Bill C-33 (Historical)

Income Tax Amendments Act, 2006

An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act

Part 1 of the enactment enacts, in accordance with proposals announced in the 1999 budget, amendments to the provisions of the Income Tax Act governing the taxation of non-resident trusts and their beneficiaries and of Canadian taxpayers who hold interests in foreign investment entities.
Part 2 enacts various technical amendments that were included in Part 1 of a discussion draft entitled Legislative Proposals and Draft Regulations Relating to Income Tax released for consultation by the Minister of Finance on February 27, 2004. Most of these amendments are relieving in nature, and others correct technical deficiencies in the Act. For example, Part 2 enacts amendments
–       to implement various technical amendments to qualified investments for deferred income plans,
–       to clarify that certain government payments received in lieu of employment insurance are treated the same as employment insurance for income tax purposes,
–       to extend the existing non-resident withholding tax exemption for aircraft to certain air navigation equipment and related computer software,
–       to allow public corporations to return paid-up-capital arising from transactions outside the ordinary course of business, without generating a deemed dividend,
–       to confirm an income tax exemption for corporations owned by a municipal or public body performing a function of government in Canada, and
–       to provide that input tax credits received under the Quebec Sales Tax system are treated for income tax purposes in the same way as input tax credits received under the GST.
Further, Part 2 enacts provisions to implement announcements made by the Minister of Finance
–       on September 18, 2001, limiting the tax shelter benefits to a taxpayer who acquires the future business income of another person,
–       on October 7, 2003, to ensure that payments received for agreeing not to compete are taxable,
–       on November 14, 2003, to simplify and better target the tax incentives for certified Canadian films,
–       on December 5, 2003, to limit the tax benefits of charitable donations made under certain tax shelter and other gifting arrangements, and
–       on November 17, 2005, relating to the cost of property acquired in certain option and similar transactions.
Part 3 deals with provisions of the Act that are not opened up in Parts 1 and 2 in which the following private law concepts are used: right and interest, real and personal property, life estate and remainder interest, tangible and intangible property and joint and several liability. It enacts amendments to ensure that those provisions are bijural, that is that they reflect both the common law and the civil law in both linguistic versions. Similar amendments are made in Parts 1 and 2 to ensure that any provision of the Act enacted by those Parts are also bijural.

Income Tax Amendments Act, 2006

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

Mr. Speaker, I agree with the hon. member in a lot of his analysis but it seems to me that his solution is that when the horse is out of the barn we will pass a bill, when in fact a provision is in the budget, and I would refer to it as an obnoxious provision in the budget, which makes Canadian companies less competitive and less able to acquire foreign based companies and, because they are less able to acquire foreign based companies, they, therefore, will be acquired themselves.

It seems to me that we would want to strengthen our Canadian companies' ability to acquire rather than play defence by passing a bill that says something to the effect that no foreign based corporation can acquire a Canadian company up to a certain level of shareholding or something like that.

Would the hon. member agree with me that this very blunt instrument that the budget proposes needs to be, in effect, stopped in its tracks very quickly because it will have a huge number of unintended consequences, one of which may actually be playing out today in the pages of our national newspapers with respect to a Canadian icon?

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Speaker, I cannot agree with my colleague's interpretation.

If companies are allowed to write off interest, that means that their tax rate—or the taxes they will pay in Canada—will decrease. I will never agree with letting them pay lower taxes to make more profit, which is paid to their shareholders every three months. I will never agree because the shareholders will not distribute the wealth any better than the government could.

When we let them write off interest, they save taxes in Canada and Quebec. So the revenues of Canada and the provinces are reduced to enable companies to expand their empire and make more profits, which they pass on to their thousands or millions of shareholders, while the rest of the population is penalized. I cannot agree with his interpretation.

These companies must pay their taxes. They should not be allowed to write off interest, since that enables them to save taxes. It should not be allowed. The measure must be maintained, and legislation should be adopted to prevent foreign companies—that would receive tax benefits our companies are not entitled to—from buying up companies here. The share of foreign companies in our companies must be limited. This is what needs to be done, plain and simple.

[The Deputy Speaker, Bill Blaikie]

I am sorry to bring this series of exchanges between the two hon. members to an end, but the time for questions and comments has expired.

It is now my duty pursuant to Standing Order 38 to inform the House that the questions to be raised tonight at the time of adjournment are as follows: the hon. member for Davenport, Automobile Industry; the hon. member for Etobicoke Centre, Multiculturalism.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I am happy to join in this debate on Bill C-33 on behalf of the NDP caucus. In doing so, I would like to recognize and pay tribute to the work that our finance critic for the NDP caucus, the member for Winnipeg North, has done in this regard.

Many of the provisions that we will find in Bill C-33 were actually dealt with in the last Parliament. Many people on that committee worked on many of these details and find them wrapped up in this omnibus package that we see today.

Let me say, as a relative layperson in regard to these matters of high finance, that my first observation as a dumb carpenter is that I find this volume almost mind-numbingly complex. My first observation as a Canadian taxpayer is that I lament the fact that our tax system is becoming increasingly complex, to the point that every time someone seeks clarification or points out a shortcoming in the tax system it seems to add another layer of complexity, to the point that we get 500 page documents like the one we are dealing with today, which we will add to the volumes and the libraries of pages that already have been written on this tax system.

Just as an aside, I have been going through some boxes of documents belonging to my parents. As we were editing through them, I found an old tax form of my father's from 1950. It was one page long. In fact, it was one-half of one page, and it asked how much he earned. Then it had a line for how much the tax would be. Then one would sign it and send it off. Well, we have come a long way, baby, since those days of a relatively straightforward, understandable tax system that the average working person could actually understand.

We have heard a lot about tax cuts in recent Parliaments. In fact, it has been the flavour of the month not only in this country but throughout developed nations. We hear more about tax cuts than we hear about tax fairness. That is what I would like to focus on today.

Our tax system is not supposed to be rigged like some shady ring toss on a carnival midway, but that is how some of us feel sometimes, in that as the system gets more complex it is to the advantage of the privileged few who can manipulate it and use it and take advantage of the opportunities that are deep, deep within this tome, this incredible volume. The rest of us are lucky if we can take advantage of an RRSP or an RESP with whatever extra capital or cash we might have that year.

The fact is that the increasingly complex tax system we are seeing, added to again here today, is still missing basic elements of tax fairness, things that we could have addressed long ago, things that have been raised time and time again by our finance critic and others within the NDP caucus. There are gaping loopholes that cost us an enormous amount in lost revenue and there are great shortcomings that result in lost opportunities for ordinary working people. Again, that does not do us any favours.

The Minister of Finance just presented a massive budget. We were optimistic that some of these glaring loopholes would be addressed in that budget. I actually thought I heard the Minister of Finance talking about tax havens, for instance, and about making every business pay its fair share of taxes. I thought I heard him say that we were going to lower corporate taxes but insist that all businesses pay at least what corporate taxes are left.

However, I was shocked to learn just recently that it was all smoke and mirrors. When we read the references to offshore treatment of tax treaties and tax havens, we learn that these loopholes are not plugged. It is all the same. It is just like it was.

Honestly, the Minister of Finance views Canadian taxpayers the way P.T. Barnum viewed circus-goers, I think, because in analyzing the budget, the satisfaction is not there. It is a lost opportunity along a theme that we have adopted in our caucus. I would like to talk about this.

Our tax system is the instrument or mechanism by which we can implement fairness in the way that we redistribute wealth, so to speak, in this country. What we have identified in our caucus is that there was a deal in the post-war years, a labour accord, such that when profits are up and productivity is up, workers' wages and standards of living are supposed to go up. It was a tacit agreement between capital and labour that resulted in a generation of labour peace and productivity.

That compact has been broken. This is what we find. If we were graphing or charting productivity and profits, we would see that workers' wages and families' standards of living were not going up in any kind of corresponding way. If there ever was such a deal, it did not survive. It got violated. It has been compromised. It simply does not exist.

There is a prosperity gap. We are not sharing in an equitable way the prosperity of this great nation. Our tax system is perhaps the most effective instrument that we have to address that shortcoming.

As for when we do put all of the eggs in one basket in terms of addressing some of the inequities, let me point out some reading that I have been doing. There is a disproportionate amount of wealth in one category. I have some interesting figures that I would like to share with members.

One figure is that 1% of the population owns 47% of the stocks and shares on a market value. The remainder of 4% is the bottom quintile of shareholders. When we are addressing only the advantage for a certain segment, we are not redistributing wealth in any meaningful way.

One of the shortcomings that we would point out on this issue of tax havens is that we are not even trying as hard as some other developed nations. In the United States, for instance, even though the Americans have not outlawed tax havens altogether, they are certainly becoming aware of the problem and the revenue loss in allowing this to carry on.

In California, for instance, the state will not do business with any company that is sheltered offshore. In other words, tax fugitives may make the choice that they are going to shelter their companies offshore to avoid paying their fair share of taxes in their home country, but they are not going to get any contracts with the government.

We note that one company that has been in the newspaper recently as a tax fugitive, seeking to avoid paying its fair share of taxes in Canada, is Merck Frosst. Merck Frosst, by some happy coincidence, just benefited enormously by this budget. The budget just introduced by the Minister of Finance announced a $300 million program for vaccinations against cervical cancer.

While this on the face of it is a laudable idea, there is only one company in the country that can provide that vaccine against cervical cancer, at approximately $300 per unit. That company is represented by Ken Boessenkool, a well-connected lobbyist who was formerly a senior adviser to the Prime Minister. Is that a coincidence? We do not know, but it certainly is a very fortuitous situation for Merck Frosst, a tax-sheltered company that is taking part in these offshore tax havens.

Nobody has been able to assess the full impact of allowing this tax fugitive or tax haven or tax-motivated expatriation to carry on. In the United States, the Americans estimate it at about $70 billion a year of lost revenue. If we go by ratio and proportion, perhaps we are 10% of that. Perhaps it is only $7 billion a year that we are knowingly and willingly allowing to fly out of the country, but that is a significant amount of change in a period of time when we have seen budgetary cutbacks in key social programs that are nickel and diming us on issues, whether it is literacy or status of women offices. The government is willingly watching that amount of money fly out of our national revenue.

We do not understand it. We do not understand why the government continues in this vein, especially at this point in time when we actually thought that in this budget it might be addressed because the one high profile example that I believe stopped the previous government from addressing tax havens should not be an issue for this government. If the previous government was unwilling to step on Canada Steamship Lines' toes, I do not know why this government would have that same hesitation.

Setting up these shell companies in a tax haven to take earnings from Canada, filter them through a dummy company and call them expenses through that company, I do not know how we can allow it on moral and ethical grounds if we are at all concerned about that, but those people who do operate that way are not in very good company.

Enron had 881 offshore tax havens and dummy shell companies. I do not think they moved any of their production there because they did not need to. There is convenient assistance being marketed on the Internet for anybody who wishes to undertake an offshore tax haven. I pulled off only one as an example, just to show and share with other members of Parliament the type of language and the type of sales pitch that goes on, and what is featured here if we allow it to carry on.

One company called Offshore Companies House is a resource that corporations can look to. It states: “We have many services available from which a client may choose”. For immediate use, we could buy into an offshore shelf company or off the shelf vintage companies. The offshore shelf companies are clean and have never held a bank account. They are 100% tax free and clean, but they also offer the ability to funnel our activities through what they call a vintage company, which is already established.

It says that due to unpleasant changes in legislation and tax policy, some of the offshore tax havens are no longer recommended: Cayman Islands and Switzerland, for instance. It recommends some others that have come on board. Belize, Dominica, Seychelles, Panama, Gibraltar and Barbados are in fact recommended as convenient places where we might shelter our company's activity if we choose to be a tax fugitive or engage in this offshore expatriation of our obligations.

It seems to me a missed opportunity, when we open up the Income Tax Act, to not address some of the most glaring issues. I do not who got to the government. I do not know who convinced the current government of the day that it should not avail itself of this opportunity and plug this unbelievable loophole.

It is not as though the government is not aware of it. I have heard Tory members in the last Parliament rail about this, in fact. Now two budgets have gone by and the government has chosen not to plug this idea. It has tinkered with it enough to where the Minister of Finance can say that he has addressed the issue, but the government certainly has not put a stop to it.

For instance, part two of Bill C-33 enacts provisions to implement announcements made by the finance minister on September 18, 2001, limiting the tax shelter benefits to a taxpayer who acquires future business income of another person, and on October 7, 2003, to ensure that payments received for agreeing not to compete are taxable. A number of these things are not directly applicable. They are simply dealing with tax sheltering, tax exemptions, et cetera.

I am concerned, though, about the issue that was raised by previous speakers in debate that we are also silent on the idea that foreign capital is gobbling up Canadian corporate entities and institutions. This is something that used to be debated with great passion in the House. When I look back over the years, people like Walter Gordon and others in the late sixties and early seventies were fiercely proud Canadian nationalists. They were horrified that a lot of our Canadian businesses and corporation, institutions really, were being bought up.

The government put measures in place where there would have to be a mandatory review of these foreign takeovers to make sure that allowing them to go ahead was in the interests of Canadians.

I cannot find a single example where the Canadian government has ever put the brakes on or said no to one of these foreign takeovers to the point where 80% of businesses in this country are now foreign controlled. I believe that figure is even higher now because that number is a couple of years old.

I am just wondering where the oversight is. Who is minding the store as our Canadian businesses get turned into branch plants, satellites of larger foreign corporations that may or may not have the same interests and loyalty to our best interests?

I am not saying that capital has a conscience. We do not expect these companies to conduct themselves any differently just because of any affinity or love for this country. Those of us in the House of Commons have a love for Canada. We have an affinity for Canada. We want what is best for this great nation.

Somehow there has to be some intervention or some oversight. There needs to be a better accounting of whether these takeovers are in fact in Canada's best interests. Somehow that fell by the wayside to the point where it became unpopular in the era of globalization to put up any barriers or boundaries in terms of takeovers or acquisitions. That was a mistake. We were on the right track when we were putting our foot down. We have seen other countries do it.

It is not only foreign corporations that could be taking over our companies, but foreign nations, state controlled companies. Is it a good idea to let China buy our resource companies? We better give that some serious thought because our precious natural resources are our birthright as Canadians and they may wind up in foreign hands. We would lose control of those resources and we would not be able to steer the industry sector toward our own best interests.

These are concerns that come to mind as we delve into this weighty bill of 500 pages, Bill C-33. The amendments in relation to foreign investment entities and non-resident trusts would add layers of complexity rather than clarity to our income tax regime. Ordinary Canadians would like to know first and foremost if we are acting in the best long term interests of Canada and Canadians, and not pandering to other interests. We on this side of the House are concerned that our tax system is operating to the advantage of a few but maybe not all.

There is an English folk poem that I came across in my research for my speech which says:

They hang the man and flog the woman
That steal the goose from off the common,
But let the greater villain loose
That steals the common from the goose.

That was great wisdom in 1764. I am not sure that we are not allowing this kind of same mentality to drive us today.

I found great insights in this book that I have quoted from. It is called Pigs at the Trough by Arianna Huffington, a woman in the United States who was once married to a billionaire. She went through a nasty divorce and ended up telling a lot of secrets out of school about how billionaires conduct themselves. This book gives great insight into how the tax system is manipulated to benefit the wealthy.

We do not really know what is going on. It does have some interesting recommendations. One of which I will restate here for the record, “I believe that any Canadian company that is engaged in tax motivated expatriation, [in other words tax havens, tax avoidance] should be cut off from any government contracts. They should not even be on a pre-qualified list to bid on whatever it may be”.

The Government of Canada is a large consumer of many types of goods and services. There is a choice. If the government is not going to plug the loophole and keep allowing the loophole, then it should at least cut off the tax fugitives. They should not be allowed to bid on any government contracts. That is what California has done to Ingersoll Rand and some of these companies.

[Bill Siksay, NDP, Burnaby—Douglas, BC]

Mr. Speaker, I want to thank my colleague from Winnipeg Centre for his interesting intervention in the debate this afternoon on Bill C-33, the income tax amendments act.

I want to ask the member to comment on the question that our NDP colleague from Hamilton Mountain put to the Minister of Finance this afternoon in question period. She noted in her question that on January 1, by the time that Canada's top CEOs are sipping their morning coffee on that New Year's Day morning, they have already earned more than the average Canadian earns in an entire year. I think that is a very dramatic example of the growing prosperity gap in Canada.

Indeed, our colleague went on to point out that CEOs earn 240 times what the average Canadian worker earns. That is a huge prosperity gap.

What is worse, she went on to point out that those companies that pay these CEOs those huge salaries can write off those huge salaries against their business taxes, which amounts to a subsidy by Canadian taxpayers of these outrageously huge salaries of these wealthy Canadian CEOs by people who are struggling to pay bills and to make ends meet.

I do not think that Bill C-33 deals with a change to the Income Tax Act or to our tax laws that would make it impossible for that to happen. In fact, the member for Hamilton Mountain has a private member's bill which suggests that any CEO's salary in excess of $1 million should not be deducted from business taxes. One million dollars sounds like a pretty high threshold and a pretty generous threshold to me, and an acceptable level.

I want to ask the member for Winnipeg Centre to comment on this issue of tax fairness. Could he comment on why this huge loophole in our tax laws has not been covered by the legislation we are discussing?

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I thank my colleague from Burnaby—Douglas for pointing out a perfect graphic illustration or example of the point I was making of how our tax system is really stacked against the ordinary person with these advantages that some of us have not even realized.

We owe a debt of gratitude to our colleague from Hamilton Mountain for pointing this out. All the salaries in a business are tax deductible, including the $2 million, $3 million, $5 million or $8 million compensation packages for CEOs in some of these big corporations.

This means that we are underwriting or subsidizing with a tax deduction this outrageous CEO salary issue. I think it is an excellent illustration. It is poignant the way my colleague from Hamilton Mountain pointed out that by 10 o'clock I believe on January 1 some of these CEOs have already made more than the average income.

The Canadian Taxpayers Federation used to have tax freedom day around June 11. It used to have a corporate tax freedom day, but it kept getting in the way of the New Year's Eve celebrations, so it had to cancel it. These corporations were already at an advantage before they had taken their bells and whistles off for New Year's Eve.

The other thing is that stock options should be expensed on the financial statements of the companies where we invest. Some of these white collar corporate governance issues are actually blue collar issues. Many of us in the trade union movement have our pensions invested far and wide in corporate Canada in the financial sector. We need to know because some of these stock options do not show up and only the CEO's salary shows up. The CEO might be sitting on stock options which are greater than the total net worth of the company.

We should have a right to know those investments. We have to be able to trust the financial statements of the companies where our pension plans are investing.

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

Mr. Speaker, I must admit that the last comment by the hon. member is close to the dumbest thing I have heard in this Chamber ever. Not being able to deduct salaries against income makes absolutely no sense. I have heard some pretty loony ideas from that far corner but that is close to the best so far.

I just have a few minutes left and I want to talk about this issue of tax fairness. Bill C-33 is about closing some loopholes and issues with respect to offshore entities. There is not much question that it will enjoy great support in the House. It is a worthwhile bill and it needs to be supported.

However, I want to caution Canadians that whenever the finance minister starts talking about tax fairness they should probably start heading for the hills, especially if he is saying that during an election or during a budget speech.

The folks from the income trust debacle have learned, to their great chagrin, to never trust a Conservative during an election. After specifically and repeatedly saying that they would not tax trusts, they shocked Canadians by imposing a Draconian tax on trusts destroying over $25 billion in hard-working Canadians' savings and values.

People are so staggered that they have actually taken to putting ads in the national newspapers. Mr. Speaker, I need your help here because all of the ads refer to Stephen Harper and I do not want to say that in the House. I know that you will get upset if I say Stephen Harper, so I want you to correct me and say Prime Minister.

[The Acting Speaker, Andrew Scheer]

I will warn the hon. member. He just said it twice and I will not be correcting him every time he makes a mistake. I urge him to read ahead of what he is going to be quoting from and ensure that he does not make that mistake.

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

Mr. Speaker, I need your help because that is the way the ad is written. However, I will use his title, the Prime Minister.

The add reads, “[The Prime Minister]'s word is worthless. Just ask 2.5 million Canadian who own income trusts. [The Prime Minister] garnered votes in the last election by promising not to tax income trusts. He promptly reneged on that promise and the process wiped out $35 billion in Canadians' life savings. He then refused to disclose his analysis behind this policy reversal. If [the Prime Minister] wants a majority, then it's time he started listening to the majority”.

Here are the results of an Angus Reid poll. What part of this poll does the Prime Minister or indeed the Minister of the Environment not understand?

“Was it right for the Prime Minister to break his promise?”

In view of the information provided by the government to date on the tax effect of income trusts, and given the material loss of retirement savings by income trust investors, do you personally believe it was right or wrong for [the] Prime Minister...to break his election promise concerning income trusts?

The Angus Reid poll showed that 70% of people said that it was wrong, which is way beyond the magic 40% that the Prime Minister is looking for. The poll asked: “Is the Prime Minister a leader or is he a misleader?”

The ad goes on to state, “Just ask the premiers of Saskatchewan, Nova Scotia, Newfoundland and Labrador”.

There is a saying in the House that if there is still discussion about the budget 48 hours after it is presented, it is a bad budget. Here we are, 10 days after the budget, and the government has irritated beyond belief the premier of Newfoundland and Labrador to the extent that he takes out national ads. He has a lawsuit from the premier of Nova Scotia. The folks from the income trusts have taken out an ad. The premier of Saskatchewan is also upset.

The Prime Minister promised not to include oil and gas revenues in the equalization formula. It turns out his word is worthless. The constituents in Scarborough—Guildwood actually write and tell me this. I think the Minister of the Envrionment would be interested in knowing what they said. In fact, I will share with him my e-mails any time he wishes to see them. It appears Canada has a budget deficit. It is a deficit in integrity.

The premier of Nova Scotia, Rod MacDonald, had this to say, “Very disappointed. It's an agreement that we signed, an agreement that we expected our federal government to uphold”.

The premier of Newfoundland and Labrador, Danny Williams, had this to say, “What they've done today is basically completely shafted us”. He said that Newfoundland was very disappointed at being betrayed.

It is really quite extraordinary that on the same day the premier of Newfoundland takes out a full page ad in national newspapers and quotes a Conservative pamphlet distributed during the election. The pamphlet states:

There is no greater fraud than a promise not kept.

No small print. No excuses. No caps.

On March 19, 2007, in his second budget, the right hon. Prime Minister broke that promise. It was a promise that he made in a pamphlet. He stood on two election platforms and said it to our faces. I see the Minister of the Environment is going crazy because he realizes that everything that the premier of Newfoundland says is true. He wrote in letters over and over again that it was a simple, unequivocal promise and he broke it.

The Minister of the Environment understands that completely, which leaves us--

[An hon. member]

Because he is part of the problem.

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

Indeed, he is part of the problem.

It leaves us with a simple and unequivocal question: What does that leave us, not just the people of Newfoundland and Labrador, but us, we the people of Canada? If we cannot accept at face value the promise of thePrime Minister, then who can?

Can the people of the Atlantic provinces or Saskatchewan or, yes, even the people of British Columbia and Alberta accept his promise, because all have had promises made to them of one sort or another? All of them should be now asking what those promises are worth. A promise made should be a promise kept and, as the Prime Minister pointed out, there is no greater fraud than a promise not kept.

Then our Prime Minister will not keep a promise as simple as the one he made to us. It is not just the people of Newfoundland and Labrador who lose. We all lose.

When we are talking about tax fairness, Canadians should beware when the government talks tax fairness. If two ads in the national newspapers are not enough, then the premier of Saskatchewan piles on with his outrage. What we have is a Prime Minister so bent on his partisan agenda that he is willing to throw out a promise he made to Premier Lorne Calvert and the people of Saskatchewan and, by the way, other Canadians.

The House resumed from March 29 consideration of the motion that Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, be read the second time and referred to a committee.

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

Mr. Speaker, I rise to continue my remarks.

This is a technical bill. It is designed is to prevent a circumvention of tax rules and to prevent tax evasion, particularly through the use of tax havens. This bill results from a consultation process initiated in 1999 by the previous Liberal government. We saw its fruition in 2005. Bill C-33 is basically the photocopy of the Liberal initiative commenced over those years. As a consequence, the Liberal members of Parliament will be supporting the bill, as I hope all members of the House will.

I will start with a little background. As we know, Canada has a fairly complicated tax system. It has been negotiated over 14 years of consultation. It is fairly complex in that many considerations have to go into in writing an income tax act. We also have something in the order of 81 bilateral treaties with other countries, so any amendments on one side have to be balanced with amendments on the other.

The essential goal is to make sure that Canadian companies are not taxed twice, once in the jurisdiction in which the money is earned, and then once again in the jurisdiction of residence. Generally this system works quite well.

Occasionally, however, some residents go to zero tax jurisdictions and the result is that there is no tax at all, which I think all members will agree is an unfair proposition. Bill C-33 will help to ensure that when this happens all that income will be taxed in Canada.

We as legislators need to ensure that the Canada Revenue Agency has the proper tools in order to be able to make sure that everyone pays his or her fair share. In the previous Liberal government, we worked very hard to ensure that all Canadians paid their fair share.

In the 2005 budget, we provided the Canada Revenue Agency with an additional $30 million annually to strengthen its capacity to administer the tax system in areas where aggressive tax planning and compliance risks have the potential to erode the tax base.

Our government used that money to create 11 aggressive international tax planning centres of expertise whose main focus is to develop new ways to track and combat aggressive tax planning and the use of international tax shelters. These are centres in which we gather together the best and the brightest Revenue Canada has to offer in order to be able to deal with a series of complicated schemes to see whether they are designed merely to avoid income tax in this country. Specifically, the centres were designed to deal with tax havens and any illegal activities that were going on in those tax havens.

In order to effectively combat this problem, we must work with international partners, because there is no sense in being the boy scouts of the world. Thus, part of our responsibility is to work with the OECD, the Pacific Association of Tax Administrators and the Joint International Tax Shelter Information Centre.

All of these centres of excellence were created by the previous Liberal government.

We want to weed out the good taxpayers from the bad taxpayers. That is not always an easy job.

It is regrettable that the government seems to be engaged in some exercise in overkill. Let us take, for instance, the minister's latest blunder in a whole series of blunders coming out of the budget and in what looks like an endless series of fiscal missteps. He said at page 241 of the budget that he wants to “eliminate the deductibility of interest incurred to invest in business operations abroad”.

In short, the budget proposed to put an end to all interest deductibility for loans used to invest abroad. This would have ended a longstanding principle that when we invest money abroad the interest is considered a cost of earning it and is therefore deductible.

Since just about every other major developed country continues to allow these homegrown operations to do this, eliminating Canada's advantage in this respect would put our companies at a serious disadvantage in the competitive global marketplace.

The policy received virtually universal scorn from pretty well everyone from the Chamber of Commerce to any other business entity. Allan Lanthier, former chairman of the Canadian Tax Foundation, had this to say:

This measure would put Canadian companies at a significant competitive disadvantage and I think the economic fallout to the Canadian economy is potentially disastrous...I don't think the finance minister understands that, I don't think he was properly advised by his Finance officials.

I've been practising [tax] law for 35 years--this is the single most misguided proposal I've seen out of Ottawa in 35 years.

Let me quote Len Farber, formerly a senior official with the Department of Finance, who said:

This goes beyond tax havens, this impacts good, complying, taxpaying corporations in many ways. The Canadian economy is a fairly small economy and if a company has reached its capacity here, if it doesn't continue expanding, it becomes a target for a takeover.

We have certainly seen that. Mr. Farber continued, saying:

Now they're making the cost of borrowing higher, so it's a pretty hard blow.

The budget did not distinguish if a company wants to borrow money to invest in the Cayman Islands or the United States or Germany. In one broad stroke, the finance minister lumped every single country in the world together and in the same breath told us that this measure was to fight the abuse of tax havens.

Shortly after the budget, the minister went to Toronto but had to beat a hasty retreat. He had to admit that he had made a colossal blunder. He now says that he will only go after Canadian companies that abuse the system by using tax havens for their investments.

The minister then got into a series of clarifications. Beware of clarifications, I say to everyone, because that is political-speak. What it means is: “I really goofed and what I am trying to do is redeem myself”. When questions got raised after the budget, he was quoted as saying:

We are satisfied with what we proposed in the budget, but I will certainly listen [to stakeholders]...

It would have been nice if he had listened before he put it in the budget. He continued, saying:

We have to have budget confidentiality before we bring issues forward.

However, one can have consultations. I know that idea is novel for his government, but it can be done. The minister continued:

But I will listen and we will design [the measure] in the most advantageous way possible.

People then legitimately asked, “So what does that mean?” Finance official and director of communications Dan Miles said:

No, he's not backing down. The policy is the policy.

Really, though, it is the policy but not necessarily the policy.

On May 8, the minister went to Toronto again to issue another clarification. Today, he was in Toronto again, to issue another clarification, so we are clarifying on the clarifications on the previous clarifications.

First of all, he said he was against all interest deductibility. Then he was only against interest deductibility through tax havens. Then it was only for two years, which meant, okay, I have tax deductibility for two years, so I will not really be upset for two years. Then he said no, it would now be 10 years, so I will be upset in 10 years. He then clarified again to say that it was not all interest deductibility and it was not two years and it was not 10 years and it was not just against tax havens: it was against double-dipping.

What the minister knows about double-dipping could probably be learned at a Dairy Queen, but now today he is against towering, which is a sort of subset of double-dipping. It is sort of like sprinkles on the double-dip. Now he is against the sprinkles on the double-dip.

He had changed this from two years to 10 years but now he is against it for five years. In five years he will be upset about it, but maybe not even then, at least until the tax experts and the panel get back to him. If we then read the rest of his press release, it is all blah-blah and Conservative propaganda.

If would be really interesting to find out, at one point or another, what it is the minister actually means as distinct from what he actually said in the budget. Also, as I and others have asked, if he is going to change the budget, could he at least table a precise ways and means motion so that we know exactly what it is he is upset about?

I do not know much about towering, but from what I do understand, it is a series of corporations and tax-flowing entities, that is, entities through which people can flow their profits, the objective of which is to eliminate withholding tax. It is not clear to me at this stage whether we are merely closing a loophole for a foreign jurisdiction, which will benefit the foreign treasury of another country but will have no impact on ours.

We may have gone through this whole entire exercise of corporation, non-corporate entity, another corporation, another non-corporate entity, through to the operating company and back up and down that whole tower, as they describe it, and all we will have achieved is a tax point for a foreign jurisdiction.

I hope that is not what he means, because then he certainly has a lot of people upset about absolutely nothing. If that is the case, then he will reduce the after-tax revenue to Canadian companies. That makes a lot of sense, does it not? Thus, we put money into somebody else's treasury, take money out of Canadian companies, and do nothing for our own treasury.

It will not benefit our treasury at all, so I do not know what the fuss is all about. Hopefully, we will find out if the minister actually tables something that has some precision and some meaning. As I said, the press release is just a glorified bunch of propaganda and rhetoric, but is very short on specifics.

What is obvious today is the minister has backed down from his position of all interest deductibility all the time to a microdot of interest deductibility. In two months from the budget, he has gone from two years, to ten years, to five years. He is so enamoured with this spinning exercise that he has spun himself into the ground. He is so excited about tax havens and so-called tax fairness that now he appears to be in favour of tax havens and is not fussed about tax unfairness.

I sincerely hope the minister is choosing not to throw the baby out with the bathwater and that he will arrive at some level of precision to which we are all entitled.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, on occasion the hon. member and I agree on a number of things. There may well be something we can agree on, which is a specific example that we saw in finance committee the other day when we were looking into the specific case. The finance minister has rightfully indicated that he would like to put an end to it. It was where a corporation borrowed money from a tax haven, lent it back to another tax haven, to lend it to a subsidiary of itself in the United States. This was tried by the CRA and it lost. The CRA could prove that the same company had claimed the same $20 million interest expense twice, taking a tax credit for it twice, incurring the cost only once, but the CRA lost, indicating that the courts felt this was perfectly legal.

This is a big problem. The point was made that if I could claim deductions on my taxes for interest expenses that I had not actually incurred, I would be more competitive. Indeed, I would be able to purchase more. I would be better off. Some of these corporations are doing that, and it is wrong. This is double-dipping.

Speaking about that specific example where the same corporation claimed the same tax deduction twice, but incurring it only once, does the hon. member believe that is wrong, or does he thinks it is fair? I do not think it is fair. It is not fair to Canadian taxpayers. I would love to hear what the hon. member has to say about it.

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

Mr. Speaker, the hon. member will recollect that the testimony of the witnesses said that 10 cases had been dealt with on this particular point, or themes and variations on this point. Five had gone in favour of the taxpayer and five had gone against the taxpayer in favour of the Crown. It is a point of contention.

There is no issue here about double deductions which are illegal. That is not the issue. The way in which the minister has phrased the budget is that all interest will apply. In other words, he has taken a cannon to the entire concept, which I think even the hon. member will realize this. If we cannot deduct interest for acquisition costs, then we are at a severe disadvantage to anyone else with whom we are competing.

At this point, it is five and five. Then there are the files that are resolved outside of the court. The tax officials indicated that they had been having a lot of success in resolving this issue under the general anti-avoidance rule. The general anti-avoidance rule is essentially a large omnibus rule which says if the scheme is only for the purposes of reducing or eliminating tax liability, it is avoidance and the person or corporation will be taxed anyway.

I still would like to see the hon. minister put on the table what precisely he is upset about, give us a break from all this tax unfairness and tax havens nonsense and just say what he means.