that we have shows that there is about 1 million trade workers, and 700,000 of those — which is 70% — have actually tapped into the Labour Mobility Deduction.

Do you feel that incremental cost is sufficient?

Yes, we do because there are relatively few individuals who would benefit from the reduction in the distance. It is just moving from 150 kilometres to 120 kilometres, so there are not that many individuals in that 30-kilometre radius who currently are not eligible and would become eligible — and the limit is also another factor. It’s just amending these two factors that results in the cost.

I will ask you a question that I will also ask Mr. Leblanc. Since the bill is pretty general in nature, and doesn’t have the specifics that the Labour Mobility Deduction has, can regulations be enacted? I think either you or Mr. Leblanc said in your opening remarks that the Canada Revenue Agency would probably flesh out more details, but is it possible that regulations could also be enacted under that bill?

I will defer to Mr. Leblanc, my colleague from Finance Canada. He probably knows more whether regulations would be able to fix this.