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

[Tarik Brahmi, NDP, Saint-Jean, QC]

Mr. Speaker, it is a great honour today to take part in the debate on Bill C-48, the short title of which is the Technical Tax Amendments Act, 2012. Its full title is 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.

This is obviously an enormous bill, comprising nearly 1,000 pages. More particularly, it is a very technical bill for the majority of members and myself, who are not tax specialists.

The purpose of Bill C-48 is to make amendments to the Canadian tax system that have been developed over more than a decade. Although we may wonder why the bill is long and voluminous, we can downplay that aspect because this bill nevertheless deals with a single subject, which was not the case with the mammoth bills the government previously introduced, Bills C-38 and C-45. Those bills concerned matters that were unrelated but that had nevertheless been grouped together based on an utterly debatable and debated logic.

Let us talk a little about the importance of taxation to Canadians, especially in this month of March when all our constituents are completing their tax returns. I do not believe our constituents are opposed to the idea of paying taxes, but they are appalled at times to see how their taxes are used at every level of government.

We are currently thinking of Quebec, in particular. In my riding, I hear a lot of talk about the Charbonneau commission and about the investigations that UPAC is conducting in Quebec on how taxes have been diverted from their primary purpose, the creation of infrastructure, at the provincial and municipal levels. Faced with misappropriation and corruption, Canadians—and I believe this is particularly true here in Quebec—are appalled at times by the wrongful manner in which their taxes are used; they are not being used properly.

When taxes are used properly, to expand infrastructure, for example, Canadians are quite happy to take part in this national effort. They are even asking us to do more, particularly with regard to infrastructure.

Although we can only be pleased that good measures are finally being included in Canada's tax legislation, we have reason to be concerned about the size of a bill that is nearly 1,000 pages long. Although it is true for all governments, this nevertheless shows that this government in particular should manage the tax code more effectively and work harder to ensure that statutory measures designed to enact tax proposals are regularly introduced.

With respect to the matter before us, the last technical tax bill was passed in 2001. In the update that she tabled in the fall of 2009, Sheila Fraser, then Auditor General of Canada, said she was concerned that at least 400 technical amendments had not yet been adopted. Although 200 of the amendments she referred to now appear in Bill C-48, hundreds of others have not yet been passed.

Bill C-48 includes some promising measures. Part 4, for example, provides for technical changes to the Excise Tax Act, repealing a measure that has not been used since 1999. Part 7 clarifies the minister's authority to amend tax administration agreement schedules, provided that does not make any substantial change to the terms and conditions of those agreements. Part 7 also enables the First Nations goods and services tax, imposed under a tax administration agreement between the federal government and an aboriginal government, whatever it might be, to be administered through a provincial administration system that also administers the federal goods and services tax.

This change will simplify administration of the First Nations Goods and Services Tax Act. These are quite promising measures.

This bill also addresses an aspect that is very important for Canadians and, more generally, for people around the world, and that is the problem of tax evasion. My colleague who spoke earlier mentioned Greece. One of Greece's major problems was not necessarily mismanagement or living beyond its means, but rather its level of tax evasion, which was incompatible with the revenue inflows to be expected in a country that aims to be worthy of that name, a country that should have quite a high level of taxation to pay for the goods and services that every government should provide. Where tax evasion levels are too high, they have a direct impact on essential public services. We have seen this in Greece, for example, and it is indeed a serious problem. A number of social problems result directly from those taxation problems.

Any reasonable person would agree that any amendments that increase tax revenue, discourage tax evasion and, as a result, ensure the integrity of our tax system are positive. We therefore need to adopt them as quickly as possible. What is more, most of these measures have already been in place for several years since, tax measures often take effect as soon as they are proposed.

The NDP is of the opinion that cracking down on tax evasion and avoidance should be a priority for any honest and responsible government. That is what we will do when we take office in 2015. We will do even more to make combatting tax evasion a priority.

I must also say a few words about my NDP colleagues who are members of the Standing Committee on Finance and who, since the beginning of this new Parliament, have been continually pushing the committee to complete its study of tax evasion.

One of the questions we have been considering is this: how can we successfully combat tax evasion? We must use measures targeting certain rental properties and Canadian multinational corporations with foreign affiliates. We must impose limits on them with regard to the use of foreign tax credit generators.

I would like to add that the committee heard from a number of witnesses. I would particularly like to quote Denis St-Pierre, who testified during the pre-budget consultations held on October 15, 2012. Mr. St-Pierre, chair of the tax and fiscal policy advisory group of the Certified General Accountants Association of Canada, said:

First, the government must introduce a technical tax amendments bill. The last time a technical tax bill was passed by Parliament was over 11 years ago. Literally hundreds of unlegislated tax amendments to the Income Tax Act—which I showed this committee last year by bringing the Income Tax Act, if you recall—have been proposed, but not yet enacted, which brings uncertainty and unpredictability to the process.

This reminds us of just how much tax professionals, including chartered accountants, want to see a provision that would make their everyday work clearer.

So, for the reasons I have just mentioned, I will support Bill C-48 at second reading. The main reason is that the tax measures it contains are a step in the right direction, and it has already taken too long to incorporate them into our tax legislation.

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

Mr. Speaker, I would like to thank the member for Northumberland—Quinte West for his praise of the government's economic record, which is quite far removed from the reality of Bill C-48. That is something we can agree on.

However, he mentioned something in his speech that particularly caught my interest. According to him, corporate tax cuts encourage investment. One very worrisome symptom we have been noticing for years is the dramatic increase in private corporations' cash reserves. In fact, these reserves almost equal the amount of Canada's federal public debt.

What explanation can my colleague give for this lack of investment by private corporations? How does he explain this? How does he think this is dangerous?

The House resumed from February 27 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.

Business of the House

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons]

Mr. Speaker, our focus as a government is on an agenda that puts at the forefront job creation, economic growth and long-term prosperity, with a very clear focus on making our streets and communities safer. With regard to that clear agenda, we have several items to propose for the time ahead.

Today we will continue the third reading debate on Bill S-9, the nuclear terrorism act. That is a cornerstone in making our communities safer. After that, we will return to second reading debate on Bill S-12, the incorporation by reference in regulations act.

Tomorrow we will finish the second reading debate on Bill C-48, the technical tax amendments act, 2012, again resulting in a more stable and secure economy.

After we return from our constituency week on Monday, March 18, the House will consider Bill C-55, the response to the Supreme Court of Canada decision in R. v. Tse act, at report stage and third reading now that it has been reported back from committee. This is an important justice measure. I must remind the House that this legislation responds to a Supreme Court decision that takes effect over the Easter adjournment, so it is very important that we be able to pass it here and get it to the Senate for it to deal with before that time.

Once the House deals with Bill C-55, it could then consider Bills S-9 and S-12, if they are still held up in the House; Bill C-15, the Strengthening Military Justice in the Defence of Canada Act, at report stage and third reading, since that bill has now been reported back from committee; and Bill S-7, the Combating Terrorism Act, at third reading.

All these bills are necessary and important for Canadians' safety.

Wednesday, March 20, shall be the seventh and final allotted day. As a result, the House will then consider the usual supply motions and appropriation bills that evening. We will give priority to debating Bills C-15 and S-12 on Thursday and Friday, March 21 and 22.

I hope that makes clear the agenda that the opposition House leader has apparently been unable to perceive of the government, our clear agenda of delivering on job creation, economic growth, long-term prosperity and safe and secure communities for all Canadians.

Bill C-48—Time Allocation Motion

[Gail Shea, Conservative, Egmont, PE]

Mr. Speaker, in keeping with the record, Bill C-48 proposes to strengthen Canada's tax system by closing a number loopholes and improving fairness for all Canadian taxpayers. For instance, Bill C-48 contains some measures that would implement a more rigorous information reporting regime for certain transactions associated with schemes to avoid taxes.

This tougher reporting machine would help the Canada Revenue Agency get earlier disclosure and detailed information on transactions that present a higher risk of abuse to the income tax system. It would assist the agency in challenging them if they are in fact found to be abusive.

I do not know what reason the NDP would have in opposing the timely implementation of some of these measures.

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

Mr. Speaker, it is rather amusing to see the government shedding crocodile tears because we are allegedly delaying passage of a nearly 1,000-page bill.

I would like to remind the House that a few years ago, the Minister of Citizenship, Immigration and Multiculturalism himself complained about a technical bill that was introduced in the House. It was about 500 pages long. He complained that it was complicated and cumbersome and that the process had been needlessly delayed.

The witnesses we are currently hearing from in the Standing Committee on Finance all agree that the current process is flawed because only half of the comfort letters will be passed into law. Bill C-48 will pass eventually, and that is a good thing. The problem is that the process is still seriously flawed.

What does the minister have to say to those witnesses?

[Gail Shea, Conservative, Egmont, PE]

Mr. Speaker, it is my understanding that all sides support the bill, and all sides recognize that it is a technical bill.

Yes, the NDP does insist on filibustering. It has been a 100-day delay for some bizarre reason. Groups such as the Canadian Institute of Chartered Accountants were in Ottawa pleading with the House, especially with the NDP, to stop this ridiculous delay.

We need to show some respect for taxpayers and get moving on Bill C-48.

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons]

moved:

That, in relation to 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, not more than one further sitting day shall be allotted to the consideration at second reading stage of the Bill; and

That, 15 minutes before the expiry of the time provided for Government Orders on the day allotted to the consideration at second 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.

[Michael Vineberg]

It would be very difficult to say. With all the non-resident trusts, I'm sure this is something that would be looked at. You'll never have perfect tax legislation, and I think the time has come for it to be passed.

Maybe, Mr. Chairman, the best indicia of this is that people in the tax community love to write articles, and commentaries, and tax notes ad nauseam. On Bill C-48, although it's 1,000 pages, I don't think there's been a single lengthy article that's been written on it. Normally, there'd be tens of articles written. I think that all these measures have been analyzed in the past, and obviously remedial measures can be brought to the attention of Parliament in the future.

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

Thank you very much, Mr. Chair.

I thank all of the witnesses for being here today.

I thank Mr. Hickey in particular for having been able to meet us, in spite of the difficulties that he faced. I would like to thank you as well for your heartfelt plea. I hope that my colleague, Mr. Adler, didn't take it as crocodile tears. That would be very unfair of him.

Obviously, considering the conditions in which we must work and the timelines that we have to deal with, we must focus on some very precise matters.

I am turning to you, Ms. Presseault. I am particularly interested in the issue of restrictive covenants, defined in section 195 of Bill C-48. I had the privilege of being able to ask other witnesses about it in previous sessions.

In an article on tax strategy taken from the September-October 2005 issue of CGA Magazine, on the subject of restrictive covenants, one can read that these new rules lack clarity and are too complex to be actually used. It mentions unexpected traps and missed planning opportunities for taxpayers.

There have however been some changes since then. Do you still have the same opinion of restrictive covenants?

[Paul Hickey]

Thank you.

The court felt the postponement was justified on the grounds of fairness, as it should allow the taxpayer to challenge the CRA's assessment that the proposed amendments would not apply to this case.

To add to the mix here, it isn't just one taxpayer and a $10,000 donation at stake, but Edwards is a lead case for eight other appeals that are being held in abeyance. And in the court's words, “thousands of taxpayers are waiting in the wings”.

One other quick problem is a tax accounting problem. It goes to the integrity of companies' financial statements and the capital markets. You can't reflect these tax changes in your financial statements unless a bill has been introduced in Parliament or is passed into law. That creates a financial statement reporting problem.

I'll conclude my remarks. I have two asks for Parliament.

The first one is to ask Parliament to act decisively and to pass Bill C-48 to essentially clean the slate of this old pending legislation and to finally bring the Income Tax Act up to date. Taxpayers could then move on and focus on running their business, and the CRA could carry on administering and collecting tax in a more stable system.

The second ask is perhaps more of a plea than an ask. Could we please try to get onto a regular track of legislative amendments?

[Paul Hickey, Partner, Tax, KPMG]

Yes, I am. Thank you very much, and my apologies for being a bit tardy. It was out of my control, unfortunately.

I'd like to start by thanking the committee for the invitation to attend these public hearings on this massive but extremely important piece of tax legislation.

I'm Paul Hickey, national tax partner at KPMG, based in Toronto. KPMG is an audit, tax, and advisory accounting firm. We have over 1,200 tax professionals who provide tax compliance services and tax planning advice to our clients in 33 offices across the country.

Bill C-48 contains over 900 pages of detailed tax fix-up amendments, literally affecting hundreds of sections of the Income Tax Act. These tax amendments have been sought by the CRA, the Department of Finance, and taxpayers alike. They're often intended to fix unintended tax consequences, a rule that might be too harsh, too lax, or whatever. They really are fix-up amendments.

In our communications with clients, we've dubbed Bill C-48 the big “catch-up” tax bill, as in lagging behind and trying to get back to the mark, as opposed to mustard, ketchup, and other condiments for a hot dog. It brings forward a buffet of enabling legislation to enact amendments dating back to 2002. There are general tax amendments going back to 2002, touching almost every corner of the Income Tax Act: charitable donation rules, restrictive covenants, non-resident trusts and foreign investment entities, REITs. There are also remaining 2010 federal budget measures. There are also 2010 and 2011 fix-up changes in the bill. So it's a massive piece of legislation. We applaud Parliament for finally dealing with this huge backlog of old tax business. We hope it will put an end to the problems that this 10-year delay has caused.

There are four problems I'd like to touch on. The first is the uncertainty that's been created for taxpayers and indeed the CRA. The implication of outstanding tax legislation being out there for so long is that taxpayers have been in a state of limbo for over 10 years. This is unprecedented in my 35-year career. Every year, taxpayers face a decision and a dilemma about how to file their tax returns. Do you file tax returns based on proposed legislation, press releases, and other things? Do you file your returns based on your best guess of what may pass or what may not pass? Or do you file your file your tax returns on the basis of enacted law and worry about squaring things up later when it's all passed?

I've already mentioned the challenges faced by taxpayers over the past 10 years. The CRA, of course, has a whole parallel set of problems on how to apply and assess tax returns and then go back and reassess if necessary based on enacted law.

Second, there are also tax administration issues, given that we're dealing with over 10 years' worth of backlog. Because the normal period when a tax return can be assessed is three to four years, many years of a taxpayer's return could well become statute-barred since 2002—while this legislation remained in this state of legal limbo. As a result, both taxpayers and the CRA could have lost their rights to assess proposed tax amendments, whether they be tightening or relieving in nature, depending on how the returns were filed and assessed by the CRA during the period of uncertainty.

The third problem I want to mention is the court system. The courts are also struggling to come to grips with this massive tax backlog. I want to point out, for example, the recent case of Michael Edwards v. The Queen. This was heard recently by the Federal Court of Appeal. This is because Bill C-48 contains a series of important amendments to the charitable donation rules related to the determination of an advantage and split receipting, among other things. These proposed amendments, for the most part, were introduced in 2002 and were generally aimed at leveraged charitable donation arrangements and buy low, donate high types of arrangements. They're still not law.

In Edwards, the court recently postponed the hearing of the taxpayer's appeal to the Tax Court of Canada on the basis that the CRA had disallowed the $10,000 donation he claimed. He actually paid a little over $3,000; the $10,000 donation was denied under a leveraged donation program.

[Michael Vineberg]

I would share Andrew's view. Unfortunately, delay often has its cost to taxpayers. Most of the taxpayers we would act for who are waiting on comfort letters and the adoption thereof are waiting patiently.

I referred earlier this morning to clause 274. Let me share with you the example of a real person.

A high-tech whiz, an American, comes to Canada and creates several hundred jobs. Three years later, he sells 40% of the company.

By the way, many of the Canadian employees were given shares and made lots of money.

He goes back to the States and files his taxes. A year later, his auditors check and say, “You came to Canada with common shares, but you left with class A common shares. You have a tax problem.”

May I say that I didn't act for the gentleman at the time. This was 2006. Somebody gave him my name, and since 2006...sorry, 2007, I've been trying to expedite clause 274.

He goes back to the United States with considerable capital, but is forced to put almost every single dollar he has in a trust fund to support a letter of credit for his Canadian tax obligation—a Canadian tax obligation that's going to be wiped out by this.

He's a serial entrepreneur. He wants to go into new businesses. He has a new business. He would have wanted to maintain a significant equity position in this company, but he has been diluted on two occasions because he doesn't have any money.

Although we generally say that a comfort letter is a bar of gold, and that it will eventually have been adopted, he even asked me to see if he could find someone to whom he could assign his rights, who would take over his position, and he would give them 15% of the money that was coming back to him. He just needed access to his money.

Fortunately for him, and maybe for me, Bill C-48 was presented, and now he's eagerly—patiently, but eagerly—awaiting its adoption.

[Andrew Kingissepp, Partner, Taxation, Osler, Hoskin and Harcourt LLP]

Good morning, and thank you, Mr. Chairman.

Thank you for inviting me to appear before this committee to provide some insights into one specific aspect of Bill C-48.

I'm a tax partner at Osler, Hoskin & Harcourt LLP, a national Canadian law firm.

My submission today deals with the proposed technical amendment to section 86.1 of the Income Tax Act, which is included in Bill C-48.

First, let me say that we very much support these amendments, and we commend the members of all parties for indicating their support for Bill C-48.

Second, I would echo the comments of the previous witness to encourage all parties to enact this proposed legislation into law at the earliest opportunity.

Over the last 10 years, and actually a little bit longer than that, our firm has represented the interests of over 80 Canadian individuals who have been patiently waiting for the section 86.1 amendment to become law. While the predicament these individuals find themselves in has a lengthy history, in my five minutes I don't have time to address all of that. In simple terms, the issue is about ensuring that share distributions by certain foreign private corporations receive the same tax treatment to a Canadian taxpayer receiving such shares as share distributions by certain foreign publicly traded corporations.

This discrepancy in treatment arose in June 2001 when Parliament enacted section 86.1 of the Income Tax Act. That's the rule that provides tax-deferred rollover treatment for foreign share distributions, but only for foreign publicly listed corporations. In the situation we were concerned with, the transaction spinoff was by a foreign privately held company—it was implemented in 2000—and it involved the 80-odd Canadian shareholders we represent. They met all of the requirements of the rule, except that the shares of the distributing company were not listed on a U.S. stock exchange.

There were discussions with the Department of Finance, and as a result of that it was recommended to the Minister of Finance and a comfort letter was issued to the effect that section 86.1 would be amended to allow Canadian taxpayers receiving share distributions from certain foreign privately held companies registered with the SEC to get the same treatment. In particular, it was agreed that the registration and disclosure requirements for a private company SEC registrant would be basically analogous to those for a U.S. public company.

A commitment was made by the government of the day to amend section 86.1, a comfort letter was issued in 2001, and despite that, the tax status of these shareholders remains unresolved to this day.

There have been various attempts by successive federal governments to put this amendment through, but they've been unsuccessful, not because the provision was not supported—it was—but because of external events such as elections and other parliamentary priorities.

The passage of time has caused, as you might imagine, additional expense, and in some cases anxiety for these shareholders. I would just emphasize that they're individuals. So we're very pleased to have this amendment included in Bill C-48. Again, we're delighted to have it supported by all the parties represented here at committee today.

The main point we want to reiterate is how important it is to have this amendment passed without further delay. It assures fairness and certainty for your constituents; it ensures equal tax treatment in other provinces and territories with the Province of Quebec, which addressed this inequity in its own taxation act several years ago; and it eliminates unnecessary stress for all those Canadian taxpayers who have been waiting patiently for this matter to be resolved.

We do acknowledge the complex and lengthy history of the file, but we're grateful for the fact that the amendment is going forward. We'd be more than happy to respond to any questions.

Thank you.

[Carole Presseault, Vice-President, Government and Regulatory Affairs, Certified General Accountants Association of Canada]

Thank you, Mr. Chair.

Once again, it is a pleasure to appear before you. This time, it is to speak to you about our point of view on Bill C-48.

First of all, I wish to say that we support the tabling of the bill and that we encourage you to move swiftly to pass this important piece of legislation. The bill deals with a massive backlog of unlegislated tax measures. Its passage would, in our opinion, bring greater clarity to the tax system and strengthen the integrity of our laws.

We do of course have some concerns about the way in which technical amendments to the Income Tax Act are managed by the government and Parliament.

I will speak today about the process-related issues and briefly focus on three particular themes: where we have been, what we have learned, and where we go from here.

There are a few things we do know. For many reasons, most of them quite legitimate, it has been more than 11 years since an income tax technical bill was passed by Parliament. This delay has created, obviously, a significant backlog of unlegislated tax measures—400 of them, as estimated by the Auditor General in 2009.

What have we learned? We all know these delayed technical amendments cause serious difficulties for taxpayers, businesses, professional accountants and their clients, and of course for government. These include lack of clarity and certainty in tax legislation, inability of Canadians to self-assess or correctly calculate taxes, higher costs for taxpayers to obtain professional advice to comply with tax law, absence of appeal rights for taxpayers for unlegislated measures, less efficiency in doing business transactions, and likely a greater cynicism about the fairness of the tax system.

This past December, CGA-Canada convened a summit on tax simplification, which some of you attended, and brought together 60 stakeholders, public officials, and thought leaders on tax policy. Many well-informed recommendations were generated during that day in the areas of compliance, tax planning, and policy-making, but a majority of participants expressed concerns about the lengthy delays in legislating technical tax amendments and agreed that this situation should not be permitted to happen again. Based on this idea, one of the chief recommendations stemming from this forum was that legislation be brought forward in a timely manner.

You are now tasked with the challenge of having to scrutinize this mammoth piece of legislation, almost 1,000 pages in size, which represents about one-third of the length of the entire Income Tax Act. This is no small feat. The complexity and scope of these highly technical measures put an enormous strain on the oversight abilities of parliamentarians.

How can we improve the situation?

Clearly, there is a need for a better process to deal with passing tax amendments. In the debates on Bill C-48, members from the government and opposition spoke about the need for Parliament to regularly adopt technical tax legislation in a timely manner so the situation does not repeat itself.

CGA-Canada has proposed that a process be introduced that would bring discipline to the manner in which technical tax amendments are legislated.

We understand that, as a matter of basic housekeeping, the intention was that government bring forward an annual technical bill of routine amendments. However, only four income tax technical bills have been enacted since 1991.

We know there have been some discussions in the House Debates and at committee about our suggestion to introduce a sunset mechanism. We think this should still be adopted, despite some of the opposition. What we mean by a sunset mechanism is that if a tax policy change is announced but is not incorporated into legislation within what we say is a reasonable period of time, the measure would lapse. This measure, although drastic according to some people, would create the necessary discipline to bring forward tax amendments, say within a period of 24 months, as opposed to sitting like this one for more than a decade.

We urge you, as members of the Standing Committee on Finance, to seriously consider this proposal. We really do think it would bring fairness, clarity, certainty, and transparency to tax legislation. We think this is what good governance and responsible public administration are about. We believe it is in the best interests of all Canadians, and it should be a priority for Parliament.

We thank you for your time and would be pleased to participate in the question period.