Barry Campbell

[Income Tax Conventions Implementation Act, 1996, June 17th, 1996]

Mr. Speaker, I am pleased to rise today and urge the House to give speedy approval to this legislation.

The bill I am presenting today culminates some ongoing work of the last many months. It is legislation which does not generally command great public attention. However, it is legislation that does promote fair taxation and good international and trade relations.

The purpose of Bill C-37 is to implement reciprocal tax treaties between Canada and Russia, Canada and Ukraine, Canada and South Africa, Canada and Tanzania, Canada and India. These five tax treaties, each of which is based on the OECD model tax convention, have two main objectives, to eliminate double taxation on income tax and to prevent income tax evasion.

While this bill may not spur great public attention, let us not diminish the importance of tax treaties and their benefits. It is treaties such as the ones I am presenting today that are incorporated in this legislation which encourage certainty and stability between international tax regimes and which enable the expansion of trade and investment.

It is worth making special note of the treaties with Russia and Ukraine. Given the political shifts in that area of the world in the late eighties and nineties, it is more than timely that we abandon the 1985 Canada-U.S.S.R. tax treaty and adjust tax relations with these countries to ensure renewed and important economic relationships.

The tax treaties I speak of today eliminate or alleviate double taxation in instances where international transactions are involved that may give rise to the same income being taxable in the hands of the same person in more than one nation. They also enact measures that counter income tax evasion in international transactions. This ensures those nations rightfully entitled to much needed income tax revenues will receive full compensation.

I also wish to remind the House the treaties enacted by the bill are the latest in a longstanding process of renewing or evolving our tax conventions with newly emerging nations. The major reform of Canada's income tax legislation in 1971 required Canada to expand its network of double taxation conventions with other countries.

Before I review the main elements of these new tax treaties, I wish to put to rest any revenue concerns that may arise as a result of these treaties. Simply put, the concessions contained in the five conventions should not result in any revenue loss for the Government of Canada. On the contrary, Canada should benefit from the reductions in various withholding tax rates and other concessions which have been ceded by the five countries concerned and from increased trade and investment resulting from the successful conclusion of these treaties.

There are some in the House who would at the very mention of tax treaties suggest that what we are talking about is an opportunity for tax evasion. What we are talking about is an opportunity to foster investment and the free movement of capital and people.

Allow me to outline the key features of Bill C-37 which provide equitable solutions to the various problems of taxation between Canada and certain international partners.

The treaties provide generally that dividends may be taxed in the source country at varying maximum rates. In Russia, Ukraine and South Africa this maximum rate will be 15 per cent. In the United Republic of Tanzania the maximum rate will be 25 per cent. For India the 1985 agreement with Canada set maximum rates of 15 per cent on direct dividends on interest and 25 per cent on other dividends. These rates will remain unchanged.

In the case of inter-company dividends the rate is often reduced if the company receiving the dividends holds a certain equity interest in the company paying the dividends. Such a reduced rate has been set at 5 per cent in South Africa and Ukraine, 10 per cent in Russia and 20 per cent in Tanzania.

Part of the main thrust behind the treaties is to ensure companies are unable to lower taxes by merely establishing branches in Canada or other countries. To accomplish this, branch tax rates have been set parallel to the rates for inter-company dividends.

Regarding interest paid by a resident of one country to that of another, the rate set out in the bill is 10 per cent in the case of Russia, Ukraine and South Africa and 15 per cent in the case of Tanzania. There are, however, some exceptions.

Maximum rates on interest paid on a bond or similar obligation by the national government will be reduced to zero in all participating countries. As well, these treaties contain a provision that will extend a zero rate of taxation on interest paid on loans or credits extended, guaranteed or insured by certain state entities in the source country. In Canada that would include the Export Development Corporation.

These treaties also address the taxation of royalty payments. They provide for a general rate of source taxation of 10 per cent in Russia, Ukraine and South Africa and 20 per cent in Tanzania. The rate in India will be reduced within five years to 10 per cent or 15 per cent depending on the types of royalties.

The treaties with Russia, Ukraine and South Africa have gone further to recognize the world's borders are very much impacted by the information highway. South Africa has reduced the withholding tax on royalties for computer software to 6 per cent. Russia and Ukraine have eliminated these completely.

Pensions are also dealt with in these treaties. For example, in the case of Russia, Ukraine and India pensions and other similar payments will be taxable only in the source country. South Africa will deviate slightly by stipulating that pensions will be taxable in the source country with no limitations. In this instance the country in which the recipient resides will provide a credit for the taxes paid in the source country.

In Tanzania pensions and similar payments arising in one country and paid to a resident in another may be taxed by both countries. However, the tax rate of the country of source will generally be reduced to 15 per cent.

In summary, the five tax conventions contained in the bill provide mutually beneficial solutions to many of the taxation stumbling blocks that exist between Canada and our international partners. The countries I have mentioned are preparing to implement the bilateral convention as soon as possible.

I remind hon. members of the important role tax conventions play in fostering investment into Canada and out of Canada into other countries, such as the ones which are the subject of this bill, and also in fostering and promoting the fair treatment of taxpayers and ensuring taxes are collected. I commend the bill to the House and urge its speedy passage.

[Income Tax Budget Amendment Act, June 17th, 1996]

Mr. Speaker, I am pleased to speak today on third reading of Bill C-36, the 1995 budget tax measures bill.

As hon. members will recall, that budget focused not only on cutting program spending, it also focused on tax fairness which remains a priority of the government.

On the spending reduction side, for the three year period on which last year's budget focused, 1995-96 to 1997-98, there were almost $7 in spending cuts for every $1 in new taxes. Spending reductions for this three year period totalled $25.3 billion with the burden being shared.

On the tax fairness side, in the 1995 budget we introduced several tax measures which are all based on the principle of fairness and equity in the tax system. These measures accomplish a tightening of the administration of the tax system, a removal or reduction in a number of tax preferences, and an increase in fairness in the system.

Since the time of the 1995 budget announcement the government has responded to the concerns of Canadians and members of the House about the impact of some of these measures, and changes have been made. The government believes in consulting with Canadians and taking action in response where it is warranted. I want to briefly highlight now some of the main measures of this bill reflecting that input.

The government believes tax assistance should be provided to Canadians to encourage them to save for retirement and that the fiscal cost of this tax assistance should be shared fairly. Changes in Bill C-36 help to achieve this. Under this bill the contribution limits for registered retirement savings plans and money purchase registered pension plans are being reduced to $13,500 this year. They will rise incrementally to $15,500 in 1999 and 1998 respectively. The 1996 budget subsequently froze these limits at $13,500 for another six years. These additional limits will be dealt with in legislation to be introduced at a later time.

Bill C-36 also reduces the over contribution allowance to RRSPs from $8,000 to $2,000. Originally intended to help taxpayers who inadvertently make an over contribution error, this measure will now restrict those taxpayers who took advantage and made deliberate over contributions. However, over contributions made before budget day are excluded from this penalty.

In addition, Bill C-36 gradually eliminates the tax free transfer of retiring allowances to RRSPs. Given other changes in the retirement savings system, this measure has outlived its usefulness.

Another area affected by the bill is family trusts. As hon. members know, this has been an area of concern to many Canadians. In the 1994 budget the Minister of Finance referred the taxation of family trusts to the finance committee to review, among other things, the election to defer the 21 year deemed disposition rule allowed by the previous government. To ensure that capital property cannot be held for the benefit of successive generations of trust beneficiaries without tax consequences arising on death, there is a deemed disposition of a trust's capital property every 21 years. The previous government had changed this to allow for the first 21 year deemed disposition date to be deferred until the death of beneficiaries who are no more than one generation away from the settlor.

Bill C-36 contains two measures that affect the tax regimes of these family trusts. One deals with the undue deferral of capital gains. The other affects the splitting of trust income because of the preferred beneficiary election.

The preferred beneficiary election allows trust income for income tax purposes to be allocated to preferred beneficiaries without any requirement that the beneficiaries actually receive the amount allocated. Bill C-36 limits the preferred beneficiary election to disabled beneficiaries. This will ensure trust income cannot be arbitrarily allocated to a beneficiary instead of being taxed at the trust level just because the beneficiary is at a low marginal tax rate.

Bill C-36 also eliminates the election to defer the 21 year rule. This measure removes the possibility of this election causing the undue deferral of capital gains. It also addresses the perception that family trusts are some sort of tax shelter.

Trusts for which an election to defer the 21 year rule has already been made will be subject to a deemed disposition of trust assets at fair market value on January 1, 1999.

The 1995 budget increased the corporate surtax from 3 per cent to 4 per cent of basic federal income tax. As a result, additional corporate revenues of $115 million to $120 million annually should be generated.

In addition, the large corporations tax, which applies to all corporations with over $10 million in capital, is being raised from 0.2 per cent to 0.225 per cent. An extra $150 million a year in corporate revenues is anticipated from this measure.

Further, this bill includes a temporary surcharge of 12 per cent, levied under part VI of the Income Tax Act, on the capital tax paid by banks and other large deposit taking institutions between February 26, 1995 and October 31, 1996. These measures ensure these institutions contribute to deficit reduction.

As hon. members will know, the surcharge was extended for another year in the 1996 budget. Again, this will be dealt with in legislation to be discussed in the House at some time in the future.

Finally, an additional six and two-thirds per cent tax on the investment income of Canadian controlled private corporations will reduce their tax deferral opportunity.

In that regard, allow me to stress that Bill C-36 ends the tax deferral on business income.

While businesses could previously choose the date on which their fiscal year ended, December 31 will now be the date set as the end of the fiscal year for all businesses.

However, the government received a number of comments on this provision, and some amendments were made in order to address the concerns expressed by some businesses regarding, among other things, seasonal activities.

A special "alternative" method of calculating income will now be available to some businesses that prefer an off-calendar fiscal period.

These taxpayers will have to review their income to consider the money earned between the end of their fiscal period and the end of the calendar year.

Bill C-36 also introduces the Canadian film and video tax credit, which will directly benefit Canadian film production companies. It replaces the outdated capital cost allowance tax shelter, which concerned producers of Canadian certified films.

The film producer will now receive all the benefits from the new Canadian film and video tax credit. In addition, the credit will be available only to businesses whose main activity is the production of Canadian films or videos in Canada. This very specific clause should restrict credit applications aimed at avoiding taxes on income from other sources.

Let me move on now to some of the other highlights of the bill. Bill C-36 provides special enhanced tax assistance for donations of ecologically sensitive land. When certified ecologically sensitive land is donated to a charity or municipal body, there will be no annual income restrictions on the donor. Currently the limit is 20 per cent of donor's income.

Bill C-36 eliminates the inflation of certain scientific research and experimental development measures, SR and ED tax credits, and improves that administration of these tax incentives.

There will be restrictions on the expenditures on which SR and ED investment tax credits can be earned, and non-profit SR and ED corporations exempt from tax will now have to report their SR and ED work and expenditures.

Another measure in the bill protects the collection of source deductions by making secured creditors who interfere with the remittance of source deductions liable for remittance along with any interest and penalty charges, just as the taxpayer is liable.

As a result of Bill C-36, seniors with incomes over $53,215 who have to pay back some of their old age security benefits at tax filing time will now have tax withheld when benefits are being paid out.

Finally, Revenue Canada will be extending the use of the business number, that is the one registration number for business dealings with government, to other departments and levels of government that have a legal right to this information. This will reduce overlap and duplication and increase efficiency for both business and government.

I have summarized the highlights of Bill C-36. It contains straightforward tax measures that exemplify the government's commitment to fairness and equity in the tax system. I am also pleased the bill as it has now emerged reflects the input of Canadians and hon. members to which we have responded.

I thank hon. members for their assistance through all stages of the bill. I strongly urge my colleagues to pass Bill C-36.

[Questions On The Order Paper, June 17th, 1996]

Mr. Speaker, I will certainly take that matter up with the appropriate members on this side and determine what the delay has been.

[Questions On The Order Paper, June 17th, 1996]

I ask, Mr. Speaker, that all questions be allowed to stand.

[Government Response To Petitions, June 17th, 1996]

Mr. Speaker, pursuant to Standing Order 36(8), I

have the honour to table in both official languages the government's responses to 15 petitions.

[Questions On The Order Paper, June 4th, 1996]

This question is assumed to relate to the income tax treatment of cross-border social security benefits, rather than to the taxation of pensions generally.

Based on figures provided by the United States Government, the total number of residents of Canada receiving U.S. social security benefits is estimated to be about 81,000. It should be noted that this figure may include persons temporarily in Canada and others who would not be considered residents of Canada for income tax purposes. It also includes recipients who are U.S. citizens, and who are thus liable to U.S. tax on all of their income. The number of

recipients is thus significantly greater than the number who are subject to U.S. withholding tax.

No information is available as to the number of native Canadians who receive U.S. social security benefits. The Canada-United States Income Tax Convention does not make any special provision for native Canadians. The convention would probably not preclude the United States from choosing, as a matter of internal policy, to provide more favourable treatment to native Canadians than to other Canadians. The Government of Canada is not aware of the United States having implemented any such policy.

[Questions On The Order Paper, June 4th, 1996]

As of January 1, 1996, social security benefits paid by the United States government to residents of Canada ceased to be taxable in Canada. Instead, the benefits are subject to tax in the United States. This is presumably the change to which this question refers.

The rate at which the United States taxes a particular benefit depends on several factors. The most important of these is the citizenship of the recipient. The U.S. taxes its citizens on their worldwide income. If a resident of Canada is a U.S. citizen, any U.S. social security benefits will be taxed at the same rate as they would be taxed domestically. That rate will vary according to the recipient's income and personal circumstances. Social security benefits paid to non-U.S. citizens who are U.S. resident aliens ("green card holders") are taxed in the same manner.

A resident of Canada who is neither a U.S. citizen nor a U.S. resident alien but who nonetheless receives U.S. social security benefits pays the standard 30 per cent U.S. withholding tax on 85 per cent of the amount of the benefits, the equivalent of a 25.5 per cent tax on the whole benefit (.3 x .85 = .225).

These variations among the tax rates paid by Canadians receiving U.S. benefits make it impossible for the Government of Canada to estimate with any accuracy the total amount of tax the United States will collect on this income.

Question No. 46-

[Income Tax Act, May 29th, 1996]

Mr. Speaker, with all this talk from the member opposite about shooting down bills I am proud to be part of a government that brought in gun control.

I am pleased to address private member's motion M-30. It asks the government to provide a child caregiver tax credit for those who look after preschool children, the disabled, the chronically ill or the aged in the home.

The motion implies that the Income Tax Act somehow discriminates against families that make the choice to provide care at home for the categories of people mentioned earlier. In support of his motion, the member for Mississauga South implied in his remarks that the government does not care about families as much as he does. I know that is not the case.

The motion appears to target the provision of the Income Tax Act which disallows the deduction of child care expenses by one income earner couples. The purpose of the child care expense deduction is to recognize for tax purposes the child care expenses that taxpayers must incur in order to earn income, to attend a recognized educational institution full time or to take an eligible vocational training course.

This deduction provides a way for the tax system to acknowledge that those taxpayers have a lesser capacity to pay taxes than others with an identical income who do not have child care expenses. This deduction ensures up to a limit that income used to pay for child care expenses is not taxable.

In order to assist parents who choose to remain at home to raise their preschool aged children, the federal government introduced a supplement to the child tax benefit. The supplement is a benefit to low and middle income families that have preschool aged children but do not have deductible child care expenses. This year the supplement is $213 for each child six years old or younger and is in addition to the regular benefit of $1,020 per child.

The federal government provides additional assistance to low income families through the working income supplement. This is a component of the child tax benefit. The working income supplement directs assistance to low income families with children by providing an additional annual non-taxable benefit of up to $500. It supplements the employment earnings of families with net incomes below $25,921.

As indicated in the budget presented to the House of Commons on March 6, assistance to low income families will be enriched through a two step doubling of the working income supplement. The maximum annual benefit will be increased from $500 to $750 in July 1997 and to $1,000 in July 1998.

Recall for a moment that the motion suggests tax assistance should be made available to families that provide in home care for elderly relatives or relatives with disabilities. This already happens. Tax assistance for people with disabilities and for families caring for elderly or disabled relatives at home is provided by a number of existing tax measures.

For example, significant benefits are provided to those with a severe and prolonged mental or physical impairment through the disability tax credit. This credit reduces the federal tax of claimants by about $720 and is equivalent to an exemption of $4,233 for those in the 17 per cent tax bracket.

Where the disabled individual has little or no income, the unused amount of the credit may be claimed by a supporting relative. The ability to transfer the disability tax credit recognizes that people with disabilities and low incomes are often supported and cared for by family members.

I will focus on another provision of the act to further indicate things the act already provides for the categories of people mentioned by the hon. member in support of this motion. The medical expense tax credit is another such provision. It provides tax relief to those with extraordinary medical expenses by providing a tax credit for medical expenses in excess of a certain percentage of a taxpayer's net income.

The medical expense tax credit reduces the federal tax of a claimant by 17 per cent of qualifying unreimbursed expenses that exceed 3 per cent of net income or up to $1,614.

Among the many expenses that qualify for this credit is up to $5,000 in respite or part time attendant care expenses. This is specifically intended to assist families caring for elderly or disabled relatives at home. Tax assistance is provided for part time or temporary attendant care. Families caring for elderly relatives or

relatives with disabilities may also benefit from the ability to claim unused amounts of the credit.

Individuals supporting relatives with a disability may also claim the infirm dependant credit. This credit was significantly enriched in the budget presented to the House on March 6, 1996.

According to the income of the dependant, this credit reduces the federal tax of a supporting relative by up to $400 and is equivalent to a deduction of as much as $2,352 for those with incomes in the 17 per cent tax bracket.

Through all of these measures, the federal tax system provides a significant amount of tax assistance to families that decide to provide care in the home for preschool aged children, the disabled and the elderly.

I have given the House this evening a great deal of information about various programs which are already contained in the Income Tax Act. An hon. member opposite asked about cost. Let me state for the record that the programs I have outlined already provide $1.4 billion in support to families that decide to provide care in the home for preschool aged children, the disabled and the elderly. These are substantial amounts of money available to families that support the disabled and the elderly. One of the problems with the hon. member's motion is that we do not know what it would cost.

I urge the House to withhold support for private member's Motion No. 30.

[Income Tax Budget Amendment Act, May 27th, 1996]

Mr. Speaker, I welcome the opportunity to begin debate in support of Bill C-36, the Income Tax Budget Amendment Act, 1995. I will begin my remarks with a few observations about the context of the tax measures we are proposing. To do that I must revisit the challenges the country faced and the expectations of the people we represent when the 1995 budget was introduced.

Then-as now-, Canadians wanted their governments to spend their money and to make savings in a sensible way, according to their values. And their values were undeniably reflected in the principles guiding our budgetary decisions.

These principles, underlying the bill being debated today, were set forth by my colleague, the Minister of Finance, in his budget speech.

The first principle stated that the government had to put its house in order. In other words, the budget had to focus on reducing program spending, rather than increasing taxes.

Another principle emphasized the need to be fair, fair toward the various regions of this country and its different citizens.

The record shows that we kept faith with Canadians. For the three year period that was the focus of last year's budget, from 1995-96 to 1997-98, the government has secured almost $7 in spending cuts for every dollar in new taxes. The spending reduc-

tions that were set out for the three year period total $25.3 billion and we took care to ensure that the burden was shared fairly.

Some $16.9 billion, or two-thirds of the total cuts, are to come about because of program review actions announced in the 1995 budget. This top to bottom re-evaluation of what government does and how government spends is now well under way and reflects an important reality of the 1990s.

In today's world where resources are limited, there is no question that government must change. If we are to do a better job of meeting key priorities we must reduce our presence in areas where others can do the job better.

The results of our actions in all three budgets introduced by this government speak for themselves. In 1993-94 federal program spending stood at $120 billion, or almost 17 per cent of GDP. By 1998-99 the money we spend on programs will be down to $105.5 billion, or 12 per cent of GDP.

From the start we set out tough deficit targets and we are firmly on track to meeting them. Our milestone is a deficit equal to 3 per cent of GDP for this fiscal year and 2 per cent next year.

As I mentioned previously, most of our decisions focused on reducing expenses. But, given the size of the challenge, we could not avoid a reform of the tax system.

In the budget speech, the minister pointed to the fundamental principle guiding our tax policy: taxes involve more than just rates, there is also the question of fairness.

With this in mind, we introduced a number of tax measures increasing the fairness of the system. We did not, however, increase personal income tax rates. In fact, we have not changed these rates in any of our three budgets, because we are well aware of the deep exasperation felt by many Canadian taxpayers.

I would like to briefly describe a number of measures we are proposing in the bill before us today.

I am sure all members will agree that fiscal equity begins with the collection of all taxes payable. We cannot allow some Canadians to evade their duty at the expense of other taxpayers.

Measures in this budget will protect the collection of source deductions made for income tax, Canada pension plan contributions and unemployment insurance premiums. Let me explain.

There have been cases where taxpayers are encouraged or even forced by third parties in a position of influence not to remit source deductions and similar withholdings. This can happen, for instance, where a secured creditor of a taxpayer in financial trouble controls the disbursements of the taxpayer's business. In an attempt to recoup its own losses, the creditor permits the payment of wages but refuses the remittance of source deductions and similar withholdings.

To protect source deductions in these and similar circumstances the government proposes amendments that would make such secured creditors liable to pay unremitted source deductions, along with any interest and penalty charges, just as the taxpayer is liable.

It is also proposed to allow Revenue Canada to exchange business name and address information with other federal departments and the provinces when they adopt the business numbers to identify corporations, partnerships or certain associations of taxpayers. This will allow federal departments and provinces to cut duplication, simplify business registration and develop joint business services. From the business person's point of view it will reduce the cost of compliance and give access to more effective government services.

I would now like to talk about the measures in this bill that propose changes to the tax system itself, changes that will make the system fairer. For example, we propose to change the tax system on investment income of private holding companies by eliminating the attractive deferral opportunities that existed until now.

Also, the current film incentive measure will go from the present tax shelter, which profits high income investors, to a new refundable credit offered directly to Canadian film producers.

The government is also acting to eliminate tax advantages flowing from family trusts. This includes repealing the previous government's decision to allow deferral of the 21-year rule.

I will now turn to other tax issues. First, measures in this bill affect the tax assistance the government provides to Canadians to encourage them to save for retirement. In last year's budget it was announced that the contribution limit for RRSPs would be reduced to $13,500 for this year and next, then allowed to rise incrementally to $15,500 by 1999.

In that budget it was also announced that the contribution limit for money purchase registered pension plans would be reduced to $13,500 for this year, then rise incrementally to $15,500 by 1999. However, in this year's budget the government announced that the contribution limits would instead be frozen at $13,500 for another six years, that is until 2003 for RRSPs and 2002 for money purchase plans.

The legislation before us implements the changes to the contribution limits announced in the 1995 budget. The further freeze in the limits that was announced this March will be dealt with at a future date.

As well, under this legislation, the amount of over-contribution allowed to an RRSP without being subject to the one per cent per month tax penalty will be cut from $8,000 to $2,000. There are, however, some traditional measures to accommodate taxpayers with prebudget over-contributions below the old limit but above the new one.

The 1995 budget changes will being the limits closer to the original pension reform target of providing tax assistance on earnings up to two and one-half times the average wage. The subsequent 1996 changes will bring this target down to two times the average wage, allowing us to better target this assistance to those who need it most, modest and middle income Canadians, while limiting the cost to the government and all its taxpayers.

As we consider the Canada of the future, in the early decades of the next century, there can be no question about the need to encourage retirement savings. In so doing we help today's wage earners prepare for their eventual exit from the workforce and thus avoid a too heavy reliance on public pension and income support programs in years to come.

Let me pause for a moment and mention one measure being introduced which affects today's higher income seniors. These individuals must repay part of the old age security benefit to the extent that their income exceeds an indexed threshold of $53,215 for this year. Through Bill C-36, instead of having them receive the full benefit and then make a repayment when they file their income tax, the government proposes to reduce the benefit before it is sent out. I want to stress that the level of the clawback is not being changed with this measure but simply how it is implemented.

Let me now turn to another issue which I wish to discuss in some detail, the action to eliminate the deferral of tax on business income. Under current law unincorporated business owners can use a fiscal year that does not correspond to the calendar year. If the year end is, for example, January 31, then all income for the remaining 11 months is added to next year's taxable income. Needless to say, taxpayers taking advantage of this feature enjoy a significant benefit over others. This approach runs counter to the general rule for taxpayers that income is taxed in the year in which it is earned.

To remedy this situation and to treat all taxpayers as equally as possible, a new rule was announced that would require all sole proprietorships, professional corporations and partnerships to have a fiscal year end of December 31. This proposal, however, came in for considerable criticism from many business people who are affected by the change and from members of this House.

The government has listened to them. It recognizes that some of the comments made to us were valid. Many businesses are of a seasonal nature and a fiscal year end of December 31 imposes hardships on them. Operators of a ski hill, for example, would prefer to focus on their business in the winter months, not on their accounting.

Second, a uniform year end would see much of the demand for accounting services concentrated in December and the few following months. In contrast, the variation of year ends allowed by the current system spreads the work more evenly throughout the year to the benefit of small businesses as well as their accountants.

The response has been to provide an alternative method of calculating income, one that addresses the goal of treating taxpayers as consistently as possible and at the same time allowing small business to retain a fiscal year end that reflects their needs.

Under this method taxpayers with a year end other than December 31 will have to adjust their income to take account of earnings between their fiscal year end and the end of the calendar year. There will be, of course, a transitional provision so taxpayers can allocate additional income from 1995 to future tax years. This alternative method will be available to individuals carrying on a business and to partnerships where all members of that partnership are individuals.

Let me also mention in passing that the decision to allow individuals to retain a fiscal year that does not end on December 31 has implications for their remittance of collected GST amounts. Individuals will continue to have the option of adopting their fiscal year for GST purposes.

The third area I wish to discuss is changes the budget made to corporate income tax rates. The government announced an increase in the large corporation tax by 12.5 per cent. As well, it proposes to raise the corporate surtax on profits from 3 per cent to 4 per cent. Taken together, these two measures will generate an extra $260 million annually.

The goal is to ensure that big companies contribute a more equitable share of the burden required to bring the deficit down. A temporary tax is being imposed on the capital of large deposit taking institutions, including banks. From February 27, 1995 to October 31, 1996 the budget anticipated this would raise $100 million over the covered intended period. Life insurance companies, which already pay an additional capital tax, would not be subject to this temporary surcharge.

Finally, let me mention one amendment that is not targeted at the fiscal environment but is targeted at the natural environment. The legislation acts to eliminate the current limit on the charitable donations credit for the donation of ecologically sensitive land. The current limit is 20 per cent of income, a level that may be a

disincentive in some cases where the value of the land is high relative to the donor's income.

This measure reflects the fact that the government appreciates not only the vital importance of environmental action, but also the growing importance of the charitable sector in Canadian society. In this year's budget, for example, a number of additional measures were announced that will be introduced in the months ahead.

The tax changes we are proposing in this bill are fair and equitable. They are totally in accordance with the principles we have set for ourselves to give direction to the tax policy. These principles, as I am sure members are well aware, reflect the values and expectations of Canadians.

As elected representatives of the Canadian people, we would fail in our duty if we departed from these principles. That is why I urge my colleagues to join me in supporting this important bill.

[Budget Implementation Act, 1996, May 27th, 1996]

Mr. Speaker, it is my pleasure to launch third reading of Bill C-31, the 1996 budget implementation act.

Of all the legislation proposed by a government, it is budgetary measures that stand at the core because they define the bottom line capabilities and concerns of government itself. This is especially true of Bill C-31. It is legislation dedicated to dramatic discipline change, change in the way government operates, change in how government spends and change in how government establishes and addresses its priorities.

These changes were not proposed just for the sake of it. Our initiatives reflect a reality experienced by governments in Canada as well as elsewhere in the world: they have to reassess their roles and responsibilities.

This does not mean that we have to give up the activities that are the government's reason for being: promoting job creation and economic growth as well as protecting people who are suffering great hardships because of change. Both these missions remain sacred for our government.

However, in this era of diminishing resources and intense global competition-a reality that has an influence on the operation of our economy-we must examine ways to fulfil these responsibilities more efficiently and more economically. We must also make better decisions about the priorities that are under our jurisdiction and about those that are more obviously the concern of other stakeholders in our society.

Getting the government right: that is the challenge at the very heart of this bill. I would like to point out to the House very briefly a few examples taken from the bill itself.

The bill includes measures to allow the Minister of Transport to privatize the government's fleet of grain hopper cars. Other clauses will remove the 10-year ceiling that was imposed on the repayment schedules for students who borrowed money under the Canada Student Loans Act. This will benefit students and may well save the government money by reducing the number of loan defaults. We propose to amend the Radiocommunication Act allowing the Minister of Industry to obtain greater revenues by auctioning off radio spectrum licences.

An important thrust of our government is to develop alternative ways to deliver services. That is why we will be introducing new service agencies and other mechanisms to deliver services to Canadians with the emphasis on better service and greater efficiency. To aid in this process, this bill includes legislative amendments to give the government the administrative mechanisms necessary to ensure a smooth transition to the new service delivery modes.

For instance, changes proposed to the Canada Labour Code and Public Service Staff Relations Act will permit the introduction of successor rights. That means unions will continue to represent their employees as they move from public service employment to other employers within federal jurisdiction. Collective agreements of course will continue to be in force until the terms expire.

We also want these new service agencies to have the tools they need to operate effectively and affordably. We will amend the Financial Administration Act to allow for multiyear appropriations for these organizations.

In the future, we will certainly not be able to improve the efficiency and the effectiveness of the federal administration without giving consideration to our employees, the people providing the services Canadians expect.

As we all know, collective bargaining in the public service was suspended when the previous government implemented the Public Sector Compensation Act. This act will expire, as provided for, in February 1997, when the collective bargaining system will come back into force.

However, when we negotiate conditions of employment with labour unions during the next three years, it will be necessary, in our opinion, to suspend binding arbitration for dispute settlement. We simply cannot afford having independent arbitrators, who are not accountable to Parliament, making decisions that do not reflect our financial situation.

Employees of the House, of the Senate, of the Library of Parliament and of the Canadian Security Intelligence Service are exempted. This is because they do not have the right to strike and are dependent on binding arbitration. In their case, arbitrators will have to take into consideration salary settlements in similar occupational groups in the public service.

This bill will provide authority for a 2.2 per cent increase for non-commissioned members of the Canadian forces. This measure will address the disparity in wages between members of the forces and public service employees, a disparity that existed before the wage freeze.

We are amending the Public Sector Compensation Act to reinstate performance pay after a five year suspension in annual increments for those employees for whom it was suspended when

we introduced the in-range increment freeze two years ago. The bill also contains reform measures regarding public service pensions.

All public service employees, those who will be transferred out and those who stay, will benefit from changes we propose to the Public Service Superannuation Act. This includes the two year vesting of pension benefits and new lock-in provisions. Pension benefits of public servants transferring to other organizations will be fully protected.

I must underscore the fact that the government will consult on the details of these proposals before they come into effect. Amendments to the Public Service Superannuation Act will also give us the flexibility to extend coverage under the act for a limited term to employees who are transferred out of the public service.

There are two further measures we are taking so we can deliver better service while being fiscally responsible. First, we will modify the Financial Administration Act to give Treasury Board the authority to establish group insurance plans for the public service, to set terms for the management of those programs and to acquire such programs by contract. This will allow these programs to be managed in a way that is more consistent with insurance practices in the private sector.

Second, we propose to amend the Public Service Staff Relations Act so that the government can better meet its ongoing youth employment responsibilities. We plan to provide students with learning opportunities and facilitate their transition from school to work. Their employment benefits will reflect their training status.

This is legislation centred on change. It is also legislation that will provide new certainty in an important area of Canadian activity, that is, federal support to provinces to better secure this country's social programs. This bill will amend the Federal-Provincial Fiscal Arrangements Act. We propose to provide secure stable funding for the Canada health and social transfer for an additional five years through to the year 2002-03.

As I have said before, and as the minister has emphasized, there should be no mistake about our commitment to this funding. In fact, in the three years beginning in April 2000, CHST levels are projected to rise. By 2002-03 total CHST entitlements are expected to be $2.3 billion higher than the level set for the fiscal year 1997-98. To provide additional assurance to Canadians, this legislation sets a floor, an ironclad guarantee that cash transfers will be maintained at or above the $11 billion level.

This proposed legislation also provides a new formula for allocating the CHST among provinces. Under this new formula which will be phased in over five years, existing disparities and per capita funding across provinces will be cut in half. Let me point out that the gradual phase-in of the new formula not only gives provinces time to adjust, it gives them maximum certainty in their planning.

It is also worth repeating that this single consolidated block transfer represents a more flexible and mature approach to federal-provincial fiscal relations. It gives the provinces extra flexibility as they design and administer their own programs while safeguarding the social programs Canadians rely on and support.

I remind hon. members of changes that this bill proposes to the Unemployment Insurance Act. Effective January 1 of this year the maximum insurable earnings are to be reduced to $750 per week in comparison with the $845 level which would have resulted under current legislation. Similarly, the maximum weekly benefit drops from $465 per week to $413. These measures will save $200 million in the second half of this year and reduce the UI payroll tax burden on working Canadians.

This bill also amends the Old Age Security Act to lengthen the period of time before newcomers to Canada become entitled to full guaranteed income supplement or spouse's allowance. Under the current system, some immigrants obtain full benefits with as little as one year's residence in Canada. Restricting this easy access will improve the fairness of the system and lessen the burden on Canadian taxpayers.

There is a final issue this legislation deals with which is part of an important national initiative announced just a few weeks ago, and this is adjustment support for the Atlantic provinces in harmonizing their sales taxes with the federal GST. Some voices in the country have tried to make political hay of this decision. However, I am convinced, and the government is convinced, that it is acting in a fair and responsible way and in the long term interests of Canadians.

This bill provides approximately $960 million in adjustment assistance to the provinces of Nova Scotia, New Brunswick, Newfoundland and Labrador over a four-year period. This is intended to cover a fair share of the initial revenue losses they experience under the harmonized sales tax regime.

The government firmly believes, given the benefits that will flow from harmonization, that the total cost is reasonable and responsible. It is fully in keeping with firmly established practices of providing assistance when federal initiatives entail major structural change for provinces. Let me emphasize that this adjustment assistance will not jeopardize our deficit targets. These targets are secure.

In addition to the three provinces previously mentioned, Prince Edward Island, Manitoba and Saskatchewan would also qualify for assistance should they agree to harmonize their sales taxes. Ontario, British Columbia, Alberta and Quebec would not.

This deserves one last comment, more particularly in view of the remarks made in the House and the media when the Quebec finance minister recently sent a bill to the federal government.

In a nutshell, this is a totally groundless request that has everything to do with a separatist project and nothing to do with facts, history and economic common sense.

We are providing this adjustment assistance only to provinces that experience, through tax harmonization, a drop of more than 5 per cent in revenues from their retail sales tax.

But Quebec did not lose any money when it harmonized. Therefore, it is not entitled to any assistance.

Quebec has decided to spread the harmonization process over six years, and has been able to increase its revenues in the process because of the wider tax base of the value-added tax, while it kept taxing many business inputs.

On the basis of the partially harmonized sales tax system in place between 1992 and 1995, Quebec would not have qualified for assistance and once fully harmonized it still will not qualify.

The three Atlantic provinces that are now harmonizing have decided to move to a single tax all at once. This means they will not have the option of boosting revenues during the phase in period. Therefore, the adjustment assistance is essential to ensure they have the opportunity to participate in a single sales tax system on the same basis as Quebec and the other larger provinces.

I have taken up more time than normal at this stage of legislation but Bill C-31 deserves the effort because it will implement wide ranging beneficial change in so many areas.

Let me conclude with the same observation I made to the House finance committee. This bill is the heart and soul of the government's fiscal agenda as laid out in the budget. The story here is quite simple: getting government right. It is one we should all agree on in principle. I trust that the House will provide its approval so we can get on with meeting that goal.