House of Commons Hansard #153 of the 39th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was measures.

Topics

Statements by Members
Points of Order
Routine Proceedings

3:25 p.m.

Liberal

The Speaker Peter Milliken

I am certain that the honourable members appreciate the clarification by the hon. member for Louis-Hébert.

Before I call government orders, I wish to inform the House that because of the ministerial statement, government orders will be extended by 14 minutes.

Income Tax Act
Government Orders

3:25 p.m.

Liberal

The Speaker Peter Milliken

Before question period, the hon. member for Montmagny—L'Islet—Kamouraska—Rivière-du-Loup had the floor and he had 15 minutes remaining.

The hon. member for Montmagny—L'Islet—Kamouraska—Rivière-du-Loup.

Income Tax Act
Government Orders

3:25 p.m.

Bloc

Paul Crête Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, I would like to remind this House and those who are listening that we are debating Bill C-33, Income Tax Amendments Act. The objective of this bill is to amend certain rules concerning trusts, to ensure tax fairness.

The Bloc Québécois agrees with this bill, and this amendment should have been made a long time ago. The first part of the bill deals with an amendment to the rules concerning non-resident trusts and foreign investment entities. It is an amendment or clarification of section 94. This part of the bill sets and clarifies the taxation rules for non-resident trusts. These clarifications and amendments are made through the amendment of section 94 of the Income Tax Act, which sets the taxation rules for non-resident trusts.

In general, a trust is subject to the Income Tax Act if it has received a transfer or loan from an association, joint venture, trust, fund, organization, individual, company, general partnership or syndicate residing in Canada.

Non-resident trusts must pay income tax to the Government of Canada. If they do not, the beneficiaries are held responsible and must pay the amounts owing themselves. However, beneficiaries will be taxed in proportion to their holdings in the trust. Additional tax relief will be in place for beneficiaries whose revenue is minimal compared to other revenues from the fund. The purpose is to make this balanced and sensible. The changes proposed in this part of the bill amend the rules that apply when money is brought back into Canada.

More specifically, these measures define additional criteria to be used in calculating the fair market value of assets in a non-resident trust. Fair market value is the highest price, in terms of money, that can be obtained for an asset on a completely free, unrestricted market during a transaction between a buyer who wishes to buy and a seller who wishes to sell who are prudent, informed and competent and who are acting independently of one another. Naturally, there is always some leeway in determining fair market value, but the bill nevertheless sets out the concepts in such a way as to control the tax implications of this type of activity.

The second part of the bill addresses the Income Tax Act's definition of an exempt foreign trust. This part of the bill specifies the kinds of trusts that are eligible for tax exemption under the Income Tax Act. These measures ensure that only those trusts that are truly eligible for tax exemption can benefit from this tax advantage. We know that trusts are created for all kinds of reasons. We must therefore ensure that only trusts that are eligible according to the act can benefit. This will result in fairer tax treatment of all citizens.

A list allows to distinguish between the trusts that can be exempted and the ones that must pay income tax. For example, trusts that are eligible to be exempted from the Income Tax Act are as follows: exempt non-resident trusts, trusts for beneficiaries with mental infirmities who are non-Canadian residents and whose contributions to the trust were required to support the needs of the beneficiaries. In other words, it makes quite a lot of sense that trusts whose purpose is exclusively humanitarian should not be taxed. There are also trusts that are created as a consequence of the breakdown of a marriage and whose beneficiaries are children under 21 years of age, or under 31 years of age if enrolled full time at an educational institution, resident trusts that are eligible for the tax exemption, trusts operated for the purpose of administering or providing retirement pensions to employees and charitable trusts.

Thus, the first part deals with changes to the rules applying to non-resident trusts or foreign investment entities, the second one provides the definition of foreign trusts that are exempted from the Income Tax Act and the third one contains general changes to the Income Tax Act.

The main measure provides more general amendments to this act. First, elements have been added to the employment income. This includes any amount receivable at the end of the taxation year in respect of covenants agreed to by an employee, and a change to the calculation of the amount reported through stock option plans for employees.

Then, various other items that will become deductible from employment income are added. For instance, employees will be allowed to deduct from their income legal expenses incurred in legal proceedings to collect amounts owed by the employer, and the premium under the Quebec parental insurance plan. These changes are designed to bring the Income Tax Act in line with the new realities.

For example, the parental leave scheme is very popular in Quebec. It was established when the federal government finally agreed to give back the EI amounts intended for this type of provincial initiative. It took a long time, but now the scheme is in place. It provides parents with sufficient income for flexible amounts of time, which they like better. It has already started to have a significant impact on birth. In this respect, it meets two important objectives at once. Now, we are amending the federal Income Tax Act accordingly. I think it is appropriate to support this measure and, indeed, the bill as a whole.

The last part of the bill contains amendments in relation to terms or expressions that could have a different meaning in French and in English. This may sound like a detail, but in reality, it can often cause legal problems when it comes to interpreting the law. The Bloc Québécois believes that Bill C-33 will improve the application of the Income Tax Act. The Bloc Québécois supports this bill, which will restrict the use of non-resident trusts as tax loopholes.

With fewer loopholes, the government will be able to increase its revenue by collecting from people who should be doing their part.

As an aside, this bill will fill a number of holes in the legislation in terms of tax fairness. But one glaring hole remains. I am referring to the one left open with tax treaties and tax heavens, and more specifically the one between Canada and Barbados.

Like any other tax treaty, the Barbados tax treaty initially provided that profits generated by Canadian companies should normally become taxable when the money was repatriated to Canada.

One section, section 5907, was added, which eliminated all taxation. Thus, while money invested in Barbados by Canadian companies is hardly taxed—it is almost ridiculous—thus leading to huge profits, that money can be brought back to Canada and is still not taxed. As a result, this becomes a tax incentive. At the end of the day, this is tax avoidance and has absurd repercussions. For example, over the course of 2007-08, a total of $4 billion will be brought back from Barbados in the form of dividends and recovered by Canadian companies, which will pay no taxes on that money.

We find this decision somewhat absurd, an abnormal situation that should be handled differently. Today, the Minister of Finance made a announcement regarding tax fairness and interest deductibility when companies borrow money to invest abroad. We would have liked to see part of his announcement address the tax treaty with Barbados. Surprisingly, it did not even touch on it.

During question period today, the minister was very careful not to respond to this question and to reiterate the action taken concerning interest deductibility. His announcement today more or less drove the nails into the coffin. He announced that interest deductibility will prevent double taxation. However, in five years, he is establishing a panel to examine the issue. I think it is a rather well organized retreat, but it reflects this government's lack of preparation in the related texts.

As regards the budget, we were expecting some details to be provided, and we were hoping that this tax avoidance hole would be plugged, but that is not going to happen. It is rather strange to give a warning that this is going to be done in five years from now. At the same time, a committee is being set up to look at all these issues. Usually, when it comes to finance, the government brings forward ways and means notices that immediately come into effect and that send a clear message. Let us hope that the minister's decision will not add to the negative message that was sent when the budget was tabled. At the time, the government did not explain how it was going to ensure that tax avoidance is eliminated. The specifics that were provided today can certainly, in a way, make companies feel more secure, but they are also a threat hanging over all the industries. In the industrial and financial sectors, investments are often made 5, 10 or 15 years in advance.

The message being sent today is still not good enough. And worse still—as I pointed out during the first part of my speech, in reference to the statement made today by the minister—the minister was totally silent on how the tax treaty between Canada and Barbados should be amended.

Let us not forget that we are talking about tax havens, about states where the rate of taxation is nil or very low. Their lax tax system encourages many wealthy taxpayers to discreetly transfer a portion of their fortune there, and many businesses to set up subsidiaries. They are then able to avoid paying taxes on part of their revenues.

People complain that they pay too much taxes and they wonder why that is, given the level of services that they get in return. There is one aspect that must be taken into consideration: if there are groups in our society that do not pay their share, then other groups must make up for the shortfall. What happens in reality is that either some people pay more taxes than they should, or else some services are not provided, all this because we did not manage to put a stop to the tax avoidance situation caused by this tax treaty.

It is very surprising that the government did not go forward on that issue since the problem is the result of changes made by the former Liberal government. We have been counting on the new Conservative government to address the situation. However, even today, we still do not have any indication that it intends to do that. Even though the Standing Committee on Finance is making a study on the subject, after the Bloc made a proposal to that effect with the support of the Conservative members, the minister does not seem ready to do anything and is not indicating that he would take action even if there were recommendations going in that direction.

The House can be assured that in the report that will be produced at the end of the current review by the finance committee, the Bloc will undoubtedly make concrete recommendations. Indeed, on tax issues it has often been said that the questions regarding trusts are very complicated. However, with regard to the issue of the tax convention with Barbados, there is a very simple solution. There is one subsection in the very long section 5907 that we could simply abolish. After that, all profits coming from Barbados could be taxed at the time they are brought into Canada.

We would find that quite acceptable. If we had a tax agreement whereby, when money was invested abroad, the profits would be adequately taxed once they were brought home, an appropriate deduction could then be allowed. This is roughly the model developed by the United States and Japan. This is a theory, a practice that should be examined by Canada. Rather than continuing with the current practice—the very discriminatory regulation 5907—we could quite simply allow the money to be invested in Barbados, and when it is comes back to Canada, subtract the amount the company has already paid in income tax to Barbados from the amount due to Canada. There would still be a significant contribution within Canada to correct the situation.

As I am being signalled that I only have two minutes left, I will end with these comments. I urge the government to examine this issue over the course of the next few weeks. We hope that the study by the Standing Committee on Finance will result in concrete measures being introduced in the fall economic statement or next year's budget. However, a solution absolutely must be found because, at present, all political parties agree that we are not getting our money's worth, despite the contribution of taxpayers. Such measures could be key to lessening the burden on taxpayers, on those who benefit from various government programs. It is important that we move in that direction.

The Bloc Québécois continues to take a constructive approach. We are voting in favour of the bill but we hope that the Conservative government will move forward as quickly as possible to find real and concrete solutions to the significant problem of tax evasion presented by the Canada-Barbados Income Tax Agreement.

Business of Supply
Government Orders

3:40 p.m.

Regina—Lumsden—Lake Centre
Saskatchewan

Conservative

Tom Lukiwski Parliamentary Secretary to the Leader of the Government in the House of Commons and Minister for Democratic Reform

Mr. Speaker, with apologies to my hon. colleague, there have been further discussions and if you were to seek it, I am confident you would find unanimous consent for the following motion. I move:

That, during the debates on May 16 and May 17, on the Business of Supply, pursuant to Standing Order 81(4), no quorum calls, dilatory motions or requests for unanimous consent shall be received by the Chair and, within each 15 minute period, each party may allocate time to one or more of its members for speeches or for questions and answers, provided that, in the case of questions and answers, the minister's answer approximately reflect the time taken by the question, and provided that, in the case of speeches, members of the party to which the period is allocated may speak one after the other.

Business of Supply
Government Orders

3:40 p.m.

Conservative

The Acting Speaker Royal Galipeau

Does the hon. parliamentary secretary have the unanimous consent of the House to move the motion?

Business of Supply
Government Orders

3:40 p.m.

Some hon. members

Agreed

Business of Supply
Government Orders

3:40 p.m.

Conservative

The Acting Speaker Royal Galipeau

The House has heard the terms of the motion. Is it the pleasure of the House to adopt the motion?

Business of Supply
Government Orders

3:40 p.m.

Some hon. members

Agreed.

Business of Supply
Government Orders

3:40 p.m.

Conservative

The Acting Speaker Royal Galipeau

(Motion agreed to)

Income Tax Amendments Act, 2006
Government Orders

3:45 p.m.

Liberal

Paul Szabo Mississauga South, ON

Mr. Speaker, I thank the member for doing a very good job on some selected issues out of this bill. It is only 550 pages long. I can assure the House that I will vote in favour of the bill to get it to committee where it can have the rigorous scrutiny it requires.

The member has raised some interesting points with regard to tax havens and other issues. He also talked quite a bit about some of the values or some of the attitudinal positions we should take with regard to a number of these changes, particularly as it relates to the interest deductibility quagmire that we seem to be in, given the finance minister had made a very broad sweeping general statement about cancelling the interest deductibility on foreign investments.

Now we have some changes again. We have had ten year periods, now we have five year periods. We have had some towering effect. This is a moving target.

It concerns me because similar to the income trust debacle, the broken promise, signals were given to the marketplace, which interrupted the market and disrupted the marketplace to the extent there was a virtual meltdown.

Now we have some questions within the investing community on the interest deductibility. It is disruptive in my view. Does the member feel that the uncertainty or the lack of clarity from the finance minister, whose name rhymes with clarity, could give us an idea whether this can have some negative impact on the decision making of businesses while we deal with this strange animal that he has put on the table for us?

Income Tax Amendments Act, 2006
Government Orders

3:45 p.m.

Bloc

Paul Crête Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, ever since the budget was tabled, we have been waiting for the budget implementation bill that will address this issue. We expected that the Minister of Finance's statement today would clarify the situation. In his statement, we read this:

Our proposed anti-tax-haven initiative is composed of four specific parts:

--Firstly, preventing the use of double dipping and other tax avoidance schemes—

--Secondly, we are providing corporate Canada with a transition period of almost five years—

--Thirdly, any tax revenues generated through the anti-tax-haven initiative will be used to further reduce business taxes in Canada—

--Finally, we will continue to look for ways to bring fairness to Canada’s tax system.

This is not clear. The government said it was important to have the right tools to help companies compete internationally. Many other countries have these sorts of measures. The government told us that it would do away with tax avoidance and the excesses that result from it.

Yet today, the statement simply says that double dipping—making one tax deduction here in Canada and another in the country that receives the funds—will be prohibited. There may even be three countries involved. This should be clarified.

The statement also says that companies will have five years to comply with the rules. These rules must be defined as soon as possible. If they are not clarified in the coming months, companies might invest in the wrong place or delay investing. This is a downside to the government's current position. We need clear, accurate, relevant information as soon as possible.

The government still has work to do. We hope it will release information as soon as possible. In a similar vein, why does the government not just go ahead and abolish the tax treaty with Barbados or at least the specific provision of the treaty whereby profits that return to Canada from Barbados are tax exempt? This is not fair to taxpayers.

Income Tax Amendments Act, 2006
Government Orders

3:45 p.m.

Bloc

Guy André Berthier—Maskinongé, QC

Mr. Speaker, I would like to congratulate my colleague for his excellent speech on this bill that amends the Income Tax Act as far as trusts are concerned. Of course, as our colleague told us, we approve this bill because it contains some measures that are more in keeping with some social measures that we have put forward.

However, I would like my colleague to explain something. What is the public to think of a government that cuts programs for the poorest in our society—whether they are literacy programs, the court challenges program or women's programs—, a government that does not encourage people on EI but at the same time maintains a treaty that provides tax havens to rich companies?

How does my colleague explain this situation? What is the public to think about this lack of ethics on the part of a government that continues to help the rich while cutting programs for the poorest of the poor?

Income Tax Amendments Act, 2006
Government Orders

3:50 p.m.

Bloc

Paul Crête Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, I want to thank my colleague from Berthier—Maskinongé for his question and the examples he gave us. Indeed, the money not paid in taxes under the tax treaty with Barbados is paid by others. As a result, we do not have adequate services. We can list the cuts made by the Conservative government over the past year in a number of areas, including the court challenges program, programs concerning women's groups or different parts of our society that need these types of services. There lies the answer.

For this year, the federal government will probably fail to collect $800 million in taxes. This $800 million would go a long way. Some of it could go toward lowering taxes and some of it could be used to reinstate services that have been cut. This would be an important gesture and it is a very good illustration of the current balance in Canadian taxation. There is a major problem with the tax treaty with Barbados and the solution is simple: the elimination of just one paragraph from section 5907 would correct the situation and bring about more fairness.

This would be realistic, quick and we could assess the facts, while the government's position on interest deductibility seems to be bogged down. There is no indication as to how the government is going to get out of this. I am anxious to see how the business sector will react. Between yesterday and this morning's announcement, things seem to be looking up because the government is putting off its decision. However, this sends a tenuous message to the business sector.

It is this type of situation that needs to be corrected. I would like the federal government to take a swift decision to correct the tax treaty with Barbados. This does not require vast studies. We already have all these figures at the Canada Revenue Agency or at the Department of Finance. Then a very clear message could be sent that would be consistent with the minister's promise to take care of tax havens. Nonetheless, to make good on his comments, he needs to at least take that one step.