Budget Implementation Act, 2007

An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007

This bill was last introduced in the 39th Parliament, 1st Session, which ended in October 2007.


Jim Flaherty  Conservative


This bill has received Royal Assent and is now law.


This is from the published bill. The Library of Parliament often publishes better independent summaries.

Part 1 implements income tax measures proposed or referenced in Budget 2007 to

(a) introduce a tax on distributions from certain publicly traded income trusts and limited partnerships, effective beginning with the 2007 taxation year;

(b) reduce the general corporate income tax rate by one half of a percentage point, effective January 1, 2011;

(c) increase the age credit amount by $1,000 from $4,066 to $5,066, effective January 1, 2006;

(d) permit income splitting for pensioners, effective beginning in 2007;

(e) introduce a new child tax credit of $2,000 multiplied by the appropriate percentage for a taxation year, effective beginning in 2007;

(f) increase the spousal and other amounts to equal the basic personal amount, effective beginning in 2007;

(g) increase the age limit for maturing registered retirement savings plans, registered pension plans and deferred profit sharing plans to 71 years of age, effective beginning in 2007;

(h) expand the types of investments eligible for registered retirement savings plans and other deferred income plans, effective March 19, 2007; and

(i) increase the contribution limits for registered education savings plans and expand eligible payments for part-time studies, effective beginning in 2007.

Part 1 also amends the Canada Education Savings Act to increase the maximum annual grant payable on contributions made to a registered education savings plan after 2006.

Part 2 amends the Excise Tax Act to clarify the legislative authority that allows the Canada Revenue Agency to pay refunds of excise tax directly to end-users, where fuel subject to excise has been used in tax-exempt circumstances. It also amends that Act to repeal the excise tax on heavy vehicles and to implement the Green Levy on vehicles with fuel consumption of 13 litres or more per 100 kilometres. It also provides an authority for the Canada Revenue Agency to pay a refund of the Green Levy for vans equipped for wheelchair access.

Part 3 implements goods and services tax/harmonized sales tax (GST/HST) measures proposed or referenced in Budget 2007. It amends the Excise Tax Act to exempt midwifery services from the GST/HST and to zero-rate certain supplies of intangible personal property made to non-GST/HST registered non-residents. It also amends that Act to repeal the GST/HST Visitor Rebate Program and to implement a new Foreign Convention and Tour Incentive Program, which provides rebates of tax in respect of certain property and services used in the course of conventions held in Canada and the accommodation portion of tour packages for non-residents, and establishes new information requirements in the case where rebates are credited by the vendor.

Part 4 implements other measures relating to taxation. It amends the Customs Tariff to increase the duty-free exemption for returning Canadian residents, from $200 to $400, for absences from Canada of not less than 48 hours. It amends the Federal-Provincial Fiscal Arrangements Act to clarify that when a federal corporation listed in Schedule I to that Act pays provincial taxes or fees, wholly-owned subsidiaries of that corporation also pay provincial taxes or fees. It also authorizes the Minister of Finance to make payments totaling $400 million out of the Consolidated Revenue Fund to the Province of Ontario to assist the province in the transition to a single corporate tax administration. This last measure is consequential to the October 6, 2006 Canada-Ontario Memorandum of Agreement Concerning a Single Administration of Ontario Corporate Tax.

Part 5 enacts the Tax-back Guarantee Act, which legislates the Government’s commitment to dedicate all effective interest savings from federal debt reduction each year to ongoing personal income tax reductions. That Part also commits the Minister of Finance to report publicly at least once a year on personal income tax relief provided under the Guarantee to Canadians.

Part 6 amends the Federal-Provincial Fiscal Arrangements Act to set out the amounts of the fiscal equalization payments to the provinces and the territorial formula financing payments to the territories for the fiscal year beginning on April 1, 2007 and to provide for the method by which those amounts will be calculated for subsequent fiscal years. It also authorizes certain deductions from those amounts that would otherwise be payable under that Act. In addition, it makes consequential amendments to other Acts.

Part 6 also amends that Act to provide increased funding for the Canada Social Transfer beginning on April 1, 2007, and to provide for the method by which the Canada Social Transfer and the Canada Health Transfer amounts will be calculated for subsequent fiscal years, including per capita cash allocations. It also provides for transition protection.

Part 7 amends the Financial Administration Act to modernize Crown borrowing authorities.

Part 8 amends the Canada Mortgage and Housing Corporation Act to permit the Minister of Finance to lend money to the Canada Mortgage and Housing Corporation.

Part 9 amends the Bankruptcy and Insolvency Act, the Canada Deposit Insurance Corporation Act, the Companies’ Creditors Arrangement Act, the Payment Clearing and Settlement Act and the Winding-up and Restructuring Act to allow the Governor in Council to prescribe the meaning of “eligible financial contract”. Those Acts are also amended to provide that, after an insolvency event occurs, a party to an eligible financial contract can deal with supporting collateral in accordance with the terms of the contract despite any stay of proceedings or court order to the contrary. This Part also includes amendments to the Bankruptcy and Insolvency Act and the Winding-up and Restructuring Act to provide that collateral transactions executed in accordance with the terms of an eligible financial contract are not void only because they occurred in the prescribed pre-insolvency or winding-up period.

Part 10 authorizes payments to provinces and territories.

Part 11 authorizes payments to certain entities.

Part 12 extends the sunset provisions of financial institutions statutes by six months from April 24, 2007 to October 24, 2007.

Part 13 amends the Department of Public Works and Government Services Act to provide the Minister of Public Works and Government Services with the power to authorize another minister, to whom he or she has delegated powers under that Act, to subdelegate those powers to the chief executive of the relevant department. That Act is also amended with respect to the application of section 9 to certain departments.

Part 14 amends the Financial Consumer Agency of Canada Act to allow the Minister of Finance to provide funding to the Agency for activities related to financial education.


All sorts of information on this bill is available at LEGISinfo, provided by the Library of Parliament. You can also read the full text of the bill.


June 12, 2007 Passed That the Bill be now read a third time and do pass.
June 12, 2007 Passed That this question be now put.
June 12, 2007 Passed That, in relation to Bill C-52, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, not more than one further sitting day shall be allotted to the consideration of the third reading stage of the Bill; and That, 15 minutes before the expiry of the time provided for Government Business on the day allotted to the consideration of the third reading stage of the said Bill, any proceedings before the House shall be interrupted, if required for the purpose of this Order, and, in turn, every question necessary for the disposal of the said stage of the Bill shall be put forthwith and successively, without further debate or amendment.
June 5, 2007 Passed That Bill C-52, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, as amended, be concurred in at report stage with further amendments.
June 5, 2007 Passed That Bill C-52 be amended by deleting Clause 45.
May 15, 2007 Passed That the Bill be now read a second time and referred to the Standing Committee on Finance.
May 15, 2007 Passed That the question be now put.

The BudgetOral Questions

June 5th, 2007 / 2:30 p.m.
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York—Simcoe Ontario


Peter Van Loan ConservativeLeader of the Government in the House of Commons and Minister for Democratic Reform

Mr. Speaker, the hon. leader of the NDP should take a moment to reflect on what he has been opposing in Bill C-52, the budget implementation bill. If we do not pass it by June 30, here are some things that would be put in jeopardy, almost $3.9 billion in spending measures that would be lost if we do not pass it by June 30, tied to the previous fiscal year: $612 million for the patient wait time guarantee trust would be lost; $1.5 billion for clean air and climate change for the provinces would be lost; $400 million for Canada Health Infoway would be lost; $225 million for the Nature Conservancy of Canada would be lost.

We do not intend to vote against those things. We do not intend to lose things. We do not intend to change those things.

Speaker's RulingBudget Implementation Act, 2007Government Orders

June 4th, 2007 / 4:40 p.m.
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The Speaker Liberal Peter Milliken

The period for questions and comments now being over, the Chair is now prepared to rule on the point of order raised by the hon. member for Markham—Unionville concerning an amendment ruled out of order during the deliberations of the Standing Committee on Finance on Bill C-52, the Budget Implementation Act, 2007.

The Chair would like to thank the member for Mississauga South and the Parliamentary Secretary to the Minister of Finance for their input, which was very useful.

As a starting point to this rather complex matter, I wish to review what happened in committee. During consideration of Bill C-52 in the Standing Committee of Finance on Wednesday, May 30, several amendments were proposed by the hon. member for Markham—Unionville dealing with SIFT or income trusts. In dealing with the amendments, the chair expressed some doubt as to their procedural admissibility but asked for guidance from the mover and the departmental official present as to what the amendments were attempting to accomplish. From the exchange that occurred, the chair concluded that Bill C-52 was creating a non- refundable dividend tax credit whereas the amendment was:

...putting in place a refundable credit that requires additional use of monies from the consolidated revenue fund, and therefore that particular amendment is not in order.

That ruling was challenged and sustained. The other amendments from the hon. member for Markham—Unionville were defeated.

Before considering the impact of Motion 2 at the report stage, which is identical to the amendment ruled out of order at the Standing Committee on Finance, the Chair would like to quickly review the basic rules that must be followed when the Crown exercises its financial initiative.

The first is that any increase in a charge to the public, that is, a new tax, an increase in an existing tax or the continuation of a tax which is to expire, would need to be preceded by the adoption of a ways and means motion. An alleviation of taxation, that is, a reduction in an existing tax, does not need to be preceded by the adoption of a ways and means motion.

The second is that any appropriation of public moneys, that is, the spending of moneys from the consolidated revenue fund, must be first recommended by the Crown before being approved by Parliament.

In this particular case, we have a unique situation. The amendment by the hon. member for Markham—Unionville appears to effect “a refund or credit against taxes otherwise payable”. Is this the alleviation of taxation or is this an authorization for a new and distinct program of spending? If it is the former, no ways and means motion is required. If it is the latter, a royal recommendation would need to accompany the amendment.

In reviewing the evidence of the Standing Committee on Finance, I am inclined to agree with the conclusion of the chair, that is, that the amendment proposes to create a new initiative, in this case, it is called a refundable tax credit, which results in the appropriation of moneys from the consolidated revenue fund for a distinct purpose.

Therefore, I would conclude that Motion No. 2 cannot be selected for report state as it requires a royal recommendation and that Motions Nos. 1, 3 and 4 ought not to be selected as they were defeated in committee.

I thank all hon. members for having raised this issue.

Resuming debate. The hon. member for Saint John.

Budget Implementation Act, 2007Government Orders

June 4th, 2007 / 3:55 p.m.
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Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, I am pleased to participate in the debate on the report stage of Bill C-52.

Earlier today the Speaker ruled on the admissibility of the report stage motions proposed by members. Motion No. 2 was not chosen for debate as it requires a royal recommendation. Motions Nos. 1, 3 and 4 were also not chosen because they had been dealt with and defeated at committee.

That left us with Motions Nos. 5 through 9. Those motions actually have to do with a subject matter that only the previous speaker spoke about. We are here debating changes to the bill that have been proposed on matters which have not been dealt with at committee or which have been brought forward by the government. In this case, they in fact are brought forward by the government so I would at least like to put on the record with regard to the five report stage motions that these all relate to the visitor rebate program.

Most of them are technical amendments. They have to do with a matter that came from and was suggested by the industry. There were some questions. The committee was not able to deal with it or was not aware of the matter. What they relate to in amendments Nos. 5 through 9 is that they actually make certain deletions to some of the clauses. Members will see it in the Order Paper and Notice Paper today. As well, they make some technical corrections to references to other pieces of legislation.

The effect of those changes is that non-resident persons and unregulated non-residential tour operators may apply for a rebate of the GST and the federal component of the HST paid on the supply of a tour package that includes short term accommodation or camping accommodations that will be used by the non-resident. The amendments also ensure that the rebate also applies to the provincial component of the HST.

Having taken the time this morning to review the amendments, I believe that these amendments are appropriate and reflect the fairness and intent of the House with regard to the visitors rebate program, so I am pleased that the necessary amendments to the bill have been proposed. I will take the opportunity to look at them in more detail as soon as I can get the legislation to which they relate to ensure that the language is in order, but subject to technically checking them, I believe that the report stage amendments should be supported.

That is a pretty short speech on the report stage motions, but I would like to comment further on the point of order raised by the finance critic for the Liberal Party with regard to amendments members attempted to raise at the committee stage of Bill C-52. They had to do with changes to the bill that would reflect what the Liberal Party believes to be a preferable approach to the so-called disparity or gap between the taxation of income trusts and dividend-paying corporations.

In the point of order that was raised, it was noted that a question raised in committee was ruled out of order by the chair. Certain reasons were given. Those are now being challenged. Hopefully the Speaker will have an opportunity to look at them.

I took the opportunity to review the basis of the proposed amendments that were submitted by Liberals at committee. They had to do with a commitment that the leader of the official opposition made.

The gist of it was that in relation to the proposed tax on distributions from publicly traded income trusts or publicly traded partnerships, other than those that hold passive real estate investments, the government should repeal the 31.5% tax regime and replace it with a 10% tax to be paid by such entities, with the revenue to be shared equitably with provincial governments. That is the first part.

Interestingly enough, the point raised in the point of order and the discussion about the propriety of the punitive tax on income trusts was whether or not a change from 31.5% to 10% was a matter which would require a royal recommendation or was out of order. Clearly, I think the argument showed with reference to precedent that the amount of a tax being imposed is certainly not beyond the scope of the committee's work to change.

The second part has to do with the revenue being shared equitably with the provincial governments provided that the tax would be refunded to investors who are Canadian residents in order to, first, minimize the loss of tax savings to Canadians who invested in income trusts; second, to preserve the strengths of the income trust sector; third, to create fairness by eliminating the tax leakage caused by the income trust sector; and fourth, to create neutrality or approach neutrality by eliminating any incentive to convert from a corporation to an income trust purely for income tax reasons.

Let us look at the elements. One is the amount of the tax and whether it is 31.5% or 10%. The second item has to do with a refundable tax credit, which basically means that should the Liberal proposal be adopted, the tax would be substantially less but would be applied immediately, rather than deferred for the five year period proposed by the government. As a result of it being refundable to Canadians, the burden of that tax would be paid only by non-residents, where the majority of the so-called tax leakage occurs. Timing, of course, is always a question.

I am sure that after a review of the transcript or the proceedings of the committee, the Speaker may very well find that the decision of the chair was based on incorrect information and that indeed the amendments proposed at committee maybe should have been in order. As a consequence, other amendments may also be in order.

It will be very interesting to see how this plays out, because clearly the idea is that we want to make sure we get it right. That is why we have a rigorous legislative process. That is why committee does its work. When the chair has to rule a matter out of order, we would hope that the understanding and the determination of fact brings a good decision. In this case, I am sure that it warrants review.

Finally, while most members seek to talk about the budget in general, I can tell members that with regard to the broken promise of the government on income trusts, the Prime Minister said that the greatest fraud “is a promise not kept”. He also said that he would never tax income trusts, but on October 31 of last year he turned around and did exactly that.

The consequences were that over two million Canadians lost about $25 billion of their hard-earned retirement nest eggs. That is very harmful. In fact, I have been told by some that four to five million Canadians have been directly or indirectly adversely affected by that broken promise.

Also, there were other consequences. We have been talking about tax leakage. Members well know that so far, because of the depressed value of income trusts, the taxes to be paid by these corporations are actually going to be less because of the significant takeovers. I believe there have been at least a dozen takeovers of these energy trusts, which means that their structures have been set up so that they are not going to pay any taxes.

The consequences of imposing that tax are far worse than the government ever dreamed.

The House resumed consideration of Bill C-52, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, as reported (with amendment) from the committee, and of the motions in Group No. 1.

Motions in AmendmentBudget Implementation Act, 2007Government Orders

June 4th, 2007 / 12:25 p.m.
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Calgary Nose Hill Alberta


Diane Ablonczy ConservativeParliamentary Secretary to the Minister of Finance

Mr. Speaker, I see everyone is very happy that I am getting up on debate and I too am very pleased to rise today to speak to Bill C-52 at report stage. It has been a long road but here we are at report stage.

The bill proposes to implement certain measures from budget 2007 along with other tax initiatives along with other tax initiatives that were announced prior to the budget.

I would like to start today by giving a quick tour of the key themes and messages of budget 2007. I will then outline the key measures in Bill C-52 and illustrate how they fit into the big picture.

Today, Canada is strong. Canada's new government has a plan to make it even better for tomorrow. The measures in budget 2007 will help up achieve that goal. It will do so by delivering on the commitments made in “Advantage Canada”, the government's long term economic plan for Canada.

It takes historic action to restore fiscal balance with the provinces and territories by investing an additional $39 billion over the next seven years. These important investments are made in things that matter to Canadians: a modern health care system, a strengthened post-secondary education system, new child care spaces, a clean environment, an approach to labour market training that is more responsive to the needs of Canadians, and infrastructure like roads, bridges and public transit.

Budget 2007 builds on action from budget 2006 by further reducing the tax burden in Canada to make it easier for working families to get ahead and stay ahead through initiatives such as the tax back guarantee and our working families tax plan.

This year's budget cracks down on corporate tax avoiders to restore fairness to Canada's tax system. It invests in the social priorities that have come to define Canada as one of the truly great and caring nations of the world. In short, budget 2007 is an ambitious catalyst for action that builds upon the tremendous progress we made in our government's first budget.

This budget is about making our strong economy even stronger. We know that by creating a climate of hope and opportunity, and providing the necessary tools so Canadians from all walks of life can reach their full potential, Canada can be an example to the rest of the world, an example of a truly great and prosperous nation, an example of a compassionate and benevolent nation.

Canada's new government aspires to a stronger, safer and better Canada. Budget 2007 is a path to those ends.

Bill C-52 gives effect to the policies and programs that will get us there. A key element of budget 2007 is the restoration of fiscal balance with the provinces and territories and Canadian taxpayers.

Bill C-52 proposes to legislate key budget measures on fiscal balance, delivering on the specific commitments made in budget 2006 regarding fiscal balance and going even further. Through these measures fiscal balance is restored in a principled way, in a national context, and by respecting existing agreements and commitments.

To begin, the fiscal balance is being restored with the provinces and territories by putting transfers on a long term principles-based footing.

Bill C-52 proposes to legislate renewed and strengthened equalization and territorial formula financing programs that will provide more money over the next two years to eligible provinces and the three territories.

It also proposes to renew and strengthen the Canada social transfer making it fair by providing the same support to all Canadians regardless of where they reside and by making significant new investments in support of post-secondary education and children.

The budget also takes another step toward restoring fiscal balance with Canadian taxpayers through major tax reductions and the tax back guarantee. I will come back to the tax reduction point in a moment.

Moreover, we are making governments more accountable to Canadians by clarifying roles and responsibilities, and we have strengthened the economic union based on the plans set out in “Advantage Canada”.

Canada's new government has said all along that Canadians pay too much tax. We have not just talked about doing something about it, we have done something about it in our very first budget last year and again this year in budget 2007.

Since coming to office, Canada's new government has taken action that provides almost $38 billion in tax relief for individual Canadians. Over this year and the next two years, there will be $38 billion in additional tax relief. This kind of action illustrates our commitment to deliver on our promise to reduce taxes for Canadians.

Budget 2007 not only takes historic action to restore fiscal balance in Canada, but provides significant tax relief for individuals, with a focus on supporting working families with children. For example, budget 2007, through Bill C-52, would introduce the working income tax benefit and the working families tax plan. The working income tax benefit would build on the recent progress made in lowering the so-called welfare wall, notably for families with children, through the federal, provincial, territorial national child benefit initiative.

For some Canadians, the working income tax benefit could represent the difference between being better off and worse off as a result of taking a job. For example, a single parent who takes a job, before the bill is passed, can lose almost 80¢ of each dollar earned to taxes and reduced income support, and that is not accounting for additional work related expenses or the loss of in kind benefits.

The working income tax benefit would reward work and strengthen incentives to work for more than $1.2 million low income Canadians by providing up to $1,000 for families and $500 for individuals. To help Canadian families get ahead, the working families tax plan would also introduce a new $2,000 per child tax credit for children under 18. The new child tax credit would benefit about three million taxpayers. What is more, it would take up to 180,000 low income Canadians off the tax rolls and would provide more than 90% of taxpaying families with the maximum benefit of $310 per child.

We also propose to increase the spousal amount to the same level as the basic personal amount. We also, in the bill, enact the tax fairness plan, which delivers over $1 billion in additional tax savings annually for Canadian pensioners and seniors, including income splitting.

We also, as I mentioned earlier, in this bill have the tax back guarantee. This means that the government guarantees that it will use the interest savings from national debt repayments to reduce personal income taxes.

We also have invested in the health care system, the 10 year plan to strengthen health care, which provides $41.3 billion over 10 years to provinces and territories. In this budget we built on that commitment with Canada Health Infoway and with other measures. We also have invested in a cleaner, healthier and safer environment.

I urge the House to support the bill and the measures in it, which would take our country forward in a better and stronger way, and will be helpful for all Canadians, whatever their situation.

Speaker's RulingBudget Implementation Act, 2007Government Orders

June 4th, 2007 / noon
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The Acting Speaker Conservative Royal Galipeau

I have a ruling by the Speaker concerning Bill C-52, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007. There are nine motions in amendment standing on the order paper for the report stage of Bill C-52.

Motion No. 2 will not be selected by the Chair, because it requires a royal recommendation.

Motions Nos. 1, 3 and 4 will not be selected by the Chair, because they were defeated in committee.

All remaining motions have been examined by the Chair and the Chair is satisfied that they meet the guidelines expressed in the note to Standing Order 76.1(5) regarding the selection of motions in amendment at the report stage.

Motions Nos. 5 to 9 will be grouped for debate and voted upon according to the voting pattern available at the table.

I will now put Motions Nos. 5 to 9 to the House.

(The House resumed at 12 p.m.)

The House proceeded to the consideration of Bill C-52, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, as reported (with amendment) from the committee.

Business of the HouseOral Questions

May 31st, 2007 / 3:05 p.m.
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York—Simcoe Ontario


Peter Van Loan ConservativeLeader 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.

FinanceCommittees of the HouseRoutine Proceedings

May 31st, 2007 / 10:05 a.m.
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Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, I have the honour to present, in both official languages, the 20th report of the Standing Committee on Finance on Bill C-52, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, as agreed on Wednesday, May 30, 2007.

May 30th, 2007 / 3:50 p.m.
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The Chair Conservative Brian Pallister

I call the meeting to order pursuant to the order of reference of Tuesday, May 15, 2007, Bill C-52, an act to implement certain provisions of the budget tabled in Parliament on March 19, 2007.

I assume all committee members have their packages of amendments.

I thank our Finance officials for being here. I see some familiar faces and welcome you back.

I understand we have a number of amendments to deal with. We'll start by postponing dealing with clause 1 until later. I'll ask for the committee's ongoing cooperation, in the best interests of all of us and our guests today, to deal with these in as reasonably prompt a manner as we possibly can.

Mr. McCallum.

May 29th, 2007 / 12:55 p.m.
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Armine Yalnizyan Director of Research, Community Social Planning Council of Toronto , As an Individual

Thank you, Mr. Chair.

Yes, context is everything, so I want to talk about my context. I come from the Social Planning Council of Toronto. It serves the residents of the sixth biggest governmental jurisdiction in the country: 2.5 million people. We deal with about 1,400 agencies that provide human services to residents, that cover hundreds of thousands of residents every day, and that touch literally the lives of all citizens in Toronto.

We're funded by the City of Toronto and the United Way, if you're wondering where our money comes from.

Context is everything for you. You folks are dealing with the daily cut and thrust of politics. The two big contextual issues in which you discuss Bill C-52 are these.

In the last few days there is the remarkable development in Quebec, where a minority government might fall because it's promising to deliver on its promise to cut taxes, because members of Quebec society feel the need for that money to be used to provide health and education is perhaps the more important imperative. That's quite a remarkable development in our political discourse of the last few years.

The second very important political moment for you is this discussion of mergers and acquisitions and foreign takeovers, which is not just an issue of foreign ownership but more an issue of increasing concentration of our corporate resources. This is a theme I'll touch on in a moment.

Our context for discussing Bill C-52 has several features. First of all, the economy is hotter than it's been in 40 years. All the fundamentals are right. Our government at the federal level has run 10 back-to-back fiscal surpluses, a feat that has not been paralleled by any other nation on the surface of the planet. We are literally rolling in money. That's quite a remarkable contextual moment.

Secondly, we are facing the biggest retirement of the labour force of any industrialized nation on the planet. No other nation had as big a baby boom as Canada had. We have been sleepwalking towards this event with no national training strategy. Whereas our governments mandate access to health and education, there is no national strategy to deal with what is about to hit those services, which are considered basic by every Canadian who lives here.

Thirdly, inequality is a growing issue globally: between nations, within nations, within your ridings. There's not one of you who sits here who doesn't know of stories of how inequality—not just growing poverty, but growing prosperity—happens cheek by jowl in your riding, rural or urban, and what the impact of that is on your constituencies and between households.

I would love the opportunity to address any one of your caucuses about the issue of inequality as the other inconvenient truth of our era: that it is unsustainable in Canada. It is growing at a faster rate than it has in the 30 years we have data for it, at a time when precisely economic conditions are ripe for its reversal. And it is happening with a face, a place, and a race—some of those comments that Mr. Jock has referred to. This is completely unacceptable for a country with our prosperity.

We have just returned to the rate of child poverty that unanimously your colleagues in 1989 stood up in Parliament and said was unacceptable. Child poverty had to be eliminated when it was at the 11.7% mark in 1989, and now we should be cheering that it has returned to that after 10 years of economic prosperity.

I would say to you this is not about just poverty, and it's also not about just income, when the rich set the markets for housing, and when we are dealing with a global diaspora because we're not dealing with training but are importing our solution. We're welcoming people into the three major immigrant basements, plus Calgary and Edmonton, where there are housing shortages already, where the rich set the prices for housing markets, where our bankers and our economists tell us that over the course of the next 20 years housing prices are going to double. There's not one economist or banker who will tell you that incomes are going to double.

This is not a poverty issue, though poverty is the worst part of it. We are sitting on a potentially huge problem, when the majority of Canadians are feeling increasingly economically insecure at a time of huge prosperity.

I won't go into the other parts I wanted to touch on. But I want to say that I think you have three revenue-neutral options for adjusting your budget to address some of these realities.

First, you should reconsider the tax cuts promised last year. The second 1% of GST reduction—that one point of GST reduction—should go to where the real fiscal imbalance now lies.

You've done an amazing job of starting the discussion on where the fiscal imbalances are and how to redress them. I think it's very important for you to recognize that the real vertical fiscal imbalance is with the cities: $60 billion to $120 billion of infrastructure deficit that we know of, which is hard infrastructure deficit, primarily occurs in the cities, and they have no capacity to raise the funds for this. The federal government should be playing a role there.

Secondly, you have introduced significant changes to the CST. We are repeating exactly what we did with the CHST and the separation of the CHT, and so on. It's time to separate out those elements of the CST and introduce clear objectives as to what these pots of money are for. This government is the value-for-money government. It's the accountability government. Show us where the money is going and what we're getting for it.

I think we have some precedents in the way we got the four pillars of child care negotiated prior to that. We can separate out the CST so we are clear on what we are sending money to the provinces to achieve, and it surely can't be just to produce tax cuts for their citizens.

Thirdly—can I just make one more point?

May 29th, 2007 / 12:45 p.m.
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Dianne Urquhart Independent Consulting Analyst, As an Individual

Good afternoon.

There is no need to alter the income trust tax amendment in Bill C-52 based on any developments that have occurred since October 31, 2006, when the new income trust tax was announced. The only action that's now required is for the Canada Revenue Agency to make an announcement that it plans to use the general anti-avoidance rule and the thin capitalization rules in the current Income Tax Act to ensure that all acquirers of income trusts will be forced to pay Canadian business taxes. This must done so that individual investors are treated fairly compared to pension funds, private equity funds, corporations, and U.S. master limited partnerships. I'll speak on that in a moment. I want to review some of the developments since I was last here.

First of all, the income trust tax damage was relatively small upon announcement. The average capital loss in the 14 days post-announcement was 14%, or $24 billion. The capital loss as of last night is now negative 3%, or $5 billion. While income trusts have rallied from their worst prices, they have, as indicated earlier this morning, underperformed the common stock market, which rallied 15% since October 31.

Income trusts are underperforming corporations in the market because they're bringing out the overvaluation that was contained in the market prior to the announcement of the tax. Without access to the new financings, distributions have become less sustainable. The Ponzi structure of paying the excess distribution is not working anymore. Income trusts are now brought to a level playing field with corporations. That was the objective of the tax and that is what the impact is in the marketplace.

Another development since I was last here is that on April 26, 2007, the National Pensioners and Senior Citizens Federation, the United Senior Citizens of Ontario, and the Small Investor Protection Association made a joint call for a criminal investigation by the Royal Canadian Mounted Police and the Ontario Provincial Police on the deceptive cash yields in the marketing materials used by the investment banks to sell income trusts to seniors. I'm here also as a spokesperson today on behalf of those three associations that supported the income trust tax. We have one million senior members throughout all the provinces of Canada.

While there has been some recovery of income trusts in the market as a result of extremely buoyant stock market conditions, there are still 50 business income trusts that are down more than 20% from their public offering prices in the last six and a half years. This group has had an average loss of 50%, representing $8 billion of capital losses for seniors and other retail investors.

The income trust tax was not responsible for the cause of this decline. It was due to the deceptive cash yields that proved not to be sustainable. We now have close to one-third of the business income trust market that has suspended its distributions or has made significant cuts. The latest ones—XS Cargo, Drive Products, Precision Drilling, Primary Energy Recycling—slashed distributions in the past couple of months. It's when these distributions get suspended and slashed that we get the catastrophic losses for seniors that are the subject of the call for the criminal investigation.

Now I'd like to turn back to taxes. There have been 25 acquisitions of business income trusts. Most of those have indeed occurred since October 31, but acquisitions were clearly anticipated since the new income trust tax would result in the phase-out of most income trusts by 2011. There are only two ways to phase out income trusts: you either get acquired or you decide to convert back to corporations.

The Canadian Association of Income Trust Investors, the federal Liberal Party, and several tax lawyers and financial analysts are saying that the acquired income trusts will not be paying Canada any taxes. This clearly cannot be the case. U.S. master limited partnerships are said to be the most promising acquirers of the Canadian energy trusts, with the intent again not to pay any Canadian taxes.

The objective of the vocal income trusters is to have us rescind the income trust tax that is before this committee today. This is not the answer for fair treatment of individual investors who've just had a tax advantage removed. We can't turn around and give that tax advantage to foreigners and to pension funds. The answer is fair treatment—for Revenue Canada to announce that it will enforce the general anti-avoidance rule in section 245 of the Income Tax Act and the thin capitalization rule in subsection 18(4) of the Income Tax Act.

The fair tax policy is that Canadian business is not to be permitted to operate with artificially high debt loads and interest rates for the purpose of stripping profits and paying no business taxes. Similarly, the energy trusts cannot be permitted to use artificially structured royalty agreements for the purpose of stripping profits and paying no business taxes. All Canadian businesses must pay business taxes, regardless of who owns them: public investors, pension funds, or any foreigners in the market.

May 29th, 2007 / 12:40 p.m.
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Richard Jock Chief Executive Officer, Assembly of First Nations

Thank you.

It's the submission of the Assembly of First Nations that the Government of Canada has missed an important opportunity with this budget. We feel that, to a large extent, our efforts to see the concerns of first nations addressed and to implement a first nations plan for creating opportunity remain unanswered.

It is further our point of view that without a comprehensive plan to tackle the comprehensive issues facing first nations, this leaves first nations governments and first nations peoples managing desperate situations. Therefore, we urge the committee to recommend significant amendments to Bill C-52 to reflect these urgent concerns, and we summarize our recommendations as follows.

Funding growth must be commensurate with other jurisdictions. By our estimation, this is 6.6% through equalization and CHT and CST payments to provinces, and it ranges up to 10% for the territories.

Secondly, any new legislation must recognize its financial impact on communities and be funded sustainably with reference to inflation and population growth, as well as other pertinent cost drivers.

Thirdly, discriminatory funding practices must end, and specifically I refer to the fact that within the Department of Indian Affairs' budget the provinces are paid at the provincial rates for such things as tuition agreements in the area of education, and similarly, in child and family services, which leaves comparatively less money within those same budgets for first nations to run their own services. This, in our view, is highly discriminatory.

A second example of such discriminatory practice is in terms of pension and benefit plans for band council employees. We feel that those must meet the standards of other jurisdictions and be transferrable and comparable if we're to retain and recruit capable staff. For example, many such plans are done as sort of wraparound plans, which take into consideration such things as non-insured health benefits, which then simply drive up government costs in other areas.

The fourth point is that the federal government must create a real planning basis for funding, and to do so we feel it's extremely important that with first nations there be the establishment of performance standards, which includes funding to meet those standards.

We also feel that an important part of this, again with first nations, is to look at structural changes to the machinery of government to address some of the inherent conflicts of interest that currently exist and to bring then much more independence and fairness into the fiscal relationships. This was also referred to in the RCAP report, where it talks about setting up a department that would be in charge of policy interests and a separate department that would be in charge of service delivery.

We are pleased to see that this government is renewing and expanding programs in two areas where first nations are leading the way in creating solutions for themselves and their future. Those are the aboriginal justice strategy and the aboriginal skills and employment partnership initiatives. However, these two programs and an investment in the maritime fisheries, much as those are very much needed, are not really an overall comprehensive plan.

The total investment in Bill C-52 for the next two fiscal years, then, is just under $60 million, for an average of $30 million a year.

Also in the budget we've seen reference to $300 million for market-based housing, which does deal with part of the continuum of need for housing. However, it should be noted that this was part of last year's budget announcement, and we feel that further investments in terms of social housing and other elements of that housing continuum are also necessary.

I refer you to the PowerPoint presentation that was distributed to you before the meeting, which summarizes the Canada cost drivers study, which was completed by the Department of Indian Affairs last year.

We feel the study was prompted by some of our own research in the area. I would say that to a large degree our view is that the study is based on correct figures, but our analysis is that it potentially understates some of the real circumstances.

In terms of overall approach, though, it's important to state that beyond those critical investments, we do feel it's important to address some of those historic gaps in well-being, to invest in those, but also at the same time to seek structural change. We've put forward a comprehensive plan to do that, which we'd be happy to discuss with you.

May 29th, 2007 / noon
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Prof. Paul Hobson

That's exactly the kind of analysis that I've been undertaking for Nova Scotia, that my colleague, Dr. Locke, at Memorial has been undertaking for Newfoundland and Labrador. Rumours are just rumours, so I don't want to comment on them. I doubt very much that the option will be that a province can move back and forth between a fixed framework and the new arrangements. I don't think that is in the cards in the long term.

What I would suggest, however, is that given that the decisions that have to be made for 2007-08 are in fact straightforward decisions, given the numbers that have been presented to provinces, the issues going forward should perhaps be better studied prior to being locked into budget legislation. So what I would suggest would be the implementation of a task force picking up on the work of the expert panel but now extending to the proposals that are contained in Bill C-52 that would provide greater insight into the actual effects of these proposals. They are not well understood by those of us in the academic community, as far as I can tell, nor are they understood very well by others in the policy community.

May 29th, 2007 / 11:50 a.m.
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Judy Wasylycia-Leis NDP Winnipeg North, MB

Thank you, Mr. Chair.

Let me just pick up on the last point, because in fact I don't see any sign that the Conservatives are going to voluntarily move to delete this section of the bill. Is there a way we can fix up the proposal in Bill C-52? I'm wondering if it would help to add the words—somehow get the sense across that we want to only give the incentive when we're talking about domestically produced cars. Would that be of merit, at least in terms of domestic production and jobs and industry in this country?