Evidence of meeting #55 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was amendment.
A recording is available from Parliament.
Conservative
The Chair Conservative Brian Pallister
Mr. Lalonde, here we go again--“under the letter of”. It's over to you.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
This truly is a very technical amendment. It has to do with other provisions in the budget that allowed for pension funds to assist in their financing. One of the measures they're allowed is to obtain financing through a letter of credit from a bank. Only certain persons are allowed to contribute to a pension fund, so if the letter of credit were called upon a bank might have to contribute to the letter of credit. The existing words in the bill indicate that this bank would be paying an amount to the pension fund in the event of a default under the terms of the letter of credit, and it's turned out that since the bill was originally tabled, we've discovered that in some cases the terms of default under which a letter of credit would be called upon may not be in the letter of credit but may be in other associated documents.
This amendment ensures that the bank can make the payment into the pension fund under the terms of the letter of credit even where the.... It resolves the fact that the default provisions might not be technically under the letter of credit itself.
Is that clear?
Conservative
The Chair Conservative Brian Pallister
My only confusion is that the only thing that's being removed here is the terms, so you mean it might not be under the terms of the letter itself. That's why the phrase “the terms” is being removed.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
Exactly.
Conservative
The Chair Conservative Brian Pallister
Okay, that's clear to me.
(Amendment agreed to on division) [See Minutes of Proceedings]
(Clause 39 as amended agreed to on division)
(On clause 40)
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
I have a question about clause 40. I'm not sure what it means exactly. I'd like to know what's defined as “taxable capital”, and how much this would actually cost the treasury.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
Let me just refresh my memory as to what clause 40 is about.
NDP
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
As indicated in the budget documents, the minimum tax on financial institutions is being revised from a two-stage tax to a one-stage tax and the base amount that's not subject to the tax is being reduced. If you look in the budget documents you'll see that the tax cost of the changes to the minimum tax on financial institutions are $15 million in 2006-07 and $30 million in 2007-08.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
Okay, just to go through it, we're changing the minimum tax, the rate before which taxes on taxable capital kick in, from $200 million to $1 billion. What you're saying is right now this would cost the treasury, for the next two years, $45 million.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
If you add it up for the next two years, that's correct, yes.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
My question is this. Was there a lot of pressure from big banks to do this? Where did it come from, when in fact we're looking at probably the most profitable time in the history of financial institutions.This year's profits are by far the record in the history of bank profits. Why are we doing this now?
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
The government has been moving, over the past several years, to try to reduce capital taxes. The general capital tax applicable to corporations overall has been eliminated. The tax on the taxable capital of financial institutions is still in place but it's being modernized and the base amount that's exempt from the tax has been increased to reflect that the original base amount was implemented some 20 years ago, when part VI was introduced.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
That still doesn't account for why we would suddenly give this huge benefit to big banks. Why would the government suddenly change the level from $200 million to $1 billion? “Modernization”? Is that the euphemism for catering to the big banks' demands? I would assume that they want bigger and better profits so that they can—
Conservative
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
I just don't understand why we are doing this at a time of tight resources, given the economic update. At a time when banks are more profitable than they have ever been, why would we do this now?
Conservative
Conservative
The Chair Conservative Brian Pallister
—an amendment of some kind, I'd invite you to do so. Otherwise, this is just by way of remarks and really not very productive.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
I was hoping for some sort of explanation where I could see some light to this, but I don't. I won't move an amendment now, but I'll consider it for report stage.
Conservative
Conservative
Diane Ablonczy Conservative Calgary Nose Hill, AB
I think it's fairly simple. Canada wants to attract investment capital to our country, and this tax puts a brake on that. What we're trying to do is stimulate our economy, our productivity, and our competitiveness, so that our standard of living and the quality of life that we've come to enjoy will continue. This is one of the impediments that the government is trying to remove.
Conservative
Liberal
