Bill C-28 (Historical)

Budget Implementation Act, 2006, No. 2

A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006

Part 1 implements the following income tax measures proposed or referenced in Budget 2006:
–       the new Canada Employment Credit;
–       the new Textbook Tax Credit;
–       the new tax credit for public transit passes;
–       the new deduction for tradespeople’s tool expenses;
–       a complete exemption for scholarship income received in connection with enrolment at an institution which qualifies the student for the education tax credit;
–       the new Children’s Fitness Tax Credit;
–       a doubling, to $2,000 from $1,000, of the amount on which the pension income credit is calculated;
–       an extension of the $500,000 lifetime capital gains exemption, and various intergenerational rollovers, to fishers;
–       the new Apprenticeship Job Creation Tax Credit;
–       a reduction of the current 12 per cent small business tax rate to 11.5 per cent for 2008 and to 11 per cent thereafter;
–       an increase, to $400,000 from $300,000, of the amount that a small business can earn at the small business tax rate, effective January 1, 2007; and
–       a reduction of the minimum tax on financial institutions.
Part 2 implements the proposal in Budget 2006 to lower the income tax rate on large corporation dividends received by Canadians.
Part 3 implements the proposal in Budget 2006 to reduce excise duties for Canadian vintners and brewers.

The House resumed consideration of the motion that Bill C-28, A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006, be read the third time and passed.

Budget Implementation Act, 2006, No. 2

[Diane Ablonczy, Conservative, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, I appreciate this opportunity to speak at third reading of Bill C-28. Once passed, this bill will implement certain tax measures that were not part of last spring's budget implementation bill. That bill received royal assent on June 22, 2006.

Budget 2006 was the first budget for Canada's new government. It was well received by Canadians. However, the House should know that the best is yet to come.

By now, members of the House are well aware of what is contained in the bill before us. I would therefore like to focus my remarks on some of the particular proposals in this bill that will open up opportunities for Canadians, opportunities that will lead to a stronger, more prosperous Canada.

I am sure that any of the members of this House who are parents would want their children to have opportunities that perhaps they did not have. Canada's new government believes in creating those new opportunities for Canadians wherever they live in this great country. That is why budget 2006 took action to help families and individuals, as well as businesses, Canada's job creators, by lowering taxes, rewarding effort and making Canada a better place in which to live and do business.

One of our first actions was to return money to Canadians by reducing the GST. We also provided other significant personal and corporate tax relief and investments in the budget that will create jobs and boost Canada's economy by improving incentives to work, save and invest.

Most recently, we took decisive action by announcing a tax fairness plan that provides $1 billion per year in tax relief for seniors and pensioners. The tax fairness plan significantly enhances the incentives for Canadians to save and invest for family retirement security.

I want to talk today about the proposals in this bill that will set Canada on a firm track for tomorrow by providing opportunity today. I would like to start with the fitness tax credit, because our health and especially the health of our children is a key part of a prosperous future for Canada. After all, without our health, how can we enjoy all the great opportunities that this country has to offer?

There is little doubt that regular exercise improves the quality of life. Encouraging families to help their children get into the habit of being physically active is an important goal and one that is becoming increasingly important. Our new children's fitness tax credit will help families provide that encouragement to their children. In doing so, it will help our children to adopt a healthier lifestyle.

Specifically, Bill C-28 proposes that the credit cover eligible fees up to $500 for enrollment in an eligible program of physical activity effective January 1, 2007. That date is coming up pretty quickly.

The need for this tax credit is underscored by the challenges presented by childhood obesity. In the past two decades, obesity has emerged as one of the biggest health problems facing Canada. The purpose of this credit is to facilitate access by children and youth to eligible programs of physical activity and recreation. This will be an important catalyst to help children maintain regular exercise, balanced growth and, most important, a healthy lifestyle that they can take with them into adulthood.

To help the government decide which programs of physical activity should qualify for the children's fitness tax credit, the Minister of Finance appointed an expert panel, chaired by Dr. Kellie Leitch. The panel recently presented its report. I would like to thank Dr. Leitch and the panel members for their thoughtful insight into this issue.

The government is renewing the panel's recommendations to decide which programs of physical activity should qualify for the new credit. Healthy bodies promote healthy minds, and healthy minds go hand in hand with better learning.

This new government can help. We recognize the importance of education beyond high school in getting a good job with a secure future. Canada's new government wants to do all it can to help Canadians achieve that goal. To do that, Bill C-28 contains proposals from budget 2006 that will help with the costs of post-secondary education. Moreover, once graduates are in the workplace, there are measures from the budget that will help Canadians with some of their work related expenses. Let me briefly outline these important proposals. Let me start with education measures.

Any of us who have helped put our children through university or college know that textbooks are expensive. To help parents and students with these costs, Bill C-28 proposes a new non-refundable tax credit to provide better tax recognition for the cost of textbooks. This measure would be effective for 2006 and subsequent taxation years.

Eligibility rules for this new tax credit will be the same as those for the education tax credit and will provide benefits to almost two million post-secondary students. We know that not all students attend school full time. In recognition of that, the textbook tax credit applies to both full time and part time students. For full time students, the amount will be $65 for each month of full time post-secondary study. For part time students, the amount will be $20 for each month of part time post-secondary study.

What does this mean to the bottom line? To give an example, a full time student enrolled in college or university for eight months would qualify for a textbook tax credit of $520 for the year. This represents a reduction in that student's taxes of about $80. This all adds up for a student. Helping students with the cost of textbooks is one important step that Canada's new government has taken to help post-secondary students with their education related expenses, but we have done even more.

Many hard-working students earn scholarships. To help them meet their tuition expenses, Canada's new government wants to reward them for that dedicated hard work. As members of the House may know, under current legislation only the first $3,000 in scholarship, fellowship or bursary income received by a post-secondary student is not taxed. In other words, any money received in excess of $3,000 is included as income for tax purposes.

The government believes that students should be rewarded, not penalized, for their academic excellence. That is why in budget 2006 we proposed to fully exempt all scholarship, fellowship and bursary income from tax. Once the bill before us is passed by Parliament, this measure will provide tax relief to more than 100,000 deserving post-secondary students.

This government is well aware that in today's knowledge based economy, a more educated and skilled labour force is key to Canada's competitiveness in the world. Government investments in education and training are therefore critical to productivity and economic growth.

As I have just outlined, Bill C-28 proposes measures to help students with their post-secondary education, but we also recognize that there is a need to help Canadians once they are in the workforce. That is why the government, in this bill, has introduced specific measures to help in that regard.

First, the Canada employment credit complements the personal income tax reductions introduced in budget 2006 by recognizing the extra costs to Canadians sometimes associated with joining the workforce. For example, a uniform might be required to work in a particular store or business, or special safety equipment could be needed to work on a construction site. For some Canadians, and particularly low income workers, these expenses can sometimes make the difference between being able to accept a job or not.

In the past, Canadians have raised concerns that if they have their own business or are self-employed, they can get tax deductions for certain expenses, and if they are employed, they do not. We do not think that is fair.

Bill C-28 changes that by proposing the Canada employment tax credit to help Canadians offset the costs of working. A credit of $500 is now available on employment income and that credit will double to $1,000 starting January 1, 2007. Canadians can put this money toward work expenses, like uniforms and safety equipment, and that helps working Canadians.

Of course, finding the right job is not always easy. Some Canadians find themselves stuck in low paying jobs and for one reason or another, often financial, they are not encouraged to consider the trades as a possible career source. However, as we often hear, employers are crying out for people, especially skilled workers, for example, in the construction industry.

Budget 2006 helps by proposing a new apprenticeship job creation tax credit. This credit will encourage employers to hire new apprentices to learn a skilled trade. With the measures contained in Bill C-28, effective May 2, 2006, about six months ago which was budget day, eligible employers will receive a tax credit equal to 10% of the wages paid to qualifying apprentices in the first two years of their contract, to a maximum credit of $2,000 per apprentice per year.

I explained earlier how the Canada employment credit will provide financial relief in recognition of work related expenses incurred by employees. The new government also recognizes that many people employed in the trades must have their own tools as a condition of employment. Budget 2006 provides assistance for these workers with a tax deduction of up to $500 for the cost of tools in excess of $1,000. The Canada employment credit and tools deduction together will provide tax relief to some 700,000 employed tradespeople.

Canada's new government wants to make it easier for new Canadians to pursue their dreams. Certainly reducing taxes is part of our plan. We have done that and we are not finished yet. However, as I have outlined today, helping Canadians realize their dreams is about more than just cutting taxes. It is also about helping families encourage their children to become physically active and have healthier lifestyles. It is about helping students with their education. It is about helping Canadians get and keep good jobs.

With the measures in the bill we are debating today, the new government will help Canadians accomplish those goals. I therefore encourage all members of the House to work together to pass this bill so we can get on with creating even more opportunity and an even stronger more prosperous Canada for today's generation and for those who will follow us.

[John Baird, Conservative, Ottawa West—Nepean, ON]

moved that Bill C-28, A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006, be read the third time and passed.

Business of the House

[Rob Nicholson, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, I am pleased to confirm that the holiday season will be beginning in due course. In the meantime, we will continue with Bill C-37, the tax convention; Bill C-12, financial institutions; and Bill C-36, an act to amend the Canada Pension Plan and the Old Age Security Act.

Tomorrow we will begin the third reading of Bill C-28, budget tax measures.

We will continue next week with the business from this week, with the addition of Bill C-40, sales tax; Bill C-32, impaired driving; Bill C-33, technical income tax; Bill C-35, bail reform; and, of course, as is the tradition, as the member would know, it is great to get into a prebudget debate and that usually lasts about two days.

We have a busy agenda and I look forward to the cooperation of the hon. member. I am sure we will have further discussions on this.

Finance

[Brian Pallister, Conservative, Portage—Lisgar, MB]

Mr. Speaker, I have the honour to present, in both official languages, the seventh report of the Standing Committee on Finance, on Bill C-28, A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006, with amendments.

[The Chair, Conservative, Brian Pallister]

Good morning, committee members. Welcome back.

Officials, thank you for being here.

Pursuant to the order of reference of Monday, October 30, 2006, we will proceed with clause-by-clause consideration of Bill C-28, a second act to implement certain provisions of the budget tabled in Parliament on May 2, 2006.

Consideration of clause 1 is postponed.

I call clause 2. You have your package of amendments in front of you. There are no amendments to clause 2.

Yes, Mr. McKay.

(On clause 2)

Business of the House

[Rob Nicholson, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, I will do better than just tell the hon. member what will happen next week, I will tell him how we will conclude this week.

This afternoon we will be on the report stage of Bill C-24, the softwood lumber agreement. As you may know, Mr. Speaker, tomorrow and Friday the House will be adjourned for the Liberal leadership convention, and we will all be watching that with interest.

On Monday it is my intention to call ways and means Motion No. 12, a motion to refer Bill C-30, the clean air act, to a legislative committee before second reading. We will continue that week with Bill S-5, on tax conventions, and Bill C-34, on the first nations education agreement.

On Tuesday we will then consider the third reading stage of Bill C-24.

Later on that week it is my hope that we will begin the debate on the marriage motion. I will continue to consult my colleagues with respect to a date for the final vote on that. After that it is my intention to proceed with Bill C-28, the budget tax measures.

I hope that is of help to the hon. member.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Minister, now that you've had the really tough questions, we'll get to the easy ones.

For Mr. Del Mastro's purposes, he should note that Bill C-28 contains the dividend gross-ups that were announced in the November update of 2005, and they do affect income trusts.

I want to direct the minister's attention to this panoply of tax credits that he's put into his budget. Frankly, I think the accountants and CGAs of this world should be erecting monuments to you, because you've certainly increased the Income Tax Act of Canada by several chapters.

Now, on the public transit passes tax credit, can either you or anyone in your department point me to a study that supports the cost-benefit analysis of this particular tax credit?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

The specific provision that's in Bill C-28is the increase of the pension tax credit by $1,000, which is a doubling of the tax credit. That is a commitment we made in the election campaign. Interestingly enough, although I didn't realize it when I first looked at it, it had never been increased since it was brought in at $1,000 more than 20 years ago, as I recall, so it's about time, in fairness to seniors. We're trying to create tax fairness in Canada; in fairness to seniors, that needed to be updated.

Then there is the age change we made for low- and middle-income seniors on October 31. Increasing that limit on the age credit by $1,000 will be significant. In Canada it assists low- and middle-income seniors primarily; there is an income limit on it.

Then the huge change, the massive change, in tax policy in Canada is that we changed the rule on income splitting for pensioners. I don't minimize the significance of that. It's a very significant tax change in Canada. It will benefit pensioners directly in a very real way, starting January 1, 2007.

Regardless of our political party, we all know as members of Parliament that among our constituents we have folks living on one pension. They are Canadians who worked during a time when it was not common for both partners to work outside the home, as it is today. They're living on one pension of, say, $40,000 a year, and they're paying tax on it at $40,000 a year. They'll be able to split it now to $20,000 a year each. That means tax savings of about $2,500 for those two people living together on $40,000. I think most Canadians would say that's fair, that it's the right thing to do.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

You mentioned a number of things. First of all, you indicated that you think Canadians pay too much in taxes. I'll certainly tell you that the people in my riding feel that way. They feel excessively taxed. They appreciate the individual tax savings, important savings that, as you highlighted, are greater than in the last four budgets combined. In addition to the employment tax credit and the tool expenses tax credit, you underlined something else: benefits to people who currently work.

I think the measures we've taken to decrease the tax burden on seniors are really significant. You mentioned that we've removed 85,000 pensioners completely from the tax roll. Can you talk about the measures in Bill C-28, as well as the ones you announced on October 31? What benefit will those be to the 23,000 pensioners in my riding?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I would like to thank the member for his question.

The effort we made in budget 2006 with respect to the dividend tax credit was designed to try to remedy the income trust challenge. It was insufficient. That became plain as more and more companies in Canada announced that they were going to convert to income trusts this year, including the two large telecommunications companies.

We still want to proceed with that change in taxation of dividends in budget 2006 and in Bill C-28 because we have designed the program going out four years from now so there will be a level playing field by the time we get to 2011, including this dividend change between corporations and income trusts. Then it will make no difference in Canada, from a taxation point of view, whether a corporate entity chooses to do business as a corporation in the traditional sense, or as an income trust.

[The Chair, Conservative, Brian Pallister]

Let me quickly interject.

Committee, we are dealing with Bill C-28 here. The minister has already announced that he'll be coming back in two weeks for the fall fiscal update. If you have questions of a general nature, not pertaining to this particular bill, I would encourage you to bide your time and use the opportunity presented to you in two weeks to deal with these issues.

At this point, of course, I will continue to give the latitude I am accustomed to giving. But I would encourage members to deal with the substance of Bill C-28 as much as possible today. That's what we're here to discuss.

[Jim Flaherty, Conservative, Minister of Finance]

Thank you, Chair.

I express my thanks to the committee for all of the work that has been done on pre-budget consultations. I know that the committee has travelled extensively and done a great deal of work, and I look forward to reviewing the report of the committee as part of budget preparation.

On the point that you mentioned, Mr. Chairman, I'd be honoured to appear before this committee to provide Canadians with the state of our nation's finances on Thursday, November 23. I will deliver the fall economic statement of Canada's new government. As you know, we have established strong economic fundamentals through implementing significant tax relief, debt reduction, and efficient spending, and by focusing on the priorities of Canadian families and businesses, but we must build on our success and seek new ways to unleash our potential. For these reasons, I will also be providing Canadians on that day with our economic plan for Canada. This new economic platform is a strategic long-term plan designed to improve our country's prosperity, both today and in the future. Canada's new government is getting things done for Canadians, and you will see further evidence of that on November 23.

I would like to turn to Bill C-28, Chair, and then in a few minutes, I understand, we'll look at finance estimates.

Once passed, Bill C-28 will implement certain tax relief measures that Canada's new government announced in budget 2006, but that were not included in the initial budget implementation bill last spring. I will say at the outset, Chair, that Canadians pay too much tax, and the tax burden on individuals, families, and businesses is still too great and must be reduced. Our government made significant progress on this front this past May. Budget 2006 provides more tax relief for individuals than did the last four federal budgets combined.

Once passed, Bill C-28 will implement certain tax relief measures that Canada's new government announced in budget 2006, but that were not included in the initial budget implementation bill last spring.

Mr. Chairman, Canadians pay too much tax. The tax burden on individuals, families and businesses is still too great and must be reduced. Our government made significant progress on this front this past May. Budget 2006 provides more tax relief for individuals than did the last four federal budgets combined.

All told, we left some $20 billion more in the pockets of individual Canadians in budget 2006. As the measures in Bill C-28 demonstrate, the tax relief will have widespread benefits.

The question is often asked, Chair, why we've reduced taxes and why we reduced the tax burden on Canadians. It is not simply for the sake of reducing taxes. The actions taken by this government will serve to build a stronger, more competitive and productive Canada, both for today and tomorrow. Our goal is, first of all, to focus on the priorities of Canadians; second, to maintain a balanced budget; third, to reduce debt; and fourth, to spend on programs that are both efficient and effective. We will also create a real tax advantage for Canada that encourages and rewards investment, hard work, and savings.

I won't go into excessive detail on the bill, but allow me, if I may, Chair, to take a few moments to explain how the measures in Bill C-28 contribute to our goal.

First of all, the Canada employment credit recognizes that working Canadians are the foundation of Canada's economic growth. It rewards them by helping to offset work-related expenses that are not covered by the employer, expenses such as uniforms, books, or home computers. The credit will allow each and every working Canadian to claim a credit on up to $500 in employment income in 2006, starting last July 1. This coming January 2007 the amount of income eligible for the credit will double to $1,000.

Together with the new Canada employment credit is a new deduction for tool expenses. This new measure provides for a deduction of up to $500 to tradespeople for the cost of tools in excess of $1,000 that they must acquire as a condition of employment. Mr. Chairman, the tools deduction combined with the Canada employment credit will provide tax relief to about 700,000 employed tradespeople in Canada.

This bill also contains proposals to help meet the demand for skilled workers, particularly in the construction trades. The new apprenticeship job creation tax credit will encourage employers to hire new apprentices to learn a trade. As a result of this proposed measure, eligible employers will be able to receive, to a maximum of $2,000 per apprentice per year, a tax credit equal to 10% of the wages they pay to qualifying apprentices in the first two years of their contract.

In this year's budget, we also proposed a tax credit so that people who use public transit with monthly passes in Canada will have about two months free public transit per year. This initiative will be instrumental in cutting the commute, cleaning the air, and driving our economy.

Similarly, Mr. Chairman, Canadians have been very supportive of our efforts to help upcoming generations secure their futures. In recognition of the expenses involved in putting our children through school, Bill C-28 includes a new non-refundable tax credit to help cover the costs of textbooks for students. Also to help students, Bill C-28 will fully exempt from tax scholarships, fellowships, and bursaries received by a qualifying post-secondary student. Currently, the situation is that only the first $3,000 is exempt. This measure, with respect to scholarships and fellowships and bursaries, will help provide tax relief to more than 100,000 post-secondary students.

As you can see, Canada's new government has taken significant action to help Canadians prepare for their future, but there is more. In budget 2006, we introduced our physical fitness tax credit for up to $500 to assist parents with the costs of programs that require regular physical activity for our children.

We have also delivered significant positive initiatives in support of our pensioners and seniors. In our first budget, Canada's new government proposed to double to $2,000 the maximum amount of eligible pension income that can be claimed under the pension income credit. This is the first time the credit has been increased. Not only will this measure provide greater tax assistance to those who have saved carefully for their retirement, it will remove approximately 85,000 pensioners from the tax rolls completely.

Since then, of course, we have gone further, through the tax fairness plan I announced on October 31, permitting income splitting for pensioners beginning in 2007, and increasing the age credit amount by $1,000, to $5,066, effective January 1, 2006, or this past January.

For businesses, budget 2006 introduced a reduction in the general corporate tax rate to 19% by 2010; the elimination of the corporate surtax for all corporations in 2008; and the end of the federal capital tax in January 2006, two years earlier than had been scheduled. These tax reductions have already been legislated.

We also announced on October 31 a further 0.5% cut in the general corporate income tax rate starting January 1, 2011, under the tax fairness plan, which will reduce that rate a further 0.5%, to 18.5%.

For small businesses, which are 95% of all Canadian businesses, Bill C-28 contains further tax reduction measures from the budget. These proposals will increase the small business income threshold to $400,000 starting next January, and will reduce the small business income tax to 11% by 2009.

There is more on this bill, Mr. Chairman, but I think my remarks so far serve to illustrate the government's course and where we intend to go in future budgets.

I now invite any questions you may have about Bill C-28. With me today are officials from Finance Canada who are here to help address any technical issues members of the committee may want to clarify.

I gather, Chair, later we'll deal with the estimates part?

[The Chair, Conservative, Brian Pallister]

Welcome, Mr. Minister. We're pleased to have you here. Committee members, I know, are pleased to see you as well. I'll read some comments here and give the media a chance to leave here.

Pursuant to the order of reference of Monday, October 30, 2006, BillC-28, A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006, the chair calls clause 1.

(On clause 1--Short title)

[The Chair, Conservative, Brian Pallister]

Thank you, Madam Ablonczy. Thank you, all. Thanks to committee members for their attention, despite their chocolate levels here this morning.

We will excuse the panel now, and the cameras will be off momentarily so we can continue our civil discussions this morning.

I think I can deal, actually, with Monsieur St-Cyr's issue in advance. It may save us time, and we'll then move to Madam Wasylycia-Leis's motion. Also, I should notify the committee that we've received notice from Mr. Paquette of his desire to present a motion on Thursday.

I want to quickly give you an overview of the work we have before us. This Thursday we will continue dealing with Bill C-25. I will encourage all committee members, if they have amendments to this bill, to bring them forward in advance of the discussions. It would facilitate discussion of the bill. I would encourage you to give those to the clerk by 5 p.m. tomorrow, knowing, of course, that you can bring amendments during the discussion if you so desire. It would facilitate our discussion at that time.

Also, we have C-28, the budget implementation bill, before us, which we must deal with by.... When? Is there a deadline on that? It should be as soon as possible.

We also have Bill C-294. Supplementary estimates also have to be dealt with by December 5. We have the fall fiscal forecast. And the minister will be appearing, we think, but not until the week after, we hope, the Remembrance Day recess.

We also have, of course, the priorities that I've asked you to identify and forward to us, because we want to get those over to Finance so they can come to speak to those and provide us with further information. That process will begin next Tuesday. So those priorities, I'd remind you.... When did we say we wanted those in by? They should be in by tomorrow at noon. Please do so, because we do want to make sure that Finance officials have a bit of lead time to prepare fully for your questions.

As well, we have private members' bills and the tabling of reports on the pre-budget consultations. We need to prepare that as a result of our weeks of deliberations. That has to be done by December 4. As well, Mr. McCallum has a notice of motion on the record in regard to GST rebates.

We have 10 meetings to do all of that. That being said, Mr. St-Cyr has raised with the chair his concern about--