Mr. Speaker, for the minister and for those in the House who may be “Hooked on Phonics”, I think I should just kind of go through the name of my riding so people can kind of get it.
It is Tobique—Mactaquac. One person told me one time it is like “toe” of a foot, “bic” like the “Bic” pen, Tobique; then Mactaquac would be like if there was a duck named Mac and someone was going to teach Mac to quack. Then we would be good to go. That is just for future reference.
I am pleased to have the opportunity to discuss Bill C-31 concerning our government’s economic action plan 2014. As we know, many measures are really crucial for our economy, and that is why I support Bill C-31.
It is not possible to discuss all the clauses, but in the time I am allowed this evening I would like to talk about two things. First, I would like to address the clause that creates a stable environment in the area of income tax, and more specifically the Financial Administration Act. Second, I would like to share a few observations on the provisions concerning the implementation of the Canada—United States enhanced tax information exchange agreement.
There is a clause concerning financial administration, and more specifically the initiative that I proposed in my private member’s bill, that will improve transparency when there are potential changes to our Income Tax Act.
When the Certified General Accountants Association testified before the committee, it said that clause 31 required the Minister of Finance to table a list of legislative proposals in Parliament every year. The first version of this bill proposed to include the legislative proposals announced publicly that were not enacted by Parliament since the last federal election, not all proposals.
The committee decided to amend that clause because it thought we could improve clause 31 significantly by amending it. In its initial form, the clause required that the minister report only on the tax measures proposed during the current Parliament. Accordingly, the list tabled would not include the numerous tax measures that were already in the wings before the current Parliament took office.
The committee members adopted the CGAs' recommendation, and we amended the Public Finance Act. Now, the Minister of Finance has to present cumulative reports, not just the changes since the last election.
In addition to that, it would also provide for the government a 12-month lag for a new minister, after an election, to file their first report of these unlegislated tax measures.
I want to thank my colleagues on the committee for working together to incorporate constructive suggestions from CGA-Canada to improve clause 31.
I would like to spend a little time on the enhanced Canada-U.S. tax exchange agreement and cover a number of topics under this. First is a bit of the history of where we are and how we got here, a bit of what FATCA is and what it is not, and what the repercussions would have been if we had just let FATCA happen as opposed to taking the initiative to sign an intergovernmental agreement with the U.S.
I would also like to talk a bit about the due diligence processes that are going to be in place for the banks, as well as the exceptions from reporting for the banks. I maintain that the changes and the intergovernmental agreement that we have negotiated is a good agreement to protect as many Canadians as we possibly can.
The U.S. has had a taxation on citizenship since 1913. It is one of only two countries in the world, the other being Eritrea, that has that kind of taxation. Most, like Canada, tax on residence, but the U.S. does not.
In fact, that was challenged in the early 1920s, through the Constitution, in the U.S., as being unconstitutional. That constitutional challenge was actually defeated. Here we are with U.S. citizens required to pay taxes in the U.S.
We all agree, and I do not think anybody in our committee disagrees, that FATCA is overreaching, on the part of the U.S. There is no question about it. We are left with the situation where, as a government that deals with the 28 other countries that have signed intergovernmental agreements, and there are about 33 that are actually working toward agreements in principle now, we have to learn to deal with this in order to protect as many citizens as we can.
In the discussions we had with the U.S. Treasury, this spring, in Washington, it was pretty evident that the U.S. Treasury, in spite of some of the lobbying we did, was not hearing any of it and that FATCA was still going to exist. The fact that FATCA was passed in 2010 means that is how the U.S. was going to apply that law.
With that in mind, we have a choice. Do we just let FATCA happen, as it is and as it was passed by the U.S.? Or do we try to negotiate an intergovernmental agreement in the best interests of Canadians based upon what we are going to have to deal with? Because it is a false choice to say that we can opt out of FATCA. We cannot opt out of FATCA. There is no way we can opt out of FATCA.
If we let FATCA happen, then we are going to be faced with up to a 30% withholding tax on the transfers coming in, not only to banks, but also to individuals. As we know, there are a lot of investments that are U.S.-denominated and there is going to be a 30% withholding. As we heard in committee, that is not just a withholding tax. It is not a withholding against tax. It is a withholding tax. Essentially, there is potentially double taxation.
There are also potential privacy issues if we just let FATCA go the way it is because, then the IRS is going to negotiate individual agreements with every bank. That is what is going to have to happen. And every bank that wants to continue to do that is either going to have to suck up the 30% withholding or it is going to have to come up with an agreement to actually transfer this information to the IRS.
Also, it could get so crazy, to the point where banks would actually have to turn down clients if they ask them, “Are you a U.S. citizen?” They would have to turn them down, under the way FATCA is worded.
With the IGA and the intergovernmental agreement that we have, there is no withholding tax. The transfer of information that is going to be transferred between Canada and the U.S. will actually go through existing tax exchange agreements. It will go through the CRA, to the IRS, and it will be used very strictly within the rules and regulations of that information transfer. That is a very important concept.
Also, it would ensure that we have that privacy kept and it would also allow the banks to take on U.S. clients.
I want to talk a bit about due diligence. When we talk about due diligence, Canada did really well in the negotiations of the due diligence of this agreement because accounts under $50,000 are not even reportable. Accounts between $50,000 and $1 million are done through an electronic scan. If there do not happen to be any U.S. indicia on the account, such as a U.S. tax identification number, a U.S. address, or some other U.S. identifier, then that account is not reported. All of a sudden this million people we are starting to talk about in Canada might be impacted. When we take out the underage people who might not even have a bank account, we are squeezing this down to a very small number of people. If the account is over $1 million, then, in addition to the electronic scan, there will be a manual search in case of U.S. indicia.
I would suggest that the individuals with accounts over $1 million do have the wherewithal, in that case, if they happen to be U.S. citizens, to deal with that and its challenges and to actually ensure that they do the proper filings. It is important to understand that those are some of the things in there. Not only that, we filtered out the RRSPs, the RESPs, and even the agriculture accounts.
Furthermore, there is a favoured nations clause in there so that if a better deal comes around, as time progresses, Canada will be able avail itself of better clauses.
I have heard a lot about FATCA. Most of what I have heard is that there is a lot of mix-up between the filing of taxes, which has been an obligation for U.S. citizens since 1913, and this obligation, which is on the transfer of information through the CRA to the IRS under existing processes. They are two separate things.
Furthermore, I would maintain that the deal that was signed, the intergovernmental agreement between Canada and the U.S., is the utmost best we can do from the standpoint of protecting taxpayers. We have done very well when we compare ourselves to the 28 other countries that have agreements with the U.S.
