Yes, Mr. Speaker.
The point with respect to the loss carry forwards has to do with the fact that businesses can be sheltered from a prior year's losses. A business could make a mistake which could cost it a lot of money. It may very well turn out that it had nothing to do with an economic downturn, it was just a bad corporate decision. The question one should ask, which I hope the technical committee will ask, is whether the taxpayers of Canada should underwrite or subsidize the bad decision making of businesses.
Maybe there should be some loss carry forward provisions, but not seven years forward and three years back. That is more than generous. It may be more than fair. I hope the technical committee will deal with that question.
The second point has to do with the flow through of dividends. I will not be able to explain this very clearly. Very simply, if a company receives a dividend from another corporation and turns around and pays out the same amount of money in dividends to its own shareholders, the company which received the dividend would show an investment income profit, but it would show no taxes payable, which is the problem our constituents have been raising.
However, it is right that no taxes should be payable. It pays taxes on the dividend income it receives, but it also receives a part IV tax credit on the dividends it paid out to its shareholders. The shareholders are the ones who ultimately will pay the tax. Therefore the liability flows in and out of that corporation. The corporation shows income but no taxes. There is not a problem but the optics certainly do not seem to defend that.
The third point has to do with deferred taxes. The study of deferred taxes was one of the most difficult for me. It has to do with concepts such as virtual certainty. Not only can we have deferred tax credits, we can have deferred tax debits.
Deferred tax credits can arise for something very simple such as the write-off rate for an asset. For instance, if a corporation were to buy an automobile for use in its business, for accounting purposes the corporation would generally write off the automobile over the useful life of the asset on a straight line basis. Under the Income Tax Act, however, the corporation has an opportunity to claim a capital cost allowance, which basically allows the corporation to write off an automobile on a faster basis. It is 30 per cent but it is on a declining balance basis. I will not explain the technicality but it basically is a different number for write-off for tax purposes than there was for accounting purposes. That means the bottom line for tax purposes is different from the bottom line for accounting purposes.
Therefore there is an item called deferred taxes. It is in fact a timing difference. It means those taxes will be paid eventually. It will catch up at the end of the time when the asset is fully written off. At any point in time there will be either more or less written off depending on what happens.
The reason we have all these different rates in the capital cost allowance is that there was some engineering in terms of trying to stimulate capital spending so that fast write-offs were available for computers and software, for manufacturing and processing, things that would help stimulate capital investment so that jobs would be created. I am sure this is an area the technical committee will to get into.
I know we all want to know more about offshore tax havens. Last November 1995 I wrote to the finance minister about offshore havens, among other things I asked him to consider in the budget.
It dawned on me that there were certain situations in which corporations could transact certain financial affairs with an offshore country and there would be no record. There was no way to track it and there would be no tax treaty between the two countries. The issue I raised with the finance minister was that in certain countries where we do have tax treaties we can deal with some of these problems associated with offshore havens.
For those countries where we do not have a tax treaty and where those countries want to have relations with Canada I recommended to the minister that we ought to seek to enter into accommodation agreements so that when there are financial transactions of note the governments would co-operate in making sure that knowledge of those transactions would be brought up. Each of the countries would be able to determine whether there was an activity going on not in accordance with the intent of the legislation or whether it was illegal. No doubt there are a number of other areas the technical committee has to get into.
Another thing I want to raise is the integrity of the individuals involved. There is no intent on behalf of any member in the House, I am sure, to personally point out to anyone that there is a problem with their personal integrity. We understand that in asking these people to put some focus to some of these serious and complex matters, as the finance minister has laid out, it will allow us a better
opportunity to do a better job in the House once we get the details and we identify them.
Ultimately history will judge whether they did their job well because we will have an opportunity to scrutinize their work.