Mr. Speaker, I am rising to speak to Bill C-93 and I will argue today that not only is this piece of legislation flawed, this whole act is completely unnecessary. I am quite amazed at the lengths to which the government has gone to introduce this type of legislation for what appears to be not a problem at all or at least a very minor problem. I will argue the legislation has caused far more problems than it could ever hope to solve.
I quote from a Revenue Canada pamphlet called "Gifts and Income Tax":
The Income Tax Act and the CPEIA provide tax incentives to people who want to sell or donate significant cultural property to Canadian institutions.
The Canadian Cultural Property Export Review Board-is responsible under the CPEIA for certifying that an object is of "outstanding significance and national importance".
When an object of this nature is donated to a designated Canadian institution or public authority, and is certified by the CCPERB, the donor does not realize a capital gain. For purposes of the tax credit, the donor can claim the FMV of the gift up to the total amount of tax still payable after claiming any credits for charitable donations and gifts to Canada or a province.
When that legislation was originally brought in I believe in 1977, right from that time we have had all kinds of problems with people trying to take advantage of that legislation.
I quote from a newspaper article, March 24, 1995, in the Montreal Gazette :
Tax avoidance schemes under which unscrupulous art donors obtain bloated write offs for works given to public galleries and museums are on the rise across the country, the Canadian Museums Association warned yesterday.
These dubious donations have become so rampant in recent months that Ottawa might shut down the program under which tens of millions of dollars of art is donated to Canadian public institutions each year, said John McAvity, executive director of the 2,000-member association.
Warning members to be more vigilant against such schemes, McAvity said: "The donations in question appear to be motivated purely by tax avoidance
considerations rather than philanthropic reasons-These donors appear to be neither serious nor knowledgeable collectors or even known to the museums".
Under the scheme, which dates back at least 20 years, a donor buys a work of art for well below the artist's usual fee. The donor would then have the work evaluated for four or five times the amount he had paid for the work, donate the piece to a gallery, museum or registered charity and write off 100 per cent of the evaluated amount, art experts explained.
At the heart of the donation issue is the concept of fair market value.
Michel Rolland, president of a firm that facilitates art donations to public institutions, said that if a client was able to obtain a work of art for well below the usual going rate then the client has made a shrewd investment.
But a Revenue Canada brochure states that "the generally accepted meaning is the highest price, expressed in terms of money, that the property would bring in an open and unrestricted market between a willing buyer and a willing seller who are both knowledgeable, informed and prudent, and who are acting independently of each other".
In other words, if you were willing to only pay $2,000 for a work of art then you should in all likelihood only get a tax receipt for $2,000, said Robert Kerr, a Montreal chartered accountant who writes for the Gazette .
After five or so lean years many artists are desperate to sell their work at almost any price, said Thérèse Dion, a local art consultant.
Rolland's Art-Transit Int. Co. has paid Montreal artist Catherine Widgery 20 per cent of the usual price for her work. "If it is a $10,000 work, I get $2,000", she said.
Similarly, a copy of an Art-Transit artist's contract obtained by the Gazette shows that some artists are paid only 18 per cent of their usual rate.
"It seems like a win-win situation", said one Montreal artist who did not wish to be identified. "Museums are happy to get things free. Artists are happy because they have a bit of money in their pockets. So everybody is happy. What is not kosher is that a client is buying it (a work) at below its value, but getting the write off for a different amount".
Still the artist added "I find the whole thing a bit fishy, but everybody's doing it".
According to the documents obtained by the Gazette , Art-Transit's warehouse contained, as of January 26, a total of 7,241 works of art.
These include works by several artists.
The documents also show that some of the artists have enormous quantities of works with Art-Transit: Guiangoldo Fucito is listed as having 494; Francine Larivée has 440; and Claude Paul Gauthier has 485.
The point is that while some people say it is a win-win situation, it is good for the artists and it is good for the people getting the write offs. It is profoundly unfair to taxpayers who are granting these people a write off for the full appraised value of the art work. In this case it is art work that was bought for $2,000 but that according to the appraisal is worth $10,000 and therefore the write off is $10,000.
This thing is nothing but a huge rip off. We are talking about over 7,000 works of art in one company alone where this is being done. I have no idea what the value is but it has to be astronomical. This is not fair. This is a rip off.
Previous to 1977 when this legislation came into place people donated works of art, artefacts, sculptures, whatever, because they wanted to give them to museums. They did it for altruistic reasons. They are philanthropic. They did not care about the write off.
There were museums previous to 1977. There were art galleries. There was lots of art in them. According to this article, since before 1977 we have had this problem with these scams. It would be bad enough if that were all there was to it. This tax credit is far richer than one can get if one donates to a regular registered charity.
If one donates to the food bank all one can do is donate up to 20 per cent of total income which is the most one can get a deduction for. However, if an art dealer or someone savvy who knows the tax law can work this deal they can actually write off their entire tax for a year by donating these so-called works of art. To me that is unbelievable.
A gentleman from an art gallery came in front of the Canadian heritage committee in Hamilton. In his judgment most people would give out of the goodness of their heart but there are some people who are on to this. He said it was probably the wealthiest people who would make the biggest contributions to the art galleries and take advantage of this situation.
What we have is a tax avoidance scheme, in my judgment, that permits the wealthiest Canadians to get away with paying little or no tax. That is profoundly unfair.
In the last budget the government was talking at length about how we had to have tax fairness. My hon. friend across the way is nodding. This is not tax fairness. This is not in alignment with any kind of taxation system that treats people the same way. Absolutely not.
Why are we fooling around with legislation like this? We should be rolling this legislation back. We should be bringing in flat tax or a single tax or a proportional tax, a tax system that treats people equally. We certainly do not want one that treats people who donate art better than people who give to the food bank or to the Salvation Army or to the cancer society. That is ridiculous. How can we justify that? That is absolutely out of the realm of anything that makes sense.
I am sure people are wondering how much this costs Canadians every year. Last year there was something like $60 million in tax deductions handed out. Depending on people's tax situation, it could amount to as much as the full $60 million in actual loss to the Canadian treasury if people did not donate to anything else and it consumed absolutely all their income so they did not pay any income tax at all. That is not realistic, and I recognize that. However, suffice it to say that people did avoid paying millions and
millions of dollars in taxation because of this scheme. That is not fair and that is not right. We should have a transparent system.
Just before the last election there was a bit of a furore in the newspapers about former Prime Minister Mulroney donating his personal papers to the National Archives. Someone said they saw a figure of how much of a tax break he was to get. The gentleman subsequently said he had made an error and he did not know why he quoted that figure. That is not the point. The point is that we have no idea how much people get in terms of a tax break for the donations they make. These things are protected through the Income Tax Act. We have a situation where people are making donations and we have no idea how much they are being appraised for because that would violate their privacy. Is that the best system?
It was not very long ago that someone at the National Gallery of Canada decided it was a good idea to buy "The Voice of Fire". It was an American art piece. It was three stripes. It cost approximately $1.8 million. People went absolutely berserk, and rightfully so. In my judgment it was a complete waste of money.
If we visit the gallery and look at the comment book, people have said over and over again: "The emperor has no clothes". I think Canadians feel that way too. The point is that we know how much money we paid for that piece of art, but for these other things we do not know how much revenue we are forgoing when we purchase them. That is wrong. It should be out in the open. We should know how much we are paying, either through a tax credit or directly for items that are purchased on our behalf by our government. That is how an open democracy should work.
The legislation is completely contrary to that. That is why we should not be fooling around with the amendment to the legislation but should instead be repealing the whole bill. It is absolutely ridiculous.
I want to talk about some of the specifics of the legislation. The legislation offers an appeal process over and above the cultural export review board. If people do not feel they are getting a fair price from the review board for their donation they can ultimately appeal it to Revenue Canada. If memory serves, that was the situation prior to 1993 or 1991, I have forgotten which. At any rate we would be returning to that situation.
I question whether we should have the review board at all. It is another layer of bureaucracy. How are the people appointed to the review board? They are appointed the same way everyone else is appointed to government boards. They are appointed on the basis of who they know. They are appointed because of their connections. It is quite conceivable that a former prime minister, such as Brian Mulroney, could donate papers and have the decision made on the value of those papers by people he appointed to the board. It is ridiculous.
A few times the National Archives of Canada has gone to the board and the board has said this is the value of the former prime minister's papers. We never find out what it is, but those people who may indeed have been appointed by the prime minister are making those judgments.
This appeal process will allow us to go to Revenue Canada and ultimately I suppose to the tax courts. However, our sources tell us that we have approximately 6,000 cases before the tax court today, 6,000 backlogged cases. Why are we bringing more stuff to these people? Why are we bringing more decisions for them to make? I would think there are more important things for those people to be doing than arguing about the price of somebody's dinosaur fossil or their three stripes on a piece of paper, their so-called art.
I make another point about the legislation. I believe the legislation, which goes back to 1977, and the art bank, which falls under the purview of the Canada Council, have worked against artists. They have hurt artists by flooding the market with all kinds of art and alleged art that has no business being out there in the marketplace today. We have something like 18,000 pieces of art stored in warehouses today, stuff that is supposed to be in the art bank.
We have this legislation that encourages art galleries to go ahead and purchase these things because the money is not coming out of their budgets. All they are doing is going to the people at the export review board and saying: "We think this is pretty good. Put an evaluation on it. The guy is going to give it to us. Whether or not we hang it on the wall now or at any time in the future is really irrelevant, because it does not cost us a thing". They are not working with a budget. They can bring in as much of this stuff as they want. The only ones who pay are the taxpayers.
The people in this article say it is a great scheme and everybody wins. It is win for the art gallery and win for the artist, but it is big time lose for taxpayers who are out millions and millions and millions of dollars in revenue. There are no safeguards built in to ensure the galleries and the museums are using their power to do this responsibly. There is no check in place to make sure that happens.
This is horrible legislation. I would argue that before 1977 we had very good art galleries. We were able to hold on to our works of art. We were able to maintain different pieces of important cultural
property because people ultimately gave these things to our institutions over a period of many years. We know they did that.
Surely this new legislation encourages some people to use the system by taking advantage of the tax credits. Also, the legislation encourages us to keep not only Canadian art but American art and artefacts and foreign artefacts of all kinds as well. People are using this to say this is to keep Canadian culture in Canada. We should be accurate here and say that it is also used to buy all kinds of foreign art.
The fact is that people gave art before 1977 to these institutions. In trying to encourage people to give even more we have opened up a Pandora's box. We have allowed all kinds of people to milk the income tax system, to take advantage of it to the point where we now have the Montreal Gazette writing articles about it. We really have what amounts to a tax avoidance scheme going on, which obviously costs taxpayers millions and millions of dollars. That is ridiculous.
We have that problem. We have the problem that it is not transparent. We have people donating but we never know how much money they get in the form of tax deductions for their art. We have an export review board that could be appointed by people like the Prime Minister, who will end up passing judgment on things they want to give. We have a problem with the art market being flooded because of this type of incentive, this kind of screwy incentive we have here. We have all kinds of problems with this extra bureaucracy and extra cost to solve what was a very minor problem.
Instead of proposing an amendment that will send this to the tax courts where there is a backlog of 6,000 cases, why do we not just do away with the whole thing? Let us just do away with it. Then we can get rid of all these problems. We will not have the Montreal Gazette writing nasty stories about all the scams that are being worked to take advantage of the situation.
We will not have, on the one hand, people in our party and in the Liberal Party campaigning to simplify the tax system and, on the other hand, the government working against that concept by providing tax incentives for the wealthiest of Canadians to take advantage of this system and avoid paying tax. That is crazy. It is so unfair it is unbelievable. I cannot believe the government, the minister, the parliamentary secretary and members across the way are arguing for this type of legislation.
I hope people take the time to write some letters about this. I hope they take the time to contact their MPs and ask how this can be fair.
Let me conclude by saying that although this is a fairly innocuous piece of legislation, when people find out about it they will not be pleased. They will say that when the government spoke in the last budget about achieving tax fairness they believed the government. Now the government is turning around and proposing legislation that is exactly contrary to that. I hope the government will realize that and stop the bill before it goes any further.
