Thank you, Mr. Chair.
This amendment delays provisions related to amalgamations and windups. It's important, Mr. Chair, that we recognize as well that in partnerships....
I'll draw your attention to Introduction to Federal Income Taxation in Canada, 31st edition.
First of all, it's important that we understand specifically the nature of a partnership. The term “partnership” is actually not defined in the act; the act merely outlines the tax consequences if a partnership exists. In order to determine whether a particular relationship is a partnership, reference must be made to the definitions contained in the various provincial partnership acts. Generally these statutes define a partnership as a legal relationship existing between two persons who carry on a business in common for the purpose of a profit.
Partnerships, Mr. Chair, can be formed by individuals, corporations, or a combination of individuals and corporations. In addition, two other factors generally suggest the existence of a partnership: first, joint and several liability with respect to debts incurred by the partnership, and second, an agreement indicating the method by which profits and losses are to be shared.
Mr. Chair, it's important to recognize the difference between a partnership and a joint venture, because there are distinguishing features that apply to this clause specifically.
A partnership is to be distinguished from a joint venture because the tax consequences of being a partner or co-venturer—a member of a joint venture—are actually quite different. A partnership is a separate entity, and therefore unless a rollover provision applies, transfers of property by the partner to the partnership take place at fair market value.
On the other hand, a co-venturer generally retains title to any property used in the joint venture, so if a co-venturer should contribute property to the joint venture, this is not a taxable transaction, as the contribution to a joint venture is not a disposition; there has been no change in ownership.
Also, in a partnership net income is computed at the partnership level; therefore, for instance, capital cost allowance is deducted at the partnership level. Each partner has the discretion to deduct capital cost allowance independently of the other partners. However, in a joint venture, each co-venturer computes net income separately; therefore each co-venturer is able to deduct capital cost allowance independently of the other co-venturers.
It's important, Mr. Chair, to recognize as well that some of the....
Actually, I want to draw from a specific tax article by Vern Krishna in The Fundamentals of Canadian Income Tax, ninth edition: “A partnership is the relationship that subsists between persons carrying on business in common with a view to profit” and “A Canadian partnership is a partnership in which all the members are resident in Canada”.
Furthermore, Mr. Krishna defines that
It's a fundamental principle of Anglo-Canadian tax law that a taxpayer is entitled to arrange his or her affairs to minimize tax. Parliament has endorsed this principle, generally known as the Westminster principle, as a legitimate and accepted part of Canadian tax law. Tax avoidance implies the reduction of tax payable by lawful means
which is obviously different from tax evasion. This raises the issue—we've all talked about it—of clamping down on foreign tax havens. As we're talking about tax fairness, this issue that we're talking about leads us to issues of tax avoidance and tax fairness. This committee has studied the issue of foreign tax havens; Mr. Mai has done quite a bit of work on this, and Senator Percy Downe, in the other place, has done a lot of work on it.
The reality, Mr. Chair, is that we need to do more on this. Back in 2005, the Liberal government gave CRA an additional $30 million, I think it was, which I believe yielded more than $2 billion in increased revenues as a result of identifying and bringing in what would have been lost revenue from people utilizing offshore tax havens.
Spending $30 million to bring in more than $2 billion strikes me as a good investment for any government to make in CRA's capacity, which is why I'm concerned, Mr. Chair, about the government's cuts to CRA. I think that is something we all ought to be concerned about, because ultimately it's not just about tax fairness—which it is about—but also about meeting the significant expenditures required to run the country, and at a time when we see significant pressures on the government and taxpayers and see significant deficits.
Therefore, Mr. Chair, I would urge committee members to consider this in the broader context of tax fairness and of addressing some of these other tax loopholes and offshore tax havens as we consider what Mr. Krishna has defined as the difference between legitimate tax avoidance and illegitimate tax evasion.