Bill C-33 (Historical)
Income Tax Amendments Act, 2006
An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act
This bill was last introduced in the 39th Parliament, 1st Session, which ended in October 2007.
Jim Flaherty Conservative
Not active, as of June 18, 2007
(This bill did not become law.)
This is from the published bill. The Library of Parliament often publishes better independent summaries.
Part 1 of the enactment enacts, in accordance with proposals announced in the 1999 budget, amendments to the provisions of the Income Tax Act governing the taxation of non-resident trusts and their beneficiaries and of Canadian taxpayers who hold interests in foreign investment entities.
Part 2 enacts various technical amendments that were included in Part 1 of a discussion draft entitled Legislative Proposals and Draft Regulations Relating to Income Tax released for consultation by the Minister of Finance on February 27, 2004. Most of these amendments are relieving in nature, and others correct technical deficiencies in the Act. For example, Part 2 enacts amendments
– to implement various technical amendments to qualified investments for deferred income plans,
– to clarify that certain government payments received in lieu of employment insurance are treated the same as employment insurance for income tax purposes,
– to extend the existing non-resident withholding tax exemption for aircraft to certain air navigation equipment and related computer software,
– to allow public corporations to return paid-up-capital arising from transactions outside the ordinary course of business, without generating a deemed dividend,
– to confirm an income tax exemption for corporations owned by a municipal or public body performing a function of government in Canada, and
– to provide that input tax credits received under the Quebec Sales Tax system are treated for income tax purposes in the same way as input tax credits received under the GST.
Further, Part 2 enacts provisions to implement announcements made by the Minister of Finance
– on September 18, 2001, limiting the tax shelter benefits to a taxpayer who acquires the future business income of another person,
– on October 7, 2003, to ensure that payments received for agreeing not to compete are taxable,
– on November 14, 2003, to simplify and better target the tax incentives for certified Canadian films,
– on December 5, 2003, to limit the tax benefits of charitable donations made under certain tax shelter and other gifting arrangements, and
– on November 17, 2005, relating to the cost of property acquired in certain option and similar transactions.
Part 3 deals with provisions of the Act that are not opened up in Parts 1 and 2 in which the following private law concepts are used: right and interest, real and personal property, life estate and remainder interest, tangible and intangible property and joint and several liability. It enacts amendments to ensure that those provisions are bijural, that is that they reflect both the common law and the civil law in both linguistic versions. Similar amendments are made in Parts 1 and 2 to ensure that any provision of the Act enacted by those Parts are also bijural.
Technical Tax Amendments Act, 2012
January 28th, 2013 / 12:55 p.m.
Scott Brison Kings—Hants, NS
Mr. Speaker, I rise this afternoon to speak to Bill C-48, the technical tax amendments act, 2012.
Bill C-48 is 955 pages in length with 428 amendments. I am going to use my time in the House today to examine how we got to this point, and where we are now examining such a mammoth bill, looking at the recent history of technical tax bills, including the Auditor General's report from November 2009 on income tax legislation, as well as the study by the public accounts committee on that report.
I intend to talk about the need for Parliament to regularly adopt technical tax legislation in a timely manner, as well as the overwhelming need to thoroughly examine and, yes, simplify the Income Tax Act.
Finally, I would like to use my remaining time to briefly discuss Bill C-48 itself.
With respect to the recent history of technical tax bills, if Bill C-48 receives royal assent, it will be the first technical tax bill to do so since Bill C-22, the Income Tax Amendments Act, 2000, which received royal assent in June 2001, almost 12 years ago.
With such a massive bill before us now, it begs the question as to why Parliament has not approved any technical tax bills since 2001.
The previous Liberal government did publish technical amendments for public comment on three separate occasions: December 2002, February 2004, and July 2005. Those amendments were introduced in Parliament in 2006 as Bill C-33, the Income Tax Amendments Act, 2006. Bill C-33 received third reading and made it to the other house, but it died on the order paper when the Prime Minister asked the Governor General to prorogue Parliament in 2007. Later in 2007 an identical version of this legislation was tabled as Bill C-10. Once again the legislation made it to the other house and died on the order paper when the Prime Minister again asked the Governor General to prorogue Parliament in 2008.
Since then there has been nothing. For four years the Conservatives failed to introduce a technical tax bill in Parliament. Clearing up the growing backlog of technical tax amendments was nowhere to be found on the Conservatives' list of priorities.
Next week the Conservatives will pass the seventh year mark in government, but they have yet to pass a single technical tax bill. It is a failure of public administration. It is not good public administration that it has taken this long, particularly when at the time the Conservative government was elected in 2006 there was legislation ready to be introduced and twice prorogation killed legislative attempts to deal with this.
I want to speak to the Auditor General's report. In the fall of 2009, Auditor General Sheila Fraser reported on the government's inability to take action on this. She emphasized the need for the government to introduce technical tax legislation in order to bring clarity to the Income Tax Act. When she released her report, she said:
The Income Tax Act is one of the longest and most complex pieces of federal legislation. Taxpayers have the right to expect clear guidance on how to interpret the Act so they can determine how much income tax they owe.
That makes sense. In her report she argued that by failing to provide clarity through technical tax amendments, the government was increasing the costs for everyone involved. The report states:
For taxpayers, the negative effects of uncertainty may include
--higher costs of obtaining professional advice to comply with tax law; less efficiency in doing business transactions;
--inability of publicly traded corporations to use proposed tax changes in their financial reporting, because they have not been “substantively enacted”;
--greater cynicism about the fairness of the tax system; and increased willingness to use aggressive tax plans.
For the tax administrator, the negative effects may include
--higher costs for providing additional guidance and interpretations to taxpayers and tax auditors; and
--higher administrative costs for reprocessing the tax returns after an outstanding legislative amendment is enacted and for obtaining waivers to extend the limitation period for reassessment.
The result may be uncertainty in the amount of tax revenues to be collected by the government and possible loss of tax revenues.
What the Auditor General is saying is that this is not some esoteric, arcane discussion as to whether or not it is a failure of the government to provide in a timely manner these technical tax amendments to the House and to pass them. It does result in higher transaction costs for companies. It results in confusion for Canadian taxpayers, not knowing how these will affect them, and higher costs from professionals like accountants and auditors in dealing with these.
The Auditor General's report said that the result may be uncertainty in the amount of tax revenues to be collected by the government and the possible loss of tax revenues. It actually affects the amount of revenue that the government is collecting or can collect.
The Auditor General went on to warn parliamentarians that we must not wait to pass a technical tax bill, that we must clear the backlog immediately and then regularly adopt technical tax amendments. In her report she said:
If proposed technical changes are not tabled regularly, the volume of amendments becomes difficult for taxpayers, tax practitioners, and parliamentarians to absorb when they are grouped into a large package.
Finally, she pleaded with the Department of Finance to fix the situation.
Auditor General Sheila Fraser said:
The Department of Finance needs to do more to bring the urgency of the problem to the attention of the government and Parliament. It ought to review the way it manages this process.
Beyond the Auditor General's report, we also have a report from the public accounts committee. In early 2010, the public accounts committee studied the Auditor General's report. The committee was then chaired by my former colleague from Charlottetown, the hon. Sean Murphy. The committee shared her concerns about the waste and mismanagement that resulted from the Conservatives doing nothing to introduce these technical amendments. Quite naturally, the committee wanted to know when the problem would be fixed, so it called the deputy minister of finance and the commissioner of the national revenue agency before the committee. These officials assured committee members that the problem was under control and the solution was forthcoming. The committee's April, 2010 report stated:
Officials from the Department told the Committee that they are hoping to have a technical bill ready for the government's review within the next couple of months. They are also considering releasing smaller packages of technical amendments on a regular basis.... Although, officials told the Committee that they would not be in a position to propose annual technical bills until the end of 2011.
If senior officials were telling a parliamentary committee back in 2010 that a technical tax bill would be ready in a few months, we have to ask ourselves as parliamentarians what happened. What we really need, broadly, is tax reform and tax simplification. The fact is that over a long period of time, not just under this government, the Income Tax Act has grown too large and unwieldy. However, it is notable that under this Conservative government, the Income Tax Act has actually grown by almost one-sixth in size. We have arrived at the point where accountants—the very profession that bases its livelihood on interpreting on behalf of clients the complexity of tax laws—are now regularly lobbying Parliament and the finance committee for tax simplification. Even the accountants are saying the tax code is too complex.
The Canadian Institute of Chartered Accountants stated in its most recent prebudget submission:
Reducing complexity in Canada's domestic tax regime is crucial to easing the regulatory burden placed on Canadian businesses and attracting investment. Simplifying our tax system would make the country more competitive and allow both individuals and businesses to prosper.
According to the Global Competitiveness Report 2010-2011, issued by the World Economic Forum, tax regulations are among the top four most problematic factors cited by business executives for doing business in Canada. Many aspects of Canada's tax system have become too complex. We recommend that the government establish a national consultation process to examine tax simplification measures.
That quote was from the Canadian Institute of Chartered Accountants' pre-budget submission to the House of Commons finance committee.
The most recent pre-budget submission from the Certified General Accountants Association of Canada includes the following recommendations:
Modernize Canada's tax system—make it simple, transparent and more efficient
Introduce and pass a technical tax bill to deal with unlegislated tax proposals
Implement a “sunset provision” to prevent further legislative backlogs
Appoint an independent panel of experts to recommend steps to reform Canada's tax system.
It is important to realize that we have not had a comprehensive review of Canada's tax laws and our tax code since the Royal Commission on Taxation in the 1960s. The Carter commission published its report in 1966, and the changes were implemented in 1972. That is more than 40 years ago. If we were asked to sum up in one word what has changed in the Canadian and global economy since 1972, it would be “everything”.
The reality is that there have been so many fundamental structural changes to the global and Canadian economies since 1972 that we desperately need a thorough study, review and perhaps royal commission to deal with the tax changes we need as a country, with the objective of building a fairer and, in terms of economic growth, a potentially more competitive capacity to attract investment, as well as a simpler tax system.
In the House we have talked about the issue of income inequality. That has to be a consideration when we are talking about tax reform.
We have talked about issues of competitiveness and what kinds of taxes render an economy less competitive. We have to look at those. We have to study to what extent we can use the tax system to incentivize greater investment in research development and commercialization of technologies, and potentially clean technologies to green our production of energy in Canada, including cleaner conventional energy and the oil sands, as well as what kinds of tax incentives we can offer to make it more attractive to invest in and develop those technologies as we move forward.
When the Carter commission came in, among other things, it got rid of inheritance tax in Canada and replaced it with a capital gains tax. That was a significant change at the time. Today, we may look at that differently and consider some of the advice being given by tax experts both within Canada and globally.
Clearly, not to have had any thorough study of our tax system since 1972 indicates how woefully out of date our current tax code is. The reality is that the tax code under the Conservative government has since increased by one-sixth of its size. It is more complicated and less fair because of what some people refer to as the boutique tax credits the government has brought in for children in hockey and studying music, family caregivers and volunteer firefighters. We all believe it is laudable to support volunteer firefighters, family caregivers and families putting their children in activities, and we support that.
However, first, the reality is that it does complicate the tax code. Second, the fact that these tax credits are non-refundable means that the lowest income Canadian families do not qualify, those people who need the help the most, whether with respect to the family caregiver tax credit or to families with children in activities.
Not only have the Conservatives complicated our tax system, but by making these tax credits non-refundable, they have actually rendered our tax system less fair and contributed to income inequality and income disparity by not helping the people who need the help the most. Those are low-income families who, perversely, do not qualify for these tax credits.
I would like to speak about the Canada Revenue Agency. When the tax code grows in size and complexity, so do the requests to CRA for clarification. Governments have the power to compel residents to pay taxes, and that is a huge power, but with that power comes the responsibility to provide taxpayers with clarity around the law and to recognize that not every Canadian taxpayer can—in fact the vast majority cannot—really afford professional help to deal with these complexities.
One of the ways the government can provide clarity around tax law is with advanced income tax rulings. That is an area the Auditor General examined in her 2009 report. It is also an area where the CRA is failing and the record is getting worse. The CRA has set a target for itself to issue advanced income tax rulings within 60 days, and in 2004 it met this target. Three years ago the average ruling took the CRA 98 days. Two years ago it was 102 days. Last year it was 106 days, close to double the target CRA set for itself. These delays lead to increased costs both for the taxpayer and for the government.
For good public servants in the CRA who work in places like Charlottetown, P.E.I., those cuts to CRA are actually, perversely, going to lead to the government ultimately contributing not only to ambiguity and confusion around interpretation of these tax changes but also to actually collecting less money.
One of the things we discovered in our study around offshore accounts and the offshoring of personal wealth by many Canadians is that investments by the previous Liberal government to CRA to specifically target offshore accounts led to a huge level of success in terms of return on investment, in terms of collecting this money. The Conservatives have cut back funding to CRA, which will in time reduce governance and the capacity to target, identify and collect from offshore accounts and in other areas where we could collect more in terms of taxes.
The Auditor General said in her report, speaking about the CRA:
If the Agency's guidance is not timely or correct, taxpayers may inadvertently fail to comply with the law or they may become frustrated because the information they need is not available. Either may lead to a loss of tax revenue or an overpayment that later must be adjusted.
She made the following recommendation:
(4) The CRA “should develop more concrete plans to meet its own target times for issuing advance income tax rulings, given the significance of the rulings to proposed business transactions.”
Again, this is another report where the Auditor General is being extremely clear with some specific corrective measures that the government could take.
In 2009, the government said it agreed with this recommendation, but the dismal results suggest that nothing has been done about it.
Last week the Canadian Federation of Independent Business issued a press release entitled, “CRA Call Centre Business Helpline gets C- grade from CFIB”. According to the CFIB, only 61% of callers received full and accurate information “service standards and agent professionalism have declined”. Again, I am not blaming the CRA employees, but the government is making it very difficult for them to do their jobs.
The Liberals are concerned. We support the idea of Bill C-48 being presented now, finally dealing with some of these issues, but we do not support the tax direction of the government, which is ultimately creating a less fair, less competitive and more complicated Canadian tax system. We believe we need more than tax tinkering; we need real tax reform aimed at building a more competitive, fairer and simpler Canadian tax code.
Opposition Motion—Income Tax Act
Business of Supply
March 5th, 2008 / 4:20 p.m.
Mauril Bélanger Ottawa—Vanier, ON
Mr. Speaker, on behalf of the official opposition, I would first like to say that we share the concerns of thousands of Canadians who have clearly indicated, these past few days, their opposition, or at the very least, their concern over the actions of the Conservative government with respect to funding for Canada's television and film productions.
We agree that this requires closer examination to determine the true intentions of the government, what consultations it has already conducted and what it has failed to do. We need to know where things stand. If the situation needs to be rectified, we believe it should be.
But we do not think that the Bloc's motion, or at least their proposed method for tackling this issue, is the right way to go about it. That is why we will not support the motion.
We will not support this motion for several reasons. The first is obvious: the government will not respect it. The Bloc is asking the government to withdraw a section of Bill C-10, which is now before the Senate. Earlier, I asked the minister. Even if the Bloc motion were adopted, the government has no intention of withdrawing this section from the bill or proposing an amendment. So it is not worth it.
There are many examples of times when, although the House voted in favour of various legislative, financial or other types of measures, the government ignored them. I am thinking, for example, of the court challenges program. Many times, a majority expressed that it wanted the government to restore this program, but nothing happened.
The same thing happened with environmental issues. The House even took the legislative route, but we are still waiting for the government to follow up on the majority will of the House. The same goes for the Kelowna accord.
I could go on and on. This is why we have no doubt that even if the Bloc motion were adopted, the government has no intention of following through on it.
The second reason we do not support this motion is that Parliament must do its work. Parliament's role is to legislate and to supervise the government. It must do that work. Government representatives are rubbing our noses in the fact that the House endorsed this bill. On behalf of my party, I would like to say mea culpa, as others have done.
We have to acknowledge the reality of this situation. This is an extremely technical, 560 page-long bill. It was introduced during the first session of this Parliament, and it was referred to the Standing Committee on Finance, if I am not mistaken.
However, the government must act responsibly and honourably. The Crown demands a certain sense of honour of its representatives. When the committee studied Bill C-33, which is now Bill C-10, the government's representatives did not say a word about this measure. They tried to sneak it through quietly. That approach seems to have worked here in Parliament.
With all due respect to my NDP and Bloc colleagues, this is a bicameral parliament. Canada's Parliament is made up of two houses: this one and the Senate. Today, my Senate colleagues announced that the Standing Senate Committee on Banking, Trade and Commerce intends to study the matter.
Throughout the history of this institution, we have rarely seen a better example of the usefulness and necessity of a bicameral legislature, a parliament made up of two houses. Even though the government neglected to talk about some parts of the bill, given its very technical nature, the bill was sent to the Senate. Subsequently, the issue was raised publicly, and the Senate now intends to shed some light on it.
I believe that by April, the Senate will hold hearings and listen to those who want to be heard in order to find out what is going on. That is another reason we will not support the motion. We have to give Parliament a chance to do its work. As legislators, both houses of Parliament have a duty that they must carry out.
There is another reason: the proposed motion just puts the ball in the government's court. The minister said earlier that the federal and provincial governments are having some sort of discussion. We can presume that these discussions between officials and her staff have been precipitated in the past few days, for reasons I will get into in a few minutes. With all due respect to the minister, there has not been a lot of transparency here. No one knows when these meetings were held, who attended or what was discussed. We are left to assume certain things, when Parliament has a duty to carry out.
We have to look for the opportunity—and we have it right now, or will have it in the Senate—to clarify and truly understand the relationship that can exist between legislation, or Bill C-10, regulations and guidelines.
I have a question for the House and anyone watching us today. Earlier, reference was made to the Canadian Audio-Visual Certification Office guidelines. The hon. member for Kootenay—Columbia said that clause 5 states:
production for which public financial support would, in the opinion of the Minister of Canadian Heritage, be contrary to public policy
Note that was in February 2004.
Now, if I refer to the regulations, which have more authority under the political and legal conventions of our country and our Parliament, we do not find that in the regulations of 2005. They huff and puff that this is a Liberal initiative, but it must also be recognized that in 2005, under a Liberal government, the regulations excluded this item from the conditions making a film or television production ineligible.
What is this really about? This needs to be cleared up. The Senate, or the committee in question, will give a voice to all those who want to speak up. It could call witnesses. That brings us to the heart of the matter. I hope the Senate will call and listen to Mr. McVety.
This gentleman has made some affirmations that we believe must be questioned. He has affirmed having met with two ministers of the Crown, the Minister of Public Safety and the Minister of Justice, and that he is entirely satisfied that they have listened to his concerns about guidelines, future guidelines perhaps, who knows, and that he is happy.
Another comment was made on CBC Radio this week by the Parliamentary Secretary to the President of the Treasury Board who said that the government has already decided what it wants to do and that it wants to take guidelines from somewhere else and impose them on cinematography and television productions.
When we hear the minister saying that nothing has been done, that he is waiting for the bill and then he will consult, we must be allowed to have some doubts as to what has happened and, thus, the necessity to have these hearings so it will be clear and everyone can deal with this very delicate matter, which is akin to censorship as I have said, in full knowledge of the status of the current legislation, regulations and guidelines and whether they mesh or not. I think that is an absolutely legitimate role of Parliament. I wish that it was being done in the House instead of the Senate but that is not the case. It will be done in the Senate and we support that. I think that is the way to go.
We need to have clarity in this. I have received hundreds of messages and calls, and I know it is the same for many of my colleagues, from people wanting to know what gives. Whenever we deal with censorship, the matter of freedom of speech or the matter of artistic liberty, people have deep feelings about that, as they should. We live in a society where we do encourage respect. We have a Charter of Rights and Freedoms that establishes freedom of speech, freedom of assembly and freedom of expression. Artistic expression is certainly among those.
We need to understand what the government has in mind, what it did have in mind and what its intentions are. The best way of doing that is to use the ability and tools at the disposal of parliamentarians, whether they be in this House or the next house, to do that. The Liberal members of the Senate have publicly committed to doing that as early as possible, one would suspect as early as the month of April because the scheduling will be taken up in the next few days.
There is another reason why we cannot support the Bloc Québécois motion. This is because the amendment put forward by the Bloc might not be the right one. It might be, but it might not be. Other sections of Bill C-10 would have to be checked. Perhaps the best way to address this problem, once all the information and all the details are on the table, would be to ask that the Minister of Canadian Heritage be given the authority to establish regulations rather than guidelines.
This is important, because regulations are subject to review by Parliament, while guidelines are not. The Bloc Québécois is focusing on one section in particular. But I would like to highlight another section of Bill C-10. As I was saying, it is a 560-page bill that is extremely technical and I will try to quote part of it, in the hope that it will mean something to someone.
Another section says:
The Minister of Canadian Heritage shall issue guidelines respecting the circumstances under which the conditions in paragraphs (a) and (b) of the definition of “Canadian film or video production certificate” in subsection (1) are satisfied. For greater certainty, these guidelines are not statutory instruments as defined in the Statutory Instruments Act.
In English, it says that for greater certainty these guidelines are not statutory instruments as defined in the Statutory Instruments Act. The reason I raise this is that guidelines escape the scrutiny of Parliament. Once the Senate has heard the witnesses, convened officials and had a full airing of this matter, perhaps other sections may or may not need to be amended. Certainly, if there are to be guidelines at some point and anywhere, perhaps these guidelines should be a statutory instrument and therefore subject to parliamentary scrutiny. That would not be the case. There are a number of possible amendments that the Senate could make.
In the same spirit, if we were to rely on the Bloc's motion, we would be asking the government to present amendments. We have clear indications from the minister that the government has no intention whatsoever of providing such an amendment.
Therefore, if we rely on our own, as parliamentarians, be it this House or the next, ability and authority to review legislation and propose amendments, should that be the case, the amendments would come back to this House and we would have a chance to look at them, as I hope we do. That is another reason that I believe the Bloc's proposal is not the best way to go and we will not be supporting it.
I will quickly summarize the situation. We have a bill that has gone to the Senate. Tens of thousands of Canadians and nearly the entire artistic community are extremely concerned about certain statements made by some people to the effect that the government intends to change the guidelines concerning the payment of tax credits. This has created huge uncertainty within the industry.
Apart from the matter of possible censorship and the limiting of artistic freedom, another concern is the financial structure of productions for television or films. If we spend all the money and at the end we are told we cannot, then we cause incredible grief.
That is another consideration that must be addressed. I think the Senate, as my colleagues in the Senate have promised this afternoon, will provide an opportunity for those who wish to be heard, those who wish to express their concerns and those who wish to understand all of the complexities between text of law or a law, regulations and guidelines and how they interrelate. We have a duty as parliamentarians to ensure that is all on the table in a very transparent way.
The way the Bloc is proposing to do this would not provide that at all. It would not provide an opportunity for parliamentarians to do what should have been done in the first place. However, because we are a bicameral Parliament, we have an opportunity in the other House, in the red chamber, to do that.
Therefore, we will not support the Bloc motion, although we share the concerns expressed by tens of thousands of Canadians as to what the intentions of the government are. It is incumbent upon us to use whatever methods we have as legislators to shed the light on that. I am very happy and very proud that my colleagues in the Senate have undertaken to do just that and we will see where that leads us.
Opposition Motion—Income Tax Act
Business of Supply
March 5th, 2008 / 4:05 p.m.
Ed Fast Abbotsford, BC
Mr. Speaker, I am pleased to have the opportunity to engage in this debate on Bill C-10. My sole purpose today is to correct the public record regarding this bill.
As we know, Bill C-10 is a very specific amendment to the Income Tax Act and it clarifies our government's support for the Canadian film production industry. The bill simply permits the federal government to refuse to issue film tax credits where there are sound public policy reasons for doing so.
Regrettably, the debate has been muddied by unfair and inaccurate information emanating primarily from the opposition parties in this House.
From the outset, let me correct the public record by saying that, unlike what has been suggested this past week, the indisputable fact is that this proposal did not even originate with our current Conservative government. For anyone willing to actually examine the issue, it is abundantly clear that this proposed legislation originated with previous Liberal governments, going back to 1995.
As this fact seems to have escaped some of my conspiracy theory colleagues on the opposition benches, it might be helpful to review the historical record of this legislation.
As I have just stated, the very first time a previous Liberal government suggested a public policy limitation on the certification of films or video productions was back in 1995, some 13 years ago. The original release of the draft film tax credit regulations by the previous Liberal government provided discretion to the Minister of Canadian Heritage to refuse eligibility for film or video tax credits if the provision of public financial assistance--in other words, taxpayers' hard-earned dollars--would, in the opinion of the minister, be “contrary to public policy”.
Then again in 2002, the federal Department of Justice recommended to the then Liberal government of Jean Chrétien that such ministerial discretion be authorized in the Income Tax Act. In response, some amendments to the Income Tax Act were released for consultation by John Manley, who at that time was the Liberal minister of finance.
These amendments created a ministerial discretion to deny assistance to a film or video production on the grounds that granting such assistance would be “contrary to public policy”, exactly the wording that is in today's Bill C-10.
At the conclusion of that consultation period, final amendments were published on November 14, 2003. They were published jointly by then Minister Manley and the then Liberal minister of Canadian heritage, Sheila Copps, including the following provision:
“Canadian film or video production certificate” means a certificate issued in respect of a production by the Minister of Canadian Heritage certifying that the production is a Canadian film or video production in respect of which that Minister is satisfied that
public financial support of the production would not be contrary to public policy.
That provision released by the previous Liberal government is exactly the same provision, verbatim and word for word, that is included in the current Bill C-10, which we are debating today.
I would also like to quote a Liberal government news release that was issued jointly in 2003 by both John Manley and Sheila Copps. It stated:
Today's proposal results from ongoing consultations with all sectors of the film industry, which were undertaken by the Departments of Finance and Canadian Heritage....
To those in the film and television community who now plead ignorance to the introduction of these amendments, let me read a portion of the Canadian Film and Television Production Association press release from November 2003, a release that was still posted on its website the last time I looked, for all the world to see. It stated:
After almost three years of complex negotiations, the Department of Finance and Department of Canadian Heritage unveiled draft amendments to the Canadian Film or Video Production Tax Credit, which affects Canadian content production....
“This is going to help a lot of producers, and it's exactly what the industry needs right now. Making Canadian shows and films is tough in the current international markets. While financing is never easy, this is what the doctor ordered”, says Guy Mayson, acting president and CEO, Canadian Film and Television Production Association.
Everybody bought in when a Liberal government was in place.
I encourage people to go to that website and check out that news release. Anyone who reads the press release will note the absence of any serious concern with the discretionary power afforded under Bill C-10. There is nothing about censorship, nothing about it potentially devastating the industry.
In that previous session the bill had completed third reading in the House of Commons with all party support: NDP, Bloc, Liberal and Conservative. Of course, that session came to an end and the bill died on the order paper.
When the second session started, the bill was introduced as Bill C-10 and again received unanimous support from all parties in the House. It passed at second reading, went to committee, came back for third reading, and now it is in the Senate.
During that long process, the bill has been thoroughly reviewed time and time again by the NDP, the Liberals and the Bloc, both in this House and at the House and Senate committees. No objections were raised by parliamentarians from any opposition party, Liberal, NDP or Bloc, or even by film or television industry representatives.
Let me be perfectly clear. From November 2006 until very recently no expressions of concern regarding the amendment were raised. There were no fears regarding censorship or devastation of the industry. This is an industry all parliamentarians are proud of and want to thrive, an industry that not only serves a vital cultural role in Canada but an important economic role as well.
That is the history of Bill C-10. I trust that I have been able to dispel once and for all the absurd notion that the bill is a secret plan to introduce censorship. It is just not true.
Quite frankly, I am offended by that suggestion coming from the opposition parties. This is their bill. They introduced it. They thoroughly reviewed it a number of times. They approved it not once, not twice, but at least three times. In fact, this Liberal proposal goes back 13 years.
Now that I have firmly established the Liberal origins of the bill, I would like to turn to the central question. Why is it that both previous and current federal governments support this legislation?
Let me first note that restrictions on funding eligibility for films are not uncommon in cultural policy. Throughout the years most federal funding programs that support cultural works have included guidelines stating that certain materials, such as hate propaganda, excessively violent material, or pornography, is not eligible for government assistance. Most taxpayers find that eminently sensible. Somehow today, the Liberals, the NDP and the Bloc, who used to support this legislation, do not find it eminently sensible.
In the same way, Bill C-10 addresses only the most extreme and objectionable of film and video productions. What Bill C-10 does not do is in any way ban or restrict cultural productions which are privately funded.
We simply want to ensure that public funds, in other words taxpayers' hard earned dollars, are not invested in productions which are highly objectionable and offensive in their content. In fact, Bill C-10 simply implements long established practices in this regard.
For example, I note that four Canadian provinces have exactly the same wording in their film tax regimes as does our bill and three additional provinces employ very similar concepts, yet the Liberals and the Bloc and the NDP have not been jumping up and down about those jurisdictions having implemented this kind of legislation.
Despite the histrionics from the opposition parties, the Canadian film and television industry can be assured that it has the strong support of our Conservative government, especially the support of our fine Minister of Canadian Heritage. Canadian producers will continue to have great flexibility in the kind of productions they want to produce.
In short, the bill has absolutely nothing to do with censorship and everything to do with ensuring that taxpayers receive good value for the productions that they and their tax dollars subsidize.
February 27th, 2008 / 4:50 p.m.
Massimo Pacetti Saint-Léonard—Saint-Michel, QC
And they're related. Okay, I'm sorry, I misunderstood.
In the next paragraph, on the $22.081 million regarding the offshore trust and foreign investment initiative, is that the old Bill C-33, that huge document that was supposed to have been passed and has been lingering for six or seven years?
Income Tax Amendments Act, 2006
October 29th, 2007 / 3:05 p.m.
The Speaker Peter Milliken
The Chair is of the opinion that this bill is in the same form as Bill C-33 was at the time of prorogation of the first session of the 39th Parliament.
Accordingly pursuant to order made Thursday, October 25, 2007, the bill is deemed adopted at all stages and passed by the House.
(Bill read the second time, considered in committee, reported, concurred in, read the third time and passed)
Income Tax Amendments Act, 2006
October 29th, 2007 / 3:05 p.m.
Jim Flaherty Minister of Finance
moved for leave to introduce Bill C-10, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act.
Mr. Speaker, pursuant to the special order made previously, I would like to inform the House that this bill is in the same form as C-33 at the time of prorogation.
(Motions deemed adopted, bill read the first time and printed)
Income Tax Amendments Act, 2006
June 15th, 2007 / 12:20 p.m.
Judy Wasylycia-Leis Winnipeg North, MB
Mr. Speaker, I am pleased to speak on this important matter of taxation pertaining to tax avoidance and tax evasion which is part of Bill C-33. For those who are watching, the bill is at third reading. It is an important issue for all of Canada.
Bill C-33 may be a bill about technical matters and may contain some necessary steps that are long overdue. However, we support it because we, through this legislation, are taking steps to ensure that money that is owed to the country is not lost through arrangements that are questionable in nature.
Yet, we have to wonder why it is taking so long to close tax loopholes, to shut down tax havens, to deal with tax evaders, and to crack down on tax avoidance.
Why in the world are we still here talking about something that has been raised in the House on numerous occasions over the last two decades? It is a matter that has been studied to death by the Auditor General of Canada and here we are today taking a few baby steps to deal with some of the most egregious problems pertaining to tax avoidance.
This is a government that promised, in opposition, to take on the Liberal government, to crack down on tax evaders, and to do everything in its power to ensure that money that rightfully belonged in Canada stayed in this country and was not allowed to be frittered away through different loopholes and avoidance schemes.
Today we have a bill finally that has taken probably about five years. A good number of those years are a result of Liberal delays. The current government has only had a couple of years to really get its teeth into these matters, so we applaud the government for actually bringing this forward. But we regret that the government is not yet prepared to in fact deal with some of the big issues around tax avoidance and tax evasion that are so obviously present in our system today and around which the government has spoken a great deal.
It made a lot of statements about trying to ensure that we have a fair system of taxation. A system where in fact corporations pay their fair share and the wealthy are not able to use the system to avoid paying taxes. We would in fact move away from a system that is inherently biased in terms of the wealthy and the powerful in our society today, and is without concern for the needs of ordinary working families and hard-working Canadians.
The question we have today is, why in fact did the government, when it had the chance following the budget to implement its promise about dealing with interest deductibility, back off? It had a chance to actually make a difference. It had a chance to do something that had been identified by many as a significant step in the right direction.
Members in the House will know that we had a fairly lengthy discussion about interest deductibility at committee. It was an issue pursued quite rigorously in the House.
I think the government should have been able to detect considerable support for a complete crackdown on this issue and should have in fact been able to know that it would have considerable backing if it had decided to in fact go the complete distance and do what its own budget said. Budget 2007 said:
Assuming an exemption from withholding tax on both arm’s length and non-arm’s length interest is implemented in the Canada-U.S. Tax Treaty as expected, Budget 2007 will further simplify the Canadian international tax system by eliminating Canadian withholding tax on interest paid to all arm’s length non-residents regardless of their country of residence.
The budget speech went on to very clearly indicate that it was prepared to take on an issue of tax evasion, or I should not say tax evasion, of tax avoidance that has no place in our system today.
It has no place in the international scheme of things when we have countries such as Great Britain and other countries actually dealing with an international taxation system, so that one cannot move money around to different countries and avoid paying taxes.
The members in the House will know that in fact at committee and at other times organizations spoke out in favour of the government's position. In fact, the Canadian Labour Congress was very vocal at these hearings, recommending that the minister stick to his guns, stick to his plans to actually crack down on this particular egregious example of tax avoidance.
In fact, at committee hearings the representative of the CLC basically suggested to us that we needed to push the government to prevent corporations from deducting foreign affiliate interest here. It did not say to only limit it to double-dipping or talk about tax towers, but actually said to deal with the fact that corporations are deducting foreign affiliate interest here and get them to start paying their fair share of taxes from foreign affiliate income.
Other countries do it. They tax the income regardless of where that corporation has moved money or opened up new affiliates. They consider it as income earned and therefore as taxable income. Therefore, it is money that is then put back into the economy of a country like Great Britain to be used for expanding other job opportunities in the domestic economy, for training workers to meet new challenges, or dealing with a loss of manufacturing capacity. That is what this country should be doing. It should take that money and use it to make a difference.
It was very disappointing to in fact see the Minister of Finance backtrack on this promise. That was regrettable on his part.
I know the Liberals do not agree with us, do not agree with me certainly, and do not agree with the need to crack down on tax avoidance. They seem to want to keep all avenues open for tax avoidance to occur. That is not surprising given the past practice of the Liberals when they were in government.
There is a long history of Liberals in Canada standing up for the corporate elite, for the wealthy and the powerful, and for any scheme imaginable that will allow those individuals and those entities to avoid paying taxes.
I would like to go back to a couple of examples. I would like to make the case that instead of simply waiting for community organizations, the labour movement, individual parliamentarians, and the non-governmental community to fight for changes to the tax system which might eventually produce some good results, the government ought to start to take some initiative, show some initiative, be proactive and not wait.
Our history on this issue is nothing but waiting for the government to catch up with the community, waiting for the government to finally address something after an issue has gone through the court systems and finally resulted in some pretty clear direction for the government.
I want to go back to an issue that actually began under the Conservatives during Brian Mulroney's time. It went through most of the Liberals' term and finally resulted in some changes, but not before some individuals were able to take advantage of the system.
I want to take members back to what we in Manitoba call Project Loophole. Folks might remember that it was in 1996 that Winnipeger George Harris decided to force the Canadian government to collect an estimated $750 million in taxes that were owed to the government by one of Canada's wealthiest families. Harris and Project Loophole forced the courts to acknowledge that the government had acted as if a citizen had no choice but to pay his taxes and be quiet. It was a David and Goliath situation in the battle for tax fairness and for an end to tax loopholes that allowed the wealthy and powerful to rewrite the tax laws in their favour.
It was a volunteer initiative. I was part of a group, back then in Winnipeg in the mid 1990s, called Choices, a Winnipeg-based coalition for social justice. It was out of this organization that George Harris found the backing and the support in order to go forward with this court challenge. It was a lengthy, costly battle, with money raised from ordinary consumers, Manitobans and citizens everywhere concerned about taxation fairness.
It really was a stinky case. Some lawyers called it a smell test. They were concerned that this was about power being abused or rules being bent. According to one of the judges in the case along the way, Federal Court Justice Frank Muldoon, it reeked and really did not seem to be about transparent government.
The case started with a wealthy Canadian family. It is not important to know the name of the family, although I think it is well known now, but it is important to know that the family was wealthy enough to be able to set aside a family trust worth $2 billion, not the typical college fund nest egg. It was a wealthy family with an incredible amount of money that wanted to avoid paying taxes. This trust was established in Canada under Canadian law to take advantage of Canadian tax rules.
Let us go back to 1991 when in fact the case first came to light. For its own reasons, the family decided to transfer the assets in the trust to a trust in the United States that it would control. This was back in 1991. Normally when this happens the family would be required to pay taxes on the increase in the value of the fund since it was established and it was estimated those taxes could have amounted to $750 million. However, in November of that year the family asked the federal government for a tax ruling that would allow it to move the money to the United States without paying taxes.
To cut a long story short, the issue went back and forth between the family's lawyers and officials in the finance department in the Government of Canada and eventually officials backed off and agreed to this family's request. It was then that Project Loophole took shape and began to mount a very serious campaign that went right to the Supreme Court.
Regrettably, the courts, in the end, did not precisely rule in favour of the citizens' coalition but sent a message to the federal government. It sent a message to say that the provisions that allowed this to happen had to be changed. In other words, everything that the government did in conjunction with this wealthy family's lawyers was apparently okay according to existing law and regulations. That is what the court said, but it also said this should not be allowed to continue.
Finally, after this lengthy battle and all of this uproar by community members across this country, governments finally listened and did something. As we learned from the officials at the finance committee, when we were dealing with Bill C-33, the rules have been changed to prevent that kind of development from happening.
Why does it have to come to this? Why does an issue of such obvious unfairness need a voluntary citizens group to raise money and take it through the courts before the government will act? Why can the government not see the wisdom of acknowledging the tax avoidance schemes, the tax havens and this trend of setting up these offshore centres? Why does the government not take a hard look at that and do something about it? Why are we studying this again?
That is what came out of the federal budget, finally, after the government backtracked and said that it really was not going to crack down on interest deductibility, that it really was not going to make foreign corporations pay their fair share of taxes and that it really was not going to collect taxes that rightly belonged to this country.
What does the government do? It sets up a couple of more studies. We now have a short term round table over the summer to draft legislation pertaining to this issue of interest deductibility on its limited basis involving double-dipping and towers. We do not have anything in place yet in terms of double-dipping, never mind the broader issue of interest deductibility in terms of foreign affiliates.
On the broad issue of tax avoidance, the government has agreed to a longer term panel, called an expert panel, that would look at the fairness and the competitiveness of the tax system as a whole. The panel will report back sometime by the end of 2007 or 2008.
I think this issue has been studied enough. We have lots of credible information. We have been going around the mulberry bush at the finance committee.
The House resumed consideration of the motion that Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, be read the third time and passed.
Income Tax Amendments Act, 2006
June 15th, 2007 / 10:45 a.m.
Mike Wallace Burlington, ON
Mr. Speaker, I appreciate the member's speech and I appreciate his support of the government bill, Bill C-33.
The member went on to talk about debt dumping, which is an important issue and we have discussed it at finance committee. However, I do not understand it. Debt dumping did not just start in the last 18 months.
Why did the Liberal government completely ignore the fact that people were trying to take advantage of the Canadian tax system? If debt dumping is so important to the Liberals now, why did it take them 13 years to do absolutely nothing about it? They had to wait until they were on the other side of the benches to wake up and find out there was debt dumping in the country and we had to make changes? What is wrong over there?
Income Tax Amendments Act, 2006
June 15th, 2007 / 10:25 a.m.
Paul Szabo Mississauga South, ON
Mr. Speaker, the member uses the phraseology “paying a fair share of taxes”. I think the member is quite right when he says that the marketplace is very creative. We tend to lag behind in being able to respond quickly to marketplace changes.
The member is probably aware of one of these things we have seen, although I am not sure if Bill C-33 touches on it. Quite honestly, I have not examined the bill in its fullness, but the member is aware that as a consequence of the change in government policy with regard to the taxation of income trusts, there have been, I understand, about 10 income trusts which have been purchased by foreign private equity. As a consequence, they have been able to structure their affairs so that they no longer pay Canadian taxes.
In fact, it is estimated that about $6 billion of revenue that the Government of Canada formerly had collected from them will be lost each and every year because of this structuring of foreign private equity investors. Is the member satisfied that we have been able to identify and respond to some of the emerging financial techniques that have come forward, such as stapling of debt and equity, et cetera?
I believe this poses a serious threat to the taxation revenue of Canada. It may be fair, but it is not really in the best interests of Canada to lose $6 billion of revenue.
Income Tax Amendments Act, 2006
June 15th, 2007 / 10:05 a.m.
Mike Wallace Burlington, ON
Mr. Speaker, it is my pleasure this morning to talk about this income tax amendment bill, Bill C-33, taxation of non-resident trusts, NRTs, as the department likes to call them, and their beneficiaries and of Canadian taxpayers who hold interests in foreign investment entities, or FIEs.
The issue is that Canadians hold a significant portion of their investments abroad. In 2005 Canadians owned $282 billion worth of foreign stocks, bonds and money market instruments. In part, globalization and other factors, such as the need for portfolio diversification, explain this phenomenon.
Some foreign investments made by Canadian residents are, however, thought to be motivated by tax considerations. The use of foreign investment entities and non-resident trusts rather than Canadian-based investment vehicles can result in lower taxes for Canadian residents; an issue that we are dealing with at the finance committee.
The distribution of income from trusts, regardless whether the trust is located in Canada, is subject to Canadian taxes when the beneficiary is a Canadian resident. Furthermore, trusts that are resident in Canada must also pay Canadian taxes on undistributed income. Non-resident trusts, however, are generally not subject to Canadian taxes on their undistributed income.
If a non-resident trust is located in a jurisdiction that applies little or no taxes on undistributed income, the trust could potentially accumulate income and capital on a tax-free basis. As a result, Canadian investors in such non-resident trusts could benefit from deferred taxes as long as their funds are kept in trust.
Distributions made out of the initial capital of a trust, regardless whether the trust is located in Canada, are not subject to taxes in Canada. When a trust is located in a jurisdiction that does not apply taxes to undistributed income, taxes could be avoided altogether by transforming accumulated income into the capital of the trust, which would then be transferred to Canadian investors on a tax-free basis.
As we can see, this bill really deals with a number of issues in terms of Canadians paying their fair share of taxes.
In a manner similar to trusts, investment funds located in Canada are subject to Canadian taxes on income and capital gains accumulated in the fund on a yearly basis. Furthermore, investors in investment funds are subject to taxes on income and capital gains allotted to them.
FIEs, however, are not subject to Canadian taxes. If a foreign investment entity faces little or no taxes in the country of residence, investors in the fund could benefit from deferred taxes on undistributed income and capital gains.
Furthermore, upon the disposition of their interest in the fund, investors in FIEs may be able to transform income into capital gains, which have a 50% inclusion rate in Canada.
It is a tax avoiding system. This bill does its share in terms of trying to end some of those small loopholes that have been brought to our attention, mainly by those who are in the tax preparation business.
The current legislation, which has existed since 1972, the Income Tax Act, has contained provisions that are meant to limit the use of FIEs and NRTs for tax avoidance purposes. Section 94 of the act deals with NRTs, while section 94.1 deals with FIEs.
Section 94 of the Income Tax Act sets out conditions under which a NRT would be subject to Canadian taxes. Generally, two conditions must be met: there must be a Canadian beneficiary and there must be a Canadian contributor.
The beneficiary condition is satisfied if any of the following have a right, directly or indirectly, to any income or capital associated with the NRT: a person resident in Canada, a corporation or trust with which a person resident in Canada is not dealing at arm's length, and/or a controlled foreign affiliate of a person resident in Canada.
The contributor condition is satisfied if the NRT acquired property, directly or indirectly, from a person who meets each of the following requirements: the person is a beneficiary, as I have described before, a person related to that beneficiary or the uncle, aunt, nephew or niece of that beneficiary; the person is resident in Canada at any time during an 18-month period before the end of the NRT relevant taxation year; and finally, in the case of an individual, he or she has resided in Canada for an aggregate period of more than 60 months before the end of the NRT relevant taxation year.
Once these two conditions are met, the manner in which Canadian taxes are applied depends on whether the NRT is a discretionary trust, that is, a trust where the trustee has discretion regarding how much of the trust income or capital is paid to beneficiaries.
In the case of a discretionary trust, the NRT is deemed a resident of Canada for the purpose of part 1 of the Income Tax Act. Its taxable income is generally the total of its taxable income earned in Canada and what its foreign accrual property income, that is, passive income earned by a foreign subsidy, would be if it were a corporation.
In the case of a non-discretionary trust, if the Canadian beneficiary holds at least 10% of the market value of interests in the trust, the trust is deemed to be a corporation that is a controlled foreign affiliate of that beneficiary. The beneficiary is then required to include, in income, his or her pro rata share of the trust's foreign accrual property income. If the Canadian beneficiary holds less than 10% of the market value of all interests in the trust, the beneficiary may be subject to Canadian taxes under the rules governing FIEs.
As we can see, this is rather technical in its nature and has been around for a little while, which I will talk about near the end of my speech. I wanted to make sure everybody understood that this is a technical bill with some needed minor changes to make the system work more appropriately.
According to the Department of Finance, these rules are not fully effective and relatively little income is taxed in Canada. We need to make some changes and that is what this bill does. Several tax haven jurisdictions, which we have been studying in the finance committee, have trust laws that make it relatively easy to disguise the fact that a NRT has a Canadian resident beneficiary. Without a known Canadian beneficiary, current laws to limit the use of NRTs for tax avoidance purposes are difficult to enforce.
I will now discuss foreign investment entities or FIEs. Section 94.1 of the Income Tax Act is intended to prevent taxpayers from using FIEs to defer or eliminate taxes. This section applies if a Canadian taxpayer holds an interest in a foreign entity that derives its value, directly or indirectly, from portfolio investments in specified properties, such as shares or real estate.
Furthermore, for section 94.1 to apply, it must be shown that one of the main reasons for the investment in FIE is to reduce or defer tax liability that would otherwise be incurred if the income accrues directly to the taxpayer. If the conditions specified in section 94.1 are met, a notional annual allocation of income is imputed to the taxpayer and is subject to taxation. The amount of income imputed to the taxpayer is determined by multiplying the cost of the taxpayer's interest in the fund by a prescribed interest rate as calculated in the income tax regulations.
As mentioned in budget 1999, and I will make the point later on that this actually began in 1999 under a previous Liberal government, this provision has rarely been applied because, and this is why we are making changes, Canadian authorities often lack the relevant data and challenges exist with establishing that the acquisition of the interest in the FIE is motivated by tax avoidance purposes.
We had this criteria that one had to be in a tax avoidance which was very difficult under the current act to make that happen. The bill makes some minor changes to the Income Tax Act to assist our bureaucracy, which looks after the tax issues, and make it a little easier for them to calculate and find out whether people are actually avoiding taxes in this method.
Furthermore, when the provision is applied the amount computed to the taxpayer's income is sometimes criticized that it is arbitrary and not necessarily correlated to actual income generated by the FIEs. Therefore, it was hard to determine what that actual income level was.
What are the legislative proposals contained in Bill C-33? Part 1 of Bill C-33 would create a new taxation regime for investors in non-resident trusts, NRTs, and foreign investment entities, FIEs, in order to respond to perceived gaps in the current provisions of the Income Tax Act.
Bill C-33 would make it harder for Canadian resident investors in non-resident trusts and foreign investment entities to avoid or eliminate Canadian taxes on their income from their investments.
The proposed rules are more complex, of course, as the tax system seems to get that way. They are lengthier and more far-reaching than the current rules. The senior levels of the finance department and the tax department said at the committee that these rules were needed for them to be actually effective.
The proposed regime was first introduced in budget 1999. Let us say it is 2007 now and we have the bill in front of us. There has been a number of announcements from 1999 and June 2000, September 2000, August 2001, October 2002, December 2002, October 2003, February 2004 and July 2005. Therefore, the department and the previous government had made a number of announcements but we really did not get it into law. Not everything needed to be in law but a number of the provisions must be to be effective and that is what we are doing today under this bill.
To be frank, we had some limited discussion at committee on this as all the opposition parties were very supportive of moving this forward, which is why Bill C-33 is in front of us today.
For non-resident trusts, in general, Bill C-33 would, for tax purposes, treat non-resident trusts as if they were trusts resident in Canada. Therefore, a contribution, whether a loan or transfer of funds for property, was made to the NRT by an entity resident in Canada or there is an entity that is resident in Canada and is a beneficiary under the NRT. We are trying to make some changes there. If the NRT fails to pay Canadian taxes, each Canadian resident contributor or each resident beneficiary would be jointly liable for the Canadian tax.
What we are saying is that if one meets those two criteria, someone will be paying the tax, either the beneficiary or the one who is contributing to make that happen or they can split that tax burden and pay it that way.
The amount of tax liable for the beneficiary of the trust would, however, be limited to the beneficiary recovery limit and the relief would be available to the contributor whose contribution to the NRT is insignificant. Therefore, there is some flexibility when we discover that one needs to be paying Canadian taxes on these non-residential trusts but who makes the actual payment can be split but it will depend on what that individual's liability is.
On foreign investment entities, the purpose of foreign investment entity rules under Bill C-33 would apply to all Canadian taxpayers except for new immigrants to Canada. I did ask at committee what the words “new residents” to Canada meant and I was told by the officials that this law needed be fair to our new Canadians. People who have come to Canada in the last little while may have trusts and other investments that would apply to these rules and that they would bring with them. The rules that would apply are that they would be tax free and not subject to these new rules under Bill C-33 for a period of five years of their residency. I think that was fair and I am glad t we were able to put that in the bill. That was an issue that I did not have an answer for and they were able to find it. I appreciate that clarification.
Also, partnerships with members resident in Canada would be required to allocate FIE income to those members. Taxpayers would be taxed based on their equity participation, for example, a participating interest or a particular interest in a trust or other specified type of entity, in a FIE, on their investment in an entity if the investment return from the entity tracks the investment return on certain properties or on their interest in certain foreign insurance policies. We are basically looking at what level of participation individuals have in these FIEs and that would determine their liability.
However, taxpayers would not be taxed on their participation if an “exempt interest”. An exempt interest of a taxpayer in a non-resident entity would generally include, but not be limited to, an interest in: a non-resident entity that is a controlled foreign affiliate of the taxpayer or a partnership; certain property held by financial institutions; and a widely held FIE listed on a prescribed foreign stock exchange if it is reasonable to conclude that the taxpayer had no tax avoidance motives. We must remind ourselves that that is what we are trying to overcome. It is tax avoidance and if a taxpayer can show that was not the purpose of an investment. these rules would not apply.
A FIE that is governed, formed and organized under the laws of the country with which Canada has entered into a tax treaty, and there are some other issues with that. We have tax treaties with a number of countries around the world. We also have tax treaties with the U.S. It would be up to the taxpayer to show that it is the case and that it was not a tax avoidance motive again, and that is the issue.
In most circumstances, and in particular when the taxpayer has insufficient information to use other options, the taxable income of the taxpayer in respect of a participating interest in a FIE would be determined annually by multiplying the cost value of the taxpayer's interest by a prescribed interest rate. If the taxpayer has sufficient information to company, he or she would be able to elect to compute taxable income in respect of a participating interest in a FIE based on the annual movement in the fair market value of that interest. Provided that conditions are met, taxpayers would also be able to elect to treat a non-resident entity as a controlled foreign affiliate, in which case they would be required to include their annual share of the non-resident entity's income on their taxable income for that year.
I know that was exciting for everybody in the House today and those watching at home. This is a very technical bill and it is fairly large. It has lots of wording changes and so on but, in a nutshell, it includes changes to non-residents trusts and foreign investment entities, as well to be consistent with the Income Tax Act. All we are looking for and all we have been dealing with, not just with this part but with other studies that the finance committee is doing, is fairness in the tax system in terms of making sure that those who are required to pay Canadian taxes are paying their fair share of taxes.
I am very supportive of the other opposition parties on this particular tax issue. The changes to NRTs and FIEs would tighten the tax rules around tax havens and respond directly to concerns raised by the Auditor General. We did not come out with this on our own. The Auditor General in her reports indicated that this was an area that needed to be looked at and we did. The previous Liberal government made attempts to get it here but we are actually getting it done. We are at third reading, which is excellent. What needed to become law will become law. We will be tightening the offshore tax havens as viewed positively by taxpayers and the Auditor General. Some stakeholders will likely be not pleased because they have money in these tools but it is important that every taxpayer pays his or her fair share.
These proposals have been released for over a year. We did make some new changes. Obviously, as time passes we find new issues, and the response has been relatively positive. Those who are intimately familiar with this are normally tax lawyers and tax accountants who deal with individuals who have this and they have indicated to us in terms of what needed to be tightened up and what did not and how to clarify the system. The bill is quite technical, but it is an important piece of legislation.
Mr. Speaker, do I have some time left?
The House proceeded to the consideration of Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, as reported (with amendments) from the committee.
Business of the House
June 14th, 2007 / 3:10 p.m.
Peter Van Loan Leader of the Government in the House of Commons and Minister for Democratic Reform
Mr. Speaker, I will be happy to address that in the affirmative in a moment but there is more that we should know about in terms of the business we are doing.
We will continue today with Bill C-42, the quarantine act, Bill C-58, the railway transportation bill and Bill C-21, An Act to amend the Criminal Code and the Firearms Act (non-registration of firearms that are neither prohibited nor restricted).
Tonight we have the emergency debate pursuant to Standing Order 52 that the Speaker has determined should proceed.
Next week is got the job done week when the House has completed the nation's business for this spring's session. During the got the job done week we will continue and hopefully complete the business from this week, as well as some new legislation and legislation that will be out of committee or the Senate.
The list of bills that are currently on the order paper, in addition to those I have identified for this week that I would like to see completed by the House before the summer recess are: Senate amendments to Bill C-31, An Act to amend the Canada Elections Act and the Public Service Employment Act.
There are also the following bills: Bill C-32, An Act to amend the Criminal Code (impaired driving) and to make consequential amendments to other Acts; Bill C-44, An Act to amend the Canadian Human Rights Act and Bill C-53, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).
Another bill includes Bill C-54, An Act to amend the Canada Elections Act (accountability with respect to loans).
By the end of next week, Canadians expect that the Senate will have completed its consideration of budget Bill C-52 without any amendments so that they can relax for the summer with the knowledge that $4.3 billion in the 2006-07 year end measures will be in play.
If there are amendments, we will have to be here in the House to respond and protect measures that might otherwise be lost, such as a $1.5 billion for the Canada ecotrust for clean air and climate change; $600 million for patient wait times guarantees; $400 million for the Canada infoway; $100 million for the CANARIE project to maintain the research broadband network linking Canadian universities and research hospitals; $200 million for protection of endangered spaces; and much more.
Committees of the House
June 13th, 2007 / 3:10 p.m.
Brian Pallister Portage—Lisgar, MB
Mr. Speaker, I have the honour to present, in both official languages, the 21st report of the Standing Committee on Finance in relation to Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, with amendments.
June 12th, 2007 / 11:45 a.m.
The Chair Brian Pallister
Welcome, committee members and guests.
Pursuant to the order of reference of Monday, May 14, 2007, which is Bill C-33, an act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that act, we have witnesses from the Department of Finance.
Would the Department of Finance representatives like to make any opening statements?