Evidence of meeting #88 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was amendments.
A recording is available from Parliament.
4:10 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
The proposal in amendment G-1 deals with something different from the deletion of the definition of “public market”. It does overlap somewhat with some of the amendments at the beginning of amendment L-3, but what the government—
4:10 p.m.
Conservative
The Chair Conservative Brian Pallister
Mr. Lalonde, we're speaking about amendment L-2, though, right now.
4:10 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
The parliamentary secretary said there seemed to be possibly some addressing of our concern by their concerns. Is that in fact true?
4:10 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
It's very true in respect of amendment L-3. There isn't an overlap with respect to amendment L-2. Amendment L-2 would simply remove the definition of “public market”, as you have indicated. It would resolve the concerns of people who have raised issues with that particular definition. It would also provide—
4:10 p.m.
Liberal
4:10 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
Amendment L-2 would resolve some of the issues that were raised with respect to “public market”, which we don't necessarily agree with, but certainly if you made it all go away it would resolve those concerns. However, it would also put in place a facility where trusts and partnerships that would otherwise be subject to these rules could put themselves in a position of recreating a simulacrum or a recreated mechanism to achieve the same result by simply moving off the traditional markets and into a non-traditional or over-the-counter market. That's what this is intended to do. We don't think it turns law firms into SIFT trusts or SIFT partnerships.
So in answer to your question, would it resolve their concerns, yes, it would do that, and it would do a lot more.
4:10 p.m.
Liberal
4:10 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
As I've just explained, it would open up an avoidance possibility, to avoid the intent of the SIFT trust and SIFT partnership rules by moving the trading function of their units to a non-traditional trading market.
4:10 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
So you would effectively move, for example purposes, a trust unit off the TSX into another market form.
4:10 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
Yes. You'd set up a trading set-up or use an established trading mechanism to provide a market for your units.
4:10 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
As long as you arranged your affairs to qualify for this off-market arrangement, you would be able to carry on business as a trust as usual?
4:10 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
If you were to repeal this, yes.
4:10 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Given that it may not be an acceptable result for the government, what proposals or suggestions can you put into your legislation that address the concerns of Mr. Morand and others? The joint committee of the Canadian Bar Association and the Canadian Institute of Chartered Accountants presumably has some thoughts on this that have some validity. How can you address their concerns?
4:15 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
You will notice that there is no government motion proposed for this particular measure. It wouldn't be up to me to propose amendments to the bill; it would be up to the government. There are none for this particular measure.
We do talk to the Canadian Institute of Chartered Accountants. We do talk to the Canadian Bar Association. I personally talk to Mr. Morand from time to time, and we also deal with our friends at the Canada Revenue Agency. We do our best to ensure that things like the consequences that have been raised of some interpretations of this provision don't happen.
4:15 p.m.
Conservative
4:15 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Yes, I do, actually.
Let me just read you the memo I have, and you tell me whether this is correct.... The tax professional community and the joint committee of the CICA and the bar have brought to the attention of your officials that the legislation you're reviewing today is far broader than anything stated by you publicly or documents that were released. In fact, rather than having application only to publicly traded units and publicly traded partnerships, it can also apply to ordinary partnerships.
Is that the point where you disagree?
4:15 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
Yes. I don't disagree that they said that; I disagree with the result.
4:15 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I'm trying to make the distinction here between publicly traded units, publicly traded partnerships, and ordinary partnerships like a law firm, which is a private partnership.
When I listened to Mr. Morand yesterday, he didn't seem to think that his law partnership was caught by this sort of thing. Yet it's Canada's largest law firm. So I don't think characterizing it as ordinary partnerships like law firms is quite correct. And it goes on to say that where a borrowing by a partnership from a financial institution is one where the financial institution offloads a portion of the risks through its own trading system, that is not a partnership that should be caught by these rules. Yet the legislation indicates how worried you are to table this in accordance with the committee's recommendation.
So I'm concerned here that the government is--possibly intentionally, but I'll go with unintentionally--blundering into catching partnerships and trades and trust units that were never intended. Is it therefore fair to say that the only way of dealing with it presently, since the government has chosen not to deal with it, is, in effect, to support amendment L-2?
4:15 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
No, I don't agree with that.
4:15 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
It's a pretty unsatisfactory answer, Mr. Lalonde, to say “well, I don't agree with it”, given that the experts in Canada have said this is a serious issue.
4:15 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
You started off with an explanation that the experts in Canada said it could potentially apply to a garden variety partnership, and you asked if I agreed with that, and I said no. Then you went on to say that in fact that's right, you don't agree with it either. So we don't think there's a particular problem there, and apparently Mr. Morand doesn't think there's a particular problem there.
With respect to whether a partnership that's offloading risk into some other vehicle is potentially caught by these rules or not caught by these rules, I'm not sure what “offloading risk” means, and I'm not about to venture an opinion on that in the course of testifying here on something that obviously merits much more discussion.
4:15 p.m.
Liberal
Robert Thibault Liberal West Nova, NS
Perhaps I can focus it a bit. If I remember correctly from what was presented yesterday by Mr. Morand, if two corporate entities, or a corporate entity and an individual, form a partnership to carry on one project, they could be caught by this rule. But I don't think it would be the intention of the bill. I think the intention of the bill would be that they continue to be taxed, as in the past, on the profit of the venture by the two corporate or individual entities that created that partnership.
But with this bill, the understanding I had is that there would be a 31% tax on distribution out of that partnership before the profits are distributed to the two or more partners within the partnership.
4:20 p.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
With respect to certain publicly traded trusts and partnerships, this talks about what a public market is, and it talks about a trading system or other organized facility on which securities that are qualified for public distribution are listed or traded. Then it goes on to say that it does not include a facility operated solely to carry out the issuance of a security or its redemption, acquisition, or cancellation by its issuer. For the example that you've posed, I just don't see any organized facility on which securities are qualified for public distribution and listed or traded.
4:20 p.m.
Liberal