Mr. Speaker, I will continue with my debate. The latter type of criticism is seen to involve allegedly inappropriate second guessing of decisions reached by bureaucrats carrying out their assigned functions in good faith.
I believe this distinction between these two types of criticism made by the auditor general is inappropriate. Waste and inefficiency occur both because the government sets the wrong policies and because bureaucrats err in the interpretation of what might be ambiguous directions flowing from the laws that guide their actions.
For example, consider that the auditor general discovers that government policies have seriously damaged coastal fishing in Canada. In my view, it does not matter whether this damage has occurred as a result of a faulty regulation passed by Parliament or whether it is due to the judgment of bureaucrats in the field who have erred in the interpretation of empirical evidence.
Let me now turn to my personal interpretation of the validity of the points raised by the auditor general. He noted that the intent of the Canadian law on the taxation of all capital gains may not have been carried out as a result of faulty decisions made by bureaucrats in the Department of Finance.
I listened with great interest to the presentation of a number of complex issues by representatives of the finance department as well as a group of distinguished lawyers specializing in foreign taxation. In brief, here is what I have learned.
Whenever Canadians decide to move abroad permanently they have to pay taxes on accrued capital gains. This can be done easily and fairly for capital gains associated with stocks, bonds and other assets for which objectively determined prices exist. However, some assets, in particular real estate and privately held companies, can be evaluated reliably only when they are traded. In addition, the market for such assets may be depressed, and forcing a sale would not be in the interests of either the emigrant or the Canadian taxpayer.
It therefore seems to be fair and reasonable that the Parliament of Canada has permitted emigrants to declare such assets to be treated as so-called taxable Canadian property, which means that capital gains are taxable in Canada only when such property is sold. However, there is a complication. If the sale takes place 10 or more years after emigration, according to bilateral international agreements the sale of the property results in capital gains taxes payable to the country of the emigrant's new residence. Since Canada is a country of large net immigration, this provision appears to work in our country's favour though, to the best of my knowledge, this has not been verified empirically.
Family trusts in law are treated much like people. When the trust is shifted abroad, readily valued capital gains are taxed immediately and others are registered as taxable Canadian property. The trust at the heart of the controversy owns very large claims on privately held business in Canada which therefore escape the payment of capital gains taxes upon moving abroad.
The auditor general argued that the transactions surrounding the movement abroad of this trust violates the spirit of the law that capital gains taxes have to be paid on all accrued capital gains. However, this argument involves a narrow interpretation of domestic law and neglects the existence of international taxation agreements which always take precedence over domestic law.
I think Revenue Canada treated the trust in question appropriately. If it had acted differently, it would have violated the right of equal treatment under the law for all.
The Finance committee hearings brought up some other issues like the use and timing of some advance rulings and the shift of assets from publicly traded firms to privately held companies. I did get the impression that some of these actions were motivated by the desire to minimize tax applications of the trust upon emigration. This is disturbing in a sense. But given the complexity of taxation laws, I cannot blame owners of large assets for hiring the best lawyers available to help them minimize their tax liabilities.
I heard no evidence that the letter of the Canadian law had been broken by these transactions. The entire episode reinforced my conviction that Canada needs a simplified, flatter system of taxation.
Let me now turn to what I found wrong with the administration of the law pertaining to taxable Canadian property. Officials have acknowledged that they have less than complete information about the disposal of such property after the emigrants move abroad and that therefore some capital escapes untaxed.
To deal with this problem the committee report recommended that the immigrants be required to register their Canadian taxable property and to pay a security which would be applied to tax application whenever the property was sold.
I agree with the registration requirement recommended and frankly I am surprised that it did not exist in the past. If the imposition of this regulation is the only result of the inquiry, the auditor general can be proud.
However, to keep costs down and laws fair, I recommend that the government does not impose the requirement for security on emigrants. I suggest that instead the government use existing information and resources by putting a conditional lien on real estate held as taxable Canadian property.
Revenue Canada's operational division can be required to report when relevant assets change ownership in the case of privately held companies. These provisions would be very cheap since they involve existing knowledge and institutions. This recommendation is at the core of the Reform Party's minority report.
Let me note in closing that during the finance committee hearings I repeatedly listened to some people advancing propositions about deliberate tax evasion, collusion of the Revenue Canada officials and their political bosses with wealthy Canadians to avoid taxes, and biases in the technical testimony given by tax lawyers. In spite of serious efforts on my part, in no case could I discover any evidence of wrongdoing.
I may have a mental block on this issue or my intellectual capacity is inadequate to capture the intricacies of taxation laws and alleged conspiracies. I have similar problems with conspiracy theories about the assassination of President Kennedy, the current fiscal crisis of government and the death of Elvis Presley. Rationally I cannot rule out that these conspiracies exist, but I have accepted that I may have to die without ever knowing for sure whether or not they are true.
