An Act to amend the Income Tax Act (economic substance)

Sponsor

Murray Rankin  NDP

Introduced as a private member’s bill. (These don’t often become law.)

Status

Introduced, as of June 19, 2017

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Summary

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

This enactment amends the Income Tax Act to deem certain avoidance transactions to be a misuse of provisions providing for tax benefits.

Elsewhere

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.

Opposition Motion—Tax Fairness in Budget 2018Business of SupplyGovernment Orders

February 8th, 2018 / 12:40 p.m.
See context

NDP

Murray Rankin NDP Victoria, BC

Mr. Speaker, it is indeed an honour to rise in support of the opposition day motion today, which asks the government to keep its promise to cap the stock options deduction loophole and to take aggressive action to combat tax havens and take concrete steps in the next budget to do so.

This is a very important motion for a number of reasons. During the course of my remarks, I want to talk about tax havens in particular. I also want to talk about the use of tax havens by companies that are in the burgeoning cannabis business, something that came up in the Senate a couple of days ago that I would link into this debate. Finally, I would like to talk about a private member's bill I have before Parliament that would make some contribution to this problem.

What is this problem? We have heard it often already. Other speakers have pointed the finger at the enormous and growing gap in our society, the growing inequality, where Canada's top CEOs earn 200 times the average person's salary. These statistics are quite extraordinary when Canadians hear them, and they cannot be said too often.

Oxfam reported last month that eight super-wealthy men own as much wealth as half the world's population. That is staggering. It is hard to get our heads around figures like that. Of course, the top 20% also own 67% of all the wealth in our country. This is not the kind of society I grew up in, but it is the kind of society we are leaving to our children and our grandchildren. I frequently hear, on the doorsteps in my riding of Victoria, the recognition that Canada is changing before our very eyes. One of the reasons it is changing is that we are allowing tax havens to flourish.

The government will tell us that it is doing all it can to deal with aggressive tax avoidance schemes, that it has hired all these people. However, as the old ad used to say, “Show me the money.”

I cannot remember how many times in the last Parliament I asked the member from Delta, who was a Conservative member and the minister of national revenue, just how much money they had recovered, because they kept bragging about how the CRA was on the front lines in doing all it could to recover this money. I kept asking how much money they had actually recovered. Here is how they put it: “We have identified billions of dollars.” I would ask the next time, “How much have you actually recovered?” I never got an answer. It was alway “identified”. We need to watch the bouncing ball. We need to watch the rhetoric, because this government uses it as well.

About $500 million was recovered after the Panama papers were first exposed by countries that took seriously their need to tackle tax evasion and aggressive tax avoidance. The line between those two concepts is murky at best. How much did Canada recover? We do not know. They will not tell us. Maybe they identified a lot of money. I suspect that they did.

I do not for a second wish to make light of this. The government hiring more people is a good first step. Of course, when the Liberals were in opposition, they used to remind the House frequently that for every dollar invested in going after international aggressive tax avoidance, we would recover five or ten or some multiple. I absolutely believed them. It is an excellent investment.

Second, I support and applaud our government's work at the OECD, the G7, and other international places to make sure that we are part of the solution to tax avoidance and trying to deal with what they call BEPS, and a number of other things. I support Canada's leadership in those place. However, it is not as much as the British have or as the French have. I fear that Canada is there but perhaps does not have much to show for it yet.

Third, I noticed that Canada has entered into a number of these agreements called TIEAs, tax information exchange agreements. Sometimes it looks to a person reading them that all they do is regularize tax avoidance and that the use of tax havens seems to be just fine.

At the macro level, stepping back from this, our Income Tax Act has for a long time been criticized by accountants, the organized tax industry, and the person on the street who has enormous difficulty understanding how the scheme works. It is such a simple thing for a politician to stand up and say, “We have to simplify our tax system.” How long have we heard that? Sometimes we get simplistic arguments. Sometimes I hear in Alberta how we need to have a flat tax and all of a sudden everything will be better, no matter how regressive that in practice turns out to be.

We have a big problem at the international level and at the domestic level. If one talks about the effect of tax havens on Canada, it is nothing compared to what is happening in the developing world, where resources are siphoned off and find their way into bank accounts in Switzerland and Liechtenstein and places like that. The money that is so desperately needed for development is not happening. Sadly, some of that is in the mining sector, and sadly, the mining sector seems to be a significant part of Canada's economy. We see in Vancouver that half or more of mining corporations are incorporated, sometimes using tax havens.

I am trying to set out the enormity of the problem and some of the solutions that may be at hand.

One idea I think is worth discussing, at least, is my private member's bill, which is Bill C-362. It would attempt to close some of these loopholes. This is a very simple two- or three-line bill, which I would urge hon. members to consider. It is inspired by the late Dr. Robert McMechan, who, sadly, passed away last year. He was a tax litigator for most of his career right here in Ottawa in the Department of Justice. He went on to do graduate work at Osgoode Hall. He wrote a very important book on international tax avoidance. He came into my office and asked to work with me in trying to get our hands around this enormous problem. Of course, I welcomed him with open arms.

The bill that is at issue would make what the Canadians for Tax Fairness have characterized as a significant impact. I confess that I do not know how they got this figure, but they claim that it would yield $400 million to Canada every year if this bill were implemented.

What would the bill do? Members will recall, back when Prime Minister Mulroney was in power and Michael Wilson was our finance minister, that Canada did what a number of countries did. The government incorporated into our Income Tax Act the general anti-avoidance rule, GAAR, as it is called. GAAR would be amended by my bill to require that there be “economic substance” considered as a relevant factor in determining whether transactions were “avoidance transactions”. If the judge had the ability to eyeball a set of transactions, he or she could say that they seemed to be only for tax purposes. Putting that money in Liechtenstein or the Cayman Islands has only one purpose, and that is to avoid paying taxes, and there is no economic substance, in the jargon, for that to occur.

That was how we started, but with great respect to our courts, they took a different path in the application of that principle, and “economic substance” seems to have been lost in the fog. Cases such as Canada Trustco and Copthorne took us to a place where courts were no longer able to do what they had initially been instructed to do. This simple amendment would put us on track with what the British and the Americans are doing: being able to ensure that there is a reason to put the money in the Cayman Islands, aside from simply saving tax. It is simple, but it is an ethically important thing to do.

Speaking of ethics, it is time we took tax avoidance much more seriously rather than saluting and applauding the wizards of Bay Street, be they in a law firm or an accounting firm, who know how to play the angles. The best and the brightest, when I taught law, often went there, because the ability to make money is astounding in this field. As Canadians, we should look at that the same way we look at smoking or other social vices. This should be seen as an immoral activity. Yes, it can be done, but no, it should not be. We should, as Canadians, be applying an ethical lens to this field of the use of tax havens and aggressive tax avoidance.

Private Members' Business--Secret Ballot VotesPoints of OrderGovernment Orders

November 27th, 2017 / 4:40 p.m.
See context

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Mr. Speaker, I am rising today concerning the practice that you will follow in the upcoming votes to determine the votability of Bill C-362, the important bill from the very dedicated and hard-working member of Parliament from Nanaimo—Ladysmith.

This is a very important and historic point in time. We have never used Standing Order 92(4)(a) and (b) before, and therefore the process that you use, Mr. Speaker, will determine the precedence for this in the future and for future parliaments. You may be tempted to follow the practice following upon the election of the Speaker, the only other time under our rules when we have this secret ballot vote. This practice has the clerk with the assistance of table officers conduct the count and, in the morning after the vote has been held, announce the decision of the vote with no reference to the number of ballots cast for each side of the question.

Mr. Speaker, I am asking for you to consider releasing the numeric results of the ballot and the names of the members of Parliament who have voted.

I understand the rationale for you, Mr. Speaker, not to release either result. This place runs on precedent and previous practice and the only other use of a secret ballot vote in the House is for the election of the Speaker. That procedure is prescribed by Standing Orders 2 through 7 and they are designed to show the importance of the following of these rules. They clearly say that for electing the Speaker, the only folks who shall handle the count will be those from the table. Our rules are also clear that there will be no release of the numeric ballot results, only the names of the candidates still on the ballot and the naming of the winner. Mr. Speaker, you know this very well as you went through the process.

I submit to you today, Mr. Speaker, that the procedure for the conduct of the secret ballot vote to determine if Bill C-352 will be allowed a vote is not analogous to the process of electing a Speaker. I submit to you that it is not appropriate to apply a procedure for the election of a Speaker to a question being put before the House as a normal part of the legislative process.

First, these two secret ballot votes are doing very different things. Electing a Speaker is a constitutional obligation of the House of Commons. Sections 44 through 49 of the Constitution Act, 1867, the core part of our Constitution, strictly deal with the election of the Speaker and the powers vested to the Speaker therein. The election process was designed back in the 1980s for the Speaker's election. Parliamentarians at that time had an objective of allowing the free and fair election of the Speaker and the rules were designed to make sure that the newly elected Speaker had the legitimacy and freedom to perform her or his important constitutional role in the strongest way possible. Parliamentarians made sure that our most trusted officials would be those conducting the election to make it above reproach. To make sure that the Speaker has the maximum confidence of the chamber that elects her or him, the number of the ballots would not be released so the Speaker's mandate would never be questioned.

I believe that the subject of Bill C-352 is of critical importance, especially to the coastal communities it would so strongly impact, but I have no illusion that if the bill is votable is on the same procedural or constitutional level as the election of a Speaker. When the rules for votability of private members' bills were being developed, which took place 15 to 20 years after the election of our first Speaker by secret ballot, it was not envisioned that the importance of that decision was on the same level as choosing the chief presiding officer over the elected assembly of our country. The decision before members of this Parliament in the next few days will be about a specific initiative of a private member being able to have a vote in the House. It is not a constitutional question, but rather part of the legislative process for private members' business.

As you know, Mr. Speaker, we have lots of PMB votes in this House. We know the questions and we get to know the results when the vote takes place and so do Canadians. We get to know how many members voted on each side of the question and we generally value the numeric value of the vote as a transparent way where Canadians can see their democracy at work, and that helps instill confidence in our system of government. I submit to you, Mr. Speaker, that it is antithetical for this place not to know what the numbers were on any side of any question, which is part of the legislative process. Our democracy is not simply about having representatives make decisions; it is about making decisions in a way that builds confidence in the people who sent us here to make decisions on their behalf, and we do that by being open and transparent.

At each stage of a bill, we vote openly and publicly so that our constituents know how their representative voted. That is also why the final result of the vote is communicated immediately, as the Speaker just did, so that everyone can see how much support there is for a given issue.

The purpose of the secret ballot under Standing Order 92(4)(b) is to allow members to vote freely without their party whip knowing how they voted. This different way of voting stemmed from a desire to give members greater freedom to express themselves on private members' business and was part of a push for a clearer distinction between government business and private members' business during the reforms of 2002 and 2003. Those changes were designed to achieve a clear distinction in terms of both procedure and content.

Other aspects of this reform included the creation of the private members' draw, the exclusion of ministers and parliamentary secretaries from the process, the different voting method for members of the House, and the establishment of a separate order of precedence from government business. It was in that spirit that Standing Order 92(4)(b) was created.

Page 32 of House of Commons Procedure and Practice, Second Edition, states that “Responsible government has long been considered an essential element of government based on the Westminster model.” It goes on to say that “responsible government means that a government must be responsive to its citizens, that it must operate responsibly (that is, be well organized in developing and implementing policy) and that its Ministers must be accountable or responsible to Parliament.” For there to be confidence in responsible government, I submit that being open and transparent is essential.

Because the appeal process that we are undertaking this week by secret ballot, starting tomorrow, has never happened in this place before, it is totally appropriate for you to decide how the result of this vote should be released, not based on the practice used for the election of the speaker, for the reasons I have just set out, but based as much as practical on the rules we use in the legislative process, those of clarity and transparency. It is up to you, Mr. Speaker, that the spirit of the drafters of this Standing Order be heard. I therefore ask that, like all other parts of the legislative process, the numerical results of the decision on the votability of Bill C-352 be made public.

Income Tax ActRoutine Proceedings

June 19th, 2017 / 3:40 p.m.
See context

NDP

Murray Rankin NDP Victoria, BC

moved for leave to introduce Bill C-362, An Act to amend the Income Tax Act (economic substance).

Mr. Speaker, I am pleased to rise today to introduce a bill that would amend the Income Tax Act of Canada.

I would like to thank my colleague, the hon. member for Sherbrooke, who seconded this bill.

This bill would crack down on abusive tax avoidance by denying tax breaks to transactions that lack real economic substance. These empty transactions, designed solely to avoid taxes, would no longer qualify for tax breaks.

Three years ago, I introduced a similar bill. Dr. Robert McMechan was present in the gallery. He was an expert in the field and was calling for this reform in his acclaimed book on international tax evasion. He has since passed away. Today I want to formally recognize his years of service to Canada as general counsel in the tax litigation section of the Department of Justice, and also acknowledge how valuable his expertise was to me in preparing this bill.

The bill would bring our laws up to speed with places like the United States, where President Obama used a similar law to raise billions for health care. It would build trust in the fairness and integrity of our tax system and recover hundreds of millions of dollars in lost revenue so we can offer better public services to Canadians. I look forward to discussing it with all members.

(Motions deemed adopted, bill read the first time and printed)