Finance committee  Thank you, Mr. Chair. I had started discussing artificial losses using equity-based financial instruments. This measure relates to tightening up and improving upon gaps or uncertainties in the currently existing synthetic equity arrangement and security lending agreement rules that had been used by taxpayers to, in essence, create artificial losses by deducting the same expense twice, the same amount twice—primarily financial institutions.

Finance committee  Thank you for the comment. The next measure is found in clauses 10 and 16 of the bill. It's a similar measure dealing with stop-loss rules on share repurchase transactions, and again it prevents financial institutions from generating artificial losses in off-market securities transactions that involve the repurchase of shares and the utilization of the inter-corporate dividend deduction as well as the market-to-market property rules to effectively deduct the same amount twice in situations where they're redeeming a fully hedged market-to-market property and generate artificial losses on those transactions.

Finance committee  The next measure relates to artificial losses using equity-based financial instruments. These amendments tighten up and improve upon gaps or weaknesses in the currently existing rules that prevent the creation of artificial losses by primarily financial institutions on certain equity-based transactions.

Finance committee  Thank you, Mr. Chair. I was going to go through each of the measures in the bill briefly, in the order in which they appear. If it would be helpful to committee members, I could also provide the relevant clause numbering for each of the measures. I understand this is a prestudy and the packages haven't been sent.

Finance committee  Of course, I would be happy to. For the first measure, the divisive reorganizations, it is clauses 2 and 39. For the second measure, the cross-border surplus stripping involving partnerships and trusts, that is clauses 3 to 5, as well as 14 and 21.

Finance committee  I'll combine the next two sets of measures. They deal with foreign affiliate rules. There's a set of currently existing rules in the Income Tax Act that prevents the shifting of income on passive property offshore to a controlled foreign affiliate of a taxpayer. If you have that kind of passive income held in one of your controlled foreign affiliates, it's taxable in Canada on an accrual basis, so every year.

Finance committee  In general terms, if there's a policy decision that's taken by a government, it can get complex, I think, but it's always possible to draft your way there. In this case, the government decided to maintain the tax on split income level at 33% to maintain the disincentive to splitting income.

Finance committee  Mr. Chair, I'd be happy to go through the proposed amendment from a technical perspective. The charging provision for the tax on split income is in subsection 120.4(2). As was noted, it currently applies the tax on split income at the highest marginal rate. That's defined in subsection 248(1) of the act as just the highest personal income tax, or the “highest percentage” in subsection 117(2), which is where you have the different marginal tax rates.

Finance committee  Setting aside a subjective and normative evaluation of what's fair, what it would do is ensure that to the extent you're able to split income, you'll be taxed at the lowest personal income tax rate. To give you a different example, let's say two married lawyers were each earning $800,000 a year but working at different firms.

Finance committee  I'm sorry. Under this proposed amendment—

Finance committee  I believe that one of the conditions for the application of subsection 160(4), which is the provision referenced in the proposal in the excluded amount definition, has the requirement that the couple be living separate and apart at the end of the year in order to qualify.

Finance committee  Thank you, Mr. Chair. The proposals in clause 13 of the bill operate within the general scheme of the act relating to property transfers on the dissolution of a marriage, the breakdown of a marriage. In particular, there is already a provision in the “excluded amount” definition that relates to property transferred as a result of the dissolution of a marriage.

Finance committee  Perhaps I can build on Maude's comments. First of all, I don't know that one of the goals was to prevent the proliferation of corporations so much as it was to ensure that when corporations are used, the appropriate tax results occur. You mentioned as well the use of an asset that in one corporation would be actively used in the business, transferred to another corporation, and then used by corporations within a related group in their businesses.

Finance committee  I'm sorry. I think we're here to explain the technical tax changes in parts 1 and 2 and other parts of the bill. I think that falls outside of the area of our expertise.

Finance committee  It has more to do with provinces that require the amount determined in paragraph 122.61(c) of the Income Tax Act. If they refer to needing that information specifically, then with the change in the rules, (c) wouldn't have been there anymore. It was kept on the books for a couple of years to give provinces an opportunity to transition their information requirements to the new Canada child benefit system.