This bill is from the 39th Parliament, 1st session, which ended in October 2007.
Jim Flaherty Conservative
Second reading (Senate), as of June 18, 2007
(This bill did not become law.)
This is from the published bill.
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.
All sorts of information on this bill is available at LEGISinfo, an excellent resource from Parliament. You can also read the full text of the bill.
Bill numbers are reused for different bills each new session. Perhaps you were looking for one of these other C-33s:
Jay Hill Conservative Prince George—Peace River, BC
moved that the bill be read the third time and passed.
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?
Income Tax Amendments Act, 2006Government Orders
The Speaker Peter Milliken
No, the hon. member really does not have any time left but I know he will get some when he gets questions and comments.
Income Tax Amendments Act, 2006Government Orders
The Speaker Peter Milliken
I would like that, of course, but the time has expired. If the hon. member has concluded his remarks, I will call for questions and comments and give him another chance.
Questions and comments. The hon. member for Jeanne-Le Ber.
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
Mr. Speaker, I would like to thank my colleague for his energetic and exciting presentation on the thrilling subject before us today.
This subject was discussed at length during meetings of the Standing Committee on Finance. This is a very technical, long and complex bill. We are all in agreement about this bill and about something else that happened in the Standing Committee on Finance, which was the series of very complex amendments to a complex bill that were introduced at the last minute. In order to do their job well, the members of the Standing Committee on Finance decided to wait a while before completing their review of this bill. They wanted to take the time to examine the series of amendments introduced by the government in greater detail.
I would like my colleague, who is a member of the governing party, to tell me if he is now quite sure that this bill needs no further amendment and that it is now complete. Now that it is about to be passed, have they made up their minds about all of the issues surrounding this bill?
Mike Wallace Conservative Burlington, ON
Mr. Speaker, I thank my colleague who sits on the finance committee representing the Bloc party and who does an absolutely fabulous job. I do not always agree with the member but he represents his constituency well by actively participating in all the meetings.
On the actual amendments he asked about, he is right. A number of amendments were presented at committee, and rightly so. Committee members told the finance staff that we wanted a different method. We were sending a message that even though these were technical amendments, that they were important to all Canadians and that it was important as committee members that we understood that. The finance staff did their homework and put this together.
I can stand here and say that, based on the input from the committee members and the staff at the finance department, I think this is the end of the amendments on this. I do not believe there are any more. However, I do want to caution that as time changes and new financial tools are developed, and in this case around the world, that there may be changes in the future that will need to be addressed based on the creativity of the finance markets to find other ways to avoid tax.
This bill is really about trying to fill some gaps and loopholes, and I do not like using that word, but opportunities that people have found through the tax system that allow them to avoid tax. These amendments go directly to that. We on the government benches are not planning any further amendments to the bill at this time but I cannot say that will never happen as the times change and new opportunities present themselves to investors. In my view, with these new opportunities, the tax department would need to find ways to ensure we are not taken advantage of.
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, the member from Mississauga said it might be fair but it is not in the best interests of Canada. I think fairness is in the best interests of Canadians. I also want to let him know that this bill does not affect the area he was talking about.
However, there is one interesting thing. I am not going to debate the decision that was taken, as that is not what this bill is about. I received a report from a financial adviser in my area. He is not my financial adviser, but he sent me something. The member is right when he says that a number of income trusts have been in play. I think this adviser's report said that about 16 income trusts have been in play. I cannot remember the numbers, but the vast majority of them that have been sold, he said, perhaps 10 or 12 of them, were as much as 30% above their market value as of October 31. The investors in these income trusts are doing quite well in terms of the value of those sold items. There are two that were sold and are under their October 31 value.
That is the marketplace. That was the whole idea of the change we are trying to make in regard to fairness in the tax system for all corporations, whether it is an income trust structure or a corporate structure. That is what our bill was about. It has now passed this House and we are patiently waiting for the Senate to approve it so we can move ahead on these issues.
I know that on this particular topic the leader of the Liberal Party has said that he expects his Liberal Senate counterparts to pass the bill this bill that was passed by the House. I am not sure why the Senate has not yet approved the bill or where it is in the Senate process. I look forward to the support of the member and his leader to make sure the Liberals in the Senate move forward on the bill.
Dean Del Mastro Conservative Peterborough, ON
Mr. Speaker, it is my honour to rise and ask the member for Burlington a question.
The member for Mississauga South has raised the point that some of these trusts are being bought up and may not pay tax, which flies in the face of our tax fairness agenda. I want to assure the member that while the former Liberal government did not feel that tax fairness was important, our Conservative government does. We are going to move to close those loopholes because we think everybody should pay their fair share of taxes so we can broadly reduce taxes right across the spectrum.
I believe that families, seniors, small businesses and businesses in general all pay too much tax. The only way we can ensure tax fairness is to broadly bring in taxes that are fair to everyone. We want to reduce taxes. I want to assure the member for Mississauga South that while he picked winners and losers in the tax system we will not.
Does the member for Burlington think the constituents in his riding stand behind tax fairness? Do they think everybody should pay their fair share? This will allow us to reduce the tax burden. Or do they prefer the Liberals' program, which was that some people, their friends, paid no tax, and other people paid the burden?
Mike Wallace Conservative Burlington, ON
Mr. Speaker, that is an excellent question from my colleague, the member for Peterborough, who does an absolutely fabulous job on the finance committee. He is always well prepared and asks very in-depth questions of the people who come before us. I appreciate all the work he does not only on behalf of the people of Peterborough but all Canadians.
In my riding, I hear a lot about taxes, tax fairness and why corporations and other individuals are not paying their fair share. As a government, it is our policy, our vision and our philosophy that everybody in this country, whether it is as a corporate entity or an individual, should be paying their fair share of taxes.
John McCallum Liberal Markham—Unionville, ON
Mr. Speaker, I am pleased to congratulate my finance committee colleague, the member for Burlington, for a truly scintillating discourse on this exciting subject.
It is an important subject. It speaks to tax fairness, to making sure that all people pay their fair share of taxes so that others will not have to pay more.
We on this side are very pleased to support the bill because it is, after all, a Liberal bill. It is a good illustration of an intelligent and competent approach to tax fairness. Indeed, it was tabled in the House by the previous government, but sadly did not pass in time so now it is back again. We support this Liberal approach to tax fairness, embodying as it does both intelligence and competence.
If I have time toward the end of my comments, I might offer a contrast between this approach to tax fairness versus the Conservatives' own approach, which is not only not intelligent and competent but unintelligent and incompetent. I refer to their disastrous temporary incursion into the area of interest deductibility. It is a good case study of the general proposition that when it comes to economic management, the Liberals are competent, as reflected in this bill, and the Conservatives are incompetent, as reflected in their disastrous experience with interest deductibility.
Beginning with the bill, what it essentially does, notwithstanding that it is technical, as my colleague said at least 12 times, is tighten up the rules when a Canadian uses a foreign investment entity or a trust with the intent of avoiding taxes altogether. The bill ensures that any income earned through these investment vehicles will be taxed as though that income were earned in Canada.
The essence of the idea is to make sure that it is not advantageous from a tax point of view for a Canadian to invest outside Canada and take advantage of secrecy provisions in tax havens that prevent the Canada Revenue Agency from finding out what is going on. It is an attempt, and I believe it will be a largely successful attempt, to clamp down on what is at best aggressive tax planning or at worst outright tax evasion.
How do we do this? The government is in a permanent struggle with tax lawyers and the private sector, which can pay a lot of money to get the best tax advice to avoid taxes, whether legally or illegally, so how does the government counteract that?
The short answer is that we have to give the Canada Revenue Agency the tools with which it can go after these people and stay ahead of the tax game. When we were in government, we did this by putting $30 million a year of extra money into the CRA budget, in the budget of 2005, to strengthen its capacity to go after those who would indulge in aggressive tax planning or tax evasion.
I remember well, because I was the revenue minister at the time, that we opened 11 centres of expertise across the country, and I visited a number of them, where we had expert lawyers, accountants and others who had deep knowledge in these areas and would go after those who would indulge in this aggressive tax planning.
I recall that these entities were having some success in going after such individuals or entities. The work they did internationally and collaboratively with other countries was also very important, because in these areas it is frequently very difficult to act alone. However, if the G-8 or the OECD act together, then one can be much more effective. These entities also worked extensively with the OECD and with the Pacific Association of Tax Administrators, the Joint International Tax Shelter Information Centre and other international organizations of this kind.
That is what I mean by intelligent pursuit of tax fairness, an intelligent and effective way in which we go after those who would abuse the system, both in terms of the legislation before the House today and in the setting up these 11 centres of expertise where are our own Canadian experts would go after those who would abuse the system.
We on this side of the House have nothing to apologize for in terms of the government. We put $30 million into these centres of expertise and I believe the current government put $20 million into them. Therefore, if only by that measure, the Liberal government has been at least as aggressive as the Conservative government in going after tax evaders.
Now I will say a few words about the other way of going after tax fairness, a way that is both unintelligent and incompetent as opposed to the sensible way, which I have just described. Members of the House will recall that in the budget of 2007 the minister said that, starting from a certain date, companies would no longer be able to deduct interest on debt used to finance foreign acquisitions. He said that it would bring in revenue of $40 million a year. The experts said no, that it may be $2 billion or $3 billion. He was totally out of his depth and did not know what he was doing.
The whole financial community and community of experts came down on top of him. The one good thing he did was withdrew it. He flip-flopped and removed that item from the budget. However, there were two things he did at the same time, which were not good. A sensible approach would have been to simply say that he was sorry he put that in, that he made a mistake, and refer the whole matter to a committee of experts, because these are very technical matters. The Liberal leader had proposed that some weeks before the minister did his flip-flop.
However, he did two things that reflect poorly on the government. First, he claimed that only he, the Minister of Finance, had read the budget correctly and that all those tax experts and analysts out there, whose job it is to read budgets, had read it wrong, that he had never said interest deductibility would be eliminated. He said only that he would go after double-dipping and tax havens.
First, that is wrong if members read the budget. Second, it was not very smart because he alienated the whole tax expert world, which does not really like it when its professional intelligence is questioned by a minister who claims that only he knows how to read the budget.
More important, having incompetently tried to go after tax havens with the interest deductibility measure in the first place, he made an incompetent retreat. All the experts tell us that the real abuses in this area have to do with debt dumping. They do not have to do with double-dipping. Yet the minister, in his unseemly retreat, focused exclusively on double-dipping, which is the irrelevant part of things, and not on debt dumping which is the critical one.
I have heard at least six or seven witnesses and all but one have said that it is exclusively debt dumping that is important. One said that both were important. Therefore, the expert community is in agreement that the problem is the debt dumping.
What debt dumping means is a foreign subsidiary comes into Canada, borrows huge amounts of money, reduces or eliminates its Canadian tax liability by deducting the interest on that debt and then invests that money in a third country. There is abuse there.
Something called our thin capitalization rules could be tightened up to reduce that abuse to achieve more tax fairness. That is what the minister should have done. That is what a sensible, rational person would have done, but he loves the term double-dipping because it has a kind of unethical flavour to it, so he goes after that even though it is not relevant.
The double-dipping, and here again I am quoting experts, means a Canadian company would only be able to deduct the interest once, so the Canadian company will deduct the interest in Canada. What will now be not allowed is deductions in third countries like the U.K., or Europe, or the United States. It is the deductions in those third countries that the minister is prohibiting.
What would be the effect of that? The effect on Canadian revenue would be zero. It would not help any other Canadian pay less tax. It will not contribute to tax fairness because it will not have any effect at all on Canadian tax revenue.
What it will do is enrich the treasuries of the United Kingdom, or a European country, or the United States. There would be less money going to the Canadian companies, making them less competitive. It would be a transfer of their money to the U.K. or the U.S. government. That makes no sense. It is yet another indicator that the minister is well and truly out of his depth.
To conclude, our party is very pleased to support the legislation put forward by the government, but which is Liberal legislation and which represents an intelligent, reasonable and effective way to attack tax abuses and to ensure tax fairness, in sharp contrast to the Conservative measures when the Conservatives have not had Liberal measures to fall back on. When they have struck out on their own, they have ended up doing so in an extraordinarily ineffective and incompetent way, as the whole country has seen from this example of interest deductibility.
Gary Goodyear Conservative Cambridge, ON
Mr. Speaker, I appreciate the opportunity to respond, not so much to the issue at hand because I, too, support the initiatives of my hon. colleague. I think it is a worthy thing. However, I want to ask the member two questions, but I will have to lead up to them.
The school boards in Quebec and Ontario sued the Liberal government to get their GST money back on the charges of transporting little kids to and from school. The courts agreed and awarded the school boards money. However, the Liberal government decided to back up and stall the delivery of that cash until it could unilaterally, unethically and, in my opinion, illegally retroactively change the tax laws, thereby denying school boards their GST refunds. Those members voted against the government giving that money rightfully back to the school boards. Even members voted no for school boards in their own ridings.
First, is the hon. member in favour of ignoring court orders when it is convenient? Second, is this member in favour of retroactively changing tax laws for Canadians?
Imagine if a government said, “We're going to change the tax law to 40%, retroactive to 1990. You owe us a quarter of million”. We cannot do that. However, that member voted to do exactly that.
Is he still in favour of those two issues?
John McCallum Liberal Markham—Unionville, ON
Mr. Speaker, I do not recall that this item was reversed in the last budget. Canada's new government is not that new any more. It has been in office for 18 months. Does it take more than 18 months to get this little job done?
If the member over there is so up in arms about how terrible this is, why has the new government not acted in the 18 months in which it has been in office?
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?
John McCallum Liberal Markham—Unionville, ON
Mr. Speaker, the finance minister of Canada's new government has had some 18 months to learn about debt dumping. He has learned zero because he went after the wrong target. He did not target debt dumping. One would think a finance minister who goes to work everyday for 18 months is not so new any more and he might have learned something by now.
Instead of going after double-dipping, which is irrelevant or counterproductive, as the member has implicitly admitted, maybe he should have a meeting with the finance minister and teach him the basics about debt dumping versus double-dipping.
The thin capitalization rules have been reviewed over the years. I think the time has come for further review and study of this issue by experts as to what additional actions could do to limit revenue losses arising from debt dumping. It has been reviewed before over the years. I believe the time has come for another review.
The minister does not even understand what debt dumping is. He did not even mention it, so I do not know why the member should get all lathered up when his own minister does not get it.
Dean Del Mastro Conservative Peterborough, ON
Mr. Speaker, I feel like I am going to have to play the part of Columbo on this question because we have to do some investigation on the out of his depth analogy.
I find it really quite remarkable that the member for Markham—Unionville stands and says it is “debt dumping, stupid”. He is right, it is debt dumping. Quite frankly, I do not understand why the Liberals took so long to deal with it. I have many quotes here.
We are going to determine who exactly is out of their depth, and I want to ask a question about the Liberal plan on foreign investment.
The Financial Post said, “Rarely has a political news release contained as many bad economic ideas as the Liberals compacted into their call yesterday for a national frenzy over foreign investment”. The Edmonton Journal said, “It was a lame attempt to exploit public angst about foreign takeovers”. The National Post said, “typical case of politicians meddling in a world of which they know little”. I think it is speaking perhaps of the Liberal Party and that it does not know much about this.
When he talked about people being out of their depth, who is he really talking about? I think he is talking about the Leader of the Opposition, because clearly this is bad policy. Clearly, it is bad for Canadians and it will lead to less overall investment and less overall for Canadians. That is the Liberal plan.
I would love to know why the member stands in the House all the time and says that we do not understand. According to experts across the country, it is the Liberal Party that does not understand. The only problem is it is so far beyond its understanding that it does not even know it does not get it.
I will try to get to the bottom of this. Why did this bill sit around since 1999, and it is now 2007, and it took the Conservative Party to bring it to the House for a vote to make it law? Why did the Liberals not deal with it? Were they out of their depth? Did it matter? They did not get it done and I would love to understand why.
John McCallum Liberal Markham—Unionville, ON
Mr. Speaker, let me focus on foreign investment. The member quotes Terence Corcoran, whereas on our side we have Gwyn Morgan. I know Gwyn Morgan is the Prime Minister's favourite business leader. I know the Prime Minister is a great fan of taking Liberal programs, watering them down and re-labelling them with new names. He has done that on the environment and many other things.
It is very important for the country that we review our Investment Canada Act, which has not been reviewed for 22 years. It is not for purposes of protectionism at all. It is to see whether the tools are best suited for the 21st century.
The hon. member over there can go on quoting Terence Corcoran, a nice gentleman who is very right-wing. I would prefer to go with the Prime Minister's favourite business leader, Gwyn Morgan, who himself has come out very emphatically on the need for a quick review. The government is putting its head in the sand like an ostrich and doing virtually nothing on this file, when Canadians want action and a Gwyn Morgan plan, let us call it that, to review the Investment Canada Act.
John McKay Liberal Scarborough—Guildwood, ON
Mr. Speaker, this budget has so many victims it is hard to keep track. The premiers are victims and the provinces are victims. There are income trust victims and MP victims. Some are still sweating over there. There are students, businesses and trust unit holders who are victimized by this budget.
Does the hon. member think that before the next budget comes forward, Parliament should pass a victims bill of rights so the minister does not continue to dump on the poor Canadian people in such an incompetent and dishonest way?
John McCallum Liberal Markham—Unionville, ON
Mr. Speaker, that is correct. It is a meanspirited budget with victim after victim after victim.
The other problem is that it is full of broken promises. When the Conservatives break their promise to Newfoundland and Labrador, when they break their promise to Saskatchewan, when they break their promise to Nova Scotia, and when they break their promise to the millions of income trust holders across the land and deprive them of some $25 billion in wealth, Canadians are going to ask who the next victim will be.
How can anybody believe what the government tells them, given all of these examples of promise after promise after promise being broken?
A victims bill of rights would be a great idea. This is the most incompetent, most dishonest budget in living memory, which is why we on this side are proud to oppose it.
Income Tax Amendments Act, 2006Government Orders
The Speaker Peter Milliken
To avoid problems, I will allow one more question because I do not want to interrupt the hon. member for Jeanne-Le Ber's speech.
The hon. member for Ottawa Centre with questions and comments.
Paul Dewar NDP Ottawa Centre, ON
Mr. Speaker, the member talked about broken promises and budgets. I want to ask him a couple of things before I get on to Gwyn Morgan.
There was a government that talked about pharmacare, a government that talked about child care, a government that talked about the GST, a government that talked about free trade. It would be important for the member to look in the mirror and honestly account for the broken promises of the Liberal Party when it was in government. I agree with him about the broken promises of the Conservative Party, but Canadians will be confused as to why he is getting up on his soap box and preaching from his perspective.
On Gwyn Morgan, is he saying that the Liberal Party now is using Gwyn Morgan to write its policy on financial arrangements? He might want to take a look at Gwyn Morgan's record in third world countries. I would ask him to look up Andrew Nikiforuk who has done some research on this before he uses Gwyn Morgan as the Liberal Party's chief adviser on financial affairs.
John McCallum Liberal Markham—Unionville, ON
Mr. Speaker, the NDP is not well placed to moralize and pontificate on these matters because were it not for the NDP, Canadians today would have child care, and aboriginals today would have a Kelowna accord. We have no time to listen to the NDP on matters such as that.
As for Gwyn Morgan, the point is that we had already presented our proposal. After that, Gwyn Morgan came out with a carbon copy of our proposal. In deference to the Prime Minister who does not like the Liberal label, we offered to relabel it as the Gwyn Morgan plan. It happens to be the same as the plan that we had already proposed.
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.
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
Mr. Speaker, I am pleased to speak to this bill today in the House. I will be brief, since I had the opportunity to speak at second reading and to speak in more detail in committee. This is a very technical bill whose purpose is to address some shortcomings in the Income Tax Act which make it possible for some people to avoid paying the taxes they should be paying.
We spoke about this this morning. All the parties agree with the bill, so there is not much to debate in terms of content. However, I will take this opportunity to talk briefly about tax havens. When the Liberals were in power, we talked about these havens a lot, since the then finance minister, and current member for LaSalle—Émard, had modified the tax treaties. He signed tax treaties with Barbados and made the act retroactive to allow companies—including his own, Canada Steamship Lines—to use this tax treaty to bring profits back to Canada that had been earned in Barbados, without paying taxes.
This is something that has worried the Bloc Québécois for a long time and we are very concerned. A great deal of work remains to be done to fix this problem.
When the Standing Committee on Finance studied tax havens, stakeholders told us all kinds of stories. Some were very interesting, and others were hard to believe, such as the claim that Barbados,for example, is not a tax haven.
That is a little ridiculous. Even if it is true that income tax levels for ordinary companies based in Barbados can be as high as 40%, companies known as international business companies or IBCs, which operate internationally out of Barbados, pay fixed fees on the order of $250 per year, plus taxes amounting to 2.5% on the first US$5 million. Then the tax rate declines gradually to 1% on profits over $15 million.
The OECD defines tax havens as countries that do not cooperate with other taxation authorities, meaning countries that collect no income tax or that do not share their data, that hide information and that lack transparency. Even if that is not exactly the case here, it is still fair to say that this is a very appealing situation for a business. When it comes to tax havens, we have to talk about Barbados, or at least the IBCs in Barbados. In fact, nearly all Canadian companies operating out of Barbados are doing so under the IBC structure.
There are very few requirements for becoming an international business corporation. That is part of the problem. The company must be registered in Barbados—which is pretty easy—and have its headquarters there. The media have reported on this issue. In Quebec, a journalist with Enjeux put together a report called Les Évasions Barbares—that would be The Barbarian Evasions in English—which revealed that there are plenty of large buildings in Barbados, containing many corporate headquarters offices, most of which are practically empty.
Among the other conditions that must be met, the company must hold its board of directors meetings there. In reality, a conference call will suffice. It must also keep its board meeting minutes there—all that takes is a filing cabinet—and have a Barbadian resident as one of its directors.
However, an analysis published in 2002 by the PricewaterhouseCoopers office in Bridgetown estimated in its brochure concerning Barbados, that an independent director in Barbados can be hired for only $1,500 a year.
As we can see, these restrictions are not very serious, especially for a very powerful multinational that could save millions of dollars in taxes. These conditions are not very hard to meet. And finally, in its international activities, the multinational could use Barbados as an avenue to get out of paying taxes in Canada, once those taxes are brought back to Canada.
As we can see, there is a real problem and many companies—which once included and probably still include Canada Steamship Lines—are not really located in Barbados and do not really operate out of Barbados. They are simply an empty shell there, a mere legal entity in order to take advantage of the Income Tax Act and pay less in taxes.
I hope the Standing Committee on Finance meetings on tax evasion will encourage the government to legislate quickly on this matter. In short, the Standing Committee on Finance will table a report when the House resumes sitting next fall, and I hope this will inspire the government.
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.
Judy Wasylycia-Leis NDP Winnipeg North, MB
Mr. Speaker, the member for Scarborough—Guildwood likes to heckle from his seat and throw insults my way. Every time we question the wisdom of the Liberals when they were in government, he likes to insert put-downs and make personal comments about my speech and about my beliefs. I hope he realizes that it is time to get beyond personal politics and start to talk seriously about these issues. I have put up with a lot of insults from him and others on that side of the House and, frankly, I get quite tired of it.
If we really want to get serious about this issue, then let us look at the Canada Steamship Lines issue and the involvement of the Liberals around the tax holdings of the member for LaSalle—Émard.
Let us go back to February 2003 when the member for LaSalle—Émard used the peek-a-boo clause in a supervisory agreement when dealing with members of the board of Canada Steamship Lines.
Let us go back to March 1, 2003 when we said in the House that we in this party could not live with ourselves if we had to deal with this kind of situation and if there were not a crack down on it immediately.
Let us go back to January 28, 2004 when the government announced that the companies of the member for LaSalle—Émard, including Canada Steamship Lines, received $162 million in federal government contracts, grants and loans.
Let us go back to February 4, 2004 and the CBC town hall meeting when the member for LaSalle—Émard defended his flags of convenience, saying that Canada Steamship Lines was a Canadian company, that it pays it taxes in Canada and that the bulk of its operations were here in Canada. We have a study by credible sources that shows that Canada Steamship Lines, owned by the member for LaSalle—Émard, avoided paying $103 million in Canadian taxes between 1995 and 2002 by setting up nine shell companies in Barbados.
I ask the member for Scarborough—Guildwood why his government did not shut that down when it had a chance? Why is it still before us?
Now the question is: when will the Conservative government finally do what is right and ensure that these kinds of wide open loopholes, tax avoidance and tax evasion schemes are shut down once and for all?
Dean Del Mastro Conservative Peterborough, ON
Mr. Speaker, while I have some philosophical differences with the member as related to overall levels of taxation and spending, one area where I do not differ from the member is on tax fairness. The member for Winnipeg North stands and talks against the illegal use of tax havens all the time. She does not believe that tax loopholes are a good thing for Canada and neither do I. I believe that tax fairness is what is needed in Canada. I appreciate the fact that she has stood wholeheartedly behind that.
However, I do want to talk a bit about the anti-tax haven initiatives, double-dipping and so forth that our government has moved on. By closing these tax loopholes we are trying to ensure that Canadian taxpayers are not indirectly subsidizing wealthy multinational corporations.
Income Tax Amendments Act, 2006Government Orders
An hon. member
It's about time.
Dean Del Mastro Conservative Peterborough, ON
It is about time.
One of the things that really floors me about the former government is that this bill, the one that we are speaking about today, has been around since 1999. The questions are: What stopped us? Why did we not do better? We just did not get it done comes to mind. However, I do not think that is why it did not move on this. The fact is that closing tax havens and closing down tax loopholes did not matter to the Liberal government. It did not care.
Indeed, the member for Markham—Unionville and the Leader of the Opposition went to Bay Street when we announced that we would be moving to close some of these tax loopholes. The member for Markham—Unionville started off by saying, “We subsidized farmers. Why shouldn't we subsidize corporations?”
Does he not get it? Does he not get it that there is a big difference between, quite frankly, the problems that the Liberals caused in agriculture because they did not understand how to manage the Department of Agriculture? There is a big difference between that and subsidizing wealthy multinational corporations through tax loopholes and encouraging the use of these loopholes.
The member has been here for a long time. The Auditor General has spoken on this issue a number of times. Did the member ever see anything done? Did she believe the Liberals were ever going to move on it? Why should anybody ever believe that the Liberals would ever support anything to do with tax fairness?
Judy Wasylycia-Leis NDP Winnipeg North, MB
Mr. Speaker, my colleague makes a very important point concerning the length of time it takes for anything to happen in this place under either a Liberal government or a Conservative government to deal with tax havens and tax loopholes.
The record, obviously, of the Liberals, who had 13 years to fix these problems, is the most egregious one. The Conservatives are just beginning and their first big mistake was to backtrack on the interest deductibility issue. Since the Conservatives have talked about cracking down on tax havens, and since the Liberals refused to do anything, we now have a chance in this House to do something.
I want to mention that I think the inaction by the Liberals over the years was directly related to their ties with big banks and big corporations. I think the fact that their own members had investments in big corporations that wanted to take advantage of tax havens had something to do with it. However, I do not know for sure.
I tried earlier to read a quotation but I was talking too fast to get it out. It was in response to a question from my leader, the member for Toronto—Danforth, back in 2003 when we were concerned about the member for LaSalle—Émard still running the Canadian Steamship Lines even with the apparent conflict of interest. In response to that question, the member for LaSalle—Émard said that he would not be able to live with himself if his dream were turned over to another country. He said that he would not be able to bear Canada Steamship Lines suddenly finding itself nothing but a collection of ships being run from the States.
It was not too long after that when the member decided that it would be important to have his sons run the company but they made no changes with respect to the flags of convenience and with respect to the tax evasion policies. They continued to accumulate revenue because they were not paying their fair share of taxes.
On the issue of the Auditor General, let us note that we are talking about several reports that go back to 1999, 2002, and now another one in 2007, and still the concerns raised by the Auditor General have not been fully addressed by any government. We are still waiting for some plan of action. We are waiting for more than studies. We are waiting for the Conservative Government of Canada, Canada's supposedly new government, to do something new and different. We are waiting and waiting and waiting.
When will the government decide to finally shut down Barbados as a tax haven? When will it decide to take on all of these loopholes and ensure that Canadians have the resources they need to build the programs they need to have a strong united country?
Dean Del Mastro Conservative Peterborough, ON
Mr. Speaker, I would suggest to the member that this government is a government of great courage when it comes to tax fairness. As the member well knows, on October 31 this government, in a minority situation, moved to close what we considered to be a great risk to overall corporate tax revenue. I appreciate that the NDP has stood behind that decision pertaining to the income trusts.
We further moved to take all of those taxes that would be placed on income trusts and give it to Canadian seniors. It was completely revenue neutral. We made sure that wealthy corporations would not avoid taxes on the backs of not only retired Canadian seniors, but hard-working Canadians right across the board. This government has been very brave and courageous in bringing tax fairness to Canadians. I know the hon. member stood behind that.
When these reports were being brought forward by the Auditor General, they were being covered in the media and being talked about a lot by Canadians. I heard a lot about them. I was in business in Peterborough and I was really concerned that I was paying a lot of taxes and it did not seem fair to me that I had this enormous tax burden but large corporations were paying nothing.
Did the member ever hear the Liberal Party talk about coming down on these egregious actions by corporations that were avoiding taxes? Did she ever see them do anything about it? Did she ever see any action?
Judy Wasylycia-Leis NDP Winnipeg North, MB
No, I am afraid not, Mr. Speaker. On this front, dealing with fairness in our taxation system and loopholes available to the wealthy and corporations in our country, it is very hard to find any kind of action. There is a trail of negligence and broken promises. The Auditor General has made report after report with very little action flowing from them.
What I worry about is that the Conservatives are beginning to go down the similar path that the Liberals followed, which is to make a lot of promises, do a few things like the income trust issue and the double-dipping, and then not really get at the big issues around tax havens.
What we really need is for the Canadian Conservative government to take immediate steps to shut down all remaining offshore tax havens, especially when we consider the fact that the Canada Revenue Agency is now investigating Merck Frosst for putting $2 billion away in Barbados.
We spent years trying to get the Liberals to lower the flags of convenience flown overseas by Canadian corporations to avoid taxes. I do not want to spend another decade fighting Conservatives to get the same thing done. Conservatives have the time and the mandate to actually act against tax havens, and I am waiting to see the signs of that. I am waiting to see if they are serious about this.
In opposition, the Conservatives railed against the Barbadian tax haven, just as we did, because it benefited certain members of the government and the corporate elite. Many Conservatives, including the current Prime Minister, voted for a motion to close this tax loophole that results in individual Canadian taxpayers having to make up the difference. If the Conservatives leave this loophole open, they are demonstrating that it is not ordinary Canadians who benefit from their policies. If the Conservatives do not act to close the Barbados tax haven, all their protests in the case of Canada Steamship Lines and other obvious examples will mean nothing but cheap politics.
I urge the Conservatives to put their money where their mouth is and actually do something to prevent so much investment from going to offshore financial centres. They should keep in mind that between 2003 to the present that number has increased eight-fold.
Income Tax Amendments Act, 2006Government Orders
Income Tax Amendments Act, 2006Government Orders
Some hon. members
Question.
Income Tax Amendments Act, 2006Government Orders
The Acting Speaker Royal Galipeau
The question is on the motion. Is it the pleasure of the House to adopt the motion?
Income Tax Amendments Act, 2006Government Orders
Some hon. members
Agreed.
Income Tax Amendments Act, 2006Government Orders
The Acting Speaker Royal Galipeau
I declare the motion carried unanimously.
(Motion agreed to, bill read the third time and passed)
Income Tax Amendments Act, 2006Government Orders
The Acting Speaker Royal Galipeau
It being 12:52 p.m., pursuant to order made earlier today, the House will now proceed to the consideration of private members' business as listed on today's order paper.