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

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.

[The Chair, Conservative, 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?

Business of the House

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, today we will be continuing with the business of supply.

Tomorrow we hope to conclude third reading of Bill C-52. In answer to the question on priorities, I would point out that Bill C-52, the budget implement bill, is the number one priority of this government. We can talk about other priorities after we see an indication that it will be heading for royal assent. If we do not have it, it will result in the loss of $4.3 billion in 2006-07 year end measures which include: $1.5 billion for the Canada ecotrust for the provinces; $600 million for patient wait times guarantees; $400 million for Canada Health Infoway; $200 million for protection of endangered species; $30 million for the Great Bear rain forest; $600 million for labour market agreements for the provinces; $30 million for the Rick Hansen Foundation; $100 million in aid for Afghanistan; $100 million to Genome Canada; and so on. It is a long list of important priorities financing that will be lost if the bill is not passed by the end of this session in June. That is obviously our number one priority.

Next week will be getting things done for all of us week when we consider a number of bills that are in their final stages of the legislative process.

The following bills will be placed under Government Orders for debate: Bill C-11, An Act to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other Acts, which the Senate reported with amendments and which is now back before the House to receive the approval of the members, and Bill C-23, An Act to amend the Criminal Code (criminal procedure, language of the accused, sentencing and other amendments).

We are awaiting the Senate's report with amendments on Bill C-31, An Act to amend the Canada Elections Act and the Public Service Employment Act.

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, Bill C-42, An Act to amend the Quarantine Act and Bill C-47, An Act respecting the protection of marks related to the Olympic Games and the Paralympic Games and protection against certain misleading business associations and making a related amendment to the Trade-marks Act, will probably be passed by the House at third reading.

Discussions have taken place with the opposition parties, and there may be consent to fast-track some or all of the following bills: Bill C-59, An Act to amend the Criminal Code (unauthorized recording of a movie), Bill S-6, An Act to amend the First Nations Land Management Act and Bill C-51, An Act to give effect to the Nunavik Inuit Land Claims Agreement and to make a consequential amendment to another Act.

There is also a possibility of quick passage of a new bill entitled “An act to amend the Geneva Conventions Act, an act to incorporate the Canadian Red Cross Society and the Trademarks Act”, which appears on today's notice paper.

There are a number of other bills I am still hoping we could get included in getting things done for all of us week, provided that they get reported back from committee, in particular, Bill C-6 aeronautics; Bill C-27 dangerous offenders; Bill C-32 impaired driving; and Bill C-44, the bill to grant first nations people the human rights that every other Canadian enjoys. First nations people expect the House to get things done for them as well, so I urge the aboriginal affairs committee to stop delaying Bill C-44 and report it back to the House early next week. It is a priority for this government.

[The Chair, Conservative, Brian Pallister]

Okay, good. We'll deal with that on Tuesday, after we've had a couple more hearings on the delightful tax haven topic we've been discussing for some time. We'll endeavour to have witnesses ready to go on Tuesday, and we'll conclude by dealing with Bill C-33.

We'll move in camera now.

[Proceedings continue in camera]

[The Chair, Conservative, Brian Pallister]

Pursuant to the order of reference of Monday, May 14, 2007, we are studying 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.

(On clause 2)

All in favour of clause 2?

Mr. McKay.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Brown.

Thank you, Mr. Brown and Mr. Larin, for your participation in our hearing. We very much appreciate it.

We will now suspend briefly for lunch and then reconvene to deal with clause-by-clause on Bill C-33.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

It's clear there are some corporations and individuals who will pursue very aggressively any kind of way to avoid paying taxes. The bottom line for them is, what are the odds of getting caught? My question is, what will be the impact of Bill C-33 on those odds?

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you. This is going so fast I can't keep up.

I have a couple of questions.

I'd like to take you back to the whole issue that went through to the Supreme Court regarding the Bronfman family and the challenge they faced after moving $2 billion out of the country. There was a group out of Winnipeg through Choices, a social justice coalition, and an individual by the name of George Harris, who took this right through to the Supreme Court. It didn't rule in his favour, but I think the court made very serious statements around problems within the finance department over this kind of development.

Is Bill C-33 and its predecessors a response to that kind of situation?

[Mike Wallace, Conservative, Burlington, ON]

My second and final question is based on the report from the Library of Parliament. It says, under foreign investment entities, that the proposed foreign investment entity rules under Bill C-33 would apply to all Canadian taxpayers--and then in brackets--except new immigrants to Canada.

Is that true, and what's the definition of a new immigrant? Does that change after they've been here for a number of years?

[The Chair, Conservative, Brian Pallister]

Merci, Madame.

We will just ask the committee members to note that the deadline for amendments is 5 o'clock Wednesday, June 6, and we will do clause-by-clause on Bill C-33 on Thursday.

Now we continue with the talented Mr. Pacetti. Mr. Pacetti, it's over to you.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Given the limited scope the bill is dealing with, do we have the enforcement capacity to actually deliver what the bill promises, given the Auditor General's concerns, given the problems CRA is having in terms of international enforcement? Do we have the capacity to fully implement Bill C-33?

[Diane Ablonczy, Conservative, Parliamentary Secretary to the Minister of Finance]

Yes, I do, Mr. Chairman. Thank you very much.

To my colleagues, who will no doubt be hanging on my every word, good morning.

I'd just like to make a few comments to set the background on our study of this bill. I hope they will be helpful to my colleagues this morning.

Bill C-33 implements certain tax measures and amendments to the Income Tax Act. Specifically, this bill proposes measures regarding the taxation of non-resident trusts and foreign investment entities, otherwise known as NRTs and FIEs. It also contains a number of proposed technical amendments to the Income Tax Act.

The intent of this bill before the committee today is to help strengthen our tax system by ensuring its equity and integrity.

First of all, with regard to the non-resident trusts and foreign investment entities, the measures in this proposed legislation are intended to prevent tax deferral and avoidance through the use of foreign investment funds and trusts. Since we're studying this whole area, by the way, I think this will be of particular interest to all of us on the committee.

This type of activity has moderated substantially in recent years, but Bill C-33 will ensure that if someone tries to avoid taxes by using foreign investment funds, any income earned on that investment will be taxed as if it were earned in Canada. Bill C-33 does this by proposing to amend provisions of the Income Tax Act relating to the taxation of income earned from non-resident trusts and foreign investment entities to investment vehicles used sometimes by Canadian taxpayers.

I should note here that the amendments in this bill were developed in consultation with professional tax advisers and taxation authorities as well as with taxpayers themselves. These changes also respond directly to concerns raised by the Auditor General.

These proposals were released in draft legislation in June 2005, nearly two years ago now, giving ample time for input by stakeholders. So these provisions are not going to take anyone by surprise.

The amendments are important and necessary for a very good reason, and that has to do with the equity of our tax system. As you know, Canada generally taxes just the Canadian-sourced income of taxpayers who are not resident in Canada. There exists, therefore, an income tax incentive for Canadian residents to earn investment income using non-resident trusts and foreign investment entities based in a country other than Canada that impose no tax or a low tax. In other words, using these investment vehicles to earn investment income, residents of Canada could inappropriately defer or avoid altogether the payment of Canadian taxes.

Mr. Chairman, we cannot have a competitive tax system if it allows a way for Canadian taxpayers to avoid paying appropriate taxes. Not only would that erode Canada's tax base, but it creates inequities that undermine the very integrity of our tax system. And of course when some people avoid paying taxes, other taxpayers must contribute more to pay for the government programs that are valued by Canadians.

The bottom line, Mr. Chairman, is that these changes in Bill C-33 before us will level the playing field. They will also allow Canadian investment vehicles to compete on an equal footing with foreign-based investment opportunities.

Turning briefly to the technical amendments, as I mentioned at the outset, Bill C-33 also includes a number of proposed technical amendments to the Income Tax Act that are essentially housekeeping measures. The intent of these amendments is to correct or clarify the application of existing income tax provisions. They will also implement measures that have already been announced by this government and the previous one and deal with other income tax situations that require legislative response.

Technical tax bills are quite common. They come up every few years and are used to implement small changes that typically clarify provisions in the act so that they better reflect the policy intent. Most often these changes are pointed out by tax practitioners, who identify tweaks that are necessary.

These changes are not controversial. Most are relieving in nature and a few are neutral. They include things like expanding the RRSP rollover options available on the death of the parent or spouse of a mentally disabled individual. Providing income tax exemptions for corporations owned by municipalities or public bodies performing a function of government is another example.

Before I open the floor to questions, I would remind the committee members again that the intent of this proposed legislation is to improve the equity and integrity of our tax system.

I will now be pleased to answer any questions from committee members about Bill C-33. I also welcome the assistance of our brightest and best officials from Finance Canada, Mr. Lalonde and Mr. Conway, who have joined us here today.

Thank you, Mr. Chairman.

[The Chair, Conservative, Brian Pallister]

Good morning to our committee members and our guests.

Pursuant to the order of reference of Monday, May 14, 2007, we are meeting on 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.

Appearing this morning is our colleague, the Honourable Diane Ablonczy, parliamentary secretary to the Minister of Finance.

I call clause 1.

Diane, do you have some opening comments you would like to put on the record?

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, with regard to the last point, we have already addressed that.

However, with regard to the balance of Thursday's statement, I am pleased to respond that today and tomorrow we will continue with Bill C-55, the expanded voting opportunities bill; Bill C-14, the adoption bill; Bill C-57, An Act to amend the Immigration and Refugee Protection Act; and Bill C-45, the fisheries act.

In the last Thursday statement, we indicated that we were hoping to have this week as “enhancing the quality of the life of first nations people week” but this was cancelled by the opposition parties when they did not release Bill C-44 from committee, the bill that would give the first nations protection under the Canadian Human Rights Act. Not only is it being held up now but, as early as this morning in this House, the opposition obstructed our efforts to get the bill dealt with forthwith so that first nations people could have the human rights that every other Canadian enjoys. We know that if all parties would agree to proceed with that, as we saw when we sought unanimous consent, it could proceed, but some would prefer to obstruct it.

Next week will be welcome back from committee week, when we welcome business that has been at committee, including some that has been stalled there for some time. We will deal with Bill C-52, the budget implementation bill, which will begin report stage on Monday and, hopefully, we can get third reading wrapped up by Tuesday.

Following the budget bill, we will call for report stage and third reading of Bill C-35, bail reform. After that, we will call Bill C-23, the Criminal Code amendments. I hardly remember when Bill C-23 was sent to the committee by this House. That took place long before I was even House leader 228 days ago.

Thursday, June 7, shall be the last allotted day. There are a number of other bills that we would like to include in our welcome back from committee week. I still hope we can see Bill C-44, the amendments to the Canadian Human Rights Act, to which I just referred; Bill C-6, the amendments to the Aeronautics Act; Bill C-27 dealing with dangerous offenders; Bill C-32 dealing with impaired driving; and Bill C-33 dealing with foreign investment, if the opposition parties will release those from committee.

[Peter Van Loan, Conservative, York—Simcoe, ON]

I would not do that.

Tomorrow is an allotted day.

Next week is constituent consultation week, when the House will be adjourned to allow members to return to their ridings and meet with constituents to share with them the activities of Parliament since the last constituency break.

For the interest of members, I will quickly review our plan for the context of our overall legislative agenda.

As he requested, this is currently strengthening the economy week, where a number of financial bills moved forward. The budget bill was sent to committee and, hopefully, it will be reported back tomorrow, or soon, so we can deal with it at third reading when the House returns after the break.

Bill C-40, an act to amend the Excise Tax Act, was read a third time and sent to the Senate. Bill C-53, an act to implement the convention on the settlement of investment disputes, Bill C-33, the sales tax bill and Bill C-47, the Olympics symbol bill were all sent to committee and we all would like to see those back in the House for report stage and third reading.

In an earlier week, Bill C-36, the bill that makes changes to the Canada pension plan and the Old Age Security Act, was made into law after receiving royal assent.

Strengthening accountability through democratic reform week was a success with the consideration of Bill C-43, Senate consultation. We had three new democratic reform bills introduced that week: Bill C-55, to expand voting opportunities; Bill C-56, an act to amend the Constitution Act, democratic representation; and Bill C-54, a bill that would bring accountability with respect to loans. We hope to continue debate on that particular bill later today.

Bill C-16, fixed dates for elections, was given royal assent and is now law, which I think is the cause of the commotion now in all the committees where Liberals are using procedural tactics. Now they feel they can do it with a free hand.

Two other democratic reform bills are in the Senate, Bill C-31, voter integrity, and Bill S-4, Senate tenure. I really would like to have the term limits bill from the Senate for an upcoming democratic reform week if the opposition House leader can persuade his colleagues in the Senate to finally deal with that bill after 352 days. We may get 352 seconds in a filibuster, but they have had 352 days so far. They have been stalling for a year.

During the consultation week, I will be interested in hearing what our constituents think of the plight of Bill S-4 and the irony of those unaccountable senators delaying it.

We dedicated a good deal of our time focusing on making our streets and communities safer by cracking down on crime. Now that we have had the help of the NDP, we restored the meaningful aspects that the Liberals gutted in committee to Bill C-10, the bill to introduce mandatory penalties for violent and gun crimes. We are continuing to debate that bill today at third reading.

Bill C-48, the bill dealing with the United Nations convention on corruption, was adopted at all stages.

Bill C-26, the bill to amend the Criminal Code with respect to interest rates, was given royal assent.

Bill C-22, the age of protection, was given final reading and sent to the Senate, although it did spend close to, if not in excess of, 200 days in committee where the Liberals were obstructing and delaying its passage.

We made progress on Bill C-27, the dangerous offenders legislation. We would like to see that back in the House.

Bill C-9, An Act to amend the Criminal Code (conditional sentence of imprisonment) and a host of other justice bills are working their way through the system.

Members can advise their constituents that when we return, we will be reviving two themes, back by popular demand. Beginning May 28, we will begin again with strengthening accountability through democratic reform with: Bill C-54, political loans; Bill C-55, additional opportunities for voting; and Bill C-56, democratic representation.

Up next is a second go-round on strengthening the economy week with Bill C-52, the budget implementation bill, which will be called as soon as it is reported back from committee.

In the near future, we will have the improvement of aboriginal people quality of life week with Bill C-44. This bill will grant first nations residing on Indian reserves access to the Canadian charter of human rights. They have been denied this right for 30 years. Unfortunately, Bill C-44 is being delayed by the opposition. This is another bill being delayed by the opposition in committee.

After Bill C-44, I intend to debate Bill C-51. The agreement establishes the use and ownership of land and resources and will foster economic development. This bill illustrates Canada's commitment to the North and to settling land claims.

I wish all members a productive constituent consultation week and look forward to more progress on the government's legislative agenda when the House returns on May 28.

Settlement of International Investment Disputes Act

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, I am pleased to take part in this debate on Bill C-53.

Although the bill is extremely technical, it does not change much for Canada. However, it still offers an opportunity to ask ourselves about the nature of the investment agreements that have been signed by the Canadian government, and more specifically the bilateral agreements, and about the content of the North American Free Trade Agreement.

The problem lies not so much in Bill C-53 as in the agreements that we are signing, that are arbitrated under that convention.

I would note that if this bill is enacted, it will make it possible for Canada to ratify the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, and will also make it possible for Canada to become a member of the International Centre for the Settlement of Investment Disputes.

As we can see, this means incorporating the requirements of the ICSID Convention into domestic law, to ensure that arbitral awards can be enforced and to provide the necessary immunities for the centre and its personnel.

The International Centre for Settlement of Investment Disputes was created, we should remember, by the World Bank, under a treaty referred to as the Washington Convention of 1965. As of today, 156 countries have ratified the convention and are members of ICSID. The purpose of the convention and the centre is to arbitrate disputes between a state and a foreign investor.

There are two possible kinds of disputes between a state and a foreign investor. There are disputes relating to compliance with bilateral foreign investment protection agreements. For example, and I believe this was mentioned earlier, we recently signed an agreement with Peru. However, hardly anyone in the government alerted us to the signing of a new bilateral investment agreement. That agreement was very quietly signed between Canada and Peru. If it results in challenges, they can be arbitrated under this convention, and by this centre.

There is a second possible type of dispute. Disputes arise regarding agreements signed by governments with foreign investors. The government of Quebec regularly signs these kinds of agreement to generate foreign investment, for example by promising to supply electricity at an agreed price.

One can think of a number of major projects carried out on the North Shore. Discussions were held and commitments were made concerning electricity rates for the aluminum sector in exchange for commitments from the companies with respect to economic benefits from second and third processing, or future investments.

As I said, Canada's membership will not have any impact on the provinces. Only the federal level will be affected, although the provinces also will have the possibility of including in agreements they might enter into with investors provisions providing for the use of the centre and the convention.

Quebec has negotiated in the past, and could do so again in the future, agreements with foreign companies involved in the exploitation or processing of natural resources for competitive electricity rates under certain conditions. In such cases, it will be necessary to ensure that the endeavours of the Government of Quebec, whose good faith I never doubt, meet all the criteria in the agreement.

I have mentioned the bilateral treaty between the federal government and Peru. This treaty already provides for the use of arbitration or the ICSID process. Canada not being a member of the ICSID, it does not have access to the regular process because it has not ratified the convention. Additional facility arbitration rules apply under such circumstances.

As we can see, nothing much will change, except that we will be able to use the regular process.

In fact, Canada's adherence to the centre and the convention will enable it to take part in negotiations to amend the convention or the centre's rules, and ensure its ability to participate in appointments to arbitration tribunals.

I believe that this is important, because we know that this centre and this sort of convention will be increasingly important not only to the economic future, but to the overall future of trading nations such as Canada and Quebec.

In the final analysis, the centre is just a tribunal, and in that respect, we do not have a problem with Bill C-53. What we have a problem with is not the tribunal, but the poor treaties Canada has signed to protect investments. In our view, it is only natural that there should be investment protection agreements, provided that those agreements protect certain rights, especially the sovereign rights of the states involved, whether the agreements are between states or between states and companies.

It is only natural for investors to try and make sure that they will not be divested of their property and that they will not become victims of discrimination. This is the sort of situation that foreign investment protection agreements are meant to cover. They are not a new phenomenon, but have been around for more than two centuries now. In 1788, France and the United States signed an agreement to protect foreign investments. Today, there are 2,400 bilateral investment protection agreements in the world. If we add tax treaties covering the tax treatment of foreign investments and foreign source income, there are roughly 5,000 bilateral treaties relating to foreign investments.

I spoke yesterday about Bill C-33 on foreign trusts, and I will come back to that.