Mr. Speaker, as we all know, for nearly two weeks now, the Prime Minister and the Minister of National Revenue have either evaded the official opposition's questions about this scandal concerning family trusts or attempted to trivialize the fact that $2 billion were transferred to the U.S totally tax-free.
There is indeed a political scandal when, for three years, a government prevented the auditor general from getting to the bottom of this issue and, after the auditor general finally succeeded in alerting the Canadian public to this financial scandal, the Liberal majority on the finance committee found nothing better to do than to attack this senior official who is accountable only to Parliament.
Instead of shedding light on this issue that reeks of political opportunism and patronage, the Minister of National Revenue has the gall to say that the Bloc Quebecois is misleading the public on this issue. To inform the public is to mislead the public, is that it? The government's approach is really quite amazing.
I would rather take the word of the auditor general, the real ombudsman of those who pay taxes in this country, over that of the Liberal revenue minister. According to the Canadian press, the minister believes that the problem is not family trusts, but rather the rules governing the transfer of funds abroad. What we know for a fact is that $2 billion were transferred outside of Canada without a penny being paid in taxes and that these funds came from family trusts.
The Liberals are out to destroy the credibility of one of the most important institutions of our parliamentary system: the Office of the Auditor General of Canada. In their report, they arrive at a distorted interpretation of the Income Tax Act in order to justify the inconsistency of the revenue and finance departments, relying blindly on the testimony of six experts from the private sector, who are clearly in a conflict of interest position.
In its report, the Liberal majority on the finance committee launched into an unprecedented attack against the Office of the Auditor General of Canada, one of the most respected institutions of our democratic system. Already, during the hearings of the finance committee, we witnessed disgraceful scenes where, for nearly two hours, the chairman himself outrageously and arrogantly attacked the credibility of the auditor general.
Analyzing the auditor general's role and mandate, one immediately sees the limits that the Liberal majority wishes to impose. The Office of the Auditor General plays a key role in making an independent evaluation of the information provided to Parliament by the government. A Revenue Canada ruling, which seems to contravene the spirit of the Income Tax Act, was made in great haste, without any notes or minutes, one December 23, and could cost Canadian taxpayers hundreds of millions, according to the auditor general.
Should this issue be debated in the House of Commons? To ask the question is to answer it.
The act setting out the auditor general's mandate is clear. Nevertheless, the Liberal majority attacks it, attempting to discredit his role for purely partisan reasons.
In his 1984, 1985, 1987, 1990, 1992, and even 1993 reports, the auditor general analyzed the application of the Income Tax Act, without anyone at the time questioning his mandate, his expertise, or even the appropriateness of his intervention. Quite the contrary, the Liberals, who were then in the opposition, did not hesitate to use the reports to attack the Conservative government. How is it today that the Liberal majority is systematically attacking a pillar of our system of parliamentary accountability?
The analysis of all the events which followed the tabling of the report underscores the overt partisanship of the Liberal government, which is attempting to hush the whole thing up.
Following the revelations of The Globe and Mail , the government gagged the Standing Committee on Public Accounts by referring the issue of family trusts to the Standing Committee on Finance whose chairman is, of course, not a member of the opposition.
For the Bloc québécois, it is obvious that this change of attitude shows the bad faith of the Liberals, who are trying, through stalling tactics, to hush up the scandal and, through unwarranted attacks, to undermine the credibility of the auditor general himself.
During the two years I was the chair of the Standing Committee on Public Accounts, I remember how much respect all the members, even Liberal members, had for the auditor general. Why this sudden change of attitude? Why have the Liberal members who were sitting or are still sitting today on the public accounts committee suddenly been silenced? This about-face by the Liberals brings us back to the issue of influence exerted by partisan interests and probably by friends of the Liberal Party and contributors to the Liberals' campaign fund.
The conclusion to be drawn from this less than edifying saga for the members opposite is that the government is trying to protect people close to the top who benefited from the generosity of Revenue Canada, or even to hide a possible conflict of interest.
With the tabling of its report, the Liberal majority has shown how little respect it has for parliamentary institutions and has succeeded roundly in fuelling people's cynical view of politicians who are more committed to party interests than to good government.
Let us look at how this truly amazing story has unfolded. The auditor general reviewed two advance rulings on the transfer to the United States of assets worth at least $2 billion formerly held in Canadian family trusts, despite what the revenue minister had to say.
The Standing Committee on Finance was then asked by the Minister of Finance himself to examine the ambiguous provisions of the Income Tax Act pointed out in the auditor general's report. Meanwhile, in order to analyze and interpret the law correctly, the finance committee called several tax experts as witnesses. Now, in its report, contrary to all expectations, the finance committee has endorsed without reservation Revenue Canada's interpretation, and based its findings only on the evidence given by six out of eight experts called earlier this summer to give evidence before the committee without even ruling on the appropriateness of the evidence heard.
The Liberal majority accepted only those comments made by the tax experts who were in a position to devise such a tax planning scheme for their customers. However, the Liberals never saw fit to include in the report the comments made by a disinterested authority, like the distinguished Professor Brooks of the faculty of law in Toronto.
The matter the Standing Committee on Finance had to settle was whether what Parliament intended was clear. Can Canadian residents have taxable Canadian property or not? That was the issue at stake.
As the Liberal majority put it in the report, the crucial issue on which the decisions were ultimately to be based was whether such property could be taxable Canadian property belonging to a Canadian resident.
If the answer is yes, then it is possible for a Canadian resident to transfer property abroad and to avoid paying taxes in Canada immediately. In such a case, the taxes will be collected by the American government instead of the Canadian government, if the property transferred is sold more than 10 years after the transfer. However, if the answer is no, as we believe it to be, it means that the concept of taxable Canadian property cannot apply to a Canadian resident and that the capital gain is deemed to be taxable as soon as the property leaves the country.
Up until the advance ruling-because it was an advance ruling Revenue Canada made in 1991-taxable Canadian property applied only to non-residents. In all likelihood, Parliament intended to control the taxation of capital gains earned by non-residents. However, section 85(1)( i ) of the Act stipulates that capital stock of public corporations is taxable Canadian property when it is received as consideration for capital stock of private corporations.
That is what the trust argued in its request for an advance ruling. However, according to the spirit of the law, this provision only applies when capital stock of public corporations is bought by non-residents. In the Act, when the application of the concept of taxable Canadian property becomes relevant for a resident, it is usually made very clear, as the following examples will show.
Section 48(1)( a ) indicates, and I quote: ``any property that would be taxable Canadian property if at no time in the year he had been resident in Canada''.
Section 107(5) also stipulates, and I quote: "property that is or would, if at no time in the taxation year of the trust in which it was so distributed the trust had been resident in Canada".
In its ruling, Revenue Canada mentioned that residents can have taxable Canadian property, which in itself sets a very dangerous precedent based only on section 97(2) of the Act. The Liberal majority report never questioned the use of a single paragraph of section 97 concerning precisely the taxation of partnerships to determine Parliament's intentions on such an important issue.
Rather, the Liberal majority was satisfied with the analysis by six of the eight experts called who, as you will all remember, work for firms involved in such transactions for the benefit of private customers.
The proposal by the Bloc Quebecois could not be clearer: even though the issue is essentially one of the holding by residents of a taxable Canadian property, that matter was never examined by the majority report. Section 97(2) to the effect that Canadian residents can hold taxable Canadian property was never questioned.
Yet, in our opinion, invoking this section to determine the taxation of family trust property transferred outside of Canada is contrary to Parliament's intentions in the case of taxable Canadian property. Only non-residents should be able to use this taxable Canadian property concept, and that is well covered in the Act.
Therefore, section 97(2) c ) of the Act should be revoked, thus eliminating this type of tax planning, which the Auditor General of Canada so rightly condemned.
Our position is also shared by Professor Neil Brooks, a consultant whose impartiality is absolutely beyond doubt. He said, and I quote:
"My position is that the ruling the taxpayer received in this case is wrong in law and policy and common sense".
This could not be any clearer, as was emphasized by Professor Brooks:
"Wrong in law and policy and common sense".
Not one of the other expert witnesses challenged this argument by Professor Brooks. Parliament's intentions are crystal clear. Moreover, the auditor general argued that the Act-specifically sections 197(5), 115(1), 128(1) and 85(1)-shows rather clearly that Parliament did not want Canadian residents to possess "taxable Canadian property".
Consequently, in view of the auditor general's findings and the experts' testimony before the Standing Committee on Finance, we are compelled now to put forward three recommendations-and, in this regard, I fully support the three recommendations of the Bloc Quebecois minority report as well as the motion on family trusts tabled today by the hon. member for Saint-Hyacinthe-Bagot.
Section 97(2) c ) must be revoked to eliminate the lack of clarity pointed out by the auditor general in his report.
The definition of "taxable Canadian property" must also be changed as soon as practicable so that residents cannot own "taxable Canadian property". This is the simplest and surest way to eliminate any tax avoidance by transferring property outside Canada.
Finally, the 1991 ruling must be cancelled so that no one can ever again refer to it to avoid paying taxes due to all Canadian taxpayers.