Mr. Speaker, I am pleased to speak today on third reading of Bill C-36, the 1995 budget tax measures bill.
As hon. members will recall, that budget focused not only on cutting program spending, it also focused on tax fairness which remains a priority of the government.
On the spending reduction side, for the three year period on which last year's budget focused, 1995-96 to 1997-98, there were almost $7 in spending cuts for every $1 in new taxes. Spending reductions for this three year period totalled $25.3 billion with the burden being shared.
On the tax fairness side, in the 1995 budget we introduced several tax measures which are all based on the principle of fairness and equity in the tax system. These measures accomplish a tightening of the administration of the tax system, a removal or reduction in a number of tax preferences, and an increase in fairness in the system.
Since the time of the 1995 budget announcement the government has responded to the concerns of Canadians and members of the House about the impact of some of these measures, and changes have been made. The government believes in consulting with Canadians and taking action in response where it is warranted. I want to briefly highlight now some of the main measures of this bill reflecting that input.
The government believes tax assistance should be provided to Canadians to encourage them to save for retirement and that the fiscal cost of this tax assistance should be shared fairly. Changes in Bill C-36 help to achieve this. Under this bill the contribution limits for registered retirement savings plans and money purchase registered pension plans are being reduced to $13,500 this year. They will rise incrementally to $15,500 in 1999 and 1998 respectively. The 1996 budget subsequently froze these limits at $13,500 for another six years. These additional limits will be dealt with in legislation to be introduced at a later time.
Bill C-36 also reduces the over contribution allowance to RRSPs from $8,000 to $2,000. Originally intended to help taxpayers who inadvertently make an over contribution error, this measure will now restrict those taxpayers who took advantage and made deliberate over contributions. However, over contributions made before budget day are excluded from this penalty.
In addition, Bill C-36 gradually eliminates the tax free transfer of retiring allowances to RRSPs. Given other changes in the retirement savings system, this measure has outlived its usefulness.
Another area affected by the bill is family trusts. As hon. members know, this has been an area of concern to many Canadians. In the 1994 budget the Minister of Finance referred the taxation of family trusts to the finance committee to review, among other things, the election to defer the 21 year deemed disposition rule allowed by the previous government. To ensure that capital property cannot be held for the benefit of successive generations of trust beneficiaries without tax consequences arising on death, there is a deemed disposition of a trust's capital property every 21 years. The previous government had changed this to allow for the first 21 year deemed disposition date to be deferred until the death of beneficiaries who are no more than one generation away from the settlor.
Bill C-36 contains two measures that affect the tax regimes of these family trusts. One deals with the undue deferral of capital gains. The other affects the splitting of trust income because of the preferred beneficiary election.
The preferred beneficiary election allows trust income for income tax purposes to be allocated to preferred beneficiaries without any requirement that the beneficiaries actually receive the amount allocated. Bill C-36 limits the preferred beneficiary election to disabled beneficiaries. This will ensure trust income cannot be arbitrarily allocated to a beneficiary instead of being taxed at the trust level just because the beneficiary is at a low marginal tax rate.
Bill C-36 also eliminates the election to defer the 21 year rule. This measure removes the possibility of this election causing the undue deferral of capital gains. It also addresses the perception that family trusts are some sort of tax shelter.
Trusts for which an election to defer the 21 year rule has already been made will be subject to a deemed disposition of trust assets at fair market value on January 1, 1999.
The 1995 budget increased the corporate surtax from 3 per cent to 4 per cent of basic federal income tax. As a result, additional corporate revenues of $115 million to $120 million annually should be generated.
In addition, the large corporations tax, which applies to all corporations with over $10 million in capital, is being raised from 0.2 per cent to 0.225 per cent. An extra $150 million a year in corporate revenues is anticipated from this measure.
Further, this bill includes a temporary surcharge of 12 per cent, levied under part VI of the Income Tax Act, on the capital tax paid by banks and other large deposit taking institutions between February 26, 1995 and October 31, 1996. These measures ensure these institutions contribute to deficit reduction.
As hon. members will know, the surcharge was extended for another year in the 1996 budget. Again, this will be dealt with in legislation to be discussed in the House at some time in the future.
Finally, an additional six and two-thirds per cent tax on the investment income of Canadian controlled private corporations will reduce their tax deferral opportunity.
In that regard, allow me to stress that Bill C-36 ends the tax deferral on business income.
While businesses could previously choose the date on which their fiscal year ended, December 31 will now be the date set as the end of the fiscal year for all businesses.
However, the government received a number of comments on this provision, and some amendments were made in order to address the concerns expressed by some businesses regarding, among other things, seasonal activities.
A special "alternative" method of calculating income will now be available to some businesses that prefer an off-calendar fiscal period.
These taxpayers will have to review their income to consider the money earned between the end of their fiscal period and the end of the calendar year.
Bill C-36 also introduces the Canadian film and video tax credit, which will directly benefit Canadian film production companies. It replaces the outdated capital cost allowance tax shelter, which concerned producers of Canadian certified films.
The film producer will now receive all the benefits from the new Canadian film and video tax credit. In addition, the credit will be available only to businesses whose main activity is the production of Canadian films or videos in Canada. This very specific clause should restrict credit applications aimed at avoiding taxes on income from other sources.
Let me move on now to some of the other highlights of the bill. Bill C-36 provides special enhanced tax assistance for donations of ecologically sensitive land. When certified ecologically sensitive land is donated to a charity or municipal body, there will be no annual income restrictions on the donor. Currently the limit is 20 per cent of donor's income.
Bill C-36 eliminates the inflation of certain scientific research and experimental development measures, SR and ED tax credits, and improves that administration of these tax incentives.
There will be restrictions on the expenditures on which SR and ED investment tax credits can be earned, and non-profit SR and ED corporations exempt from tax will now have to report their SR and ED work and expenditures.
Another measure in the bill protects the collection of source deductions by making secured creditors who interfere with the remittance of source deductions liable for remittance along with any interest and penalty charges, just as the taxpayer is liable.
As a result of Bill C-36, seniors with incomes over $53,215 who have to pay back some of their old age security benefits at tax filing time will now have tax withheld when benefits are being paid out.
Finally, Revenue Canada will be extending the use of the business number, that is the one registration number for business dealings with government, to other departments and levels of government that have a legal right to this information. This will reduce overlap and duplication and increase efficiency for both business and government.
I have summarized the highlights of Bill C-36. It contains straightforward tax measures that exemplify the government's commitment to fairness and equity in the tax system. I am also pleased the bill as it has now emerged reflects the input of Canadians and hon. members to which we have responded.
I thank hon. members for their assistance through all stages of the bill. I strongly urge my colleagues to pass Bill C-36.