Bill S-6 (Historical)

Canada–Madagascar Tax Convention Implementation Act, 2018

An Act to implement the Convention between Canada and the Republic of Madagascar for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income

This enactment implements the Convention between Canada and the Republic of Madagascar for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and a related protocol.
The convention is generally patterned on the Model Tax Convention on Income and on Capital developed by the Organisation for Economic Co-operation and Development (OECD).
The convention has two main objectives: the avoidance of double taxation and the prevention of fiscal evasion. Once implemented, it will provide relief from taxation rules set out in, or related to, the Income Tax Act. That implementation requires the enactment of this Act.

Canada–Madagascar Tax Convention Implementation Act, 2018

[Greg Fergus, Liberal, Parliamentary Secretary to the President of the Treasury Board and Minister of Digital Government]

Mr. Speaker, I am pleased to be participating in this debate on Senate Bill S-6 in my new role.

I would like to start by saluting my colleague opposite for his fine speech on this bill. I will continue in the same vein and express my support for this bill.

Until just recently, I was a member of the Standing Committee on Finance. I sat on the committee for nearly three years, and I absolutely loved it. We got to examine all the issues that fall to the federal government, including all bills related to taxation authority, and review our government's finances. One of the last studies I took part in was about Bill S-6, an act to implement the convention between Canada and the Republic of Madagascar for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. It is part of our government's agenda for ensuring tax fairness and a fair tax system.

Before I get into the details of the legislation, I would first like to underscore the fact that this is not only part of this government's tax fairness agenda, but this also places itself within a whole framework of what we are trying to achieve to help Canadians who are trying to keep their taxes low, including small businesses as well as for middle-class families.

When our government took office three and a half years ago, we made a commitment to invest in growth and we made it while upholding the principle of fairness for all taxpayers. This proposed legislation goes a long way toward that end.

A fair tax system is key to ensuring that the benefits of a growing economy accrue to all and are felt by more and more people, especially people with good, well-paying jobs for the middle class and for everyone who works hard to join it.

I would like to remind hon. members that one of the first things our government did was lower taxes on the middle class and raise them for the wealthiest 1%. Over nine million Canadians benefited from that measure. That really fills me with pride. All members can take pleasure in knowing that nine million Canadian families enjoy a much lighter tax burden today.

After the middle-class tax cut, we took steps to replace the old system of child benefits with the Canada child benefit. I take pride in that measure because it fulfilled an election promise. The leader of the Liberal Party of Canada made that promise in my riding, Hull—Aylmer, surrounded by middle-class families and families hoping to join them. These people work hard to build a stable family life.

It is one of the biggest promises we have ever made, and the result is that 300,000 children were lifted out of poverty in Canada. That is remarkable.

I have been involved in federal politics for a long time now. I started here, in 1988, as a page in the House of Commons. I remember there was a debate that year called “campaign 2000”. The idea was to eliminate child poverty by the year 2000.

We made that commitment in 1988. Every single government since has made it too. However, it was not until 2015, when the current Liberal government was elected, that we were able to accomplish great things in that area. We cut the child poverty rate by a third, which is remarkable, and we did it in one fell swoop. It was one of the most important social programs—if not the most important—to have ever been implemented in Canadian history.

I would now like to return to the bill on the convention between Canada and the Republic of Madagascar. As I said earlier, I am on the Standing Committee on Finance; we examined the provisions of the bill and we unanimously voted to support this bill without amendment. I am very proud that we have now reached the stage where it is up to the House of Commons to approve it.

I know that this is not something that we generally do when we introduce a bill, but as a former member of the Standing Committee on Finance, it is very important for me to review and explain the five major clauses of the bill without getting into too much detail.

First, this bill sets the maximum withholding tax rate on dividends at 5%. That is important, particularly if the beneficial owner is a company that controls at least 25% of the voting power in the company paying the dividends. It sets the maximum withholding tax rate at 15% in all other cases. The first provision is consistent with other double taxation treaties that Canada has with a number of other countries in the world.

Second, the bill sets the maximum withholding tax rate on interest at 10% and eliminates withholding taxes when interest is paid in respect of a loan made, guaranteed or insured by a public agency or the central bank of one of the states or when the beneficial owner of the interest operates exclusively to administer or provide benefits under one or more pension, retirement or employee benefits plans, subject to certain other conditions. As I said, that is completely normal. That is something we do in the 93 other double taxation treaties that Canada has with other countries.

The third element of this double taxation treaty sets the minimum withholding rate of 10% of the gross amount of royalties and further provides for the withholding tax on certain royalties. This is particularly important, especially for people who might be involved in companies such as in the mining sector.

As members know, Canada is a worldwide leader with respect to investment in mining companies and in doing these investments around the world. It is very important for Canadians who are working for these companies in these countries to have this opportunity to participate and be protected by these taxation agreements.

The fourth element includes a provision to avoid potential double taxation that can arise in respect of the capital gains that an individual realizes on the deemed disposition of property upon immigration between two states, in this case between Canada and Madagascar.

This proposed bill will benefit Canadians by boosting our exports abroad, making it easier for Canadians to take part in these activities. In doing so, Canadians will know they are protected by these measures on double taxation.

Tax fairness is as important to Canadians as it is to our government's plan for economic growth. It is very important that Canadians know their hard work will be rewarded with greater opportunities and a fair chance of success. They need to know that their fair chance of success and opportunities are being protected and that their efforts will not end up being for not when they are caught in between differential taxation treaties between two different countries.

The legislation before us today will build on Canada's extensive network of income tax treaties. As I mentioned earlier, we have 93 comprehensive tax treaties that are currently in force with countries around the world. Canada's tax treaties are a part of a larger global network of approximately 3,000 tax treaties between nations worldwide. Therefore, we have 93 of 3,000 treaties. We have been doing quite well in ensuring we are protecting Canadians, their investments and efforts abroad.

This network of tax treaties is really fundamental to economic growth, not only for Canada but for many countries. It is fundamental to our trade and investment. At the end of the day, we can talk about companies but we really are talking about people. We are talking about how people are putting their creative efforts into creating economic opportunities through entrepreneurial opportunities that present themselves. This gives them that opportunity to ensure they are fairly taxed and their efforts are protected.

By eliminating double taxation, these treaties provide the certainty which Canadians need to support open and advanced economic opportunities and encourage our friends in our countries, in this case Madagascar, to support open and advanced economies as well. They permit the exchange of information needed to prevent international tax fraud and tax evasion.

From what I have gathered in listening to the speeches presented in the House today and with the support of all major political parties for this treaty and others like it, we are really creating a whole network of opportunity for Canadians to ensure they can take their economic activities abroad. Yes, we want investment here and yes, it is important, but we also have to ensure that we have equipped Canadians with the opportunity to go abroad, to find and create opportunities. This is not only be good for them individually, but also good for Canada in creating more international trade opportunities. I dare say if it is done in the right conditions, there are certainly great economic opportunities for the countries in which we decide to put our entrepreneurial know-how to work.

Bilateral double tax conventions are also fundamental to eliminating tax barriers to trade and investment between two countries. They achieve this purpose in a number of ways.

First, tax treaties provide greater certainty to taxpayers regarding their potential liability to tax in the other country.

Second, they allocate taxing rights between the two jurisdictions, thus eliminating double taxation.

Third, treaties like this one reduce the risk of burdensome taxation that may arise because of excessive withholding taxes.

Fourth, they ensure that taxpayers will not be subject to discriminatory taxation in the other country.

Fifth, tax treaties authorize the Canada Revenue Agency and its foreign counterpart to exchange tax information for the purpose of preventing tax evasion and tax fraud.

Last, tax treaties give jurisdictions a dispute resolution mechanism.

All of these objectives are important, and this bill will enable us to achieve them.

By updating our tax relationship with Madagascar, we can strengthen trade and investment between our two countries. By doing so, we are showing the world that Canada is an outstanding place to invest and to do business in and, more important, we are creating stability for Canadians to invest and do business outside of our country. We do this because we know that Canada's economic success rests on the hard of Canadians but also on the strong relationships that inform direct investment.

I would like to draw the attention of the House to the importance of signing such tax treaties.

Canada has 93 tax treaties with 93 countries around the world. These treaties are part of our government's efforts to ensure Canada's economic well-being. Since budget 2016, our government increased the Canada Revenue Agency's resources and funding in order to strengthen its ability to crack down on tax evasion and tax avoidance. The CRA's compliance programs now help them to better target those posing the highest risk of tax avoidance.

These efforts are producing tangible results for Canadians. Through the new system in place, our government can monitor international electronic funds transfers of $10,000 or more that enter or leave the country. This represents over one million transactions per month. Monitoring these transfers helps us better assess the risk of individuals and companies committing unfair tax avoidance.

In closing, by increasing the number of tax treaties we have with our partners, the Government of Canada is helping to create favourable conditions for long-term economic growth that will help strengthen Canada's middle class and support those working hard to join it. The bill we are introducing today is an important step towards achieving that goal.

I encourage all my hon. colleagues to support this bill. That concludes my speech. I thank my colleagues for their attention and hope to have the unanimous support of the House to pass this legislation.

[Karine Trudel, NDP, Jonquière, QC]

Mr. Speaker, I listened carefully to my colleague's speech. The NDP will support Bill S-6. Sadly, however, it includes no provision to combat tax evasion. Its title is misleading. This treaty seeks to avoid double taxation between states; it does not directly address tax evasion.

I have a straightforward question for my colleague. Why do he and his government keep misleading Canadians with a bill like this, which clearly includes no provision to deal with tax evasion?

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Mr. Speaker, I thank my colleague for her question, but I would like to set the record straight. The title of Bill S-6 being discussed today is very clear. It is an act to implement the convention between Canada and the Republic of Madagascar for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. It is not unlike the bills we adopted to implement the 93 other agreements we concluded with other countries. It features the same measures.

There are indeed measures for avoiding double taxation, but there are also measures meant to reassure the public and to make transactions more transparent. The bill connects the Canada Revenue Agency and Madagascar's agency to ensure that there is no tax evasion by Canadians working in Madagascar or vice versa, by the people of Madagascar working here in Canada.

[Michel Picard, Liberal, Montarville, QC]

Mr. Speaker, I would like to tell my colleague a bit about transfer pricing. A bilateral treaty like the one my colleague just mentioned requires the parties involved to agree on the fiscal parameters of commercial transfers. This treaty leads to agreements between the two parties and also to information sharing aimed at reducing this type of tax evasion problem.

Besides increasing tax fairness, a bilateral treaty also allows access to more money that can be used quickly, for example, to make necessary investments rather than to be remitted to the public treasury. Furthermore, it creates a bond of trust between two nations. With this agreement, Canada is showing Madagascar that it intends to build relations based on trust and economic growth.

Perhaps my colleague could say a bit more about Canada's intention of contributing in good faith to the economic growth of both parties.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Mr. Speaker, I want to thank my esteemed colleague from Montarville. He had a wealth of experience with international tax treaties before joining politics. These treaties are designed to ensure that Canadians and other citizens follow the rules and meet their obligations as established by foreign countries and Canada.

My colleague is right to say that this kind of tax treaty is, first and foremost, an obligation that binds both countries. We have great faith in the Canadian system, in the quality of the information and in Canada's tax fairness, and signing a tax treaty with Madagascar would require that country to meet the same standards as Canada. That way, the people of Madagascar and Canada would know that the same information and reports are accepted in both countries. The member is also right to say that this is another way of increasing our ability to ensure tax fairness around the world.

[Anne Minh-Thu Quach, NDP, Salaberry—Suroît, QC]

Mr. Speaker, I do not think my colleague opposite understood the question asked by my colleague from Jonquière. She was saying that the agreement between Canada and Madagascar is a bilateral double taxation convention. For years, the NDP has been calling on successive Conservative and Liberal governments to review these bilateral conventions and to include statutory rules requiring countries to share tax information to avoid secret banking transactions and tax evasion. That did not happen.

As the member said, we have 93 bilateral conventions, but some of them were signed with tax havens. Our country loses billions of dollars that could be invested in health and education here, in Canada. There are still no statutory tax rules that would allow us to bring that money back.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Mr. Speaker, I thank my colleague. I did indeed understand her question.

This agreement will implement the OECD standard for the exchange of tax information upon request. By signing this agreement with Madagascar, Canada is ensuring that this country will comply with the standards and regulations set by the OECD, an organization recognized around the world for the quality of its tax information exchange agreements. It is quite clear that the international standards were set by the OECD, and I think that addresses the question my two NDP colleagues asked.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Mr. Speaker, when I talk to businesses in my riding of New Brunswick Southwest, I often hear concerns about certainty and predictability in terms of investment, such as where and when they should invest. I wonder if my colleague could speak to the opportunities and the confidence that come from having a fairer playing field for investing for our domestic Canadian businesses when they know that there is a new tax convention in place with Madagascar.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Mr. Speaker, I appreciate the question from my colleague from New Brunswick. From the work that she has done with the industries that exist in and around her riding, she certainly knows that it is important for us to establish certainty through these kinds of international standards. We need that level playing field to give confidence to investors to take part in activities. This will not only profit Canadians; we will also be able to profit and share our know-how with people from around the world, and in this case, in Madagascar.

Given the profile of the country and the industries that Canada works in, such as the resource industry, which my hon. friend knows very well and in which she works very hard for her constituents, this type of tax treaty gives an opportunity for us to set the internationally accepted standard. It gives investors confidence that they are not going to be given less than reputable tax treatment. We need to make sure that we set those proper standards so that Canadians know what they are getting into and can share their know-how with the world.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Mr. Speaker, before I begin, I want to let you know that I will be sharing my time with the member for Leeds—Grenville—Thousand Islands and Rideau Lakes.

It is always a privilege to rise in the House and talk about matters of state. That is all the more true today as the end of the parliamentary session draws near. We have just a few weeks to go until the summer recess, and there is going to be an election this fall. With that in mind, I would like to express my support for Bill S-6, an act to implement a tax convention between Madagascar and Canada for the avoidance of double taxation and the prevention of fiscal evasion, as my colleague opposite just explained.

As a number of members have said today, we already have 93 such agreements, some of which were signed by our government before 2015 and all of which are meant to prevent tax evasion. I want to emphasize that tax evasion is a scourge that prevents the government from collecting monies owed, which it uses to provide services to Canadians.

Of course, the important thing is that there be trust between two countries. It is the reason why we are supporting the bill. Trust between the public and the government is equally important, but it has been shaken. It has been shaken because, as we are about to sign an agreement with Madagascar, we have to face the fact that Canada has its own major challenges with tax evasion.

For example, in an article published by the Journal de Montréal, Guillaume St-Pierre said that the Canadian treasury is losing up to $3 billion each year in unpaid taxes because wealthy Canadians are hiding money in tax havens.

A Canada Revenue Agency study revealed that Canada is losing significant tax revenue to tax evaders. These people use complex schemes to hide taxable income abroad. The $3-billion figure could be just the tip of the iceberg. It has been suggested that companies or individuals who evade or avoid taxes could owe as much as $17 billion in unpaid taxes.

Our system already has certain weaknesses. It is important that Canadians pay their fair share of taxes. This week, we learned that British Columbia also has challenges with money laundering, which is pouring huge amounts of money into B.C.'s real estate market. Several billions of dollars have been injected into the real estate market.

When the time comes to meet a need as fundamental as housing, the average Canadian who pays his taxes must turn to the real estate market, where he is in competition with unknown sources of money.

We support Bill S-6, but the trust between Canadians and the government has been undermined at a time when we are headed towards an election. I would like to remind those listening that, on taxation, which is the issue we are discussing today, the Liberal government looked us in the eye and promised that by now, so in 2019, there would be no deficit because the budget would be balanced.

Why is this important?

It is important to balance the budget, because a period of relative economic prosperity is the perfect time to generate revenue and pay down the deficit so we can get money flowing in the event of an economic crisis, in order to stimulate and support the economy. That is what our Conservative government did.

The difference between what is happening now and what we went through is that we were faced with an economic crisis. The Conservative government did three things: we paid down debt, stimulated the economy in a period of economic crisis and balanced the budget.

The Liberal government's four-year term is almost over, and we have yet to see the government taking any of these measures. In fact, it has done the opposite and plunged us into a bottomless deficit pit.

Writing about the 2019 budget for the Journal de Montréal, Michel Girard mentioned the $71-billion deficit and called the budget blatant vote buying. He wrote:

True to form, the Trudeau government is spending like there's no tomorrow. That is why, for the fourth time in a row, it's kicking off the new fiscal year with a colossal deficit.

I mentioned trust, and members will recall that we were promised a balanced budget and modest deficits.

Michel Girard goes on to say:

How big will it be this time? Nearly $20 billion, including a “small” $3-billion cushion.

Adding it all up, since [this Prime Minister and the Liberals] came to power, they have dug a massive $71-billion hole with four successive huge deficits.

As a result, [at a time of relative economic prosperity, under the Liberals' watch] the net federal debt has skyrocketed by $100 billion.

Where is that $100 billion going? Is it being invested in families, in infrastructure or in the fight against climate change?

Most of the Liberal government's spending is the result of direct program expenses, particularly expenses associated with the federal government's departments, agencies and Crown corporations.

What concrete benefits are there for taxpayers? Most of that $100-billion deficit goes to the departments. Basically, it goes into bureaucracy, unfortunately.

Direct program expenses have skyrocketed by $30 billion. Who is footing the bill? Ordinary Canadians are. Since the Liberals came to power in 2015, government revenues have increased by $43 billion. Money does not grow on trees. The Liberals are taking that money out of taxpayers' pockets, the same taxpayers who have recently been burdened with a carbon tax whose effects are still unknown.

Such is the government's record. It has lost the trust of the people.

It is okay for the government to sign partnerships with Madagascar, as it has done in 93 other cases, but it is not okay for the government to break its word.

I was saying that the Conservatives restored budgetary balance and that we invested during the economic crisis and paid down the debt. The Liberals spend left and right with no real result. I just explained today how this money went to the bureaucracy and taxpayers are the ones paying an extra $45 billion. Unfortunately, that is not all. This deficit includes measures that taxpayers will not benefit from but will have to pay for. For example, the Parliamentary Budget Officer told us that the government paid $4.5 billion for a pipeline. Taxpayer money is being used to pay an expense that will not even help Canadian energy access the market at a fair price.

I see that my time is running out. I will simply say that it is important that there be trust between countries, as is the case between Canada and Madagascar in this agreement, but the trust between the Canadian public and the Liberal government has been broken.

[Michel Picard, Liberal, Montarville, QC]

Mr. Speaker, I want to come back to my colleague's speech about money laundering. I have been interested in this issue since 1995. We need to understand that these longstanding issues involve several authorities over a period of many years.

The report released in Vancouver describes a situation that goes back some time. This bill has been in the works for several years. In the previous government, it seems that my colleague was also the minister of public safety and responsible for these issues because he was responsible for the RCMP.

Why has the problem persisted?

Are we to understand that this is a longstanding problem or that the current reality is the result of cuts they made to the RCMP?

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Mr. Speaker, I thank my hon. colleague. If this was 2015 or early 2016, I would understand why he is asking the question. However, this government has been in power for four years. The Liberals sometimes have the irritating habit of saying that it is not their fault whenever there is a problem.

I encourage my colleague to examine the measures, or rather the lack of measures, that were taken over the past four years to address the problems of tax evasion and money laundering.

Some economists are even saying that if we did not consider the effect of this injection of money into the Canadian economy, we could even find ourselves in a recession. Therefore, it is important to act responsibly together with the provincial governments and our international partners.

One of these measures would be to strengthen the regulatory system for real estate agents to deal with money laundered in the real estate market, which I mentioned in my speech.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Mr. Speaker, the investment made in my riding, New Brunswick Southwest, was responsible investment. In rural communities, it takes a lot to get applications in, so I differ on that sentiment.

I recall very vividly the all-night voting, and I wonder if my hon. colleague could tell us why the opposition voted against any increases to the RCMP that night when, during his speech today, he talked about the importance of the RCMP being able to investigate.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Mr. Speaker, I thank my colleague for her question. I actually had the opportunity to meet at the very beginning of this parliamentary session.

In the last budget, the Conservative government increased funding for the RCMP to combat terrorism, among other things. The RCMP naturally has to have access to the tools it needs to keep Canadians safe.

I would like to refer my colleague to the Parliamentary Budget Officer's report on investments in infrastructure. In his update on investments in the territories, the Parliamentary Budget Officer noted that there is no infrastructure money to be seen. One concrete example is that the City of Lévis was forced to invest in its pool project with a grant from the provincial government alone. The federal government did not step up. The same thing happened with the construction of an overpass.

Where is federal money going? We are not seeing it in infrastructure back home—

[The Deputy Speaker, Bruce Stanton]

I apologize for interrupting the hon. member, but the interpretation is not working.

Is it working now? Okay.

There is one minute and a half remaining for another question or comment.

There are none. Resuming debate, the hon. member for Leeds–Grenville–Thousand Islands and Rideau Lakes.