Mr. Speaker, we are here today to consider four amendments to Bill C-103. This bill contains major amendments to the Excise Tax and the Income Tax Act in areas that will benefit Canadian periodical publishers.
It has been a longstanding policy in Canada to channel Canadian advertising revenues into Canadian periodicals. The Canadian magazine industry actually depends on these revenues, as they represent 65 per cent of total revenues. More than 30 years ago, in 1961, the Royal Commission on Publications, commonly referred to as the O'Leary commission, looked into the situation of the Canadian magazine industry.
After a comprehensive review, the commission recommended that steps be taken to increase the flow of advertising revenues toward the Canadian magazine industry to give this industry a sound financial footing.
As a result, two legislative provisions were enacted in 1965: (i) section 19 of the Income Tax Act, limiting income tax deductions for advertisement directed at the Canadian market to advertisement bought in Canadian periodicals, and (ii) Code 9958 of the Customs Tariff, which prohibits the import into Canada of split-run editions or special editions of periodicals whose content is substantially the same as the content of the original edition, except for publicity specifically tailored to a Canadian market.
Over the past 30 years, section 19 of the Income Tax Act and tariff code 9958 have been successful in supporting the government's policy objective of encouraging Canadian advertising revenues to be directed to Canadian magazines. These two policy instruments have allowed the Canadian magazine industry to expand and to prosper.
However, a potential threat to the Canadian magazine industry arose in January 1993 when Time Warner announced its intention to publish Sports Illustrated Canada, a Canadian split run edition of the U.S. magazine Sports Illustrated . It would be printed in Canada using editorial content electronically transmitted from the U.S. Since Sports Illustrated Canada would not involve the physical importation of split run magazines in Canada, tariff code 9958 would not apply.
Time Warner's initiative demonstrated that there was a loophole in tariff code 9958 and a need to update Canada's magazine policy. As a result, in March 1993 the Government of Canada established a task force on the Canadian magazine industry. The task force was asked to examine existing policy instruments and to propose new measures which would ensure the continued effectiveness of federal policy in support of the Canadian magazine industry.
In its final report, the task force presented 11 recommendations to the government, two of which are addressed in Bill C-103: an excise tax on split run editions of periodicals distributed in Canada; and an anti-avoidance rule relating to the deductibility of advertising expenses in non-Canadian newspapers and periodicals.
The proposed excise tax will be levied on split run editions on a per issue basis at a rate of 80 per cent of the amount charged for all advertising appearing in the issue. Without this measure, the task force noted that new split run editions would likely enter the Canadian market and the Canadian periodical industry would risk
losing up to 40 per cent of its advertising revenues over a five-year period.
The proposed amendments to the Income Tax Act will add an anti-avoidance rule to section 19 of the act. This will ensure that newspapers and periodicals which claim to be Canadian are in fact Canadian controlled for the purposes of the act.
The proposed amendments to the Excise Tax Act and the Income Tax Act update our policy instruments in support of the Canadian magazine industry. They maintain the government's longstanding policy respecting Canadian magazines and underscore the federal commitment to support the continuing existence of a viable and original Canadian magazine industry. I wanted to put that before the House to give a context to the amendments which are being discussed.
I would like to take this opportunity to thank the hon. member for Medicine Hat for his participation in the finance committee deliberations. He is not normally a critic in the finance area, but rather in the heritage field. However, this bill went to the finance committee because it affects legislation which is under the jurisdiction of the Minister of Finance. His participation was greatly welcomed and contributed to the questioning of witnesses and our general deliberations.
I will now deal with the first two amendments presented by the member that are grouped together. Motion No. 1 would delete the definition of excluded edition. An excluded edition is defined as an edition primarily distributed outside Canada. This is a key concept that appears in several provisions of the bill. If the motion were adopted, a periodical edition distributed in Canada could be a split run edition if its editorial content is more than 20 per cent the same as that of another edition primarily distributed in Canada.
Thus the motion would result in regional editions of Canadian magazines being subject to the split run tax, even though at least 80 per cent of their editorial content is original to the Canadian market. This would be contrary to the government's stated policy objective for the Canadian magazine industry. It would also be inconsistent with the vote of the House to adopt a ways and means motion and the approval in principle given to the bill by the House at second reading.
The purpose of the bill is to encourage publishers to include at least 80 per cent original editorial content in magazines containing advertisements directed at Canadians. However, provided that a magazine satisfies this editorial content objective, there is no intention to discourage the publisher from publishing regional Canadian advertising editions of the magazine. For that reason the government will have to reject the motion.
The second motion would eliminate exceptions that would exempt certain types of publications from being subject to the tax on split run editions. The first exemption specifies the tax will not apply to an edition primarily distributed outside Canada even though it has some circulation in Canada. This exception would allow regional editions of foreign magazines to continue to be distributed in Canada, provided that the editions are primarily distributed outside Canada.
The second exception would allow a publisher of a foreign magazine to distribute in Canada an edition that contains some but not all the adds that appear in one of the editions distributed in a magazine's home country, provided that the edition distributed in Canada does not contain any new ads.
These two exceptions are intended to allow foreign magazine editions to continue to be distributed in Canada without being subject to the split run tax, provided that they do not contain ads primarily directed at Canadians. By deleting these exceptions the proposed motion would extend the scope of the split run tax to magazine editions not intended to be subject to the tax.
Thus the motion is inconsistent with the vote of the House to adopt the ways and means motion and the approval in principle given the bill by the House at second reading. For this reason the government will reject the motion.