Debates of Sept. 24th, 2003

Questions on the Order Paper

[The Acting Speaker (Ms. Bakopanos)]

Is that agreed?

[Some hon. members]

Agreed.

Motions for Papers

[Geoff Regan, Liberal, Parliamentary Secretary to the Leader of the Government in the House of Commons]

Madam Speaker, would you be so kind as to call Notice of Motion for the Production of Papers No. P-1, in the name of the right hon. member for Calgary Centre.

Motion No. P-1

That a humble Address be presented to Her Excellency praying that she will cause to be laid before this House a copy of all documentation, including recommendations, briefings, memoranda, e-mails and Board meeting minutes of the Business Development Bank of Canada, relating to the reports of the executive search firm Rolland Groupe Conseil Inc. between January 1, 1997, and January 31, 2002.

[Geoff Regan, Liberal, Halifax West, NS]

Madam Speaker, I would ask that this Notice of Motion be put over for debate. I think you would find agreement from the Minister of National Revenue to have that occur.

[Elinor Caplan, Liberal, Minister of National Revenue]

Madam Speaker, I would ask that Motion No. P-1 be transferred for debate.

[The Acting Speaker (Ms. Bakopanos)]

The motion is transferred for debate pursuant to Standing Order 97(1).

[Geoff Regan, Liberal, Halifax West, NS]

Madam Speaker, I would now ask if you would be so kind as to call Notices of Motions for the Production of Papers Nos. P-2, P-3, P-4, P-6, P-7 and P-8.

Motion No. P-2

That a humble Address be presented to Her Excellency praying that she will cause to be laid before this House a copy of all documentation, including recommendations, briefings, memoranda, e-mails and Board meeting minutes of the Business Development Bank of Canada, relating to the reports of the executive search firm Price Waterhouse Coopers between January 1, 1997, and January 31, 2002.

Motion No. P-3

That a humble Address be presented to Her Excellency praying that she will cause to be laid before this House a copy of all documentation, including recommendations, briefings, memoranda, e-mails and Board meeting minutes of the Business Development Bank of Canada, relating to the reports of the executive search firm Gilles Tremblay and Associés between January 1, 1997, and January 31, 2002.

Motion No. P-4

That a humble Address be presented to Her Excellency praying that she will cause to be laid before this House a copy of all documentation, including recommendations, briefings, memoranda, e-mails and Board meeting minutes of the Business Development Bank of Canada, relating to the reports of the executive search firm Elan Pratzer and Partners Inc. between January 1, 1997, and January 31, 2002.

Motion No. P-6

That a humble Address be presented to Her Excellency praying that she will cause to be laid before this House a copy of all documentation, including recommendations, briefings, memoranda, e-mails and Board meeting minutes of the Business Development Bank of Canada, relating to the reports of the executive search firm Belle Isle Djandji between January 1, 1997, and January 31, 2002.

Motion No. P-7

That a humble Address be presented to Her Excellency praying that she will cause to be laid before this House a copy of all documentation, including recommendations, briefings, memoranda, e-mails and Board meeting minutes of the Business Development Bank of Canada, relating to the reports of the executive search firm Gestion Michel Lebeuf Ltée between January 1, 1997, and January 31, 2002.

Motion No. P-8

That a humble Address be presented to Her Excellency praying that she will cause to be laid before this House a copy of all documentation, including recommendations, briefings, memoranda, e-mails and Board meeting minutes of the Business Development Bank of Canada, relating to the reports of the executive search firm La Société Caldwell between January 1, 1997, and January 31, 2002.

[Geoff Regan, Liberal, Halifax West, NS]

Madam Speaker, I would ask that these Notices of Motion for the Production of Papers be transferred for debate. I think you would find again agreement from the Minister of Revenue for that to occur.

[Elinor Caplan, Liberal, Minister of National Revenue]

Madam Speaker, I would ask that Notices of Motions for the Production of Papers Nos. P-2, P-3, P-4, P-6, P-7 and P-8 be transferred for debate.

[The Acting Speaker (Ms. Bakopanos)]

The motions are transferred for debate pursuant to Standing Order 97(1).

[Geoff Regan, Liberal, Halifax West, NS]

Madam Speaker, I ask that all other Notices of Motions for the Production of Papers be allowed to stand.

[The Acting Speaker (Ms. Bakopanos)]

Is that agreed?

[Some hon. member]

Agreed.

Income Tax Act

[Anne McLellan, Liberal, for the Deputy Prime Minister and Minister of Finance]

moved that Bill C-48, an act to amend the Income Tax Act (natural resources), be read the second time and referred to a committee.

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Madam Speaker, I appreciate the opportunity to present Bill C-48 for second reading today.

The bill would implement federal income tax changes that were announced in the 2003 budget for Canada's resource sector, comprising the mining, oil and gas and fertilizer industries.

The 2003 budget takes concrete comprehensive action in several areas to build the society that Canadians value, the economy that Canadians need and the accountability that Canadians deserve. Included in the budget are measures to help Canadian business become even more competitive in the North American and global economies.

This new structure for federal income taxation of the resource sector reflects the government's ongoing commitment to an efficient and competitive corporate income tax system.

As hon. members know, a better economic performance for Canada tomorrow requires a more productive, innovative and sustainable economy today. Our tax system plays an important role in creating a stronger, more productive economy.

An efficient tax structure can enhance incentives to work, save and invest. It can also support entrepreneurships and the emergence and growth of small businesses. In addition, a competitive tax system is critical in encouraging investment in Canada, which leads to greater economic growth and job creation.

That is why the government launched a five year $100 billion tax reduction plan, the largest in our history, which has strengthened the foundation for economic growth and job creation in this country.

Among other things, it lowered the general federal corporate income tax rate from 28% in 2000 to 21% in 2004. With the tax cuts implemented to date, the average federal-provincial corporate tax rate in Canada is now below the average in the U.S.

The 2003 budget builds on the Canadian tax advantage for investment.

Several measures that will benefit the resource sector were included in Bill C-28, the Budget Implementation Act, 2003, which received royal assent last June.

These measures include: eliminating the federal capital tax over five years, a move that will strengthen Canada's tax advantage for investment in the capital-intensive resource sector; increasing the amount of annual qualifying income eligible for the reduced 12% federal small business tax rate from $200,000 to $300,000; and extending the existing temporary 15% mineral exploration tax credit until December 31, 2004, and providing an additional year for issuing corporations to make expenditures related to these arrangements.

When fully implemented, the measures in the legislation we are debating today, Bill C-48, will require that firms in the resource sector are subject to the same statutory rate of corporate income tax as firms in other sectors and that they will be able to deduct actual costs of production, including provincial and other Crown royalties and mining taxes.

Before discussing the measures in detail, I would first like to put them in context.

The resource sector is an important generator of investment, exports and jobs for Canadians, indeed, a significant component of the Canadian economy. In 2001, for example, the resource sector accounted for almost 4% of Canada's GDP, with over $64 billion in exports and more than $30 billion in capital expenditures. Over 170,000 Canadians work in resource businesses.

As well, the sector in general, and the mining industry in particular, is vital to rural and northern economies, while the oil and gas industry, long important to western provinces, is now also a significant economic presence in Atlantic Canada.

The potential for future resource development exists in virtually every region of the country. Moreover, Canadian resource industries are large investors in innovative technology and major participants in the provision of exploration and extraction services internationally.

Historically, income earned in Canada from the extraction and initial processing of non-renewable resources has been subject to special tax treatment. There are three main reasons for this.

The first is that resources are key economic assets. Since the development of non-renewable resources can create significant economic and social benefits, there is a strong initiative for governments to design a sound, economic and fiscal framework for large capital investment requirements.

The second reason underlying the tax treatment of the resource sector is that governments have come to accept that there is a specific set of risks and benefits inherent in the business of resource exploration and extraction. The tax treatment acknowledges that the resource sector is operating in a distinct environment.

The third reason underlying this special tax treatment is the direct competition for international investment dollars. Historically, international capital has been critical to the development of our resource industry. Competition for this capital, including Canadian capital, is increasingly intense.

I would like to review for members the current income tax provisions that are specific to the resource sector.

There are four provisions: Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses--

[The Acting Speaker (Ms. Bakopanos)]

On a point of order, the hon. Parliamentary Secretary to the Leader of the Government in the House of Commons.

Committees of the House

[Geoff Regan, Liberal, Parliamentary Secretary to the Leader of the Government in the House of Commons]

Madam Speaker, I hope my hon. colleague will forgive me for interrupting, but I think if you were to seek it you would find unanimous consent for the following motion. I have to run and I know he would like a break, a moment's pause to have another glass of water arrive for him. I move:

That, notwithstanding previous orders in relation to a study of prescription drugs, a group comprised of five government members, two members of the Official Opposition and one member from each of the remaining opposition parties of the Standing Committee on Health be authorized to travel to Vancouver, Edmonton, Saskatoon and Winnipeg, during the week of September 29, 2003 and to Halifax, Quebec and Toronto during the week of October 27, 2003, and that the necessary staff accompany the committee.

[The Acting Speaker (Ms. Bakopanos)]

The House has heard the terms of the motion. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

(Motion agreed to)

The House resumed consideration of the motion that Bill C-48, an act to amend the Income Tax Act (natural resources), be read the second time and referred to a committee.

Income Tax Act

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Madam Speaker, I appreciate my colleague's intervention more than he knows.

I will go over the four provisions again: Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses and capital cost allowances determine the timing of reduction for capital expenditures. These provisions recognize the risks inherent to the large investments required for resource exploration and extraction and play an important role in ensuring a competitive business environment.

Also, there are two targeted income tax vehicles: the Atlantic investment tax credit that supports resources development and other investment in Atlantic Canada; and flow-through shares, which are designed to support junior exploration firms.

As well, the 15% mineral exploration tax credit was introduced in October 2000 as a temporary measure to moderate the impact of global downturn in exploration activity on mining communities across Canada.

The 25% resource allowance was introduced in 1976 to effectively put a ceiling on deductions in respect of rapidly increasing provincial and other crown royalties and mining taxes. This allowance functions as a proxy for actual royalties and mining taxes paid to provinces.

The government recognizes that the resource sector tax regime can generate greater investment and jobs for Canadians if it achieves these three goals. First, the sector must be internationally competitive, particularly within the North American context. Second, it must be transparent for firms and investors. Third, it must promote the efficient allocation of investment both within the resource sector and between sectors of the Canadian economy. I believe the measures in Bill C-48, which would be phased in over five years, meet these goals.

As we know, in a global economy with intense competition for capital, a tax system with a lower tax rate, applied uniformly across all sectors with a simpler and more efficient tax structure, is far more effective than one with a higher rate of tax applied on a less efficient tax base. Bill C-48 would address this issue by reducing the federal statutory corporate income tax rate on income earned from resource activities from 28% to 21% by 2007.

The federal statutory corporate income tax rate is important because it is often the first piece of information viewed by prospective investors. A uniform, low statutory rate sends a positive signal to investors in Canada and internationally about Canada's relative competitiveness. In addition, a single rate reduces compliance and tax administration costs. The resource tax package will result not only in more competitive tax rates but also in a more competitive tax structure.

I would like now to look at changes relating to crown royalties, mining taxes and the resource allowance. As hon. members may know, the existing tax structure disallows the deduction from income of crown royalties or mining taxes. The resource allowance can either exceed or be less than non-deductible royalties and mining taxes for a specific project annually or over its economic life.

The resource allowance also introduces complexities in the tax system, thus adding to the cost of compliance and administration. It operates in economic conditions that have changed significantly from those that gave rise to it in the 1970s and earlier 1980s. Oil and gas markets are now deregulated and international competition for exploration and development capital is more robust.

All these factors put pressure on producers to be more efficient and, on host jurisdictions, to levy royalties and mining taxes at competitive rates.

By providing through this bill a deduction for the actual amounts of provincial and other crown royalties in mining taxes paid and eliminating the resource allowance, projects will now be treated in a more comparable fashion. This means that investment decisions will be based more consistently on the underlying economics of a project.

When fully implemented, this measure will result in a tax structure that imposes the same corporate tax on resource income as on other corporate income, and one that also allows deductions for actual costs instead of an arbitrary allowance.

These changes with respect to the resource allowance and royalty deductibility present important structural improvements to the treatment of costs in the resource sector.

Another measure introduces a new 10% mineral exploration tax credit for corporations incurring qualifying mineral and pre-production exploration expenses before a mine reaches production in reasonable commercial quantities. The new tax credit will be available only to corporations and will not be refundable or transferable under a flowthrough share agreement or through a partnership or trust. It will apply to both Canadian grassroots exploration and pre-production development expenditures for diamonds, base or precious metals, and industrial minerals that become base or precious metals through refining.

I should point out that this new tax credit is not to be confused with the 15% temporary mineral exploration tax credit that Bill C-28 is extending to the end of 2004. That credit is only available to individual investors in flowthrough shares. It was introduced as a temporary measure, as I mentioned earlier, to moderate the impact of the global downturn in exploration activities on mining communities across Canada.

Bill C-48 also includes special transitional arrangements. I will provide a little background at this point.

Following the budget announcement that the government intended to improve the taxation of resource income, on March 3 the Minister of Finance released a technical paper on the proposed changes.

The government reviewed the changes with industry and the provinces. Further to these discussions the government made two changes to the transition provisions of the new tax structure.

The first change will achieve a better measure of taxable resource and non-resource income for the purposes of applying the general corporate rate reduction during the transitional period by utilizing resource pool deductions in the determination of resource income.

The second change targets the Alberta royalty tax credit, ARTC, transitional relief set out in the technical paper to get a greater number of small and medium size producers. The Alberta royalty tax credit, as many hon. members know, is one of the most significant refund programs for crown royalties. Under this program the province of Alberta refunds a minimum of 25% of the first $2 million in crown royalties paid by each corporation or group of corporations.

A special transitional measure will reduce, during a 10 year transitional phase-in period, a portion of the refund that must be included in income tax for tax purposes. It will be available to individuals who receive the ARTC and to taxable Canadian corporations that pay no more than $2 million in Alberta crown royalties. Taxable Canadian corporations that may pay more than $2 million but less than $5 million of Alberta crown royalties will be eligible for a reduced amount of special transitional fund.

This new measure will further assist smaller corporations in their transition to the new tax structure. Both the general five year transition and the 10 year ARTC transition will provide investors with the certainty they need when making investment decisions.

There will be several benefits to the changes implemented through the bill. These changes will increase Canada's international competitiveness in oil and gas and in mining. As I indicated earlier, they will result not only in more competitive tax rates but also in a more competitive overall tax structure.

Regardless of how a firm's tax base is affected by the removal of the resource allowance and deductibility of crown royalties, all resource firms will benefit from a lower rate of corporate income tax. The oil and gas sector will pay less federal corporate income tax as a whole as a result of this change. Similarly, it is anticipated that the new taxation regime for mining, which includes the new pre-production mining tax credit for corporations, will result in a lower tax burden for that sector. For the most part there has been strong positive feedback on these proposed changes from industry organizations.

When these measures are fully phased in, it is estimated that the annual revenue cost to the federal government will be about $260 million.

There is one more important element of this bill that I would like to discuss. Bill C-48 also includes a measure that will enhance the treatment of the Canadian renewable and conservation expenses, the CRCE. These expenses are associated with the development of certain renewable energy and energy efficiency projects. The measure will also allow corporations to renounce Canadian renewable and conservation expenses to flowthrough share investors in a year where the CRCE will be incurred in the subsequent year.

This change was proposed in a July 26, 2002 Department of Finance news release. It will apply to qualifying renewable energy and energy conservation projects and will provide greater flexibility in the timing of investments financed through flowthrough shares. The treatment of flowthrough share investments in such projects will now parallel that of investments in non-renewable energy projects.

This new tax structure will achieve what it is designed to do. It will improve the international competitiveness of the Canadian resource sector, in particular relative to the U.S. It will promote the efficient development of Canada's natural resource base by establishing a common corporate income tax rate for all sectors and by treating costs more consistently, both across resource projects and between the resource sector and other sectors of the economy. It will simplify the taxation of resource income, streamline compliance and administration, and send clearer signals to investors.

This is a very important new regime. It will build upon Canada's tax advantage to support investment, innovation, productivity, growth and jobs for Canadians. I would urge all members of the House to support this bill.

[Peter Stoffer, NDP, Sackville—Musquodoboit Valley—Eastern Shore, NS]

Madam Speaker, one of the concerns we have on this side is the fact that a lot of the companies that will benefit from this tax reduction are generally foreign companies, foreign investors and foreign shareholders. For example, on the east coast of Canada many people are concerned about the extraction of our natural gas and getting very little in return in terms of royalties or payments or anything of that nature to benefit the economy of Atlantic Canada. The perception is that it is our resource and it is heading south and the big profits are going to those foreign nationals. That is one of the concerns I would like the parliamentary secretary to address.

As well, the bill does not say anything about what happens when mining companies abandon an area or leave an area and who is left with the costs of the cleanup of those particular areas. I think especially of uranium mining. I think of the specific example of the Tulsequah Chief mine in northern British Columbia. Again it is the taxpayer who is left with the burden of the high cost of cleaning up these sites and the environmental concerns.

I would like him to address the environmental aspect of it. I would also like him to address the possible perception that Canadians may have that this is a giveaway of our resources in terms of assisting those foreign investors and foreign nationals.

[Bryon Wilfert, Liberal, Oak Ridges, ON]

Madam Speaker, the answer to the second question is no, the bill does not deal with that. This is a tax bill.

In terms of who it benefits, it benefits everyone in the resource sector. Therefore, whether they are Canadian or non-Canadian, obviously they are investing in Canada and creating jobs in this country. If there is a perception that somehow the dollars are going south, I cannot help the hon. member's perception but I would point out to him that both Canadian and non-Canadian firms will benefit. The various associations in the oil and gas mining sector have been supportive. The provinces have been supportive. That is very important to note.

[Brian Fitzpatrick, Canadian Alliance, Prince Albert, SK]

Madam Speaker, an area no doubt with which the parliamentary secretary would be familiar and would be able to answer but which I would like clarification on is a lot of the resource sector and the energy sector have been converted into income trusts. I wonder if the member could enlighten the House as to whether these rules would apply to income trusts. They have become quite dominant in the resource sector and they are a totally different type of entity from a limited company or a publicly traded company.

[Bryon Wilfert, Liberal, Oak Ridges, ON]

I have no comment at this time, Madam Speaker.