Madam Speaker, I am pleased to have an opportunity to address the motion put forth by the hon. member for Peace River.
The issue of overpayments to provinces under the tax collection agreements is a complex one, so I would like to take a few moments to provide some background, beginning with a quick explanation of how the tax collection agreements function.
Under the tax collection agreements, the Canada Customs and Revenue Agency, CCRA, collects personal income taxes from all provinces and territories except Quebec. The federal government pays to those provinces the appropriate share of the taxes collected, based on accounts provided by CCRA.
Overpayment to the four provinces, namely Alberta, British Columbia, Manitoba and Ontario, are the result of a tax accounting problem at CCRA. The problem relates to the accounting of capital gains refunds by mutual fund trusts. Mutual fund trusts pay federal and provincial income tax on capital gains. Under some circumstances, mutual fund trusts can receive a refund of both the federal and provincial portions of this tax paid.
Due to a problem with CCRA accounting processes, however, the provincial portion of the capital gains refund claimed by mutual fund trusts was, for many years, not being deducted in the computation of the provincial tax revenues. Instead, it was deducted from federal revenues.
In other words, when mutual fund trusts paid provincial income tax on capital gains, the amount of the tax was added to the payments to the provinces. However, when the mutual fund trusts received a refund of provincial taxes paid, the refund was not deducted from the payments to the provinces.
The problem did not affect taxes paid by individuals or businesses. It was strictly an issue between governments. Nevertheless, the amounts of the overpayments were significant. They amounted, as was pointed out, to some $3.3 billion for the years 1993 to 1999. Alberta, British Columbia, Manitoba and Ontario are the most significantly affected provinces. Ontario's overpayment is about $2.8 billion and Manitoba's is more than $400 million. British Columbia was overpaid by $120 million and Alberta by $4 million.
In the course of enhancing computer systems used for tax accounting, the CCRA realized that there might be a problem and, as a result, initiated an indepth review. As soon as this internal review process indicated that the problem was real, the CCRA informed the finance department and the auditor general.
I am pleased with how the government has acted on this issue. In all instances we have been upfront and transparent with Canadians. We have been quick to take action. As soon as the auditor general confirmed that the problem existed, we took action to prevent further overpayments, we began discussing the issue with the provinces, and we asked CCRA and the auditor general to confirm the amounts involved, which brings us to where we are this week.
Just a few days ago, on Monday, the auditor general gave the Minister of Finance the reports on the overpayments. There are four reports altogether. There is an auditor general's report for the years 1997-99. There is an accountant's report for 1993-96 and another for the years prior to 1993. For the 1993-96 period, the procedures carried out are the same as those used to conduct an audit. However, because some documentation was not available, the auditor general cannot express an audit level verification on the amount of the overpayments for these periods.
I am sure that when my colleague, the Parliamentary Secretary to the Minister of National Revenue, speaks she will of course elaborate on this. She will be splitting her time with me.
For the period prior to 1993, the auditor general found that the necessary financial information to determine the amount of the overpayments relating to the period does not exist.
The fourth report deals with CCRA accounting practices. It essentially verifies that CCRA has implemented procedures to account for the provincial portion of the mutual fund trust capital gains refund. Practically speaking, it means that problem has been solved.
In the spirit of accountability and transparency the Minister of Finance made the auditor general's report available to the provinces and all Canadians as soon as he received them.
Moving forward, we need to review and thoroughly understand the auditor general's findings before making a decision on how to resolve the issue. I am sure all members would agree that it is prudent to do so. Otherwise we would be taking rash action. We must also consider what the impact may be on the provinces and territories. Because the overpayments made under the tax collection agreements affect the calculation of equalization they have an impact on all provinces, not just the four I mentioned earlier.
I think hon. members will recognize that where there is an overpayment of any kind, whether by a federal or provincial government or by an individual, it is normal to expect the amount overpaid to be returned. However as I mentioned earlier, this is a remarkably complex issue. The solution is far from clear at this point. Suffice to say that the government is determined to ensure the problem is resolved in a reasonable and fiscally responsible manner.
As we work toward resolving the issue I can assure the House that the government will continue to co-operate fully with the auditor general and with the provinces and territories. We will continue to be honest and up front in dealing with the issue for Canadians.