Debates of April 25th, 1995

Income Tax Act

[Roger Pomerleau, Bloc, Anjou—Rivière-Des-Prairies, QC]

Mr. Speaker, I listened carefully to the account the hon. member for Jonquiere has just given. I believe he has clearly taken into account the fact that since its election in this House the Bloc has never missed an opportunity to ask for a review of the Canadian tax system.

We asked for the abolition of family trusts and tax havens. We asked for some figures that were never made available to us. We talked about transparency every time we had a chance to do so, but without great success it seems. There even were some cases where members on the other side and even government members came to the same conclusion and rose in the House on that issue. My hon. colleague did the same thing today, apparently not for the first time but once more without great success. The member for Gander-Grand Falls himself denounces regularly, because he goes to Taxation, outrageous things that occur in taxation, among other things people who do not pay their income tax, which can be huge amounts.

I would like to ask my hon. friend if the crux of the problem is not the fact that we cannot discuss those problems in this House. The crux of the problem is the fact that people who finance political parties are those who decide how the government will act. We know that some people give astronomical amounts of money here. There even was a bill introduced by a member of the Bloc in this House, although maybe not for the first time, on the necessity to have a popular financing of political parties. The bill was rejected.

I wonder if my hon. colleague does not believe that the saying according to which he who pays the fiddler picks the tune is relevant to political parties who, receiving huge financial support from banks and other important institutions, are forced to pass tax laws which serve the interests of these contributors rather than fair laws for all? I would like to know where my hon. colleague stands on this.

[André Caron, Bloc, Jonquière, QC]

Mr. Speaker, I always wondered why, according to the Chief Electoral Officer's reports that I often read in newspapers, some corporations or major banks were giving $50,000, $100,000 or even $150,000 to the Liberal Party's or the Conservative Party's election fund. It has always been a mystery for me since, as an ex-member of a provincial party that promoted and adopted a bill on political party financing, I was used to contribute $50, $100, or maybe $300 in the good years, or the election years. No one of those who acted as I did were getting any particular benefit for their contribution.

In particular, I have often been surprised to see that some corporations were giving $100,000 or $200,000. My colleague, the member for Anjou-Rivière-des-Prairies, is telling me why. In fact, when those people give to some party's election fund, they are probably expecting some benefit in exchange. But it may be more subtle than that. I do not think it is necessarily a give and take process.

I hope that I will never see a minister of the Crown award contracts or give favours for money. I think that would be too disgusting, and it is probably not done these days, at least I hope not. But I think that things are done in subtle way, because the big corporations, the ones that contribute significantly to campaign funds, affirm their position in a particular milieu, that is the haves, the people who, in all good faith, and I do not in any way condemn wealth, belong to a certain social class, to a certain milieu, and who want that milieu to continue.

When we hear the statement made by the hon. member for Broadview-Greenwood, we realize that this milieu organized a lobby for itself, to make representations to the government on its behalf and to have members of the milieu elected to government. Earlier, my colleague from Saint-Hyacinthe mentioned that the present Minister of Finance used to own-I hope that it is not the case any more-a fleet of ships sailing under flag of convenience. That does not surprise me. The Minister of Finance knows the system very well, but he must feel in all good faith that it is a good system. If it is good for him, it surely must be good for every one else. So, he is perpetuating it.

So, be it through election funds, through having people elected, or through lobbying, I think it is the same system that is being perpetuated, and Canadians and Quebecers have had enough.

[Pierrette Ringuette-Maltais, Liberal, Madawaska—Victoria, NB]

Mr. Speaker, it was with much amusement that I listened to my colleagues in the opposition, who repeated to a large extent what I said in my remarks in the first days of the first session of this Parliament. I had said that any measure of social justice must also take into account the tool the government has, that is the tax system, and review it to increase the system's fairness.

The proof of this government's commitment to review the tax system to ensure that Canadians, at least the least fortunate of our fellow citizens, can benefit from measures that are fairer and more equitable, is the reform announced by the Prime Minister during and after the election campaign. He promised the removal or the reformulation of the GST, a tax that is paid not once a year but every day, and a rather heavy burden for Canadians with low and even middle incomes.

I think this government shows on a daily and continuing basis its will to ensure greater fairness at the national level and particularly for people living in Quebec.

As for Bloc members, I hope they will support the government when we bring forward measures to ensure greater fairness in the tax system, and to abolish the GST, a daily form of taxation imposed on the population and a heavy administrative burden both at the federal and provincial levels.

[André Caron, Bloc, Jonquière, QC]

Mr. Speaker, the candor of my colleague for Madawaska-Victoria amazes me. She spoke of an announced fiscal reform.

I do not know if it has already been announced, but it has not been announced very loudly since the present Liberal government came to power. Maybe it was announced in the red book, but there has been nothing more than promises since then.

But I am happy to learn, for example, that the GST will be abolished. I heard it would be on January 1, 1996; according to a few items in the papers just before Easter, the government announced it would not be on January 1, 1996, but maybe sometime in 1997, 1998 or 1999. This promised reform is probably similar to the promise made when the tax on income was introduced during the war. It was supposed to be only temporary. That is what they said. Since the reform was announced, I hope my colleague for Madawaska-Victoria's wish, which is shared by all Canadians, will be fulfilled and that the much abhorred GST will be abolished one day. But I am not sure that we will still be around to see it happen.

[Herb Grubel, Reform, Capilano—Howe Sound, BC]

Mr. Speaker, I support the main provisions of Bill C-70. They have obviously been written in response to difficulties that have arisen out of initial legislation. They are designed to make life easier for taxpayers, eliminate ambiguities and remove inequities. As such, the provisions are laudable.

A careful study of each provision in the bill was undertaken by Reform research. I spent some time looking at the findings. It turns out the laudable attempts to make the Income Tax Act more equitable and efficient do not offer a perfect solution.

Some of the new provisions conflict with principles developed by Reform Party assemblies where grassroots Reformers have the opportunity to express their views and bind members of caucus. Most involve technical issues and it is not easy to apply simple principles.

My colleague from St. Albert yesterday in his speech on this bill expressed Reform's objection to specific clauses of it. I will not repeat his analysis. Instead, I wish to take this opportunity to do two things. First, I will make the case for the revision of some income tax changes contained in the February budget. Second, I will take up the challenge by the hon. member for Broadview-Greenwood and discuss an alternative system for taxation which would eliminate the need for complicated income tax provisions of the sort contained in Bill C-70.

On the first topic let me read the contents of a letter written to the Minister of Finance by Carol Loughrey, chair of the Canadian Institute of Chartered Accountants of Canada. A copy was sent to me as a result of my involvement in the issue. This involvement started when I asked the Minister of Finance a question in the House and he gave me a very unsatisfactory answer.

I have received several letters from other affected parties such as professionals, tax lawyers and accountants. They agree with the points made in the letter by Miss Loughrey and simply elaborate on some of the issues she raised.

Let me now read this letter:

I am writing to convey the CA profession's disappointment and concern regarding the announcement in the budget that individuals with business or professional income will be required to have a December 31 year-end. We have three primary concerns: the removal of the ability to use natural year-ends, an even more compressed workload for our members and the lack of fairness in the changes.

Natural year-ends

Many businesses have year-ends other than December 31 because of the nature of their business rather than for tax planning purposes. The tax system should not impose a year-end that for these businesses make no business sense. For example, forcing a retail business to have a calendar year-end would impose a significant workload increase during their busiest season and would impede effective measurement and evaluation of their business performance.

Where a business wished to preserve a natural year end it could do so only by incorporating. For businesses which can incorporate this would mean additional legal and accounting costs. Many professionals, including chartered accountants, are prevented by law from incorporating. However, even where the professionals are permitted to incorporate, the budget will require them to maintain a December 31 year-end.

The workload of many of our members is by far the greatest during the first four months of the year. Our members are already strained coping with the demand for audit and accounting services, tax return preparation, including personal tax returns information returns such as T4s, T5s, workers' compensation returns, payroll tax returns and PST and GST returns. Moving all professional and unincorporated

business year-ends, and some incorporated business year-ends, to December 31 will add considerably to that already compressed workload. We are concerned that the changes will seriously limit the ability of our members to properly serve their clients and could turn smaller practices into seasonable businesses.

Fairness

The budget refers to the need to improve the fairness of the tax system by treating professional and business income the same as employment income. However, there are important ways in which income from a profession or business is not the same as income from employment. Professionals and business people assume risk by gathering business capital and investing in their business, a task that will be more difficult without the tax deferral; they lease or purchase a business location and business equipment; they employ others; they must protect against liability; they must carry on their business without benefit of unemployment insurance or protection against disability or severance. A fair tax system should recognize that the self-employed are not the same as employees and that they should not be treated the same.

We are also concerned about the fairness of the transitional provisions. We believe they are too restrictive and will impose an unfair tax burden. It would appear that the ten-year reserve will not be available in certain situations, such as where an individual changes firms or changes from being a partner to sole proprietor or vice versa. The loss of this reserve in such circumstances would be inequitable and would create a barrier to the natural movement of individuals, interfering with their ability to carry on their business or practice as they see fit or as conditions require. Furthermore, it is unfair that the income to be included over the transition period is to be taxed at the individual's highest marginal tax rate rather than the average rate and that individuals could lose one year of eligibility to make RRSP contributions. We believe that the fairness of these measures could be improved through additional transitional measures.

Finally, it is very troubling that the changes are retrospective. We are already within the 1995 fiscal calendar year-the changes will have a real and harmful impact on taxpayers who had arranged their affairs in accordance with the law as it stood before the budget.

In the last few minutes I have been reading a letter which had been sent to the Minister of Finance by the institute of chartered accountants.

I fully agree with the technical assessment of the problems with the budget provisions identified in this letter and urge the Minister of Finance to make the changes in the Budget Implementation Act to correct the inequities and the inefficiencies created by this action.

I want to add the following political judgment which people like the writers of this letter cannot express but probably agree with.

The Minister of Finance justified his budget measures as a step for greater equity. We all know equity is in the eyes of the beholder. The letter I read referred to the difficulties that arise from the arbitrary lumping together of employment and self-employment income which is used to make this equity argument. I agree this is rather arbitrary.

However, my main additional argument is this provision is simply a one time tax grab motivated by the desire to raise revenue, lower the deficit and avoid the need for spending cuts. The people of Canada in their taxpayer rallies and even in their presentations to the finance committee of the House made it abundantly clear they preferred spending cuts over tax increases to eliminate the deficit. Reformers agreed.

The Minister of Finance thought he could raise taxes on what he considered to be a relatively small group of professionals by justifying the tax grab to the general public as a measure of increasing equity.

The minister may have underestimated both the strength of the opposition from the affected professionals and their accountants and tax advisers. I hope he takes note of the legitimate objections I have raised.

As an economist I see these objections as quantifiable costs that need to be examined in relation to the value of the one time tax revenue increase. I am convinced the ratio of social costs to benefits makes this tax provision one of the least efficient alternatives for raising revenue and more broadly eliminating the deficit.

As I noted already, Bill C-70 stands in support of the widely accepted view that Canada's tax system is too complicated. The readjustment of accounting years for professionals just discussed is only another example.

Every country's tax code becomes more complex every year. Inequities and inefficiencies of the existing code have to be corrected. Dynamic new developments in the economy and financial intermediations require adjustment. There are developments abroad that need to be reflected.

Every country periodically faces the need for a major overhaul of its tax code when the complexity has become so large that it threatens to strangle incentive, drown the private sector in red tape and divert too many of the country's best and brightest accountants and lawyers into activities which essentially are socially unproductive.

I believe, much like the member for Broadview-Greenwood, Canada has reached this stage. There are several members of the Reform caucus, in particular my colleague from Calgary Centre, who strongly support such efforts.

The proposed overhaul of Canada's tax code should be aimed at the creation of what alternatively has been called a flat or proportional tax, a single tax. An intensive study of such a new tax system should start now, not just because of the excessive complexity of Canada's tax code but, more important, because of new developments in the United States.

To make this point I cannot do better than read from a Globe and Mail editorial from April 24, 1995, unsigned:

There is a time bomb ticking under the Canadian welfare state. It is not the debt, nor the aging of the population, though these are threats enough. It is the coming revolution in the U.S. tax system.

Already, several large northeastern states have embarked on radical tax cutting programs. Now leading federal politicians in Congress and on the presidential campaign trail are promising not just to overhaul the federal income tax but to abolish it.

Dick Armey, leader of the Republican majority in the House of Representatives, is pushing the most moderate-relatively speaking-reform plan, a flat tax that would eliminate most deductions and credits in favour of a single low tax rate for everybody. Mr. Armey figures it is possible to get the rate down to 20 or even 17 per cent this way without running up the deficit. The tax form would be the size of a postcard.

The immediate objection to this is that it would kill progressivity: that is, the principle that richer people should pay a larger share of their income in tax. But rising marginal tax rates are not the only way to make the system progressive; you can also do it through the tax base. Mr. Armey's plan would exempt roughly the first $20,000 of individual income from tax. Someone earning $25,000 would pay Mr. Armey's 20 per cent flat tax on only one-fifth of his income, for an effective tax rate of 4 per cent. At $40,000, he would pay tax on half his income, for an effective tax rate of 10 per cent. At $100,000, the effective rate would be 16 per cent.

I have enough time to conclude with another excerpt:

Too radical? Dreamsville? Think again. Not only do the Republicans control both houses of Congress, but all of the GOP candidates for president have endorsed one or other of these proposals. This has enormous significance for Canada. We do not have to slash tax rates to U.S. levels. But we do have to stay within hailing distance. At 17 per cent, U.S. personal income tax rates would be a half to a third of the top combined rate in Canada. Indeed, a flatter, simpler tax system would be desirable in its own right. At the least, it would free some of the brightest minds in the country, now employed as tax lawyers and accountants, for more productive work.

I would like to end my quotations here, except to mention that the hon. member for Broadview-Greenwood is mentioned by name in this editorial, and I congratulate him.

I would like to make a couple of comments in closing. Please note that in my short remarks I do not endorse the particular version of a flat tax described in the Globe and Mail editorial or advanced by the hon. member for Broadview-Greenwood or by my colleague from Calgary Centre. The reason is, as is the case with many appealingly simple ideas, there are devils in the details and there is a danger that advocates of policies end up not telling quite all. For this reason, I urge the immediate start of a major study of the proposals for a simplified flat tax system.

During the study and public hearings on the subject I think it will become immediately obvious that the widespread support for such a measure is based on false assumptions. Few people, if asked, will object to a new system that promises to lower their tax rate from the present high one. Often quoted are the marginal tax rates on incomes in British Columbia, which are now around 53 per cent for the federal and provincial rates combined. The most important false assumption is that the lower flat rate, normally discussed in this context, is deceptively low. In the Canadian system every federal rate will automatically be increased by about 50 per cent due to the provincial income tax laws, even if the provinces also adopt a flat tax system.

The second and perhaps most fundamental point is that Canada's fiscal problems stem from overspending. Based on reliable estimates, the combined spending of all governmental jurisdictions equals about one-half of our national income. That is why tax freedom day falls in July.

The government has to raise the revenue to pay for this spending. As it does, by definition, the average tax burden on the average Canadian will remain about 50 per cent of his or her income. No tax reform can alter this basic fact. People who are seduced into believing otherwise by the promise of a flat rate, much lower than the current marginal rate they pay, have to face the fact that the government has to get its revenue somewhere. Most likely, it will get it from exactly the same people and in the same amounts as it does now. There are no large hidden incomes that will be tapped by the flat tax and there are no magic solutions to the problem of overspending.

Finally, I would like to note that the idea of a flat tax has been around for a long time. It once served as a basic model for reform in the United States and in Canada in the 1980s. As it turned out, by the time all of the trade-offs between efficiency and equity were studied thoroughly, both countries ended up with modified flat tax rates; that is, three broad tiers and relatively small marginal increases rather than the previous scale with many incremental steps and very high ultimate marginal rates. The idea that basic personal exemptions result in progressive average rates, as noted in the Globe and Mail editorial, did not carry the day during the deliberations in these two countries. I am worried that it may also not do so in the future if we have hearings again.

These and the other concerns I have about the merit of a flat tax do not mean that the system should not be studied. The hope of eliminating the kinds of complex tax codes contained in Bill C-70 make it very worth while. In the meantime, I urge the proponents of the tax to be cautious in their advocacy, much as I have done in the past and in my brief discussion today.

[The Acting Speaker (Mr. Kilger)]

Before proceeding to questions and comments to the hon. member for Capilano-Howe Sound, it is my duty, pursuant to Standing Order 38, to inform the House that the questions to be raised tonight at the time of adjournment are as follows: the hon. member for The Battlefords-Meadow Lake-the environment; the hon. member for Don Valley North-human rights.

[Dennis Mills, Liberal, Parliamentary Secretary to Minister of Industry]

Mr. Speaker, I want to commend the member for Capilano-Howe Sound for entering the debate on comprehensive tax reform.

I accept his note of caution when he spoke about overstating the accomplishments of a single tax. I think the member forgot to mention three very important fundamentals that would be achieved by a simple, fair, and efficient tax system. We always stated that the provincial rate would be added on to the federal rate, but I think there are three additional advantages the member did not cite.

First, I believe that a simplified fair tax system where everybody is in the loop would reduce the underground economy. I think one reason we have an underground economy in such an exacerbated state right now is because our tax system has driven people underground. A simplified and fair tax system would reduce the underground economy, which would add more revenue to the treasury.

The second issue that is fundamental to the system of a single tax system deals with what is happening in Hong Kong. They have a form of a single tax system over there, and it creates large pools of capital. When large pools of capital come into a country it puts downward pressure on interest rates. That downward pressure on interest rates means that capital is less costly for governments when they borrow it, which deals with the revenue or expenditure problem. It is also less costly for entrepreneurship. I believe that one thing entrepreneurship needs right now is cheaper capital and lots of it. That in turn would create an environment for investment and job creation. So the single tax has a direct impact on flows of capital, which would put downward pressure on interest rates.

The third thing the member did not touch on in his address on tax reform has to do with productivity. With a fair tax system I believe people would work harder and smarter and therefore the cost of goods would go down, which would help our exports tremendously, which would increase the bottom line, not only in business but in corporate tax revenues to the treasury also.

The member did not deal with those three specific features, which are part and parcel of the single tax system. Since the member is an economist, I wonder if he would consider they would be valid premises to work on.

[Herb Grubel, Reform, Capilano—Howe Sound, BC]

Mr. Speaker, I am happy to respond to those ideas. Clearly, I did not have enough time to go into all the advantages.

I have attended several conferences on the subject of the underground economy. The high marginal tax rate certainly has an effect on it, but the emphasis recently has been on the role of the GST. Clearly, they interact, but it would help.

On the other hand, I have been quite convinced by evidence that was educed about the size of the underground economy and especially by some simulations made by the Ministry of Finance. It turns out that while it looks like it is very big, it really probably is no more than about 5 per cent of national income. However, this is not the time to discuss that. Maybe we could do it some other time.

On larger pools of capital, I can give a personal view, which is not a Reform Party position. Long before I was a member of Parliament I used the idea in my lectures that if I were in charge I would lower the capital gains rate and the rate on corporations in Canada to 5 per cent and I would make Canada the Switzerland of North America. I have speculated that probably we could have had so much capital flowing in, especially during the period of the cold war, when we were under the protection of the Americans, that the revenue raised at 5 per cent would have been grater than the revenue we raise at our high rates at the moment. I think Americans are thinking about that as well. I am sure that if the Americans are going to lower their tax rate on corporations and we do not follow we will have exactly the opposite problem of what the hon. member is talking about.

The issue in a strictly economic seminar is an oversimplification, in a way, in today's world of integrated capital markets. Money is flowing in at essentially a risk adjusted rate where we can borrow as much as we want to. Our problem is that we are not saving enough.

To the extent that the lower tax rates on income would lower the incentive to consume and would encourage savings, we would probably lower the interest rate marginally. However, that would not be the main effect. Nevertheless, I appreciate that the member has called my attention to the idea that there is this effect on capital markets.

Finally, he noted that productivity would increase. Indeed, most people agree that the high marginal tax rates on income and on capital have led to distortions in the decisions of individuals in the allocation of their time between effort and work, between savings and investment, which overall have resulted in a lowering of productivity. It is therefore agreed widely about the direction in which the incentives would go by lowering the marginal tax rates. There is little doubt about this encouraging more work, discouraging leisure, encouraging more savings and discouraging consumption. That would be all to the good.

The problem is that econometric estimates of those effects are extremely difficult. Nobody really has been able to prove that there would be such a very large effort. I think the conclusion has been that the main effect of the high marginal tax rates on income and capital in the past has been to change the allocation of resources, which leads to distortions, which are essentially costly to society.

Being a little bit cautious about this point does not mean that I reject the hon. member's suggestion. I think it should be considered as another plus of us studying and perhaps ultimately adopting a simplified, open, and cheap new flat tax system.

[Marlene Catterall, Liberal, Ottawa West, ON]

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.

[Pierre Brien, Bloc, Témiscamingue, QC]

Mr. Speaker, before I get into this subject any further, in the limited time at my disposal, I must take a moment to situate this bill. Bill C-70 implements measures from the budget, last year's budget, that is. It was tabled at first reading before this year's budget. It is a series of fairly technical measures, highly complex ones true to the image of today's tax system. We will be examining these measures further in committee, so I will spare you all the details.

One measure was the focus of discussions before and after the elections and within the Liberal Party and has been raised by the Bloc Quebecois as well since the elections. It is the whole issue of foreign affiliates, commonly known as tax havens, raised by the Auditor General. This fairly voluminous bill contains various measures. A number are indeed positive. However, it does not go very far and it skirts a number of issues. This could be called a timid reform, which enables the government to say that it has satisfied some of the Auditor General's requests, but it does not go far enough. There is no mention of the list of countries with which we have tax agreements. Sixteen countries are listed as having agreements deemed to be sources of problems.

The aim of tax agreements is to avoid or enable businesses to avoid double taxation. This is laudable and understandable. The problem arises when different countries have different tax rates. At this point we start talking about fickle businesses. They produce in various countries, sell their products from one business to another and with the cost transfers, manage to switch profits and losses between countries. This causes problems because profits are transferred to places with the highest rate of taxation and losses can be deducted in others.

And then you have countries like Canada, where interest charges are allowable expenses. This makes matters worse and it is an extremely complex task to tackle corporations with operations in several countries. Slightly higher, stricter standards are set for them, to determine whether they are really producing, but the fact remains that it is not easy to figure out, particularly when rates vary widely. So, there is a need to look seriously into this and not in a piecemeal fashion as it has been the case for a while now.

This brings to mind the whole Liberal approach to taxation. When they were in opposition and during the election campaign, the Liberals used to say that the way to deal with taxation was not piecemeal but comprehensively. So far, not much has been done in this respect. A piecemeal approach continues to be applied to very technical, complex issues. Sometimes positive measures are taken. Still, they miss the main point, that is to say streamline the whole system, make the tax system less complex and easier to understand, which furthers the goal of transparency and restores people's confidence in their institutions and elected representatives, particularly as regards this trust that was lost.

I wish to take this opportunity to draw a parallel with a tax matter on which the government made a rather clear commitment, namely to do away with the goods and services tax. If you think back a little, originally, when this legislation was first passed, it was fiercely opposed by the Liberals in this place, the other place and everywhere. They opposed it even more strongly in the days and months that followed, going as far as promising, during the election campaign, to replace it within two years, that is to say by January 1, 1996, eight months from now. But there is no concrete proposal on the table yet. Considering how long it takes to develop and draft this kind of document and how quickly the GST was implemented, causing a great many problems, it is safe to assume that the government will be unable to honour and fulfil its commitment in the next eight months. Furthermore, this is another reform characterized by a piecemeal approach.

I will get to elaborate further on this subject in the second part of my remarks, to be continued when debate is resumed. I just want to say for now that this bill contains some good measures, which we will consider in committee. There is one in particular that we will consider thoroughly and it deals with foreign corporations. But we will do so bearing in mind that this piecemeal approach must end. A more comprehensive approach to taxation must be taken.

[The Acting Speaker (Mr. Kilger)]

I wish to thank the hon. member for Témiscamingue for his co-operation.

The House resumed from April 6 consideration of the motion that Bill C-76, an act to implement certain provisions of the budget tabled in Parliament on February 27, 1995, be read the second time and referred to a committee; and the amendment.

Budget Implementation Act, 1995

[The Acting Speaker (Mr. Kilger)]

It being 5.30 p.m., pursuant to order made Thursday, April 6, 1995, the House will now proceed to the deferred recorded division on the amendment moved by Mr. Loubier at second reading of Bill C-76, an act to implement certain provisions of the budget tabled in Parliament on February 27, 1995.

Call in the members.

Before the taking of the vote:

[Don Boudria, Liberal, Glengarry—Prescott—Russell, ON]

Mr. Speaker, a point of order. I think you would find unanimous consent to deal with the vote on private member's Bill C-263 at the conclusion of the other votes, in other words, after we complete all the votes on Bill C-43 later this day.

[The Acting Speaker (Mr. Kilger)]

Is that agreed?

[Some hon. members]

Agreed.

[The Acting Speaker (Mr. Kilger)]

The question is on the amendment standing in the name of Mr. Loubier.

(The House divided on the amendment, which was negatived on the following division:)

[The Acting Speaker (Mr. Kilger)]

I declare the motion negatived.

The House resumed from April 24 consideration of the motion that Bill C-69, an act to provide for the establishment of electoral boundaries commissions and the readjustment of electoral boundaries, be read the third time and passed.

Electoral Boundaries Readjustment Act, 1995

[The Acting Speaker (Mr. Kilger)]

Pursuant to Standing Order 45, the House will now proceed to the taking of the deferred division at the third reading stage of Bill C-69, an act to provide for the establishment of electoral boundaries commissions and the readjustment of electoral boundaries.

[Don Boudria, Liberal, Glengarry—Prescott—Russell, ON]

Mr. Speaker, I rise on a point of order. There has been a slight change to what had been discussed informally a little earlier.

I think you would find unanimous consent to apply the vote just taken on the amendment to Bill C-76 at second reading in reverse to the motion now before the House. In other words, the

vote would be applied in reverse to the main motion for third reading of Bill C-69.

[The Acting Speaker (Mr. Kilger)]

Is that agreed?

[Some hon. members]

Agreed.

[Warren Allmand, Liberal, Notre-Dame-De-Grâce, QC]

Mr. Speaker, I rise on a point of order. I did not vote on the last motion and I would like my name to be added to the government's vote on this bill.

(The House divided on the motion, which was agreed to on the following division:)

[The Acting Speaker (Mr. Kilger)]

I declare the motion carried.

(Bill read the third time and passed.)