House of Commons Hansard #70 of the 38th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was taxes.

Topics

Canada Shipping Act
Government Orders

March 11th, 2005 / 12:10 p.m.

The Deputy Speaker

Is the House ready for the question?

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12:10 p.m.

Some hon. members

Question.

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12:10 p.m.

The Deputy Speaker

The question is on the motion. Is it the pleasure of the House to adopt the motion?

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12:10 p.m.

Some hon. members

Agreed.

Canada Shipping Act
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12:10 p.m.

An hon. member

On division.

(Motion agreed to, bill read the third time and passed)

The House proceeded to the consideration of Bill S-17, an act to implement an agreement, conventions and protocols concluded between Canada and Gabon, Ireland, Armenia, Oman and Azerbaijan for the avoidance of double taxation and the prevention of fiscal evasion, as reported (without amendment) from the committee.

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12:10 p.m.

Outremont
Québec

Liberal

Jean Lapierre for the Minister of Finance

moved that the bill be concurred in.

(Motion agreed to)

Canada-Gabon Tax Convention
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12:10 p.m.

Outremont
Québec

Liberal

Jean Lapierre for the Minister of Finance

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

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12:10 p.m.

Yukon
Yukon

Liberal

Larry Bagnell Parliamentary Secretary to the Minister of Natural Resources

Mr. Speaker, I am please to have the opportunity to speak at third reading of Bill S-17, the 2004 tax conventions implementation bill.

The proposed legislation contained in the bill will put into force four new tax treaties that Canada has already signed with Gabon, Armenia, Oman and Azerbaijan. It also implements a new tax treaty with Ireland, replacing an older treaty that is already in effect.

I would like to emphasize that the treaties contained in Bill S-17 are not controversial. In fact, the bill's proposed legislation is standard and routine.

Indeed, these treaties, similar to the ones that Canada has with other countries, are patterned on the OECD model tax convention which is utilized by all member countries. Moreover, the provisions in the treaties contained in Bill S-17 comply fully with the international standards that apply to such treaties.

Canada already has tax treaties in place with 83 countries. With passage of Bill S-17, that will increase to 87 countries. In the last three years alone Canada has signed treaties or amended protocols with 14 countries.

In an ever increasing and competitive global marketplace, these treaties are important for Canada to compete internationally. Tax treaties benefit Canada's international trade in goods and services and in doing so, have a direct impact on our domestic economic performance.

That impact is very significant. Over 40% of Canada's annual gross domestic product can be attributed to exports. Moreover, Canada's economic well-being depends on regular foreign investment as well as the influx of information, capital and technology.

By eliminating tax impediments and by creating more predictable tax results for Canadian traders, investors and other taxpayers with foreign source income, our tax treaties promote opportunities in international trade and investment at home and abroad. In this regard, tax treaties combined contained in Bill S-17 are no exception. These are crucial considerations in today's global economy.

The promotion of trade and investment stimulates the growth of Canada's economy. This in turn allows us to pursue the social objectives that have made our country one of the best places in the world to live.

I would like to take a moment now to comment generally on how this legislation supports the promotion of international trade through a fair and competitive tax system.

The importance of making the tax system more competitive has been underscored in recent years by reductions in the corporate tax rates in many of our major trading partners.

Given the mobility of investment capital globally, a competitive tax system is critical to fostering business investment in Canada. Investment supports economic growth and job creation. With more and better equipment embodying the latest technology, workers are more productive.

Increased investment and higher labour productivity in turn leads to increased employment, higher wages and a higher standard of living. Tax treaties are also an integral part of tax fairness initiatives introduced by the government's efforts to make the system fairer.

I would like to expand on that point by outlining two tax fairness objectives that are kept in mind in the design of tax treaties such as the ones before us today. The two objectives are: first, to prevent double taxation; and second, to prevent tax evasion and avoidance.

First, what is double taxation? Double taxation occurs when a taxpayer lives in one country and earns income in another country. If there were no tax treaty in place to allocate the taxing rights and to provide various mechanisms to grant relief where both countries retain the right to tax certain items of income for that individual, income is at risk of being taxed in both jurisdictions. This situation would produce unfair results and have adverse economic impacts on Canada.

It is only natural that investors, traders and other international dealers want to know how they will be taxed before they commit to doing business in any given country.

Tax treaties establish a mutual understanding of how the tax regime of one country will interrelate with that of another, thus helping remove the uncertainty about the tax implications associated with doing business, working or otherwise earning income from abroad. Preventing double taxation is accomplished by first defining the rules for establishing jurisdiction for tax purposes between the country where the taxpayer resides and the country where the income arises.

Another method of reducing the possibility of taxation involves the reduction of withholding taxes. These are the taxes countries generally impose on certain types of income paid to non-residents. For example, without a tax treaty or various other legislative exemptions Canada taxes various categories of income paid to non-residents at a rate of 25%. Most of our trading partners impose a withholding tax at a similar level to that of Canada.

A problem arises because withholding taxes does not provide for the deductibility of expenses incurred in generating that income. This is because the tax is imposed on the gross, not the net amount. A situation therefore occurs where the taxpayer is subject to an effective tax rate that is significantly higher than would be applicable to net income in either the source or the resident country. To resolve this situation, Canada's network of international tax treaties provides reciprocal withholding tax rate reductions for a number of types of income such as dividends, interests and royalties.

Let us go to the second objective of the tax treaties with many countries around the world. The second objective is to prevent tax avoidance and evasion. Canadians who pay their fair share of taxes would not want corporations or people to avoid or evade taxes simply by doing business internationally.

The hon. members can no doubt appreciate the negative effect caused by loss of revenue from tax avoidance and evasion. This is not only clearly unfair but potentially damaging economically. Moreover, the resulting revenue loss can adversely affect the government's ability to support a broad range of federal programs that benefit all Canadians, including health, support to the elderly, support to the disabled and money for education. Ultimately, tax avoidance and evasion also places an unfair tax burden on honest taxpayers. This runs contrary to the Canadian concept of a fair and equitable tax system.

Treaties like the ones contained in Bill S-17 allow for improved and expanded mechanisms for international cooperation and information sharing. This exchange of information between revenue authorities helps governments to identify cases of tax avoidance and evasion and take the actions necessary to recover the lost revenue.

To sum up, tax treaties open the door for international cooperation which in turn provide a mechanism for improving tax fairness by combatting tax avoidance and evasion. Treaties covered in Bill S-17 also address a number of other important issues for the consideration of hon. members.

For one, each treaty contains provisions to ensure that cross-border investors do not suffer discrimination based on nationality. Also, each treaty contained in the bill has provisions that limit the potential for double taxation arising from the application of Canada's taxpayer migration rules.

As I mentioned at the outset, Bill S-17 is not controversial. Rather, it is routine legislation with clear benefits to all Canadians.

Following on the government's approach to tax fairness, these treaties will provide fair and equitable solutions to the taxation problems that currently exist between Canada and the five countries named in this bill. I therefore ask that all hon. members pass this bill quickly.

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12:20 p.m.

Conservative

Ken Epp Edmonton—Sherwood Park, AB

Mr. Speaker, I can see where this crowded House today is going to be involved in a very vigorous debate on this exciting subject as the parliamentary secretary just indicated. This being Friday, I cannot help having a little fun with that individual.

The purpose of having tax treaties with other countries is to avoid double taxation, and that is totally legitimate and defensible, and we support that. People who earn income in another country should not have to pay income tax both there and here. If both countries have income tax rates like ours, where we have the federal tax and the provincial tax, people would end up with maybe 10% of their income, the rest having gone toward taxes. It is important to have these treaties.

I wonder if we could get a tax treaty with Canada. I know that sounds a little bizarre. Canada engages in double taxation and it is time that we put an end to it. For example, there is a provincial tax and a federal excise tax on gasoline. After the cost of the product and tax a and tax b are added up, GST is added on top of all that. That is double taxation. GST is paid on the provincial tax and GST is paid on the federal excise tax. Taxes are being paid on taxes.

Another example is the private member's bill which I just talked about concerning house taxes. For example, if I had a tax bill for my house of $2,400, I would have to earn $4,000 in order to pay it. If we do the math, $4,000 less 40% leaves me with $2,400. That would pay my property tax. That is double taxation. Could we not get a treaty going with Canada to avoid double taxation? Would that not be a neat idea?

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12:25 p.m.

Liberal

Larry Bagnell Yukon, YT

Mr. Speaker, I appreciate the member's great participation in the House. He is here a stellar number of times, but in being here a stellar number of times, he should know the rule that we do not indirectly refer to a member's participation in the House. I hope when he puts his next question to me, he will apologize for his first comment.

He is suggesting there is double taxation when Canadians have to pay both a federal tax and a provincial tax. I do not know how we would pay for health care and education if there were no provincial tax. We need taxes to do that. I do not know how we would pay for the increase in defence that the opposition wants, or the increase in agriculture that the opposition wants, or all the things that Her Majesty's loyal opposition asks us to pay for every day, if there were no federal tax.

We can talk about tax on tax on top of tax and all of the ramifications, but the bottom line is that a certain amount of tax is needed to run the country. We could change the structure of the tax system to deal with some of the points the member made, but we still need to end up with the same number of taxes.

We could change income taxes, but the member's party is constantly suggesting that we should not increase income taxes. However, we would have to do that if we were to act on his suggestion of changing the tax structure.

The member may have a philosophically correct point about restructuring, but the bottom line is going to be the same. Canadians have to pay the same amount of taxes to pay for their schools, to pay for their hospitals, and to pay for national defence. They will have to pay the same amount of taxes to support the elderly, to support the disabled, to support farmers, and all the things Canadians want. There are various orders of government to pay for it.

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12:25 p.m.

Conservative

Ken Epp Edmonton—Sherwood Park, AB

Mr. Speaker, I think the member missed my point. We are asking Canadians to pay taxes on money that they have earned for the sole purpose of paying taxes, or in some cases, they are asked to pay taxes on money that is already taxed. That was the point that I was making. Indeed, it was facetious to a degree because we are talking about double taxation with other countries.

However, I would like to still emphasize the fact that we need to reduce the rates of taxation. I would like to give the member a quick lesson in economics. I do not know whether he has ever heard of the Laffer curve, but the fact is that in many instances if the tax rates are reduced, tax revenues are actually increased. In other words, governments would have more money for programs because there would be more economic activity. Money would be left in the hands of individuals, citizens, taxpayers, entrepreneurs and business people who drive the economy.

Just because the tax rate is reduced does not mean that there will be less money for the government. There most likely will be more, provided it is carefully planned. That is what we are advocating in this party, not reducing those valued government programs as he contends incorrectly. We want to ensure that the money is spent wisely, not foolishly, not in criminal ways as is being investigated now but rather in rational ways. We should provide programs we want with a tax structure that is fair and that is a great driving force to our economy rather than a damper on it.

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12:25 p.m.

Liberal

Larry Bagnell Yukon, YT

Mr. Speaker, I am delighted to answer this question again.

I was fascinated at the extrapolation of the curve the member is talking about, that we reduce taxes and have more money for education, health and these things. I am sure the NDP would not agree with such an analysis. What happens when we reduce the taxes to zero? Are we going to have more money for education, health, the elderly, the infirm and affordable housing?

I do not think it necessarily works that way, but I am glad he brought up the point that we should have tax reductions because it does indeed lead to us being competitive in an internationally competitive world, so that we can actually have more workers employed in Canada and not close factories.

As members know, over the last five years the Canadian government has instituted the largest tax cut in Canadian history of $100 billion. I am curious as to why that was not in the opposition's platform. But even on top of that $100 billion, in this particular budget we have decreased taxes again to make Canadian industry more competitive, so we can keep our workers employed. A lot of those taxes would go to low income people, so that ultimately 850,000 people will no longer be paying any taxes in Canada.

We are very proud of that record and very proud that we have been able to control expenditures sufficiently, so that we can offer these large tax decreases that keeps Canada competitive. It keeps our workers employed and it keeps a high standard of living, so that Canada is one of the greatest countries in the world in which to live.

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12:30 p.m.

Conservative

Gurmant Grewal Newton—North Delta, BC

Mr. Speaker, I am pleased to rise on behalf of the constituents of Newton—North Delta to participate in the third reading and report stage debate on Bill S-17, the tax conventions implementation act, 2004.

This bill implements income tax treaties with Armenia, Azerbaijan, Gabon and Oman. Canadian did not previously have tax treaties with any of these states. It also ratifies a new treaty with Ireland. These treaties set out a framework for taxation on investment income flowing between Canada and other countries. They provide mechanisms to avoid double taxation and prevent any kind of tax evasion.

Let us look into the background. Over the past several years, Canada has negotiated tax treaties with 83 countries. These agreements deal with problems that arise when residents of one nation earn income in another country. They are based on the model double taxation convention prepared by the Organization for Economic Cooperation and Development.

Treaties serve to avoid double taxation in situations in which a taxpayer could be taxed twice, once by the country in which the income arises, the source country, and once by the country where the taxpayer resides, the residence country. The treaties help to reduce excessive withholding taxes on certain types of income, such as investment income and royalties.

Treaties also serve to establish agreed-to levels of activities in which taxpayers can engage in the treaty country before becoming subject to taxation. Treaties must provide for the exchange of information and also to eliminate taxes in situations where treaty partners agree should have favourable tax treatment. Tax treaties cannot take effect unless Parliament assesses and passes legislation to give them precedence over the Income Tax Act.

Legislation to ratify tax treaties does not require a notice of ways and means and, therefore, may be introduced in the Senate, as was the case with this bill.

One of the important elements that we should look at before signing any kind of treaty with any country is respect for Canadian values among which the respect for human rights is paramount. While tax treaties are generally beneficial to Canadians, I am somewhat concerned about the four countries involved in the treaties this bill would ratify.

Specifically, I am concerned about the human rights records of Armenia, Azerbaijan, Gabon and Oman. I have visited some of these countries already and I have firsthand experience in some of these situations. Canada must ensure that the countries we have tax treaties with recognize the importance of human rights. It must be more than a perfunctory recognition. It must be a real and cognizant recognition.

The U.S. state department's 2004 human rights report released just two weeks ago gives all four of the countries we are agreeing to have tax treaties with failing grades. According to the report, the Armenian government's human rights record remains very poor as its security forces beat pre-trial detainees and its impugnity remains a problem. As well, there were instances of arbitrary arrest and detentions.

For Azerbaijan, the government's human rights record also remains poor, and it continues to commit numerous abuses, including: restricting the right of citizens to peacefully change their government democratically; police torture and beat persons in custody; and use excessive force to extract confessions. The government continues to restrict freedom of speech and the freedom of the press.

According to the same report, the Government of Oman also has serious human rights problems. Citizens do not have the right to change their government democratically. The government restricts freedom of speech and freedom of the press, assembly and religion. Despite legislated equality, discrimination against women remains a problem and foreign workers in private firms have been placed in situations amounting to forced labour.

Finally, according to the report, the Gabon is given a poor grade, as the government continues to limit the ability of citizens to change their government democratically, security forces sometimes beat and torture prisoners and detainees, and arbitrary arrests and detentions are ongoing problems. The government also continues to restrict freedom of the press and movement. Violence and social discrimination against women and non-citizen Africans continue to be problems. Forced labour, child labour and trafficking, particularly in children, also remain serious problems.

In general, none of these countries share Canada's respect for human rights. Canadians have a right to ask what their government is doing to ensure that the human rights record of the foreign signatory is improved. I remember when we as parliamentarians travelled to other countries, along with ministers and others, we always emphasized the Canadian values that we respect: the protection of human rights, freedom of religion, freedom of speech and freedom of the press, but how would we sign those agreements or treaties when the records of those countries are not as good?

While the government has been making progress on signing new tax treaties, it has failed miserably at renegotiating previous treaties that have a far greater impact on the welfare of Canadians.

A case in point is our tax treaty with the United States. Five years ago the Prime Minister, when he was finance minister, reached an agreement in principle with his U.S. counterparts. Since then little has happened, with the last meeting occurring in 2001, despite the Prime Minister claiming that the agreement was of great consequence to Canadians. The people of Canada want the dithering to stop.

Last summer, when Japan and the U.S. reached an agreement to renegotiate their tax treaty, the U.S. ambassador to Japan praised the treaty as “one more symbol of the cooperation, trust and true friendship that exists between our two countries”. If that is what it takes to get a tax treaty done, it is little wonder the Liberals have failed to secure a deal.

Under the last Liberal prime minister, relations with the U.S. reached an all time low and they are getting no better under the current resident of 24 Sussex Drive. The bungling of the missile defence system, the closure of the border to Canadian beef and the never-ending softwood lumber dispute are evidence of where our relationship stands with our closest neighbour and largest trading partner.

Eight-seven per cent of our trade is with the United States and the bottleneck in our relationship continues to exist. It is detrimental to Canadians in general as well as our businesses. If the U.S. president waits for 10 days to return our Prime Minister's phone call, there is obviously little hope of getting a tax treaty done.

It is also important for the federal government to finally renegotiate our tax treaties for the countries that serve as tax havens for Canadian companies. Canadians will recall how the Prime Minister took advantage of our agreement with the Bahamas, registering his shipping fleet there and saving millions of dollars in Canadian taxes.

The country's five largest banks are now getting in on the action, probably following the Prime Minister's example, and saving billions of dollars in taxes. According to one report, CIBC alone in 2003 saved $600 million in Canadian taxes by using tax havens. This is money that we could have used for health care, education, tax cuts and many other things.

The Liberals, however, do not have the political will nor the backbone to close these loopholes in tax treaties and these tax havens.

Thanks to our former prime minister, Jean Chrétien, who visited one of the world's most repressive countries to secure an agreement with the Turkmenistan government for rights to explore the disputed Serdar oil field in the Caspian Sea, our discussion of the tax treaty with Azerbaijan is almost pointless. In protest of the deal negotiated by Chrétien, the Azeri national assembly has refused to pass a law ratifying our tax treaty agreed to last September.

The former prime minister may be officially retired from politics but he certainly is not done making headlines and harming Canadian interests abroad, whether it is his attempt to stop the Gomery inquiry into the sponsorship fiasco or, in this case, harming our relations with foreign states.

The Conservative Party of Canada supports the negotiation of tax treaties with foreign states. Such treaties are in the best interest of the Canadian people. They eliminate the double taxation, because, heaven knows, Canadians already pay enough in taxes, and promote investment and growth.

However I am concerned about the human rights records of some of the countries with which we are forming agreements. We should not allow economics to cloud our judgment of what is right and what is wrong and all four of these countries have been found to have a poor respect for the rights of their people.

Sometimes the Liberal government has given precedence to trade over anything else to some countries with dismal human rights records. The Liberals have been completely ignoring human rights record in favour of promoting trade and giving preferential treatment to those states.

Canadian interests may be best served if the government makes a priority of finally concluding renegotiations of our tax treaty with the United States which have dragged on for five years despite the Prime Minister's acknowledgement in 2000 that this deal was of great importance to Canada.

I think we should look closer to home. We should look at our volume of trade with our neighbouring country. I think the treaty with the U.S. should have been given precedence over any other treaty. If the Prime Minister himself confessed in 2000 that this would have serious consequence for Canadians, where is that treaty, I ask the Liberals across the floor? Where is that treaty with the United States which the Prime Minister, when he was finance minister in 2000, said would have a serious consequence for Canadians? Five years have passed. Where is the progress? Why has the government been sitting on its hands? Why is the government sleeping at the wheel and not signing the treaty with our largest trading partner, the United States of America?

The government has for far too long put off renegotiations on tax treaties that serve as tax havens for Canadian companies. Why is the government not closing those loopholes? It might be because they serve its self-interest in one way or the other.

The federal treasury cannot afford this kind of dithering. The government must stop dithering and act swiftly on the issues that are of particular importance to Canadians and to our relationship with our largest trading partner.

I will be voting in support of the bill but I would ask the government to wake up and not sleep at the wheel.

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12:45 p.m.

Peterborough
Ontario

Liberal

Peter Adams Parliamentary Secretary to the Minister of Human Resources and Skills Development

Mr. Speaker, my colleague mentioned the tax treaties with Oman, Gabon, Armenia and so on, and I know of his interest in human rights and his experience with some of those countries.

I would like his thoughts with respect to treaties of this type, which have sort of a chicken and egg element to them, in that if we do not have reasonable tax relations and do not establish reasonable contact with those types of countries, then it makes it difficult for our people going there or their people coming here to be fairly treated and it makes it difficult to move on the human rights front, which is of interest to my colleague.

I would suggest that avoiding double taxation in this way, even with those types of countries, would be advantageous in our efforts toward improving the human rights records of the countries concerned.