Mr. Speaker, I am pleased to take part in the debate at third reading of Bill C-36, which primarily seeks to implement measures proposed in the 1995 budget, along with some from the 1996 budget.
As is its habit with the majority of bills, the government included a series of scattered and ill-assorted measures in the same bill. Of course, there are some positive things in Bill C-36, including the provisions on tax deferral, gifts of ecologically sensitive land, business number and, in particular, the film tax credit, which we strongly supported during the proceedings of the finance committee, since it will benefit the whole industry.
The problem with Bill C-36 is that, in spite of these positive measures, the government, true to form, introduces a few measures that are particularly harmful or not very meaningful, but all tied up in pink ribbon.
Remember when the Minister of Finance delivered his budget speech and told us that, yes, the government had heard the plea made by the official opposition and that it would reform family trusts. The official opposition went through three different states of mind. First, we were pleased because, at last, the government was listening to us and would reform a totally unfair program. Second, we were disappointed, because the reform would only be implemented as of 1999.
So, although some positive action was to be taken to correct the unfairness resulting from family trusts, the government was giving until 1999 to those who benefit from this program to transfer their assets into other tax planning vehicles which will be just as effective in terms of avoiding the payment of taxes.
I would like to take a look at two measures in the bill, the one involving family trusts, of course, with a recent example to illustrate my point, the one brought up by the auditor general, and I will conclude with the positive measure in Bill C-36 regarding film tax credits.
First, I will look at family trusts. As I mentioned, we had been waiting a long time for this measure and the government disappointed us. Why were we disappointed? As early as the 1993 election campaign, the official opposition, the Bloc Quebecois, pointed out the problem with the family trust system. We had two goals in mind: the first was to show, using this example, that there was a problem with the Canadian tax system, that it was in need of reform, not tinkering, but heavy duty reform.
Our second goal was to show that there were people in Canada who were not paying their share, and that these people were not the poorest, nor are they today, but the richest. The people who have been able to use this family trust provision are not in the average income bracket, they are not people earning under $200,000 a year, or people earning $35,000. For the most part, those using family trusts as a tax planning tool are the rich and the ultra rich.
What was the government's response? First it said: "We will reinstate the 21 year rule". What is the 21 year rule? The answer is very simple. The Conservatives, preceding the present government, had changed this rule, which had existed previously and which provided that, at the end of the 21st year of a family trust, the trustees had to realize their assets, in other words, estimate their assets and pay the capital gains accumulated over the 21 years.
The Conservatives changed this rule so that the capital gains tax payable could be carried forward until the death of the last beneficiary. Therefore, if the trust beneficiary lived to age 80, no capital gains tax was paid for 80 years.
This was really unfair, unfair to everyone. What we wanted was not just a return to the 21 year rule, as Bill C-36 proposes, but a review of all family trusts and not just the 21 year rule, because, with spreading tax over 21 years, let me tell you a tax dollar in the first year will not be worth the same as a tax dollar in the 21st year. We are already questioning the rule underlying this 21 year rule, never mind the 80 year rule.
Second, not only during the 1993 election campaign, but at every opportunity in the deliberations of the Standing Committee on Finance, the official opposition called for an in-depth review of the Canadian tax system so that family trusts, in combination with other provisions of the Income Tax Act, foreign tax conventions and so on, could not provide an excuse for rich Canadian families to avoid paying their due to Revenue Canada.
The government did not listen to us. Instead, it introduced Bill C-36, which sets out slightly better realization of assets rules for family trusts by reducing the time period from about 80 years to 21 years. But what we need is a comprehensive review, not only of family trusts, but also of the Income Tax Act, of some general tax provisions and of international conventions.
We must ensure that each of these scattered provisions no longer allow the wealthiest Canadian families to avoid paying taxes to the federal government.
To illustrate what the official opposition has been contending for almost two and a half years about family trusts and the need for a comprehensive review of the tax system, in his recent report, tabled on May 7, the Auditor General of Canada brought to light something we had been suspecting for a long time, a problem we had been raising almost every day in this House, at the Standing Committee on Finance and at the Standing Committee on Public Accounts presided by my hon. colleague from Beauport-Montmorency-Orléans.
In his report, the auditor general reveals that, in December 1991, a family trust holder had transferred to the United States $2 billion in assets without paying a cent in taxes. This transaction took place in 1991, the whole process, all the regulations and the analysis that made it possible to transfer billions of dollars to the U.S. tax free only came to light in March and in May of this year, when the auditor general blew the whistle on this.
How could the transfer of $2 billion be pulled off? Exactly the way we said it could be done every time we stood in this House to question the Minister of Finance on family trusts. By using the family trust provisions. By using the capital gains provisions of the Income Tax Act. By using the lack of clarity of the non-resident provisions of the Income Tax Act. And fifth, by using the tax convention between Canada and the United States.
It was a mix of all that and, to be able to afford mixing all that, you have to be a millionaire. Do you know why? Because you would have to hire the top tax experts in Canada to know how to use all these tax rules, how to use the family trust scheme, and to be on top of the latest decisions or the latest analyses made by Revenue Canada. What the auditor general tells us clearly illustrates what we have been saying ever since we were elected to this House. A Canadian resident was able to transfer $2 billion in assets to the U.S. without having to pay a penny in taxes now or in the future.
This case did so much to illustrate the shortcomings of the tax system, as well as the relationship between the system and the great tax experts representing the families of Canadian millionaires and billionaires, that, after the auditor general published his report, the federal government felt it had to try to suppress this affair.
This shows two things. First, that there is no political will on the other side to really correct the deficiencies of the tax system, in particular the links between family trusts, tax agreements and the tax system in general; and second, that the government has things to hide.
Why do I say this? Because, if they wanted to correct the situation, I feel they should go beyond the little provision on family trusts in Bill C-36, which provides for two minor measures, by first getting to the bottom of these family trusts that were transferred to the U.S. A $2 billion trust means that someone got to keep a lot of money without paying any taxes on it. They should first get to the bottom of this and then quickly review the whole tax system openly and publicly, instead of behind closed doors.
There has been a slight improvement compared to what the Minister of Finance announced in his last budget. Although the group still consists of eight experts behind closed doors, it has to report to the Standing Committee on Finance at every step in the review of business taxes in particular. This is already a slight improvement but, as I will show you a little later, we must be vigilant, as there is no political will to review any part of a system that benefits those close to power, not to mention those in power.
Why do I deplore the government's record in this regard? Let me explain. In the days that followed the release, on May 7, of the auditor general's report on family trusts, the Standing Committee on Public Accounts received, as usual, that report. I should point out that the committee is chaired by the hon. member for Beauport-Montmorency-Orléans and that another eminent member is the hon. member for Trois-Rivières. Normally, the committee analyses the report from A to Z.
When the time came to look at chapter I, in which was mentioned the $2 billion scandal involving family trusts to which I just referred, the Liberal member for Brome-Missisquoi, the brother of the other one, said: "We must analyze this case urgently. This is one of the worst scandals". The member even conducted two major communication operations. He came out and made a statement before radio and television reporters, saying there was a scandal and that we had to shed light on the issue, because the whole thing was very mysterious.
The member even wrote a press release from his office that said exactly the same thing. There was scandal behind this. Family trusts and the whole tax policy had to be reviewed and, in particular, we had to shed light on the tax free transfer of $2 billion in trust to the United States, thanks to existing loopholes.
The member's determination to go to the bottom of things did not last two days. As soon as we heard a rumour to the effect that a very rich Canadian family might be involved and that, if we went back to before the 1991 decision made by the Conservatives, we might discover some Liberal involvement, there was a complete change of attitude. We did not see the member Brome-Missisquoi for over a week. He was very busy with the committee, we were told.
During this time, the government launched into a rather impressive cover-up. The mandate, which would normally lie with the public accounts committee, which can act as a true commission of inquiry, was transferred. This committee has all the powers to act as a commission of inquiry, and it has the mandate to do so based on the auditor general's report. Only chapter I was transferred, not the entire report of the auditor general in which he puts his finger on the scandal of the billions of dollars that are being moved tax free out of the country to the United States.
The mandate of the finance committee can pretty much be summed up as analysing fiscal policy in a general manner, with a particular emphasis on policy with respect to residents and non-residents, so that things which took place in the past will not happen again in the future. That is the mandate of the finance committee.
If we listen to the government, we will never get to the bottom of the 1991 scandal. And the reason is because the system in place-we saw it last week-is being perpetuated by eminent tax experts-because only experts can understand the ins and outs of the tax system-who work hand in hand with Revenue Canada, and its senior officials, deputy ministers, assistant deputy ministers and senior analysts, in order to benefit a handful of privileged people, a handful of insiders.
In the United States, it is a serious crime to be an insider; almost as serious as first degree murder. Today, as we are seeing, the auditor general is casting light on some things.
He speaks of a process in which most of the deck is missing, nearly 95 per cent of the information is lacking. He tells us that, from one week to the next, there has been a total change of direction in the interpretation of taxation laws, which resulted in the transfer of two billion dollars to the US tax free. It started as a refusal by Revenue Canada, followed by pressures on the Department of Finance from who knows what quarter, and moved on to a final decision allowing this transfer of a trust to the U.S. without paying any tax.
A situation like this is worrisome, and the reason why a bill like C-36, which does contain some good measures, but clouds the issue of family trusts, as they are attempting to do with chapter 1 of the auditor general's report, is no longer workable.
Despite my tender years, I have followed the debates in the House, particularly on public finances, the auditor general, public accounts, even the business of the House. I must admit that I have never seen a situation like the one that has existed for the past month or so, in which government members, members of the finance committee, are attempting to run down the auditor general, to attack his attitude.
The auditor general is the most respected and respectable man in the senior public service. Why is that? Because he is answerable to Parliament. He comes and reports to Parliament on behalf of the departments on the good or poor management of public funds. He also forces public servants to be accountable. Now, we have just been told-I heard it from the very mouth of the Chair of the finance committee-that the auditor general may have erred slightly. The Liberal members of the finance committee questioned the auditor general very closely, not to cast some light on the situation or on certain particularly complex points of taxation law relating to family trusts, but to trip up the auditor general.
For those who are still interested in this matter, and I believe growing numbers are, because people have had enough of this business of golfing buddies going off to Florida together-last week, the committee heard six taxation specialists on the matter of family trusts, which ought to be our primary concern in Bill C-36. Of the six, one expert was invited by the official opposition, and another by the second opposition party.
Believe it or not, the four tax experts invited by the government went round the table sometime in the middle of the evening to explain their analysis of the case criticized by the auditor general and of the whole system known as the advance rulings system at Revenue Canada, which provides analyses of certain tax provisions for taxpayers. The game continued. The tax experts had questions about the auditor general's analysis, tax experts who revolve around power, the department of revenue, the deputy minister of the department of revenue, his principal advisers and the advance rulings division, which, in December 1991, made a ruling on the transfer of a $2 billion family trust to the United States tax free. These are people who also revolve around the deputy minister of finance, Mr. Dodge, and Mr. Farber, a special adviser, who does more policy making than his minister.
Last week we had laid out for us what we have always suspected as ordinary taxpayers. There are people who benefit roundly and they are not the low, middle or high income folks, but the richest Canadians, the millionaires and billionaires represented by these tax experts. We saw that the power lies here. The four tax experts criticized the man most respected by the federal public service and Parliament. These experts, who normally look at us with a certain haughtiness and say: "Look, we understand a very complex tax system that you know nothing about. So, please do not ask any questions", were itching to take on the auditor general, so much so that we are obliged to provide a clarification.
We asked tax experts whether we were right in our analysis of the tax provisions that made it possible to transfer $2 billion abroad tax free. We did not ask them to express a political opinion and to say: "You should not ask questions about this. The auditor general should not have said this".
Mr. Goodman, a renowned tax expert, told us during committee proceedings, which were televised: "These things are too complex. The auditor general should never have condemned this. He brought discredit on the process leading to Revenue Canada's advance rulings, which allows billionaires to transfer their money to the U.S. without paying taxes. You are generating-these are his words-a siege mentality against Revenue Canada, whose senior officials will no longer be willing to make such decisions".
That may turn out to be a good thing, because the $2 billion that was transferred to the U.S. represents hundreds of millions of dollars in taxes that were not collected here and that the people of Quebec and Canada will have to pay for.
As I was saying, we have a case that was condemned by Martin Leclerc, a well-known journalist with the Journal de Montréal . On June 10, Mr. Leclerc wrote: They want the auditor general's head because he condemned the family trust scandal''. He even said:A Liberal member-I will not mention him by name, but he chairs the finance committee-is trying to discredit him''.
He is trying to discredit the auditor general. It was obvious to everyone. At the same time, the sub-heading read something like: "Gravelle, Dodge and Farber, three Revenue Canada mandarins who are not accountable to anyone, let a billionaire transfer $2 billion to the U.S. tax free". We are no longer the only ones to notice that tax inequity has been raised to the status of a system and may have been for decades.
As I said earlier, some of the tax experts who testified before the committee last week on the subject of family trusts and who were supposed to give us tips on how to plug the loopholes in the tax system limited their remarks to putting down the work done by the auditor general and criticizing the poor parliamentarians that we are for trying to get to the bottom of the process which led to the decision made in 1991 to transfer $2 billion, possibly setting a precedent allowing hundreds of millions more to be transferred to the U.S since. They basically told us: "Do not ask us any questions".
There is a big problem there. Just to give you an idea of how big the problem is, when we asked the tax experts before us: "Were you in any way involved with officials or former senior officials who may have worked at Revenue Canada or at the Department of Finance at one time or another, who may have taken part in the analysis that led to the 1991 decision to transfer $2 billion to the U.S. tax free or may have known about the ruling made by Revenue Canada at the time but not made public until March 1996, this year, and could therefore have acted as insiders, making other persons benefit from a precedent set in 1991 but that only a handful of people knew about?", these witnesses had nothing to say. And this was just one case that was uncovered.
There was a tax expert representing Stikeman Elliott, a well known firm of tax consultants which provides advice to millionaires, billionaires and other very rich people. A Mr. Tilack worked until very recently for Revenue Canada's advance income tax ruling division, and may have been aware of the decision made in 1991 and may have made Stikeman Elliott benefit from it. When we asked Mr. Wilkie, who was Stikeman Elliott's representative, if he had had contacts with these people, he jokingly said yes, a former minister.
However, when we mentioned Mr. Tilack's name, Mr. Wilkie was no longer laughing. The same thing happened to their financial special advisor, Mr. Farber, who was sitting behind and whose face looked quite drawn when he left the room.
As we figure out the existing links between some well known tax firms and senior public officials, including deputy ministers,
assistant deputy ministers and others from Revenue Canada and the finance department, we hurt them a little bit.
If we succeeded in breaking this system of privileged contacts and anticipated decisions for millionaires and billionaires, these firms might make less money than they do now by providing precious advice to help rich people avoid paying taxes.
They might make less money than they do by giving complex advice, such as that which lead to the tax free transfer of $2 billion, based on five provisions in the tax conventions signed by Canada and the United States. These firms would make less money than they currently do if these provisions were understood. They would make less money if, as recommended by the auditor general in his 1992 report, all advance rulings were made public.
It is not right that, in the case of the 1991 family trusts, about five tax provisions were used; that Parliament was not informed of this possibility of transferring funds; that, according to the deputy ministers and the assistant deputy ministers, neither Revenue Canada nor the Department of Finance deemed worthwhile to inform in any way the elected representatives of the day of the tax loopholes that allowed for the tax free transfer of $2 billion. There is something wrong. We are in trouble if we allow this state of affairs to continue.
When attention focusses on the system that has been in place for several years now between Revenue Canada and tax experts, things start to heat up and the government begins to panic. They do not know what to do next, so they gag the public accounts committee, which should normally have looked at this case, and transfer responsibility to the finance committee with as broad a mandate as possible, so that nothing will ever come to light.
I have never seen such a case, nor have I ever seen the government so intent on hiding the truth, on keeping from Quebecers and Canadians all the inside information on this affair, which has been described by the auditor general, and by many others, since he brought it to light, as nebulous.
I would say to you that this does not augur very well for the general review of taxation recently announced by the minister. You may recall that in the 1996 budget the Minister of Finance announced that he was forming a group of eight experts to review taxation, behind closed doors, and that this group would submit its report in the fall.
When the family trust scandal hit, the finance minister had a slight change of heart and put us in the picture, as they say. The members of the Standing Committee on Finance will be able to follow the work being done by the eight experts and to have progress reports on all their discussions until the publication of the final report.
Judging by the government's attitude in the family trust affair condemned by the auditor general, I wonder to what extent there will be a will to ensure that taxation in Canada is equitable for everyone and not just for a handful of people who can benefit from the same information, the same monetary support when dealing with tax experts who understand full well the complexity of taxation and who know how to turn it not just to the great advantage of wealthy families but also to their own advantage.
That is what I wanted to say about family trusts. The provisions in Bill C-36 will not change in any way the scandal condemned by the auditor general, or the other scandals that are not known to us, but which probably followed in the wake of the precedent set by this case of $2 billion in assets transferred tax free.
I will, if I may, conclude with a provision of Bill C-36, the wording of which we accept and support. I am referring to the film tax credit. I have the honour of informing you that the official opposition worked very hard to have this provision included.
I am thinking in particular of my colleague from Richmond-Wolfe, who is the opposition critic on heritage and who insisted that this provision, amended during consideration by the finance committee, be passed before the summer recess.
We insisted because this provision will be of considerable benefit to the film industry and to others representing the world of culture, such as ADISQ or Mr. Rozon's Spectra. We are proud to have contributed to having the debate on this particular clause move forward.
Unfortunately, as I said earlier, the government has the bad habit of bundling everything together-good and very positive measures with measures I consider particularly twisted like those involving the family trusts-and asking Parliament to vote on them. As I have been saying, there are good measures such as tax credits for film productions, but because of the bad measures, I must ask my colleagues to vote against the bill.
