An Act to amend the Canada-United States Tax Convention Act, 1984

This bill was last introduced in the 39th Parliament, 2nd Session, which ended in September 2008.

Status

This bill has received Royal Assent and is now law.

Summary

This is from the published bill. The Library of Parliament often publishes better independent summaries.

This enactment amends the Canada-United States Tax Convention Act, 1984 to implement a Protocol that amends the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital and adds Annexes A and B to it. The major change contained in the Protocol is the elimination of all withholding tax on cross-border payments of interest. The elimination is immediate for arm’s length payments of interest and phased in over three years for non-arm’s length payments. Other changes to the Convention include new rules for the treatment of “limited liability companies” (LLCs), pensions, stock options, corporate continuances and taxpayers who change residence from one country to the other. Annex A to the Convention clarifies the interpretation of a number of provisions of the Convention. Annex B to the Convention provides for a binding arbitration procedure.

Elsewhere

All sorts of information on this bill is available at LEGISinfo, provided by the Library of Parliament. You can also read the full text of the bill.

Message from the Senate
Royal Assent

December 14th, 2007 / 1:15 p.m.
See context

Conservative

The Acting Speaker Royal Galipeau

I have the honour to inform the House that when the House did attend His Honour the Deputy to Her Excellency the Governor General in the Senate chamber His Honour was pleased to give, in Her Majesty's name, the royal assent to the following bills:

Bill S-2, An Act to amend the Canada-United States Tax Convention Act, 1984--Chapter 32;

Bill C-15, An Act respecting the exploitation of the Donkin coal block and employment in or in connection with the operation of a mine that is wholly or partly at the Donkin coal block, and to make a consequential amendment to the Canada--Nova Scotia Offshore Petroleum Resources Accord Implementation Act--Chapter 33;

Bill C-35, An Act for granting to Her Majesty certain sums of money for the federal public administration for the financial year ending March 31, 2008--Chapter 34;

Bill C-28, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007 and to implement certain provisions of the economic statement tabled in Parliament on October 30, 2007--Chapter 35;

Bill C-12, An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005--Chapter 36;

Bill C-18, An Act to amend the Canada Elections Act (verification of residence)--Chapter 37.

It being 1:20 p.m., the House stands adjourned until Monday, January 28, at 11:00 a.m., pursuant to Standing Orders 28(2) and 24(1).

(The House adjourned at 1:20 p.m.)

Business of the House
Oral Questions

December 13th, 2007 / 3:05 p.m.
See context

York—Simcoe
Ontario

Conservative

Peter Van Loan Leader of the Government in the House of Commons and Minister for Democratic Reform

Mr. Speaker, there is a response to the Thursday question and then I will get to the specifics that the member has asked about as part of our business to attend to Bill C-18.

This entire week has been a week of delivering results. I am pleased to see that we have done that this week. The House performed in an exemplary fashion on Tuesday, I believe, when we dealt with the legislation on the national research universal reactor to get that safely restarted so tens of thousands of Canadians and people all around the world can benefit from the availability of isotopes.

Earlier today, we voted on the budget implementation bill.

This bill reduces taxes for Canadians by, for example, decreasing the GST to 5%, and reduces personal and corporate taxes. The bill is now in the Senate. The government hopes that the upper chamber will examine it quickly so that it becomes law on January 1.

As well, just before question period, the House passed Bill S-2, implementing a tax treaty. It is now awaiting royal assent. It will help provide certainty and benefits for Canadian business.

We hope that in a few moments our verification of residence bill for elections will pass the House. This bill is important because it solves the problem of verifying the residences of voters who do not have a civic address on their identification. I know that all members want to ensure that legitimate voters are able to exercise their fundamental rights.

We will have business when we return on January 28. We will continue to focus on the priorities that were laid out in the Speech from the Throne.

They include: tackling crime and strengthening the security of Canadians, providing effective economic leadership for a prosperous future, strengthening the federation and our democratic institutions, improving the environment and the health of Canadians and strengthening Canada's sovereignty and place in the world.

Before we go to the motion, I would like to recognize the work done by all members of the House over the past year. We have delivered results in 2007, and the week's theme was accurate.

While at times the activities and debates do get heated and tense, I know that all members have the best interests of their constituents at heart and that all members are working hard to make Canada a better place to live, work in and raise a family.

Since this is the last Thursday statement of the year, I want to take the opportunity to wish all members of the House, including the House leaders in particular, with whom I work closely, and you, Mr. Speaker, the staff and the pages of this great chamber, and the people of Canada a merry Christmas and a happy new year.

Canada-United States Tax Convention Act, 1984
Government Orders

December 13th, 2007 / 11:50 a.m.
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NDP

Brian Masse Windsor West, ON

Mr. Speaker, that is an important question because it sheds some light on a charade that is happening here; that is, the Prime Minister's campaign to reform the Senate.

Here we have a bill where the member for Timmins—James Bay did a good job of outlining some of the conflict issues. Yes, we can drive a truck through it. I am familiar with trucks in my riding. There are 10,000 of them per day that go through, and they would all go through in a single day.

I can tell members that it is really important to connect the dots on this one because we have a Prime Minister who seems to be fighting with the Senate, proposing reform and wanting greater accountability. Yet, when we have a bill that comes from the Senate the government immediately adopts it. It does not amend it, and then it blocks witnesses from actually coming forth. That is the really interesting aspect of it.

So, when we apply what has happened in this particular case to Bill S-2 and the rhetoric of the Prime Minister on wanting to actually reform the Senate, it does not match up.

He can have his tirades here in the House all he wants about the Senate, but it does not really apply to actual practical work taking place here. What is really frustrating about this is that we do not have that level of accountability that we should on this tax treaty bill. It does not matter who gets caught in the crossfire; it is just a matter of expediency to get this off the table and to move it forward.

That is what is really unacceptable. We have a small group of citizens in particular who are really getting hammered by this not addressing the social security issue and the double taxation, and sending them to some arbitration system. Many Canadians out there are thinking that it is great. They get to go to some government arbitrations to fight for something that should have been fixed for them. That is actually terrible. On top of that is the fact that these are seniors.

The Conservatives are going to create a whole new system. It is ironic. They are creating a whole new system as opposed to just fixing a simple problem. Why are they doing it? Their motivation is hard to believe. We know the bill is going to cost around $500 million in three years. That is the estimate from the department. We know that to fix a simple problem for seniors would cost $60 million but the government refuses. I do not understand that logic.

Canada-United States Tax Convention Act, 1984
Government Orders

December 13th, 2007 / 11:30 a.m.
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NDP

Brian Masse Windsor West, ON

Mr. Speaker, it is a pleasure to rise to speak to Bill S-2, which is an act to amend the Canada-U.S. tax treaty.

It is interesting to listen to my Liberal colleagues' defence of the member for LaSalle—Émard and his tax avoidance scheme in the Barbados. It is kind of like listening to the captain of the Titanic describe how well things went. It is unbelievable not to address the fundamental problems of reflagging and so forth.

I do want to segue a little into this tax treaty bill. It is tempting to spend half an hour or 20 minutes of our time on reflagging ships and also on the consequences to workers and so forth in the avoidance of taxation, but I do want to focus on Bill S-2 in particular.

There are some concerns in this process and in this actual tax treaty that do not resolve significant issues for my riding of Windsor West as well as Essex County and, greater than that, for individuals living in Quebec, New Brunswick and other places, where significant numbers of pensioners collecting U.S. social security and making contributions in the United States had the tax treaty changed on them.

This process still leaves them in limbo and is actually still counter to the private member's bill of the government's own member, the member for Essex. The government has made sure that the bill is basically squirreled away at the finance committee. It has not resurfaced, despite it having one hearing in the last session of Parliament, in which I participated. It has not seen the light of day. Jimmy Hoffa has probably seen more light of day than this bill in the last number of years.

It is very disturbing, because some seniors are being taxed extra. That is different to what they expected. They have had their lives put on hold. They have suffered significant consequences. In fact, some of them are dying. This is very shameful. We should be addressing it. However, this bill will only add an arbitration element for those particular victims of poor taxation policy. The shift happened and they got whacked twice. The private member's bill would rectify that by allowing the taxation system to be for only 50%. Without getting into technical details, it would have provided some equity.

I do want to touch on process, because I think it is important. I know that right now probably only a handful of Canadians are watching this as opposed to the Mulroney-Schreiber affair and the meeting going on right now, but this does affect people. It is important to set out for the record the concerns that we in the New Democratic Party have about why the Liberals and the Conservatives have rammed this through so quickly.

First of all, it is important to recognize that the bill originated in the unelected Senate. Senators are not elected. They are appointed by the Prime Minister, and in fact were by the former prime minister, who is having to explain right now how many bags of cash he took and why. If members recall, he actually loaded up the Senate at one particular point to force through the GST. The party that created the GST needed the Senate to push it forward. It is ironic that he is here today.

However, we have this bill today coming from an unelected house. Our side of the House, the New Democratic Party, has a concern about that.

What happened subsequently is really troubling. When the bill went to the international trade committee, the member for Burnaby—New Westminster, who represents our caucus, asked for witnesses to be brought forth and for some type of study related to the bill, which is normally what would happen on most committees.

I have been part of a number of different committees where we have moved quickly through clause by clause and so forth when there was a will and the support to do so, but when we have witnesses requested, we almost always have that consultation. That never happened. The Liberals joined with the Conservatives to block that.

The government does have some issues with regard to the tax treaty and we do want to have some of those things improved here, but there are some major unknowns and questions out there. I want to read from a communication I received. It was sent in confidence to me, so I cannot say from which legal firm it came, but it is a reputable Canadian legal firm that is giving its opinion on the tax treaty. I want to read what it has provided me in terms of the new protocol:

On September 21, 2007, a new protocol to the Treaty was signed between the federal governments of Canada and the United States and is expected to be ratified by both countries in 2008. The protocol adds a new provision under Article V of the Treaty (the “permanent establishment” article described above) to implement rules with respect to service income. Once ratified, under the protocol a Canadian company may create a permanent establishment if it provides services within the United States and meets certain thresholds. Thus, business profits associated with service activities could be subject to taxation--

Canada-United States Tax Convention Act, 1984
Government Orders

December 13th, 2007 / 10:55 a.m.
See context

Liberal

Massimo Pacetti Saint-Léonard—Saint-Michel, QC

Mr. Speaker, it is a pleasure today to speak to Bill S-2, An Act to amend the Canada-United States Tax Convention Act, 1984. We are now on third reading, which happened quite rapidly earlier today. I think the cooperation in this House seems to be quite rampant at this time of year.

The Canada-United States Tax Convention Act was last updated in 1997 and, prior to that, in 1995 by the former Liberal government. It is important that these conventions get reviewed and updated regularly. In fact, the former Liberal government had already started negotiating this new tax convention with the U.S. even after the adoption of the last convention.

Like any tax convention or tax treaty, these agreements are important to the economic success of a country and, in particular, under current conditions where countries and all stakeholders need to compete on the international scene.

This particular convention is important since it is with our largest trading partner, a country with over $50 billion of trade on an annual basis.

While international tax law, especially in this place, does not always make for the most exciting of debates, its importance is indisputable, especially as we move toward greater globalization and greater free movement of labour and capital across international borders.

We have had tax treaties in place with many countries for many years and, as with most laws, there comes a time when they need to be amended in order to reflect the changing times. This is one of those situations where we see a more rapid change in the actual conditions than the actual conventions themselves. Consequently, this bill presents some routine amendments that I believe will help to ensure Canada remains a leading participant in the global economy.

International arrangements, such as these, allow for relatively free movement of people and capital across borders, contributing greatly to the rich, multicultural nature of the country.

Some members in this House think that tax treaties are signed as a way of avoiding taxes. In fact, if these treaties are well written and properly understood, they make the taxation system more effective and promote trade—the exchange of goods and services—and do not add an administrative burden. Everyone benefits from treaties that are well written and signed in due form. They encourage foreign investment and increase trade, as I was saying.

Bill S-2, in turn, would also be a valuable tool to help certain industries improve Canadian productivity. Even though the latest Conservative measures, such as reducing the GST, do not improve productivity, nothing is even close to being fair about some of the Conservative latest tax planning or tax initiatives that they have come up with.

The worst example in the last couple of weeks is their tax policy or tax system where in the 2006 budget they raised the lowest personal income rate to 15.5% and now have announced that they will bring the rate back down to the original Liberal rate of 15%. People can all try and figure that one out.

Another advantage of Bill S-2 is that it would eliminate source country withholding tax on cross-border interest payments. Canadians who borrow money, and I would say mainly large corporations that borrow money from American lenders, would no longer need to withhold and remit Canadian tax on the interest payments.

Bill S-2 would also provide an advantage for Canadians to better access the U.S. debt market. Sometimes we see larger corporations having difficulty in accessing capital here in Canada. The Americans have a larger capital base and I think that will help the opening up to the debt market. We will see what happens in the short term with some of the crisis that we are seeing in the U.S. right now. However, this convention should definitely provide an easier flow of obtaining some debt for some of the Canadian companies. It also will be easier for companies to finance their expansion and, hopefully, their expansion into other markets other than here in Canada.

The bill would also allow taxpayers to require otherwise unsolvable double tax issues to be settled through arbitration. This arbitration rule is an important element of the bill because it would increase taxpayers' confidence that the tax treaty will resolve potential double taxation situations. These convention tax treaties, the basic purpose, in normal circumstances, is to avoid double taxation, should solve the fact that no double taxation of gains or even deemed gains of immigrants to Canada will arise.

The bill would also extend treaty benefits to limited liability companies by removing a potential impediment to cross-border investment which arises from private equity funds and their comings and goings. I will probably address this point later on in my speech because this point was brought up at the finance committee during the prebudget consultations in the past. This would make it easier for companies to bring their products from the research stage to the actual market commercialization phase. Hopefully, this will result in more research and development work to be completed in Canada and potentially for exporting to other markets, in this case the U.S. market.

More and more workers are temporarily being reassigned outside the borders and apparently more into the U.S.

Bill S-2 would give mutual tax recognition to pension contributors. In other words, provided certain conditions are met, cross-border commuters may deduct, for residence country tax purposes, the pension contributions they make to a plan or arrangement in the country where they work. People who move temporarily from one country to the other for work reasons can, subject to certain conditions, get tax recognition in their temporary new home country for pension contributions they continue to make to their original employer's pension plan. This proposal would facilitate the movement of personnel between Canada and the U.S. by removing a possible disincentive for commuters in temporary work assignments.

That is definitive a positive step. There is also an advantage for clarifying how stock options are taxed or, in other words, the harmonization of the rules in both countries. There are a whole bunch of other technical amendments in this bill that if we have some additional time I will get into.

I want to address the importance of these conventions. These conventions are great, fine and dandy. We can improve them, ratify them and pass them into law in this country, but the fact that they are international tax agreements, we require an entity on the other side to also sign these conventions. These conventions and tax treaties are not worth the paper they are written on if we cannot get the other countries to ratify them.

I wish that this particular legislation had been brought forward to the finance committee. Instead, the present government decided to bring it before the international trade committee. I am not sure why it went through without too many witnesses. We would have probably looked at ensuring that there was a willingness on the other wide to have this treaty ratified and signed quite rapidly.

There are some tax treaties that we signed in the past that have yet to be signed by other countries. I know of many in particular that have been negotiated with Italy. I think there are some agreements that are at least five years old that have not been signed by the other country to the agreement, so there are pending issues in terms of double taxation where there are people who are being taxed in Canada and other countries. Again I would caution the present government to make sure that even though we ratify these conventions or enact the legislation, the government make it a priority to have the other country ratify the agreement or convention as well.

Since I have some time, I will explain how some of the amendments got into this bill. I would like to take credit for some of them. I chaired the finance committee in 2004, and we did a very thorough job. There were a lot of presentations made before the committee in terms of what Canadians and Canadian businesses were looking for when doing business in the United States.

We devoted practically a whole chapter of our report to business growth and prosperity. We included in it some of the testimony given by witnesses. There is one paragraph I would like to read into the record where witnesses urged that changes be made to the non-resident withholding tax regime to ensure that Canada remained competitive. This was in 2004 and three years later we are still at this.

It was suggested, for example, that the Department of Finance negotiate a new provision with the U.S. to eliminate withholding tax on all dividends and interest to both related and unrelated parties. They mentioned a recent study which claimed that the elimination of withholding taxes on all dividends and interest would result in increased capital investment in Canada of $28 billion. Even a fraction of that would help certain sectors of this country, especially the manufacturing sector. It would also result in increased income of $7.5 billion annually. It was pointed out that while there would be a federal fiscal cost associated with eliminating withholding tax, the economy would benefit in the long run. Again this was in 2004. The committee also heard that Canada's dividend tax rate is now much higher than that in the U.S., with a 15% federal tax rate.

As a result of that, I am proud to say that in 2004 we made over 30 recommendations. Of those, there were at least five that pertained to items that needed to be addressed when it came to the Canada-U.S. tax treaty. I will read into the record one of the recommendations that I thought was important:

The federal government ensure that the effective tax rate for Canadian corporations is competitive with that in the United States and elsewhere. Within that context, the government should: review the timetable for elimination of the federal large corporations tax; review the timetable for the tax changes for the resource sector; consider immediate elimination of the corporate surtax; and review the corporate income tax rates and other taxes paid by corporations.

Recommendation 13 reads:

The federal government, bearing in mind Recommendation 16 regarding a review of capital gains, review the current federal tax treatment of dividend income and non-resident withholding taxes with a view to ensuring that the tax treatment in Canada remains competitive with the rest of the world, particularly the United States, and that the tax treatment does not distort investment decisions.

Another recommendation that was applied in the U.S.-Canada convention is that the federal government revise Canada's cost allowance rates such that the Canadian rates are similar to rates for comparable asset classes in the United States and other countries. In fact, this one has not been addressed yet by the current government.

Recommendation 24 was that the federal government undertake a comprehensive review of the personal taxation system in Canada, including the value of the basic personal amount and other particular aspects of the Income Tax Act, but always taking into account that the review should be undertaken with a view to ensuring that Canada's personal taxation system is both fair and as competitive as possible with other countries, particularly the United States.

We have seen the importance of this convention in the past. Other recommendations were made that also referred to making sure that we are competitive with the United States.

In the finance committee's 2006 prebudget report, everything is recapped in one little passage which states, “The federal government expedite the review of the tax treaty between Canada and the United States. This review should specifically address Canadian recognition of the United States limited liability corporations” . This is one of the items that is in the bill right now.

Canada-United States Tax Convention Act, 1984
Government Orders

December 13th, 2007 / 10:55 a.m.
See context

NDP

Brian Masse Windsor West, ON

Mr. Speaker, I would like to ask the parliamentary secretary to be clear on this because we are getting mixed information from research. Is it the government's interpretation that this bill would eliminate all double taxation of U.S. social security recipients who are living in Canada but who have worked in the United States? Would this bill eliminate the double taxation that historically has taken place? Would it meet the provisions in Bill C-265, the private member's bill put forward by the member for Essex?

I want the parliamentary secretary to be on the record for the government . Would Bill S-2 achieve that goal?

Canada-United States Tax Convention Act, 1984
Government Orders

December 13th, 2007 / 10:30 a.m.
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Macleod
Alberta

Conservative

Ted Menzies Parliamentary Secretary to the Minister of Finance

Mr. Speaker, it is wonderful, in the spirit of Christmas, how things are moving along quickly here today. We know that all hon. members want to get home to their families to celebrate Christmas. It is wonderful to see everyone working together here this morning.

We do have some business to finish up, so I rise today to speak to Bill S-2 at third reading. The passing of this bill, once it receives royal assent, completes Canada's role in the ratification of an agreement to update major elements of the Canada-U.S. tax treaty.

The U.S., for its part, must also ratify this agreement before it comes into effect.

As the House may know, Canada and the U.S. have had a tax treaty in place since 1980. Since that time, there have been four updates or protocols to this treaty. This is to ensure that our respective tax systems evolve to reflect economic and social changes.

Bill S-2 represents the fifth update to the treaty. Canada has numerous tax treaties with other countries as well. However, given the unique relationship we have with the Americans, the Canada-U.S. tax treaty is generally viewed as the one of most importance.

This treaty is part and parcel of the government's plan to create a tax advantage for Canada and we have a long term economic plan for Canada's future called “Advantage Canada”. This plan was designed to improve our quality of life and to make Canada a world leader for today and for future generations.

“Advantage Canada” promotes five competitive economic advantages we need to succeed in today's global economy: a fiscal advantage, a tax advantage, a knowledge advantage, an entrepreneurial advantage and an infrastructure advantage. Each of those advantages does not stand alone. Rather, they stand interconnected with each other. In other words, we are creating a Canadian advantage on those five fronts.

Given that we are talking about a tax treaty today, it is creating a tax advantage that I would like to highlight today. A Canadian tax advantage will help individuals, families and businesses to get ahead and stay ahead. Moreover, it will reward initiative and make Canada the global investment destination of choice. A tax advantage starts with reducing taxes for Canadians. Of course, taxes pay for Canada's important public services but high taxes limit Canadians' opportunities and choices.

With a more focused government, we can both lower taxes to create better incentives for Canadians to succeed and provide significant funding for priorities.

A tax advantage is about reducing taxes in all areas to stimulate investment and economic growth. This includes reducing personal income taxes to improve rewards from working, from saving and investing in new knowledge and skills. It includes creating a business tax advantage that will encourage businesses to invest in Canada. In turn, this will spur innovation and growth leading to more jobs and higher wages for Canadian workers.

The government also continues its commitment to restoring tax fairness. Canadians deserve to know that everyone will pay their fair share of taxes. That is what tax fairness is all about.

Indeed, tax fairness is key to the “Advantage Canada” plan. This plan will make our tax system simpler, fairer and more competitive. This will help us to compete in the global marketplace. We have taken significant action in that direction.

Most recently, this fall's economic statement proposed broad based tax relief of almost $60 billion for individuals, families and businesses over this and the next five fiscal years.

Combined with previous relief provided by the government, total tax relief over the same period is almost $190 billion. These dramatic tax reductions and initiatives will benefit families with children, workers, seniors, persons with disabilities and others.

They will also strengthen our tax advantage to help all Canadian businesses compete and succeed in the global marketplace. These important initiatives will help attract investment to Canada. Moreover, this action will increase productivity and economic growth and create more and better jobs for Canadians.

What, one may ask, does this have to do with tax treaties? Tax treaties and tax fairness are inextricably linked. Our tax treaties help contribute to the growth of the Canadian economy, particularly by encouraging trade. This is principally important because exports account for more than 40% of Canada's annual GDP.

In addition, tax treaties help attract investment in Canada. This investment means inflows of capital, technology and information, all of which contribute to Canada's economic growth, job creation and the well-being of our citizens.

In short, our government must ensure that Canada's system of international taxation is competitive. We have worked to ensure that our network of bilateral tax treaties is up to date in order to help Canadian companies and investors to prosper and succeed.

One important function of tax treaties to keep in mind when considering this bill is that they help eliminate double taxation. I trust that hon. members would agree that there is little that can have more of a negative impact on the expansion of our trade and the movement of capital and labour between countries than double taxation.

The potential for double taxation comes about when a taxpayer resides in one country and earns income in another. Without a tax treaty in place, both countries can claim tax on that same income.

One of the goals for Canada, therefore, in negotiating its tax treaties, is to remove the potential for double taxation. This not only helps provide incentives for investment, it promotes fairness in our tax system. That is why one of the proposals in Bill S-2 would allow taxpayers to demand that otherwise insoluble tax issues be settled through arbitration, thus ensuring that there is no double taxation of immigrants' gains.

Given the special relationship that Canada has with the U.S., it makes sense that our tax treaty would also be special. Indeed, Canada's income tax treaty with the United States is vital. It helps to ensure the efficient flow of trade between our two countries. These changes to the treaty, signed in September, will stimulate further trade and investment and make our tax systems more efficient.

Canadians and Canadian businesses will benefit from this treaty update in a number of ways. They will see reduced borrowing costs and a more competitive lending market with the elimination of withholding tax on interest paid on all arm's length debt.

Since treaty benefits will be extended to limited liability companies, the protocol in Bill S-2 would provide better access to U.S. capital. With further harmonization of the tax treatment of pension contributions in the two countries and new rules to clarify the treatment of stock options, this proposed legislation would also provide more mobility for Canadians working in the U.S.

Furthermore, these changes would, among other benefits, reduce the cost of cross-border financing and would have a positive effect on investment and, above all, simplify the tax system. All of these benefits, in turn, support the competitiveness of Canada's multinational enterprises. These are important considerations that we need to keep in mind when debating this bill.

One of the most important aspects of the Canada-U.S. tax treaty is the proposal respecting withholding tax. Reaction from taxpayers to this measure has been particularly positive.

Following the signing of the treaty, the director of the C.D. Howe Institute said:

And our research suggests that the bilateral elimination of withholding taxes will substantially improve the efficiency of capital markets, attract foreign direct investment to the country, and help Canadians penetrate the North American market on a more competitive basis.

Reaction from the other side of the border has been equally supportive. Treasury Secretary Paulson, at the signing of the agreement in September, said that updating our treaty enables us “to move even more swiftly in the global economy”.

Canadians will particularly benefit from easier cross-border investment as the withholding tax is removed from interest paid between non-arm's length persons between Canada and the U.S.

I will explain why this is a good thing for Canadians. Canada and most other countries levy a withholding tax on passive forms of income earned by non-residents. This fifth protocol will eliminate the source country tax on cross-border interest paid between unrelated persons and will gradually eliminate the maximum withholding rate for interest payments between related persons.

For unrelated party interests, the withholding tax is zero as soon as the protocol becomes ratified. An example would be in the interest that banks pay to a depositor. For related party or non-arm's length interest, the tax will be eliminated in three stages: from 10% to 7%, then to 4% and finally to zero after three years. This could be, for example, between a Canadian company and its subsidiary in the U.S.

With these important tax reductions for payments to and from the United States, the government is in a position to remove the withholding tax on all arm's length interest payments to non-residents, regardless of where they reside.

This initiative announced in budget 2007 represents a major step forward in Canada's international tax policy. The legislation to implement this measure contained in Bill C-28 is currently going through the parliamentary process, as we have watched in the last few days. Once passed, this measure will increase access to foreign capital markets. It will reduce costs for Canadians and Canadian businesses that borrow from foreign lenders.

It is important to point out here that the government had originally planned to tie the effective date of this general tax reduction to the Canada-U.S. tax treaty protocol. However, given the uncertainty of when the protocol will be ratified on both sides of the border, the government proposes to give the domestic rule a fixed start date of January 1, 2008. This will provide certainty for Canadian investors so that after 2007 they will no longer need to withhold interest on tax paid to arm's length persons in any country.

Summing up, this tax treaty bill, like others that preceded it, is directly related to international trade and investment. These bills have a significant and a direct benefit to the Canadian economy. This is no small consideration in a world where Canadian exports, as I said earlier, account for more than 40% of our annual GDP.

Furthermore, direct foreign investment, as well as inflows of information, capital and technology, represent the lifeblood of Canada's economic wealth. As a result, eliminating tax impediments in these areas, as this bill proposes to do, is of utmost importance, and that is why passing this bill is also of utmost importance.

I, therefore, encourage the hon. members from all parties to pass this bill into law quickly.

Canada-United States Tax Convention Act, 1984
Government Orders

December 13th, 2007 / 10:30 a.m.
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Conservative

Monte Solberg Medicine Hat, AB

moved that Bill S-2, An Act to amend the Canada-United States Tax Convention Act, 1984, be read the third time and passed.

The House proceeded to the consideration of Bill S-2, An Act to amend the Canada-United States Tax Convention Act, 1984, as reported (without amendment) from the committee.

Business of the House
Routine Proceedings

December 13th, 2007 / 10:10 a.m.
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York—Simcoe
Ontario

Conservative

Peter Van Loan Leader of the Government in the House of Commons and Minister for Democratic Reform

Mr. Speaker, pursuant to Standing Order 56.1, I move:

That, notwithstanding any Standing Order or usual practices of the House, the notice requirement to call Bill C-18 for debate today shall be waived; when the House adjourns today, and provided Bill C-18 and Bill S-2 have been read a third time and passed, it shall stand adjourned until Monday, January 28, 2008, provided that, for the purposes of Standing Order 28, it shall be deemed to have sat on Thursday, December 13 and Friday, December 14, 2007; and if Bill C-18 and Bill S-2 are not completed before the end of government orders, the House shall sit beyond the ordinary hour of daily adjournment for that purpose and shall not be adjourned except pursuant to a motion proposed by a minister of the Crown.

Citizenship and Immigration
Committees of the House
Routine Proceedings

December 13th, 2007 / 10:10 a.m.
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Conservative

Peter Van Loan York—Simcoe, ON

Mr. Speaker, I rise on a point of order. I seek the unanimous consent of the House for the following motion: That, notwithstanding any Standing Order or usual practices of the House, the notice requirement to call Bill C-18 for debate today shall be waived; when the House adjourns today, and provided Bill C-18 and Bill S-2 have been read a third time and passed, it shall stand adjourned until Monday, January 28, 2008, provided that, for the purposes of Standing Order 28, it shall be deemed to have sat on Thursday, December 13 and Friday, December 14, 2007; and if Bill C-18 and Bill S-2 are not completed before the end of government orders, the House shall sit beyond the ordinary hour of daily adjournment for that purpose and shall not be adjourned except pursuant to a motion proposed by a minister of the Crown.

Budget and Economic Statement Implementation Act, 2007
Government Orders

December 11th, 2007 / 1:20 p.m.
See context

Conservative

James Bezan Selkirk—Interlake, MB

Mr. Speaker, we are in third reading of Bill C-28, not Bill S-2. The member is talking about a completely unrelated piece of legislation. This is third reading, where the member needs to be very focused. I know it is tough for that particular member to be focused, but we do ask that he debate the bill that is before the House at third reading, and its details.

Budget and Economic Statement Implementation Act, 2007
Government Orders

December 11th, 2007 / 1:20 p.m.
See context

NDP

Peter Julian Burnaby—New Westminster, BC

I see that some of the Conservative members are awakening from their afternoon slumber. That is healthy because they will actually learn a bit more about the supplementary budget, which they know full well is not at all in keeping with the interests of Canadians.

Some of the Conservatives are waking up now. That is very good, but it is important to note that in the House it is only the New Democrats who are actually practising the due diligence that is required when we talk about this massive giveaway of $190 billion, mostly to the corporate sector. I will come back to that in a moment.

It mirrors what happened in committee last Thursday with Bill S-2 which, it turns out, is giving out another half a billion dollars, mostly to the banks. We found out that Conservatives and Liberals on the committee just wanted to run it through. They did not want to call witnesses or actually examine any of the fiscal ramifications of the bill. They just wanted to push it through. We are seeing the same thing here with Bill C-28--

International Trade
Committees of the House
Routine Proceedings

December 7th, 2007 / 12:05 p.m.
See context

Conservative

Dean Allison Niagara West—Glanbrook, ON

Mr. Speaker, I have the honour to present, in both official languages, the first report of the Standing Committee on International Trade.

In accordance with its order of reference on Monday, November 26, 2007, the committee has considered Bill S-2, An Act to amend the Canada-United States Tax Convention Act, 1984, and agreed on Thursday, December 6 to report it without amendment.

December 6th, 2007 / 4 p.m.
See context

NDP

Peter Julian Burnaby—New Westminster, BC

I'll come back to my initial question, because these are surprising impacts. I think we can all agree on that. And it hasn't been anything that's been examined in any detail through Bill S-2's movement through Parliament thus far.

There was an impact study done that would presumably show not only the tax impact for the end of this fiscal year and next fiscal year, but also for subsequent years. It would be actually based on what the actual withholding tax amounts were in previous years. Right?

Is that study, then, something this committee can receive? Because I think that's something on which we would all want to consult our various caucuses. If we're talking about a half a billion dollars over three years, presumably that's over $1 billion in the next five or six years. That's a lot of money. I don't think anyone would want to take a snap decision when we're talking about that large a fiscal impact.

Are those studies something that can now be released to the committee, since we're the ones who are charged to study this--though I'm sure Mr. Pallister regrets that we were given that responsibility.