Debates of April 10th, 1997

Income Tax Act

[Paul Crête, Bloc, Kamouraska—Rivière-Du-Loup, QC]

Mr. Speaker, I am pleased to speak today on this private member's bill. The procedural debate we had earlier is but an indication of the Liberal government's unwillingness to reform the tax system. Beyond the principles raised, it is obvious that, these past three years, the Government of Canada has sought to avoid at all costs changing the tax system to any great extent.

While the Minister of Finance received with great interest the papers on corporate and personal tax reform prepared by the Bloc Quebecois, the government did not act on either. On every issue, be it family trusts, the GST or tax havens, the Bloc played its role as a watchdog, defending the interests of the taxpayers, but the government failed to show the leadership one would have expected from a government looking to change things and make tax policies more effective, with respect to employment development in particular.

According to the Bloc's analysis of corporate taxation, the federal government could recover something like $3 billion a year by revising or eliminating some outdated, ineffective or unfair tax expenditures. The expenses specifically targeted by the hon. member in his bill deserve consideration. It would be appropriate to take an in-depth look at these expenses to see if, given the effort asked from everyone to help improve public finances, we can still afford to allow entertainment expenses as a tax deductible item. We must also look at who benefits from such deductions.

The same questions could be asked about the fact that lobbyists are allowed some tax deductions for their lobbying activities. It is rather strange that a group, whose mission is to try to influence parliamentarians so as to favour the interests of those it represents, can enjoy a tax benefit that does not exist for ordinary citizens. This is rather peculiar and a review of this whole issue seems in order.

So, whether we are talking about corporate or individual taxation, the federal government did not do its homework, as evidenced by the fact that a Liberal member feels compelled to table a private member's bill to deal with a very specific issue, namely the tax deduction allowed for entertainment expenses.

There is also a significant shortfall when it comes to personal taxation, because a lack of initiative or imagination on the part of the federal government keeps it from bringing about the tax reform that is so necessary. Here again, some $2.5 billion could be recovered, while about $4 billion could be reallocated annually, if the government reviewed or abolished some obsolete or inefficient expenses. Such a reform would also improve fairness within the federal tax system.

Therefore, the Bloc Quebecois fully supports this bill. Why should the Income Tax Act allow a company to reduce its tax liability by several thousand dollars simply because it happens to have, for example, a private box in a sports centre? This is something our society must no longer tolerate, in view of the hardships experienced by the poor. A government that imposes an employment insurance reform which has the effect of diminishing benefits provided by the program while increasing the surplus cannot maintain measures that favour those who have money, as well as measures that do not necessarily yield the anticipated economic benefits.

So yes, the hon. member is right to call for abolition of this type of deduction; yes, it would be right also to demand that the government carry out far more extensive taxation reform, that it take into consideration the points submitted by the Bloc Quebecois in two major documents on personal and corporate tax reform, from which a number of elements ought to have been adopted by the minister.

The fact that they were not is perhaps related to the fact that the minister has created a taxation review committee, a technical committee made up of experts, most of whom come from communities already taking advantage of the systems and conditions in place. Given such a context, it is understandable that the government is trying to avoid having a bill like this go any further.

I congratulate the hon. member, for at least this provides the opportunity to bring the debate out in the open on the eve of a federal election. I think that it will enable the voters to ask some questions of the various parties, such as: "What do you intend to do about these tax deductions? Does the Liberal Party of Canada feel these types of deductions ought to continue? What about the Reform Party, the Bloc Quebecois?"

In our case, the answer is obvious. Where the entertainment deduction is concerned, we feel this ought to no longer be allowed, especially for corporations, who use this in the end as a corporate perk, while at the same time often calling for the government to interfere as little as possible. You cannot have it both ways. There must be the greatest equity possible. I feel that the bill has the best of intentions in this area; it will not have any financial impact because it cannot be voted on, but it will have some impact on the political debates.

I hope that the people of Quebec and the people of Canada will take advantage of the next election to ensure that the next government, the next Parliament, all of the representatives who are here, will focus particular attention on this issue.

The Bloc Quebecois will certainly be there to remind the government that action is necessary. There is also a connection with political party financing. When a political party like the Bloc Quebecois is 100 per cent financed by individuals, and companies, organizations of any kind or labour unions cannot invest directly in a party, then it is only indebted to the electorate.

When a political party receives substantial contributions from banks, large corporations, even unions or other organizations, then its hands are tied when it wants to introduce tax reforms that only benefit the individual, and not people who were able to make sizable contributions to the party's coffers.

In concluding, I may say we applaud the principle behind the bill and the fact that the hon. member has asked the government to do what it failed to do for three years in terms of tax reform. We hope that the hon. member's initiative will be reflected as soon as possible in concrete government actions.

It appears that this sort of decision and action will not be taken until after the next election, but at least we hope that the Liberals will make specific commitments and that, if they are returned to power, they will keep their commitments and we will have a tax reform that eliminates all unfair deductions such as those for entertainment, although there may be some in other sectors too. The impact of each of these measures on job creation has to be assessed, and this will have to be a major criterion for tax reform, so the people of Quebec and Canada can trust the tax system and see clearly the advantages and disadvantages of each measure, and the new tax system will have to be fair.

[Jim Silye, Reform, Calgary Centre, AB]

Mr. Speaker, I am going to argue against this non-votable bill. Based on words and the ideology of the Bloc Quebecois member and the Liberal member who moved the motion, they are out to lunch when it comes to corporations. Do they not realize that corporations pay taxes and lots of taxes?

They talk about how this being a tax deductible item and the corporation getting it at half price while the person who takes his lunch to work has to pay full price. The corporation or business has generated the revenue to have the right to buy season tickets, to have the right to spend $50,000 for a box.

Why do the government and the current income tax system allow these businesses to write that off against their incomes? It is for a very good reason.

They are sizeable corporations. They are movers in the business world. They are growing and expanding and they wish to communicate their message. The best way to get the attention of others who might possibly buy their product is to mix and mingle with them at times when they are not busy producing their product, from the hours of 8.00 until 12.00 and the hours of 1.00 until 5.00. The noon hour and evenings become prime time for people to spread their message.

Having a box at a hockey game can be a legitimate deduction because of expectation of profit. Companies in Canada cannot afford to buy a box if they are broke. Companies in Canada cannot afford to spend that money unless they are generating the money against which they can deduct the cost of the box from income.

Even at 50 per cent it is a good compromise. At 50 per cent the company has to think about how it is spending its money, whether it is justified and whether it will get a return through this contact and through this sales pitch.

It is a good compromise. It reduces the abuse. It legitimizes the expense. When it was 100 per cent I agree there was a lot of abuse. The 80 and 20 was not enough to ensure that companies thought twice about it. The 50:50 rule should not require a motion like this. It makes a mockery out of people going into business.

Profit leads to more tax revenue for the government than it loses through the tax deduction. That is another point. If the company

has a box which leads to more business, for example a high tech corporation with a box at the Corel Centre, the company makes more money. The bottom line increases. The tax revenue increases. I bet it is more than the 50 per cent deduction on the $50,000 box. What they are arguing against is less revenue for government, if it is taken away.

It would not apply to food. That is good. I was pleased the member made that clarification.

I do not understand how everybody seems to think we have to tax, tax, tax the rich and the corporations. We have to make sure that they pay their fair share. There is no question. People with lower incomes should pay less taxes than people with higher incomes. The simplified tax system I recommended would be progressive. It would have the same level of generous personal deduction. Everybody would pay the same rate with none of the tax exemptions. They would be eliminated. People would pay the single rate and maybe a dual rate on incomes up to a certain level and then a higher rate on incomes above $30,000, say 17 per cent and then 25 per cent.

The point is that what sets a country apart from less fortunate and less expanding countries is how it handles its tax regime. Is it a punitive tax regime or is it an inducement tax regime? Do people get to keep more of their money when they make more money?

Our system is getting pretty iffy. We seem to punish incentive and successful people by taxing them more and more. The levels are higher than they should be. We are at the maximum in terms of taxes. The finance minister knows that. That is why he has not raised personal tax rates in the four years he has been here. He has been very smart not to do that. Had he done that, the Liberals would be a lot lower in the polls than they are right now.

With respect to corporations, the tax regime is important because we are now in a global economy. If the separatists want to have their own country, they had better learn quickly that if they punish their corporations by taxing the heck out of them, there will not be very many jobs. Who creates the jobs? It is the corporations. Do corporations really pay taxes? No, they do not.

We could say that the banks contribute $8 billion in taxes. We could look at any financial statement of a public company to see how much it paid in taxes. Do they really pay those dollars in taxes? No. It is the consumer who pays the taxes. The tax cost is built into the corporation every year. It is built into a price increase to protect the bottom line. It is the people who pay. It is the consumers who pay the taxes.

The whole argument that we should tax corporations more is bogus. On the surface we must have a tax regime for corporations. I am not one who says corporations should not pay tax. That is what some people say. They think costs would be lower and product costs would be lower and they would pass it along to consumers. No, I do not think so. I do not agree with that. They should pay some tax.

It is important to have the right incentives in place, a tax regime that is properly thought out. If there is expectation of profit it is a legitimate expense. If corporations are investing in hardware or investing in people, how do they get their message out there? They advertise. They advertise in a lot of ways. It is not just a media buy in the electronic media or the print media. Word of mouth sometimes is the best form of advertising.

If I just started a brand new restaurant, one of the better ways for me to increase clientele and sales so I can hire more people and end up paying more taxes is to start bringing people there. That is a legitimate deduction if I bring people there to introduce them to my product, my place of business, and show them what we have.

Both the Bloc member and the Liberal member who have just spoken do not understand the corporate environment. They do not understand what corporations really do. They do not understand how much of a contribution corporations make.

It is government's role to create the right incentive and the right environment for the private sector to create jobs. We are slowly getting the Liberals to accept that. They are talking the talk now. Maybe they will start walking the walk.

A bill like this one is draconian. It is dinosauric. It is from the past. We must create incentives for businesses to stay in Canada. We must give businesses the legitimate opportunity to deduct their expenses. Those expenses that are clearly and legitimately intended to increase their profitability should be deductible.

The 50 per cent rule legitimizes, reduces abuse and allows corporations to have the respect they have when they spend this kind of money. If these corporations did not spend this kind of money, does the member know how many rinks there would be in the country? Does the member know how many sporting venues or other venues would exist if there was not an inducement for companies to spend these moneys? There would be a lot less. How many jobs would be lost? I do not think the whole psychology has been thought out by the two members. They see high profits.

I would rather go after Bombardier. Lending money to Bombardier as the government has done is shameful. It is a profitable company with a profit of $400 million last year. Over the last 10 or 12 years it has received over $1 billion. We do not know when it will be paid back or how much will be paid pay back. How much of the $400 million is the government getting back. We do not know those things.

Those are the ways in which I would increase revenues. That is how I would go after corporations. I would not subsidize businesses to that extent. If they cannot survive on their own they should go broke.

If Bombardier with its huge profit this year wants to buy a box at the Molson stadium, it should be allowed to deduct that against its income because it generated that $400 million. A company does not generate $400 million profit unless it hires a lot of people and has a lot of clients. It is a worldwide company. It needs to show the kind of operation it has. The member should rethink his position on going after corporations and not allowing deductions of this nature.

While I have the floor is it proper for me to move third reading?

[The Acting Speaker (Mr. Milliken)]

I should caution the hon. member that if he seeks consent the Chair might be disposed to make a ruling on the procedural regularity of the bill. I am not sure, in light of the discussion we had earlier, the member would want to do that.

[Barry Campbell, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, I was only afraid that the hon. member for Calgary Centre wanted yet another five minutes. The spirit of co-operation only goes so far.

I would like to comment on Bill C-324, which we have been debating for the last few moments. It concerns the income tax system and specifically taxes on corporations.

I understand the intent of the bill is that certain company expenses on entertainment should not be deductible. In addition to the procedural irregularity of the receipt of the bill before the House which you, Mr. Speaker, have taken under advisement and on which I am not commenting further, there is a different problem.

I note, with all respect to my colleague the hon. member for Scarborough-Agincourt, the bill suffers from a drafting error, which I am sure was not the intent of the member. The bill would raise the current deduction for business entertainment expenses which is subject to several limits under the current Income Tax Act to 100 per cent of eligible expenses on entertainment.

I know that the intent of the bill and the tenor of his comments are quite different. The question before us is, to what degree should entertainment expenses be deductible in the computation of income for businesses.

As indicated earlier, the current deduction for business entertainment expenses is limited in several ways. First, businesses are not allowed to deduct certain types of business expenses. Specifically, expenses paid for the use of a yacht, camp, lodge or golf course facility are not deductible unless the taxpayer made or incurred the outlay or expense in the ordinary course of his business from providing the property for hire or reward.

Second, the Income Tax Act requires that any business or entertainment expense must be reasonable in the circumstances and incurred for the purpose of earning income from a business or property.

Third, since 1994, qualifying business meals and entertainment expenses have been deductible at a rate of 50 per cent. Prior to 1994, 80 per cent of qualifying meals and entertainment expenses were deductible.

The current income tax rules are based on the presumption that business meals and entertainment expenses contain a portion which is incurred to earn income and, therefore, would normally be regarded as legitimate business expense. They also contain an element of personal consumption which should not be deductible. However, it would be very difficult to identify the precise proportion of business meals and entertainment expenses which represent the business component.

For this reason, the Income Tax Act permits businesses to deduct 50 per cent of eligible expenses on business meals and entertainment expenses in the calculation of taxable income.

I should also note that Canada's treatment of business meals and entertainment expenses is in line with the level of tax deductions in all provinces, including Quebec. I was startled to hear the hon. member say that he thought it should be changed. I wonder if he has told his provincial friends in Quebec City that. The federal deduction level currently is in accord with the level in all provinces and in the United States.

In conclusion, I would first say that the government cannot support Bill C-324. Indeed, I doubt that the hon. member for Scarborough-Agincourt would support it because of the drafting error which, in effect, causes the opposite result from that which he has asserted he intended.

However, even if the bill was redrafted in a way which would carry out its stated intent, I would recommend to the House on behalf of the government that it not be approved because it does not recognize that a portion of these expenses do have a legitimate business person. The complete denial of these expenses would not constitute an improvement in the system we now have.

[The Acting Speaker (Mr. Milliken)]

There being no further members rising for debate and the motion not being designated as votable item, the time provided for the consideration of Private Members' Business has now expired and the order is dropped from the Order Paper.

Is it agreed that we call it 6.30 p.m.?

[Some hon. members]

Agreed.

A motion to adjourn the House under Standing Order 38 is deemed to have been moved.

[Jean H. Leroux, Bloc, Shefford, QC]

Mr. Speaker, a laundry in the city of Granby, in my riding, recently bid on a contract to service the Granby and Brome-Missisquoi-Perkins hospitals. Buanderie Shefford has been providing laundry services to these two hospitals for eight years now.

On December 19, 1996, Buanderie Shefford received a call for tenders. After the Granby company posted a $200,000 bond, it realized, when the tenders were opened, that it was the lowest of the four bidders.

Strangely enough, the Corporation d'achat régionale de biens et services de la Montérégie decided to issue another call for tenders without giving any explanation whatsoever. This time, my constituent came out second, behind the Centre correctionnel de Laval, CORCAN, which, strangely enough, had not submitted a bid the first time around but did this time, knowing in advance what the prices of its competitors would be.

The private company, Buanderie Shefford, might lose a contract to a company funded in large part by taxpayers.

One has to wonder whether CORCAN includes all of its costs in the bids it summits and respects the same ground rules as its private sector competitors.

This is obviously a blatant example of unfair competition on the part of the federal administration, taking major contracts away from companies which are at least as competitive as Corrections Canada.

CORCAN employs, on a regular basis, some 1,800 offenders whom alone, I might add, cost Canadian taxpayers close to $90 million a year. The tax burden should not be made heavier, it is bad enough as it is. The result would be a further 15 workers out of a job. This is a fact, and it is unacceptable.

Fifteen jobs are in jeopardy, 15 families may have to suffer the disastrous consequences of unemployment. While the Liberals promised jobs, jobs, jobs, just the opposite is happening in this case.

I sent letters to the solicitor general on two occasions. I have questioned him in this House and, on March 21, he told me he would be most pleased to look into the matter and to report to me as promptly as possible. Here we are three weeks later and nothing has been resolved in this matter. Time is of the essence. Will the minister take action to redress this injustice?

Our local entrepreneurs have a right to operate in a free market setting where the rules of the game are not altered by the interference of government agencies whose financial resources are totally unconnected to their economic performance.

The government must act responsibly and act as quickly as possible to resolve this unfair situation. The government has one responsibility: it must withdraw its bid. That is the only conceivable solution.

Otherwise, law abiding citizens whose taxes pay for correctional facilities will end up losing their jobs. That is unacceptable. It makes no sense.

[Bernard Patry, Liberal, Parliamentary Secretary to Minister of Indian Affairs and Northern Development]

Mr. Speaker, it is my pleasure to provide an answer to a question raised in the House by the hon. member for Shefford, on March 21.

At the time, the hon. member expressed concern about the bid submitted by CORCAN, following a call for tenders by the Corporation d'achat régionale de biens et services de la Montérégie. He felt that CORCAN was an example of unfair competition on the part of the federal administration.

I want to explain that CORCAN is a special operating agency under Correctional Service Canada, which is accountable to Parliament, through the Department of the Solicitor General. The purpose of CORCAN is to promote rehabilitation of inmates into Canadian society by providing them with job and training opportunities during their stay in federal penitentiaries and for brief periods once they are released.

There are always around 1,900 federal inmates working for CORCAN. These working inmates get job-related training and experience. According to a 1994 study, former inmates who had worked for CORCAN were much less likely to be sent back to a federal penitentiary. Since these individuals do not reoffend as much, programs like CORCAN improve public safety.

CORCAN has five areas of activity: manufacture, agro-business, construction, services and textile. Its 32 workplaces are distributed among the 58 federal correctional facilities. CORCAN sells its products to federal, provincial and municipal governments and to institutions such as hospitals, schools, universities and charitable organizations.

As a special operating agency, CORCAN receives no appropriations but must borrow the money it needs to operate through a revolving fund. This money must be paid back with interest. CORCAN's operating costs must be recorded in its financial

statements in accordance with generally accepted accounting practices.

CORCAN is always trying to minimize the adverse effects of its activities on the private sector. An independent review of CORCAN's operations demonstrates that it holds-

[The Acting Speaker (Mr. Milliken)]

I am sorry to interrupt the member but his time has expired.

The motion to adjourn the House is deemed to have been adopted.

Accordingly, the House stands adjourned until tomorrow at10 a.m. pursuant to Standing Order 24(1).

(The House adjourned at 6.25 p.m.)