Mr. Speaker, I appreciate the opportunity to participate in debate on the legislation.
Bill C-70, an act to amend the Income Tax Act, seeks to implement a number of measures introduced in the 1994 budget, along with certain measures announced by the government at other times over the last year.
In asking for the support of colleagues in the House I would be remiss if I did not remind them of the context of the legislation.
The fiscal challenge facing the 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 the difficult choices that must be made. Few dispute that we must act decisively. Few dispute that fairness and effectiveness must be essential guiding principles of any and all steps taken to overcome our deficit challenge. These principles have guided the government as it has worked to restrain spending. They guided the minister in crafting the budget presented in February.
For the moment and for the discussion of the legislation let me take hon. members back to the budget last year. Spending cuts alone could not deliver the deficit reductions set out at that time. Spending constraint had to be complemented with some measures on the tax side. Doing so was simply a question of fairness. Our vision of fairness guided us as we looked at the tax system addressing unsustainable tax preferences instead of imposing general tax hikes 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 for the rules governing the taxation of business income. Let me stress that our goal was not to penalize the business sector or to impede the competitiveness of Canadian corporations. We believe it is essential to maintain a competi-
tive tax system in today's global economy. We cannot disregard the role of business in creating and sustaining employment. Nor can we ignore the pressures faced by Canadian companies as they operate in fiercely competitive markets both at home and around the world.
One fairness issue the budget addressed was the tax rules dealing with debt forgiveness and foreclosures. Under the old provisions of the Income Tax Act many transactions involving the settlement of debt were not recognized in any meaningful way for income 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 losses carried forward and expenses, or partially included in the debtor's income. I should point out, however, that 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 was not providing specific rules regarding the tax treatment of such securities.
The measures proposed in the bill seek to reduce uncertainty in this regard and to ensure the income derived from such securities is measured appropriately. The amendments provide that certain securities will be marked to market, meaning that 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 that are 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 the area. The changes expand the categories of income of foreign affiliates that must be reported as income of the Canadian affiliates.
Another modification prevents the use of an affiliate's foreign active business losses to reduce Canadian shareholders' income. This change also protects the Canadian tax base. The amendments are generally effective for taxation years commencing after 1994.
Finally let me turn to six tax measures announced during the months after the 1994 budget. The bill addresses the issue of eligible prepaid funeral and cemetery arrangements. Under the legislation individuals making such arrangements would not have to declare interest on 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 an eligible arrangement.
Turning to the next measure, the bill proposes that real estate trusts with publicly traded units be allowed to qualify as mutual fund trusts. The 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 the sector.
The third of the post-budget measures is a measure that will help mutual funds reduce overhead costs and improve services to investors. The amendments allow mutual fund corporations to convert to mutual fund trusts on a tax free basis and allow tax free mergers of mutual fund trusts.
The bill 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.
The rules also limit the ability of large corporations to raise new issues in a notice of objection where the objection relates to the reconsideration of an assessment. However new issues raised by Revenue Canada on such reconsiderations may still give rise to notices of objection.
In addition, the legislation will ensure that the new requirements relating to notices of objection will not apply to assessments which were repealed through court before the legislation received royal assent.
The final measure I want to highlight deals with the tax treatment of dividend compensation payments and other incomes 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 securities dealers to deduct two thirds of such payments.
This legislation extends the use of the two-thirds rule, thus ensuring our security industries remain competitive.