House of Commons Hansard #60 of the 37th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was tax.

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Message From The Senate

10 a.m.

The Speaker

I have the honour to inform the House that a message has been received from the Senate informing this House that the Senate has passed certain bills, to which the concurrence of this House is desired.

The House proceeded to the consideration of Bill C-22, an act to amend the Income Tax Act, the Income Tax Application Rules, certain acts related to the Income Tax Act, the Canada Pension Plan, the Customs Act, the Excise Tax Act, the Modernization of Benefits and Obligations Act and another act related to the Excise Tax Act, as reported (with amendment) from the committee.

Income Tax Amendments Act, 2000
Government Orders

May 11th, 2001 / 10 a.m.

Cardigan
P.E.I.

Liberal

Lawrence MacAulay for the Minister of Finance

moved that the bill, as amended, be concurred in.

Income Tax Amendments Act, 2000
Government Orders

10 a.m.

The Speaker

Is it the pleasure of the House to adopt the motion?

Income Tax Amendments Act, 2000
Government Orders

10 a.m.

Some hon. members

Agreed.

(Motion agreed to)

Income Tax Amendments Act, 2000
Government Orders

10:05 a.m.

The Speaker

When shall the bill be read a third time? By leave, now?

Income Tax Amendments Act, 2000
Government Orders

10:05 a.m.

Some hon. members

Agreed.

Income Tax Amendments Act, 2000
Government Orders

10:05 a.m.

Cardigan
P.E.I.

Liberal

Lawrence MacAulay for the Minister of Finance

moved that the bill be read the third time and passed.

Income Tax Amendments Act, 2000
Government Orders

10:05 a.m.

Etobicoke North
Ontario

Liberal

Roy Cullen Parliamentary Secretary to Minister of Finance

Mr. Speaker, I appreciate the opportunity to address the House at third reading of Bill C-22, the income tax amendments act, 2000.

The bill would implement key elements of the government's five year tax reduction plan, the largest tax relief package in Canada's history, and would legislate the technical amendments in Bill C-43 which died on the order paper last fall. Each measure in the bill is based on the principles of fairness and equity in the federal tax system to which we have been committed since 1993.

The most important component of the bill delivers measures announced in the 2000 budget and last October's economic statement to set out a multiyear plan for further tax reductions.

This plan, which provides $100 billion in tax relief by 2004-05, will reduce by an average of 21% the federal personal income tax paid by Canadians.

Families with children will receive an even larger tax cut of about 27% on average.

As of January 2001, tax rates on all income levels were reduced and the 5% deficit reduction surtax was eliminated. The low and middle income tax rates fell to 16% and 22% respectively. The top 29% rate was reduced to 26% on incomes between $61,000 and $100,000, which means the 29% rate applies only to income over $100,000. As all the economists and analysts have noted, the timing could not have been more perfect to bring in these tax cuts.

Increased support for families with children would be provided through the Canada child tax benefit. The maximum Canada child tax benefit for the first child would rise to $2,372 in July, well on the way to the five year goal of $2,500 by the year 2004.

For the second child the maximum Canada child tax benefit would increase to $2,308 in July 2004.

These amendments must be in effect by July 1, so that families can get this benefit within the set timeframe.

Other amendments to personal income tax are specifically designed to help those who need them most.

The bill would increase the amount on which the disability tax credit is based. It would expand the list of relatives to whom the disability tax credit can be transferred to make it consistent with medical expense tax credit rules and it would allow speech language pathologists to determine eligibility for the disability tax credit with respect to speech impairments.

In addition, the bill would increase the maximum child care expense deduction for children for whom the disability tax credit can be claimed and the amounts on which the caregiver and infirm dependant credits are based.

It would also include certain incremental costs under the medical expenses tax credit when a principal residence is built for people with mobility impairments.

Moreover, an amount of up to $3,000 in scholarships, fellowships and bursaries will be tax exempt, provided the student is eligible for the education tax credit. Self-employed workers can deduct from their income the share of the contributions to the Canada pension plan or to the Quebec pension plan paid by the employer for their own benefit.

Other personal income tax changes clarify the rules under which clergy can claim a deduction for their residence, allow Revenue Canada to release information about former registered charities under certain conditions and exempt municipalities from filing T4s for volunteers to whom they paid not more than $1,000.

Another element of the tax reduction plan would help make Canada's business income tax more internationally competitive. Corporate tax rates would drop to 21% from 28% for businesses in the highest tax sectors to make them more internationally competitive, beginning with a one point tax cut effective January 1, 2001.

By the year 2005 the combined federal-provincial tax rate would drop from the current average of 47% to 35%, five percentage points lower than the U.S. This would put our businesses on a more competitive level with other G-7 countries and serve to attract investment and create jobs.

The plan also provides a tax deferred capital gains rollover for investments in shares of certain small and medium size businesses, and a 50% reduction of the capital gains inclusion rate. Thus, the highest federal-provincial tax rate on capital gains will be lower than the same combined rate in the United States.

Increasing the employee stock option deduction from one-third to one-half means employees in Canada would be taxed more favourably on stock option benefits than employees in the United States. In addition, the bill would allow the deferral of tax on certain stock option benefits and an additional deduction for certain stock option shares donated to charity.

Bill C-22 would ensure a comparable tax system for Canadian banks and foreign bank branches operating here. It would strengthen the thin capitalization rules, phase out the special tax regime for non-resident owned investment corporations and introduce a temporary 15% investment tax credit for grassroots mineral exploration.

Technical amendments include extending the additional capital tax on life insurance corporations until the end of 2000 and clarifying the tax treatment of resource expenditures and the rules governing gifts of ecologically sensitive land.

There are three remaining measures I will touch on briefly before closing.

The first would introduce changes to the taxation of trusts and their beneficiaries, in particular property distributed from a Canadian trust to a non-resident beneficiary, mutual fund trusts, health and welfare trusts and those governed by RRSPs and RRIFs.

New antiavoidance measures will ensure that transfers to trusts cannot be used to unfairly reduce taxes.

The next measure would ensure that Canada retains the right to tax immigrants on gains that accrue during their stay in Canada. It would also clarify the effects of new taxpayer migration rules on rights to future income and allow returning former residents to unwind the tax effects of their departure regardless of how long they were non-resident.

To avoid international double taxation, former residents would be able to reduce Canadian tax payable on their pre-departure gains by certain foreign taxes paid on the same gains.

Another measure would make advertising expenses in periodicals with at least 80% original editorial content fully deductible and those in other periodicals 50% deductible regardless of ownership.

After July 1996 Canadian pension funds and other entities that own Canadian newspapers qualify as Canadian citizens under the ownership requirements of the Income Tax Act.

Before closing, I wish to mention that a number of amendments were made to this bill in committee. On behalf of the government, I wish to thank members of the Standing Committee on Finance for their detailed examination of this bill.

Improvements have been made to several provisions, including those affecting back to back loans, weak currency debts, foreign accrual property income, partnerships, mortgage investment corporations and segregated fund trusts, just to name a few.

Each of these amendments contributes to fairness in the tax system.

I remind the House that fiscal responsibility for government is fundamental and tax cuts are essential. At the same time we are committed to maintaining an effective, fair and technically valid tax system. Without a doubt this is the thrust of Bill C-22.

This bill will implement the key features of the five year tax reduction plan, which will lighten the tax burden on all taxpayers, strengthen support for families with children, and increase the competitiveness of the Canadian corporate tax system internationally.

I urge all my hon. colleagues to keep in mind that Canadian children need the Canada child tax benefit increases on July 1, a fact that makes speedy passage of the bill essential.

Income Tax Amendments Act, 2000
Government Orders

10:15 a.m.

Canadian Alliance

Ken Epp Elk Island, AB

Madam Speaker, I seek unanimous consent of the House to split my time with the hon. member for North Vancouver.

Income Tax Amendments Act, 2000
Government Orders

10:15 a.m.

The Acting Speaker (Ms. Bakopanos)

Is that agreed?

Income Tax Amendments Act, 2000
Government Orders

10:15 a.m.

Some hon. members

Agreed.

Income Tax Amendments Act, 2000
Government Orders

10:15 a.m.

Canadian Alliance

Ken Epp Elk Island, AB

I am honoured to stand in the House today to speak to Bill C-22, an act to amend the Income Tax Act. Actually it was the Liberal Party election act. Members will recall that the finance minister announced most of the provisions that we are dealing with today just days before the election was called. Of course he had no idea that the election would be called four days later. After he did his economic update and announced these things in the House in October 2000, it came as a total surprise to him that lo and behold the Prime Minister announced an election.

I would like to begin by asking a simple rhetorical question. If there are policies that are necessary just before an election, how come those policies are not necessary between elections? Therein lies a very important question.

We have dealt with it over and over. We dealt with it not long ago when we were dealing with the equalization act. Suddenly it was necessary to lift the cap. It was done because there was an election coming. Believe it or not, the voters bought into it. A whole bunch of them in Atlantic Canada replaced sitting members with Liberal members because the Prime Minister said that the cap would be lifted.

When the legislation came in we dealt with it in the House. We did indeed lift the cap but for one year. We had some questions about the whole equalization process. We thought it should be revisited in order to look at it rationally because it was a very convoluted system. The opposition parties suggested that if it was good for an election year to lift the cap, it should be good policy to lift the cap in the long term. The government said no to that amendment.

All the Liberal members stood on command and voted against the amendment. That is a curiosity to me. If it is good economic policy we should be doing it, whether or not there is an election. If it is not good economic policy then we should be able to communicate to Canadian taxpayers why it cannot be done, and hopefully they would then trust that we would be fiscally responsible in managing their money properly. That is how we would gain their support.

Now we have Bill C-22, an act to amend the Income Tax Act. It goes on from there, but really it is a bill to enact the provisions of the Liberal fall election campaign in 2000. Our party is leaning toward supporting the direction the Liberals are going in. After many years, being a grassroots party and representing the wishes and sometimes the demands of Canadian voters and taxpayers, we brought to the House the wishes of Canadians on fiscal matters.

The Liberal government loves to tax and spend. It loves to take money out of the pockets of taxpayers and then roll it out during an election campaign so that hopefully it can stay in power, which is its overarching principle. Four days before the election was called the Liberals said that what the Canadian Alliance was saying was right on. The polls told them that. If they wanted to win the election, they had to do these things during the election period so that they could get re-elected.

The government introduced a number of measures, some of which are included in the bill. We are now debating what the government promised, just by coincidence, four days before the election was called.

I would like to say a little about those things. First I want to give very low marks to the Liberals but high marks to their communication department. They have spin doctors who work very well. They are able to communicate with straight faces to the Canadian people that there is a $100 billion tax cut. One billion dollars is an awful lot of money and $100 billion is massive. It boggles the mind.

I have sometimes used this example when I talk to students and we talk about the way in which governments spend money, and the way they tax and so on. Sometimes we also talk about the debt. When the Liberals came into power they inherited a debt of around $520 billion. They allowed it to grow to almost $580 billion.

We will be very fortunate if by the end of the government's mandate, say in the year 2004, although the Prime Minister will probably call an election in 2003, but certainly by the end of 2004, we will be back down to the debt level that we were in 1993 when it took power. However, the spin doctors are able to convince Canadians that the Liberals are excellent stewards of the public money. They are telling Canadians to trust them because they will manage our money properly, notwithstanding that the debt is much higher than it was when they took over.

I said that the magnitude is in the billions of dollars. I do not have the exact numbers before me because I was not planning on using this example. However, when I talk to students about $1 billion I ask them how long it would take them if they had to spend $1 million at a rate of $1 per second? Some of them guess a bit and then I tell them the answer. As I recall, if they started at midnight on January 1 it would take them until January 11 or 12 before the money would be gone, approximately 11.5 days to get rid of $1 million at $1 a second.

Then I ask them how long it would take them to spend $1 billion? Again, they guess and then I tell them the answer. I tell them that to spend $1 billion at the rate of $1 per second would take until September, 31 years later. That is how long it would take to get rid of $1 billion.

Here we have a government claiming through its spin doctors a tax cut of $100 billion. That is spin doctoring at its finest. The $100 billion includes a lot of money that it just decided not to take.

I will give another example. Let us say I decided to give my wife some money to spend on a house, which I know she would love, and told her that I was going to give her $20,000 more than I planned to give her. Under my breath I would mutter that I was planning on taking $18,000 away from her. She could say that $20,000 was great but the fact is it would only be $2,000 because it would include the $18,000 that I was going to take out of the housing fund.

This is what the government has done. It is claiming $100 billion in tax relief, but included in that is a whole lot of money that is represented by money that it could have taken but which it has now decided not to take.

For example, a couple of years ago the government announced that it was restoring indexation. There was no mention made of it being retroactive, so perpetually taxpayers were still suffering the removal of indexation on the tax rates over the last number of years because the government flattened the thing out. We were paying a whole lot more taxes because of bracket creep. When the government reintroduced it, it started from the present position and did not go back. Therefore, the errors of the previous years continue to be perpetuated.

One of the things the government is claiming is that due to indexation this is a tax cut. It is not a tax cut at all. The government said that it would take $10,000 from each taxpayer and now it is saying that it will only take $8,000. In that case, the government is calling this a $2,000 tax cut but it is still taking the $8,000. To call that a tax cut is inaccurate.

Furthermore, we have the child tax benefit. It is true that in the legislation the child tax benefit would be increased but that is not a tax cut. It is an expenditure. It is a case of the government thinking of a way to spend some money on behalf of families. In a way, I have some sympathy for that position but it cannot properly or legitimately call it a tax cut. That is spin doctoring and it is not acceptable in terms of the actual message that is being put out there.

The bottom line is that the actual tax cut is not $100 billion. It is actually closer to $50 billion and that is spread over five years.

We have a whole bunch of questions with respect to the bill but the government has decided to go ahead with it. We know its members will vote for it and it will happen. I will concede that families with children would get more money from the spending program and so for them it is an advantage. For families without children, such as in the case of my wife and I whose children are grown up and have left home, there would be no tax cut. It is a spin doctoring myth.

The bill also has implications in the area of tax rates. We talk about the single tax rate. The opposition and some of the other parties, and when I talk of opposition I mean the Liberals who are in opposition to us, totally misrepresented what a single tax rate does.

Our plan was to have one rate of tax at 17% and then subsequently we revised it so that it would apply only to $100,000 of taxable income. That still included all of the present deductions. None of them were to be taken away. However, instead of talking with Canadians and honestly debating its plan versus ours, the government has totally distorted what it said about our plan and then proceeded to knock it.

It is really an unfair thing. It is as if we have two car dealers and one dealer, trying to promote his product, says that the wheels fall off his competitor's cars as soon as they are driven 10,000 kilometres. It is not true but that is what he says would happen. He repeats it over and over again and then asks, with great passion, whether the customer wants to buy a car with wheels that fall off after being driven 10,000 kilometres. The customer says, no, and the car dealer suggests that the customer buy his car.

That is what those Liberals did. I almost used a bad adjective, but thankfully I caught myself. They took our plan, totally distorted what it did, developed animosity against that caricature of what we were proposing and asked Canadians to vote for them.

There are still thousands of Canadians who want to trust their governments. They want to trust their politicians. During an election campaign when these things are said Canadians think that if their trusted government leaders are saying something it must be right so they therefore believe them.

I will take a ten second diversion to say that the same distortions happened when the Minister of Citizenship and Immigration said what she said. That was a hurtful and total distortion for a person like myself whose family members have worked all around the world with people of all kinds of different backgrounds, helping them. To be labelled the way the immigration minister labelled us and then have Canadians say they would not vote for us because we were scary is hurtful and wrong.

If we want Canadians to trust us we have to start dealing openly and honestly with them. We have to tell them the truth and start debating the Liberal proposal versus ours. That unfortunately has not happened. I resent this.

I taught mathematics and computing for 31 years in my life prior to becoming a parliamentarian and when people misuse math I get just about as upset as I do when they describe me in pejorative terms. The government had Canadians persuaded, and this is one thing in the bill, that it would reduce the lower tax rate from 17% to 16%. It had the gall to go to Canadians, say it was reducing the rate to 16% and claim that was even better than the Canadian Alliance proposal.

However, it was worse than that. In every category, including that first category at the low rate, our tax plan would have given Canadian taxpayers a greater tax break. The reason was simple. Even though our rate was 17%, it was on less of taxpayers' income. We proposed, for example, that a two parent family with two kids would not pay any income tax on the first $26,000 of their earnings. The Liberals ignored that. They ignored the fact that we would increase the exemption. All they did was talk about the fact that they would reduce the lower rate to 16% from 17%.

I resent it when people trade on a misrepresentation of mathematical facts. This is what the government has done and this is what we would be passing with Bill C-22. If we pass the bill later today we would be approving the reduction of that rate to 16%. Canadians would get a smaller tax break than they would have had they voted for us because of the fact that the Liberals have a great deal of expertise in messaging, in telling people “this is what is” when in fact it is just the opposite.

In passing Bill C-22 the Liberals ought to send out a press release to say that while they would be reducing the income tax rates and going from three levels to four, while they would be decreasing the 17% rate to 16%, the 25% rate to 22%, the 29% rate to 26%, and retaining the 29% rate for everything over $100,000, there is something else. I would like that press release from the Liberal government to also say in bold letters at the bottom of the page “Please note that Canadians were hoodwinked into voting for a party that proposed this bill and got it pushed through the House and that it gives taxpayers a smaller tax break than, first, they deserve, and second, what the Canadian Alliance would have given them”. That is what the press release should say. I am expecting the Minister of Finance to put that on the bottom of the press release later today or next week when this bill is finally passed.

I am sure that will happen. I see the parliamentary secretary over there grinning from ear to ear, which of course shows compliance with my present request.

The fact of the matter is that a $100 billion tax cut is a $50 billion tax cut or even a little less if we look at how much the taxes are actually being cut. The rest is spin doctoring. The fact of the matter is that this would produce a tax cut smaller than the tax cut we would have provided.

There are some other provisions in the bill with which I happen to agree. There is a disability tax credit. There is also the issue of children. Families have big expenses when raising children. The government is going in the right direction here by making it slightly easier for families, but it does not come anywhere near recognizing the actual costs of raising children. We would have substantially increased the deduction for children. The government has not done that. The taxpayers would still pay taxes on the money and if they qualify they get a tax credit. Most people in the middle income bracket with two earners have the promise of a child benefit for which they are not eligible. Their taxes would stay the same. The government is not reducing the taxes yet is announcing with this bill that taxes would be reduced.

I regret that my time is up, Madam Speaker, but thank you for giving me the time to express my views on the bill. I will vote against the bill for the reasons I have articulated.

Income Tax Amendments Act, 2000
Government Orders

10:35 a.m.

Canadian Alliance

Ted White North Vancouver, BC

Madam Speaker, I thank the hon. member for Elk Island for such an interesting speech. I would like to expand slightly on one of his points. It has to do with the size of the debt. The fact is that even after all these years of Liberal government and the claims of fiscal responsibility the debt is still larger than when the Liberals took office. Taxpayers are still paying $40 billion a year in interest.

My colleague talked about the examples he uses when he speaks at high schools. There is one in the Vancouver area that I use to illustrate the size of this $40 billion debt and what it really means. It is fairly well known that right at the moment the Lions Gate bridge is under reconstruction. To build a brand new Lions Gate bridge would cost about $200 million. Canada could build 200 brand new Lions Gate bridges every year with $40 billion.

Income Tax Amendments Act, 2000
Government Orders

10:35 a.m.

Canadian Alliance

Ken Epp Elk Island, AB

That's the interest.