Mr. Speaker, I would like to remind this House and those who are listening that we are debating Bill C-33, Income Tax Amendments Act. The objective of this bill is to amend certain rules concerning trusts, to ensure tax fairness.
The Bloc Québécois agrees with this bill, and this amendment should have been made a long time ago. The first part of the bill deals with an amendment to the rules concerning non-resident trusts and foreign investment entities. It is an amendment or clarification of section 94. This part of the bill sets and clarifies the taxation rules for non-resident trusts. These clarifications and amendments are made through the amendment of section 94 of the Income Tax Act, which sets the taxation rules for non-resident trusts.
In general, a trust is subject to the Income Tax Act if it has received a transfer or loan from an association, joint venture, trust, fund, organization, individual, company, general partnership or syndicate residing in Canada.
Non-resident trusts must pay income tax to the Government of Canada. If they do not, the beneficiaries are held responsible and must pay the amounts owing themselves. However, beneficiaries will be taxed in proportion to their holdings in the trust. Additional tax relief will be in place for beneficiaries whose revenue is minimal compared to other revenues from the fund. The purpose is to make this balanced and sensible. The changes proposed in this part of the bill amend the rules that apply when money is brought back into Canada.
More specifically, these measures define additional criteria to be used in calculating the fair market value of assets in a non-resident trust. Fair market value is the highest price, in terms of money, that can be obtained for an asset on a completely free, unrestricted market during a transaction between a buyer who wishes to buy and a seller who wishes to sell who are prudent, informed and competent and who are acting independently of one another. Naturally, there is always some leeway in determining fair market value, but the bill nevertheless sets out the concepts in such a way as to control the tax implications of this type of activity.
The second part of the bill addresses the Income Tax Act's definition of an exempt foreign trust. This part of the bill specifies the kinds of trusts that are eligible for tax exemption under the Income Tax Act. These measures ensure that only those trusts that are truly eligible for tax exemption can benefit from this tax advantage. We know that trusts are created for all kinds of reasons. We must therefore ensure that only trusts that are eligible according to the act can benefit. This will result in fairer tax treatment of all citizens.
A list allows to distinguish between the trusts that can be exempted and the ones that must pay income tax. For example, trusts that are eligible to be exempted from the Income Tax Act are as follows: exempt non-resident trusts, trusts for beneficiaries with mental infirmities who are non-Canadian residents and whose contributions to the trust were required to support the needs of the beneficiaries. In other words, it makes quite a lot of sense that trusts whose purpose is exclusively humanitarian should not be taxed. There are also trusts that are created as a consequence of the breakdown of a marriage and whose beneficiaries are children under 21 years of age, or under 31 years of age if enrolled full time at an educational institution, resident trusts that are eligible for the tax exemption, trusts operated for the purpose of administering or providing retirement pensions to employees and charitable trusts.
Thus, the first part deals with changes to the rules applying to non-resident trusts or foreign investment entities, the second one provides the definition of foreign trusts that are exempted from the Income Tax Act and the third one contains general changes to the Income Tax Act.
The main measure provides more general amendments to this act. First, elements have been added to the employment income. This includes any amount receivable at the end of the taxation year in respect of covenants agreed to by an employee, and a change to the calculation of the amount reported through stock option plans for employees.
Then, various other items that will become deductible from employment income are added. For instance, employees will be allowed to deduct from their income legal expenses incurred in legal proceedings to collect amounts owed by the employer, and the premium under the Quebec parental insurance plan. These changes are designed to bring the Income Tax Act in line with the new realities.
For example, the parental leave scheme is very popular in Quebec. It was established when the federal government finally agreed to give back the EI amounts intended for this type of provincial initiative. It took a long time, but now the scheme is in place. It provides parents with sufficient income for flexible amounts of time, which they like better. It has already started to have a significant impact on birth. In this respect, it meets two important objectives at once. Now, we are amending the federal Income Tax Act accordingly. I think it is appropriate to support this measure and, indeed, the bill as a whole.
The last part of the bill contains amendments in relation to terms or expressions that could have a different meaning in French and in English. This may sound like a detail, but in reality, it can often cause legal problems when it comes to interpreting the law. The Bloc Québécois believes that Bill C-33 will improve the application of the Income Tax Act. The Bloc Québécois supports this bill, which will restrict the use of non-resident trusts as tax loopholes.
With fewer loopholes, the government will be able to increase its revenue by collecting from people who should be doing their part.
As an aside, this bill will fill a number of holes in the legislation in terms of tax fairness. But one glaring hole remains. I am referring to the one left open with tax treaties and tax heavens, and more specifically the one between Canada and Barbados.
Like any other tax treaty, the Barbados tax treaty initially provided that profits generated by Canadian companies should normally become taxable when the money was repatriated to Canada.
One section, section 5907, was added, which eliminated all taxation. Thus, while money invested in Barbados by Canadian companies is hardly taxed—it is almost ridiculous—thus leading to huge profits, that money can be brought back to Canada and is still not taxed. As a result, this becomes a tax incentive. At the end of the day, this is tax avoidance and has absurd repercussions. For example, over the course of 2007-08, a total of $4 billion will be brought back from Barbados in the form of dividends and recovered by Canadian companies, which will pay no taxes on that money.
We find this decision somewhat absurd, an abnormal situation that should be handled differently. Today, the Minister of Finance made a announcement regarding tax fairness and interest deductibility when companies borrow money to invest abroad. We would have liked to see part of his announcement address the tax treaty with Barbados. Surprisingly, it did not even touch on it.
During question period today, the minister was very careful not to respond to this question and to reiterate the action taken concerning interest deductibility. His announcement today more or less drove the nails into the coffin. He announced that interest deductibility will prevent double taxation. However, in five years, he is establishing a panel to examine the issue. I think it is a rather well organized retreat, but it reflects this government's lack of preparation in the related texts.
As regards the budget, we were expecting some details to be provided, and we were hoping that this tax avoidance hole would be plugged, but that is not going to happen. It is rather strange to give a warning that this is going to be done in five years from now. At the same time, a committee is being set up to look at all these issues. Usually, when it comes to finance, the government brings forward ways and means notices that immediately come into effect and that send a clear message. Let us hope that the minister's decision will not add to the negative message that was sent when the budget was tabled. At the time, the government did not explain how it was going to ensure that tax avoidance is eliminated. The specifics that were provided today can certainly, in a way, make companies feel more secure, but they are also a threat hanging over all the industries. In the industrial and financial sectors, investments are often made 5, 10 or 15 years in advance.
The message being sent today is still not good enough. And worse still—as I pointed out during the first part of my speech, in reference to the statement made today by the minister—the minister was totally silent on how the tax treaty between Canada and Barbados should be amended.
Let us not forget that we are talking about tax havens, about states where the rate of taxation is nil or very low. Their lax tax system encourages many wealthy taxpayers to discreetly transfer a portion of their fortune there, and many businesses to set up subsidiaries. They are then able to avoid paying taxes on part of their revenues.
People complain that they pay too much taxes and they wonder why that is, given the level of services that they get in return. There is one aspect that must be taken into consideration: if there are groups in our society that do not pay their share, then other groups must make up for the shortfall. What happens in reality is that either some people pay more taxes than they should, or else some services are not provided, all this because we did not manage to put a stop to the tax avoidance situation caused by this tax treaty.
It is very surprising that the government did not go forward on that issue since the problem is the result of changes made by the former Liberal government. We have been counting on the new Conservative government to address the situation. However, even today, we still do not have any indication that it intends to do that. Even though the Standing Committee on Finance is making a study on the subject, after the Bloc made a proposal to that effect with the support of the Conservative members, the minister does not seem ready to do anything and is not indicating that he would take action even if there were recommendations going in that direction.
The House can be assured that in the report that will be produced at the end of the current review by the finance committee, the Bloc will undoubtedly make concrete recommendations. Indeed, on tax issues it has often been said that the questions regarding trusts are very complicated. However, with regard to the issue of the tax convention with Barbados, there is a very simple solution. There is one subsection in the very long section 5907 that we could simply abolish. After that, all profits coming from Barbados could be taxed at the time they are brought into Canada.
We would find that quite acceptable. If we had a tax agreement whereby, when money was invested abroad, the profits would be adequately taxed once they were brought home, an appropriate deduction could then be allowed. This is roughly the model developed by the United States and Japan. This is a theory, a practice that should be examined by Canada. Rather than continuing with the current practice—the very discriminatory regulation 5907—we could quite simply allow the money to be invested in Barbados, and when it is comes back to Canada, subtract the amount the company has already paid in income tax to Barbados from the amount due to Canada. There would still be a significant contribution within Canada to correct the situation.
As I am being signalled that I only have two minutes left, I will end with these comments. I urge the government to examine this issue over the course of the next few weeks. We hope that the study by the Standing Committee on Finance will result in concrete measures being introduced in the fall economic statement or next year's budget. However, a solution absolutely must be found because, at present, all political parties agree that we are not getting our money's worth, despite the contribution of taxpayers. Such measures could be key to lessening the burden on taxpayers, on those who benefit from various government programs. It is important that we move in that direction.
The Bloc Québécois continues to take a constructive approach. We are voting in favour of the bill but we hope that the Conservative government will move forward as quickly as possible to find real and concrete solutions to the significant problem of tax evasion presented by the Canada-Barbados Income Tax Agreement.