Ottawa signals plans to create Canada-wide child care system, collect digital sales taxes

Finance Minister Chrystia Freeland today announced the first steps in a multi-year plan to build a Canada-wide child care system to reduce costs for families and encourage more women with kids to join the workforce.

To pay for this proposed program — and to collect more revenue to cover a ballooning budget deficit — Freeland also unveiled the government’s plan to levy sales taxes on digital companies.

Freeland said the government will create a new federal secretariat on early learning and child care that will work with the provinces and territories to design a new national system modelled on the one already in place in Quebec, where parents have access to child care services for less than $10 a day.

“Just as Saskatchewan once showed Canada the way on health care and British Columbia showed Canada the way on pricing pollution, Quebec can show us the way on child care,” the fall economic statement reads.

The finance minister said the next federal budget — expected sometime in spring 2021 — will present a more concrete plan on how Ottawa will provide “affordable, accessible, inclusive and high-quality child care from coast to coast to coast.” The federal government is committing $20 million now to begin the work of crafting its new “child care vision.”

The government says the need for such a national system is obvious now, given how the COVID-19 pandemic has demonstrated the precariousness of work for many women.

Government data show that more women than men have been forced to stay home from their jobs to care for their kids during this pandemic-induced recession, because of mounting child care costs and a lack of available spaces.

“COVID-19 has caused a she-cession, rolling back many of the hard-won gains women have worked for over past decades,” the economic statement reads, using a term coined to describe the dramatic decline in the number working women this year.

“Canada cannot be competitive until all Canadian women have access to affordable child care.”

The fall economic statement tabled by Freeland includes $70-100 billion in unspecified fiscal stimulus spending over the next three years, earmarked for jump-starting an economy hammered by lockdowns. The money to pay for a national child care plan could be drawn from those funds.

While the details have yet to be worked out, the federal government will send more than $400 million to the provinces and territories starting in the next fiscal year to begin recruiting more early child care educators ahead of a possible surge in new spaces.

Feds to levy sales taxes on all digital products, services

Freeland also announced a plan to start levying digital sales taxes on consumers nationwide for the first time — a new system that could raise as much as $1 billion over the next five years.

Under the current rules, foreign-based digital businesses without a physical presence in Canada can sell goods and services without charging the GST or HST.

U.S.-based Netflix, for example, doesn’t levy the GST or HST on its digital streaming services nationwide — but Apple, which does have Canadian operations, charges all its iTunes customers the relevant taxes.

(Quebec and Saskatchewan already require Canadian and foreign digital service suppliers to register for and collect provincial sales tax on services like Netflix and Spotify.)

The government says the current regime is unfair to Canadian companies and “deprives the government of tax revenues that could be used to better the lives of everyone.”

Freeland said sales taxes will apply to all goods and services consumed in Canada — regardless of how they are supplied. It’s consumers who will pay the tax, not the companies themselves.

While the federal government has long said it would coordinate any new regime with other Western nations, Freeland said Canada is now prepared to go it alone on taxing digital companies.

Former finance minister Bill Morneau had had said the government would pursue digital sales taxes only once other G20 nations and the Organisation for Economic Co-operation and Development (OECD) crafted standards that could be applied in all jurisdictions. That international work is still ongoing.

Some observers — including Michael Geist, an internet law professor at the University of Ottawa — have warned it will be difficult to create this new tax as there will be significant administrative and enforcement challenges.

U.S.-based Netflix doesn’t currently levy the GST or HST on its digital streaming services nationwide. (Shutterstock)

The government will consult with digital companies on how best to structure this new tax, but the government said Monday it plans to start collecting the funds in July 2021. The government says it expects to fetch $1.2 billion more in revenue over the next five years from the measure.

The decision to tax services offered by companies like Netflix is an about-face for this Liberal government. In the 2015 federal election campaign, then Conservative leader Stephen Harper promised a government led by him would never tax Netflix and the Liberals responded with a no-Netflix-tax promise of their own.

However, in the 2019 campaign, the Liberals, the NDP and the Greens all presented proposals in their platforms to tax multinational corporations that conduct their business online.

New tax on short-term rental accommodations

Another new tax will be applied to short-term rental accommodations booked in Canada on sites like Airbnb and VRBO.

Airbnb does not collect sales taxes from its customers. It’s up to individual hosts to add the GST or HST to the rate they charge for a space — but the tax is applied unevenly and it’s not required for hosts who make less than $30,000 a year in rental income.

With Freeland’s new proposal, the GST and the HST will be collected on all stays and remitted by either the property owner or the companies that coordinate these digital bookings. It is estimated that this tax will increase federal revenues by $360 million over the next five years.

Under current federal tax policies, Airbnb does not collect sales taxes from their customers — and it’s up to individual hosts to add the GST or HST to whatever rate they charge for a space. (Shutterstock/Daniel Krason)

The government is also proposing millions more dollars in funding for the Canada Revenue Agency (CRA) to continue its crackdown on tax avoidance.

The tax collector will receive $606 million over the next five years to fund new initiatives “targeting international tax evasion and aggressive tax avoidance.”

The money will be used to hire offshore-focused auditors to target the Canadians who hide income and other assets overseas. The money also will give the agency more capacity to audit “higher-risk tax filings” by high-net worth people, says the economic statement.

The government estimates that these measures will recover $1.4 billion in revenue over five years.

The cash injection follows a similar investment in 2016 that, the government said, is showing some positive early results — an estimated $3 billion in additional federal tax revenues have been assessed since the government started sending the CRA some $350 million more a year in funding. It is not yet known how much of that money owed has been collected.

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