Mr. Speaker, the auditor general reported a short while ago to Parliament on some prior tax rulings given by Revenue Canada, one in 1985 and another in 1991. This report comes six years after the last ruling was given. The essence of his report was: "The rulings may have circumvented the intent of the law".
The auditor general was good enough to send me in a letter a copy of his report to Parliament. As chairman of the finance committee I took this very seriously, just as the government took this issue very seriously. Here we had one of the most respected and important institutions and individuals in the parliamentary process saying there might have been a misinterpretation or misapplication of the law as it existed. This is a very serious charge.
Very quickly members of the finance committee called before us the auditor general and his officials and asked him to explain further what had happened. That was not the end of our discussions. We called as well public servants from the office of the Departments of Revenue Canada, Justice and Finance to assist us in dealing with this issue.
In listening to the auditor general here is basically what he said: "We have absolutely no evidence of impropriety on behalf of Canada's officials. We have absolutely no evidence of political interference, but we still think they misapplied the law". This is an extremely complex area of the law and as the auditor general said, it is an area of the law which is very ambiguous.
There are provisions in the Income Tax Act which pointed in one direction and there were other provisions which pointed in an opposite direction. I wish it were not so, but our Income Tax Act is very thick and there is not one practitioner in Canada today who can in all honesty say they understand all aspects of that code. The profession has had to break itself down into people who are experts on particular areas of the Income Tax Act. To further complicate the issue, it is not just the Income Tax Act, but on top of that was the overlay of the Canada-U.S. tax treaty which involved a further set of complications.
What did we do as a committee? We decided that since the auditor general and his officials had charged that there may have been a misapplication of the law, and since we are not the experts, or could ever hope to be the final arbiters of a dispute of this nature we asked a group of tax experts, not just tax experts in general but international tax experts to come before the committee. The auditor general suggested certain experts. Professor Neil Brooks from Osgoode Hall appeared before us at the request of the auditor general. All opposition parties had an opportunity to suggest who those experts should be.
We asked those experts if the prior ruling given by Revenue Canada officials was a misapplication of the law? Out of the eight experts there, one said it may have been. Professor Brooks said it definitely was. The six others said in no way was this a misapplication of the law. That is what we reported to Parliament.
Overlaying this question of whether this difficult judgment taken by Revenue Canada officials was correct or not was that when the facts were released saying that the prior tax ruling involved some $2 billion having been transferred out of Canada by family trusts to the United States, almost immediately on release of that report, speculation occurred regarding the precise identity of the taxpayer. This raised tremendous concerns throughout Canada's tax community. The essence of our voluntary system of tax compliance and reporting is that the confidentiality of the taxpayer must always be respected. It is a criminal offence to breach taxpayer confidentiality.
Obviously, the auditor general was concerned about this. He presented to us an opinion saying that what he had released had not been a breach of the law. That was never a concern on the committee. The concern expressed to us by Canada's tax community was that, if you cannot go for a prior ruling without fear of having your name disclosed in the press, then why go for a tax ruling? If someone can contest publicly a tax ruling with the possibility that the taxpayer's name can be revealed, what will this do to the ruling process?
The auditor general, in his report to Parliament a couple of years ago, said: "It is so critical where there are complex and ambiguous laws, the taxpayers need the certainty of prior rulings". We certainly agree with him.
Something we commented on in our report was that it is critical that any of us as members of Parliament, members of the finance committee, members of the government, members of the public departments, be it revenue, justice or finance or be it the auditor general, that we respect the confidentiality of taxpayers. It behoves us in our actions in the House of Commons and elsewhere to make sure that we respect that confidentiality in order to preserve the integrity of a system of income taxation based on voluntary compliance.
Members of the Bloc Quebecois have tried to make a great deal out of this particular issue. They said that this breach of confidentiality was not because of the release of all of this detailed information to the public by the auditor general but that it was "because of a source inside the federal government itself that the names were divulged". Never once did the Bloc Quebecois call that person before us or say who it was. They are alleging that an official in the government breached this confidentiality.
This is casting an aspersion on the entire revenue and finance departments. If they are going to make this charge, then they have the obligation to bring the name of that individual forward other than to dwell on issues of allegation.
Bloc members have said as well that the government muzzled the public accounts committee by transferring the family trust issue to the finance committee. The critic for the Bloc Quebecois approached me and said: "We want to make sure that the finance committee deals with this issue". Why would he change his mind? After all it was dealing with provisions of the Income Tax Act. Are they not the purview of the finance committee? Had not the auditor general asked us to look at it? Had not the government asked us to look at it? These are the things that we are supposed to do.
Let us not pretend that we in the finance committee have been trying to block discussion of this issue. We made the offer to all opposition parties to hold any other sessions, to call any other witnesses they wanted. They said that they had heard enough.
What did we do in the finance committee as a result of these hearings? We reported what the vast majority of Canada's tax experts, some of the leading names in the country, such as Davies, Ward & Beck, Goodman & Carr, Ernst & Young, Coopers & Lybrand, the people who deal with these issues on a specialized basis, Davies, Warden & Beck, Stikeman Elliott, people who deal with these issues on a daily basis, told us. They told us that the ruling given by revenue was not wrong.
What did we also find out in our hearings? We found out that before revenue ruled in this particular case it did a couple of things. It called on justice for an interpretation of this complex and ambiguous area in the Income Tax Act. Justice serves as the lawyer to the Revenue Canada officials. Justice said: "We believe that the way the Income Tax Act reads, taxable Canadian property can be owned by a resident of Canada". That was the technical issue involved. However, Revenue Canada did not stop with the opinion of the lawyer of the justice department. It went to the finance officials. It asked: "What do you think is the intent of the law? Can residents of Canada own taxable Canadian property?" The finance officials said, yes.
I ask members in the House to consider this situation. You are working in the Department of National Revenue and are asked to give a ruling. You realize that it is complex. There are ambiguities. You consult the department's lawyers. Not only that, you go further and find out from finance what it thinks the law was intended to do. Should there be a higher duty imposed on you as a public servant than to consult your lawyers and finance? Should it be the obligation of anybody in any department of this government who has doubts about anything to go and consult the auditor general in advance?
What standard of care are we attempting to impose on our public officials who are not here in Ottawa to get rich? We know they cannot. Public servants have had a freeze on their salaries for five years. If someone wants to get rich he or she goes into the private sector. What standard of care are we as politicians attempting to impose on them? I submit that no higher standard of care could have been exercised by revenue officials when they consulted their lawyers and finance, knowing that the law was not certain.
What did we recommend as a finance committee? We said: "Auditor general, in spite of the fact that we have some misgivings about the way your disclosures resulted in speculation in the name of the taxpayer and despite the fact that the experts we called before us do not agree with your interpretation of the law, i.e. that it should not have been ruled on such except for Professor Neil Brooks who is a frequent witness before our committee, always at the behest of the Bloc but this time at the behest of the auditor general, while we do not agree that this ruling may have misinterpreted the intent of the law, nevertheless, we think the point you have made before us is critical. We think you have discovered a loophole in the law. We think you have discovered an area where we must act to change the law".
That is why in our report we have suggested many changes in the law, changes which go far beyond those proposed in the minority report of the Bloc. Our suggestions for plugging the loopholes and for tightening up the Canadian tax net go far beyond what the opposition parties have suggested they would do. Therefore, before they criticize us let them look to their own decisions and maybe reconsider them.
Let us be very clear. Apart from having a very complex and ambiguous tax law in this area, the testimony before us indicated that Canada already has probably the tightest tax net when it comes to taxpayers leaving our country, perhaps along with Australia and Denmark. In spite of that, we recommended that the government act quickly to make that tax net even tighter.
We said that we should look at deemed realizations for all property when a taxpayer leaves this country. We might not collect it immediately because that would be stupid. Sometimes people leave this country and take up residence elsewhere but have shares in a small business which is ongoing or they may own an apartment building or a house. Is it right to charge them the tax the moment they leave the country as opposed to when they actually sell that property?
We are not prepared to be stupid. We have to recognize that in our tax systems different individuals and different circumstances have different needs.
We came down fully and squarely against the type of thing that happened, in terms of trusts being able to take large sums out of this country. We have recommended that in the future that type of provision not be allowed.
We have recommended that there be increased reporting requirements for Canadians leaving the country so that in circumstances where the tax system might not otherwise pick up what those assets may be that are subject to future disposition and which we may not be able to track in a coherent way, Revenue Canada has a way of doing that. These recommendations were not pulled out of the blue, they were based on expert testimony we heard.
In conclusion, the majority report thanks the auditor general for having brought these matters to our attention. The greatest compliment, apart from thanking him, we could have paid to him was that we said: "We do not like the result. We are, therefore, henceforth going to recommend to Parliament that the law be changed". We, as well as the auditor general I am sure, hope that in the future there will be continuing access to the ruling process and the speculation as to the identity of the taxpayer, the breach in confidentiality, will not have a chilling impact on the need to have these rulings.
I am pleased to report that the auditor general vindicated the integrity of the process and the bona fides of our officials. I believe we have all benefited from having this matter brought to light.