Pubdate: Wed, 04 Oct 2017
Source: Globe and Mail (Canada)
Copyright: 2017 The Globe and Mail Company
Authors: Bill Curry, Robert Fide, and Laura Stone
Page: A1


Prime Minister Justin Trudeau has surprised premiers with a plan to
impose a 10-per-cent federal tax on recreational marijuana and split
the expected new revenue 50-50 with the provinces.

With the clock ticking toward the Liberal government's goal of
legalizing marijuana by July, 2018, Ottawa and the provinces are
working to answer the many questions raised by the change, including
the price, age limits and how the product will be sold.

After a day-long private meeting that touched on a wide range of
topics, Mr. Trudeau confirmed to reporters that he delivered an
opening proposal for how marijuana should be taxed.

"The proposal is to divide the revenue 50-50 between the federal
government and the provincial government," Mr. Trudeau said. "The
provinces argued that they are going to be bearing more costs,
certainly up front in terms of installing the regime. And I certainly
said we're open to looking at that and discussing and making sure that
we are doing this right."

Negotiations over the taxation of marijuana will continue and the
subject is scheduled to be discussed at a face-to-face meeting of
finance ministers in December.

A provincial source said the pot tax came out of the blue and the
premiers were completely taken aback. Liberal MP Bill Blair, who is
the parliamentary secretary to the justice minister and in charge of
the marijuana file, had been called in to brief the premiers when he
dropped the proposal on the table.

The tax would be $1 per gram tax on purchases under $10, and 10 per
cent on amounts above $10. Ottawa has not provided an estimate of
total revenues legalization would raise. The Parliamentary Budget
Office estimated last year that tax revenues would be in the hundreds
of millions a year initially and could grow.

A number of premiers - lead by Alberta's Rachel Notley and Quebec
Premier Philippe Couillard - immediately objected to splitting the tax
revenue with Ottawa, according to the source. Ms. Notley told the
Prime Minister the provinces are carrying most of the costs of
legalizing marijuana and should have most of the tax revenue.

In addition to discussing marijuana, the first ministers also met with
Finance Minister Bill Morneau about Ottawa's controversial plan to
change the tax rules governing incorporated small businesses.
Consultations formally closed on Monday, and Mr. Trudeau said the
government will respond within "a number of weeks" with a revised plan
that takes into account the concerns raised by premiers and
smallbusiness owners.

Premiers said they welcomed comments from Mr. Morneau on Tuesday that
the government would address potential negative consequences for
intergenerational transfers of businesses such as family farms. One
provincial source said it appeared Mr. Morneau was prepared to "walk
back" his original plan. However, the provinces reserved their final
opinions until they see how Ottawa alters its proposals.

Don Morgan, Saskatchewan's Deputy Premier and Minister of Justice, who
attended the meeting in place of Premier Brad Wall, said the
small-business tax changes as originally proposed by the federal
government could have a profoundly negative effect in his province.

"We have grave concerns," he said. "It is our hope and expectation
that Minister Morneau will make some changes to ensure that it is fair
and equitable, not just for large corporations, but for family farms,
for medical professionals that we do not want to see leave our
country. So we regard it, at best, as a work in progress, but we urge
the federal government to take some careful time to

The federal proposals apply to owners of incorporated small businesses
and cover three broad areas. One would prevent the use of income
"sprinkling" to family members who are not directly involved in the
business as a strategy for paying less tax. The second would restrict
the conversion of dividends into lower-taxed capital gains. The third
would restrict the use of incorporated small businesses as a vehicle
for making passive investments unrelated to the business.

After meeting the premiers, Mr. Morneau told reporters he had no
timetable for when he would reveal his revised plan. He would not be
pinned down on whether the tax reforms would be in the fall economic
update or next year's budget.

However, the minister said the government will be guided by specific
principles, including "to make sure that farmers and fishers and
businesses in general aren't precluded from passing their business to
the next generation." He also said that female entrepreneurs and
professionals, such as doctors, will be able to use the tax system to
"save within their organization to deal with maternity leave."

Representatives of the First Nations, the Inuit and the Metis met for
a little more than an hour on Tuesday morning with Mr. Trudeau and
provincial premiers. Indigenous leaders later said they were
frustrated with the brief amount of time devoted to their concerns and
that they expect more discussion and real progress in the months ahead.

As for marijuana, B.C. Premier John Horgan said the idea of sharing
revenue with Ottawa was the "first time" he had heard of it.

"That's not something we'd contemplated before. So there was a good
deal of discussion around that," he said. "I believe provinces are
concerned that there's a whole bunch of costs being imposed on us in
terms of distribution, in terms of regulation, in terms of making sure
that the distribution chain is free from criminal elements and so on.
But now we're going to have to share whatever modest revenue there
might be."

Mr. Horgan said Canadians should be dispelled of the notion that
governments will be "swimming in cash" after legalization.

"It was a good discussion. But this excise tax thing caught us a bit
by surprise."

- - with a report from Gloria Galloway
- ---
MAP posted-by: Matt