Debates of May 25th, 1994

Canada Student Financial Assistance Act

[Some hon. members]

No.

[The Deputy Speaker]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Deputy Speaker]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Deputy Speaker]

In my opinion the yeas have it.

And more than five members having risen:

[The Deputy Speaker]

Call in the members.

And the bells having rung:

[The Deputy Speaker]

Pursuant to Standing Order 45(5)( a ), I have been requested by the chief government whip to defer the division until a later time.

Accordingly, pursuant to Standing Order 45(5)(a), a division on the question now before the House stands deferred until later this day at 5.30 p.m., at which time the bells to call in the members will be sounded for not more than 15 minutes.

Income Tax Act

[Ralph Goodale, Liberal, for the Minister of Finance]

moved that Bill C-27, an act to amend the Income Tax Act, the Income Tax Application Rules, the Canada Pension Plan, the Canada Business Corporations Act, the Excise Tax Act, the Unemployment Insurance Act and certain related acts, be read the second time and referred to a committee.

[David Walker, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, it gives me great pleasure to begin debate on second reading of Bill C-27.

The bill proposes to implement a number of amendments to the Income Tax Act and related statutes, most of which are technical in nature. The bill also contains draft legislation for a measure announced in the budget of February 1994 related to scientific research and experimental development, the SR and ED expenditures.

With the exception of the one budget item the measures contained in the bill were announced by the previous government. They were included in a package of technical amendments that were released in August 1993 but never tabled in the House. That package consolidated a number of measures that had been released for public consultation in December 1992 with draft legislation issued by press release during 1993. In a December 1993 press release the Minister of Finance confirmed the government's intention to table the legislation.

As the amendments are mostly technical I will just spend a brief moment reviewing them and allowing the House to proceed with its business. It is very important to note that most of these measures are already in effect and have been so for some time. Many were said to be effective immediately when announced.

This is a perfectly legitimate and normal practice in the House, especially for measures of a relieving nature that modify an anomaly under existing tax law. When simplifying the income tax treatment of automobile operating cost benefits, for example, it would be unreasonable to insist that taxpayers wait out the course of full legislative enactment for relief.

Several of the amendments relate to retirement income plans including RRSPs and certain pensions. One set of measures, for example, is designed to ensure that a taxpayer's RRSP limit reflects in a fairer way the taxpayer's retirement savings under certain types of unregistered pension plans such as foreign pension plans.

The legislation also modifies rules for RRSPs on death and enables the legal representative of a deceased person to pay an RRSP premium on that person's behalf up to 60 days after the end of the year of death.

This bill also proposes to simplify or clarify existing tax rules. I have already mentioned the tax treatment of automobile operating cost benefits. The amendments simplify the way in which these benefits are taxed by establishing a formula for calculating them. This is one change that is sure to please taxpayers.

Another amendment will allow taxpayers to deduct interest on money that is borrowed to earn business income or certain types of investment income in situations where the property financed by the borrowing has been disposed of at a loss or become altogether valueless. Without this amendment such interest expenses would not be deductible in spite of their business nature and the hardship that could result.

The legislation also provides relief to producers of calcium chloride and diamonds by treating these substances as minerals for income tax purposes. This gives producers access to income tax incentives for mining.

Not every amendment in the legislation is relieving. One is designed to curtail a tax avoidance mechanism used by certain corporations with non-resident shareholders. This technique, commonly referred to as a cross-border purchase butterfly, is used to avoid tax on the sale of business assets. Our tax laws were not intended to provide special breaks for structuring corporate assets sales in this way and the amendment eliminates such undesirable tax advantages.

There is also a measure which will give legislative force to the special capital tax, the so-called part VI tax, that has been payable by life insurance companies for taxation years ending after February 25, 1992.

Finally, the bill contains a measure announced in the most recent federal budget, namely draft legislation requiring corporations claiming tax credits for scientific research and experimental development to identify expenditures in this area in their tax returns.

In conclusion, the amendments in this bill represent technical improvements to our tax legislation, improvements that follow from the ongoing process of fine tuning the tax system in consultations with taxpayers. Most of the provisions are already in effect and many thousands of Canadians have relied on them in planning their affairs.

In short, this bill should be viewed as a matter of routine but important parliamentary housekeeping. Therefore I urge all members of the House to support it.

[Pierre Brien, Bloc, Témiscamingue, QC]

Mr. Speaker, as I remember, the very first bill I spoke to in this House have barely two pages long and contained but five clauses.

Today, we have a bill 177 pages long containing no less than 139 clauses. Of course, we are dealing in this case with the Income Tax Act; that makes a big difference. This goes to show how complex this act is and how hard it is to find one's way through.

I will tell you this is a very technical document, a very technical bill indeed. I will spare you the details, naturally, so as to not to bore you with technicalities, but I would like to say a few words about the process before going any further.

You know, there is always a risk associated with these omnibus bills where many subjects are dealt with at the same time. One gets the impression that a tiny clause, but one with tremendous impact could be hidden in a mass of provisions which are, on the whole, positive. It is like looking for a needle in a haystack and this is to some extent the viewpoint from which I have looked at this bill, especially considering it was initially sent almost at the last minute, leaving us very little time to work on it.

Officials from the Department of Finance did come and explain it to us, but just the same, I got the impression things were going very fast. Furthermore, this is a bill originating for a large part from the previous government, with the exception of the last part concerning research and development and the definition of qualified expenditure.

As for the rest of the measures, they had all been put in place by the former government but not yet translated into legislation. That is always somewhat of a problem of course, because the people who were in charge of analyzing and criticizing the bill at the time are now sitting on the government side. Often, after an election, the members who sit on the opposition side are not the ones who sat there when measures were introduced in the previous Parliament. This is the case in this instance.

Some thought should be given to this process so that, when a Parliament is dissolved and an election is held, legislation like this is not left pending, even if, in all probability, it were to mean rushing the department to put into legal terms the effects of these measures or the latest budget. I think that there would be a way to improve the work of Parliament or in any case to make it a lot easier, to make it unnecessary for the government to pass the former government's bills and for the opposition to criticize measures which already apply anyway but are being made legal.

I would like to say a few words about the Tax Act in general; it is extremely complex. Often the people whom we want to help with changes to the Tax Act are hardly able to benefit from them because they are unaware of their existence. Often, the effects are weakened by other measures as well.

Over time, the Tax Act becomes more and more complex and cumbersome. When we amend it, we should look at all the other sections, what should be changed as a result, and we end up with total confusion. Besides that, business people now have to deal with an increasingly burdensome tax as well, the goods and services tax which imposes a very heavy administrative burden with very complex regulations. This is hardly the way to stimulate entrepreneurship, and in fact, these measures have the reverse effect, because they just make it harder to understand all these mechanisms.

Of course, the people at the Department of National Revenue are experts in this field. The people at the Department of Finance work with these concepts every day. However, I think we should remember that people who are starting a business will have to spend a lot of time promoting their product and making their business a success. This is all very complex for these people. Of course they do consult tax experts and accountants, but why should it all be so complicated.

Even when they consult these accountants and tax experts, they keep coming to our offices for clarification or for an interpretation of the act. They end up filing an appeal with the Tax Court of Canada, and the number of cases is increasing, which goes to show that the process is far too complex.

Since the beginning of this Parliament and even since the Bloc was formed, we have been asking for a thorough tax reform, which is in everyone's interest. It would also involve simplifying the Income Tax Act. I think that a review of our tax system would necessarily mean simplifying the content of this legislation. Unfortunately, what we have here is merely a set of technical amendments, and there is an obvious reluctance to deal with the substance of the legislation.

However, when I look at these 139 sections and 177 pages, it would not have taken much to do a thorough review. If we have to look at so many sections, why not look at them all? This could be done by a group of parliamentarians through existing committees or through a special committee. I am convinced that all parties in this House would be willing to appoint members to make a detailed study. It would prevent a lot of problems.

Everything in society operates on the basis of social contracts. These are not written documents but the way we have agreed to operate as a society. The government spends money according to the options chosen by taxpayers and voters, and in so doing intervenes in the economy to prevent problems that might be

generated by a free economy operating without reference to a moral authority. So the government spends certain sums of money. It provides for individual insurance mechanisms. It maintains a defence force and does a lot of other things.

So there are a certain number of expenditures are necessary, but to make those expenditures, the government must first get the money. And today, this is becoming an increasingly serious problem. First of all, as far as spending is concerned, people are increasingly getting the impression that governments and their elected representatives do not necessarily spend money wisely, and that a lot of money is wasted. Consequently, this makes them highly suspicious about what they contribute to cover these expenditures. They know full well that they are the ones who are picking up the tab.

The numbers involved here are staggering. This year, the government has brought in a budget of roughly $160 billion and is projecting revenues of $120 billion. Despite these $120 billion, we are still $40 million short of a balanced budget. This shortfall could be made up with additional revenues resulting from the reduction of certain expenditures.

It is extremely difficult to raise $120 billion in revenues when people have no confidence in the way this money is spent. People wonder if they are paying their fair share and whether some are paying more than others. Often, when analyses are conducted, the figures prove that this is the case. On examining the taxes paid by individuals and corporations from 1981 to 1991, we see a trend emerging, namely that corporations are paying less tax while individuals are paying more.

We hear it said every day. Everyone agrees that the middle class is being squeezed more and more. These are not merely words, the figures bear it out. We do not have to wait 10 or 20 years for even more sophisticated analyses to tell us that the 1980s were disastrous in terms of the redistribution of wealth. We have the figures right now to show that this was in fact the case. We must wake up to the truth that there is a great deal wrong with our taxation system. Instead of merely making minor technical adjustments to the Income Tax Act, the government should completely review the legislation. We have said as much from the beginning and we are prepared to co-operate in an exercise of this nature.

Obviously, there are a number of proposals that we can make during the budget consultation process this fall. But again, hearings will be held, many groups will give testimony on various matters and it will be difficult to focus as much as we would want on the Income Tax Act per se, on tax measures and expenditures.

When examining government expenditures, we must also look at tax expenditures. This is often overlooked. We examine government expenditures, we look at what is spent on defence and other areas but very little at what we give out in terms of tax credits, that is our tax expenditures.

Recently, I read a Department of National Revenue publication on tax expenditures. In many cases data is said to be unavailable and often information is aggregated or put together in a way that makes it extremely difficult to scrutinize. But before compiling it, information must first be gathered. For the sake of transparency, seeing that this government promised to be transparent during this Parliament, it would be interesting to examine tax expenditures in greater detail, to have more information available on the subject.

Of course, time must always be allowed for compilation. That is understandable, but there is no reason not to carry out serious analyses using as base year the previous year or even an earlier one.

So, as I said earlier, the way revenues are collected and spent, this social contract is crumbling, which causes a perception problem with regard to these revenues.

If we look around us in our daily lives, we can see that people feel justified, I would even say perfectly justified for the most part, to make unrecorded transactions. Take the construction industry for example, the home renovation sector and others as well, the service sector in general and, more and more, the products sector where illegal transactions are supposedly more difficult. It is becoming more and more commonplace because people tell themselves: "That money is misused, wasted anyway. I am paying more than my fair share. Why should I make the deliberate effort of giving all that money to people who squander it?"

Perceptions can sometimes be correct, but they can also be false. To clarify the situation, the relevant information should be made available. We should tell people a little more about how we collect these revenues, how we want to proceed and how we will correct deficiencies in the current system. But not a word on the whole tax system has been said since the election. A few principles are outlined in the red book but there is little else.

Because of this revenue problem, we see that we have a growing underground economy. Of course, depending on who does the analysis, whether at Statistics Canada, at a tax summit or somewhere else, experts cannot agree on an exact figure, on the percentage of the economy that is underground. But they all agree that it is a growing phenomenon. The most optimistic analysts say that the underground economy represents at least 2.5 per cent of our economic activity level, while the most pessimistic put that figure at 15 to 20 per cent.

Even if we take a figure in between, the lost revenues are still enormous. That is why we should tackle this problem seriously and with determination, of course, because it is quite an endeavour. We cannot afford a commission on taxation that will take five years to analyze the problems of five years ago, since its report would already be out of date because of all the things that happened in the meantime.

Basic principles on tax reform have been established and analyzed in the past; they are still valid except that we would, of course, have to improve some technicalities behind all this.

A few cases in point, Mr. Speaker. We have long said that family trusts that shelter large amounts from the tax man must be looked at very closely. I do not want to get into details because we will have the opportunity to debate family trusts in the finance committee in the fall, or we will at least look at this issue. In the meantime, it would be interesting to have the information. We are far from certain that the information required for a good debate will be available. It will be, once again, very difficult. We will argue and disagree on figures because they will not be available or because they will not be provided far enough in advance.

As I know that the parliamentary secretary to the Minister of Finance is listening to me, I would like to ask him to supply us with data from the family trust study. How much did they cost? How much do they represent in lost or deferred taxes in the future for the government? It would be interesting to know these things.

A real minimum tax on corporations has also been talked about for a long time. I remember asking the question to the Minister of Finance in this House and he told me that it already existed and that, if there was no minimum tax, he would be happy to introduce one. Upon checking, I learned that it is not so simple.

The minimum tax is on capital. It can seem like a minimum tax except that there are all sorts of ways to reduce it or cancel it so that it is almost zero or even zero. There goes the concept of minimum tax then. Also, it applies only to those with assets or capital investment of $10 million or more. What happens to those who do not have that much in assets but who do a considerable amount of business?

We could mention medium-sized businesses in general or big businesses with less in assets. This is an interesting problem to explore if we want to have a minimum tax. You do not have to be on the far left to advocate it. The Americans under Mr. Reagan had a minimum corporate tax after a commission investigated it; Mr. Reagan is not known as the greatest socialist in American history, but he decided to bring in a minimum corporate tax.

Turning to the bill itself, I would like to tell you that we have no major objections because some of the measures are already in effect, as for registered savings plans, for example, in order to improve what already existed or to correct deficiencies in the law. There are some more substantial things, but they are mainly very technical improvements to the Tax Act and measures to protect the department from misinterpretations of tax law.

We will give our consent, we will endorse this bill, while reminding that we would like to take a much more thorough look at the whole tax system; tax measures should be considered sooner and care should be taken so that legislation is not passed from one Parliament to another or one session to another and slow to come before Parliament. It should be possible to have debates that are more current, in line with the new government's concern for openness and efficiency.

I conclude by saying that we will support Bill C-27. We still insist that the department, the minister and the government review the whole tax system and the whole Tax Act in order to improve substantially what already exists and restore confidence in the way revenue is collected from taxpayers.

[Jim Silye, Reform, Calgary Centre, AB]

Mr. Speaker, I rise today to support Bill C-27. However, the bill shows that the Liberal Party still has nothing new to offer Canadians even after six months behind the wheel of this Chevy government. In fact many of the provisions date back to finance minister Mazankowski and the Mulroney era.

During the election Canadians were promised change, new directions, ideas and initiatives. What they are receiving are rehashed housekeeping bills that have been kicked around since the Tory days, lumped together and packaged as new and improved.

It is bills like this that show members of the Reform Party that the Liberals may have the people but they most certainly do not have the plan.

The sheer size and complexity of this bill is symbolic of what is wrong with our entire taxation system. The title reads an act to amend the Income Tax Act, the Income Tax Application Rules, the Canada Pension Plan, the Canada Business Corporations Act, the Excise Tax Act, the Unemployment Insurance Act and certain related acts.

The explanatory notes alone almost outnumber the amendments. Bill C-27 covers everything from the tax treatment of automobile operating costs to minerals in the mining industry. It is one inch thick. Once passed it will add more rules, regulations, subsections and pages to the overall complex, confusing and convoluting Income Tax Act.

Let me read something from the Income Tax Act and see if we can understand it after we are finished. Section 23(1) paragraph (c) of the definition "superficial loss".

This is what we have to know by the time we are done:

-in section 54 of the Act is replaced by the following:

(c) was the disposition deemed by paragraph 33.1(11)(a), subsection 45(1), Section 48 as it read in its application before 1993, section 50 or 70, subsection 104(4), section 128.1 or subsection 138(11.3), 144(4.1) or (4.2) or 149(10) to have been made,-

1. (1) Section 55 of the Act is amended by adding the following after subsection (3):

(3.1) Notwithstanding subsection (3), a dividend to which subsection (2) would, but for paragraph (3)(b), otherwise apply is not excluded from the application of subsection (2) where the dividend is received as part of a series of transactions or events in which

(a) a person or partnership

I might as well stop. Do we know what a superficial loss is?

[The Acting Speaker (Mr. Kilger)]

I would like to join with the House in thanking the member for that clarification.

[Jim Silye, Reform, Calgary Centre, AB]

Thank you, Mr. Speaker, I will be here for a year. The Income Tax Act has become nothing more than a job security program for tax accountants like my hon. colleague, tax lawyers and the bureaucracy.

The Income Tax Act has lost its focus as a guideline for tax collection and governments now rely on it to dictate social policy. Recently I was at a Standing Committee on Finance meeting listening to witnesses on Bill C-17 which deals with the UIC program. The leader of the National Action Committee and the leader of the provincial Conservative Party of New Brunswick said that UIC and CAP are becoming more co-mingled and they reject the merging of UI and social assistance.

In fact, one witness described UIC as an expensive social assistance program which for many is a mainstay of their annual income. The end result is a bureaucratic nightmare that does little to solve the problems that many people face. Look at the problems that have been created in the area of child support payments. The principles of taxation that are upheld within the act are not responsive to the changes that have occurred in our society.

By continually amending the act, governments have buried its usefulness to the public in a bureaucratic quagmire. However just because the Income Tax Act has lost touch with reality does not mean that the government has to follow suit.

I would like to try once again to bring the Chevy government up to speed on the reality of our current economic situation. Government overspending is the number one problem facing the country and can no longer be put on the back burner only to be reheated at election time.

By adding $3 billion to current spending, by relying on the national infrastructure program solely as a means to kick start the economy, by gambling with low rate projections for interest rates, the government has embarked on a very dangerous, precarious and weak game plan for Canadians because all of the above adds to our problems, the deficit and the debt.

Operating on borrowed money is nothing more than deferred taxation. This Chevy government, like older model cars, has remained as a big gas guzzler continuing the trend of spending more money than it takes in.

As interest rates and payments go up, so too will the need for new sources of revenue. Instead of spending cuts and living within its means, the Liberal government is using the Income Tax Act to subtly squeeze out extra dollars from small groups in our society without alerting the majority of Canadians.

The Department of National Revenue recently used unenforced rules. They were in the rules but it had not enforced them for three to four years. The department revoked the overseas tax credit which provides incentives for Canadian industries to go after foreign contracts. Not only were they eliminated, but it made the decision retroactive to 1993, 1992 and for 1991. This is not fair to the businesses.

We believe that the Income Tax Act should be simplified and used solely as a means to collect necessary revenues to fund government programs. Government can then decide the programs that are to be legislated and do so outside the Income Tax Act. Enough with the 2,400-plus page act. Let us move toward a simplified tax system that serves a simple and single purpose, to collect revenue. A Reform income tax system, a party that has vision and some ideas for the future, would implement a uniform rate to replace current graduated rates and introduce simplicity, a one page return that is understood by all taxpayers; equality, where people feel that everyone is treated the same; visibility, no more need for tax loopholes and incentives; effectiveness, because it would draw people back from the underground economy.

The system would tax people in proportion to their income, family situation and ability to pay. There would be no longer a need for a federal consumption tax. No GST. I know some members opposite appreciate that philosophy because they have expressed it in the Standing Committee on Finance. Those are the bright Liberals.

Here is how it could work. This is a one page system. On one side we have personal income and on the other side the corporate. Both sides, personal and corporate, pay the same relative share. That has a lot of merit. Personal tax and corporate tax

would be set at a rate of 15 per cent or 20 per cent once it is determined how many dollars the federal government needs to pay for social and economic programs and the cost of maintaining this upscale size of government.

If we really need 44,000 people in the Department of National Revenue and Taxation then we have to raise the money to pay for it. The initial rate would be revenue neutral but it is expected that with more people and corporations paying taxes, revenues will be higher and we could apply this surplus directly to the deficit and debt.

I ask members of all parties to examine the idea. I know I am not the only one who believes that the income tax system can be simplified and that a uniform system of tax can work far more effectively than the current system. However, if we do not believe in the one simple philosophy that nobody likes taxes, and they always talk about a fair tax, but the only tax that is fair is if everybody pays the same. That is a little encouragement, a little inducement for the government to have the political will when it is considering the replacement for the GST. It should look at it and make sure it does not keep it complicated, confusing or convoluted. The only way it can do that is to tax everybody on everything the same and solve the problems that creates in other ways.

Rather than making the Income Tax Act thicker with Bill C-27, I urge the government to show some initiative, make the changes that Canadians have demanded, scrap the Income Tax Act altogether. Just get rid of it.

[Some hon. members]

Oh, oh.

[Jim Silye, Reform, Calgary Centre, AB]

You like the humour, I hear, over on the other side of the House. It is the only way I can get attention around here.

A flat system of taxation will lead to a lower overall tax rate, shared fairly by corporations and individuals, a simplified system, and finally create an opening for government to legislate social programs that are more in tune with the realities facing Canadians.

I call on the Liberal government to make the major reforms that are needed in government spending, taxation and the bureaucracy. No more tinkering with legislation or nibbling at the deficit. If this Chevy government fails to make necessary reforms and respond to the changes that have occurred in this great country then it will meet the same fate as the previous government which, as we all know, was downsized from a big Cadillac to an obsolete Pinto.

[David Walker, Liberal, Winnipeg North Centre, MB]

Mr. Speaker, please excuse my haste. I am not known for that usually on these measures.

I believe there is unanimous consent in the House to proceed to committee of the whole right now for consideration of clause by clause study of this bill.

[The Acting Speaker (Mr. Kilger)]

Is that agreed?

[Some hon. members]

Agreed.

(Motion agreed to.)

(Motion agreed to, bill read the second time and, by unanimous consent, the House went into committee thereon, Mr. Kilger in the chair)

[The Assistant Deputy Chairman]

House in committee of the whole on Bill C-27, an act to amend the Income Tax Act, the Income Tax Application Rules, the Canada Pension Plan, the Canada Business Corporations Act, the Excise Tax Act, the Unemployment Insurance Act and certain related acts.

On Clause 1:

[Fernand Robichaud, Liberal, Beauséjour, NB]

Mr. Speaker, I think you will see that there is unanimous consent to call all clauses of this bill as one group.

[The Assistant Deputy Chairman]

The House has heard the secretary of state. Is it the wish of the House to adopt as one group clauses 1 through 139?

[Some hon. members]

Agreed.

(Clauses 1 to 139 inclusive agreed to.)

(Title agreed to.)

(Bill reported and concurred in.)

[The Acting Speaker (Mr. Kilger)]

When shall the bill be read a third time? By leave, now?

[Some hon. members]

Agreed.