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.

[The Chair, Conservative, James Rajotte]

I call to order this 109th meeting of the Standing Committee on Finance.

Our orders today, pursuant to Standing Order 108(2), include the subject matter of Bill C-48. I'll just remind colleagues this is a pre-study of the bill, as this bill has not yet been referred to this committee. Bill C-48 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.

We're very pleased to have with us here today three witnesses. A fourth witness will be joining us; I understand his plane has delayed him somewhat.

We have Mr. Michael Vineberg. Welcome to the committee this morning.

From the Certified General Accountants Association of Canada, we have Ms. Carole Presseault, vice-president. Welcome.

And we have, from Osler, Hoskin and Harcourt LLP, Mr. Andrew Kingissepp, partner.

Welcome to all of you. You each have five minutes for an opening statement.

We'll start with Mr. Vineberg and then move down the list.

Bill C-48-Notice of Time Allocation

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

Mr. Speaker, while I am on my feet, I would like to provide the following notice.

I would like to advise that an agreement has not been reached under the provisions of Standing Order 78(1) or 78(2) with respect to the second reading stage of 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.

Under the provisions of Standing Order 78(3), I give notice that a minister of the Crown will propose at the next sitting a motion to allot a specific number of days or hours for the consideration and disposal of proceedings at the said stage.

[Gabe Hayos]

I would just make a few comments. First, as far as Bill C-48 is concerned, as you heard from the Department of Finance, it's primarily trying to ensure that it captures essentially the integrity of the current system. I don't think it's necessarily dealing with more broadly based things.

I would like to clarify this issue of the term “tax havens”. I think it doesn't really serve a good purpose. First, I think you all appreciate that tax is one of the costs of doing business, and if countries can keep their tax rates low, it's a means of attracting real business. But what is important is that countries have open and transparent tax systems.

The Department of Finance has introduced rules that try to ensure that they give special recognition to countries that have open and transparent systems. As Larry said, you can't have people who are real tax evaders hiding income. On the other hand, if there are businesses that conduct real activities and they go to lower taxing jurisdictions, that's just one of the competitive advantages that country has. That's why we've been such a strong proponent of Canada keeping their corporate tax rates low and competitive, because it ensures both that companies stay here and other companies come here. I think that's the important point.

As Larry said, we have general anti-avoidance rules and transfer pricing rules. As you've heard, there are disclosure rules for aggressive tax planning that are introduced in Bill C-48. All this ensures that the large majority of taxpayers try to comply with the rules.

[Larry F. Chapman]

I think a lot of the legislation in Bill C-48 deals with more sophisticated issues and more sophisticated taxpayers. What probably impacts on the average Canadian much more directly is the annual budget bills, which Parliament has been dealing with.

There are aspects of the bill that affect the average Canadian, and Minister Menzies has talked about the split receipting rules and the charitable donation area. That would impact on a lot of Canadians. But I think if you looked at the bill as a whole, it's dealing with difficult, complex, and sophisticated issues for the more sophisticated taxpayers in our country.

[Shelly Glover, Conservative, Saint Boniface, MB]

I really appreciated when Ms. Plant was doing her opening statement, as she addressed costs to the government. When there are delays and administration is more complex, cost to the government increases. Would you also say that there could be some savings for the average Canadian because of the simplification made possible by Bill C-48?

[Shelly Glover, Conservative, Saint Boniface, MB]

I also want to ask about the comfort letters, if I could follow up on that as well. In 2009 some indicated that there were about 250 comfort letters outstanding. I'm just curious to know. Do you feel that Bill C-48 deals with all of those comfort letters?

[Vicki Plant]

Again, we haven't done a follow-up in terms of whether all the necessary technical changes have been included in Bill C-48. As I said in my opening statement, certainly it's a start. It does contain a number of the amendments.

We had recommended that packages of technical changes be distributed regularly for comment, and obviously tabling them in the House is the final step in that process.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

Welcome to the witnesses.

I'm going to follow up on what was just said and ask you this, Ms. Plant. What is your assessment, or what is the Auditor General's assessment, of how well Bill C-48 deals with the recommendations that were made in 2009? Have we done a good job in Bill C-48 of dealing with those recommendations?

[Vicki Plant]

We haven't had any particular conversations about this bill, Bill C-48, in particular. We do follow up our recommendations. We've had both the Canada Revenue Agency and the Department of Finance provide an assessment of their progress with our recommendations, and as one of the finance officials mentioned earlier this morning, the internal audit branch at the Department of Finance did a follow-up report as well on progress on our recommendations.

[Murray Rankin, NDP, Victoria, BC]

Thank you, Chair.

Thank you to all of you for attending today.

I'd like to focus in on comfort letters a little bit, if I could.

Just to put it in context, apparently there were some 250 comfort letters included or addressed in Bill C-48, some of them dating back to 1998, that are now included. I guess I'd ask, if I could, Mr. Hayos or Mr. Chapman, is this comfort letter process working for practitioners? Is it user-friendly?

[Vicki Plant, Principal, Office of the Auditor General of Canada]

Mr. Chair, thank you for this opportunity to join this panel to discuss chapter 3 of our 2009 fall report in relation to Bill C-48, which is before you now.

In our chapter on income tax legislation, we focused on activities within the Department of Finance Canada and the Canada Revenue Agency that helped to provide or improve legislative clarity for both taxpayers and tax administrators. We have not audited this subject since our 2009 chapter, so we have no view on specific measures in Bill C-48.

During our audit, we reviewed the way the Department of Finance develops technical amendments to be tabled in Parliament. These amendments are aimed at correcting discrepancies identified after the implementation of initial tax measures and getting rid of some unintended consequences. They are not aimed at bringing in new tax policies or amending an existing policy.

In addition, we reviewed how the Canada Revenue Agency helps the Department of Finance determine which technical amendments to make to the act and how they should be formulated. We also reviewed how the agency provided its tax auditors and taxpayers directives on the enforcement and interpretation of the Income Tax Act.

Our system of income taxation depends on taxpayers self-assessing their tax obligation based on a clear understanding of the law. Legislative clarity is important if taxpayers are to easily self-assess and correctly calculate their taxes. When the intent of the legislation is not clearly conveyed by the words, taxpayers may face higher cost to obtain professional advice, may be more willing to use aggressive tax plans, and may need to re-file a tax return at additional cost.

Uncertainty about how the tax law should be interpreted can also affect the efficiency of tax administration. For example, there are higher costs for the agency to provide additional guidance and interpretation to taxpayers and tax auditors. There are also increased administrative costs for the agency to obtain waivers from taxpayers to extend the limitation period for audit reassessments until the uncertainty is resolved. It may even result in lost tax revenues.

In 2009, we found that the list of outstanding technical amendments to the Income Tax Act had been growing and that no income tax technical bill had been passed since 2001. At the time of our audit, there was a backlog of at least 400 technical amendments. Some of these were included in proposed legislation that was first tabled in 2002 but was not enacted.

Following our audit, we recommended that the Department of Finance develop and implement a plan to clear the backlog in terms of required technical amendments. We also recommended that the department develop and publish draft technical amendments regularly so that taxpayers and tax experts can find out what kind of changes will be made and provide feedback on them.

Mr. Chair, when the Department of Finance determines that some changes have to be made to the Income Tax Act, it is important that legislative changes be tabled in the House of Commons promptly. If the proposed legislative amendments are not tabled regularly, they accumulate and turn into a raft of amendments that taxpayers, tax experts and parliamentarians have trouble processing.

Creating a package of technical changes is a start. In the past, the government said that an annual technical bill of routine housekeeping amendments to the act was desirable. Your committee may wish to ask Finance Canada how the department plans to keep the Income Tax Act up to date in the future.

Mr. Chair, that concludes my opening statement. I would pleased to answer your committee's questions.

[Larry F. Chapman, Executive Director and Chief Executive Officer, Canadian Tax Foundation]

Good morning. Bon matin. I'm going to stop there with my French language skills, because they're limited.

Thanks for the invitation to appear before this committee today.

My name is Larry Chapman and I am the executive director of the Canadian Tax Foundation.

Before joining the foundation in 2008, I was national managing tax partner at PricewaterhouseCoopers. Before that I was a senior tax executive at a large multinational consumer products company based outside of Canada.

The foundation was established in 1945 as an independent tax research organization under the joint sponsorship of my friends at the Canadian Institute of Chartered Accountants and the Canadian Bar Association. The foundation provides a unique forum for our members to work together for the betterment of the Canadian tax system and the tax profession in general.

We have in excess of 10,000 members who are drawn from the legal and accounting professions, industry, academia, and the Government of Canada, including the Canada Revenue Agency, the judiciary, and the Departments of Finance and Justice.

The foundation has long been respected—and I will muster all the modesty I can—by government policy makers and administrators for its objectivity, its focus on current tax issues, its concern for the improvement of the Canadian tax system, and its significant contribution to tax and fiscal policy debates in the country. I say this because we get confused with the Canadian Taxpayers Federation on a regular basis.

The Canadian Tax Foundation is not an organization—I repeat not an organization—that lobbies governments on behalf of our members. Given the diversity of our membership, it would be impossible to reasonably represent a collective viewpoint. In contrast, we take pride in providing forums where all well-reasoned and well-supported views on all sides of an issue can be expressed. Our primary concern is the promotion of policies and practices that improve the equity and efficiency of the Canadian tax system.

More than 80% of the government's revenue is collected under the Income Tax Act and the Excise Tax Act. Like a home or a car, these two statutes need to be repaired and maintained in order to properly serve their purpose. We live in a rapidly changing world, and this legislation must respond dynamically to changes in commercial transactions. Can you imagine how much work would be required if you made no repairs to your home or your car for more than 10 years? That is what has happened with these two statutes. The last bill addressing technical amendments was passed in 2001.

Bill C-48, the Technical Tax Amendments Act, 2012, the so-called tech bill, is a massive piece of legislation. I actually brought a copy with me. I needed a briefcase with wheels to get it here. It’s a massive piece of legislation, but it represents 10 years of repairs and maintenance in updating the Income Tax Act and the Excise Tax Act. Its passage is important to all Canadians. You heard that in the earlier presentation. I want to emphasize it again. Its passage is very important to all Canadians.

We’ve all referenced the Auditor General’s 2009 report. I think one of the interesting things in the report that Vicki and her colleagues did is that this bill, in various forms, has been before the House on nine separate occasions. The Auditor General recommended passing technical amendments on a more timely basis. I think they implied that it should be annually, but certainly more timely would be useful.

The Standing Committee on Public Accounts, in its April 2012 report, recognized the joint responsibility of Parliament and the Department of Finance to pass technical amendments legislation on a timely basis. If I have time, Mr. Chairman, I'll quote from that briefly:

Parliament needs to share responsibility for ensuring that technical amendments are passed in a timely manner after they are introduced. The Department's responsibility is to put the government in a position to be able to table technical bills; after that, it is up to Parliament to ensure that they are passed.

There are a number of reasons why it has taken this long to bring the legislation in Bill C-48 before Parliament. We've heard about that in the prior sessions. Delays in the passage of tax legislation leave taxpayers and their advisers in a no man's land of uncertainty. My message for the Standing Committee on Finance is that you should encourage passage of this legislation, and in the future you should welcome and encourage the timely submission of technical legislation to update and improve these important statutes. This is an issue on which taxpayers, parliamentarians, and the Department of Finance can work together for the benefit of all Canadians.

Thank you. I’d be pleased to answer your questions.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll accept that as a notice of motion.

Are there any other notices of motion by members?

Okay. Thank you, colleagues.

I want to thank you very much, Minister Menzies, for your appearance here today, for your presentation, and for responding to our questions. I want to thank your officials as well. Thank you for that information.

I would add, as your chair, with any friendly persuasive powers that I have, that if we could get this bill to committee.... As members on both sides have pointed out, it is still being debated at second reading in the House. I would like to have this bill at committee as soon as possible so that when we get to clause-by-clause, we will actually be able to deal with the clauses of the bill in this committee. I hope members on both sides will take that back to their parties.

Minister, thank you so much for being with us.

Colleagues, we will suspend for two minutes while we bring our next witnesses forward.

Thank you.

I call this meeting back to order. Thank you, colleagues. I will ask you to find your seats, please.

We're very pleased to have with us three witnesses to discuss Bill C-48, the technical tax bill that we were discussing previously with Minister Menzies. We have the Canadian Institute of Chartered Accountants with us here today, the Canadian Tax Foundation, and the Office of the Auditor General of Canada.

I understand each of you has opening remarks. We will start with the Canadian Institute of Chartered Accountants for your five-minute opening presentation.

[Shawn Porter]

It's a good question and a difficult question. I don't know that the matter gets studied in those terms. Rather, the focus in developing the legislation is to maintain a neutral and balanced playing field. So fundamentally, the foreign investment entity rules and the non-resident trust rules are companions to the foreign accrual property income system rule that applies to controlled foreign affiliates of Canadian-based multinationals.

All of those regimes are aimed at situations whereby taxpayers resident in Canada would transfer income-earning property to foreign intermediaries, be they non-resident trusts, controlled foreign affiliates, in the case of the FAPI rules, or a non-controlled foreign affiliate, in the case of foreign investment entity rules, as they were at one time called; they are the offshore investment fund rules because those rules were not fundamentally changed, and that's reflected in Bill C-48.

[Shawn Porter, Director, Tax Legislation, Department of Finance]

I just want to take a moment to clarify that the international measures in parts 2 and 3, and 3 in particular, as you refer to, are viewed more as integrity measures. The upstream loan and the hybrid surplus rules that I think are implicit in the question run to the kinds of supporting rules that a tax system needs, where the international tax system has a deferral and credit element. You defer current taxation and you impose additional tax in Canada potentially on repatriation. That's not a change in the general structure or policy of the existing international tax rules. It's an integrity measure to make the existing policy framework work properly.

The transfer pricing rules are outside the scope of Bill C-48. They're contained in section 247. And you're quite right, that's a significant component of international tax system design, but that's not the subject matter of Bill C-48.

As for offshore planning by multinationals generally, there's a continual dialogue in the international community in which Canada plays a role and participates. For example, at the OECD at present there is work being done on base erosion and profit shifting, and the transfer pricing rules of Canada and any other country play into that. Those are the subjects of ongoing and continual study by the department and by the government, but they are not part of the scope of Bill C-48.