Roy Cullen

[Budget Implementation Act, 2000, April 12th, 2000]

What about tax points?

[Budget Implementation Act, 2000, April 12th, 2000]

Mr. Speaker, I appreciate the opportunity to speak today at second reading of Bill C-32, the budget 2000 implementation omnibus bill.

Budget 2000 is an historic budget. As the Minister of Finance stated in his budget speech, not only is the deficit a matter of history, but the government is now projecting its third, fourth and fifth balanced budgets in a row, something that has not been done in nearly half a century.

However, there are other tangible reasons why budget 2000 represents a dramatic advance for Canada and Canadians. Budget 2000 addresses the fundamental challenges we face as a nation, challenges we identified in last October's fall update.

First, as the minister said, the government will continue to provide sound fiscal management. He said that the days of deficits are gone and they are not coming back.

Second, the government will lower taxes to promote economic growth and to leave more money in the pockets of Canadians.

Third, in order to ensure equality of opportunity, the government will make investments to provide Canadians with the skills and knowledge they need to get the jobs they want.

Fourth, the minister said that together we will build an economy based on innovation.

All Canadians can be proud of the government's record. However, as the minister also stated, it is not a record on which we are prepared to rest. Canadians do not want to dwell on the past; they want to focus on the future. Indeed, that is the message of this budget.

Again, to paraphrase the minister, the government's challenge now is to build on this newfound strength. The government is sticking to its plan of sound fiscal management, lower taxes and investing in skills, knowledge and innovation. Through this plan, the quality of life for Canadians and their children will be enhanced.

Quality of life runs the gamut, from access to quality health care and post-secondary education, to healthy children, secure families and vibrant communities. It also includes sharing the benefits of economic prosperity with those who need support the most. That is what we are doing through this budget omnibus bill, implementing the budget's proposals to strengthen post-secondary education and health care, and to help children get the best possible start in life.

The bill we are debating today contains 10 measures that were announced in the 2000 budget. Three of these measures are of particular importance to the nation's well-being, starting with our health care and education systems, continuing through better assistance to families with children, and finally, financial assistance to students. To provide these benefits on time, these measures must be passed before the House adjourns this summer.

First, this bill amends the Federal-Provincial Fiscal Arrangements Act to authorize payment of the $2.5 billion increase to the Canada health and social transfer for health care and post-secondary education to a trust in support of health and post-secondary education.

Second, the Income Tax Act is amended to increase child tax benefits and to provide indexed GST benefits as of July 2000.

Third, the bill amends the Canada Student Assistance Act to ensure uninterrupted delivery of student loans after the current agreement with financial institutions expires on July 31, 2000.

Again let me emphasize the timing for the passage of these three measures is crucial. If we delay, it is Canadians who will suffer.

The remaining seven components of the bill may not face the same deadline. They are, however, just as important for millions of Canadians and for the effective and efficient operation of government.

These measures would amend the Employment Insurance Act and the Canada Labour Code to double maternity and parental leave to one year. They would increase the foreign property content limit in RRSPs and other deferred income plans. They would amend the Canada pension plan to allow provinces to redeem securities given to the CPP investment fund. They would amend the Special Import Measures Act to bring Canadian countervailing duty laws into line with recent changes to the World Trade Organization agreement on subsidies and countervailing measures. They would enable certain first nations to levy a 7% tax on sales of fuel, alcohol and tobacco products on reserve. They would amend the Excise Tax Act to preserve the GST-HST base and avoid tax evasion.

I would now like to discuss each of these 10 measures in some detail. I will begin with the $2.5 billion increase to the CHST.

The minister summed up the reasons for this measure in his budget speech when he said:

The success that we have achieved as a nation has come not only from strong growth but from an abiding commitment to strong values: caring, compassion and insistence that there be an equitable sharing of the benefits of economic growth.

For this reason the first announcement in the first budget of the 21st century was that we would increase funding for post-secondary education and health care. These are the highest priorities of Canadians and they are ours.

Bill C-32 legislates a $2.5 billion increase in the Canada health and social transfer. These funds will be distributed to provinces and territories on a per capita basis and paid into a trust from which they can draw down over four years, beginning as soon as the bill is passed.

As hon. members know, the federal government transfers approximately $40 billion a year to the provinces and territories through three major programs to help them provide vital services to Canadians. The first program is the CHST which supports health care, post-secondary education, social assistance and social services in the form of cash and tax transfers. It is also the largest federal transfer. The second is equalization which enables less prosperous provinces to offer comparable public services to those in other areas of the country. The final one is the territorial formula financing for public services in the north.

The federal government has already acted three times before now in the 1996, 1998 and 1999 budgets to strengthen the CHST. Combined with the value of tax transfers, total CHST in 1999-2000 was $29.4 billion higher than in 1993-94. With this new supplement it will be close to $31 billion for 2000-01. That also incorporates the $11.5 billion added to the CHST in the 1999 budget.

This additional support will provide an additional $1 billion in fiscal year 2000-01 and $500 million a year in each of the following three years for post-secondary education and health care.

As I said, combined with the 1999 budget $11.5 billion investment this means that the cash component of the CHST will reach $15.5 billion in each of the next four years, an increase of almost 25% from the 1998-99 level. If Canadians compare that with the rhetoric of the opposition parties, they will understand the government's huge commitment and priority attached to health care and education.

As I indicated, this supplement will be paid into a third party trust and the provinces and the territories will have the flexibility to draw on it as they see fit.

The bill should be passed quickly in order to get much needed money into the health care system to deal with the pressing needs of Canadians. Some Canadians might wonder, if there is money on deposit sitting there that is not being implemented by the health care system in certain provinces, why the government would do that.

We are responding to the very urgent needs of Canadians in the health care system. Whether that is in emergency rooms, waiting lists for surgery or whatever the case may be, the provinces have the flexibility to draw on it as they need it.

Another key measure in this bill concerns child tax benefits. As the minister emphasized in the budget, “assisting families is not only the smart thing to do, it is the right thing to do”.

Let there be no doubt, he went on to say, that one of the best things we can do is to leave parents with more money at the end of each month to invest in their children's well-being.

Budget 2000 does exactly that. To fully protect taxpayers against inflation the budget restores full indexation of the personal income tax system effective January 1, 2000.

This is the most important change to the Canadian tax system in more than a decade. Indexation has applied to personal income taxation for inflation but only when it reached over 3%. It has been that way since 1986. Indexation will particularly benefit middle and low income Canadians because of bracket creep and the fact that these taxpayers generally receive the benefits under the child tax credit and the GST credit.

As hon. members are aware, the Canada child tax benefit is a key element of federal assistance to families. It has two components: the Canada child tax base benefit for low and middle income families and the national child benefit supplement for low income families.

To further help families with the added expense of raising children, the bill also increases Canada child tax benefits by $2.5 billion annually by the year 2004. The government's goal is to increase the maximum Canada child tax benefit for the first child to $2,400 by then through fully indexing the Canada child tax benefit, increasing both the base benefit and the national child benefit supplement beyond indexation, increasing the income thresholds at which the base benefit begins to be reduced and the national child benefit supplement is fully phased out, and lowering the reduction rate for the base benefit.

These changes will bring the maximum Canada child tax benefit for the first child to $2,056 in July 2000 and to $2,265 in July 2001, well on the way to the five year goal of $2,400 which I just mentioned.

For the second child the goal is to raise the maximum Canada child tax benefit to $2,200 in 2004.

This means that benefits to middle income families will be substantially increased. For example, a family with two children with an income of $60,000 will see its Canada child tax benefit more than doubled from its pre-2000 budget level of $733 to $1,541 by 2004.

Overall these increases by the end of five years will bring the Canada child tax benefit to more than $9 billion annually, of which $6 billion will go to low income families and $3 billion to modest and middle income families.

The fact that low and middle income Canadian families are depending on the Canada child tax benefit increases and indexed GST benefits this coming July is another reason to pass the legislation without delay.

The federal government is taking the necessary steps to ensure that students who need student loans when they go back to school in September will receive them in time. This bill ensures that money will be available to students in need.

By way of background, the Canada Student Loans Program has played an important role in expanding access to post-secondary education since 1964.

Through loans and other financial assistance totalling over $15 billion, approximately 2.7 million students have been helped since then. Annually, the program helps over 350,000 needy Canadian students access post-secondary education.

Until now Canada student loans have been administered and delivered on behalf of the federal government by financial institutions, an arrangement that will expire on January 31, 2000. Bill C-32 ensures that the Canada student loans program will continue to serve students after July 31 of this year. Money will be available for student borrowers and there will be no interruption in service.

The role of the Government of Canada is to provide the finances necessary to support the Canada student loans program. Loans will be administered by service providers on behalf of the federal government. Service providers, which many financial institutions currently use to administer their own loan portfolios, are private companies that have the capacity to administer loan portfolios including student loans.

Service providers would sign an agreement with the government to establish loan accounts, maintain contact with the borrowers and administer the loan once the borrower begins repayment. I want to assure students that there will be no significant changes to the program. Students who have already consolidated their loans and are repaying them will not be affected at all.

Before hon. members ask about students who have difficulty meeting their repayments, may I remind them that the federal and provincial governments have greatly increased the assistance available to borrowers having difficulties repaying their loans. One thing is for certain. This new program will be in place for those students who need financial assistance next fall. I am sure hon. colleagues will support this measure.

The 2000 budget also does a lot for parents of newborn and newly adopted children. It extends parental leave under the employment insurance program and makes benefits more flexible and accessible. At present, including the standard two week waiting period for benefits, the EI program provides up to six months of maternity and parental leave benefits for new parents. That is 15 weeks of maternity benefits for recovery from child birth and 10 weeks of parental leave available for both adoptive and biological parents.

The maximum amount of child related leave will now be doubled to one year. This will be done by increasing parental leave to 35 weeks, which can be claimed by either parent or divided between them. Combined with 15 weeks of maternity leave and the standard two week waiting period, the amount of child related leave will be one full year.

In addition, maternity and parental benefits will be made more accessible by lowering from 700 to 600 the number of insurable hours that must be worked to be eligible. Parents will be eligible for benefits with as little as 12 hours of work a week over the course of a year.

In addition, parents will have greater flexibility in choosing whether one or both of them spend time at home with a new child. Only one waiting period will apply rather than two as is currently the case.

Finally, parents will be allowed to work part time while receiving parental benefits in the same way as regular EI claimants. This will help mothers, if they and their employers choose, to gradually return to the workplace following their maternity leave, and also enable parents to maintain their skills and work contacts while taking parental leave.

Further, income earned while receiving parental benefits will be treated the same as for regular EI benefits. Parents can earn up to 25% of their weekly benefit or $50, whichever is higher, without affecting their EI benefits.

All of these parental leave benefits changes will positively impact some 150,000 families each year at an estimated annual cost of $900 million.

In addition, the Canada Labour Code is being amended so that employees in federally regulated workplaces will have their jobs protected during the extended parental leave period.

I would like to move along now and discuss some of the other measures in the bill.

For example, there is one measure that affects registered retirement savings plans, RRSPs, and registered pension plans, RPPs, which are the primary source of retirement income for middle income Canadians. Several entities, including the House of Commons finance committee, the Senate banking committee and the Investment Funds Institute of Canada, have asked the government to reconsider the current level for the limit on foreign property investments in registered pension plans and RRSPs. As a result, to provide better opportunities for Canadians to diversify their personal retirement savings investments through RPPs and RRSPs, the foreign content limit on those investments will be raised from 20% to 25% for 2000 and to 30% for 2001. These increases will also apply to the Canada Pension Plan Investment Board.

Speaking of the CPP, there is an amendment in the bill that directly affects the plan. Let me explain the background to this change.

Following extensive public consultations, federal and provincial governments agreed in 1997 on major changes to the Canada pension plan which were enacted by parliament in 1997 and brought into effect in 1998. The changes are expected to sustain the Canada pension plan throughout the aging of the population and the retirement of the baby boom generation.

Contribution rates are increasing in a phased manner. This will create a sound, adequately funded plan whose earnings can help pay for future benefits. The Canada pension plan provides a basic level of earnings replacement on which tax assisted private pension plans and RRSPs can build.

One of the important changes in 1997 supported by all Canadians, perhaps with the exception of the Canadian Alliance party, was to enhance the returns to plan members by investing in the market funds not needed immediately to pay for benefits. A fully independent investment board operating at arm's length from government manages these market investments in the best interests of CPP plan members.

The CPP legislation allows all provinces to borrow from the CPP for terms of up to 20 years. The proposed amendment before the House is to allow the provinces to prepay their obligations to the Canada pension plan in advance of maturity and at no cost to the Canada pension plan.

The provinces asked for this change and federal and provincial finance ministers agreed to it at their meeting last December. This will provide more flexibility for provinces that are enjoying fiscal surpluses as the economy booms and they are looking for ways to reduce their debts. It also means that more funds will be transferred to the CPP investment board and invested in the market at higher expected returns.

Turning now to the Special Import Measures Act, SIMA, these amendments will bring Canadian countervailing duty laws into line with recent changes to the World Trade Organization agreement on subsidies and countervailing measures. The WTO subsidies agreement contains provisions that rendered certain foreign subsidies that satisfied very specific criteria immune from countervailing duty action. These non-actionable subsidy provisions lapsed on December 31, 1999 as a result of the failure of WTO countries to agree to their extension.

The amendments in Bill C-32 allow for the suspension of provisions in SIMA that implement these non-actionable subsidy provisions into Canadian law. In addition to bringing Canadian countervailing duty law into line with these recent changes to the WTO subsidies agreement, these amendments will ensure that we are not treating our trading partners more favourably than they are treating us in countervailing duty investigations.

Bill C-32 also addresses first nations taxation. This year's budget marked the fourth time that government has indicated its willingness to enter into taxation arrangements with interested first nations. As a result, the Cowichan tribes, the Westbank first nation, the Kamloops Indian band and Sliammon first nation all levy a tax on the sales of certain products on their reserves. Personal income tax collection and sharing agreements with the seven self-governing Yukon first nations are also now in effect.

This legislation will enable 13 first nations, all listed in the schedule that accompanies this bill, to levy a direct 7% GST-style sales tax on fuel, alcohol and tobacco products sold on their reserves.

The Canada Customs and Revenue Agency will collect the first nation sales taxes and the federal government will vacate the GST room where the first nation tax applies.

In the future, interested first nations could be added to the schedule through an order in council without the need for a legislative amendment.

The Excise Tax Act is also amended in the bill. Among GST and harmonized sales tax registrants there is generally a high degree of voluntary compliance when it comes to reporting or remitting tax. However, instances can arise where allowing a registrant the usual remittance period can put these tax revenues at risk.

Where the Canada Customs and Revenue Agency has reason to suspect tax evasion in these circumstances, it has been powerless to proceed with assessment and collection action. The bill provides the Minister of National Revenue with the authority to take immediate collection action to protect revenues in these circumstances. The minister can now apply ex parte without notice for judicial authorization to assess the registrant before the normal due date and to take the necessary collection actions to recover the money. The registrant will have the right to apply for a judicial review of the court's decision.

I would like to point out that the Income Tax Act contains a similar provision relating to the collection of income tax.

In conclusion, I am confident that hon. members can be counted on to pass this legislation with haste. Canadians across the country are awaiting the benefits. We all know why this bill has to be passed quickly.

First, the CHST increase must be enacted to get much needed money into the health care system to deal with the pressing needs of Canadians.

Second, in order for the child tax benefits and indexed GST benefits to come into force on July 1, this legislation has to be passed before the end of June.

And third, the bill must be passed in time for the student loan program to be available for students entering school in September.

I believe that one telling fact about the 2000 budget was the respect it was accorded from hon. members opposite and from Canadians in general. In fact, question period in this Chamber the day following the Minister of Finance's speech was revealing by how few questions were asked about the budget. Hon. members opposite along with Canadians across the country knew that the 2000 budget delivered what the Minister of Finance promised: help for low and modest income families with children, help for the health care and post-secondary education systems, and help for students who want to pursue higher education.

All are measures that build on the new-found strength the minister talked about in the budget and which are designed to improve the quality of life of Canadians.

This is a new budget signalling a new beginning for a new century. Canada greeted the 21st century with a new fiscal record and a renewed hope for improving the quality of life for Canadians.

This is a government that cares and this is a government that has a social conscience. The 2000 budget measures in this bill reflect this. I urge my hon. colleagues to accord speedy passage to this legislation.

[Income Tax Amendments Act, 1999, April 6th, 2000]

Mr. Speaker, I rise to speak to second reading of Bill C-25, the Income Tax Amendments Act, 1999.

Even though the 2000 budget was brought down in February, hon. members can appreciate that the legislation before us today stems from the 1999 budget. These are the measures that should be the primary focus of this debate.

Bill C-25 seeks to implement a large number of initiatives designed to ensure tax fairness, including personal income tax measures, announced in the February 1999 budget, and certain other measures dealing with the demutualization of insurance corporations, the fiscal situation of the trust established by the federal and provincial governments to provide compensation to hepatitis C victims, and the taxation of first nations.

Before I discuss the specifics of the bill, however, I will take a moment to put the legislation in context. The fundamentals of our government's tax policy are crystal clear.

First, our approach to tax relief must be fair, which means starting with those who need it most, low and middle income Canadians, especially families with children. Second, we must place priority on personal income taxes where the burden is greatest and where we are most out of line with other countries. Third, we have to ensure that Canada has an internationally competitive business tax system. Fourth, because of our debt burden, tax relief must not be financed with borrowed money.

The government remains committed to providing substantial tax relief to Canadians on an ongoing basis. Last fall Canadians were promised in both the Speech from the Throne and the Minister of Finance's economic and fiscal update that the government would set out a multi-year plan for further tax reductions.

Budget 2000 delivered on that commitment through a five year tax reduction plan which indexes the tax system against inflation, reduces the middle tax rate and overall cuts taxes by at least $58 billion by the year 2004, an average annual tax cut of 15% with even greater relief for families with children. It is a plan that will provide further real and lasting tax relief for all Canadians, but it is also a plan whose foundations were laid in previous budgets, including the one of 1999.

Getting back to that budget and the legislation at hand, hon. members know that tax revenues finance important government programs that Canadians need and value such as health care and education. Therefore, there must be a balance between keeping taxes low and providing a source of revenue for vital social and economic programs.

If they are to become permanent, tax relief measures must be affordable and they must not jeopardize the soundness of Canada's finances.

For the first time since 1965, the 1999 budget provided an opportunity to offer tax relief to all taxpayers, without the government having to borrow money. Low and middle income Canadians are the ones who will benefit most from these measures.

Each of our budgets to date has provided targeted tax relief to achieve social and economic goals. Areas of support include students, charities, persons with disabilities and the children of parents with low incomes, groups where it would be most beneficial.

Eliminating the deficit in 1997-98 opened the door for the government to begin broad based tax relief measures. The 1999 budget builds on these measures as part of our long term strategy to permanently reduce taxes.

Together the 1997, 1998 and 1999 budgets reduced the income tax burden of Canadians by some 10%. This is a significant step, but we have moved further. Combined with the actions in the 2000 budget, annual personal income tax reductions will total 22% on average by the year 2004-05.

The measures in Bill C-25 go a long way toward helping the government reach this target. This is the context within which today's debate on Bill C-25 is taking place. These measures are all part of the government's commitment to tax fairness and our long term tax reduction strategy.

Initially, three comprehensive tax relief measures were announced in the 1999 budget, and these measures are all included in the bill before us. Provided this legislation is promulgated, each of these measures will be effective July 1, 1999.

First, the amount of tax exempt income that Canadians may earn has been increased. Budget 2000 raises this amount further, but that will be discussed in another debate.

Under the present income tax system basic personal, spousal and equivalent to spouse credits ensure that individuals and families receive a basic amount of income tax free. The 1998 budget raised the amount of money low income Canadians could receive on a tax free basis by $500. The 1999 budget extends this relief to all taxpayers and increases that amount by a further $175.

As a result of these two measures all taxpayers will benefit from a basic personal credit sufficient to allow the receipt of up to $7,131 of tax free income. That is an increase of $675 over what was available in 1997, and in budget 2000 we increased that even further.

The amount upon which the spousal credit is calculated will also be increased by $675 to $6,055. The threshold where the spousal credit begins to be reduced will increase from $538 to $606. In addition, the bill eliminates the general 3% surtax for all taxpayers.

With the books balanced, the 1998 budget was able to eliminate this surtax for taxpayers earning under $50,000 and reduce it for those with incomes between $50,000 and $65,000. Now it is abolished completely. Together the 1998 and 1999 budget measures removed 600,000 Canadians from the tax rolls and reduced taxes for all 15.7 million Canadian taxpayers.

While all taxpayers will benefit from these measures, low income earners will have the most to gain. For example, under the 1999 budget measures a single filer earning $15,000 will pay 15% less federal tax while a similar individual earning $30,000 will pay 6% less tax.

I have more examples. A typical one earner family of four that receives an annual income of $30,000 or less will pay no net federal income tax. A similar family earning $40,000 will enjoy a 15% federal income tax reduction.

I will now deal with some of the other tax equity budget measures contained in the bill before us, beginning with income splitting among children who are minors.

As members know, the progressive structure of the rates is one of the basic principles of our personal income tax system. It goes without saying that high income individuals are in a better position to absorb a higher tax rate than lower income earners are.

Income splitting occurs when high income individuals arrange to divert income to low income earners, generally family members, to avoid tax.

The tax benefits of income splitting can usually only be accomplished by high income individuals with dependants. Even then, these arrangements are only effective for certain types of income.

As hon. members will appreciate, a tax system that enables some to income split through corporate structuring while denying it to others is not sustainable both in pragmatic terms and from a tax fairness perspective. Fair taxation based upon a taxpayer's ability to pay, which is reflected through the progressive rate structure and uniformly applied, is the only sustainable approach.

To improve the fairness and integrity of our tax system the bill introduces a special tax aimed specifically at structures designed to split income with minors. Applied at the top marginal rate on the income of individuals aged 17 or under at the end of a taxation year, the types of income to which this special tax would apply include taxable dividends and other shareholder benefits on unlisted shares of Canadian and foreign companies received from a trust or partnership, and income from a partnership or trust where the income is derived from a business carried on by a relative of the child.

Another measure in the bill deals with retroactive lump sum payments on which individuals are taxed in the year payment is received, even though a significant portion may relate to prior years.

Because of the progressive rate structure of the income tax system, the tax payable on these payments can be appreciably higher than it would have been if payments had been staggered and taxed upon receipt.

Those who receive eligible retroactive lump sum payments of $3,000 or more will be able to calculate the tax under a special relief mechanism.

Income eligible under this mechanism will include certain office or employment income, superannuation or pension benefits, spousal or taxable child support arrears and EI benefits.

Another measure in Bill C-25 affects Hutterite colonies which for income tax purposes qualify as communal organizations. These organizations own property on a collective basis and typically carry on farming and related businesses. They are subject to section 143 of the Income Tax Act, which is meant to subject their income to a level of taxation that is roughly comparable to the level of taxation on farming income earned outside these organizations. This is achieved by allowing the income earned by these organizations to be allocated among their adult members.

However, the method of allocation of income for communal organizations has remained the same since the mid-1970s. This method has permitted income to be allocated to only one spouse per family in a communal organization, while general income tax rules have been changed to make wages and salaries paid to spouses employed in farming and other businesses tax deductible. This is despite the fact that, generally speaking, each adult in a communal organization makes a direct contribution to the income generating business activities of the organization.

Therefore, in order to maintain a roughly equivalent level of taxation on income earned by communal organizations and on general farming income, the tax burden on communal organizations would be reduced by allowing allocations of income to both spouses in a family under section 143.

The bill also deals with misrepresentations by third parties.

Criminal and civil penalties are imposed when taxpayers attempt to evade payment of their fair share of taxes through fiscal misrepresentation. However, there is no specific rule for assessing the application of civil penalties to individuals who make false statements regarding the fiscal obligations of another taxpayer.

This bill introduces two civil penalties applicable to third parties who make false statements that could be used for tax purposes. One concerns tax shelter and other tax planning arrangements. The other concerns advising or participating in a false tax filing.

These changes stem from various recommendations made by the auditor general, the public accounts committee and the technical committee on business taxation.

The integrity of the tax system and the market for professional tax services are not well served if the tax law does not provide for the application of civil penalties against those who make false statements which could be used by a taxpayer for a purpose under the tax law.

A culpable conduct test, consistent with the types of conduct which the courts have in the past applied civil penalties to taxpayers under the tax law, will be instituted. This test applies to conduct which is tantamount to intentional conduct, shows an indifference as to whether the tax law is complied with, or demonstrates a wilful, reckless or wanton disregard of the law.

The bill also provides a reliance on good faith exception to the culpable conduct standard. However, this exception will not apply to persons who promote or sell tax shelter arrangements, as these arrangements have the potential to adversely affect the tax base and taxpayers to which such arrangements are promoted.

As well, the Minister of National Revenue has indicated that the Canada Customs and Revenue Agency will be taking special administrative procedures in respect of the third party penalty proposal. In particular, the Canada Customs and Revenue Agency will conduct a head office review before assessing any third party civil penalty. It will also be seeking private sector input on the development of guidelines for the administration of third party civil penalty rules.

I now want to discuss the tax situation which arises when a holder of an RRSP or a RRIF dies and the value of the RRSP or RRIF is included in the holder's income for the year of their death. This income inclusion is offset by RRSP or RRIF distributions made after death to a surviving spouse. This same offset is available to financially dependent children or grandchildren, but currently with the restriction that this treatment is only available where there is no surviving spouse.

In both cases, these distributions are included in the income of beneficiaries. When the beneficiary is a spouse, a minor or a disabled child, there are mechanisms which allow the tax on these distributions to be carried forward.

The 1999 budget removes this restriction. When there is a surviving spouse but the RRSPs or RRIFs have been left to dependent children, they, not the deceased's estate, are responsible for any resulting income inclusions.

This tax treatment is beneficial because income tax rates for dependent children would be expected to be low. It is meant to provide tax assistance to dependent children at the time of a parent's death.

Turning now to tax relief for Canadians with disabilities, hon. members are aware of the government's continuing commitment to help these Canadians by building on the assistance that is already available. In the last two years additional assistance has been provided through such measures as a caregiver tax credit, a refundable tax credit for low income earners with high medical expenses, and the addition of new eligible expenses under the medical expense tax credit, the METC.

The METC is being extended further to cover expenses for the care of people with severe disabilities living in a group home, therapy for those with severe disabilities and tutoring for the learning disabled. In addition, talking textbooks for individuals with perceptual disabilities who are enrolled in educational institutions will be included on the list of eligible equipment for persons with disabilities.

Moving on to another tax credit, some hon. members may be aware that the production or processing of electrical energy, or steam for sale, was not eligible for the manufacturing and processing profits tax credit. Given the changes and restructuring that the electricity generating industry is currently undergoing throughout North America, there is now increased competitive pressure on Canadian producers of electricity.

To help this sector compete, corporations producing electrical energy for sale or steam for use in such production will now be eligible for the manufacturing and processing tax credit.

Bill C-25 also regularizes the situation where interest is calculated with respect to a corporation on an underpayment of income taxes for one taxation year, while interest is concurrently owed to the same corporation on a tax payment that is higher by an equal amount for a different taxation year.

The fact that the interest on the refund is taxable while the unpaid interest is not deductible results in a net cost to the corporation. The discrepancy in interest rates only makes matters worse.

This situation is not unusual, as corporations with complex tax returns are often in a position where multiple taxation years are reassessed at the same time and income and expenses reallocated from one taxation year to another. Bill C-25 institutes a relieving mechanism, enabling a corporation to request that both amounts be offset for interest calculation purposes.

Canada's investment services industry is another area where fine tuning is required due to the rapid growth of mutual funds and other investment vehicles. Canadian service providers are concerned that foreign funds which engage them may be taxable in Canada because of our tax rules. A new rule, and I can reassure the House that this is not a tax exemption, ensures that engaging a Canadian firm to provide certain investment services does not mean that a non-resident investment fund is carrying on business in Canada.

Where this rule applies, Canadian corporations with customers in other countries will continue to pay tax in Canada on their profits. Similarly, foreign funds receiving revenue of Canadian origin remain subject to Canadian income tax.

This measure will help the Canadian investment services sector to compete internationally.

Investments by individuals in labour sponsored venture capital corporations, or LSVCCs, is another area where the federal government provides generous tax assistance in the form of a tax credit. Many provinces provide similar assistance. Measures were announced last year to help LSVCCs continue to be important suppliers of venture capital to small and medium size businesses.

The 1999 budget contains additional measures to encourage LSVCCs to focus more on small business investments and to clarify the rules that apply when a LSVCC is part of a merger or other corporate restructuring.

A final budget measure in the bill further extends the surcharge on large deposit making institutions under part VI of the Income Tax Act to October 31, 2000. This 12% capital tax surcharge was introduced in the 1995 budget and extended in subsequent budgets.

Let me now provide hon. members with a brief overview of the measures in the bill which were not part of the 1999 budget.

First, the bill helps to implement taxation agreements with first nations by providing for a reduction in federal tax for individuals who are subject to the income tax legislation of certain first nations. This amendment puts the federal government's tax sharing agreements with self-governing Yukon first nations into force.

With respect to personal income tax collected from residents of these Yukon first nations settlement lands, the federal government will vacate 75% of its tax room for the Yukon first nations governments to occupy.

The bill also ensures that the tax burden of an individual subject to first nations taxation is the same as in surrounding jurisdictions.

Bill C-25 also includes a provision which exempts from tax the trust established by the federal, provincial and territorial administrations to compensate hepatitis C victims.

The tax treatment of demutualization is another non-budget tax measure in the bill. As hon. members know, demutualization is a process whereby mutual insurance companies owned by their voting policyholders can convert to ordinary stock companies owned by their shareholders. This allows additional capital to be raised in the stock markets to support the business operations of insurers.

Federal insurance legislation has already been passed to permit large life insurers, regulated under Canadian law, to demutualize.

The Department of Finance released draft rules on the income tax consequences of demutualization on December 15, 1998 and has worked closely with the demutualizing insurers since that time in refining these rules.

The basic cash treatment for cash demutualization benefits is that they are treated as dividends and therefore are subject to the low rate of tax for dividends. There is no immediate tax benefit associated with a policyholder receiving a share as a demutualization benefit but a capital gain would be recognized once the share is sold.

Legislation to ensure that the guaranteed income supplement of elderly policyholders is fairly calculated after they receive demutualization benefits was enacted by parliament earlier this year.

The measures in Bill C-25 are not contentious. They are well thought out and all adhere to the principles of tax fairness. Each measure addresses an inequity, inconsistency or discrepancy in the tax system. Each improves the operation of the tax system. Many of these measures are the result of consultations with the industry or clients affected, a process to which our government is dedicated in any major policy change.

As hon. members can see, even if the various elements of this bill are not interconnected, they are all aimed at improving the situation of the Canadian taxpayers and enhancing the equity of the tax system.

With the five year tax reduction plan set out in Budget 2000, which brings in the most significant structural changes to be made in the federal tax system in more than ten years, the measures in the 1999 budget are in line with the government's long term tax reduction strategy.

I urge my hon. colleagues to pass this bill without delay so we can move on to budget 2000 and enable Canadians to benefit fully and quickly from the government's five year tax reduction plan.

[Competition Act, April 5th, 2000]

Madam Speaker, I am pleased to join the debate, and I will make my remarks brief.

When this bill was introduced in the last parliament, which died on the order paper, I supported it because it dealt with cable companies. Cable companies have a monopoly in the industry. I know that in my riding there is a certain company, and that is it. If that company sends me a letter saying it is going to add two channels at another $2 per month unless it hears from me, I find that offensive. That is why I supported the member's bill in the last parliament.

Since that time a number of things have been added to the bill. It seems to me that we should enact legislation that is not only principled, but legislation that will work.

The notion is that people should not be subjected to negative option marketing. Should that apply to the banks? The principle is the same. Members should ask themselves if it is workable in the context of banks. I would submit that it is not. I do not know why we would support something which would not be workable.

The Alliance member opposite said that there is an opting out clause toward the end of the bill by which cabinet could delete certain services. If we are parliamentarians, then why would we not put something into the bill which would work?

I will try to make the case very briefly as to why I do not think it would be workable for the bill to include banks, however attractive that might be.

First, banks are not monopoly providers. If a bank sends me a letter saying that if it does not hear from me it will change my service package, if I do not like that, then I can go to another bank.

I was very much part of the movement which opposed the proposed merger of the banks last year because I felt it would create too much concentration at that time. We did not have the competition in the industry which we will have when the government brings forward the financial services sector legislation in the next few months.

Ironically, that legislation will talk about a new financial consumer agency. It will talk about a new re-defined ombudsman, which will be more independent of the banks. Therefore, I find it strangely odd that we would bring forward this bill now to add the banks when we have this new regime coming forward which will provide much more protection for consumers and, more importantly, when the provisions of this bill would not work.

Let me give members an example to try to express my point. The Toronto Dominion Bank or CIBC or any one of the major banks might have five million to seven million customers. They send a letter saying they are going to change their service package, but it will only be done if they hear from them in writing or electronically. Guess what, maybe 90% to 95% of customers of banks will not respond. That is a reality. We can pretend it is not the case, but it is. We know from experience that surveys will not get the kind of response we want.

What is the bank supposed to do? It has seven million customers. If it is lucky, it has heard from maybe 200,000 customers saying yes, they would like the new service package and to proceed. What does the bank do now? More importantly, how do consumers benefit from this?

As we know, in this age of technology banks are adapting to a very changing world where we have Internet banking, banking at kiosks or computer based banking. The face of banking is changing so radically that very often it is in the interests of consumers to have their service package changed, like more Internet banking and not so many visits to the branch. That is what is happening.

If this legislation is passed, the banks will not have the flexibility to change any of that. The irony is the banks are doing this right now. How many of the member's constituents have phoned them and said that they are really angry because the banks changed their service package? The reality is members do not hear a lot from their constituents. The banks are in a very competitive environment and have to deal with modifications to the services packages. In most cases, they enhance the service packages available to customers.

I would like to make the point that, in principle, no one would really support the fact that banks should practice negative option marketing. The question is: Is it workable? I submit that it is not for some of the reasons that I have outlined and there are many more. I hope members would not be so attracted to the politics of this that they would not recognize the practical realities that are not workable with respect to banks.

[Proceeds Of Crime (Money Laundering) Act, April 5th, 2000]

Mr. Speaker, I want to thank the members of this House for allowing me to take part in the debate on this very important bill.

There is a lot we do not know about organized crime and money laundering, but we do know, from informed sources, that it involves a constant battle always in a state of flux. It is a substantial problem.

According to independent estimates for the Department of the Solicitor General of Canada, up to $17 billion is laundered in Canada each year.

There are a number of other estimates that reveal the scope of the problem. No one knows exactly how much is involved, but everyone knows that there is a real and serious problem, in Canada and throughout the world.

According to a recent study by the financial action task force, established at the G-7 summit in Paris in 1989, the way money is laundered in Canada and in the other member countries has changed in recent years.

Money launderers no longer limit their activities to banks and other deposit institutions.

Other kinds of businesses are being used for money laundering such as securities dealers, insurance companies, casinos, currency exchange houses, money transmitters and non-financial professionals including lawyers and accountants.

We know that proceeds of crime are often laundered through legitimate businesses. Criminal Intelligence Service Canada backed this up in its annual report on organized crime just last year. The physical movement of proceeds of crime across our borders is also part of this problem.

The new system proposed in Bill C-22 will be an important step in helping to prevent cross-border money laundering through airports and other border points. More than that, Bill C-22 builds on the excellent work that we continue to do in partnership with the provinces, territories and law enforcement agencies as part of a larger global network of countries fighting this problem together.

Despite vigorous efforts the current government and its partners continue to apply in Canada and abroad, we can still do much more. Bill C-22 represents a major step forward in the fight against organized crime.

I should remind hon. members that in the budget the government devoted significant new resources to increase federal policing activities, particularly in the area of organized crime. Over the next three years the RCMP will receive $584 million in extra funding. In the next fiscal year alone the RCMP will receive $59 million extra for federal policing services. This means more resources to fight organized crime activities such as drug trafficking, smuggling of commodities and people, telemarketing and commercial fraud.

The bill is further proof of our commitment to giving our law enforcement agencies the tools they need to do the job. By implementing the bill not only will Canada be living up to its international commitments to the G-8 and its financial action task force, but we will also be making good on commitments here at home.

The RCMP and police forces across the country will benefit from the system proposed in the bill as information from the new agency will go directly to the police to support investigations. Other federal agencies will also receive information from the agency to help investigate certain national security, revenue and immigration offences, but only when they are also related to suspicions of money laundering.

Allowing the new agency with suitable protections to share information with similar agencies in other countries will allow us to play our full role against money laundering on an international scale. It will also allow us to benefit from information that foreign agencies may have about money laundering going on in our country.

When dealing with global organized crime sharing information is vital, but we are also aware of the need to respect privacy in the process of investigating these crimes. We take these concerns very seriously.

We must bring our investigative methods up to date to fight against today's money laundering techniques. We need centralized and automated systems to discover the links between dubious financial operations and the movement of illicit funds, and to ensure their follow-up. This is exactly what Bill C-22 does.

Our consultations have shown strong support for a new and tighter anti-money laundering system. Officials continue to work closely with financial institutions and other stakeholders to make sure that the new requirements are clear and reasonable. We are also consulting provincial governments, the police and others to ensure that the new arrangements will address the needs that have been identified.

Bill C-22 strikes a sound and effective balance between the legitimate needs of law enforcement and respect for individual privacy. It will also make Canada a less attractive target for money laundering and send a clear message around the world that this is a country where organized criminals should not try to do business.

[Division No. 1263, April 4th, 2000]

Mr. Speaker, I cannot speak for the New Brunswick provincial Liberal Party, but perhaps the day they voted there was a full moon because it is a well-known fact that the federal contributions are more like 32% or 33% and that the federal contributions were never 50%.

The federal government restored social transfers to their 1994-95 level.

Total CHST cash and tax transfers will reach an all-time high of close to $31 billion in 2000 and 2001, and it will continue to grow. This is up $900 million from the previous peak in 1995-96 and up $1.8 billion since the government took office in 1993-94.

Thanks to the solid performance of the Canadian economy, the other major transfer payments to the provinces also increased substantially. Equalization payments to the less prosperous provinces are up $500 million this year from the forecasts in the 1999 budget.

Total transfers will reach an estimated $39.4 billion this year and will continue to grow over the next four years. The increase in total transfers means that provincial governments can strengthen social programs that are important to Canadians.

What does it mean for New Brunswick? In 2000 and 2001, transfers to New Brunswick will exceed $1.7 billion, will account for about 37% of New Brunswick's estimated revenues and they are expected to total about $2,348 per person, about 78% above the national average.

Over the next five years, New Brunswick will receive over $9 billion in transfers.

[Income Tax Act, March 30th, 2000]

It never raised them once.

[The Budget, March 29th, 2000]

Exactly, those are their supporters. But the poor person and the middle income Canadian would not get the benefit of that.

I am wondering if the Leader of the Opposition could rethink the math on her tax proposal and clarify things for the House, because I think Canadians must be very confused.

[The Budget, March 29th, 2000]

Madam Speaker, maybe the new Canadian Alliance has some new math, but under the old math of the Reform Party, if we look at its tax plan, it said that in year three it would give $26 billion worth of tax cuts and $26 billion worth of debt reduction.

If we look at the surpluses that are being projected by eight of Canada's leading economists, the way I read it, in 2002-03 we should expect surpluses of $12.5 billion.

This is the same party that was asking for increases in expenditures for the military, the RCMP, infrastructure and aid for farmers. If we add $26 billion and $26 billion we get $52 billion, and then we have to add the additional expenditures which the Reform Party was pursuing. It seems to me that would be quite a bit more than $12.5 billion, which is the amount we would actually have in surpluses. Maybe the Canadian Alliance has some new math.

A person came to my office who was very excited and said “I have heard about Reform's solution 17. If the government would implement a flat tax, I would save a lot of money”. It turned out that under the Reform Party's proposal for a flat tax that person would save 39%.

I scratched a little more and, lo and behold, that person was earning $200,000 a year. I scratched a little more and I compared that with someone under the flat tax who earned $30,000. They would only save 12%. Yes, there was someone who was quite excited about the flat tax proposed by the Reform Party, but they happened to be earning $200,000.

[The Budget, March 29th, 2000]

Madam Speaker, in reference to the comments from the member opposite, I recall when the former leader of the former opposition party, or to be more clear, the member for Calgary Southwest, was in this House at the start of the budget debate, he used the example of a retired couple, Paul and Fran Darr of Calgary, Alberta with a total income of $28,000. He related how this couple had come to him and said that they were paying too much in taxes and they were tired of paying taxes. It was the old pay stub or equivalent debate that the Reform Party, or the alliance or whatever it is called, was putting forward.

I asked the tax department how much in federal income tax Paul and Fran Darr of Calgary, Alberta would save with this new budget 2000. The answer was they would save 39% in their federal income taxes.

When opposition members talk about pay stubs and all that stuff, I ask them to check whether the pay stubs reflect even the budget measures we brought into place in 1998-99. They certainly do not reflect the budget measures we introduced in 2000.

Another thing is the transfers to the provinces for health care, the CHST. For Canadians who are actually listening to the debate they must be hopelessly confused and I do not blame them. There is a way of twisting and contorting the facts. Let me again put the facts on the CHST on the table.

In 1993-94 the total CHST transfers to the provinces were $28.9 billion. Forget equalization. In 1999-2000 they are now at a level of $29.4 billion. They are completely restored from the levels when we came into office. At the same time our direct program delivery budgets are down $4 billion. Does that not say something about the priority the government attaches to health care?

In the intervening time, perhaps the member has had a chance to go back to check the budget notes. Perhaps he would like to clarify the points he made earlier.