Mr. Speaker, I am pleased to have the opportunity to participate in this debate. Today I will be addressing a technical issue relating to the income tax law which was mentioned by one of the earlier speakers.
This government is committed to the efficient and effective use of public funds. Our commitment extends to the timely clarification of the income tax law in situations in which the wording of a provision may not have given effect to the government's intent, thereby resulting in some revenue exposure.
Such a situation was recently described by the Auditor General with respect to tax allowances provided to resource companies. In order to appreciate the concerns expressed by the Auditor General's report it is important to understand a certain amount of background information. I would commend you, Mr. Speaker, on your ability to hold your joyous response to the Minister of Industry's speech. This one will require even more indulgence on your part.
For this reason I would like to take a moment to set out a few of the relevant facts. In 1974 the government of the day stopped resource companies from deducting provincial crown royalties. Instead, alternative tax relief was provided for such companies depending on the amount of their resource profits.
Since 1976 this alternative tax relief has been in the form of a resource allowance. Resource allowances are not a tax preference. They were introduced in order to compensate companies for the non-deductibility of provincial resource royalties. The resource allowance provision permits a deduction equal to 25 per cent of resource profits.
In 1979-80 Revenue Canada reassessed a resource corporation after it took the position that it was not required to deduct certain scientific research expenditures and capital cost allowances in computing its resource profits. The company's approach increased the amount of profits eligible for tax relief.
The resource corporation challenged the reassessment in the courts. Litigation proceeded and finally culminated in July 1992 when the Supreme Court of Canada denied the government leave to appeal a decision by the Federal Court of Appeal which had ruled in favour of the corporation.
That is the background of the Auditor General's comments regarding resource allowances.
In his report, the Auditor General expressed the view that the Department of Finance should have acted more quickly to clarify the policy intent of the resource allowance provisions. The government did not act while the issue was before the courts because it was advised that doing so would have prejudiced the ongoing litigation.
Moreover, until the decision of the Federal Court of Appeal on this matter in January, 1992, most of the resource industry had been filing its income tax returns in a manner consistent with the government's view of the law's intent.
In the same month of the Supreme Court of Canada ruling, the previous government issued a press release clarifying the policy intent of the resource allowance provisions. This press release included draft regulations which were effective immediately. The draft regulations of July, 1992 are currently being reviewed and finalized as expeditiously as possible. They will be included with regulations under Bill C-92 dealing with the abuse of the resource allowance through the use of partnerships. Bill C-92 was passed in June, 1993.
The period for reviewing, finalizing and processing these draft regulations is not excessive. It permits concerns regarding the text of the draft regulations to be fully considered before their enactment.
The amendments in question deal with a complex area of tax law. The law is complex because it deals with corporations which carry on many different types of business activities in the resource sector. Over the years it has been subject to many changes which addressed court decisions and closed various loopholes.
Following a review by the Department of Finance, the Department of Justice and Revenue Canada, the draft regulations will be sent to the appropriate cabinet committee for approval as quickly as possible.
Regardless of the time of their enactment, the amendments in the draft regulations relating to the calculation of resource profits will be effective from July, 1992.
With that very long preamble, I would also like to note that the revenue exposure estimates contained in the Auditor General's report require some clarification. The report estimates the amount of revenue lost, and the hon. member before mentioned it as well, at about $1.2 billion. However, nearly one-half of that amount relates to issues that were not covered in the court case.
Of the remainder at least 50 per cent represents interest on funds, and the government had use of those funds.
In conclusion, I would like to stress once again this government's commitment to timely introduction of income tax
legislation and regulations. At the same time, it is vital that the quality, effectiveness and fairness of such legislation or regulations not be compromised.