Mr. Speaker, I am happy to have this opportunity to participate in the debate on Bill C-70, an act to amend the Income Tax Act.
The bill seeks to implement a number of measures that were introduced in 1994 budget, along with certain measures that have been announced by the government at other times over the last year.
The fiscal challenge facing this country has been a topic of considerable debate, both in the House and across the country. Few dispute the scope of the challenge. Few dispute that difficult choices must be made. Few dispute that we must act decisively. As well, few dispute that fairness and effectiveness must be essential guiding principles of any and all steps that are taken to overcome our deficit challenge.
These principles have guided the government as we have worked to restrain our spending. They guided the minister in crafting the budget that was presented in February. However, for the moment and for a discussion of this legislation, let me take hon. members back to the budget of last year.
Spending cuts alone could not deliver the deficit reductions that were set out at that time. Spending constraints had to be complemented with some measures on the tax side. Doing so was simply a question of fairness. It was our vision of fairness that guided us as we looked at the tax system, addressing unsustainable tax preferences instead of imposing general tax increases on Canadian taxpayers.
In looking at the corporate tax regime, we sought to ensure that corporations paid their fair share of the tax revenues needed to fund government programs and to prevent certain businesses or sectors from taking undue advantage of certain tax provisions.
With this in mind the budget last year proposed a number of measures to the rules governing the taxation of business income. Let me stress our goal was not to penalize the business sector, nor to impede the competitiveness of Canadian corporations. We believe it is essential to maintain a competitive tax system in today's global economy.
We cannot disregard and we do not disregard the role of business in creating and sustaining employment; nor do we ignore the pressures faced by Canadian companies as they operate in fiercely competitive markets both at home and abroad.
One fairness issue the budget addressed was the tax rules dealing with debt forgiveness and foreclosures. Under the old provisions of the income tax, many transactions involving the settlement of debt were not recognized in any meaningful way for tax purposes. The new rules provide a comprehensive basis to deal with debt settlement. In general they provide that forgiven debt amounts will be applied to loss carry forwards and expenses or partially included in the debtor's income. However, there are special relieving rules to minimize undue hardship from these new rules.
Let me turn now to the tax treatment of securities held by financial institutions. Until now the Income Tax Act has not provided specific rules regarding the tax treatment of such securities. The measures proposed in this bill seek to reduce uncertainty in this regard and also to ensure the income derived from such securities is measured appropriately.
The amendments provide that certain securities be marked to market; that is, the appreciation or depreciation in their value each year must be recognized in that year. In keeping with our goal of fairness, the amendments include a transitional rule that allows increases in income resulting from the new rules to be spread over five years. These new measures are generally effective after February 21, 1994.
In addition, new rules are provided for debt securities not required to be marked to market. These rules deal with the measurement of income while the securities are held and the treatment of gains and losses on disposition.
Bill C-70 also amends the rules for the taxation of resident shareholders of foreign affiliates. This action is being taken as a result of the government's ongoing monitoring of developments in this area. The changes expand the categories of income of foreign affiliates which must be reported as income of their Canadian affiliates.
Another modification prevents the use of an affiliate's foreign active business losses to reduce Canadian shareholders' income. This change protects the shareholders but also protects the Canadian tax base. The amendments are generally effective for taxation years commencing after 1994.
Let me turn now to six other tax measures announced during the months after the 1994 budget. First, this bill addresses the issue of eligible prepaid funeral and cemetery arrangements. That is I have heard from my constituents about. Under this legislation individuals making such arrangements will not have to declare interest on the deposits up to a $15,000 maximum
contribution as income provided the deposit is not withdrawn for other purposes. The provider of eligible funeral and cemetery arrangements is, however, required to include in income the total amount received from the eligible arrangement.
Turning to the next measure, the bill proposes real estate trusts with publicly traded units be allowed to qualify as mutual fund trusts. This measure responds to representations from the real estate sector, which is interested in expanding the available methods of financing real estate. We believe the proposed change will facilitate the restructuring and refinancing of this sector.
The third of these post-budget measures is the measure that will help mutual funds reduce overhead costs and improve service to investors. These amendments allow mutual fund corporations to convert to mutual fund trusts on a tax free basis and also allow tax free mergers of mutual fund trusts.
The bill also proposes new rules to speed the resolution of objections and appeals, particularly by large corporations. Large corporations will now have to specify the issues under dispute, the amount of relief sought and the facts and reasons for objecting.
Those of us who speak on the public accounts committee are well aware of the tremendous losses that can be incurred to the Canadian taxpayers by cases that go on far too long without enough rules to constrain the matters that can be brought into those cases.
The rules also limit the ability of large corporations to raise new issues in the notice of objection where the objection relates to a reconsideration of an assessment. However, new issues raised by Revenue Canada on such reconsiderations may still give rise to notice of objection.
We are trying to be fair on both sides without unduly exposing the Canadian taxpayers to risks through prolonged court cases on interpretation of tax legislation.
In addition, this legislation will ensure the new requirements relating to notices of objection will not apply to assessments appealed to court before this legislation receives royal assent. In other words, we are not changing the rules retroactively which I think everyone would agree is only fair.
The final measure I want to highlight deals with the tax treatment of dividend compensation payments and other amounts connected with securities lending. The Income Tax Act currently provides that the lender of securities not be treated as having disposed of the security under these arrangements. As well, payments to the lender as compensation for dividends are treated as dividends in the lender's hands.
While these dividend compensation payments are generally not tax deductible, a special rule established in 1989 allows security dealers to deduct two-thirds of such payments. This legislation extends the use of the two-thirds rule, ensuring our securities industry remains competitive.
However, the deduction of these payments will be somewhat limited and I can assure hon. members the government will continue monitoring these measures to make certain they operate effectively.
Other changes clarify the effects of certain dividend rental arrangements and the means of securities dealers registered or licensed to trade in securities for purposes of the Income Tax Act.
In closing, Bill C-70 amends the Income Tax Act equitably and fairly. It seeks to better target tax assistance delivered to certain business sectors while at the same time broadening the tax base and thus protecting government revenues and, as we all know, that means the revenues of Canadians. The legislation contained in this bill also clarifies a number of important issues related to the act.
In considering the measures before us I have no hesitation in encouraging all hon. members to support the bill at this stage so that measures announced by the government during the last year can become effective to the benefit of the tax system and to the benefit of Canadians.