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.

[Scott Brison, Liberal, Kings—Hants, NS]

I have a question on the measures in the Canadian film or video production tax credit. How do these measures differ from those in Bill C-10 and Bill C-33?

Technical Tax Amendments Act, 2012

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Speaker, I rise this afternoon to speak to Bill C-48, the technical tax amendments act, 2012.

Bill C-48 is 955 pages in length with 428 amendments. I am going to use my time in the House today to examine how we got to this point, and where we are now examining such a mammoth bill, looking at the recent history of technical tax bills, including the Auditor General's report from November 2009 on income tax legislation, as well as the study by the public accounts committee on that report.

I intend to talk about the need for Parliament to regularly adopt technical tax legislation in a timely manner, as well as the overwhelming need to thoroughly examine and, yes, simplify the Income Tax Act.

Finally, I would like to use my remaining time to briefly discuss Bill C-48 itself.

With respect to the recent history of technical tax bills, if Bill C-48 receives royal assent, it will be the first technical tax bill to do so since Bill C-22, the Income Tax Amendments Act, 2000, which received royal assent in June 2001, almost 12 years ago.

With such a massive bill before us now, it begs the question as to why Parliament has not approved any technical tax bills since 2001.

The previous Liberal government did publish technical amendments for public comment on three separate occasions: December 2002, February 2004, and July 2005. Those amendments were introduced in Parliament in 2006 as Bill C-33, the Income Tax Amendments Act, 2006. Bill C-33 received third reading and made it to the other house, but it died on the order paper when the Prime Minister asked the Governor General to prorogue Parliament in 2007. Later in 2007 an identical version of this legislation was tabled as Bill C-10. Once again the legislation made it to the other house and died on the order paper when the Prime Minister again asked the Governor General to prorogue Parliament in 2008.

Since then there has been nothing. For four years the Conservatives failed to introduce a technical tax bill in Parliament. Clearing up the growing backlog of technical tax amendments was nowhere to be found on the Conservatives' list of priorities.

Next week the Conservatives will pass the seventh year mark in government, but they have yet to pass a single technical tax bill. It is a failure of public administration. It is not good public administration that it has taken this long, particularly when at the time the Conservative government was elected in 2006 there was legislation ready to be introduced and twice prorogation killed legislative attempts to deal with this.

I want to speak to the Auditor General's report. In the fall of 2009, Auditor General Sheila Fraser reported on the government's inability to take action on this. She emphasized the need for the government to introduce technical tax legislation in order to bring clarity to the Income Tax Act. When she released her report, she said:

The Income Tax Act is one of the longest and most complex pieces of federal legislation. Taxpayers have the right to expect clear guidance on how to interpret the Act so they can determine how much income tax they owe.

That makes sense. In her report she argued that by failing to provide clarity through technical tax amendments, the government was increasing the costs for everyone involved. The report states:

For taxpayers, the negative effects of uncertainty may include

--higher costs of obtaining professional advice to comply with tax law; less efficiency in doing business transactions;

--inability of publicly traded corporations to use proposed tax changes in their financial reporting, because they have not been “substantively enacted”;

--greater cynicism about the fairness of the tax system; and increased willingness to use aggressive tax plans.

For the tax administrator, the negative effects may include

--higher costs for providing additional guidance and interpretations to taxpayers and tax auditors; and

--higher administrative costs for reprocessing the tax returns after an outstanding legislative amendment is enacted and for obtaining waivers to extend the limitation period for reassessment.

The result may be uncertainty in the amount of tax revenues to be collected by the government and possible loss of tax revenues.

What the Auditor General is saying is that this is not some esoteric, arcane discussion as to whether or not it is a failure of the government to provide in a timely manner these technical tax amendments to the House and to pass them. It does result in higher transaction costs for companies. It results in confusion for Canadian taxpayers, not knowing how these will affect them, and higher costs from professionals like accountants and auditors in dealing with these.

The Auditor General's report said that the result may be uncertainty in the amount of tax revenues to be collected by the government and the possible loss of tax revenues. It actually affects the amount of revenue that the government is collecting or can collect.

The Auditor General went on to warn parliamentarians that we must not wait to pass a technical tax bill, that we must clear the backlog immediately and then regularly adopt technical tax amendments. In her report she said:

If proposed technical changes are not tabled regularly, the volume of amendments becomes difficult for taxpayers, tax practitioners, and parliamentarians to absorb when they are grouped into a large package.

Finally, she pleaded with the Department of Finance to fix the situation.

Auditor General Sheila Fraser said:

The Department of Finance needs to do more to bring the urgency of the problem to the attention of the government and Parliament. It ought to review the way it manages this process.

Beyond the Auditor General's report, we also have a report from the public accounts committee. In early 2010, the public accounts committee studied the Auditor General's report. The committee was then chaired by my former colleague from Charlottetown, the hon. Sean Murphy. The committee shared her concerns about the waste and mismanagement that resulted from the Conservatives doing nothing to introduce these technical amendments. Quite naturally, the committee wanted to know when the problem would be fixed, so it called the deputy minister of finance and the commissioner of the national revenue agency before the committee. These officials assured committee members that the problem was under control and the solution was forthcoming. The committee's April, 2010 report stated:

Officials from the Department told the Committee that they are hoping to have a technical bill ready for the government's review within the next couple of months. They are also considering releasing smaller packages of technical amendments on a regular basis.... Although, officials told the Committee that they would not be in a position to propose annual technical bills until the end of 2011.

If senior officials were telling a parliamentary committee back in 2010 that a technical tax bill would be ready in a few months, we have to ask ourselves as parliamentarians what happened. What we really need, broadly, is tax reform and tax simplification. The fact is that over a long period of time, not just under this government, the Income Tax Act has grown too large and unwieldy. However, it is notable that under this Conservative government, the Income Tax Act has actually grown by almost one-sixth in size. We have arrived at the point where accountants—the very profession that bases its livelihood on interpreting on behalf of clients the complexity of tax laws—are now regularly lobbying Parliament and the finance committee for tax simplification. Even the accountants are saying the tax code is too complex.

The Canadian Institute of Chartered Accountants stated in its most recent prebudget submission:

Reducing complexity in Canada's domestic tax regime is crucial to easing the regulatory burden placed on Canadian businesses and attracting investment. Simplifying our tax system would make the country more competitive and allow both individuals and businesses to prosper.

According to the Global Competitiveness Report 2010-2011, issued by the World Economic Forum, tax regulations are among the top four most problematic factors cited by business executives for doing business in Canada. Many aspects of Canada's tax system have become too complex. We recommend that the government establish a national consultation process to examine tax simplification measures.

That quote was from the Canadian Institute of Chartered Accountants' pre-budget submission to the House of Commons finance committee.

The most recent pre-budget submission from the Certified General Accountants Association of Canada includes the following recommendations:

Modernize Canada's tax system—make it simple, transparent and more efficient

Introduce and pass a technical tax bill to deal with unlegislated tax proposals

Implement a “sunset provision” to prevent further legislative backlogs

Appoint an independent panel of experts to recommend steps to reform Canada's tax system.

It is important to realize that we have not had a comprehensive review of Canada's tax laws and our tax code since the Royal Commission on Taxation in the 1960s. The Carter commission published its report in 1966, and the changes were implemented in 1972. That is more than 40 years ago. If we were asked to sum up in one word what has changed in the Canadian and global economy since 1972, it would be “everything”.

The reality is that there have been so many fundamental structural changes to the global and Canadian economies since 1972 that we desperately need a thorough study, review and perhaps royal commission to deal with the tax changes we need as a country, with the objective of building a fairer and, in terms of economic growth, a potentially more competitive capacity to attract investment, as well as a simpler tax system.

In the House we have talked about the issue of income inequality. That has to be a consideration when we are talking about tax reform.

We have talked about issues of competitiveness and what kinds of taxes render an economy less competitive. We have to look at those. We have to study to what extent we can use the tax system to incentivize greater investment in research development and commercialization of technologies, and potentially clean technologies to green our production of energy in Canada, including cleaner conventional energy and the oil sands, as well as what kinds of tax incentives we can offer to make it more attractive to invest in and develop those technologies as we move forward.

When the Carter commission came in, among other things, it got rid of inheritance tax in Canada and replaced it with a capital gains tax. That was a significant change at the time. Today, we may look at that differently and consider some of the advice being given by tax experts both within Canada and globally.

Clearly, not to have had any thorough study of our tax system since 1972 indicates how woefully out of date our current tax code is. The reality is that the tax code under the Conservative government has since increased by one-sixth of its size. It is more complicated and less fair because of what some people refer to as the boutique tax credits the government has brought in for children in hockey and studying music, family caregivers and volunteer firefighters. We all believe it is laudable to support volunteer firefighters, family caregivers and families putting their children in activities, and we support that.

However, first, the reality is that it does complicate the tax code. Second, the fact that these tax credits are non-refundable means that the lowest income Canadian families do not qualify, those people who need the help the most, whether with respect to the family caregiver tax credit or to families with children in activities.

Not only have the Conservatives complicated our tax system, but by making these tax credits non-refundable, they have actually rendered our tax system less fair and contributed to income inequality and income disparity by not helping the people who need the help the most. Those are low-income families who, perversely, do not qualify for these tax credits.

I would like to speak about the Canada Revenue Agency. When the tax code grows in size and complexity, so do the requests to CRA for clarification. Governments have the power to compel residents to pay taxes, and that is a huge power, but with that power comes the responsibility to provide taxpayers with clarity around the law and to recognize that not every Canadian taxpayer can—in fact the vast majority cannot—really afford professional help to deal with these complexities.

One of the ways the government can provide clarity around tax law is with advanced income tax rulings. That is an area the Auditor General examined in her 2009 report. It is also an area where the CRA is failing and the record is getting worse. The CRA has set a target for itself to issue advanced income tax rulings within 60 days, and in 2004 it met this target. Three years ago the average ruling took the CRA 98 days. Two years ago it was 102 days. Last year it was 106 days, close to double the target CRA set for itself. These delays lead to increased costs both for the taxpayer and for the government.

For good public servants in the CRA who work in places like Charlottetown, P.E.I., those cuts to CRA are actually, perversely, going to lead to the government ultimately contributing not only to ambiguity and confusion around interpretation of these tax changes but also to actually collecting less money.

One of the things we discovered in our study around offshore accounts and the offshoring of personal wealth by many Canadians is that investments by the previous Liberal government to CRA to specifically target offshore accounts led to a huge level of success in terms of return on investment, in terms of collecting this money. The Conservatives have cut back funding to CRA, which will in time reduce governance and the capacity to target, identify and collect from offshore accounts and in other areas where we could collect more in terms of taxes.

The Auditor General said in her report, speaking about the CRA:

If the Agency's guidance is not timely or correct, taxpayers may inadvertently fail to comply with the law or they may become frustrated because the information they need is not available. Either may lead to a loss of tax revenue or an overpayment that later must be adjusted.

She made the following recommendation:

(4) The CRA “should develop more concrete plans to meet its own target times for issuing advance income tax rulings, given the significance of the rulings to proposed business transactions.”

Again, this is another report where the Auditor General is being extremely clear with some specific corrective measures that the government could take.

In 2009, the government said it agreed with this recommendation, but the dismal results suggest that nothing has been done about it.

Last week the Canadian Federation of Independent Business issued a press release entitled, “CRA Call Centre Business Helpline gets C- grade from CFIB”. According to the CFIB, only 61% of callers received full and accurate information “service standards and agent professionalism have declined”. Again, I am not blaming the CRA employees, but the government is making it very difficult for them to do their jobs.

The Liberals are concerned. We support the idea of Bill C-48 being presented now, finally dealing with some of these issues, but we do not support the tax direction of the government, which is ultimately creating a less fair, less competitive and more complicated Canadian tax system. We believe we need more than tax tinkering; we need real tax reform aimed at building a more competitive, fairer and simpler Canadian tax code.

Opposition Motion—Income Tax Act

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

Mr. Speaker, on behalf of the official opposition, I would first like to say that we share the concerns of thousands of Canadians who have clearly indicated, these past few days, their opposition, or at the very least, their concern over the actions of the Conservative government with respect to funding for Canada's television and film productions.

We agree that this requires closer examination to determine the true intentions of the government, what consultations it has already conducted and what it has failed to do. We need to know where things stand. If the situation needs to be rectified, we believe it should be.

But we do not think that the Bloc's motion, or at least their proposed method for tackling this issue, is the right way to go about it. That is why we will not support the motion.

We will not support this motion for several reasons. The first is obvious: the government will not respect it. The Bloc is asking the government to withdraw a section of Bill C-10, which is now before the Senate. Earlier, I asked the minister. Even if the Bloc motion were adopted, the government has no intention of withdrawing this section from the bill or proposing an amendment. So it is not worth it.

There are many examples of times when, although the House voted in favour of various legislative, financial or other types of measures, the government ignored them. I am thinking, for example, of the court challenges program. Many times, a majority expressed that it wanted the government to restore this program, but nothing happened.

The same thing happened with environmental issues. The House even took the legislative route, but we are still waiting for the government to follow up on the majority will of the House. The same goes for the Kelowna accord.

I could go on and on. This is why we have no doubt that even if the Bloc motion were adopted, the government has no intention of following through on it.

The second reason we do not support this motion is that Parliament must do its work. Parliament's role is to legislate and to supervise the government. It must do that work. Government representatives are rubbing our noses in the fact that the House endorsed this bill. On behalf of my party, I would like to say mea culpa, as others have done.

We have to acknowledge the reality of this situation. This is an extremely technical, 560 page-long bill. It was introduced during the first session of this Parliament, and it was referred to the Standing Committee on Finance, if I am not mistaken.

However, the government must act responsibly and honourably. The Crown demands a certain sense of honour of its representatives. When the committee studied Bill C-33, which is now Bill C-10, the government's representatives did not say a word about this measure. They tried to sneak it through quietly. That approach seems to have worked here in Parliament.

With all due respect to my NDP and Bloc colleagues, this is a bicameral parliament. Canada's Parliament is made up of two houses: this one and the Senate. Today, my Senate colleagues announced that the Standing Senate Committee on Banking, Trade and Commerce intends to study the matter.

Throughout the history of this institution, we have rarely seen a better example of the usefulness and necessity of a bicameral legislature, a parliament made up of two houses. Even though the government neglected to talk about some parts of the bill, given its very technical nature, the bill was sent to the Senate. Subsequently, the issue was raised publicly, and the Senate now intends to shed some light on it.

I believe that by April, the Senate will hold hearings and listen to those who want to be heard in order to find out what is going on. That is another reason we will not support the motion. We have to give Parliament a chance to do its work. As legislators, both houses of Parliament have a duty that they must carry out.

There is another reason: the proposed motion just puts the ball in the government's court. The minister said earlier that the federal and provincial governments are having some sort of discussion. We can presume that these discussions between officials and her staff have been precipitated in the past few days, for reasons I will get into in a few minutes. With all due respect to the minister, there has not been a lot of transparency here. No one knows when these meetings were held, who attended or what was discussed. We are left to assume certain things, when Parliament has a duty to carry out.

We have to look for the opportunity—and we have it right now, or will have it in the Senate—to clarify and truly understand the relationship that can exist between legislation, or Bill C-10, regulations and guidelines.

I have a question for the House and anyone watching us today. Earlier, reference was made to the Canadian Audio-Visual Certification Office guidelines. The hon. member for Kootenay—Columbia said that clause 5 states:

production for which public financial support would, in the opinion of the Minister of Canadian Heritage, be contrary to public policy

Note that was in February 2004.

Now, if I refer to the regulations, which have more authority under the political and legal conventions of our country and our Parliament, we do not find that in the regulations of 2005. They huff and puff that this is a Liberal initiative, but it must also be recognized that in 2005, under a Liberal government, the regulations excluded this item from the conditions making a film or television production ineligible.

What is this really about? This needs to be cleared up. The Senate, or the committee in question, will give a voice to all those who want to speak up. It could call witnesses. That brings us to the heart of the matter. I hope the Senate will call and listen to Mr. McVety.

This gentleman has made some affirmations that we believe must be questioned. He has affirmed having met with two ministers of the Crown, the Minister of Public Safety and the Minister of Justice, and that he is entirely satisfied that they have listened to his concerns about guidelines, future guidelines perhaps, who knows, and that he is happy.

Another comment was made on CBC Radio this week by the Parliamentary Secretary to the President of the Treasury Board who said that the government has already decided what it wants to do and that it wants to take guidelines from somewhere else and impose them on cinematography and television productions.

When we hear the minister saying that nothing has been done, that he is waiting for the bill and then he will consult, we must be allowed to have some doubts as to what has happened and, thus, the necessity to have these hearings so it will be clear and everyone can deal with this very delicate matter, which is akin to censorship as I have said, in full knowledge of the status of the current legislation, regulations and guidelines and whether they mesh or not. I think that is an absolutely legitimate role of Parliament. I wish that it was being done in the House instead of the Senate but that is not the case. It will be done in the Senate and we support that. I think that is the way to go.

We need to have clarity in this. I have received hundreds of messages and calls, and I know it is the same for many of my colleagues, from people wanting to know what gives. Whenever we deal with censorship, the matter of freedom of speech or the matter of artistic liberty, people have deep feelings about that, as they should. We live in a society where we do encourage respect. We have a Charter of Rights and Freedoms that establishes freedom of speech, freedom of assembly and freedom of expression. Artistic expression is certainly among those.

We need to understand what the government has in mind, what it did have in mind and what its intentions are. The best way of doing that is to use the ability and tools at the disposal of parliamentarians, whether they be in this House or the next house, to do that. The Liberal members of the Senate have publicly committed to doing that as early as possible, one would suspect as early as the month of April because the scheduling will be taken up in the next few days.

There is another reason why we cannot support the Bloc Québécois motion. This is because the amendment put forward by the Bloc might not be the right one. It might be, but it might not be. Other sections of Bill C-10 would have to be checked. Perhaps the best way to address this problem, once all the information and all the details are on the table, would be to ask that the Minister of Canadian Heritage be given the authority to establish regulations rather than guidelines.

This is important, because regulations are subject to review by Parliament, while guidelines are not. The Bloc Québécois is focusing on one section in particular. But I would like to highlight another section of Bill C-10. As I was saying, it is a 560-page bill that is extremely technical and I will try to quote part of it, in the hope that it will mean something to someone.

Another section says:

The Minister of Canadian Heritage shall issue guidelines respecting the circumstances under which the conditions in paragraphs (a) and (b) of the definition of “Canadian film or video production certificate” in subsection (1) are satisfied. For greater certainty, these guidelines are not statutory instruments as defined in the Statutory Instruments Act.

In English, it says that for greater certainty these guidelines are not statutory instruments as defined in the Statutory Instruments Act. The reason I raise this is that guidelines escape the scrutiny of Parliament. Once the Senate has heard the witnesses, convened officials and had a full airing of this matter, perhaps other sections may or may not need to be amended. Certainly, if there are to be guidelines at some point and anywhere, perhaps these guidelines should be a statutory instrument and therefore subject to parliamentary scrutiny. That would not be the case. There are a number of possible amendments that the Senate could make.

In the same spirit, if we were to rely on the Bloc's motion, we would be asking the government to present amendments. We have clear indications from the minister that the government has no intention whatsoever of providing such an amendment.

Therefore, if we rely on our own, as parliamentarians, be it this House or the next, ability and authority to review legislation and propose amendments, should that be the case, the amendments would come back to this House and we would have a chance to look at them, as I hope we do. That is another reason that I believe the Bloc's proposal is not the best way to go and we will not be supporting it.

I will quickly summarize the situation. We have a bill that has gone to the Senate. Tens of thousands of Canadians and nearly the entire artistic community are extremely concerned about certain statements made by some people to the effect that the government intends to change the guidelines concerning the payment of tax credits. This has created huge uncertainty within the industry.

Apart from the matter of possible censorship and the limiting of artistic freedom, another concern is the financial structure of productions for television or films. If we spend all the money and at the end we are told we cannot, then we cause incredible grief.

That is another consideration that must be addressed. I think the Senate, as my colleagues in the Senate have promised this afternoon, will provide an opportunity for those who wish to be heard, those who wish to express their concerns and those who wish to understand all of the complexities between text of law or a law, regulations and guidelines and how they interrelate. We have a duty as parliamentarians to ensure that is all on the table in a very transparent way.

The way the Bloc is proposing to do this would not provide that at all. It would not provide an opportunity for parliamentarians to do what should have been done in the first place. However, because we are a bicameral Parliament, we have an opportunity in the other House, in the red chamber, to do that.

Therefore, we will not support the Bloc motion, although we share the concerns expressed by tens of thousands of Canadians as to what the intentions of the government are. It is incumbent upon us to use whatever methods we have as legislators to shed the light on that. I am very happy and very proud that my colleagues in the Senate have undertaken to do just that and we will see where that leads us.

[Ed Fast, Conservative, Abbotsford, BC]

Mr. Speaker, I am pleased to have the opportunity to engage in this debate on Bill C-10. My sole purpose today is to correct the public record regarding this bill.

As we know, Bill C-10 is a very specific amendment to the Income Tax Act and it clarifies our government's support for the Canadian film production industry. The bill simply permits the federal government to refuse to issue film tax credits where there are sound public policy reasons for doing so.

Regrettably, the debate has been muddied by unfair and inaccurate information emanating primarily from the opposition parties in this House.

From the outset, let me correct the public record by saying that, unlike what has been suggested this past week, the indisputable fact is that this proposal did not even originate with our current Conservative government. For anyone willing to actually examine the issue, it is abundantly clear that this proposed legislation originated with previous Liberal governments, going back to 1995.

As this fact seems to have escaped some of my conspiracy theory colleagues on the opposition benches, it might be helpful to review the historical record of this legislation.

As I have just stated, the very first time a previous Liberal government suggested a public policy limitation on the certification of films or video productions was back in 1995, some 13 years ago. The original release of the draft film tax credit regulations by the previous Liberal government provided discretion to the Minister of Canadian Heritage to refuse eligibility for film or video tax credits if the provision of public financial assistance--in other words, taxpayers' hard-earned dollars--would, in the opinion of the minister, be “contrary to public policy”.

Then again in 2002, the federal Department of Justice recommended to the then Liberal government of Jean Chrétien that such ministerial discretion be authorized in the Income Tax Act. In response, some amendments to the Income Tax Act were released for consultation by John Manley, who at that time was the Liberal minister of finance.

These amendments created a ministerial discretion to deny assistance to a film or video production on the grounds that granting such assistance would be “contrary to public policy”, exactly the wording that is in today's Bill C-10.

At the conclusion of that consultation period, final amendments were published on November 14, 2003. They were published jointly by then Minister Manley and the then Liberal minister of Canadian heritage, Sheila Copps, including the following provision:

“Canadian film or video production certificate” means a certificate issued in respect of a production by the Minister of Canadian Heritage certifying that the production is a Canadian film or video production in respect of which that Minister is satisfied that

public financial support of the production would not be contrary to public policy.

That provision released by the previous Liberal government is exactly the same provision, verbatim and word for word, that is included in the current Bill C-10, which we are debating today.

I would also like to quote a Liberal government news release that was issued jointly in 2003 by both John Manley and Sheila Copps. It stated:

Today's proposal results from ongoing consultations with all sectors of the film industry, which were undertaken by the Departments of Finance and Canadian Heritage....

To those in the film and television community who now plead ignorance to the introduction of these amendments, let me read a portion of the Canadian Film and Television Production Association press release from November 2003, a release that was still posted on its website the last time I looked, for all the world to see. It stated:

After almost three years of complex negotiations, the Department of Finance and Department of Canadian Heritage unveiled draft amendments to the Canadian Film or Video Production Tax Credit, which affects Canadian content production....

“This is going to help a lot of producers, and it's exactly what the industry needs right now. Making Canadian shows and films is tough in the current international markets. While financing is never easy, this is what the doctor ordered”, says Guy Mayson, acting president and CEO, Canadian Film and Television Production Association.

Everybody bought in when a Liberal government was in place.

I encourage people to go to that website and check out that news release. Anyone who reads the press release will note the absence of any serious concern with the discretionary power afforded under Bill C-10. There is nothing about censorship, nothing about it potentially devastating the industry.

As I have stated, these very amendments are now included in Bill C-10. In fact, the bill before us was first introduced in the last session of Parliament as Bill C-33.

In that previous session the bill had completed third reading in the House of Commons with all party support: NDP, Bloc, Liberal and Conservative. Of course, that session came to an end and the bill died on the order paper.

When the second session started, the bill was introduced as Bill C-10 and again received unanimous support from all parties in the House. It passed at second reading, went to committee, came back for third reading, and now it is in the Senate.

During that long process, the bill has been thoroughly reviewed time and time again by the NDP, the Liberals and the Bloc, both in this House and at the House and Senate committees. No objections were raised by parliamentarians from any opposition party, Liberal, NDP or Bloc, or even by film or television industry representatives.

Let me be perfectly clear. From November 2006 until very recently no expressions of concern regarding the amendment were raised. There were no fears regarding censorship or devastation of the industry. This is an industry all parliamentarians are proud of and want to thrive, an industry that not only serves a vital cultural role in Canada but an important economic role as well.

That is the history of Bill C-10. I trust that I have been able to dispel once and for all the absurd notion that the bill is a secret plan to introduce censorship. It is just not true.

Quite frankly, I am offended by that suggestion coming from the opposition parties. This is their bill. They introduced it. They thoroughly reviewed it a number of times. They approved it not once, not twice, but at least three times. In fact, this Liberal proposal goes back 13 years.

Now that I have firmly established the Liberal origins of the bill, I would like to turn to the central question. Why is it that both previous and current federal governments support this legislation?

Let me first note that restrictions on funding eligibility for films are not uncommon in cultural policy. Throughout the years most federal funding programs that support cultural works have included guidelines stating that certain materials, such as hate propaganda, excessively violent material, or pornography, is not eligible for government assistance. Most taxpayers find that eminently sensible. Somehow today, the Liberals, the NDP and the Bloc, who used to support this legislation, do not find it eminently sensible.

In the same way, Bill C-10 addresses only the most extreme and objectionable of film and video productions. What Bill C-10 does not do is in any way ban or restrict cultural productions which are privately funded.

We simply want to ensure that public funds, in other words taxpayers' hard earned dollars, are not invested in productions which are highly objectionable and offensive in their content. In fact, Bill C-10 simply implements long established practices in this regard.

For example, I note that four Canadian provinces have exactly the same wording in their film tax regimes as does our bill and three additional provinces employ very similar concepts, yet the Liberals and the Bloc and the NDP have not been jumping up and down about those jurisdictions having implemented this kind of legislation.

Despite the histrionics from the opposition parties, the Canadian film and television industry can be assured that it has the strong support of our Conservative government, especially the support of our fine Minister of Canadian Heritage. Canadian producers will continue to have great flexibility in the kind of productions they want to produce.

In short, the bill has absolutely nothing to do with censorship and everything to do with ensuring that taxpayers receive good value for the productions that they and their tax dollars subsidize.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

And they're related. Okay, I'm sorry, I misunderstood.

In the next paragraph, on the $22.081 million regarding the offshore trust and foreign investment initiative, is that the old Bill C-33, that huge document that was supposed to have been passed and has been lingering for six or seven years?

Income Tax Amendments Act, 2006

[The Speaker, Liberal, Peter Milliken]

The Chair is of the opinion that this bill is in the same form as Bill C-33 was at the time of prorogation of the first session of the 39th Parliament.

Accordingly pursuant to order made Thursday, October 25, 2007, the bill is deemed adopted at all stages and passed by the House.

(Bill read the second time, considered in committee, reported, concurred in, read the third time and passed)

[Jim Flaherty, Conservative, Minister of Finance]

moved for leave to introduce Bill C-10, 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.

Mr. Speaker, pursuant to the special order made previously, I would like to inform the House that this bill is in the same form as C-33 at the time of prorogation.

(Motions deemed adopted, bill read the first time and printed)

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Mr. Speaker, I am pleased to speak on this important matter of taxation pertaining to tax avoidance and tax evasion which is part of Bill C-33. For those who are watching, the bill is at third reading. It is an important issue for all of Canada.

Bill C-33 may be a bill about technical matters and may contain some necessary steps that are long overdue. However, we support it because we, through this legislation, are taking steps to ensure that money that is owed to the country is not lost through arrangements that are questionable in nature.

Yet, we have to wonder why it is taking so long to close tax loopholes, to shut down tax havens, to deal with tax evaders, and to crack down on tax avoidance.

Why in the world are we still here talking about something that has been raised in the House on numerous occasions over the last two decades? It is a matter that has been studied to death by the Auditor General of Canada and here we are today taking a few baby steps to deal with some of the most egregious problems pertaining to tax avoidance.

This is a government that promised, in opposition, to take on the Liberal government, to crack down on tax evaders, and to do everything in its power to ensure that money that rightfully belonged in Canada stayed in this country and was not allowed to be frittered away through different loopholes and avoidance schemes.

Today we have a bill finally that has taken probably about five years. A good number of those years are a result of Liberal delays. The current government has only had a couple of years to really get its teeth into these matters, so we applaud the government for actually bringing this forward. But we regret that the government is not yet prepared to in fact deal with some of the big issues around tax avoidance and tax evasion that are so obviously present in our system today and around which the government has spoken a great deal.

It made a lot of statements about trying to ensure that we have a fair system of taxation. A system where in fact corporations pay their fair share and the wealthy are not able to use the system to avoid paying taxes. We would in fact move away from a system that is inherently biased in terms of the wealthy and the powerful in our society today, and is without concern for the needs of ordinary working families and hard-working Canadians.

The question we have today is, why in fact did the government, when it had the chance following the budget to implement its promise about dealing with interest deductibility, back off? It had a chance to actually make a difference. It had a chance to do something that had been identified by many as a significant step in the right direction.

Members in the House will know that we had a fairly lengthy discussion about interest deductibility at committee. It was an issue pursued quite rigorously in the House.

I think the government should have been able to detect considerable support for a complete crackdown on this issue and should have in fact been able to know that it would have considerable backing if it had decided to in fact go the complete distance and do what its own budget said. Budget 2007 said:

Assuming an exemption from withholding tax on both arm’s length and non-arm’s length interest is implemented in the Canada-U.S. Tax Treaty as expected, Budget 2007 will further simplify the Canadian international tax system by eliminating Canadian withholding tax on interest paid to all arm’s length non-residents regardless of their country of residence.

The budget speech went on to very clearly indicate that it was prepared to take on an issue of tax evasion, or I should not say tax evasion, of tax avoidance that has no place in our system today.

It has no place in the international scheme of things when we have countries such as Great Britain and other countries actually dealing with an international taxation system, so that one cannot move money around to different countries and avoid paying taxes.

The members in the House will know that in fact at committee and at other times organizations spoke out in favour of the government's position. In fact, the Canadian Labour Congress was very vocal at these hearings, recommending that the minister stick to his guns, stick to his plans to actually crack down on this particular egregious example of tax avoidance.

In fact, at committee hearings the representative of the CLC basically suggested to us that we needed to push the government to prevent corporations from deducting foreign affiliate interest here. It did not say to only limit it to double-dipping or talk about tax towers, but actually said to deal with the fact that corporations are deducting foreign affiliate interest here and get them to start paying their fair share of taxes from foreign affiliate income.

Other countries do it. They tax the income regardless of where that corporation has moved money or opened up new affiliates. They consider it as income earned and therefore as taxable income. Therefore, it is money that is then put back into the economy of a country like Great Britain to be used for expanding other job opportunities in the domestic economy, for training workers to meet new challenges, or dealing with a loss of manufacturing capacity. That is what this country should be doing. It should take that money and use it to make a difference.

It was very disappointing to in fact see the Minister of Finance backtrack on this promise. That was regrettable on his part.

I know the Liberals do not agree with us, do not agree with me certainly, and do not agree with the need to crack down on tax avoidance. They seem to want to keep all avenues open for tax avoidance to occur. That is not surprising given the past practice of the Liberals when they were in government.

There is a long history of Liberals in Canada standing up for the corporate elite, for the wealthy and the powerful, and for any scheme imaginable that will allow those individuals and those entities to avoid paying taxes.

I would like to go back to a couple of examples. I would like to make the case that instead of simply waiting for community organizations, the labour movement, individual parliamentarians, and the non-governmental community to fight for changes to the tax system which might eventually produce some good results, the government ought to start to take some initiative, show some initiative, be proactive and not wait.

Our history on this issue is nothing but waiting for the government to catch up with the community, waiting for the government to finally address something after an issue has gone through the court systems and finally resulted in some pretty clear direction for the government.

I want to go back to an issue that actually began under the Conservatives during Brian Mulroney's time. It went through most of the Liberals' term and finally resulted in some changes, but not before some individuals were able to take advantage of the system.

I want to take members back to what we in Manitoba call Project Loophole. Folks might remember that it was in 1996 that Winnipeger George Harris decided to force the Canadian government to collect an estimated $750 million in taxes that were owed to the government by one of Canada's wealthiest families. Harris and Project Loophole forced the courts to acknowledge that the government had acted as if a citizen had no choice but to pay his taxes and be quiet. It was a David and Goliath situation in the battle for tax fairness and for an end to tax loopholes that allowed the wealthy and powerful to rewrite the tax laws in their favour.

It was a volunteer initiative. I was part of a group, back then in Winnipeg in the mid 1990s, called Choices, a Winnipeg-based coalition for social justice. It was out of this organization that George Harris found the backing and the support in order to go forward with this court challenge. It was a lengthy, costly battle, with money raised from ordinary consumers, Manitobans and citizens everywhere concerned about taxation fairness.

It really was a stinky case. Some lawyers called it a smell test. They were concerned that this was about power being abused or rules being bent. According to one of the judges in the case along the way, Federal Court Justice Frank Muldoon, it reeked and really did not seem to be about transparent government.

The case started with a wealthy Canadian family. It is not important to know the name of the family, although I think it is well known now, but it is important to know that the family was wealthy enough to be able to set aside a family trust worth $2 billion, not the typical college fund nest egg. It was a wealthy family with an incredible amount of money that wanted to avoid paying taxes. This trust was established in Canada under Canadian law to take advantage of Canadian tax rules.

Let us go back to 1991 when in fact the case first came to light. For its own reasons, the family decided to transfer the assets in the trust to a trust in the United States that it would control. This was back in 1991. Normally when this happens the family would be required to pay taxes on the increase in the value of the fund since it was established and it was estimated those taxes could have amounted to $750 million. However, in November of that year the family asked the federal government for a tax ruling that would allow it to move the money to the United States without paying taxes.

To cut a long story short, the issue went back and forth between the family's lawyers and officials in the finance department in the Government of Canada and eventually officials backed off and agreed to this family's request. It was then that Project Loophole took shape and began to mount a very serious campaign that went right to the Supreme Court.

Regrettably, the courts, in the end, did not precisely rule in favour of the citizens' coalition but sent a message to the federal government. It sent a message to say that the provisions that allowed this to happen had to be changed. In other words, everything that the government did in conjunction with this wealthy family's lawyers was apparently okay according to existing law and regulations. That is what the court said, but it also said this should not be allowed to continue.

Finally, after this lengthy battle and all of this uproar by community members across this country, governments finally listened and did something. As we learned from the officials at the finance committee, when we were dealing with Bill C-33, the rules have been changed to prevent that kind of development from happening.

Why does it have to come to this? Why does an issue of such obvious unfairness need a voluntary citizens group to raise money and take it through the courts before the government will act? Why can the government not see the wisdom of acknowledging the tax avoidance schemes, the tax havens and this trend of setting up these offshore centres? Why does the government not take a hard look at that and do something about it? Why are we studying this again?

That is what came out of the federal budget, finally, after the government backtracked and said that it really was not going to crack down on interest deductibility, that it really was not going to make foreign corporations pay their fair share of taxes and that it really was not going to collect taxes that rightly belonged to this country.

What does the government do? It sets up a couple of more studies. We now have a short term round table over the summer to draft legislation pertaining to this issue of interest deductibility on its limited basis involving double-dipping and towers. We do not have anything in place yet in terms of double-dipping, never mind the broader issue of interest deductibility in terms of foreign affiliates.

On the broad issue of tax avoidance, the government has agreed to a longer term panel, called an expert panel, that would look at the fairness and the competitiveness of the tax system as a whole. The panel will report back sometime by the end of 2007 or 2008.

I think this issue has been studied enough. We have lots of credible information. We have been going around the mulberry bush at the finance committee.

The House resumed 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 third time and passed.

[Mike Wallace, Conservative, Burlington, ON]

Mr. Speaker, I appreciate the member's speech and I appreciate his support of the government bill, Bill C-33.

The member went on to talk about debt dumping, which is an important issue and we have discussed it at finance committee. However, I do not understand it. Debt dumping did not just start in the last 18 months.

Why did the Liberal government completely ignore the fact that people were trying to take advantage of the Canadian tax system? If debt dumping is so important to the Liberals now, why did it take them 13 years to do absolutely nothing about it? They had to wait until they were on the other side of the benches to wake up and find out there was debt dumping in the country and we had to make changes? What is wrong over there?

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Speaker, the member uses the phraseology “paying a fair share of taxes”. I think the member is quite right when he says that the marketplace is very creative. We tend to lag behind in being able to respond quickly to marketplace changes.

The member is probably aware of one of these things we have seen, although I am not sure if Bill C-33 touches on it. Quite honestly, I have not examined the bill in its fullness, but the member is aware that as a consequence of the change in government policy with regard to the taxation of income trusts, there have been, I understand, about 10 income trusts which have been purchased by foreign private equity. As a consequence, they have been able to structure their affairs so that they no longer pay Canadian taxes.

In fact, it is estimated that about $6 billion of revenue that the Government of Canada formerly had collected from them will be lost each and every year because of this structuring of foreign private equity investors. Is the member satisfied that we have been able to identify and respond to some of the emerging financial techniques that have come forward, such as stapling of debt and equity, et cetera?

I believe this poses a serious threat to the taxation revenue of Canada. It may be fair, but it is not really in the best interests of Canada to lose $6 billion of revenue.

[Mike Wallace, Conservative, Burlington, ON]

Mr. Speaker, it is my pleasure this morning to talk about this income tax amendment bill, Bill C-33, taxation of non-resident trusts, NRTs, as the department likes to call them, and their beneficiaries and of Canadian taxpayers who hold interests in foreign investment entities, or FIEs.

The issue is that Canadians hold a significant portion of their investments abroad. In 2005 Canadians owned $282 billion worth of foreign stocks, bonds and money market instruments. In part, globalization and other factors, such as the need for portfolio diversification, explain this phenomenon.

Some foreign investments made by Canadian residents are, however, thought to be motivated by tax considerations. The use of foreign investment entities and non-resident trusts rather than Canadian-based investment vehicles can result in lower taxes for Canadian residents; an issue that we are dealing with at the finance committee.

The distribution of income from trusts, regardless whether the trust is located in Canada, is subject to Canadian taxes when the beneficiary is a Canadian resident. Furthermore, trusts that are resident in Canada must also pay Canadian taxes on undistributed income. Non-resident trusts, however, are generally not subject to Canadian taxes on their undistributed income.

If a non-resident trust is located in a jurisdiction that applies little or no taxes on undistributed income, the trust could potentially accumulate income and capital on a tax-free basis. As a result, Canadian investors in such non-resident trusts could benefit from deferred taxes as long as their funds are kept in trust.

Distributions made out of the initial capital of a trust, regardless whether the trust is located in Canada, are not subject to taxes in Canada. When a trust is located in a jurisdiction that does not apply taxes to undistributed income, taxes could be avoided altogether by transforming accumulated income into the capital of the trust, which would then be transferred to Canadian investors on a tax-free basis.

As we can see, this bill really deals with a number of issues in terms of Canadians paying their fair share of taxes.

In a manner similar to trusts, investment funds located in Canada are subject to Canadian taxes on income and capital gains accumulated in the fund on a yearly basis. Furthermore, investors in investment funds are subject to taxes on income and capital gains allotted to them.

FIEs, however, are not subject to Canadian taxes. If a foreign investment entity faces little or no taxes in the country of residence, investors in the fund could benefit from deferred taxes on undistributed income and capital gains.

Furthermore, upon the disposition of their interest in the fund, investors in FIEs may be able to transform income into capital gains, which have a 50% inclusion rate in Canada.

It is a tax avoiding system. This bill does its share in terms of trying to end some of those small loopholes that have been brought to our attention, mainly by those who are in the tax preparation business.

The current legislation, which has existed since 1972, the Income Tax Act, has contained provisions that are meant to limit the use of FIEs and NRTs for tax avoidance purposes. Section 94 of the act deals with NRTs, while section 94.1 deals with FIEs.

Section 94 of the Income Tax Act sets out conditions under which a NRT would be subject to Canadian taxes. Generally, two conditions must be met: there must be a Canadian beneficiary and there must be a Canadian contributor.

The beneficiary condition is satisfied if any of the following have a right, directly or indirectly, to any income or capital associated with the NRT: a person resident in Canada, a corporation or trust with which a person resident in Canada is not dealing at arm's length, and/or a controlled foreign affiliate of a person resident in Canada.

The contributor condition is satisfied if the NRT acquired property, directly or indirectly, from a person who meets each of the following requirements: the person is a beneficiary, as I have described before, a person related to that beneficiary or the uncle, aunt, nephew or niece of that beneficiary; the person is resident in Canada at any time during an 18-month period before the end of the NRT relevant taxation year; and finally, in the case of an individual, he or she has resided in Canada for an aggregate period of more than 60 months before the end of the NRT relevant taxation year.

Once these two conditions are met, the manner in which Canadian taxes are applied depends on whether the NRT is a discretionary trust, that is, a trust where the trustee has discretion regarding how much of the trust income or capital is paid to beneficiaries.

In the case of a discretionary trust, the NRT is deemed a resident of Canada for the purpose of part 1 of the Income Tax Act. Its taxable income is generally the total of its taxable income earned in Canada and what its foreign accrual property income, that is, passive income earned by a foreign subsidy, would be if it were a corporation.

In the case of a non-discretionary trust, if the Canadian beneficiary holds at least 10% of the market value of interests in the trust, the trust is deemed to be a corporation that is a controlled foreign affiliate of that beneficiary. The beneficiary is then required to include, in income, his or her pro rata share of the trust's foreign accrual property income. If the Canadian beneficiary holds less than 10% of the market value of all interests in the trust, the beneficiary may be subject to Canadian taxes under the rules governing FIEs.

As we can see, this is rather technical in its nature and has been around for a little while, which I will talk about near the end of my speech. I wanted to make sure everybody understood that this is a technical bill with some needed minor changes to make the system work more appropriately.

According to the Department of Finance, these rules are not fully effective and relatively little income is taxed in Canada. We need to make some changes and that is what this bill does. Several tax haven jurisdictions, which we have been studying in the finance committee, have trust laws that make it relatively easy to disguise the fact that a NRT has a Canadian resident beneficiary. Without a known Canadian beneficiary, current laws to limit the use of NRTs for tax avoidance purposes are difficult to enforce.

I will now discuss foreign investment entities or FIEs. Section 94.1 of the Income Tax Act is intended to prevent taxpayers from using FIEs to defer or eliminate taxes. This section applies if a Canadian taxpayer holds an interest in a foreign entity that derives its value, directly or indirectly, from portfolio investments in specified properties, such as shares or real estate.

Furthermore, for section 94.1 to apply, it must be shown that one of the main reasons for the investment in FIE is to reduce or defer tax liability that would otherwise be incurred if the income accrues directly to the taxpayer. If the conditions specified in section 94.1 are met, a notional annual allocation of income is imputed to the taxpayer and is subject to taxation. The amount of income imputed to the taxpayer is determined by multiplying the cost of the taxpayer's interest in the fund by a prescribed interest rate as calculated in the income tax regulations.

As mentioned in budget 1999, and I will make the point later on that this actually began in 1999 under a previous Liberal government, this provision has rarely been applied because, and this is why we are making changes, Canadian authorities often lack the relevant data and challenges exist with establishing that the acquisition of the interest in the FIE is motivated by tax avoidance purposes.

We had this criteria that one had to be in a tax avoidance which was very difficult under the current act to make that happen. The bill makes some minor changes to the Income Tax Act to assist our bureaucracy, which looks after the tax issues, and make it a little easier for them to calculate and find out whether people are actually avoiding taxes in this method.

Furthermore, when the provision is applied the amount computed to the taxpayer's income is sometimes criticized that it is arbitrary and not necessarily correlated to actual income generated by the FIEs. Therefore, it was hard to determine what that actual income level was.

What are the legislative proposals contained in Bill C-33? Part 1 of Bill C-33 would create a new taxation regime for investors in non-resident trusts, NRTs, and foreign investment entities, FIEs, in order to respond to perceived gaps in the current provisions of the Income Tax Act.

Bill C-33 would make it harder for Canadian resident investors in non-resident trusts and foreign investment entities to avoid or eliminate Canadian taxes on their income from their investments.

The proposed rules are more complex, of course, as the tax system seems to get that way. They are lengthier and more far-reaching than the current rules. The senior levels of the finance department and the tax department said at the committee that these rules were needed for them to be actually effective.

The proposed regime was first introduced in budget 1999. Let us say it is 2007 now and we have the bill in front of us. There has been a number of announcements from 1999 and June 2000, September 2000, August 2001, October 2002, December 2002, October 2003, February 2004 and July 2005. Therefore, the department and the previous government had made a number of announcements but we really did not get it into law. Not everything needed to be in law but a number of the provisions must be to be effective and that is what we are doing today under this bill.

To be frank, we had some limited discussion at committee on this as all the opposition parties were very supportive of moving this forward, which is why Bill C-33 is in front of us today.

For non-resident trusts, in general, Bill C-33 would, for tax purposes, treat non-resident trusts as if they were trusts resident in Canada. Therefore, a contribution, whether a loan or transfer of funds for property, was made to the NRT by an entity resident in Canada or there is an entity that is resident in Canada and is a beneficiary under the NRT. We are trying to make some changes there. If the NRT fails to pay Canadian taxes, each Canadian resident contributor or each resident beneficiary would be jointly liable for the Canadian tax.

What we are saying is that if one meets those two criteria, someone will be paying the tax, either the beneficiary or the one who is contributing to make that happen or they can split that tax burden and pay it that way.

The amount of tax liable for the beneficiary of the trust would, however, be limited to the beneficiary recovery limit and the relief would be available to the contributor whose contribution to the NRT is insignificant. Therefore, there is some flexibility when we discover that one needs to be paying Canadian taxes on these non-residential trusts but who makes the actual payment can be split but it will depend on what that individual's liability is.

On foreign investment entities, the purpose of foreign investment entity rules under Bill C-33 would apply to all Canadian taxpayers except for new immigrants to Canada. I did ask at committee what the words “new residents” to Canada meant and I was told by the officials that this law needed be fair to our new Canadians. People who have come to Canada in the last little while may have trusts and other investments that would apply to these rules and that they would bring with them. The rules that would apply are that they would be tax free and not subject to these new rules under Bill C-33 for a period of five years of their residency. I think that was fair and I am glad t we were able to put that in the bill. That was an issue that I did not have an answer for and they were able to find it. I appreciate that clarification.

Also, partnerships with members resident in Canada would be required to allocate FIE income to those members. Taxpayers would be taxed based on their equity participation, for example, a participating interest or a particular interest in a trust or other specified type of entity, in a FIE, on their investment in an entity if the investment return from the entity tracks the investment return on certain properties or on their interest in certain foreign insurance policies. We are basically looking at what level of participation individuals have in these FIEs and that would determine their liability.

However, taxpayers would not be taxed on their participation if an “exempt interest”. An exempt interest of a taxpayer in a non-resident entity would generally include, but not be limited to, an interest in: a non-resident entity that is a controlled foreign affiliate of the taxpayer or a partnership; certain property held by financial institutions; and a widely held FIE listed on a prescribed foreign stock exchange if it is reasonable to conclude that the taxpayer had no tax avoidance motives. We must remind ourselves that that is what we are trying to overcome. It is tax avoidance and if a taxpayer can show that was not the purpose of an investment. these rules would not apply.

A FIE that is governed, formed and organized under the laws of the country with which Canada has entered into a tax treaty, and there are some other issues with that. We have tax treaties with a number of countries around the world. We also have tax treaties with the U.S. It would be up to the taxpayer to show that it is the case and that it was not a tax avoidance motive again, and that is the issue.

In most circumstances, and in particular when the taxpayer has insufficient information to use other options, the taxable income of the taxpayer in respect of a participating interest in a FIE would be determined annually by multiplying the cost value of the taxpayer's interest by a prescribed interest rate. If the taxpayer has sufficient information to company, he or she would be able to elect to compute taxable income in respect of a participating interest in a FIE based on the annual movement in the fair market value of that interest. Provided that conditions are met, taxpayers would also be able to elect to treat a non-resident entity as a controlled foreign affiliate, in which case they would be required to include their annual share of the non-resident entity's income on their taxable income for that year.

I know that was exciting for everybody in the House today and those watching at home. This is a very technical bill and it is fairly large. It has lots of wording changes and so on but, in a nutshell, it includes changes to non-residents trusts and foreign investment entities, as well to be consistent with the Income Tax Act. All we are looking for and all we have been dealing with, not just with this part but with other studies that the finance committee is doing, is fairness in the tax system in terms of making sure that those who are required to pay Canadian taxes are paying their fair share of taxes.

I am very supportive of the other opposition parties on this particular tax issue. The changes to NRTs and FIEs would tighten the tax rules around tax havens and respond directly to concerns raised by the Auditor General. We did not come out with this on our own. The Auditor General in her reports indicated that this was an area that needed to be looked at and we did. The previous Liberal government made attempts to get it here but we are actually getting it done. We are at third reading, which is excellent. What needed to become law will become law. We will be tightening the offshore tax havens as viewed positively by taxpayers and the Auditor General. Some stakeholders will likely be not pleased because they have money in these tools but it is important that every taxpayer pays his or her fair share.

These proposals have been released for over a year. We did make some new changes. Obviously, as time passes we find new issues, and the response has been relatively positive. Those who are intimately familiar with this are normally tax lawyers and tax accountants who deal with individuals who have this and they have indicated to us in terms of what needed to be tightened up and what did not and how to clarify the system. The bill is quite technical, but it is an important piece of legislation.

Mr. Speaker, do I have some time left?

The House proceeded to the consideration of 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, as reported (with amendments) from the committee.

Business of the House

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, I will be happy to address that in the affirmative in a moment but there is more that we should know about in terms of the business we are doing.

We will continue today with Bill C-42, the quarantine act, Bill C-58, the railway transportation bill and Bill C-21, An Act to amend the Criminal Code and the Firearms Act (non-registration of firearms that are neither prohibited nor restricted).

Tonight we have the emergency debate pursuant to Standing Order 52 that the Speaker has determined should proceed.

On Friday we will call Bill C-33, the income tax bill and Bill C-6, the aeronautics bill.

Next week is got the job done week when the House has completed the nation's business for this spring's session. During the got the job done week we will continue and hopefully complete the business from this week, as well as some new legislation and legislation that will be out of committee or the Senate.

The list of bills that are currently on the order paper, in addition to those I have identified for this week that I would like to see completed by the House before the summer recess are: Senate amendments to Bill C-31, An Act to amend the Canada Elections Act and the Public Service Employment Act.

There are also the following bills: Bill C-32, An Act to amend the Criminal Code (impaired driving) and to make consequential amendments to other Acts; Bill C-44, An Act to amend the Canadian Human Rights Act and Bill C-53, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).

Another bill includes Bill C-54, An Act to amend the Canada Elections Act (accountability with respect to loans).

By the end of next week, Canadians expect that the Senate will have completed its consideration of budget Bill C-52 without any amendments so that they can relax for the summer with the knowledge that $4.3 billion in the 2006-07 year end measures will be in play.

If there are amendments, we will have to be here in the House to respond and protect measures that might otherwise be lost, such as a $1.5 billion for the Canada ecotrust for clean air and climate change; $600 million for patient wait times guarantees; $400 million for the Canada infoway; $100 million for the CANARIE project to maintain the research broadband network linking Canadian universities and research hospitals; $200 million for protection of endangered spaces; and much more.

Finance

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

Mr. Speaker, I have the honour to present, in both official languages, the 21st report of the Standing Committee on Finance in relation to 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, with amendments.

[The Chair, Conservative, Brian Pallister]

Welcome, committee members and guests.

Pursuant to the order of reference of Monday, May 14, 2007, which is 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, we have witnesses from the Department of Finance.

Would the Department of Finance representatives like to make any opening statements?

Business of the House

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, today we will be continuing with the business of supply.

Tomorrow we hope to conclude third reading of Bill C-52. In answer to the question on priorities, I would point out that Bill C-52, the budget implement bill, is the number one priority of this government. We can talk about other priorities after we see an indication that it will be heading for royal assent. If we do not have it, it will result in the loss of $4.3 billion in 2006-07 year end measures which include: $1.5 billion for the Canada ecotrust for the provinces; $600 million for patient wait times guarantees; $400 million for Canada Health Infoway; $200 million for protection of endangered species; $30 million for the Great Bear rain forest; $600 million for labour market agreements for the provinces; $30 million for the Rick Hansen Foundation; $100 million in aid for Afghanistan; $100 million to Genome Canada; and so on. It is a long list of important priorities financing that will be lost if the bill is not passed by the end of this session in June. That is obviously our number one priority.

Next week will be getting things done for all of us week when we consider a number of bills that are in their final stages of the legislative process.

The following bills will be placed under Government Orders for debate: Bill C-11, An Act to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other Acts, which the Senate reported with amendments and which is now back before the House to receive the approval of the members, and Bill C-23, An Act to amend the Criminal Code (criminal procedure, language of the accused, sentencing and other amendments).

We are awaiting the Senate's report with amendments on Bill C-31, An Act to amend the Canada Elections Act and the Public Service Employment Act.

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, Bill C-42, An Act to amend the Quarantine Act and Bill C-47, An Act respecting the protection of marks related to the Olympic Games and the Paralympic Games and protection against certain misleading business associations and making a related amendment to the Trade-marks Act, will probably be passed by the House at third reading.

Discussions have taken place with the opposition parties, and there may be consent to fast-track some or all of the following bills: Bill C-59, An Act to amend the Criminal Code (unauthorized recording of a movie), Bill S-6, An Act to amend the First Nations Land Management Act and Bill C-51, An Act to give effect to the Nunavik Inuit Land Claims Agreement and to make a consequential amendment to another Act.

There is also a possibility of quick passage of a new bill entitled “An act to amend the Geneva Conventions Act, an act to incorporate the Canadian Red Cross Society and the Trademarks Act”, which appears on today's notice paper.

There are a number of other bills I am still hoping we could get included in getting things done for all of us week, provided that they get reported back from committee, in particular, Bill C-6 aeronautics; Bill C-27 dangerous offenders; Bill C-32 impaired driving; and Bill C-44, the bill to grant first nations people the human rights that every other Canadian enjoys. First nations people expect the House to get things done for them as well, so I urge the aboriginal affairs committee to stop delaying Bill C-44 and report it back to the House early next week. It is a priority for this government.

[The Chair, Conservative, Brian Pallister]

Okay, good. We'll deal with that on Tuesday, after we've had a couple more hearings on the delightful tax haven topic we've been discussing for some time. We'll endeavour to have witnesses ready to go on Tuesday, and we'll conclude by dealing with Bill C-33.

We'll move in camera now.

[Proceedings continue in camera]

[The Chair, Conservative, Brian Pallister]

Pursuant to the order of reference of Monday, May 14, 2007, we are studying 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.

(On clause 2)

All in favour of clause 2?

Mr. McKay.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Brown.

Thank you, Mr. Brown and Mr. Larin, for your participation in our hearing. We very much appreciate it.

We will now suspend briefly for lunch and then reconvene to deal with clause-by-clause on Bill C-33.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

It's clear there are some corporations and individuals who will pursue very aggressively any kind of way to avoid paying taxes. The bottom line for them is, what are the odds of getting caught? My question is, what will be the impact of Bill C-33 on those odds?

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you. This is going so fast I can't keep up.

I have a couple of questions.

I'd like to take you back to the whole issue that went through to the Supreme Court regarding the Bronfman family and the challenge they faced after moving $2 billion out of the country. There was a group out of Winnipeg through Choices, a social justice coalition, and an individual by the name of George Harris, who took this right through to the Supreme Court. It didn't rule in his favour, but I think the court made very serious statements around problems within the finance department over this kind of development.

Is Bill C-33 and its predecessors a response to that kind of situation?

[Mike Wallace, Conservative, Burlington, ON]

My second and final question is based on the report from the Library of Parliament. It says, under foreign investment entities, that the proposed foreign investment entity rules under Bill C-33 would apply to all Canadian taxpayers--and then in brackets--except new immigrants to Canada.

Is that true, and what's the definition of a new immigrant? Does that change after they've been here for a number of years?

[The Chair, Conservative, Brian Pallister]

Merci, Madame.

We will just ask the committee members to note that the deadline for amendments is 5 o'clock Wednesday, June 6, and we will do clause-by-clause on Bill C-33 on Thursday.

Now we continue with the talented Mr. Pacetti. Mr. Pacetti, it's over to you.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Given the limited scope the bill is dealing with, do we have the enforcement capacity to actually deliver what the bill promises, given the Auditor General's concerns, given the problems CRA is having in terms of international enforcement? Do we have the capacity to fully implement Bill C-33?

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

Yes, I do, Mr. Chairman. Thank you very much.

To my colleagues, who will no doubt be hanging on my every word, good morning.

I'd just like to make a few comments to set the background on our study of this bill. I hope they will be helpful to my colleagues this morning.

Bill C-33 implements certain tax measures and amendments to the Income Tax Act. Specifically, this bill proposes measures regarding the taxation of non-resident trusts and foreign investment entities, otherwise known as NRTs and FIEs. It also contains a number of proposed technical amendments to the Income Tax Act.

The intent of this bill before the committee today is to help strengthen our tax system by ensuring its equity and integrity.

First of all, with regard to the non-resident trusts and foreign investment entities, the measures in this proposed legislation are intended to prevent tax deferral and avoidance through the use of foreign investment funds and trusts. Since we're studying this whole area, by the way, I think this will be of particular interest to all of us on the committee.

This type of activity has moderated substantially in recent years, but Bill C-33 will ensure that if someone tries to avoid taxes by using foreign investment funds, any income earned on that investment will be taxed as if it were earned in Canada. Bill C-33 does this by proposing to amend provisions of the Income Tax Act relating to the taxation of income earned from non-resident trusts and foreign investment entities to investment vehicles used sometimes by Canadian taxpayers.

I should note here that the amendments in this bill were developed in consultation with professional tax advisers and taxation authorities as well as with taxpayers themselves. These changes also respond directly to concerns raised by the Auditor General.

These proposals were released in draft legislation in June 2005, nearly two years ago now, giving ample time for input by stakeholders. So these provisions are not going to take anyone by surprise.

The amendments are important and necessary for a very good reason, and that has to do with the equity of our tax system. As you know, Canada generally taxes just the Canadian-sourced income of taxpayers who are not resident in Canada. There exists, therefore, an income tax incentive for Canadian residents to earn investment income using non-resident trusts and foreign investment entities based in a country other than Canada that impose no tax or a low tax. In other words, using these investment vehicles to earn investment income, residents of Canada could inappropriately defer or avoid altogether the payment of Canadian taxes.

Mr. Chairman, we cannot have a competitive tax system if it allows a way for Canadian taxpayers to avoid paying appropriate taxes. Not only would that erode Canada's tax base, but it creates inequities that undermine the very integrity of our tax system. And of course when some people avoid paying taxes, other taxpayers must contribute more to pay for the government programs that are valued by Canadians.

The bottom line, Mr. Chairman, is that these changes in Bill C-33 before us will level the playing field. They will also allow Canadian investment vehicles to compete on an equal footing with foreign-based investment opportunities.

Turning briefly to the technical amendments, as I mentioned at the outset, Bill C-33 also includes a number of proposed technical amendments to the Income Tax Act that are essentially housekeeping measures. The intent of these amendments is to correct or clarify the application of existing income tax provisions. They will also implement measures that have already been announced by this government and the previous one and deal with other income tax situations that require legislative response.

Technical tax bills are quite common. They come up every few years and are used to implement small changes that typically clarify provisions in the act so that they better reflect the policy intent. Most often these changes are pointed out by tax practitioners, who identify tweaks that are necessary.

These changes are not controversial. Most are relieving in nature and a few are neutral. They include things like expanding the RRSP rollover options available on the death of the parent or spouse of a mentally disabled individual. Providing income tax exemptions for corporations owned by municipalities or public bodies performing a function of government is another example.

Before I open the floor to questions, I would remind the committee members again that the intent of this proposed legislation is to improve the equity and integrity of our tax system.

I will now be pleased to answer any questions from committee members about Bill C-33. I also welcome the assistance of our brightest and best officials from Finance Canada, Mr. Lalonde and Mr. Conway, who have joined us here today.

Thank you, Mr. Chairman.

[The Chair, Conservative, Brian Pallister]

Good morning to our committee members and our guests.

Pursuant to the order of reference of Monday, May 14, 2007, we are meeting on 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.

Appearing this morning is our colleague, the Honourable Diane Ablonczy, parliamentary secretary to the Minister of Finance.

I call clause 1.

Diane, do you have some opening comments you would like to put on the record?

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, with regard to the last point, we have already addressed that.

However, with regard to the balance of Thursday's statement, I am pleased to respond that today and tomorrow we will continue with Bill C-55, the expanded voting opportunities bill; Bill C-14, the adoption bill; Bill C-57, An Act to amend the Immigration and Refugee Protection Act; and Bill C-45, the fisheries act.

In the last Thursday statement, we indicated that we were hoping to have this week as “enhancing the quality of the life of first nations people week” but this was cancelled by the opposition parties when they did not release Bill C-44 from committee, the bill that would give the first nations protection under the Canadian Human Rights Act. Not only is it being held up now but, as early as this morning in this House, the opposition obstructed our efforts to get the bill dealt with forthwith so that first nations people could have the human rights that every other Canadian enjoys. We know that if all parties would agree to proceed with that, as we saw when we sought unanimous consent, it could proceed, but some would prefer to obstruct it.

Next week will be welcome back from committee week, when we welcome business that has been at committee, including some that has been stalled there for some time. We will deal with Bill C-52, the budget implementation bill, which will begin report stage on Monday and, hopefully, we can get third reading wrapped up by Tuesday.

Following the budget bill, we will call for report stage and third reading of Bill C-35, bail reform. After that, we will call Bill C-23, the Criminal Code amendments. I hardly remember when Bill C-23 was sent to the committee by this House. That took place long before I was even House leader 228 days ago.

Thursday, June 7, shall be the last allotted day. There are a number of other bills that we would like to include in our welcome back from committee week. I still hope we can see Bill C-44, the amendments to the Canadian Human Rights Act, to which I just referred; Bill C-6, the amendments to the Aeronautics Act; Bill C-27 dealing with dangerous offenders; Bill C-32 dealing with impaired driving; and Bill C-33 dealing with foreign investment, if the opposition parties will release those from committee.

[Peter Van Loan, Conservative, York—Simcoe, ON]

I would not do that.

Tomorrow is an allotted day.

Next week is constituent consultation week, when the House will be adjourned to allow members to return to their ridings and meet with constituents to share with them the activities of Parliament since the last constituency break.

For the interest of members, I will quickly review our plan for the context of our overall legislative agenda.

As he requested, this is currently strengthening the economy week, where a number of financial bills moved forward. The budget bill was sent to committee and, hopefully, it will be reported back tomorrow, or soon, so we can deal with it at third reading when the House returns after the break.

Bill C-40, an act to amend the Excise Tax Act, was read a third time and sent to the Senate. Bill C-53, an act to implement the convention on the settlement of investment disputes, Bill C-33, the sales tax bill and Bill C-47, the Olympics symbol bill were all sent to committee and we all would like to see those back in the House for report stage and third reading.

In an earlier week, Bill C-36, the bill that makes changes to the Canada pension plan and the Old Age Security Act, was made into law after receiving royal assent.

Strengthening accountability through democratic reform week was a success with the consideration of Bill C-43, Senate consultation. We had three new democratic reform bills introduced that week: Bill C-55, to expand voting opportunities; Bill C-56, an act to amend the Constitution Act, democratic representation; and Bill C-54, a bill that would bring accountability with respect to loans. We hope to continue debate on that particular bill later today.

Bill C-16, fixed dates for elections, was given royal assent and is now law, which I think is the cause of the commotion now in all the committees where Liberals are using procedural tactics. Now they feel they can do it with a free hand.

Two other democratic reform bills are in the Senate, Bill C-31, voter integrity, and Bill S-4, Senate tenure. I really would like to have the term limits bill from the Senate for an upcoming democratic reform week if the opposition House leader can persuade his colleagues in the Senate to finally deal with that bill after 352 days. We may get 352 seconds in a filibuster, but they have had 352 days so far. They have been stalling for a year.

During the consultation week, I will be interested in hearing what our constituents think of the plight of Bill S-4 and the irony of those unaccountable senators delaying it.

We dedicated a good deal of our time focusing on making our streets and communities safer by cracking down on crime. Now that we have had the help of the NDP, we restored the meaningful aspects that the Liberals gutted in committee to Bill C-10, the bill to introduce mandatory penalties for violent and gun crimes. We are continuing to debate that bill today at third reading.

Bill C-48, the bill dealing with the United Nations convention on corruption, was adopted at all stages.

Bill C-26, the bill to amend the Criminal Code with respect to interest rates, was given royal assent.

Bill C-22, the age of protection, was given final reading and sent to the Senate, although it did spend close to, if not in excess of, 200 days in committee where the Liberals were obstructing and delaying its passage.

We made progress on Bill C-27, the dangerous offenders legislation. We would like to see that back in the House.

Bill C-9, An Act to amend the Criminal Code (conditional sentence of imprisonment) and a host of other justice bills are working their way through the system.

Members can advise their constituents that when we return, we will be reviving two themes, back by popular demand. Beginning May 28, we will begin again with strengthening accountability through democratic reform with: Bill C-54, political loans; Bill C-55, additional opportunities for voting; and Bill C-56, democratic representation.

Up next is a second go-round on strengthening the economy week with Bill C-52, the budget implementation bill, which will be called as soon as it is reported back from committee.

In the near future, we will have the improvement of aboriginal people quality of life week with Bill C-44. This bill will grant first nations residing on Indian reserves access to the Canadian charter of human rights. They have been denied this right for 30 years. Unfortunately, Bill C-44 is being delayed by the opposition. This is another bill being delayed by the opposition in committee.

After Bill C-44, I intend to debate Bill C-51. The agreement establishes the use and ownership of land and resources and will foster economic development. This bill illustrates Canada's commitment to the North and to settling land claims.

I wish all members a productive constituent consultation week and look forward to more progress on the government's legislative agenda when the House returns on May 28.

Settlement of International Investment Disputes Act

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, I am pleased to take part in this debate on Bill C-53.

Although the bill is extremely technical, it does not change much for Canada. However, it still offers an opportunity to ask ourselves about the nature of the investment agreements that have been signed by the Canadian government, and more specifically the bilateral agreements, and about the content of the North American Free Trade Agreement.

The problem lies not so much in Bill C-53 as in the agreements that we are signing, that are arbitrated under that convention.

I would note that if this bill is enacted, it will make it possible for Canada to ratify the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, and will also make it possible for Canada to become a member of the International Centre for the Settlement of Investment Disputes.

As we can see, this means incorporating the requirements of the ICSID Convention into domestic law, to ensure that arbitral awards can be enforced and to provide the necessary immunities for the centre and its personnel.

The International Centre for Settlement of Investment Disputes was created, we should remember, by the World Bank, under a treaty referred to as the Washington Convention of 1965. As of today, 156 countries have ratified the convention and are members of ICSID. The purpose of the convention and the centre is to arbitrate disputes between a state and a foreign investor.

There are two possible kinds of disputes between a state and a foreign investor. There are disputes relating to compliance with bilateral foreign investment protection agreements. For example, and I believe this was mentioned earlier, we recently signed an agreement with Peru. However, hardly anyone in the government alerted us to the signing of a new bilateral investment agreement. That agreement was very quietly signed between Canada and Peru. If it results in challenges, they can be arbitrated under this convention, and by this centre.

There is a second possible type of dispute. Disputes arise regarding agreements signed by governments with foreign investors. The government of Quebec regularly signs these kinds of agreement to generate foreign investment, for example by promising to supply electricity at an agreed price.

One can think of a number of major projects carried out on the North Shore. Discussions were held and commitments were made concerning electricity rates for the aluminum sector in exchange for commitments from the companies with respect to economic benefits from second and third processing, or future investments.

As I said, Canada's membership will not have any impact on the provinces. Only the federal level will be affected, although the provinces also will have the possibility of including in agreements they might enter into with investors provisions providing for the use of the centre and the convention.

Quebec has negotiated in the past, and could do so again in the future, agreements with foreign companies involved in the exploitation or processing of natural resources for competitive electricity rates under certain conditions. In such cases, it will be necessary to ensure that the endeavours of the Government of Quebec, whose good faith I never doubt, meet all the criteria in the agreement.

I have mentioned the bilateral treaty between the federal government and Peru. This treaty already provides for the use of arbitration or the ICSID process. Canada not being a member of the ICSID, it does not have access to the regular process because it has not ratified the convention. Additional facility arbitration rules apply under such circumstances.

As we can see, nothing much will change, except that we will be able to use the regular process.

In fact, Canada's adherence to the centre and the convention will enable it to take part in negotiations to amend the convention or the centre's rules, and ensure its ability to participate in appointments to arbitration tribunals.

I believe that this is important, because we know that this centre and this sort of convention will be increasingly important not only to the economic future, but to the overall future of trading nations such as Canada and Quebec.

In the final analysis, the centre is just a tribunal, and in that respect, we do not have a problem with Bill C-53. What we have a problem with is not the tribunal, but the poor treaties Canada has signed to protect investments. In our view, it is only natural that there should be investment protection agreements, provided that those agreements protect certain rights, especially the sovereign rights of the states involved, whether the agreements are between states or between states and companies.

It is only natural for investors to try and make sure that they will not be divested of their property and that they will not become victims of discrimination. This is the sort of situation that foreign investment protection agreements are meant to cover. They are not a new phenomenon, but have been around for more than two centuries now. In 1788, France and the United States signed an agreement to protect foreign investments. Today, there are 2,400 bilateral investment protection agreements in the world. If we add tax treaties covering the tax treatment of foreign investments and foreign source income, there are roughly 5,000 bilateral treaties relating to foreign investments.

I spoke yesterday about Bill C-33 on foreign trusts, and I will come back to that.

Sales Tax Amendments Act, 2006

[Claude Bachand, Bloc, Saint-Jean, QC]

Mr. Speaker, it gives me pleasure to rise today to speak to Bill C-40 on behalf of the Bloc Québécois. With our research staff and those responsible for this issue, we conducted a review of this bill and, all in all, we have found very little to criticize. A lot of people, in Quebec among other places, will be pleased with many of the measures being introduced. I would like to address the first one, which is to make some medical services exempt from tax, thereby facilitating access to such services.

I remember that physiotherapists came to me a few years ago. They told me that it was important to allow these types of services to be exempt from tax. Out of need or because of their insurance, many people who could not afford to wait for public health care wanted to go see a physiotherapist after a car accident or an occupational accident. Systematically, these people had to pay tax on those services.

Then, under a ways and means motion, the previous government considered the possibility of looking at which types of medical services could be made exempt from tax from year to year.

This assessment had to be done every year. So, every year, the government determined whether it had properly identified those services that should be taxed and those that should be exempt from tax. It would ask itself, for example, if it was appropriate not to tax physiotherapy. The following year, around budget time, the word would often go around that physiotherapy would be taxed.

Physiotherapists visited MPs at their offices. I remember fighting with them for their services not to be taxed. Eventually, the government of the day decided not to tax them. It will be much better, however, to have legislation on that. This will avoid having this annual debate about what to tax, what to exempt from tax and what should be kept on the list of health products that should be exempt from tax.

This will take us closer to a standard of services that all recipients can find relatively interesting. It is not an easy thing to do when your health or physical well-being is affected to go see a health professional in an emergency or because you are required to under your insurance plan. In such cases, one has to pay not only the fee for services, but also the GST on that fee. It think it is completely worthwhile to have a list.

This is something we see quite often with speech-language pathology. Bill C-40 refers specifically to speech-language pathology. I would point out that problems with hearing and pronunciation are becoming increasingly common in our society.

I know parents whose children have speech problems, for example. They are having a very hard time accepting the fact that they have to wait two years to consult someone in the public sector. They often have insurance that allows them to turn to private clinics. When these parents go to consult a speech-language pathologist, it is much the same as with physiotherapy, which I mentioned earlier. These people have to pay for the professional services and then pay tax on top of that.

Since speech problems are on the increase, it is important, when people have no choice but to consult the private sector, that they not pay an additional tax.

It is somewhat similar to access to surgery. The taxes can be deducted. There are situations in which waiting is not an option. It should be recognized that waiting may not be an option in the case of physiotherapy and speech-language pathology services, and people should not have to pay taxes on top of the cost of professional services.

Social services are another part of medical services.

Many people these days want to consult social workers to help resolve children's behavioural problems or attention deficit problems.

As the father of a daughter myself, if she had required such services at age six or seven, I would not have wanted her to have to wait two years before meeting with a specialist in the field of social work, while she was having integration problems or any other such problems at school. Thus, I feel it is important to recognize parents' financial efforts and not make them pay additional taxes. I think that would be the right approach.

Furthermore, there is also a tax burden for charities. As a former unionist, I worked closely with charitable organizations. People in these organizations were close to the union movement. We defended a shared cause, that is, a more social approach within our society, a more equitable and fair approach. These people work year round for excellent causes. These causes might involve church groups or any type of organization that is a registered charity. In my view, the bill's new provision will be advantageous for them.

For example, a business owner who rents a shop in downtown Saint-Jean or elsewhere in Canada can deduct both the tax and the rent from his income taxes. If an owner gives space worth $10,000 in one of his buildings to a charity group, he can forego the rent and deduct it from his taxes. I think that really helps people who are supporting an important social cause.

I mentioned churches, but that might not exactly apply because they often own the premises they need to carry out their activities. This would apply more to the many registered charitable organizations that should have the opportunity to use premises for a minimal cost, that is, rent-free with no obligation to pay the rent at the end of the year. Often, the cost of rent can force an organization to cut services.

For example, if charitable organizations are allowed to use space for free, they can provide services to the public. These services are very important; nowadays, many people cannot get by without them.

We also really like the measure that supports small vintners. In fact, this affects me personally. As the member for Saint-Jean, I have to say that in Quebec, wine producers have been having a lot of problems lately. There have been some issues with the Société des alcools du Québec. It made no sense that liquor stores in Quebec were stocked with wines from all over the world, but not wines from Quebec. When I shop at the LCBO, Ontario wines are on every shelf, as are British Columbia wines. In Quebec, there were problems with that. People had to get their wine directly from the producers. Then they were hit with an excise tax, which made them less competitive. Wine production is becoming more and more competitive. Now, even the French acknowledge that they are in a very competitive environment. Wines come from all over. Stores now carry wines from South Africa, all over Europe and around the world.

Since this is a very competitive market, we should give a helping hand to the vintners. We should tell them that they no longer have to pay the excise tax. This would give them the latitude to probably offer more affordable prices. I do not think that the producers would put the entire savings from the excise tax in their pockets. I think they would pass on the savings to consumers, thus making these wines more competitive.

We like some other provisions, such as the ones on tobacco.

There are some clarifications on the provisions of the excise tax to better fight against contraband tobacco products. It is about time. We are not the first to think of this, since even the Romans thought to tax luxury goods. In today's society, we consider taxing unhealthy products, such as cigarettes. This is nothing new. Rome thought of it before us. Given all the harmful effects of tobacco, I think it is important to maintain the level of taxation. Smuggling must also be avoided, and I think that the current provisions will ensure that the origin of the tobacco product must be known.

We will have to deal with the fact that on aboriginal reserves, there are many of these little smoke shacks that sell tobacco products without tax, products whose origins are unclear as well. I regularly drive through part of the reserve at the exit of the Mercier bridge. It goes from one side of the border to the other. Some measures in Bill C-40 will make it possible to better control cigarette smuggling. It is not acceptable that some people can get away with this, while the corner store in downtown Saint-Jean must pay the total price. Conditions are not tough enough; all the corner stores must sell cigarettes with prices and taxes indicated, while elsewhere, such as on the reserve, for example, things are different.

Thus, I believe that this measure will not only get a handle on the problem, but will also allow the government to generate some revenue. This is what I mentioned this morning about Bill C-33. When an illegal trade develops and is almost entirely untaxed, it is the government that loses revenues, because some people will buy their tobacco products there instead of at the corner store.

Therefore, we encourage this measure, because it will try to finally put an end to cigarette smuggling and, if we really succeed, it will put more revenues in the coffers of the government, which will be able to spend some on all kinds of services and will be able to improve health or education services, as I mentioned this morning.

The same goes for alcohol. In the bill, some overtures have been made about the objectives. First, it allows provincial liquor boards and vintners to possess a still . This was previous illegal. Personally, I know someone—I will not tell his name—who would give me a bottle of grappa once in a while. He did not sell it to me; this was totally legal, I tell you right now. However, to produce grappa, you must have a still and a licence.

Before, one had to go through many people and many steps, and there were costs associated with these steps. The bill will save the provincial boards all these steps and costs inherent in the purchase of this equipment used to produce and sell alcohol. This legislation will allow people, whether they be wine producers or not, who wish to make grappa or any other type of wine, to do so legally. They will be able to buy these stills.

Moreover, another type of illegal trade will be eliminated. I was personally happy to be given a bottle of wine by this person, but maybe other producers were illegally selling their production and the government was losing out on these revenues. This will allow such companies to operate legally, to obey the law and to provide the government with some revenue.

I would also like to talk about the security surcharge at some airports.

After the events of 9/11, I remember sitting on the legislative committee where senators and MPs discussed a considerable surcharge—based on the number of passengers—to provide all airports with the necessary equipment to fight terrorism.

Now we learn that this charge will be eliminated at certain airports. In my opinion, this will allow airports to avoid being crushed by the weight of this surtax. We note that the La Grande 3 and La Grande 4 airports will no longer be subject to the charge

However, this is offset by the fact that certain airports that were not on the list—the Mont-Tremblant airport in particular—will now be added. There has been a significant increase in passengers at this airport because this part of Quebec is experiencing tremendous growth. Thus, they will be taxed and the charge will be added.

In other words, applying a charge to an airport that is already very popular and that is already making a bit of money, is preferable to applying a charge to all airports. Small airports would have trouble because each time a plane lands, a surtax is charged. Thus, this is significant for the budgets of small airports and we truly approve of this measure.

There are a number of provisions in this bill that we truly like.

Given that I have the time, I would like to go back a bit. Earlier I spoke of speech language pathology, but only with regard to young children who have hearing or speaking impairments. However, this measure will also help individuals who are slightly older.

I believe that many seniors may be receiving treatment for speech-language pathology. For instance, I am thinking of my father who suffered a series of strokes. Rehabilitation is a difficult and often lengthy process because of the long wait times for health care.

People with insurance could afford treatment for speech-language pathology. If they can afford it and decide to pay for it themselves, then why tax them? The situation is a little like that of the young children I was talking about earlier, who have problems speaking or hearing. The same is true of seniors who have the same sort of problem. And these clients are not wealthy. We know the statistics about seniors. Any measures that could help them further would be welcome.

We are still waiting for the federal government to look at seniors' tax returns and pay them the guaranteed income supplement immediately if they qualify. We are still calling for that. However, if they need a speech-language pathologist, we agree that this service should be tax exempt, as the bill provides.

The bill contains only good measures. There may be some things we would like to see taken further, but we believe this is a very good start. There are some measures in the bill that we have wanted to see for a long time, such as the duty on wine. Vintners would talk to me about this regularly. They will be very happy to learn that the Bloc Québécois is supporting this bill.

As I mentioned earlier, on the whole, this bill contains attractive measures not only for airports and vintners, but also for people who need health care services.

We can please all these people, and these measures are along the lines of what we want to see happen. That is why the Bloc Québécois will be very happy to support this bill.

Income Tax Amendments Act, 2006

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

Mr. Speaker, I would like to expand on the comments of my colleague from Joliette, who is very familiar with financial matters. He gave examples of situations where the current minister, with the best intentions, proposed a policy that was in need of some fine-tuning. The picture I am getting could be added to the one he was talking about. I am thinking about the program for GST rebates for tourists.

In this case, the Bloc Québécois, the industry and other political parties had to make strong and repeated arguments to achieve a few partial corrections to an unacceptable situation, in which organizers of conventions for outfitters or other similar events were losing a considerable international competitive advantage. It is the same type of situation with interest deductibility.

As for GST rebates for tourists, an extra effort should be made to come up with a reasonable solution for duty-free shops.

But my question is more general. I would like my colleague from Joliette to tell me, since pre-budget consultations on next year's budget will be starting soon—it is already the time to be working on these things—should tax avoidance not be an important issue? Should it not be important to make increasing transparency in Canada's tax situation a priority, or to ensure that there is a significant improvement beyond Bill C-33, which we are studying right now?

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, I thank the member for his question. Indeed, Bill C-33 contains interesting aspects regarding the reduction of tax evasion. However, it is still just a band-aid on a cancer. We think there are other priorities. I spoke about the tax treaty with Barbados. If the Minister of Finance and the Conservative government really want to reduce tax evasion, they will have to amend that treaty and the law in order to turn off the tap. Until now, we have not seen the minister show any such commitment.

There has been a lot of talk about interest deductibility for Canadian companies investing abroad. The minister backed off and said that he was doing this to prevent tax evasion in tax havens. This is also a measure which could be interesting in some regards, but it is throwing the baby out with the bath water. So, it is good to see the minister backing off from his initial plan, but even if he maintains the non-deductibility of interest charges for Canadian companies investing abroad, this is still a small measure in the big picture. It is somewhat the same for income trusts.

During the proceedings of the Standing Committee on Finance, I was very surprised to see that the Minister of Finance was not able to demonstrate to us that existing income trusts were generating a tax loss that is extremely harmful to the Government of Canada's financial position.

Minister Audet told me that, in the case of Quebec, these trusts were responsible for a shortfall of about $40 million. That is significant, particularly since the Prime Minister made a promise regarding this issue during the election campaign. It seems to me that the government could have found a solution that is more respectful of the two and a half million Canadians who contributed to income trusts and who, among other things, probably believed the Prime Minister during the election campaign, when he promised that he would not touch these trusts.

That said, my greatest concern with income trusts was their effect, in the longer term, on Canada's economic development. For example, BCE, a corporation, was to become an income trust, because of the pressure exerted by one competitor, TELUS, and not because of its own corporate interests. In my opinion, this was more important than the issue of revenue losses for the federal or the Quebec government.

The hon. member is right when he says that this is creating a perverse effect, particularly regarding the value of the Canadian dollar. Many of these businesses represent a minor investment for foreigners, particularly Americans. So, we found out that there was a very real risk.

I have learned one lesson from all this. As with interest deductibility, as with income trusts, and as with many other issues, the Minister of Finance has good intentions, but he takes measures that seem improvised and whose consequences have not, in my opinion, been properly examined.

In conclusion, this will not prevent the Bloc Québécois from supporting Bill C-52. However, it could mean that, in the coming years, all parliamentarians, and the members of the Standing Committee on Finance, may have to look at this issue again, in order to suggest to the government, regardless of which party may be in office at that time, ways that are more effective on an economic, fiscal and financial level.

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, to begin with, I would like to congratulate my colleague from Montmagny—L'Islet—Kamouraska—Rivière-du-Loup. His presentation was extremely clear. I will probably have the opportunity, in my own presentation, to substantiate even more what he just said. As he pointed out, the Bloc Québécois is in favour of 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. It corrects a number of things.

Again, this is somewhat like when I spoke to the changes to the excise tax. Sometimes, we debate in the House of rather casual subjects. This is far from Tintin in the Congo or Tintin in Tibet and even farther from The Crab with the Golden Claws or, for example, The Castafiore Emerald . This is not very sexy for a debate, but it is a necessary debate, just as the one on the excise tax. Bill C-33 corrects various provisions of the Income Tax Act which made it easy to circumvent tax rules and allowed tax evasion.

The bill responds to the shortcomings identified by the Auditor General in her November 2005 report. This bill will require disclosure of additional information about non-resident trusts, which will allow a more rigorous analysis of the figures submitted to the Canada Revenue Agency, in accordance with the recommendations of the Auditor General.

As my colleague has mentioned, tax evasion goes against the basic principles of horizontal and vertical fairness in the way we treat individuals. We must never forget that fairness is of paramount importance if we want people to have any trust in the tax system. This means fairness not only between individuals, but also between the different categories of individuals.

When the tax system is viewed as being unfair, there is also, unfortunately, a certain nonchalance in the public opinion about everything that relates to tax evasion. Working for pay under the table is a case in point. We absolutely need a tax system that not only is extremely fair, but that also has the appearance of being fair. Every time we can close a loophole and prevent people from believing that there is a double standard that benefits those who can afford those mechanisms, we have to do so. We were talking earlier about tax havens and about specialists and experts who can teach people how to avoid their collective responsibility.

It seems to me that we have to try and close those loopholes, and that is what this bill is doing. As I mentioned before, the Bloc Québécois will support Bill C-33.

Both the absence of fairness and the perceived absence thereof create a sense of laxity within the affected society. They also cause taxpayers to feel that they are being treated unfairly. As I said, practices that do not quite comply with the legislation are becoming more and more accepted and commonplace. Moreover, the government is losing revenue that, as my colleague said, must be made up for by higher taxes elsewhere, especially for the middle class, or by cuts to necessary public services.

As I said, we will support this bill even though it lacks that something special. It is definitely relevant, and as such, I think it deserves our attention even though it is not exactly a fun read.

I will provide a little background. In Canada, taxable revenue on trusts is calculated for individuals, not families. Here, income can be split among family members, resulting in major tax advantages. In fact, this is a common financial planning tactic among higher-income taxpayers.

They use family trusts to split income among as many family members as possible to take advantage of those family members' tax brackets. Obviously, when the income is split among many, some members of the family may have lower tax rates than if just one or two family members declare the income.

Canada's income tax system is based on a progressive tax rate structure. As such, individuals who have low or medium income pay less tax than high-income earners. As I just said, splitting income is one way to save taxes within a family or household.

To take advantage of this method, one must have a family trust. In addition to allowing income splitting, the trust can protect assets against the beneficiaries' creditors or ensure the use of an asset by a spouse until death before transferring the property rights to the children. The trust can also ensure that children have sufficient capital to cover the cost of tuition or living expenses while studying.

Even though trusts may seem to be an attractive way of avoiding tax, annual management fees can run to several thousand dollars. Once again, often it is the wealthy who are able to invest and who have enough money so that the advantages and disadvantages balance out and these trusts become attractive investment vehicles. Therefore, trusts are clearly investment vehicles that are available primarily to wealthy taxpayers.

In my opinion, on the whole, taxpayers do not appreciate income splitting, because it goes against one of the main principles of taxation policy: fairness. I mentioned this earlier. To comply with the principle of tax fairness, government gradually regulated the use of trusts and tried in various ways to reduce the benefits of income splitting.

The use of offshore trusts as investment vehicles has many advantages in terms of tax avoidance. Offshore trusts enable Canadian taxpayers to shelter assets from the tax system. Since Canadian tax authorities can have a very hard time obtaining information on investments in such vehicles, this opens the door to tax avoidance.

I remember that in a report—I think it was on the show Enjeux—journalists went to Barbados to locate companies such as the ones owned by the sons of the former Prime Minister, the member for LaSalle—Émard. The journalists were astonished to find that the headquarters of CSL International was not only a law office with four employees, but also the headquarters of about 100 other companies. Unfortunately, this information was not known previously, because it is not always easy to travel to conduct the necessary investigations. That is why it is important to have an easier way to obtain the necessary information.

In January 2000, the federal finance department introduced legislation to prohibit splitting with minors. People may not use children under 18 years of age, who are usually not yet working and therefore have no income of their own.

Under the attribution rules, capital gains on shares in the trust can be split, enabling the trustees to save on tax. Contrary to the attribution rules, this provision taxes the recipient of the split income at the top marginal rate, instead of reattributing the income to the transferor or lender.

However, the lack of clear legislation pertaining to foreign trusts created loopholes allowing the use of trusts established in foreign countries in order to continue to profit from the various advantages of income splitting. Moreover, the problems with information gathering—and I gave an example of that earlier—to establish the market value of assets of offshore trusts has facilitated tax evasion. In my opinion, it is important to remember that.

We also need to remember what the market value of assets is, that is, the highest price that would be agreed upon in a completely open and unrestricted market between fully-informed, knowledgeable and willing parties dealing at arm's length without constraint. This is the definition of fair market value. As I said earlier, it is a provision that was put in in that regard.

It was hard to establish the fair market value of offshore trusts. This value could be underestimated or the owners could find ways to ensure that the people at the Canada Revenue Agency had the impression that the value was lower.

Consequently, in a section of her 2005 report the Auditor General looked at the various loopholes found in the application of the Income Tax Act. She made a number of recommendations to close these loopholes with respect to the treatment of foreign investment trusts.

Of course, a ways and means motion was introduced on November 9, 2006. The Minister of Finance included this motion in Bill C-37 and its purpose is indeed to amend various rules concerning income tax. This ways and means motion had three main components.

First, the bill amends the Income Tax Act in order to clarify and specify the tax rules for non-resident trusts and foreign investment entities. Those provisions will allow the government to better regulate the use of those offshore investment vehicles by clearly establishing the foreign investment entities that may be exempt from taxation, the rules for ensuring that the foreign trust will be deemed to be resident in Canada and the investment vehicles to be taxed. The provisions will also specify how the attribution rules will apply when a foreign trust is deemed to be resident.

On that subject, I would remind the House that California, for instance, amended its legislation two or three years ago to ensure that, in the case of a company established in California and whose head office is in California, but that does business all over the world, revenue generated by that company must be included in the revenue of the head office. People saw this as strong action against tax avoidance and against tax havens. In fact, this has existed in Canada for a number of years. As a rule, a company whose head office is in Canada must pay taxes on all its revenue, regardless of whether it is generated in Canada or abroad, as long as there is no tax treaty, of course. If a tax treaty exists—we have such treaties with several countries—it is a matter of not taxing the same entity twice for the same revenue. This is completely understandable.

The problem I want to underline, and maybe I will be able to come back to it, is that when we have a tax convention like the one we have with Barbados, where the tax rate varies between 2.5% and 1%, this is a regressive tax instead of a progressive tax. The tax rate goes down as revenues go up. Of course these are only symbolic tax rates. Canada considers that revenues have been taxed a first time in Barbados and does not tax them a second time in Canada. When the tax rate of the foreign country is reasonable and comparable to the rates we have in Canada, tax conventions are totally acceptable. Unfortunately, when we deal with a country that does not have a real and transparent tax system but a system that is used only to allow taxpayers to avoid paying income tax in Canada, we do have a serious problem.

The second aspect relates to a number of general provisions in the Income Tax Act. I am still referring to the ways and means motion of November 9, 2006. First, it changes some general provisions of the act to ensure an efficient enforcement of the measures contained in the first part. The bill proposes a few changes to the Income Tax Act to include different measures in Bill C-28, A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006. That is to say that the bill is modifying a previous bill that had already been introduced in this House. Some of the changes were suggested by the Canada Revenue Agency to clarify or facilitate the enforcement of measures included in the Income Tax Act.

The third and final component deals with the bijural aspect of the proposed amendments.

In other words, this last part adds or modifies expressions in the English and French versions in order to respect the semantics of civil law and common law. As we know, both apply in Quebec. This is inherent to the unique nature of the Quebec nation.

Let us now examine the individual parts of the bill resulting from the means and ways motion. The first part refers to changes to the rules that apply to non-resident trusts and foreign investment entities. A certain number of amendments and clarifications to section 94 establish the rules for taxation of non-resident trusts.

This part of the bill establishes and clarifies the rules regarding taxation of non-resident trusts. These clarifications and changes are made by amending article 94 of the Income Tax Act, as I already mentioned, which sets the tax rates for non-resident trusts.

As a general rule, a trust is subject to the Income Tax Act if it has received the transfer or loan of assets from an association, a joint venture, a trust, a fund, an organization, a natural person, a partnership or a financial syndicate resident in Canada. The non-resident trust must pay tax on income to the Government of Canada. If it does not, the beneficiaries are held responsible and must pay the amounts due. However, beneficiaries only pay their share of the tax on the trust. Additional relief is provided for beneficiaries who make a minimal contribution compared to other contributions to the trust.

The various changes proposed in this section of the bill amend the rules that apply to repatriation of moneys to Canada. More specifically, these rules define additional criteria for calculating the fair market value of assets. I have already mentioned the definition of fair market value for assets held by a non-resident trust.

Second, again in part 1, there are definitions of foreign trusts exempt from the Income Tax Act. This part of the bill specifies which type of trusts are eligible for tax exemption under the Income Tax Act. These measures will ensure that only trusts truly eligible for tax extensions could use this tax benefit. This will result in fairer tax treatment for everyone. Without going into too much detail, the following list indicates which trusts can be exempt and which trusts must pay tax.

Among the trusts eligible for exemption under the Income Tax Act, the exempt non-resident trusts, are trusts for beneficiaries with a mental infirmity who are not residents of Canada, and whose contributions to the trust are made to provide for the beneficiary's needs. This goes without saying.

Also exempt are trusts established after the breakdown of a marriage to provide for the children from the marriage who are under 21 years of age or under 31 years of age if they are enrolled full time at an educational institute, as well as charitable trusts, of course.

As far as the first exemption is concerned, I believe it is entirely consistent with what the Minister of Finance announced in his budget in February on the possibility of parents amassing, through a specific plan, money to provide for the needs of their severely handicapped children.

Resident trusts eligible for tax exemption are trusts for administering or providing pension benefits to employees, as well as charitable trusts.

Finally, the changes made to the Income Tax Act essentially mean that we have to ensure, quite simply, that the legislation as a whole is consistent.

In closing, Bill C-33 will ensure better application of the Income Tax Act.

The Bloc supports this bill to restrict the use of non-resident trusts as tax loopholes. This will allow us to maintain tax fairness—or improve it since it is not fair enough yet—and also show taxpayers in general that parliamentarians are interested in this and are concerned about their perception of fairness in the system. This will bring in a little more money for the good government.

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

Mr. Speaker, this is a complex issue which deserves much attention and probably more than 45 seconds. Obviously, at each step, it must be determined if a given tax measure is adequate. Its fairness, its efficiency in generating revenues and its relevance must be taken into account.

I hope that the government will display the same maturity we are finding today in Bill C-33, which we support, but many aspects of this issue have not been addressed.

The House resumed 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.

Income Tax Act

[Paul Crête, Bloc, 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.

The House resumed 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.

Income Tax Amendments Act, 2006

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

Mr. Speaker, it is my pleasure to rise to speak on this bill. I know that my remarks will be interrupted because there is only five minutes left before members' statements and oral question period after. In the first part of my remarks and from the outset, I want to say that the Bloc Québécois will be supporting this bill with respect to changing the rules for foreign investment entities and non-resident trusts. It was high time that this kind of action be taken to bring about changes in the major areas in this bill, on which I will elaborate a little later.

On this day when the Minister of Finance announced what he called a tax fairness debate, we can see that the government has overlooked two things. This bill should also have included something about the whole issue of the tax treaty with Barbados. If there is a loophole for tax avoidance in Canada right now, that is the one. In addition, on the face of the government's proposal this morning, it would seem that it simply voids what the budget said. Very rarely is a decision that is not to be implemented for another five years, and that will be submitted to an advisory panel in the meantime, announced in a statement by the finance minister.

The government realized somehow that what was announced in the budget was not specific enough. It was having a major negative impact on the economy while at the same time not addressing all potential abuse in that area. It is therefore right to vote for Bill C-33 to ensure that this legislation can come into force. Indeed, tax fairness issues had been identified by the Auditor General, and even by predecessors of hers, but had not yet been addressed.

However, today, we would have liked—particularly the Bloc Québécois—the government to take advantage of the great opportunity provided by this bill to correct a problem, to address a major flaw in Canada's whole international tax structure, namely the infamous tax treaty with Barbados. We expected the minister to deal with this issue. Unfortunately, he merely dealt with the deductibility of interest costs, by coming up with a solution that looks like an attempt to muddy the waters. Moreover, there is no indication at all that the issue of the tax treaty with Barbados will be settled.

When we talk to people about this issue, they find it a bit complicated. It is simply a matter of understanding that, under the existing system—which is the result of the government's action, not something that happened by accident—each and every year, we lose $800 million in taxes that should be paid by businesses on the profits that come back from Barbados without being taxed. Indeed, we would have expected the government to do something about this situation in today's legislation, but it did not.

The bill amends the rules that apply to non-resident trusts and to foreign investment entities. These changes were necessary in order to amend the Income Tax Act, which sets the tax rules for these non-resident trusts. Normally, a trust falls under Canada's Income Tax Act if it has received a transfer or the proceeds of property from a partnership, joint venture, trust, fund, organization, etc. The trust is required to pay taxes on its revenues to the Government of Canada. If it does not do so, beneficiaries are held responsible and they must pay those taxes themselves. However, the amounts imposed on beneficiaries will reflect their contribution to the trust. An additional relief will be provided to those beneficiaries whose contribution is minimal, compared to the other contributions made to the trust.

So, this bill includes various measures and amendments that change the rules that apply when this money is brought back to Canada. More specifically, these measures define the additional criteria used to determine the fair market value of the assets held by a non-resident trust. In addition to correcting this situation, we would have liked the government to also deal with the issue created by the tax treaty with Barbados.

I will let the House reflect on this issue that is not dealt with in the bill, on this major lack of fairness that has a huge impact on Canada's tax system.

[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.

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.

Opposition Motion—Finance

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Mr. Speaker, I am very happy to speak to this motion because what we are addressing concerns an issue that is of crucial importance in my riding of Newton—North Delta. It is the issue of income trusts. There is no other issue on which I have received more phone calls, letters and e-mails from my constituents. I do not know how many times I have heard from them. Many voted Conservative and not Liberal in the last election and said that the government they voted for is not the one that would have reversed its position on this. If it did, my constituents would never have given it their conditional trust, never mind the responsibility to handle income trusts.

Because of the volume of complaints I received, I decided to hold a town hall meeting for those who had lost so much of their hard-earned savings. I listened and could not believe all I was hearing. These are ordinary Canadians who do not speak from positions of great wealth. Many are not in their peak earning years any more. Many cannot even dream of making up half of what they lost because of this decision.

I sat down with them in the town hall meeting and we talked about the real costs of this decision. We know the numbers: an estimated $25 billion, an average of $25,000 for each Canadian. However, the numbers are just the facts. They do not tell the story. They are too abstract. One cannot understand these losses until one actually sits down with some of the people who have suffered from this decision, but talking and consulting with the Canadian public does not seem to be a core strength of the government to begin with.

One gentleman, Mr. Maurice Bouchard, was one of the Canadians who based his retirement plans on an investment portfolio that included income trusts. He is 60 years old. He has a mortgage and four children, one who has lost his chance to own a home because of this meanspirited decision by the government. Mr. Bouchard did not expect to be in this position. He has worked hard all his life. He has paid his taxes. He has been an active member of the community in Newton—North Delta.

Here in Ottawa where it is all about numbers on the books, we could use some of his clarity. For him it is very simple. He stated, “How can I tell anyone, my kids or grandchildren, that the high morality of one's word as a promise is still the foundation of our society...when our political leader of the day breaks his own word for no good reason?” That is a very good question. It is the one I cannot see the government answering any time soon.

It is not just those who are planning their retirement who were hit hard by this decision. I also received an e-mail from Mr. Bouchard's son. He is 23 years old, just starting out in life. He has worked hard doing overtime in labour jobs, rarely making more than $13 per hour. This young man, Mr. Mark Bouchard, does not want to be a millionaire. He just wants what so many other Canadians want. He wants to own a home.

Of course, the government might not pay much attention to the property prices in my riding of Newton—North Delta, but let me make it simple. This young man put his savings for a home into income trusts. Those savings are gone now.

All I can say is that I wish the Conservatives had the wisdom to speak to ordinary Canadians like the Bouchards before they made their decision. We on this side of the House know that there were better ways to manage the file. That is what this motion is all about.

We all know that the government had the opportunity with the committee process to truly listen to Canadians before it broke its promise to them.

I know many of the measures in Bill C-33 are about tax fairness, avoiding tax havens, ensuring no Canadian has a tax advantage over another and for the principle of fairness, which is why I support the bill.

However, there is no fairness involved with this aspect of income trusts. My colleague, the hon. member for Markham—Unionville, the finance critic who worked so hard on tax reform in his role as a minister, put it very well. He said that this was a “nuclear bomb” approach to solving this problem. There were alternatives and he clearly outlined them in his speeches here in the House.

As for consultations, we heard about advisers on taxation but there are no better advisers on taxation than hard-working Canadian families, like the families in Newton—North Delta that were affected; families like those who spoke with me at my town hall meetings; and families like those who have written to me or phoned my office in numbers the House could not imagine. I have received more phone calls, e-mails and letters on this one issue than on any other issue.

If the government had consulted with the business sector it would have heard the same things too. It would have heard what many people wisely predicted but has now become a reality. The income trust tax has resulted in at least 15 takeover attempts in the last five months. Interest deductibility will just make this situation worse.

Again, the government has broken its promise to ordinary Canadians. It has mismanaged this file and it cost hard-working Canadian families over $25 million in losses in one day. We could be waiting a long time for sound fiscal management from the government, as we had strong fiscal management from the previous government.

Time is money. Many Canadians are now wondering what happened to the sound fiscal management that 13 years of Liberal government brought in with 8 years of balanced budgets and the best economic performance in the G-8 countries.

It is not me who is saying this. In fact, if we go back to the Economist magazine, it says that Canada was one of the best countries, the second best country to Denmark, in which to invest. If we look at between 1990 and the time we left the government, Canadians were taking 11% more in their take-home pay after paying taxes. Many Canadians, like my constituents, want the old Canada back now.

Business of the House

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, as you are aware, this week is strengthening accountability through democratic reform week. It has been a busy week for the democratic reform family of bills.

We sent out invitations for the first birthday of Bill S-4, the Senate tenure bill, which Liberal senators have been delaying for almost a year now.

While we are disappointed with the behaviour of Bill S-4's caregivers, we did have some good news this week with the successful delivery of two new members of the family: Bill C-54, a bill to bring accountability with respect to loans; and Bill C-55, a bill to expand voting opportunities.

There is more good news. We are expecting.

Tomorrow, I will be introducing an act to amend the Constitution Act, 1867, on democratic representation, which is on today's notice paper.

Bill C-16, fixed dates for elections, was finally allowed by the clingy Liberal-dominated Senate to leave the nest when it was given royal assent last week.

With respect to the schedule of debate, we will continue today with the opposition motion.

Friday, we conclude strengthening accountability through democratic reform week with debate on the loans bill, possibly the Senate consultation bill and, hopefully, Bill C-52, the budget implementation bill.

Next week will be strengthening the economy week, when we will focus on helping individuals, families and businesses get ahead.

Beginning Monday, and continuing through the week, the House will consider: Bill C-52, the budget implementation bill; Bill C-33 to improve our income tax system; Bill C-40, to improve the sales tax system; Bill C-53, relating to investment disputes; and Bill C-47, the Olympics bill, which help us have a successful Olympics. Hopefully, we can get to Bill C-41, the Competition Act.

If time permits, we will also call for third and final reading Bill C-10, the minimum mandatory sentencing bill.

Thursday, May 17 shall be an allotted day.

Wednesday, May 16, shall be the day appointed, pursuant to Standing Order 81(4)(a), for the purpose of consideration in committee of the whole of all votes under Canadian Heritage of the main estimates for the fiscal year ending March 31, 2008.

Thursday, May 17, shall be the day appointed for the purpose of consideration in committee of the whole of all votes under National Defence of the main estimates for the fiscal year ending March 31, 2008.

Finally, there is an agreement with respect to the debate tomorrow on the 13th report of the Standing Committee on Public Accounts. I believe you would find unanimous consent for the following motion.

I move:

That, notwithstanding any Standing Order or usual practice of the House, the debate pursuant to Standing Order 66 scheduled for tomorrow be deemed to have taken place and all questions necessary to dispose of the motion to concur in the 13th Report of the Standing Committee on Public Accounts be deemed put and a recorded division be deemed requested and deferred to Wednesday, May 16, 2007, at the expiry of the time provided for Government Orders.

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, today and tomorrow we will continue our focus on making our streets and communities safer by cracking down on crime.

This morning we completed the debate at report stage on Bill C-10. That is a bill to introduce mandatory penalties for gun related crimes and other violent acts. Our government proposed amendments at report stage to restore what the Liberals had gutted from the bill at committee, mainly those aspects that will ensure violent criminals actually serve time in jail. We will be voting on these amendments next week.

We will continue this afternoon with Bill C-22, which is the age of protection legislation, followed by Bill C-27, the dangerous offenders legislation that would require criminals who are convicted on two separate occasions of a violent crime to prove to the court why they are not a danger to the community.

Next week will be strengthening accountability through democratic reform week. It effectively kicked off today when Bill C-16, the fixed dates for elections act, received royal assent.

On Monday we will resume debate on Bill C-43. That is the bill that proposes to give Canadians a say in who they want representing them in the Senate.

Our government will be introducing a number of new measures in the House of Commons next week, which I will address at the appropriate time.

Of course, we still have Bill S-4, the bill to establish Senate term limits, which has been languishing in the Senate for almost a year now. It would be nice if the Senate passed that. It would be nice if the Liberal senators could get on with it, so that we could actually have that bill here in the House of Commons as part of our focus on democratic reform next week.

Tuesday, May 8 and Thursday, May 10 will be allotted days.

Pursuant to Standing Order 66 I would like to conclude debate tomorrow on the 11th report of the Standing Committee on Justice and Human Rights, and I would like to conclude debate on May 11, 2007 on the 13th report of the Standing Committee on Public Accounts.

Subject to an agreement with other parties, there may be interest in concluding debate at second reading of Bill C-33, the income tax bill, as early as tomorrow.

On the question of Bill C-30, we see elements of that legislation that we brought forward that are very valuable relating to biodiesel, alternative fuels and so on, and we will seek ways of introducing that in the House of Commons. However, we have absolutely no intention of bringing forward the Liberal carbon tax plan, which is now at the fore of that bill, which would establish an unlimited right to pollute for polluters. All they would have to do is pay and they would have an unlimited right to pollute. That is not our approach. We are bringing in regulations to achieve real reductions in greenhouse gases. That is our approach.

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, today we will continue with the debate on the opposition motion.

Tomorrow we will begin debate, as I said earlier, on one of the government's bills to modernize the Senate of Canada, Bill C-43. This is an act to provide for consultations with the electors on their preferences for appointments to the Senate.

In fact, yesterday the Prime Minister announced that Bert Brown would finally take his seat in the Senate after being elected twice by the people of Alberta. For those who say it cannot be done, we are getting it done. We will continue to get the job done for the other provinces, with the bill, so they too can elect senators. The Senate elections bill, along with the bill to limit terms of senators to eight years will achieve meaningful Senate reform. Meanwhile, we have talked about constitutional reform. We do not think it is necessary. It can be done without it.

However, in response to the other question raised by the opposition House leader on Bill C-16, we will be bringing it forward. We have indicated that we will bring forward a motion to ask that the amendments by the Senate be removed and to communicate that to the Senate. We will bring that motion forward on Monday. We believe we have the support in the House to have that secured so we can have fixed date elections that cannot be tampered with. That will be on the agenda for Monday, followed by Bill C-52, the budget implementation bill. BillC-43 will be the backup bill on that day. That is the Senate consultations.

Tuesday, April 24 and Thursday, April 26 shall be allotted days.

On Wednesday, we will resume debate on BillC-52, the budget implementation bill, if it has not been completed Monday. It will be followed by Bill C-40 on sales tax and Bill C-33 on income tax.

Friday, April 27, we will continue with those same finance bills.

Income Tax Amendments Act, 2006

[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.

[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 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.

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

Mr. Speaker, I take his point. We are in agreement with this issue.

I know his party will support the budget but contained within the budget is this issue of interest deductibility for foreign acquisitions, which effectively handicaps Canadian corporations, whether they are based in Quebec or elsewhere. That, in turn, will lead to a hollowing out of the phrase “corporate Canada”. People have actually spoken out about that.

Is the member concerned with this particular provision in the budget, and we have a live example in front of us, which would effectively hobble Bell Canada, for instance, acquiring businesses elsewhere but not have any impact on those businesses that would like to acquire Bell Canada or other companies in Canada? If that provision remains, the result will be that business in Canada will be run offshore. The huge irony of that is that we will actually create the very things we are intending to prevent in Bill C-33.

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

Mr. Speaker, I completely agree with the member. It makes no sense that a foreign company is able to acquire a Canadian company. Bill C-33 attempts to deal with the opposite situation, to prevent Canadian companies from acquiring foreign ones without paying their fair share of taxes.

We will always be prepared to support any bill that could prevent what is happening with Bell Canada. This is another great example of what is allowed. As was said, Bell Canada has a whole team of lawyers and probably accountants and bureaucrats who will try to find a loophole that lets this company make the acquisition, because it would be lucrative for Bell Canada shareholders at this point in time. It would be very detrimental to the Quebec and Canadian economy if all our companies became 100% foreign owned. We must move quickly.

Personally, I would be in favour, and the Bloc Québécois will support any such similar bills. I would like Bell Canada to come here and tell us that it was the recent budget that did nothing to counter it, I believe it knows, but that does not matter. The recent budget could not have predicted that Bell Canada would be the target of a foreign takeover this week. I believe we must intervene quickly and pressure the government to immediately bring forward a bill to stop this takeover. I believe we must act quickly. We cannot do anything but. We cannot say that, since our businesses are being taken over by foreign interests, we will vote against this bill so that our local companies will then be able to make foreign acquisitions without paying their taxes.

I believe we are in the process of creating two different worlds. We are going to allow other companies to come and buy up our businesses without paying any taxes and, to compensate, we will tell Canadian companies that they can now acquire foreign companies without paying any taxes. This seems backwards to me. I am all for fairness and justice, and this means in the United States and in Canada. I have nothing against the Americans. If the Americans had a little more common sense, perhaps they would be willing to spread the wealth a little more. I think they have a serious problem in that regard. If we can help them by adopting legislation to counter this type of argument, similar to what is happening right now with BCE, I think it must be done, and the Bloc Québécois will support this measure.

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

Mr. Speaker, I believe there is broad agreement in the House that Bill C-33 is a fairly technical and broad based agreement to close some technical loopholes and things of that nature.

I wonder if the member has addressed his mind to the provision in the budget with respect to the deductibility of interest by Canadian corporations when they acquire corporations or other businesses abroad. I wonder whether he has directed that particular issue in the budget to this morning's headlines in The Globe and Mail and, I assume, in the Montreal newspapers with respect to the proposed acquisition of Bell Canada by a New York based company.

I appreciate that the hon. member knows that Bell Canada is possibly Canada's oldest and one of Canada's biggest companies. It is critical to the welfare of Montreal, Quebec and Canada. It probably has the largest law firm in all of Canada, with a huge number of accountants, a huge number of computer specialists and so on.

I wonder whether the member would be prepared to comment on the potential acquisition of Bell Canada by a New York firm that is not subject to the proposed provision in the budget presented last week. That New York firm will be able to deduct any interest costs.

Could the member tell me why we would handicap Canadian companies acquiring foreign based companies while we would not handicap foreign based companies acquiring Canadian companies such as Bell Canada?

While he is answering that, maybe he could also answer what impact he would anticipate the acquisition of Bell by a foreign based company would have on downtown Montreal.

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

Mr. Speaker, on behalf of my party, the Bloc Québécois, I am pleased to speak to Bill C-33. I am going to read the title so that the people listening will understand it. This is 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.

Now, just from reading the title of the bill, it is clear that it is somewhat complicated, for everyone. This bill is over 400 pages long. I was not joking when I asked my Liberal colleague, a few moments ago, whether his party was for or against tax avoidance, because in the speeches we hear in this House, no one has taken a clear position as the Bloc Québécois has done.

This bill must be passed for the good and simple reason that at present, as we speak, as old age pensions are not being indexed by the federal government, as electricity bills are going up for families in Quebec and probably everywhere else in Canada, as registration fees for car licence plates are going up, as the cost of everything is going up, companies and individuals are using legal entities that are allowed in Canada either to transfer capital abroad or so as not to pay income tax on investment funds. This bill must therefore be passed.

Our position is clear, but we will never stop there. The Bloc Québécois has a single principle: all tax avoidance must be eliminated. It is not acceptable that while some people are having a hard time, others are taking advantage of the situation in order not to pay their taxes here. And then, once those taxes have been collected, we could index old age pensions and raise the various income supports so that people would be able to pay for what they need to survive and meet their everyday expenses.

That is why what some colleagues in this House are saying is incomprehensible. We must never distance ourselves from the public. Certainly this is complex, and we can try, as the Liberal member was just saying, to say that these 400 pages do not solve anything. It is not accurate to say that in 400 pages nothing is being solved. However, he is entirely correct, because tax avoidance is not being solved once and for all. As well, I am not sure that the Liberal Party, which was in power for 13 years, wanted to solve the problem of tax evasion. It did not want to solve the problem, and today, even though the Liberals are in opposition, they will not solve it and they will not do everything in their power precisely to recover all the money that is needed so that we can restore fairness.

I was pleased to hear the minister of the Environment say a moment ago that he wanted to try to restore fairness. This is true of this bill, in part, but the Conservative Party has to be logical in what it says, and restore fairness once and for all. The first aspect of fairness that it should have restored was to index old age pensions on April 1, so that at last everyone who has contributed to the growth of Quebec and Canada would be able to receive dividends on all the time, money and energy they have invested and all the taxes they have paid in the last 40 or 50 or 60 years. That has not been done.

It would be even better if we were told today that what will be recovered with Bill C-33 will be given to those most in need in our society. Never has a Conservative risen in this House, however, to tell us that money would be recovered so that it could be given to those who deserve it. No, that is not what happens. The money is going to be recovered and that is good. The Bloc Québécois agrees with these measures and supports them. You will have our entire support with regard to Bill C-33 and all bills that you propose to eradicate tax evasion once and for all. We will be there to help you, provided that afterwards we can take this money, reinvest it in programs to help those most in need, index old age pensions—as I told you earlier—and be able to reform employment insurance.

With regard to employment insurance, since 1994 the federal government has not invested one cent in the employment insurance plan. It consists of contributions from employers and employees. Believe it or not, the government has managed to generate over $51 billion since 1996, which it has used to reduce the debt and for all sorts of investments, except improving the employment insurance system so that those who have paid into employment insurance are capable of avoiding the famous black hole or seasonal gap, except in a few regions. It is true that the governments, both Liberal and Conservative, have listened to part of what we had to say, since in certain types of industry and in certain regions some pilot projects have been adopted.

The problem is the lack of jobs in all sectors. There have been massive job losses, particularly in manufacturing, in the past two years.

Furthermore no solution has been found for the problem of older workers who have lost their jobs and who deserve an assistance program so that they can enjoy their old age pensions with decent incomes. We have not been able to do that, even though we are swimming in billions of surplus dollars from the employment insurance fund.

All the Liberal and Conservative members will say today that there is no employment insurance fund; it is the government’s consolidated revenue fund. Obviously they collect more from the plan than it costs them, more than they expend on services or insurance for workers.

They make a profit, quite simply. They make money with the employment insurance premiums paid by employees and employers. The reality is that they make a profit. What do they do with the money? They do not give it to the citizens who need it most. They do not improve the plan. We are talking about seasonal workers and workers over 55 who have lost their jobs and who deserve some help until they are eligible for their pensions. We do not see any of that.

There has been no speech in this House, neither from a Liberal nor a Conservative, to say that if we ever passed a bill such as Bill C-33, we could help the least fortunate with that money.

I am not asking that we give this money to those who could benefit from a new employment insurance program. We could simply use the surplus in the fund to improve the EI system. And we could very well use the money saved or recovered through Bill C-33, which addresses tax evasion, to index old age pensions and any other assistance program for the least fortunate in our society.

Once again, and as usual, we are in for a long fight. Those watching us must realize that things do not progress very quickly in the Parliament of Canada. It is a big machine, a big, spacious box with many members and bills that are renewed from one Parliament to the next. Often bills come from previous Parliaments because of elections, etc.

A bill is introduced and then we are informed in this House that the bill did not go through, that we were unable to see it through because we ran out of time and it did not go through all the stages. It is very complicated. However, we must not forget that the party in power often benefits from this, in other words, it arranges things to ensure that the bill does not see the light of day. That is the harsh reality.

We work hard, we try to see bills through, but sometimes the government decides not to pass them quickly. A fast-track procedure exists. Many journalists and media report that we have fast-tracked a bill. What is fast tracking? It is used when we want a bill to pass and we set things up so that it does: we do it quickly and we skip a few stages.

This will not be the case for Bill C-33. The Conservative Party does not want to fast-track. It apparently wants to show an interest in correcting tax evasion.

The Bloc Québécois will give its full support to this bill and any measure seeking to advance the bill as quickly as possible on the parliamentary, jurisdictional, constitutional or any other agenda.

We are prepared to fast-track this bill so that it is enacted as quickly as possible. Why? Because Bill C-33 corrects various provisions of the Income Tax Act. These provisions are being corrected because they made it possible to circumvent tax rules and to evade taxes. The bill is 400 pages and is indeed complex.

Some follow what is happening in terms of tax evasion. Major tax evasion trials are often televised. Individuals have been accused of tax evasion and fraud. Do not get me wrong, but it does not constitute fraud because the law allows tax evasion.

Those who avoid tax have often paid consultants, professionals and a whole host of experts. They have a lot of money and they spend a lot of it to have experts find loopholes in the Income Tax Act, enabling them to avoid expenses and paying taxes.

Today, to deal with the problem, we could all just say that if the government wants to solve the problem of tax evasions it should go ahead and do so. More than 400 pages is needed just to correct some small paragraphs in each amendment. I will not read them all, unless I have the unanimous consent of the House to continue speaking until next week, which I will certainly not obtain.

Be that as it may I would gladly list the sections, paragraphs and sub-paragraphs that have been amended by this bill. In the end, the objective is quite simply to make it more difficult to circumvent the tax regulations and to avoid paying taxes.

The bill responds to the shortcomings identified by the Auditor General in her 2005 report.

It often happens that, here in Parliament, we need the Auditor General to tell us things that we all know. We know that there is tax avoidance in Canada. Cases are reported in the media. People find it maddening that investment money can be legally transferred to other countries without being taxed in Canada. In order to verify that a request was made to the Auditor General. In 2005, in her report, the Auditor General raised the very problem we are trying to rectify today.

The bill before us today will require disclosure of additional information about foreign trusts, which will allow a more rigorous analysis of the figures submitted to the Canada Revenue Agency, in accordance with the recommendations of the Auditor General.

This means data will have to be up to date in order to have all the required information. That is also complicated. We would be hard-pressed to find out how the money was moved, as was the case with trusts; where the money went; where it came from and all the rest. The government absolutely must adopt legislation to control that because, as I said earlier, the big financiers and all those who want to take advantage of the loopholes in the act can hire any number of professionals to help them.

The Auditor General said that this has to stop and that all the required information must be provided. The bill requires that foreign trusts and foreign investment groups must provide all the information required so that we can curb tax avoidance and put an end to it.

I listened to my Liberal colleague earlier and what seems to be the Liberal philosophy. They say they want to put an end to tax avoidance and go after the money offshore so that people pay the taxes they owe. That could take a long time because the money is already gone.

This bill at least has the advantage of allowing the money to be collected before it leaves. That is a good thing in itself. We agree with collecting money that is already in other countries and has not been taxed. We have said that we support any regulations or amendments to the bill for the purpose of recovering taxes from people who have not paid them. But let us start with Bill C-33 to collect taxes from people who want to send their money abroad. We know about foreign trusts, and about all of the foreign investment bodies and entities that transfer capital, and that should be declaring it. We will therefore be collecting the tax right at the start. That is the primary objective that this bill adopts and that the Bloc Québécois adopts.

Tax evasion is much more complex and significant than it appears. This is a principle of fairness. People have to pay their taxes on the money they earn, in Quebec and in Canada, on their sales or however they get it.

When someone sells a car, or a household item, or shares, or whatever, the Income Tax Act allows for exemptions, and that is good because it encourages investment. However, apart from those exemptions, once everyone has understood that after so much profit, they have to pay income tax, this is a simple principle of fairness. In order to redistribute wealth better, we must be able to collect all of the money owing.

We have to stand up. On the day when a government stands up tall, it can tell everyone that they have to pay their taxes, as the law requires them to do, and there will be no more tax evasion or signing of agreements with countries like Barbados, as was done in the past. We denounced the agreements with Barbados, which also allowed the former Liberal prime minister to transfer capital to foreign countries. We have already said a lot about that here in Parliament. This has to stop.

On the day when this message is sent, businessmen will understand that when they make profits, they pay taxes. Our problem is that we allow them to do things and we open the doors that they use. They pay professionals so they can use those doors. On the day when we stop and say that it is over, because we want to have fairness, we will require that they pay their taxes. Because the profits they make are thanks to all the taxpayers who make a lot of corporations wealthy. They often try to make even more profits. We can name them. We saw them when we were talking about income trusts. They are banks and companies that we are dealing with today. Even Bell Canada wanted to create a trust.

One day, we will say to all of them who tried everything they could to make their shareholders wealthy from dividends every quarter, that they have to pay their taxes as they should, and that after that has been done, they will pay dividends. That is it. Dividends will be a little lower, but they will have paid their taxes. When that time comes, the government will be able to resolve the fiscal imbalance once and for all, as we are calling on it to do, not half of it or part of it.

Yes, the Bloc supported the government because it fixed 60% of the fiscal imbalance. But maybe if it recovers all that, it will fix 100% of the imbalance. It will index the old age pension, as it should have on April 1. Maybe it will take a look some day at what an old age pension cheque is supposed to cover. Maybe it will look not only at the cost of living but more at the cost of medications for older people.

It will also look at the cost of housing. Safe housing, including services, is getting more expensive. But the pension has not been indexed for the last 10 years. We have never taken time to discuss the cheque received by older people. Is it really suited to the current needs of our older people, who find that it is getting more expensive to find safe housing. There are a lot of home invasions and people need housing with good security. Are we there yet? No, and we know it. The old age pension was not even indexed on April 1, and it will not be. People who did not know that know it now. I think that most people have already received their cheque and they know that it was not indexed.

In my view, there will have to be a debate some day and the richer people in our society will have to be told that they already have enough and are wealthy enough. They should therefore pay their extra share in taxes. After all, they are not losing all their perks. Corporations and trusts have their own tax rate, which is much lower than the individual rate. They already benefit from the largesse of the system. They already have their ways of saving a few bucks. They will just not get any additional gifts.

The problem is that people who make a lot of money cannot be prevented from wanting to make even more. When people find that the door is wide open and they can detour their funds through foreign trusts and invest their money tax-free elsewhere, why would they not do so, when they can see that their neighbours are doing it?

The income trust story is something like that. The Conservatives are now wrestling with a promise they did not keep and the Liberals with a promise they probably should not have kept. Why? Because originally it seemed like a good idea. But when everybody took advantage of it, they realized that if it continued, one day the big companies would no longer be paying any tax. All of that because they created a little loophole in the Income Tax Act to try to help out. That was done by lobbyists.

We often hear our colleagues tell us that MPs should no longer be there and that lobbyists should take our place. Income trusts have led to this. Lobbyists probably treated members and ministers to lovely evenings with a bottle or two where they had some fine chats about the future. However, lobbyists work for banks and large corporations. They try to find ways for them to make more money. Meanwhile, ordinary citizens sit in front of their televisions and may no longer be able to pay for a meal out. That is difficult to reconcile.

The Conservatives rise to tell us that the Bloc Québécois should disappear. We now have lobbyists. So, all MPs will be replaced. Members will all belong to the same party and the lobbyists will become the official opposition. That will be great, right? That will be just great. Usually, lobbyists do not speak or ask questions in public. Everything is done behind closed doors in order to obtain results.

So, that is how the Conservatives want to govern, and the Liberals before them were not much better. That is the harsh reality. We have allowed lobbies to take over Parliament. It is one of the hard realities faced by new members and they are aware of it.

We receive dozens, even hundreds of invitations every month from various lobby groups trying to take our place as politicians. Personally, I think it is quite something that we have let them take over. Today it has become such a part of daily life that members of the Conservative Party say that there should be no opposition members; the lobbyists will do their work for them. Well, that is how it is. That is what they want because they can be controlled and they have the money to buy them.

One thing is certain: you cannot buy members of the Bloc Québécois. We will always defend a bill, such as Bill C-33, that makes the rich pay their fair share in order to distribute it to those most in need.

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

Mr. Speaker, I am trying to understand what my Liberal colleague is saying. To the Bloc Québécois, Bill C-33, which deals with foreign investment entities and non-resident trusts, aims, in part, to counter tax avoidance.

I understand that my colleague was talking about income trusts, among other things, and I see that he was trying to connect that with foreign trusts. But for us, this is a bill to counter tax avoidance.

I would like to know if my colleague is for or against tax avoidance, and if he is for or against the bill.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Speaker, I am pleased to rise today to speak to this fascinating bill, 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.

The bill represents a necessary update to the Income Tax Act, particularly as it relates to foreign amendments and other domestic measures. The majority of the bill's provisions are taken from the Liberal government's budget of 1999. The government put the proposed changes up for public comment in July 2005. The changes we are debating today also contain revisions made to that July 2005 release.

Although the amendments to the income tax will be mainly administrative, it is important to highlight them to have a better understanding ahead of an eventual vote.

The bill can be broken down into three parts.

Part one deals with amendments to provisions of the Income Tax Act governing the taxation of non-resident trusts and their beneficiaries and of Canadian taxpayers who have interests in foreign investment entities.

Part two deals with technical amendments that were included in part one of a discussion draft entitled “Legislative Draft Proposals and Draft Regulations Relating to Income Tax”, released by the minister of finance in February 2004.

Part three deals with provisions of the act not opened up in parts one and two.

The proposed measures in part one deal with non-resident trusts and foreign investment entities designed to ensure Canada is properly taxing those Canadians who are earning income through foreign intermediaries in the same manner that income would have been taxed had it been earned directly.

It is essential that Canada close tax avoiding loopholes, not only to protect our own tax base but also to demonstrate our commitment to the international community. We must show our international partners that Canada takes its international responsibilities seriously and that Canada is not a destination for taxation loopholes.

If I look at the bill, it is over 500 pages long. It is not likely that anybody in the chamber has read it. Even if people have, I am not too convinced they can understand this type of bill. However, as vice-chairman of the finance committee, I look forward to sending the bill to the finance committee after second reading so we can further study to determine if any amendments will be needed to make it an even better bill than what it is today.

We need bills like this. They may be complex, but in debating the bill in the past, members have decided to concentrate their points on other areas. As an accountant, I know the foundation of these bills are important. They are just as important as any other bill we debate in the House. That is why, if read some of the debate that went on in previous sessions by members of the opposition, especially government members, they had trouble determining what was a tax haven, what was a tax treaty and what were international tax agreements.

Tax havens are jurisdictions where people park their money, or investments, and they pay no income tax on the income generated on these moneys. Tax havens are countries like Bermuda, Cayman Islands, Turks and Caicos, Gibralter, just to name a few, where people or companies put their money, leave it there and it accumulates tax free. The purpose of the bill is not to address tax havens.

The second point is government members feel these are tax treaties. This is not a tax treaty. A tax treaty is like one of the bills we discussed a few months ago, Bill S-5. Tax treaties are conventions between two countries. Normally the purpose of the tax treaty is to avoid double taxation so Canadians or residents of the other countries do not have to pay double tax. Bill S-5 was our agreement with countries like Mexico, South Korea and Finland.

Some of the other problems we get into when we speak about tax treaties, tax havens and international conventions is our tax base does not get protected. Canada's tax base needs to be protected. If people start taking their hard-earned money and parking it elsewhere, Canada will be unable to maintain the revenue stream that we need so we can rely on the social programs.

The other item that makes Bill C-33 important is there are advantages to using a non-resident trust. If we do not put limits on it, the foreign investment entities will be eliminated.

There are a lot of points on which I would like to speak, but one of the items is the international tax agreements. We can sign these international tax agreements because this affects foreign entities. From what I understand, in the 1990s, although I was not in the House then but perhaps the Speaker was, a tax treaty with Italy was passed by the House. Italy has yet to ratify that treaty.

Italy now has two members of Parliament from other countries who sit in the House of Commons. It has an elected member of Parliament representing the riding of North America. One member of Parliament was born in the United States. The other one was born in Canada. It even has a senator. These elected members of Parliament and senator live outside of Italy but they have full right of vote. One MP seems to be lobbying. He has asked what has happened with the treaty. It was signed with Canada but it has not been ratified.

This is a typical example of a treaty we signed with a developed country and there has been no advancement. Some residents of both countries have had to pay double tax. Then they have to file their tax returns to get some of the money back, all because one country has ratified the treaty and the other country has not.

We can talk about the tax treaties and what these types of bills do on the international scene. When we look at what the government has done in the last little while on its international tax position, we think about regulation. I read in the today's paper that we have a regulation as to foreign ownership in the telecom sector, but we still see foreign entities trying to take over one of our biggest corporations in Canada, BCE, formerly Bell Canada.

Some of the articles say that they are looking for Canadian partners. If we do not protect ourselves with agreements like this, foreign corporations can come here, set up non-resident trusts, with Canadian owners but not really beneficial owners, and take over our corporations. We have seen that in the last few years. We just saw it last year when Inco was taken over by another foreign company.

If things continue as they are, all our historic corporations, which have added to the country's past, will slowly slip away. CN has its head office in Montreal, but it is just a skeleton. Most of the decisions are made in Chicago. We have lost part of that.

These agreements are important. The government has to realize that when it makes a decision, it has to be an overall decision to protect Canadian interests. Canada's financial markets represent 1% or 2% of worldwide markets. We need to protect Canada's corporations or they will be swallowed up in this international global economy that we live in today.

In the budget just tabled one of the items concerns me when it comes to the international tax system and fairness. Canada and the U.S. apparently have agreed in principle to update the Canada-U.S. tax treaty. They want to eliminate the non-resident withholding tax on interest payments and Canada also plans to unilaterally remove the withholding tax from arm's length interest payments to other countries.

What does that mean? Does that mean we will not collect any money on interest payments that are made to foreign companies? How about having an agreement with the U.S. in this case to ensure that the money will be taxed on the other side? When companies from the U.S. pay Canadians, we can collect our taxes from those Canadians.

The government then says that we need to promote more business investment. We turn around and look at the budget. Budget 2007 proposes to eliminate the deductability of interest incurred to invest in businesses and business operations abroad.

How does that make any sense? The government wants Canadian businesses to buy foreign entities. Does it want foreign entities to buy Canadian businesses? This will eliminate the deductability of interest incurred to invest in business operations abroad.

How will that help Canadians to expand, to go abroad and increase productivity? It will not. I am not sure what the government is trying to avoid here. There is no basis for saying it is going to affect revenues in Canada. Most Canadian companies that borrow to purchase foreign affiliates borrow from Canadian financial institutions. The Canadian financial institutions from what I understand pay taxes here.

Perhaps the government should have put a disclaimer that said if a Canadian business was to purchase an operation abroad, as long as it borrowed the money from a Canadian financial institution, that interest could be deducted.

When other members spoke on the bill, they spoke about income trusts. Income trusts have a non-resident aspect to it. We see now that the rules were changed. Some REITs are still allowed, but the government has put a limit as to how much foreign ownership or foreign property they are allowed to invest in.

In the news it said that Canadian REITs were not allowed to invest in foreign entities or foreign real estate up to a certain level. How will that help Canadian companies if they cannot go abroad? As we say in French, “Les bâtons dans les roues”.

Getting back to income trusts, the government has imposed a 31.5% tax on income trusts, which is fine if it chooses to do that. Now it has totally eliminated that sector because it says it did not pay tax or claimed too much tax. The government keeps flip-flopping in terms of its position.

Now we have income trusts that are now going to have to pay 31.5%. People were interested in investing in income trusts, especially the energy sector, because these allowed corporations to go out and get capital at a cheaper price because they were selling units instead of shares. Then the government decided to implement this 31.5% tax. It said that trusts were no longer allowed to operate as of 2011. Existing corporations cannot be converted to trusts.

What has happened is there are no restrictions for foreign entities to buy these companies and turn them into private entities or private trusts to be controlled by foreign entities? There are no restrictions on the actual way in which incomes trusts can now function.

The Liberal way would have been to tax earnings only, to keep the income trusts and tax the non-residents who benefit from the tax free distribution from these income trusts.

Before I get to my next point on private members' bills, I want to go over the tax treaties. The government has also decided to unilaterally provide U.S. companies to borrow in Canada on these limited partnership payments.

What has happened again, if we look at what is in the news, is these limited partnership entities that are allowed to operate in Canada and are allowed to deduct interest payments in the United States are now going to be able to buy up Canadian companies and get a deduction in the United States as well as here in Canada. The only problem is that Canada is not getting cooperation from the U.S. They will probably be able to deduct the interest here in Canada, buy up Canadian companies and use Canadian capital. There is no consistency in how these fee agreements are treated.

There is a whole page on the interest deductibility on the foreign affiliates. There are going to be a lot of problems when we go through this in the finance committee. We are already hearing that Canadian corporations with foreign affiliates are not happy that they are not able to deduct these payments. These items will have to be dealt with when the budget implementation bill is sent to the finance committee.

There was just one more aspect that I want to talk about. If the government is serious about getting a handle on money offshore or making sure that people are not hiding income from Revenue Canada, there are certain procedures that could be used. Some of the departments here in Canada could monitor these moneys or shifts in large sums of money that seem to go offshore and are not accounted for.

FINTRAC, the Financial Transactions and Reports Analysis Centre of Canada was established a couple of years ago. We just did the five year review so it has been around for five or six years. There are financial institutions that have to report to FINTRAC whenever they receive payments of more than $10,000, so FINTRAC could easily monitor any payments that are going offshore.

The problem is that FINTRAC's basic responsibility is to look at whether sums of money are used for terrorist financing or money laundering. It is for crime proceeds. Tax avoidance does not seem to be within its mandate. This is one of the amendments that I had asked for when we were doing the five year review of its mandate, to see if FINTRAC could look at the way tax avoidance is handled in this country.

Another idea that I had was similar to an initiative which has been done in Europe and a couple of countries. It was to provide Canadians with a once in a lifetime opportunity to declare all their worldwide income, and if they repatriated back here, to charge them something like 10% or 20%, and split that amount with the provinces. It would be a good way to generate some revenue even for the provinces. If somebody had forgotten to declare some money or they happened to have some money in another country, they could bring it back. We could assess a tax of 10% or 20% tax. They would not have to pay any interest or penalties on those sums of money.

This initiative seems to have worked in a few other countries. I do not have the stats but apparently there was a good take on it and it increased government revenues by a good 10% or 15%.

There are other ways in which we can look at how tax havens and tax treaties are handled. A 500 page bill is definitely an interesting way to look at all these complex items. The bill tries to amend the Income Tax Act. The Income Tax Act is one of the more complex pieces of legislation, although apparently, the Employment Insurance Act is much more complex.

These are all issues the government should be looking at. I am looking forward to seeing Bill C-33 come to committee so we can analyze it and get a better understanding of what this 500 page document is all about.

The House resumed from February 21 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.

Business of the House

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, on the question of Bill C-16, it is obvious that the Liberal House leader is very concerned about having an election and wants to do anything he can to stop it. Having watched the news last night and having seen some numbers, I can understand his sentiments. That is not surprising.

However, I am also not surprised that he could not remember what the bill was about. That is because it has been out of this House for half a year while the Liberal Senate was trying to deal with it. If those members wanted it passed quickly perhaps they could have avoided making amendments to it. However, there are amendments and we have to consult about them. As well, certainly, the information about everyone having consented is very different from the information that has been provided to me by the other parties to this point.

We will continue to pursue that and we hope to move forward on democratic reform. At the same time, as we said earlier, we will invite the other parties to move forward with Bill S-4 in the Senate. If they want to see things move quickly, that would represent good democratic reform. As well, we invite them to indicate their support for Bill C-43.

However, this afternoon we will continue with the list of bills on today's Projected Order of Business.

Tomorrow we will begin debate on the budget implementation bill. When the House returns from the Easter break, it will continue with the budget implementation bill if it is not already completed tomorrow.

Also on the list of bills for that week are: Bill C-33, on income tax; Bill C-40, on the Excise Tax Act; Bill C-10, on mandatory and minimum penalties; the Senate amendment to Bill C-16, fixed dates for elections, if we can get everyone's agreement on that to move quickly; Bill C-27, on dangerous offenders; and Bill C-45, the Fisheries Act, 2007.

Thursday, April 19 shall be the first allotted day in this supply period.

The Liberal House leader continues to make comments about moving quickly today. I wish he had been over there in the Senate talking to his Senate friends for the past six months while we were waiting. Perhaps while he is busying hurrying things up he can go and talk to the senators about Bill S-4.

I have a motion that I would like to make at this time.

There have been consultations, Mr. Speaker, and I believe that you would find unanimous consent for the following motion. I move:

That, notwithstanding any standing order or usual practices of the House, the remaining debate on the motion to concur in the second report of the Standing Committee on Health be deemed to have taken place and all questions necessary to dispose of the motion be deemed put and a recorded division deemed requested and deferred to Wednesday, April 18, at the end of government orders; and notwithstanding Standing Order 33(2), government orders shall conclude today at 5:30 p.m.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. McKay.

Thank you to our guests. We appreciate your being here. We look forward to the additional information that committee members have requested.

To my committee, I wish you a happy Easter and a restful time away from Parliament.

Also, I just want to review very quickly that in the week of the 17th, the main estimates and also ATM and electronic banking will be on the agenda. On the 19th, it will be ATM and electronic banking. On the 24th, it will very likely be budget implementation or Bill C-33; it remains to be seen.

Mr. Wallace.

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, I believe that the opposition House leader takes a very broad view of the definition of technical. However, we hope that Bill C-16 will progress and will be approved in a form that is appropriate and reasonable to approve and that we will have it here to deal with in the House quickly. That has not happened yet, however, and therefore today we are going to continue with the Liberal opposition motion and the business of supply.

Tomorrow we will continue debate on second reading of Bill C-35, which is the bail reform bill. This is one that has been the subject of positive words from the opposition, and we hope that we will be able to move to unanimous approval.

That would allow us to get on with other issues such as Bill C-42, the Quarantine Act; Bill S-2, hazardous materials; Bill S-3, which deals with defence and justice matters; and Bill C-33, which is an Income Tax Act item.

On Monday, we will be having day three of the budget debate. On Tuesday, we will have the final day of the budget debate.

On Wednesday and Thursday we will continue with the unfinished business from this Friday, including hopefully, the addition of Bill C-10 dealing with mandatory minimum penalties, which I know the opposition House leader will want to add to his package of justice bills he wishes to enthusiastically support.

On Friday, March 30 we will begin debate on the budget implementation bill.

I would like to designate, pursuant to Standing Order 66(2), Wednesday, March 28 for the continuation of the debate on the motion to concur in the 11th report of the Standing Committee on Agriculture, and Thursday, March 29 for the continuation of the debate on the motion to concur in the second report of the Standing Committee on Health.

There is one further item that the opposition House leader raised which was the question of the labour bill. I believe he heard a very generous offer from the Minister of Labour today. I believe the ball is now in the opposition's court on this.

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, today we will continue the debate on the Bloc opposition motion.

Tomorrow I hope to start and conclude the debate on the third reading stage of Bill C-36. This relates to the Canada pension plan and old age security.

Next week and the following week will of course be constituency weeks and members will be working in their constituencies while the House is adjourned.

When the House returns on Monday, March 19, it is my intention to call the report stage of Bill C-10, the mandatory minimums penalty part of our agenda to make communities safer; Bill C-42, An Act to amend the Quarantine Act; Bill S-3, to do with defence; and Bill C-33, relating to income tax.

At 4 p.m. on Monday, March 19, the Minister of Finance will present his budget, as he has previously advised the House. Tuesday, March 20 will then be the first day of the budget debate. Wednesday will be day two.

I am currently asking that Thursday, March 22 be the last allotted day subject to any need to reschedule given that we are three weeks away from that day.

Income Tax Amendments Act, 2006

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Mr. Speaker, I am pleased to participate in the debate on a lengthy bill, Bill C-33.

For those viewers watching the program today, who may have missed the point, this bill is about income tax changes, many of them technical in nature, but we have digressed a great deal and we are talking about a number of other issues.

I intend to speak to the bill and I will do it in three ways. I will address the issues of income trusts, tax havens and the question of unfairness in our tax regime.

I will begin with income trusts because it seems that the Liberal finance critic, the member for Markham—Unionville, has chosen to spend most of his time attacking the New Democratic Party. I did not realize that we had so much power and that we were in a position to determine the affairs of the nation but that clearly is what the member from Markham thinks.

The member's bullying tactics against the NDP, and myself in particular, will not work, just as the bullying tactics of the big oil companies will not work when they take out paid advertisements attacking me directly and the NDP for having dared to suggest that income trusts have no place in our system and should have been phased out. We acknowledge the fact that we have been consistent on this issue from day one and have not flip-flopped or changed our minds, as both the Conservatives and the Liberals have done.

We have not used this issue as a political football and we have not attempted to put one over on Canadians. We will continue to indicate why we are concerned about income trusts and the huge loss of revenue for government programs and the very important programs and initiatives for Canadians.

There is no question in our mind that we are talking about tax leakage, tax slippage and tax loopholes that the Liberals, for over 13 years, upheld and which the Conservatives now seem determined to be party to.

When it comes to this issue, it is clear that the Liberals cannot hold a candle to anyone. They are absolutely shameless when it comes to attacking others, when in fact their record is horrific. The Conservatives, obviously, have fallen into the footsteps of the Liberals by ensuring the perpetuation of large tax loopholes and havens for their corporate friends. That needs to be stopped for the good of all Canadians.

I am not surprised at the member for Markham—Unionville, given his banking background. We know that when push comes to shove the Liberals will be the defenders of big oil and big banks. That was apparent over the last 13 years.

Today we are dealing with a bill that arises out of concerns from the Auditor General about the perpetuation of tax loopholes and tax havens. If truth be told, we are talking about Auditor General reports that go back 14 years, to 1992. The first report of the Auditor General on tax havens happened in that year. It was followed by a report in 2001, a report in 2002 and, more recently, a report in 2007. In each and every case, the Auditor General raised concerns about tax havens.

The Liberal government had ample opportunity to address this very serious issue and chose not to. In fact, it chose to go the opposite way by encouraging tax havens and ensuring that the Barbados remained as a tax haven for investors. That haven continues to be used today by big drug companies, big banks, big oil companies and big shipping companies.

We are talking about the loss of a huge amount of money that ought to have been put to the benefit of Canadians to ensure they and their families were able to make ends meet. If truth be told today, one could say that if anyone deserves a break, it is average families, hard-working Canadians who have seen their ability to cover growing expenses become more and more difficult, while in fact the rich get richer and big corporations get more and more access to tax loopholes and havens.

The point of today's legislation is to crack down on tax loopholes and tax havens but I doubt that this bill is adequate to do the task. However, we will, over the course of the debate, be making some suggestions.

I will be proposing an amendment to the bill that would deal with one of the outstanding issues pertaining to income trusts, which is that many investors, in using income trusts as a way to make money, have overvalued their trusts. As a result, Canadians have been taken to the cleaners and have lost a great deal of money.

Today we propose that the government take the NDP private member's bill to deal with this and ensure accountability and transparency in all aspects of the income trust field so long as they are with us knowing in fact we would like to see them phased out.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, I will continue to address tax evasion and the tax havens used in Barbados.

As my colleagues who spoke before me have said, Bill C-33 is somewhat technical and contains a number of provisions to prevent circumvention of the tax rules and to prevent tax evasion. It responds to a number of requests made by the Auditor General. The Bloc Québécois will therefore support the bill. However, as I said in the question I asked earlier, I think that it does not go far enough in dealing with tax havens. Contrary to what my colleague from the Liberal Party said, we are not talking about people committing tax fraud, we are talking about people who avoid tax and find legal schemes so that they do not pay tax. The reason they can do that is that the existing legislation lets them.

In my presentation, I will try to explain how these people operate and what has to be done to stop this. On the question of tax havens, I would like to tell the House about a comment made by the Auditor General on February 27, 2001. He said that one of the biggest threats to the tax base lies in the international activities of Canadian taxpayers, particularly the use of tax havens.

Tax havens are countries that have a zero or very low tax rate and loose tax rules. That combination is an incentive for taxpayers to settle there or transfer a portion of their activities there in order to be exempt from the Canadian tax system and not have to pay taxes here. Most of the time, these are countries that are notable for their absolute bank secrecy, which makes it impossible to trace all the movements of capital that take place there.

Because of that bank secrecy, it is difficult to measure this phenomenon. In 1998, the OECD estimated that from 1989 to 1994 foreign direct investment rose three times faster in tax havens then elsewhere. That is not a small matter. The OECD drew up a list of tax havens based on four criteria: no or only nominal taxes; lack of effective exchange of tax information; lack of transparency in the operation of tax laws; and no substantial activities in the country where operations are purported to occur. Thirty-five countries met those criteria. The OECD pointed a finger at 47 other countries which, while they were not tax havens, had provisions worthy of a tax haven in certain areas. It should be noted that Canada was on the list of 47 countries because of its tax policies relating to the international shipping of goods.

In 2001, that list was amended by a group of 13 OECD member countries, including Canada, to remove the no substantial activities criterion, which brought the number of tax havens—on paper, obviously—down to 7 from 35. Those countries have not ceased to be tax havens; they are still tax havens.

In 2002, Barbados was removed from the list of countries regarded as tax havens by the OECD. However, Barbados has not changed its fiscal practices; quite the opposite is true. The tax system in Barbados is interesting. I hope that the fact that I am talking about it will not encourage any Quebec or Canadian companies to move there, despite the wonderful conditions it provides, such as a fixed fees of $250 per year and a tax rate of only 2.5% on the first US$5 million in profits. It then declines gradually, to 1% after $15 million. For a company that does not want to pay income tax, this is extremely advantageous.

In Canada, the tax system is tailor made, expressly for Barbados. Let us look at how it operates. The general rule is that all income earned in Canada or abroad is taxable in Canada. However, if income is earned in a country with which Canada has signed a tax treaty to avoid double taxation, that income may not be taxable.

If the foreign subsidiary is deemed to be non-resident in Canada and the tax treaty prohibits double taxation, the general rule that all income received by a Canadian is taxable is bent. It is then the tax treaty that applies.

In theory, in the case of Barbados, the treaty does not apply to subsidiaries that have a tax rate of virtually zero. Like the tax treaty with Cyprus, the Canada-Barbados tax treaty specifically excludes what is known as international business companies or any other similar kinds of companies that enjoy the favourable tax treatment I referred to earlier in Barbados. If we exclude these companies and consider only the normal tax rate in Barbados, which is approximately 40%, virtually all the Canadian companies with a subsidiary in Barbados have established it specifically to enjoy favourable tax treatment. For the most part, these have been established under the Barbados International Business Companies Act and are therefore excluded from this convention.

The companies covered by this provision of the tax treaty are therefore considered under the Income Tax Act to be resident in Canada and therefore subject to Canadian taxation. Based solely on the Income Tax Act and the tax treaty between Canada and Barbados, dividends received by the Canadian parent corporation of a subsidiary in Barbados should be taxed in Canada when they are transferred home. So far, so good.

There are, however, provisions in the Income Tax Regulations which are specifically designed to enable companies to circumvent this difficulty and transfer profits from Barbados tax-free in Canada. I will spare you the whole list of provisions; suffice it to say that paragraph 5907(11.2)(c) of the Income Tax Regulations, if anyone feels like looking it up, renders moot article 30 of the tax treaty, the one that excludes international business companies. It sets out a series of criteria for a company to be considered non-resident in Canada and therefore not subject to tax. Thus, Barbadian subsidiaries of Canadian companies fall into that category.

By invalidating article 30 of the tax treaty, the regulation allows the dividends of Barbadian subsidiaries of Canadian companies to be tax exempt in Canada. Incidentally, through the Access to Information Act, the Bloc Québécois obtained a copy of correspondence between the Minister of Finance and an accounting firm, confirming that this section of the regulations was drafted specifically to allow Canadian businesses to use Barbados as a tax haven.

In July 1994, Wallace Conway, of the taxation policy branch of the finance department, confirmed the following to Craig Cowan, who was employed by the accounting firm Arthur Andersen:

Be advised that proposed paragraph 5907(11.2) is intended to ensure that a Barbados international business corporation which is a foreign affiliate will remain eligible to earn an exempt surplus.

So, the bill did not come into force until 1997, but it was specified that it would be retroactive to 1994. With this amendment to the regulations, Canadian businesses with a subsidiary in Barbados win on both fronts. First of all, since their business is not covered by the tax treaty, Barbados is under no obligation to share information with Canadian tax authorities and, second, since the income tax regulations disregard that exclusion, profits sent back to Canada are tax exempt. The behaviour of the Canadian government, particularly under the Liberals, was all the more deplorable considering that Canada even worked to undermine all the efforts being done by the OECD, this to ensure that Barbados would not be deemed to be a tax haven.

This work to get Barbados off the list was done in two stages. In 2000, the notion of tax havens was replaced with the notion of non-cooperative tax havens, following a recommendation made by a 13 member committee, which included Canada.

Secondly, that same committee changed the criteria to determine whether these countries were cooperative or not. Now, a tax haven simply has to commit to being transparent and to sharing tax information with other countries to be taken off the list. That is really very little.

The tax treaty is essentially based on the exchange of tax information. Thus, once a tax treaty is signed with a tax haven, it is virtually automatically removed from the list. That change made the working group on harmful tax practices completely pointless, and Canada, as a result of what the Liberal government of the time did, was a major participant in weakening it.

For years, the failure to act could be laid at the doorstep of the Liberal Party. We must now recognize, however, that the Conservative government has proposed nothing to fix this. I hope it will soon do so. Probably the budget will be an appropriate opportunity to do it.

The Auditor General has repeatedly deplored Canada's failure to act. She first did this in 1992. In 1996, she took up the issue for the second time; in 1998, for the third time; in 2001, for the fourth time; and ultimately, in 2002, for the fifth time. Still there has been no action by the government, no action by the Liberals at the time and still no action by the Conservatives today. In fact, Canadian investments in tax havens continued to multiply over the same period when the Auditor Generals were issuing us their warnings.

From 1990 to 2003, Canadian companies invested major and growing amounts in countries recognized as offshore financial centres, particularly in the Caribbean. Between 1990 and 2003, Canadian assets in those countries grew by a factor of eight, rising from $11 billion to $88 billion. In 2003, the five main OFCs I referred to earlier were among the 11 countries where there were the most Canadian assets, and so on.

We must realize, from the various reports on television that have dealt with the subject, that this is a situation in which there is more and more money being invested in tax havens, despite the warnings from the Auditor General and, of course, from the Bloc Québécois. The government has never done a thing and we still see nothing being done about this. This is particularly unfortunate from the Conservatives, who claim to want to stand up for taxpayers. What are they waiting for, to ensure that big businesses pay their fair share of taxes, by preventing them from using tax havens?

The Bloc Québécois proposes that all tax treaties go through the House of Commons, which they do not do at present. Bill S-5, which provides for tax treaties to come into force, shows the importance of international treaties in everyday life.

These treaties do not need implementing legislation to be passed. In this case, no treaty will be submitted to Parliament, quite simply.

The federal executive controls all phases of the process of adopting an international treaty. The executive is also responsible for what takes place in negotiations—which are for the most part secret. Nothing is made public during negotiations.

The provinces are seldom consulted, and in many cases they are completely excluded from those negotiations, even though, because of something that falls under their jurisdiction, they often have an interest in the negotiations.

Today, there is no democracy at all when an international treaty is involved. It is worth noting that there is no complete collection of treaties published. The government makes them public on a sporadic basis, and we do not even know whether it discloses all of them. Even the treaty section of the Department of Foreign Affairs does not have a list that we can consult. This is quite incredible, when you think about it.

The government is not even required to table them in the House. It is not even required to inform the House or the people when it signs or ratifies treaties. I find it incredible that in 2007, in our democracy, a government can sign an international treaty without even informing the population. Obviously, the House does not approve them, yet since 2002, in Quebec, the agreement of the National Assembly has been required for Quebec to sign any treaty. This improvement was brought in by the Parti Québécois at the time. It would be interesting to propose such an improvement in this House.

Not only does the House not approve international treaties, but the members are not involved in any way in the process. All we can do is consult with the people and try to obtain their approval.

As I said earlier, the government is not required to consult the provinces even when treaties concern areas of provincial jurisdiction. It is totally absurd that no consultation mechanism is in place. This situation is completely unacceptable.

It used to be that international treaties governed relations between States and had little or no impact on how society functioned or on the lives and rights of citizens. At the time, it was acceptable for the government to unilaterally sign or ratify treaties.

Now, however, international treaties, especially trade agreements, affect the power of the State, the workings of society and the role of citizens. Furthermore, they often have an even greater impact than many bills.

The Canadian treaty ratification process is not in line with this new reality. The people's representatives must be involved in decisions that affect the people they represent.

During the election campaign, the Conservatives promised to bring treaties before the House prior to ratifying them, but they still have not kept that promise. Recently, the government signed an investment protection agreement with Peru. I would note that the agreement still has not been put to the House and that it was already signed before the members could approve it. This agreement is based on chapter eleven of NAFTA, which has been criticized by many.

When the House presses the government to honour its international commitments, as it has done in the case of the Kyoto protocol, the government does what it pleases, with no regard for the will of the people or the promise it made when it signed the treaty.

It is rather paradoxical that the Kyoto protocol is probably the most important of all the treaties this House has approved, yet the government is refusing to acknowledge and implement it. This is a far cry from the Conservatives' promise to submit treaties to the House. I do not know whether the Conservatives meant that they would submit treaties to the House, but would not abide by the House's decision or respect its will. They may have forgotten to mention that when they made their election promises.

The government should have treaties approved and then enforce them.

Not involving representatives of the people is an anachronism in treaty ratification. I would like to point out that Canada is less democratic today than it was in the 1920s.

In fact, in 1926, Prime Minister Mackenzie King introduced a resolution that was unanimously adopted by the House of Commons. It read as follows:

Before Her Majesty's Canadian ministers recommend ratification of a treaty or convention involving Canada, Canada's approval must be obtained.

In 1941, Mackenzie King reiterated his commitment to this approach:

With the exception of treaties of lesser importance or in cases of extreme urgency, the Senate and the House of Commons are invited to approve treaties, conventions and formal agreements before ratification by or on behalf of Canada.

Over the years, the House of Commons had been consulted less and less, and even when it gave its approval in the case of the Kyoto protocol, the government refused to implement it. Nothing in the rest of the industrialized world can compare with that.

I said earlier that Canada was lagging behind Quebec. In Quebec, treaties signed by the Government of Quebec are approved.

On three occasions, the Bloc Québécois has introduced a bill on treaties to modernize the whole process of concluding international treaties. I am referring to Bills C-214, C-314 and C-260. Each time, the federalist parties have rejected the bill. This is very unfortunate.

In conclusion, this bill should be improved—

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Mr. Speaker, if he wants a lesson on fiscal records, Allan Blakeney of the NDP had 11 straight surpluses. In fact, a finance report that just came out said that the best fiscal premiers in the history of this country were New Democrats.

I do not have to remind my Conservative colleagues of the great Grant Devine who took Saskatchewan and ended up with half of his cabinet in jail. I do not have to remind them of the great Conservative John Buchanan who put Nova Scotia in such serious debt that we are still paying for it.

For my question we are going to go back to Bill C-33. The member talked about tax havens. According to records there may be over $80 billion worth of money offshore in these tax havens. In fact, the former prime minister, the member for LaSalle—Émard, is one of the beneficiaries of those tax havens. The reality is that this bill does nothing to stop those tax havens and nothing to close the loopholes.

The reality is that the member can yell and scream all he wants about income trusts. At least we are honest about them. We never would have had them in place had we been in government. The member is right about what the Conservatives did. They misled the Canadian people and on a promise Canadian people invested in those income trusts and now they are being punished.

If he is coming to the NDP to fix their problems, it is not going to happen. The reality is that I would like him to stand up in the House and say what the Liberal Party is prepared to do to close these loopholes and to stop the offshore tax havens.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Speaker, I must profess to being a little shocked as I think the hon. member's comments have gone beyond the scope of Bill C-33. I would have thought you might have reprimanded him for that but since you did not, I would assume he is in order.

Certainly I am an admirer of Mr. Diefenbaker. I am just old enough to remember him. I used to enjoy listening to his French when my French was not very good. An anglophone listening to him could understand every word of his French.

I do not think he was uniformly perfect. I think he cancelled the Avro Arrow. He was nevertheless, I am sure, a great prime minister in many ways and I do not deny that. My only point is that numbers were not his forte because he ran seven consecutive deficits. The story is that Lester Pearson almost fired his speech writer because Mr. Pearson had a bit of a lisp and instead of saying “seven consecutive deficits“, he said something like “theven conthecutive defithits” and the speech writer almost got fired. That is why it stuck in my mind.

But, it is a fact that he did run seven consecutive deficits and it therefore goes along with my hypothesis. We can go from Diefenbaker, to Mulroney, to Harris, to Ronald Regan and George W. Bush south of the border, who were all examples of Conservative or Republican leaders who ran huge deficits and left big fiscal messes for their Liberal or Democratic successors to clean up.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, I rise on a point of order. Quite frankly, we are debating Bill C-33 and his comments have nothing to do with it.

The member is basically suggesting that I have misled the House. I have not misled the House, and I ask that the point be—

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, I appreciate the opportunity to introduce Bill C-33 at second reading.

The bill proposes measures regarding the taxation of non-resident trusts and foreign investment entities, as well as implementing certain technical amendments to the Income Tax Act.

The bill before the House today is indeed complex. Rather than focusing on its technicalities, I will illustrate for hon. members just how Bill C-33 fits into the commitment of how Canada's new government is working to improve our tax system and make it more competitive.

First , how can we have a competitive tax system when Canadians have been paying more taxes than is necessary? This new government believes that Canadians have been overtaxed for too long and we need to move that burden of excess taxation so we can encourage the qualities that are at the very core of what drives and enriches Canadian lives. That is what makes Canada competitive, especially in the global marketplace.

Why should Canadians keep handing over so much of their hard-earned money to government? Canadians need to keep more of their money. They need it to invest in their own families, in their own priorities and in their own futures. They also need it to invest in our economy and help businesses thrive. That helps all of us as Canadians.

The time is now to take less from Canadians in terms of taxes. That is what Canada's new government started doing in budget 2006 and will continue to do.

Members need only look at our record. We delivered almost $20 billion in tax relief to individual Canadians and families over two years. That is more tax relief in one budget than the previous government's last four budgets combined.

As members know, we reduced the GST from 7% to 6% effective July 1, 2006, and there is more to come. We made a further commitment with respect to another percentage point reduction. Cutting the GST cuts taxes for everybody, including those who do not earn enough to pay income tax. Is that not fair?

We did more for individual Canadians by providing personal income tax relief. We increased the basic personal amount and reduced the lowest personal income tax rate. These two measures will provide personal income tax relief of $4.6 billion in 2006-07 and 2007-08.

Last fall, the Minister of Finance announced the new tax fairness plan for Canadians. The plan will restore the balance and fairness to our tax system and create a level playing field between income trusts and corporations. This plan will also deliver over $1 billion of new tax relief annually to Canadians.

The measures in this plan are significant steps forward in the strengthening of our social security system for pensioners and seniors.

Canada's new government also recognizes the importance of Canadian businesses to a strong economy and we want to create a supportive economic environment that helps businesses compete and grow, and that rewards success.

In budget 2006, we started by eliminating the federal capital tax as of January 2006. We will be eliminating the corporate surtax in 2008 and we will be reducing the general corporate income tax rate to 19% from 21% by 2010.

These cuts will allow Canada to regain the solid statutory tax rate advantage that we had prior to the 2004 tax changes in the United States. We also helped small businesses.

An important way that Canada's federal income tax system supports the growth of small businesses is through a lower tax rate on the first $300,000 of qualifying income earned by a Canadian controlled private corporation. This measure helps these small businesses to retain more of their earnings for reinvestment and expansion, thereby helping to create jobs and promote economic growth in Canada.

To further encourage small business growth in Canada, in last year's budget we increased the amount of small business income eligible for the reduced federal tax rate to $400,000 from the current limit of $300,000 as of January 1, 2007. We also reduced the current 12% income tax rate applying to qualifying small businesses to 11.5% in 2008 and 11% in 2009.

I have spoken thus far about how Canada's new government has reduced taxes, both on a personal level as well as a corporate level. This reflects how this new government is dealing with the excessive taxation that Canadians have endured for far too long.

Canada's new government is committed to cutting taxes. In his speech for the recent economic and fiscal update, the Minister of Finance introduced advantage Canada, an economic plan designed to make Canada a world leader for today and future generations. It will help build a strong Canadian economy and make our quality of life second to none through competitive economic advantages.

One of the key advantages in this plan is a commitment to reduce taxes for all Canadians and establish the lowest tax rate on new business investment in the G-7. The tax back guarantee announced in the plan will ensure that Canadians benefit directly from debt reduction by dedicating interest savings from debt reduction each year to permanent personal income tax reductions. Any unanticipated surpluses will be used to accelerate that reduction and, hence, tax reduction.

Lower debt means less interest, which means lower taxes for Canadians. In short, this plan will create the right conditions and opportunities for families and businesses to succeed. As to the taxation of non-resident trusts and foreign investment entities, part of the equation in keeping taxes low is that everyone needs to keep their fair share and that is where the measures in Bill C-33 come in.

Bill C-33 moves forward in this government's goal in promoting fairness and equity in our tax system. Specifically, the bill amends provisions of the Income Tax Act to prevent tax deferral and avoidance though the use of foreign investment funds and trusts. In other words, if someone tries to avoid taxes by using these investment vehicles, any income earned on that investment will be taxed as if it were earned in Canada.

It is important to point out that most of these changes concerning non-resident trusts and foreign investment entities proposed in this bill are the result of extensive consultations with taxpayers, professional tax advisors and the taxation authorities.

It is also important to emphasize that the measure in the bill to prevent tax deferral and avoidance through the use of foreign investment funds and trusts is intended to protect the tax base as opposed to raising additional revenues. In fact, activity of this nature has moderated substantially in years. Bill C-33 would ensure that if that activity does occur, the income earned will be taxed as if earned in Canada.

Canada generally imposes income tax on the income of taxpayers resident in Canada from all sources. On the other hand, Canada generally taxes just the Canadian source of income of taxpayers that are not resident in Canada. An income tax incentive therefore exists for Canadian residents to earn investment income using non-resident trusts and foreign investment entitles based in a country other than Canada that imposes no tax or a low tax.

What this means is that without effective countermeasures, such as those proposed in Bill C-33, residents of Canada who use non-resident trusts and foreign investment entities to earn investment income would inappropriately avoid or defer the payment of Canadian taxes. That creates unfairness.

Avoiding taxes in that manner not only erodes the Canadian tax base, it creates inequities which, in turn, undermine the integrity of our tax system. The effect of these rules is that investment income earned by non-resident trusts and foreign investment entities on behalf of Canadian residents will be taxed in Canada. That income would have been taxed in Canada if the income were earned by resident trusts and resident investment entities on behalf of those Canadians. Therefore, the tax advantages of using non-resident trusts and foreign investment entities will be eliminated.

Not only that, the measures in Bill C-33 would have the effect of eliminating erosion of the tax base, promoting the integrity of Canada's tax system and levelling the playing field for all investment vehicles, whether Canadian or foreign based. These are important considerations.

The measures I just outlined constitute the major portion of Bill C-33. However, the bill also includes a number of technical amendments to the Income Tax Act that would accomplish a number of housekeeping objectives.

The amendments are too numerous to mention. Suffice it to say that the proposed amendments correct or clarify the application of existing income tax provisions or provide legislative authority for measures that have already been announced. Moreover, the bill proposes measures to deal with other income tax situations that require a legislative response.

In conclusion, when considering the bill today, I remind hon. members of the two important objectives of the proposed legislation.

First, Bill C-33 promotes fairness in our tax system. The measures proposed in the bill will help reduce inappropriate tax avoidance by ensuring that income from foreign investments is properly reported. The second objective, which goes hand in hand with the first, is to protect the integrity of Canada's tax system and deter the erosion of the tax base. Bill C-33 would address both of these objectives in such a way that will improve our tax system for the benefit all Canadians.

Since its election, Canada's new government has taken important steps in building a more successful Canada. Bill C-33 would help us continue down that road of prosperity by transforming the tax system into a competitive edge, not an impediment.

[Jay Hill, Conservative, Prince George—Peace River, BC]

moved 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.

Business of the House

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, today we will continue the debate on the Liberal opposition motion.

Tomorrow we will resume debate on Bill C-31, the voter integrity bill, with Bill C-35, the bail reform bill as backup.

Monday we will call Bill C-31, elections, if it is not completed tomorrow; Bill C-44, human rights; Bill C-11, transport; Bill C-33, technical income tax; Bill S-2, hazardous materials; and the statutory order. We have an ambitious agenda there.

Tuesday, February 20, and Thursday, February 22, will be allotted to the business of supply.

On Wednesday we will continue with the business outlined on Monday.

Next Friday, I will consider beginning the debate on Bill C-45, An Act respecting the sustainable development of Canada's seacoast and inland fisheries.

With respect to the debate on the statutory order regarding the Anti-terrorism Act, if an agreement on debate is not reached before February 28, certain provisions of the Anti-terrorism Act will sunset. It is the government's view that all members should be given the opportunity to decide the fate of these provisions because they involve the safety of people they represent.

Recent events have made us aware that the terrorist threats continue to specifically target Canada, but if the terms of the law are not extended by March 1, the protections that we have in place right now will cease to apply.

If an agreement can be reached, I am prepared to call the motion sooner and sit as long as necessary on that day to bring the debate to a conclusion.

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, today we will be continuing the debate on the Bloc opposition motion.

Tomorrow we will begin debate on the statutory order concerning the Anti-terrorism Act. That is for the extension of its provisions.

Next week will be justice week, when the government will showcase part of its safer streets agenda, starting on Monday with the continuation of the debate on the Anti-terrorism Act if it is not completed on Friday.

On Tuesday we plan to begin debate on Bill C-35, which deals with bail reform, and on Wednesday we will resume debate on the second reading stage of the dangerous offenders legislation, Bill C-27.

Thursday, February 15 shall be an allotted day.

On Friday it is my intention to call the report stage of Bill C-10 on mandatory minimum penalties, on the assumption that the justice committee can have it to the House by that time.

For each day, we will have the following business scheduled as backup bills: Bill C-31, the voter integrity legislation; Bill C-44, relating to human rights; Bill C-11, on transport; and Bill C-33, the technical income tax act.

I will be working closely with my counterpart in the Senate with respect to progress on Bill S-4 or, as we keep hearing, the lack of progress.

As you know, Mr. Speaker, a strong, effective and responsible government must speak with one voice, whether it be in the Senate or the House of Commons. The fact that the Leader of the Opposition in the House of Commons and the Leader of the Opposition in the Senate cannot present the same position on Bill S-4 is further evidence that the Liberals are currently not fit to govern. I certainly would like the opportunity for this House to deal with that bill.

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, I appreciate the fine words of welcome from the opposition House leader.

Today, of course, we will be continuing with the opposition motion. Tomorrow we will continue debate on the report stage amendments to Bill C-31, the election integrity act amendments with which we are all familiar.

For Monday and Tuesday, we are intending to call Bill C-26 on payday loans, which is at third reading, Bill C-32 on impaired driving, Bill C-11, the transport act, and Bill C-33, the technical income tax bill.

On Wednesday we hope to begin debate on the third reading stage of Bill C-31, followed by Bill C-44 relating to human rights.

Thursday, February 8 shall be an allotted day. Next Friday we would like to begin debate on the anti-terrorism motion that would extend the application of certain sections of the Anti-Terrorism Act that are due to expire.

Finally, as members know, democratic reform is a priority for Canada's new government, and given that the Liberal leader has publicly expressed his support for term limits for senators, could the official opposition inform the House as to when it can expect the unelected, unaccountable Liberal senators who are delaying and obstructing that bill to give us a chance to consider it here in the House of Commons?

[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.

Income Tax Amendments Act, 2006

[Rob Nicholson, Conservative, Leader of the Government in the House of Commons]

moved for leave to introduce 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.

(Motions deemed adopted, bill read the first time and printed)