Bill C-48 (Historical)

Technical Tax Amendments Act, 2012

An Act to amend the Income Tax Act, the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the First Nations Goods and Services Tax Act and related legislation

Part 1 of this enactment implements, in accordance with proposals announced in the March 4, 2010 Budget and released for comment on August 27, 2010, 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 offshore investment fund property.
Parts 2 and 3 implement various technical amendments in respect of the Income Tax Act and the Income Tax Regulations relating to the taxation of Canadian multinational corporations with foreign affiliates. The amendments in Part 2 are based on draft proposals released on December 18, 2009. Among other things, Part 2 includes the amendments to the foreign affiliate surplus rules in the Income Tax Regulations that are consequential to the foreign affiliate changes to the Income Tax Act announced in the March 19, 2007 Budget. The amendments in Part 3 are based on draft proposals released on August 19, 2011. Among other things, Part 3 includes revisions to the measures proposed in a package of draft legislation released on February 27, 2004 dealing primarily with reorganizations of, and distributions from, foreign affiliates.
Part 4 deals with provisions of the Income Tax Act that are not amended in Parts 1, 2, 3 or 5 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, released for comments on July 16, 2010, to ensure that those provisions are bijural, in other words, that they reflect both the common law and the civil law in both linguistic versions. Similar amendments are made in Parts 1, 2, 3 and 5 to ensure that any provision of the Act enacted or amended by those Parts are also bijural.
Part 5 implements a number of income tax measures proposed in the March 4, 2010 Budget and released for comment on May 7, 2010 and August 27, 2010. Most notably, it enacts amendments
(a) relating to specified leasing property;
(b) to provide that conversions of specified investment flow-through (SIFT) trusts and partnerships into corporations are subject to the same loss utilization restrictions as are transactions between corporations;
(c) to prevent foreign tax credit generators; and
(d) implementing a regime for information reporting of tax avoidance transactions.
Part 5 also implements certain income tax measures that were previously announced. Most notably, it enacts amendments announced
(a) on January 27, 2009, relating to the Apprenticeship Completion Grant;
(b) on May 3, 2010, to clarify that computers continue to be eligible for the Atlantic investment tax credit;
(c) on July 16, 2010, relating to technical changes to the Income Tax Act which include amendments relating to the income tax treatment of restrictive covenants;
(d) on August 27, 2010, relating to the introduction of the Fairness for the Self-Employed Act;
(e) on November 5, 2010 and October 31, 2011, relating to technical changes to the Income Tax Act;
(f) on December 16, 2010, relating to changes to the income tax rules concerning real estate investment trusts; and
(g) on March 16, 2011, relating to the deductibility of contingent amounts, withholding tax applicable to certain interest payments made to non-residents, and certain life insurance corporation reserves.
Finally, Part 5 implements certain further technical income tax measures. Most notably, it enacts amendments relating to
(a) labour-sponsored venture capital corporations;
(b) the allocation of income of airline corporations; and
(c) the tax treatment of shares owned by short-term residents.
Part 6 amends the Excise Tax Act to implement technical and housekeeping amendments that include relieving the goods and services tax and the harmonized sales tax on the administrative service of collecting and distributing the levy on blank media imposed under the Copyright Act announced on October 31, 2011.
Part 7 amends the Federal-Provincial Fiscal Arrangements Act to clarify, for greater certainty, the authority of the Minister of Finance and of the Minister of National Revenue to amend administration agreements if the change in question is explicitly contemplated by the language of the agreement and to confirm any amendments that may have been made to those agreements. Part 7 also amends the Federal-Provincial Fiscal Arrangements Act and the First Nations Goods and Services Tax Act to enable the First Nations goods and services tax, imposed under a tax administration agreement between the federal government and an Aboriginal government, to be administered through a provincial administration system, if the province also administers the federal goods and services tax.
Part 8 contains coordinating amendments in respect of those provisions of the Income Tax Act that are amended by this Act and also by the Jobs and Growth Act, 2012 or that need coordination with the Pooled Registered Pension Plans Act.

Technical Tax Amendments Act, 2012

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Mr. Speaker, even before this bill was introduced, it was consulted on for literally years in advance. There were repeated public consultations.

On top of that, this bill has before Parliament for five months now, as it was introduced in November of last year. That means that the House of Commons has had over 100 days to examine and debate this bill already.

We are only at the initial preliminary stage of a very long parliamentary process. We have had literally days and days of debate. We have heard hours and hours of speeches, all saying the same thing. All sides support this bill. All sides recognize it is technical bill, yet for some bizarre reason the NDP insists on filibustering it with 100-day delay.

While the NDP might find these games amusing, Canadian taxpayers and businesses—

[The Speaker, Conservative, Andrew Scheer]

If I stop the member there, we can accommodate one more question or comment. The hon. member for Ancaster—Dundas—Flamborough—Westdale.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Mr. Speaker, on this International Women's Day, I just thought I would point out the behaviour of the NDP members, who usually like to be the champions of decorum.

My colleague talked about the bizarre arguments that were being made. Then the NDP member pointed at my colleague and said that was what was bizarre. The member was pointing to my colleague and saying that she was bizarre.

It is right to criticize debate here, but to take it personally goes beyond the pale and is certainly not in the spirit of decorum that we want to see.

I would like to ask my colleague now, in a very civil way on International Women's Day, what the consequences will be if this bill is not passed.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Mr. Speaker, the consequences would be tax avoidance. When individuals as well as companies do not pay their fair share of taxes, the rest of Canadians have to take up the slack and pay it in their place.

I thank my hon. colleague for recognizing International Women's Day. It is great to be in the House of Commons on such a day.

[Cathy McLeod, Conservative, Parliamentary Secretary to the Minister of National Revenue]

Mr. Speaker, I am delighted to participate in this important discussion on Bill C-48, technical tax amendments act, 2012.

This legislation, as clearly stated in its title, is technical. It is nevertheless important, especially to the many taxpayers who want certainty after over a decade without the technical tax bill being passed by Parliament.

The technical tax act, 2012, moves to clear the backlog, with the inclusion of outstanding income tax and sales tax amendments, the majority of which have already been released for public consultation. Specifically, from 2009 to 2011, in advance of the technical tax amendments act, 2012, the government engaged in open and public consultations on the vast majority of the proposed amendments included in the legislation. I should also note that the Auditor General of Canada has identified the backlog of technical amendments as an issue requiring attention.

While outlining the delays and addressing the current backlog of outstanding income tax amendments, the Auditor General made some key observations about the impact of failing to deal with this issue in a timely manner and, of course, it has very far-reaching implications.

With regard to one of the many negative effects on taxpayers from the uncertainty caused by the backlog of these outstanding income tax amendments, the Auditor General noted the following: higher costs of obtaining professional advice to comply with tax law; less efficiency in doing business transactions; inability of publicly traded corporations to use proposed tax changes in their financial reporting because they have not been substantially enacted; and increased willingness to engage in aggressive tax planning. As such, I think we need to applaud the Conservative government for taking action in this over decade-long backlog, and the Auditor General for the report that helped to crystallize this issue for Canadians.

As parliamentarians, it is important that we now move forward to address this problem. That means we all need to work together to put an end to this backlog of technical tax amendments.

We have seen that, to some extent, all parties have publicly declared support for Bill C-48. Indeed, the NDP has spent literally days of debate, with very similar sounding speeches, to make that point. To be quite frank, their behaviour looks suspiciously like political procedure games, as we have been at second reading for over 100 days at this point. We need to move past such games and focus on what would actually help taxpayers.

I want to applaud the work of my fellow colleagues on the finance committee, from all sides. We realized the need to move forward in a timely way with this legislation and we actually started to pre-study the bill a number of weeks ago. We have already heard from witnesses. Every single one of them is supporting moving ahead with this important piece of legislation.

We have heard from groups like the Canadian Institute of Chartered Accountants, who have said the technical tax amendments associated with Bill C-48 will help to improve clarity and certainty. We greet the technical tax amendments act, 2012, with a sense of relief.

We also heard from an expert tax lawyer, who stated:

The adoption of this bill will be welcomed, as it will formally enact provisions, many of which were originally proposed in 1999, and will have effect from 2007 or 2010 and in certain instances even earlier.

He also stated that many of the amendments found in this act have been brought before the House of Commons and the Senate on a number of occasions in the past.

In my remaining time today, I would like to spotlight some of the measures that may have been overlooked in today's legislation, or certainly overlooked in the debate, because there are many technical pieces. I want to highlight a few of them.

One such group of Canadians who will be assisted will be the self-employed, as the technical tax amendment act, 2012, will make some helpful, albeit minor, changes to fully implement a very popular recent initiative of our government, and that is to assist the self-employed. I am referring to the Fairness for the Self-Employed Act.

As parliamentarians may recall, that legislation extended employment insurance special benefits, including maternity, parental, sickness and compassionate care benefits, on a voluntary basis to the self-employed. Thanks to that new initiative, self-employed Canadians will no longer have to choose between their family and their business responsibilities. I think we can all agree that this initiative was good family policy. It represents a very significant positive measure for the self-employed.

As I also noted earlier, the technical tax amendments act, 2012, would make some helpful changes to fully implement that legislation. Specifically, the measure in question would amend the Income Tax Act as a consequential enactment to the Fairness for Self-Employed Act. It would provide for a personal income tax credit in respect of premiums paid consistent with the existing credit in respect of employees' EI premiums.

Another helpful measure, and this is important, specifically in terms of some of the work we are doing currently around tax avoidance and the use of tax havens, is the multi-lateral convention on mutually administrative assistance in tax matters, which is normally known as the convention. The convention was concluded in 1988 to create a multinational network to facilitate, improve and extend the exchange of information between national tax administrators. The objective was to combat international tax evasion. In April 2009, the G20 called for action to make it easier for developing countries to secure the benefits of the new co-operative tax environment, including the multilateral approach for the exchange of information.

In response, the OECD and the Council of Europe developed a protocol to amend the convention to bring it in line with the international standard on exchange of information for tax purposes and to open it up to all countries. We call this the amended convention. This amended convention is a useful instrument to fight against offshore international tax evasion and is consistent with the government's policy on exchange of information. Previously, it was open to members of the OECD and the Council of Europe. Now, more than 40 countries, including Brazil, Germany, the U.K. and the U.S., have signed the amended convention, and many more have stated their intention to do so.

The amended convention supports Canada's G20 commitment to implement the latest OECD standard on the exchange of tax information, which is to provide that bank secrecy should not prevent a country from exchanging information for tax purposes. However, the amended convention has not yet been ratified, since section 241 of the Income Tax Act must be amended first. With the passage of Bill C-48, it would be in a position to do so. This is very technical legislation but critically important.

As members may recall, another example is the First Nations Goods and Services Tax Act, or the FNGST. This is a tax applied by participating aboriginal governments on goods and services within their reserves or lands. On reserve, it effectively replaces the GST. The longstanding FNGST arrangements promote self-reliance and political accountability of aboriginal governments to their members, as well as the effectiveness of a national tax system. The FNGST is available to both self-governing aboriginal groups and to interested Indian bands that continue to operate primarily under the Indian Act.

Under the terms of the tax administration agreement, the FNGST is collected and administered free of charge by the Canada Revenue Agency, which acts as the agent of the taxing aboriginal government. That is where the amendments in part 7 of the technical tax amendments bill come into play. These are very big improvements in terms of how we will move forward on this important issue for our aboriginal communities.

As I mentioned earlier, it has been over a decade since Parliament last passed a comprehensive package of technical income tax amendments, so we must move forward. My colleagues and I on the finance committee heard from KPMG, which asked Parliament to act decisively and pass Bill C-48 to essentially clean up the slate of this old legislation and finally bring the Income Tax Act up to date. Taxpayers could then move on and focus on running their businesses and the CRA could carry on administering—

[The Speaker, Conservative, Andrew Scheer]

The hon. member will have five minutes for questions and comments after question period.

We will now move on to statements by members. The hon. member for Palliser.

The House resumed consideration of the motion that Bill C-48, An Act to amend the Income Tax Act, the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the First Nations Goods and Services Tax Act and related legislation, be read the second time and referred to a committee.

[The Acting Speaker, Conservative, Barry Devolin]

When this was last before the House, the hon. Parliamentary Secretary to the Minister of National Revenue had completed her remarks, but there are five minutes for questions and comments.

The hon. member for Beauport—Limoilou has the floor.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Mr. Speaker, I would like to thank my colleague from Kamloops—Thompson—Cariboo for her speech. I also salute her as a member of the Standing Committee on Finance. The only thing I deplore, obviously, is that she is not commenting on the criticism by witnesses at the Standing Committee on Finance regarding the government's negligence and lax attitude.

Let me remind this House that the Conservative Party has been in power for seven years now and could have taken much quicker action to resolve the issue of the mountain of comfort letters. This brings about an enormous amount of uncertainty.

I will not hide the fact that I spoke with a number of witnesses as part of the committee's work and in private after each meeting. Many of them confided in me that they could no longer stand hearing the government claim that the fact that it was a minority and there was a crisis created obstacles to incorporating these comfort letters into the Income Tax Act.

What does my colleague have to say about those comments from our witnesses?

[Cathy McLeod, Conservative, Parliamentary Secretary to the Minister of National Revenue]

Mr. Speaker, the fact is that every single witness who has come forward has said witnesses have been broadly consulted. They are very supportive of moving the legislation forward. They perhaps did not understand why there were so many speakers from the opposition rising and saying essentially very similar things. They encourage all members of the House to move forward.

Certainly, our minister has felt that, as we deal with this very important issue, we need to have regular and effective updates to our important tax amendment legislation.

[Kevin Lamoureux, Liberal, Winnipeg North, MB]

Mr. Speaker, the Liberal Party indicated a while back that we are supportive of the bill ultimately passing. We feel there has been a fairly significant amount of time since we have had a law passed to deal with the tax changes that are required.

There is a very thick component when we look at tax guides. They have an asterisk or a grey faded colour to indicate that these are measures for which they are hoping to see legislation take place. That is what Bill C-48 would do. It would invoke a series of changes that are long overdue in their passage, and we do anticipate the bill will pass in a timely fashion.

My question to the member is: How often does she feel legislation of this nature should be brought forward on a go-forward basis?

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Mr. Speaker, I want to acknowledge the support and thank the hon. member for indicating that he recognizes the importance of this piece of legislation and the importance of moving it forward.

We all recognize that, due to some very extraordinary circumstances, it is absolutely time to move forward. Certainly, all the witnesses who came before committee said they were supportive of the legislation, that they have been broadly consulted and that it is time.

We look forward to the quick passage of Bill C-48.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Mr. Speaker, as a tax lawyer, I am very pleased to speak to a bill that should have been introduced a very long time ago.

It has been 11 years and the Conservatives have not introduced a technical bill. Unfortunately, they are not the only ones to blame. The Liberal government shares that blame. We now have 200 amendments to the Income Tax Act in a 1,000-page document. We have only nine hours to debate a 1,000-page document.

I would like to know how many parliamentarians here in this House understand how important this bill is. I am sure that in nine hours of debate, no one here has been able to make it through 1,000 pages. Supporting this bill is an act of faith. We are putting our trust in the professionalism of the people who drafted this bill and the officials at the Canada Revenue Agency, because it is clear that parliamentarians are not sure about what they are voting for. That is serious.

The Income Tax Act is probably the most important statute in Parliament. Without this legislation, we are not able to pay police officers, public servants or nurses. It serves as a financial and economic foundation for the government, but the Conservatives decided that this act was not important enough to be addressed every year.

The purpose of this bill is to do nothing more than catch up on the backlog of comfort letters. This bill includes 200 of 400. We will still have to catch up on 200 letters, and we will also have to assume that every budget bill will lead to an amendment of the comfort letters. This should be done every year. Clearly, that has not been the case.

That is why we are blindly working our way through an obstacle course. No one can tell me that parliamentarians sat down and read 1,000 pages. In our legal system, ignorance of the law is no excuse. Unfortunately, the Income Tax Act is obviously an exception to that. Tax experts, who appeared in our committees, told us that they did not know what was in force and what was not.

How can we enforce a law that is not written or that will only be enforced at a given time? Can we say that we will enforce the law when we have the time? How wonderful. One of the main reasons Italy and Greece had financial problems was because these governments were not able to claim the taxes they were owed.

The European crisis is a financial and tax crisis. Those people were expecting their government to have money coming in. The money never materialized because their government did not implement measures to ensure that the ministry of revenue was able to collect the taxes owed to the government.

Here in Canada, there are tax avoidance problems. Tax avoidance is the use of means within the law to avoid or delay payment of taxes. It is legal. For example, RRSPs generally lend themselves to tax avoidance. By contributing to RRSPs, we avoid paying taxes. That is legal.

Unfortunately, the law is now so riddled with holes, confusion and contradictions that a good tax expert can find a legal way for a client to avoid paying taxes. It is legal. It was not planned or foreseen by the government, but the law is so poorly drafted that it allows a good tax expert to find loopholes, and that is legal.

We try to prevent tax avoidance by prohibiting aggressive tax planning. The abuse cannot be censured if the law is poorly drafted. The responsibility lies with the government.

There is tax evasion and tax avoidance. What is the difference? Tax evasion involves breaking the law, circumventing it by fraudulent means, and involves white collar criminals. We have to prohibit tax evasion and implement means to fight it. When a law is poorly written or when officials do not know what to do, it is difficult to put an end to these fraudulent practices. Tax avoidance entails finding legal means to avoid paying taxes that are owing. Tax evasion is a criminal offence. In both cases, and despite commendable efforts, the government is losing control of the enforcement of its legislation. That is a serious threat.

For many years, any tax experts who appeared before the Standing Committee on Finance, the Standing Committee on Public Accounts and all committees that are economic in nature indicated that the text of the Income Tax Act had areas that were underlined and shaded in grey. This indicates that a comfort letter was issued, but the change has not yet been incorporated into legislation. There are 400 examples of this. Understandably, people want this to be corrected, and quickly.

Imagine a tax expert who presents a tax plan. That person is told that these comfort letters might be adopted one day, or maybe not. Uncertainty reigns. When there is a change in government, the new government can decide not to approve a comfort letter and never to enforce it; it can reject it. For 11 years, a tax expert might not know if his or her carefully prepared plan is legal or not.

When a comfort letter is drafted, the corrections that it makes should be applied immediately in the months that follow. That is the main message. We are in favour of adopting all 400 comfort letters. The government has presented only 200, but another 200 are still to come. They must be incorporated into the Income Tax Act.

Our hope now is that, in the future, this government will have the decency to amend the Income Tax Act relatively quickly and incorporate these comfort letters any time it brings down a budget that includes comfort letters. This is an absolute necessity if we do not want to find ourselves in the same situation as Greece, Italy and Spain, countries that lost control of their taxes and can no longer collect them and pay their debts.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Mr. Speaker, I am very pleased to congratulate my colleague from Marc-Aurèle-Fortin, my seatmate, on his excellent speech. He enlightened us and imparted his great wisdom. I have probably said enough.

My colleague's expertise allowed him to point out several very important elements. I will focus on one particular aspect that was frequently raised by the experts we met with at the finance department, and that is planning.

Millions of Canadians are facing the threat of tax planning that is in no way fraudulent, but that is unclear because the government has been so lax. Sometimes people are faced with claims or find themselves in unfair situations.

I would like my colleague to talk about this very serious issue, which affects all Canadians.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Mr. Speaker, that is the tragedy of this situation.

Take, for example, a comfort letter from 11 years ago concerning airlines. These companies' tax situations have evolved and that comfort letter is now worthless. It does not apply. It no longer makes sense from a legislative point of view because airlines have legally restructured under international agreements with other airlines.

That is serious. A comfort letter is drawn up and when it is time to implement it, the situation it addressed no longer exists.

The government has clearly lost control of taxation in a situation like that.