Mr. Speaker, I welcome the opportunity to introduce second reading of Bill C-13.
Bill C-13 reaffirms the government's commitment to making our tax system simpler and fairer, not only for individual Canadians but for Canadian businesses as well.
Before I begin setting out the measures in the bill, I would like to mention that the consultative process leading to its introduction is an excellent example of co-operation between the government and the business and tax communities to achieve the shared objective of improving our tax system.
On behalf of the government, allow me to take this opportunity to thank those interested parties that brought forward their views on the many issues addressed in the legislation.
Bill C-13 implements measures relating to the goods and services tax, the GST, and harmonized sales tax, HST, that were proposed in budget 2000, as well as additional sales tax measures proposed in a notice of ways and means motion tabled in parliament on October 4, 2000. These measures are aimed at improving the operation of the GST-HST in the affected areas and ensuring that the legislation accords with the policy intent.
The bill also implements two amendments to the excise tax provisions of the Excise Tax Act.
The first clarifies provisions relating to the deferral of excise taxes on automobile air conditioners installed in new automobiles and on heavy automobiles at the time of importation by or sale to a licensed manufacturer.
The second provides discretion for the Minister of National Revenue to waive or cancel interest, or a penalty calculated in the same manner as interest, under the excise tax system.
First, I will set out the proposals of the bill as contained in the 2000 budget.
The GST-HST is designed to ensure Canadian businesses and goods are competitive in the export markets. Some of the measures proposed in the 2000 budget and contained in C-13 are intended to achieve these objectives. These measures concern, more particularly, the following:
The GST-HST treatment of export distribution activities; the provision of warranty services by Canadian businesses to non-resident companies; the provision of storage and distribution services by Canadian service providers in relation to goods imported on behalf of non-residents; and finally, sales of railway rolling stock to non-residents.
Let me take a few moments to briefly summarize each of these measures.
Registrants engaged in export distribution activities involving the limited processing of goods for export face a cashflow cost that may be significant in relation to the level of value added to the goods. This can be the case where goods are imported for minor processing and subsequent export.
The cashflow issue arises because tax is paid on the importation of the goods but no offsetting tax is collected on their export. As a result, the business must finance the tax until the receipt of a refund from the Canada Customs and Revenue Agency.
The proposal for an export distribution centre program contained in the bill addresses the cashflow issue faced by low value added export oriented businesses by allowing them an export distribution centre certificate to purchase or import inventory, or to import customers' goods on a tax-free basis.
This measure will help ensure that the GST-HST does not present an impediment to the establishment of North American distribution centres in Canada.
I would note that a national consultative process took place on this issue that involved many interested parties from all regions of the country, including constituents in my area near Pearson airport. We think the prospects for this are very exciting.
With respect to Canadian businesses supplying warranty repair or replacement services, Bill C-13 contains a measure that would help protect the competitive position of these Canadian businesses relative to their foreign, particularly U.S., counterparts.
At the moment, import duty relief is accorded in the case of goods imported into Canada for repairs under guarantee, provided the goods are exported once the work is done. However, when the good imported is replaced rather than repaired, the import duty relief does not apply.
The bill proposes to extend the relieving rules to cover situations where a replacement good is provided under warranty and is exported in place of the original imported defective good, for example, where the original good is destroyed.
This proposal would ensure that the GST-HST does not make Canadian suppliers of warranty repair or replacement services less competitive relative to foreign suppliers when these services are provided to non-residents.
Bill C-13 also expands on a program known as the exporters of processing services program. This program allows the tax-free importation of goods by a Canadian processor for the purpose of processing the goods in Canada and subsequent export.
The program ensures that the GST-HST does not impose prohibitive cashflow costs on Canadian service providers by their having to pay tax on their customers' goods at the time of importation.
However, the program does not apply where a Canadian processor only provides storage or distribution services.
The bill proposes to expand the program to allow access to businesses that provide only storage or distribution services for non-residents.
Another proposal relating to cross border transactions contained in the bill concerns sales of goods delivered in Canada to non-residents who intend to export the goods.
Special rules under the GST-HST system allow an unregistered non-resident person to acquire goods, and most services in respect of goods, in Canada without paying GST-HST, where the goods are bound for export and remain in the possession of registered Canadian service providers before being exported.
Bill C-13 proposes amendments in order to ensure that this objective is met.
Specifically, an amendment is proposed relating to the sale of railway rolling stock to non-resident businesses. The current rules do not permit the sale of the rolling stock to be tax free if there is to be any use in Canada of the rolling stock prior to its export. This restriction does not reflect current industry practice because rolling stock is rarely shipped empty to its U.S. destinations.
The bill proposes an amendment so that the use of railway rolling stock to move goods outside the country in the context of the exported rolling stock does not of itself result in the stock not being exempt.
Consultations on the proposed amendments I have just mentioned were conducted with a number of businesses operating in the transportation of goods from and to Canada.
The fruit of these discussions is in the proposals contained in the bill which will improve the operation of the tax system in these important export sectors.
I would like to turn to an important sales tax initiative that budget 2000 proposed for the rental housing sector which is likewise contained in Bill C-13. The bill contains a measure of significant benefit to builders and purchasers of new residential rental accommodation.
Under the existing sales tax system, tax applies to new residential rental property when the property is acquired by a landlord from a builder or on a self assessed basis when the builder is the landlord. For purchaser landlords, the tax becomes payable upon purchase of the residential complex. For builder landlords, the tax becomes payable as soon as the first unit in the residential complex is rented. As a result, both purchaser landlords and builder landlords finance the tax liability up front and recover the tax over time.
The bill implements the new residential rental property rebate which is a partial rebate of the GST paid in respect of newly constructed substantially renovated or converted long term residential rental accommodation. The rebate is payable to the builder landlord or purchaser landlord who paid the tax. This will help increase the stock of rental accommodation in Canada.
In fact, the new rebate will reduce by 2.5 percentage points the effective rate of tax on new residential rental property, which is the same as the federal tax reduction that applies to new owner occupied homes under the existing new home rebate program.
I mentioned earlier that in addition to the measures proposed in the 2000 budget, Bill C-13 contains other sales tax measures designed to improve the operation of the GST-HST. Three of these measures are also in the area of real property.
First, the bill proposes a refinement to the existing new housing rebate program which reduces the cost to consumers of building or purchasing a mew home. Refinements are proposed to allow new homes to qualify where they are used primarily as a place of residence, as well as to provide short term accommodation to the public in certain circumstances as the case is with many bed and breakfast establishments.
Second, Bill C-13 would address a problem that arises when a consumer who has purchased real property from a vendor and has paid GST or HST subsequently returns the property to the original vendor without having used it. Currently there is no mechanism by which the consumer can recover the tax paid on the initial purchase.
The proposed amendment contained in the bill would allow a consumer in this circumstance to recover the tax paid on the purchase of the property if it is returned to the original vendor within one year and pursuant to the original contract. This would place a consumer returning real property in a similar position to a person who returns new goods to a vendor and receives a credit or refund for the GST or HST that was originally paid on the goods.
The third real property measure contained in the bill relates to the sale of land by individuals. Hon. members may know that sales of real property by individuals or personal trusts are generally exempt from the GST-HST, provided the individual or trust has not used the property in a taxable business. The bill proposes to ensure that a sale of real property cannot be treated as exempt from sales tax if the seller was previously leasing it to other persons on a taxable basis.
All of these amendments relating to real property transactions reflect the government's commitment to ensure that our tax system is fair and efficient.
As members will recall, last year's budget contained proposals that reflect the government's commitment to continue to work toward improving the quality of life for all Canadians. Quality of life has many dimensions, including access to quality health care and education. Bill C-13 builds on the spirit of that commitment.
In the area of health care, the bill proposes an amendment to continue in force an existing GST-HST exemption for speech therapy services that are billed by individual practitioners and that are not covered by the applicable provincial health care plan.
With respect to education, Bill C-13 contains a measure that will extend the sales tax exemption for vocational training to more situations, including cases where the training is supplied by a government department or agency rather than a vocational school. Specially, the amendment will do away with existing conditions on the exemption that required that the training or the resulting certifications be subject to certain government regulation or that the school be run on a non-profit basis.
The proposed change will ensure that vocational training provided in different provinces receives the same GST-HST treatment regardless of the regulatory regime that exists in each province with respect to vocational schools.
A further amendment would add the flexibility for providers of vocational training to elect to treat their services as taxable where their clients are commercial businesses that would prefer to pay the tax and recover it by way of input tax credits.
As for charities, our government is also taking into account the major role played by these agencies, which Canadians by enriching the lives of our communities.
This bill proposes amendments so that the GST-HST legislation accurately reflects the government's intention to generally exempt charities from having to pay tax on rent and related goods.
As I stated at the outset, Bill C-13 also contains amendments relating to the non-GST-HST parts of the Excise Tax Act which deal with excise taxes on specific products. Among those specific taxes are excise taxes on automobile air conditioners and on heavy automobiles which have been imposed since the mid-1970s.
Since 1984, these taxes have been payable by the manufacturer at the time of delivery to an automobile dealer. Payment of the tax is effectively deferred at the time of importation and on immediate transactions between licensees until the sale to an automobile dealer in Canada.
Several manufacturers have recently challenged the longstanding interpretation and application of these provisions with respect to automobile air conditioners installed in imported new motor vehicles and are seeking substantial refunds of tax. They argue that the relief provided on importations by licensed manufacturers does not simply defer payment of the tax but permanently exempts these goods from tax.
This is clearly contrary to the well understood policy intent and longstanding interpretation and administration of these legislative provisions. Bill C-13 therefore proposes clarifying amendments to ensure that there could be no misinterpretation of these provisions with respect to importations as well as intermediate transactions.
The retroactive application of these amendments is consistent with the criteria that were laid out by the government in 1995 in the response to the seventh report of the Standing Committee on Public Accounts. For nearly 20 years these provisions have been interpreted and administered by both Revenue Canada, now the CCRA, and manufacturers and importers in a manner consistent with the underlying policy intent. The tax charged on automobile air conditioners has routinely been included in the price charged to consumers.
Finally, the amount of government revenue at risk is substantial.
Practical measures must therefore be taken so that there can be no doubt as to the application of these provisions to both future and past operations.
Bill C-13 contains one other amendment relating to the excise tax system. The bill provides authority for the Minister of National Revenue to waive interest otherwise payable under the non-GST-HST parts of the Excise Tax Act. This amendment will achieve greater harmonization of the administrative rules under the excise tax system with those under the income tax and sales tax systems which already provide for this waiver.
The amendment will further help ensure fair administration of the excise tax system.
Consistent with the manner in which this discretionary power has been used under the income tax and sales tax system, the Minister of National Revenue would have the ability to waive interest in circumstances such as where, despite a taxpayer's very best efforts and as a result of extraordinary circumstances beyond their control, the taxpayer has been prevented from meeting certain deadlines and thus has incurred the interest.
Bill C-13 contains another improvement regarding the application of the tax system. Hon. members may remember that the Prime Minister recently announced a federal on-line initiative, which is a key component of the government strategy called Connecting Canadians, which is designed to make Canada the most connected nation in the world.
This initiative provides Canadians with another way to access the information and services they receive in person and by telephone. Members may know that businesses can now file GST-HST returns and remittance information electronically. However, under the existing legislation a person who wishes to do so is required to apply to the Minister of National Revenue for authorization. This procedure is cumbersome and more onerous than the procedure for filing income tax returns electronically.
Bill C-13 proposes amendments to streamline the administrative procedures and harmonize them with those under the Income Tax Act, thereby facilitating the electronic filing of GST-HST returns.
In closing, the measures contained in Bill C-13 that I have outlined here today propose to refine, streamline and clarify the application of the tax system.
They also reflect the commitment made by our government to ensure that our tax system is fair.
I therefore urge hon. members to support the bill. I know it is complex and technical but I would hope the members here would support it.
