Madam Speaker, I am pleased to share our views, on behalf of the NDP caucus, on Bill S-2.
The member from the Alliance, who spoke on the bill, has already mentioned that the bill originated in the Senate. The NDP is critical of that very fact. We believe that bills should originate in the elected chamber of the House of Commons, not in the unelected Senate. We will make that point every time we see a bill coming forward that is marked S rather than C.
The NDP will have no trouble voting for Bill S-2. We recognize there are seven tax treaties that are designed and speak to the issue of fairness, and try to minimize the duplication of taxation for Canadian citizens working abroad. The reciprocity would exist for others who are signatory to that treaty to have the same fairness and rights were they working in this country.
We recognize that it is necessary for cooperation between this country and our trading partners. We believe that tax treaties enhance the trading relationships that we have with other countries around the world. We recognize the benefit that treaties like this have in giving opportunities to share information between the two countries, for example, administrative information that can aid, assist and benefit the relationship that exists between these very countries. We recognize the need for us to deal with the issue of double taxation.
We would hope that our government would take steps to minimize the risk of such a thing happening to Canadian people working abroad. We would point out though that there are a number of ways that the treaty could have been crafted to deal with the issue of double taxation. We do not know who has the exclusive authority, and perhaps this will become clear as the bill moves further along, regarding double taxation, for example, exclusive to the source country, or exclusive to the country of residence of a person being taxed or some combination of the two. One of the points that has come to our attention is that there is a lack of clarity on that issue as it tries to deal with the issue of double taxation.
The other point of note, as the parliamentary secretary who introduced the bill pointed out, the withholding tax rates are of some concern to those involved. We are satisfied that Bill S-2 would address the issue that interest, dividends and royalties that are subject to withholding taxes would be taxed at a rate which used to be 25% and would now be reduced to about 5% in some countries to a high of 15%. This is a general reduction of taxes for those who are having funds withheld due to interests, dividends or royalties. That may have an effect on Canadian artists and musicians who have royalty cheques coming from other places. The tax rate would be harmonized now at a rate lower than they are being taxed currently. We would see that as mildly beneficial to some Canadians and therefore we would be pleased to support it.
I would like to thank the finance critic for the Bloc Quebecois for expanding the debate somewhat, because I think it is an opportunity for us to speak to the larger picture of the treatment of taxation when we are dealing with international trading relationships. He spent much of his speech pointing out that we must be careful that we are not enhancing tax havens, in other words disadvantaging our own country by unduly promoting tax situations in other countries which may in fact be detrimental to our own revenue streams here in this country.
He used the example of Barbados as a popular Canadian tax haven and he pointed out that the Government of Canada's own website was offering offshore investment opportunities as an idea for minimizing a person's taxes. It strikes me as strange that the Government of Canada would do anything to enhance and promote people's tax avoidance by putting money offshore.
I was pleased he raised that, because even though today we are dealing with a tax treaty that deals with seven tax treaties, I believe, with countries like Kuwait, Mongolia, the United Arab Emirates, Moldova, Norway, Belgium and Italy, we can have a much larger debate about the treatment of tax havens and certainly the government's unwillingness to protect revenue that rightfully belongs in Canada and should be spent in Canada.
Again, we have pointed out the contradiction that we have revenue shortages and program cutbacks that need an injection of revenue. We are even contemplating the possibility of raising taxes to meet those needs, yet we are willingly letting revenue slip out of the country and, if the hon. member is correct, even promoting money slipping out of the country which should rightfully be going to programs.
I would like to draw attention to one case that I have quite a lot of personal knowledge of, that is, the tax avoidance of the Bronfman family. I will use the name even though during the court cases the name of the family was not used. Ten years plus a few months ago, the Bronfman family transferred billions of dollars in family trusts out of the country and got special dispensation not to pay any capital gains tax on those billions of dollars. Had the Bronfmans paid an ordinary rate of capital gains on that money, it would have been $750 million of revenue for the Government of Canada. The statute of limitations on this kind of thing is 10 years. In the ninth year, when people in the general public became aware that it was the Mulroney government that allowed this transfer of Canadian funds out of the country without any capital gains being paid on it, they tried to intervene in the courts. They called it “operation loophole”.
The reason I have some personal knowledge of it is that a constituent of mine is the person who appealed to the Federal Court for the right to intervene on behalf of Canadian taxpayers to encourage Revenue Canada to enforce the law for the benefit of all of us and to charge the taxes that were owing to the country. His name is George Harris. I think he is a Canadian hero. For two years he fought tooth and nail and made an enormous personal sacrifice in terms of time and resources to go through all the stages of Federal Court and was blocked every step of the way. The Government of Canada tried to stop him from filing that appeal.
The case went to the Supreme Court of Canada because the case was won at the various preliminary stages. It went all the way to the Supreme Court of Canada, with the request that the Government of Canada enforce its own revenue laws. Ultimately the case was lost in the highest court of the land. The Bronfman family got away with it and Canada lost $750 million worth of revenue.
We had members of the Canadian Health Coalition come before the finance committee stating what they thought the needs were for the health care system for this year alone. They were not blue-skying it. They say that $1.1 billion is required immediately to plug some of the gaping holes, whereas the government willingly let $750 million worth of revenue go out of the country. If you or I, Madam Speaker, owed $100 in taxes we would be hounded to the ends of the earth. The government would be knocking down our doors to collect that. It would be repossessing our property to collect that. However, it willingly let $750 million of revenue go. I am very critical of that. It is relevant. I do not know if I am going to be challenged on relevancy in this speech, but it does have to do with taxation policy and international foreign relationships, I suppose, with other countries.
I am really quite impressed with how thorough and how comprehensive Bill S-2 is. It really seems as though it tries to consider every eventuality and is very careful to anticipate all the possibilities of Canadians working abroad and whether they file taxes in their home country or in the country that is the source of the revenue. All the combinations, permutations and possibilities were considered, yet the contrast I would like to point out is that there are other aspects of taxation law where there seems to be a complete unwillingness to even lift a finger to correct obvious flaws in the Income Tax Act. I would like to draw attention to just one and that is the fact that businesses can deduct fines as legitimate tax deductions.
I simply cannot believe that it was ever Parliament's intention when it crafted the Income Tax Act to make it tax deductible to break the law. I do not accept that, but we have made government aware that this is the perhaps inadvertent status quo or byproduct of the current act and it has chosen not to take any steps to correct it. It has known for years that this is the situation, so I am confused by the amount of detail and analysis that it spent on Bill S-2, which does not affect that many people, really, although it will be of benefit to some Canadians working abroad. I am confused by its complete unwillingness to address this outrageous tax loophole that exists whereby fines and penalties can be considered a legitimate, tax deductible business expense.
The government will not dedicate one iota of time and resources to add one simple line to the Income Tax Act, which could say that “for greater clarity, fines and penalties imposed by law are not to be considered tax deductible expenses”. The situation would be resolved. In the absence of the government taking that action one can only conclude that it approves of the current situation, which most Canadians certainly would not.
The other thing I would point out in terms of contrast to the amount of energy and attention that the government attributes to some things is the disability tax credit. There was an absolute missionary zeal with which it undertook harassing every disabled person in the country who applies for and qualifies for the disability tax credit. It spared no effort in terms of energy or resources to go to every single person who applied for the disability tax credit and make them undergo a whole new medical test at their own expense and then reapply and requalify under a rigid new set of criteria. It raised the bar a great deal in regard to who should be eligible for the paltry $970 disability tax credit.
We can imagine the energy and the resources it must have taken to review every one of those applicant and recipient files, craft a letter and send it out. I believe the current estimate is about $7 a letter. That is what it costs to mail a letter these days by the time it is produced, printed and mailed to the public. Then each one of those people who wanted to reapply for the disability tax credit was forced to go and get a new medical opinion at their own expense. Doctors do not do that for free because it is not covered under the medical plan. It costs from $130 to $150 to prove that a visually impaired person is still unable to see or to prove that an amputee is still an amputee or to prove that for quadriplegics nothing miraculous happened overnight to change their circumstances between when they filed for their disability tax credit last year and now wish to file again. This small amount of money is supposed to compensate people for the extra expenses they incur due to their disability, so it is frankly the most meanspirited and cynical initiative that I have witnessed since I have been here in Ottawa.
I raise it because it stands in such glaring contrast to how the government shows a wilful blindness to an obvious tax loophole that could be plugged, thereby forgoing revenue as a result by allowing a tax deduction that should not be allowed. On the other hand, the government wastes all kinds of energy and resources in harassing, of all people, the disabled. It is a glaring contrast that we should shine the spotlight on.
Bill S-2 does not offend me. I can see it being necessary and even useful. What irritates Canadians, I believe, are the other contradictions in taxation policy in the country and the warped sense of priorities that exists when one considers the disability tax credit, operation loophole, and allowing businesses to deduct fines, to reward people, let us say, for breaking the law. I do not think there can be a person here who does not recognize that it undermines the deterrent value of a fine if we can have it reduced automatically by writing it off against our income taxes. That much is common sense.
If Bill S-2 is worthy of our attention in such great detail, I wish that Revenue Canada would spend more time and attention on glaring, outrageous omissions like the business tax deduction for fines.