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Archived - Part 4: 
Fair and Responsible Government

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Chapter 10:
Responsible Government

The government is focused on building the middle class and building an economy that works for everyone. To do that, Canadians need a tax system that is fair.

The COVID-19 pandemic has shed new light on the importance of delivering services to Canadians in a timely and efficient manner. Providing these services requires a continued commitment to ensuring that everyone pays their fair share of tax, so that essential supports can be available to those in need—especially in times of crisis.

In Canada, we have a progressive tax system. Those who make more pay more to support the services that all Canadians rely on. That is why the first thing the government did in 2015 was to raise taxes on the wealthiest to pay for a middle class tax cut. At the same time, the government is also committed to maintaining a strong financial sector that Canadians can count on to safeguard their savings and investments.

10.1 A Tax System that Promotes Fairness

Taxes help pay for the government programs and services that benefit Canadians. They provide a social safety net on which all Canadians can rely in times of crisis. And they make sure that Canada can invest in people and in helping our economy grow and recover.

A tax system in which everyone pays their fair share requires action on multiple fronts: addressing aggressive tax planning schemes; aligning our rules with evolving international norms; ensuring that digital service providers pay their fair share of taxes; and strengthening the government’s ability to crack down on tax evasion, money laundering, and terrorist financing.

The actions proposed in Budget 2021 will help Canada continue to have the resources needed to support the middle class and people working hard to join it, invest in Canadians, and keep our economy strong.

Digital Services Tax

The government is committed to ensuring that corporations in all sectors, including digital corporations, pay their fair share of tax on the money they earn by doing business in Canada. Increasingly, many digital companies earn revenues from the active collection and use of Canadians’ data. In the 2020 Fall Economic Statement, the government announced that it would be moving ahead to implement a tax on corporations providing digital services. This builds on the changes announced at that time to ensure that the Goods and Services Tax/Harmonized Sales Tax applies in a fair and effective manner to the growing digital economy.

Canada has a strong preference for a multilateral approach to this issue. Work is underway to reach a multilateral agreement on cross-border digital taxation by mid-2021, and Canada is optimistic about the progress made this year. However, multilateral discussions have been going on since 2013. That is why, while Canada’s hope and preference is for a multilateral solution this summer, whether or not a deal is reached, Canada intends to take action.

It is estimated that this measure will raise $3.4 billion in revenue over five years beginning in 2021-22.

Luxury Tax

Even as Canadians have sacrificed to keep our economy going through the pandemic, some of the wealthiest have done well. Those who can afford to buy luxury goods can afford to pay a bit more. To that end, the government is following through on its commitment to introduce a tax on select luxury goods.

It is estimated that this measure will increase federal revenues by $604 million over five years, starting in 2021-22.

Tax on Unproductive Use of Canadian Housing by Foreign Non-resident Owners

Across the country, young Canadians who are starting to build their future are running up against sky-high housing prices.

In the 2020 Fall Economic Statement, the government announced that it would take steps over the coming year to implement a national, tax-based measure targeting the unproductive use of domestic housing that is owned by non-resident, non-Canadians. This will help to ensure that foreign, non-resident owners, who simply use Canada as a place to passively store their wealth in housing, pay their fair share.

Homes are to live in. This measure is one tool among several to ensure that Canada’s housing market is a place to grow for Canadians starting their families and building their future.

In the coming months, the government will release a consultation paper to provide stakeholders with an opportunity to comment on the parameters of the proposed tax, including on whether special rules should be established for small tourism and resort communities. Moving forward, the government intends to work closely with provinces, territories, and municipalities.

It is estimated this measure will increase federal revenues by $700 million over four years, starting in 2022-23. These revenues will help to support the government’s significant investments to make housing more affordable for all Canadians.

Limitations on Excessive Interest Deductions

Many firms borrow in order to fund their operations. Generally, the interest charges on those borrowings are considered a cost of doing business and, therefore, are deductible from income for tax purposes. However, some large companies, typically multinationals, use excessive deductions of interest to reduce the taxes they pay in Canada.

All G7 countries—except Canada—have taken action, as a result of the Base Erosion and Profit Shifting (BEPS) Project, to limit excessive interest deductions by large companies.

This strengthening of the rules on interest deductibility will ensure that large companies pay their fair share and bring Canada in line with other jurisdictions, including all our G7 peers. It is estimated that this measure will increase federal revenues by $5.3 billion over five years, starting in 2021-22.

Preventing Cross-border Tax Schemes

Hybrid mismatch arrangements are cross-border tax schemes, used primarily by multinational enterprises, that exploit differences between Canadian and foreign income tax laws to avoid paying their fair share of tax. Under the current rules, a multinational company can exploit the different treatment of certain business entities and financial instruments in Canada and another country to earn income that is not taxed in any country. These schemes not only erode the tax base that supports programs and services for Canadians, but they also give an unfair advantage to multinational enterprises over Canadian businesses, particularly our small and medium-sized businesses.

These proposals will level the playing field and help ensure everyone pays their fair share. It is estimated that this measure will increase federal revenues by $775 million over four years starting in 2022-23.

Mandatory Disclosure Rules

It is important that the Canada Revenue Agency be able to obtain timely information on arrangements that involve aggressive tax planning. Canada has been an active participant in the Base Erosion and Profit Shifting (BEPS) Project—an initiative of the G20 and the Organisation for Economic Co-operation and Development. The BEPS Project is primarily devoted to tackling the problem of certain corporations and wealthy individuals inappropriately shifting profits offshore and using other international tax avoidance schemes. This project has shown that stronger rules are needed to strengthen the Canada Revenue Agency’s ability to curtail tax evasion and aggressive tax avoidance in both the domestic and international context.

Tackling Tax Avoidance and Evasion

The government has made significant investments since 2015 to strengthen the Canada Revenue Agency’s (CRA’s) ability to crack down on complex tax schemes, increase collaboration with international partners, and ultimately bring offenders to justice. These investments have yielded positive results.

Budget 2021 builds on these previous investments with new measures to combat tax evasion and aggressive tax avoidance. Having the means to avoid paying one’s fair share should not mean that one can.

Budget 2021 estimates that these measures to combat tax evasion and aggressive tax avoidance will recover $810 million in revenues over five years. Additional gains will be realized by provinces and territories, whose tax revenues will also increase as a result of these initiatives.

Strengthening the CRA

The success of the CRA’s work in combatting aggressive tax planning, the underground economy, and tax evasion depends on the CRA’s ability to collect outstanding taxes in a timely way.

Protecting the Fairness and Integrity of Our Tax System

The Federal Court of Appeal decision in Her Majesty The Queen v Cameco Corporation has highlighted concerns with the application of Canada’s domestic transfer pricing rules. Taking into account the court’s reasoning, the government believes that, without reform, shortcomings in the current transfer pricing rules can encourage the inappropriate shifting of corporate income out of Canada, artificially reducing corporations’ taxes owed in Canada. If not addressed, this poses a risk to the integrity of Canada’s corporate income tax system. Furthermore, Canada must ensure that there is not a separate set of rules that large corporations can play by.

In the coming months, the Department of Finance will release a consultation paper to provide stakeholders with an opportunity to comment on possible measures to improve Canada’s transfer pricing rules. The government will also take next steps to strengthen and modernize Canada’s general anti-avoidance rule, as announced in the 2020 Fall Economic Statement.

Action Against Money Laundering and Terrorist Financing

Money laundering and terrorist financing are a threat to the security of the financial system. An effective regime to combat these threats is essential to protecting Canadians and the integrity of the financial sector.

The Canada Revenue Agency plays an important role in the fight against terrorist financing and money laundering in Canada. In support of this role, amendmentsto the Income Tax Act are needed to address legislative gaps and streamline the revocation process to prevent abuse of charitable status.

By preventing the abuse of charities, these proposed measures will strengthen Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime.

Beneficial Ownership Transparency

To catch those who attempt to launder money, evade taxes, or commit other complex financial crimes, law enforcement, tax, and other authorities need access to accurate and up-to-date data on the individuals who own and control corporations. Building on public consultations in 2020:

Combatting Abusive Tax Collection Avoidance Schemes

A small number of high-net-worth taxpayers are engaging in complex transactions intended to avoid the collection of their tax debts. This is done by transferring their assets to a non-arm’s length person—such as a corporation owned by the same person—in a manner that leaves them without the assets necessary to pay their tax debts while circumventing an existing tax rule that is intended to prevent this type of scheme.

Improving Duty and Tax Collection on Imported Goods

The efficient and fair collection of duties and taxes on imported goods protects the competitiveness of Canadian businesses.

10.2 A Stable and Robust Financial Sector

Canadians expect the financial system to safeguard their savings and investments and deliver the financial services they need, especially in times of uncertainty. The financial sector and its governing framework has performed well during the COVID-19 pandemic, supported by strong supervisory oversight and responses of financial sector agencies.

Budget 2021 proposes measures to further strengthen Canada’s financial sector framework, including: modernizing corporate governance; strengthening Canada’s anti-money laundering and anti-terrorist financing framework; targeted legislative initiatives that will support consumers, promote innovation, and enhance the stability, security, and integrity of the financial system in advance of the next legislative review, in 2025 (see Annex 3); and a new retail payments oversight framework.

Retail Payments Oversight Framework

The current COVID-19 crisis has accelerated the adoption of digital payments and highlighted the need to have safe and reliable digital payments.

Budget 2021 proposes a public consultation on measures that would expand federally regulated financial institutions’ use of electronic communications with their owners, including the delivery and provision of governance documents, as well as virtual meetings.

10.3 Better Services for Canadians

The government is continuously modernizing and improving the way it delivers programs and services to Canadians. As we have seen over the last year, fast and efficient government services and programs are critical to helping Canadians and businesses through challenging times.

Budget 2021 moves forward with a plan to ensure Canadians have reliable and secure digital access to more government services.

E-payroll to Help Businesses

The COVID-19 pandemic highlighted the need to accelerate the government’s commitment to implementing a real-time e-payroll solution that will reduce red tape, and increase the delivery, speed, and accuracy of services and benefits. E‑payroll is a “tell-us-once” approach that will streamline employer reporting by collecting electronic payroll, employment, and demographic data directly from businesses in real-time. E-payroll will save time for Canadian businesses, especially small businesses.  

In response to the pandemic, countries with some form of a real-time payroll data reporting system had greater accuracy with targeting support and benefits, and were able to deploy benefits rapidly. The government is committed to a modernized benefits delivery platform that can target support when Canadians need it most and will ensure all Canadians are receiving all the benefits they are entitled to.

Protecting Taxpayer Information

Cyber security is more important than ever and the government is committed to securing taxpayer information against any and all who would attempt to breach Canadians’ private information. Millions of Canadians rely on the CRA’s digital services to access financial lifelines like the CERB, wage subsidy, or rent subsidy. Since February 2020, registration for the CRA’s secure digital services has increased by 36 per cent and logins have increased by 170 per cent. To further safeguard the electronic data stored by the CRA and protect Canadians’ personal information from falling into the wrong hands:

Modernizing CRA Services

To modernize CRA services and help people quickly and easily access the tax credits and benefits they are entitled to:

Canadian Digital Service

The Canadian Digital Service was established in 2017 to design and deliver digital government services. During the pandemic, its services and expertise were more vital than ever. It launched the COVID Alert App, used by more than 6 million people in Canada and providing over 26,000 exposure notifications, helping to prevent tens of thousands of possible outbreaks in our communities. It also accelerated the development of GC Notify, a platform to provide vital email and text messaging services for an array of COVID-19 services, showcasing how effective design and delivery can serve Canadians. To make sure that the Canadian Digital Service can meet the growing needs of Canadians and Canadian businesses: 

10.4 Reinforcing Government of Canada Operations

To provide Canadians with the programs and services they deserve and expect, the government must continue to invest in core, mission-critical government operations, while continuously identifying opportunities to use resources more efficiently. The government is committed to improved productivity across federal organizations and cost-effective and efficient government services.

Measuring What Matters

There is a growing recognition internationally that economic growth is only one dimension of what makes for a good quality of life. Currently, Canada collects less detailed information about non-economic indicators than economic indicators. Better federal data sets are needed to better incorporate quality of life measurements into decision-making and budgeting, similar to international approaches such as in New Zealand and Scotland.

These are in addition to more than $285 million over five years, and more than $40 million ongoing, in proposed Budget 2021 investments across government to collect better, disaggregated data that will enable the government, researchers, and others to better understand the experiences of people in Canada and environmental changes.

Reducing Government Travel

COVID-19 has significantly affected the way the federal government operates, with a greater reliance on digital and virtual interaction, reducing the need for travel.

These savings will be in the interests of Canadian taxpayers and offset increased costs and requirements related to the pandemic, particularly upgrades to Government of Canada IT systems.

Improving and Defending Our Cyber Networks

Threats to cyber security are growing globally. The protection of Canadians’ personal information is a priority for the government. Maintaining secure, up-to-date cyber security and defence capabilities on reliable networks is essential as more Canadians access government services digitally. To ensure the security of Canadians’ information:

Modernizing Critical IT Infrastructure

Canada’s IT infrastructure is aging faster than the pace of repairs or replacements. By investing in IT infrastructure, the government will ensure that key services like Old Age Security and Employment Insurance benefits or immigration and border case management will continue to be delivered and can be modernized in a timely manner. To perform critical upgrades and a modernization of Canada’s IT infrastructure and improve the way benefits and services are delivered to Canadians over the coming decade:

Chapter 10
Responsible Government
millions of dollars
2020–2021 2021–2022 2022–2023 2023–2024 2024–2025 2025–2026 Total
10.1. A Tax System that Promotes Fairness 0 -125 -1,055 -2,064 -2,504 -2,569 -8,317
Digital Services Tax 0 -200 -700 -800 -800 -900 -3,400
Less: Funds Previously Provisioned in the Fiscal Framework
0 200 700 800 800 900 3,400
Administrative Costs
0 17 7 4 4 4 35
Luxury Tax 0 -34 -140 -140 -145 -145 -604
Tax on Unproductive Use of Canadian Housing by Foreign Non-resident Owners 0 0 -200 -170 -165 -165 -700
Limitations on Excessive Interest Deductions1 0 -30 -400 -1,330 -1,755 -1,810 -5,325
Administrative Costs
0 4 2 1 1 1 9
Preventing Cross-border Tax Schemes 0 0 -130 -205 -215 -225 -775
Tackling Tax Avoidance and Evasion 0 42 67 68 64 63 304
Less: Projected Revenues
0 -64 -151 -199 -198 -198 -810
Strengthening the CRA 0 27 38 56 55 55 230
Action Against Money Laundering and Terrorist Financing 0 0 2 1 1 1 5
Beneficial Ownership Transparency 0 1 1 0 0 0 2
Improving Duty and Tax Collection on Imported Goods 0 -88 -150 -150 -150 -150 -688
10.2. A Stable and Robust Financial Sector 5 16 28 29 5 6 88
Retail Payments Oversight Framework 5 16 28 37 38 37 160
Less: Costs to be Recovered
0 0 0 -8 -32 -31 -71
10.3. Better Services for Canadians 0 99 127 123 77 78 504
E-payroll to Help Businesses 0 13 17 14 0 0 44
Protecting Taxpayer Information 0 71 75 75 54 55 331
Modernizing CRA Services 0 15 14 12 0 0 42
Canadian Digital Service 0 0 22 22 22 23 88
10.4. Reinforcing Government of Canada Operations 0 -90 -5 76 -1 -15 -34
Measuring What Matters 0 3 3 3 2 2 14
Reducing Government Travel 0 -222 -222 -222 -222 -222 -1,112
Improving and Defending our Cyber Networks 0 63 109 117 78 89 456
Modernizing Critical IT Infrastructure 0 66 105 179 142 142 634
Less: Projected Revenues
0 0 0 0 0 -26 -26
Additional Investments – Responsible Government 0 306 212 68 54 47 688
Eliminating the Backlog of Pay Problems 0 23 23 0 0 0 47
Funding proposed for Public Services and Procurement Canada to support the workforce dedicated to processing pay transactions. This will help the department achieve its target of eliminating the backlog of Phoenix pay system transactions by December 2022.
Stabilizing Human Resources, Pay, and Pensions 0 23 23 0 0 0 45
Funding proposed for the Treasury Board of Canada Secretariat to ensure that the Office of the Chief Human Resources Officer has the capacity necessary to address human resources, pay, and pension policy matters on behalf of the Government.
Advancing Public Service Job Classification 0 5 5 0 0 0 10
Funding proposed for the Treasury Board of Canada Secretariat to support the Classification Program, which ensures that the relative value of work is recognized and compensated appropriately across the core public administration.
Modernizing Leave Without Pay Provisions 0 8 11 11 11 11 52
Proposed changes to the Public Service Superannuation Regulations to align provisions concerning pensionable service status for periods of absence without pay with enabling legislation.
Justice Canada Employee Benefit Plan Rate Change 0 0 39 39 39 39 157
Less: Costs to be Recovered
0 0 -39 -39 -39 -39 -157
Funding proposed for Justice Canada to account for the implementation of comprehensive Employee Benefit Plan rate changes charged to client departments for legal services. This measure is a technical adjustment and there is no fiscal impact.
Improving Federal Asset Management 0 2 2 1 0 0 5
Funding proposed for the Treasury Board of Canada Secretariat to implement recommendations from its Fixed Asset Review (announced in Budget 2017) and to help departments respond to real property use changes resulting from the COVID-19 pandemic. This will help ensure the Government’s real property portfolio is modern, agile, and right-sized, as well as financially and environmentally sustainable.
Supporting Government Translation and Interpretation Services 0 9 9 0 0 0 18
Funding proposed for the Translation Bureau to respond to a higher volume of translation and interpretation requests while continuing to support a remote working environment. This will ensure that Parliamentarians and Canadians receive timely translation and interpretation services in both of our official languages as well as Indigenous languages, sign languages, and other languages spoken across Canada.
Procurement Workforce 0 7 9 9 9 9 43
Funding proposed for Public Services and Procurement Canada to continue to deliver procurement services to client departments and agencies, negotiate increasingly complex high value contracts, and develop and implement a vendor performance management framework.
Supporting the Office of the Chief Information Officer 0 6 7 7 7 7 34
Funding proposed for the Treasury Board of Canada Secretariat to ensure that the Office of the Chief Information Officer has the necessary resources to provide strategic direction and leadership in the areas of information management, information technology, security, privacy, and access to information across the Government of Canada.
Supporting Efficient, Stable Digital Applications 0 58 98 20 20 20 215
Funding proposed for Shared Services Canada to continue to help government departments and agencies assess digital applications and data, then decommission or move them to modern computing facilities. This will reduce service interruptions, loss of data, and security risks for government operations and digital services.
Public Services and Procurement Canada Program Integrity 0 30 0 0 0 0 30
Funding proposed to Public Services and Procurement Canada to continue service delivery to federal departments and agencies, maintain federal employee salaries, and to support employee safety during the pandemic.
Employment and Social Development Canada Rent Price Adjustment 0 1 1 1 1 1 4
Less: Funds From CPP Account
0 0 0 0 0 0 -1
Funding proposed for Employment and Social Development Canada to cover rent increases related to its national network of service centres and offices.
Supporting the Public Service Occupational Health Program 0 4 8 8 0 0 19
The Public Service Occupational Health Program is the occupational health service provider of the federal public service, providing specialized occupational health evaluations and technical advice to help departments meet their Canada Labour Code obligations. Proposed funding would allow the program to continue to play this function for departments by addressing program integrity pressures.
Renewing funding for the Office of Public Service Accessibility 0 3 3 3 0 0 10
Funding proposed for the Treasury Board Secretariat to continue its work to improve accessibility in the federal government, including strengthening capacity for implementing an Accessibility Strategy for the Public Service and supporting departments in fulfilling legislative obligations under the Accessible Canada Act.
Addressing Financial Impacts on Atomic Energy of Canada Limited 0 38 0 0 0 0 38
Funding proposed for Atomic Energy of Canada Limited to mitigate the financial impacts of the COVID-19 pandemic, including budget pressures due to supply chain disruptions, delays in the construction schedules of key projects, lost revenues, and additional costs related to increased health and safety protocols.
Strengthening Capital Markets Stability and Enforcement 0 12 0 0 0 0 12
Funding proposed for the Canadian Securities Transition Office to continue supporting federal efforts to advance the Cooperative Capital Markets Regulatory System and to strengthen capital markets stability and enforcement in Canada.
CRA Administrative Funding for Certain Budget 2019 Measures 0 10 9 8 7 6 41
Funding proposed for the Canada Revenue Agency for the administration of certain tax measures announced in Budget 2019. This includes funding associated with the Canadian Journalism Labour Tax Credit, the designation process for Qualifying Canadian Journalism Organizations, the Canada Training Credit, and the permitting of advanced life deferred annuities and variable payment life annuities under certain registered plans.
Supporting the Ongoing Delivery of Benefits to Canadians 0 77 4 0 0 0 81
Less: Funds From CPP Account
0 -9 0 0 0 0 -9
Less: Projected Revenues
0 0 0 0 0 -6 -6
Funding proposed for Employment and Social Development Canada to continue to support both remote and in-person delivery of services and benefits to Canadians. This will support delivery of Old Age Security, the Canada Pension Plan and Employment Insurance.
Chapter 10 - Net Fiscal Impact 5 206 -692 -1,768 -2,368 -2,453 -7,070
Note: Numbers may not add due to rounding.
1 An important proportion of the overall projected revenue impact (75%) relates to the expectation that the measure will help in preventing the shifting of debt into Canada.

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