FINA Committee Meeting

Meeting No. 73

Wednesday, May 31, 2000

The Standing Committee on Finance met at 5:07 p.m. this day, in Room 269, West Block, the Chair, Maurizio Bevilacqua, presiding.

Members of the Committee present: Maurizio Bevilacqua, Ken Epp, Roger Gallaway, Albina Guarnieri, Sophia Leung, Gary Pillitteri, Karen Redman and Paul Szabo.

Acting Member present: Steve Mahoney for Roy Cullen, Paul de Villers for Nick Discepola and Jocelyne Girard-Bujold for Yvan Loubier.

In attendance: From the Library of Parliament: Jean Soucy and Blayne Haggart, Researchers. From the Legislative Services: Susan Baldwin, Legislative Clerk.

Witnesses: From the Department of Finance: Gérard Lalonde, Senior Chief, Tax Legislation Division, Tax Policy Branch; James R. Greene, Tax Policy Officer, Tax Legislation Division, Tax Policy Branch; Kerry Harnish, Tax Policy Officer, Tax Legislation Division, Tax Policy Branch.

The Committee resumed consideration of Bill C-25, An Act to amend the Income Tax Act, The Excise Tax Act and the Budget Implementation Act, 1999 (See Minutes of Proceedings, Thursday, May 18, 2000, Meeting No. 67).

The Committee resumed consideration of Clause 1.

Clause 1 stood.

Clauses 2 to 16 carried, severally, on division.

The Chair called Clause 17.

Paul Szabo moved, -- That Bill C-25, in Clause 17, be amended by replacing lines 30 and 31 on page 8 with the following:

"paragraph 8(1)(b), (n) or (n.1), 60(n) or (o.1) or 110(1)(f) in respect of the"

After debate, the question being put on the amendment, it was agreed to, on division.

Clause 17 carried, as amended, on division.

Clauses 18 to 20 carried severally, on division.

The Chair called Clause 21,

Paul Szabo moved, -- That Bill C-25, in Clause 21, be amended by replacing line 3 on page 10 to line 16 on page 15 with the following:

21. (1) The Act is amended by adding the following after section 115.1:

Non-Residents with Canadian Investment Service Providers

115.2 (1) The definitions in this subsection apply in this section.

"Canadian service provider" means a corporation resident in Canada, a trust resident in Canada or a Canadian partnership.

"designated investment services" provided to a qualified non-resident means any one or more of the services described in the following paragraphs:

(a) investment management and advice with respect to qualified investments, regardless of whether the manager has discretionary authority to buy or sell;

(b) purchasing and selling qualified investments, exercising rights incidental to the ownership of qualified investments such as voting, conversion and exchange, and entering into and executing agreements with respect to such purchasing and selling and the exercising of such rights;

(c) investment administration services, such as receiving, delivering and having custody of investments, calculating and reporting investment values, receiving subscription amounts from, and paying distributions and proceeds of disposition to, investors in and beneficiaries of the qualified non-resident, record keeping, accounting and reporting to the qualified non-resident and its investors and beneficiaries; and

(d) if the qualified non-resident is a corporation, trust or partnership the only undertaking of which is the investing of its funds in qualified investments, marketing investments in the qualified non-resident to non-resident investors.

"promoter" of a qualified non-resident that is a corporation, trust or partnership means a person or partnership that initiates or directs the founding, organization or substantial reorganization of the non-resident, or a person or partnership affiliated with such a person or partnership.

"qualified investment" of a qualified non-resident means

(a) a share of the capital stock of a corporation, or an interest in a partnership, trust, entity, fund or organization, other than a share or an interest

(i) that is either

(A) not listed on a prescribed stock exchange, or

(B) listed on a prescribed stock exchange, if the qualified non-resident, together with all persons with whom the non-resident does not deal at arm's length, owns 25% or more of the issued shares of any class of the capital stock of the corporation or of the total value of interests in the partnership, entity, trust, fund or organization, as the case may be, and

(ii) of which more than 50% of the fair market value is derived from one or more of

(A) real property situated in Canada,

(B) Canadian resource property, and

(C) timber resource property;

(b) indebtedness;

(c) annuities;

(d) commodities or commodities futures purchased or sold, directly or indirectly in any manner whatever, on a commodities or commodities futures exchange;

(e) currency; and

(f) options, interests, rights and forward and futures agreements in respect of property described in any of paragraphs (a) to (e) or this paragraph, and agreements under which obligations are derived from interest rates, from the price of property described in any of those paragraphs, from payments made in respect of such a property by its issuer to holders of the property, or from an index reflecting a composite measure of such rates, prices or payments, whether or not the agreement creates any rights in or obligations regarding the referenced property itself.

"qualified non-resident" means a non-resident person or a partnership no member of which is resident in Canada.

(2) For the purposes of subsection 115(1) and Part XIV, a qualified non-resident is not considered to be carrying on business in Canada at any particular time solely because of the provision to the non-resident at the particular time of designated investment services by a Canadian service provider if

(a) in the case of a non-resident who is an individual other than a trust, the non-resident is not affiliated at the particular time with the Canadian service provider; and

(b) in the case of a non-resident that is a corporation, trust or partnership,

(i) the non-resident has not, before the particular time, directly or through its agents, directed any promotion of investments in itself principally at, or sold such investments to, persons that the non-resident knew or ought to have known after reasonable enquiry were resident in Canada or partnerships that the non-resident knew or ought to have known after reasonable enquiry had members that were resident in Canada,

(ii) the non-resident has not, before the particular time, directly or through its agents, filed any document with a public authority in Canada in accordance with the securities legislation of Canada or of any province in order to permit the distribution of interests in the non-resident to persons resident in Canada, and

(iii) when the particular time is more than one year after the time at which the non-resident was created, the total of the fair market value, at the particular time, of investments in the non-resident that are beneficially owned by persons and partnerships (other than a designated entity in respect of the Canadian service provider) that are affiliated with the Canadian service provider does not exceed 25% of the fair market value, at the particular time, of all investments in the non-resident.

(3) For the purposes of subparagraph (2)(b)(iii) and this subsection,

(a) the fair market value of an investment in a corporation, trust or partnership shall be determined without regard to any voting rights attaching to that investment; and

(b) a person or partnership is, at a particular time, a designated entity in respect of a Canadian service provider if the total of the fair market value at the particular time, of investments in the entity that are beneficially owned by persons and partnerships (other than another designated entity in respect of the Canadian service provider) that are affiliated with the Canadian service provider does not exceed 25% of the fair market value, at the particular time, of all investments in the entity.

(4) For the purpose of section 247, where subsection (2) applies to a qualified non-resident, if the Canadian service provider referred to in that subsection does not deal at arm's length with the promoter of the qualified non-resident, the service provider is deemed not to deal at arm's length with the non-resident.

(2) Subsection (1) applies to taxation years that end after 1998.

After debate, the question being put on the amendment, it was agreed to, on division.

Clause 21 carried, as amended, on division.

Clauses 22 to 49 carried, severally, on division.

The Chair called Clause 50,

Paul Szabo moved, -- That Bill C-25, in Clause 50, be amended by

(a) adding after line 35 on page 75 the following:

"gross compensation" of a particular person at any time, in respect of a false statement that could be used by or on behalf of another person, means all amounts to which the particular person, or any person not dealing at arm's length with the particular person, is entitled, either before or after that time and either absolutely or contingently, to receive or obtain in respect of the statement."

(b) replacing line 8 on page 77 with the following:

"subsections (6) and (15) referred to as the "other"

(c) replacing lines 26 and 27 on page 77 with the following:

"person (in this subsection, subsections (5) and (6), paragraph (12)(c) and subsection (15) referred to as the "other person") that"

(d) replacing lines 5 to 9 on page 78 with the following:

"(b) the lesser of

(i) the penalty to which the other person would be liable under subsection 163(2) if the other person made the statement in a return filed for the purposes of this Act and knew that the statement was false, and

(ii) the total of $100,000 and the person's gross compensation, at the time at which the notice of assessment of the penalty is sent to the person, in respect of the false statement that could be used by or on behalf of the other person."

(e) replacing line 16 on page 80 with the following:

"that is referred to in subsection (2) the amount of which is"

(f) replacing, in the English version, line 29 on page 80 with the following:

"sent;"

(g) replacing line 43 on page 80 with the following:

"that time; and

(c) where a person is assessed a penalty that is referred to in subsection (4), the person's gross compensation at any time in respect of the false statement that could be used by or on behalf of the other person shall exclude the total of all amounts each of which is the amount of a penalty (other than a penalty the assessment of which is void because of subsection (13)) determined under subsection (5) to the extent that the false statement was used by or on behalf of that other person and for which notice of the assessment was sent to the person before that time."

(h) replacing line 2 on page 81 with the following:

"assessment of a penalty that is referred to in subsection (2)"

(i) adding after line 16 on page 81 the following:

"(15) Where an employee (other than a specified employee or an employee engaged in an excluded activity) is employed by the other person referred to in subsections (2) and (4),

(a) subsections (2) to (5) do not apply to the employee to the extent that the false statement could be used by or on behalf of the other person for a purpose of this Act; and

(b) the conduct of the employee is deemed to be that of the other person for the purposes of applying subsection 163(2) to the other person."

After debate, the question being put on the amendment, it was agreed to, on division.

Clause 50 carried, as amended, on division.

Clauses 51 to 58 carried severally, on division.

The Chair called Clause 59.

Paul Szabo moved, -- That Bill C-25, in Clause 59, be amended by replacing lines 1 to 8 on page 89 with the following:

"(c)where a share of a predecessor corporation (in this paragraph referred to as the "predecessor share") is replaced on the amalgamation or merger by a new share of the new corporation,

(i) the new share

(A) is deemed not to have been issued on the amalgamation or merger, and

(B) is deemed to have been issued by the new corporation at the time the predecessor corporation issued the predecessor share, and

(ii) if the new share was issued to a person who acquired the predecessor share as a consequence of a transfer the registration of which by the predecessor corporation was permitted under paragraph 204.81(1)(c), the issuance of the new share is deemed to be in compliance with the conditions described in paragraph 204.81(1)(c);"

After debate, the question being put on the amendment, it was agreed to, on division.

Clause 59 carried, as amended, on division.

Clauses 60 to 69 carried, severally, on division.

The Chair called Clause 70.

Paul Szabo moved, -- That Bill C-25, in Clause 70, be amended by

(a) adding after line 7 on page 99 the following:

"gross compensation" of a particular person at any time, in respect of a false statement that could be used by or on behalf of another person, means all amounts to which the particular person, or any person not dealing at arm's length with the particular person, is entitled, either before or after that time and either absolutely or contingently, to receive or obtain in respect of that statement."

(b) replacing line 15 on page 100 with the following:

"subsections (6) and (15) referred to as the "other"

(c) replacing line 33 on page 100 and line 1 on page 101 with the following:

"person (in this subsection, subsections (5) and (6), paragraph (12)(c) and subsection (15) referred to as the "other person") that"

(d) replacing lines 13 to 15 on page 101 with the following:

"(b) the lesser of

(i) the total of $100,000 and the person's gross compensation, at the time at which the notice of assessment of the penalty is sent to the person, in respect of the false statement that could be used by or on behalf of the other person, and

(ii) 50% of the total of all amounts each of which is

(A) if the false statement is relevant to the"

(e) replacing line 27 on page 101 with the following:

"(B) if the false statement is relevant to the"

(f) replacing line 31 on page 101 with the following:

"(I) that tax payable"

(g) replacing line 33 on page 101 with the following:

"(II) the amount that would be the tax"

(h) replacing line 37 on page 101 with the following:

"(C) if the false statement is relevant to"

(i) replacing line 40 on page 101 with the following:

"(I) the amount that would be the"

(j) replacing line 1 on page 102 with the following:

"(II) the amount of the rebate payable to"

(k) replacing line 40 on page 103 with the following:

"that is referred to in subsection (2) the amount of which is"

(l) replacing, in the English version, line 9 on page 104 with the following:

"sent;"

(m) replacing line 23 on page 104 with the following:

"that time; and

(c) where a person is assessed a penalty that is referred to in subsection (4), the person's gross compensation at any time in respect of the false statement that could be used by or on behalf of the other person shall exclude the total of all amounts each of which is the amount of a penalty (other than a penalty the assessment of which is void because of subsection (13)) determined under subsection (5) to the extent that the false statement was used by or on behalf of that other person and for which notice of the assessment was sent to the person before that time."

(n) replacing line 25 on page 104 with the following:

"assessment of a penalty that is referred to in subsection (2)"

(o) adding after line 39 on page 104 the following:

"(15) If an employee (other than a specified employee, as defined in subsection 248(1) of the Income Tax Act, or an employee engaged in an excluded activity) is employed by the other person referred to in subsections (2) and (4)

(a) subsections (2) to (5) do not apply to the employee to the extent that the false statement could be used by or on behalf of the other person for a purpose of this Part; and

(b) the conduct of the employee is deemed to be that of the other person for the purpose of applying section 285 to the other person.

Burden of proof in respect of penalties

(16) If, in an appeal under this Part, a penalty assessed by the Minister under this section or section 285 is in issue, the burden of establishing the facts justifying the assessment of the penalty is on the Minister."

After debate, the question being put on the amendment, it was agreed to, on division.

Clause 70 carried, as amended, on division.

Clauses 71 to 73carried, severally, on division.

Clause 1 carried, on division.

The Title carried, on division.

The Bill carried, on division.

ORDERED, -- That the Chair report Bill C-25, An Act to amend the Income Tax Act, The Excise Tax Act and the Budget Implementation Act, 1999 as the Seventh Report of the Committee.

At 5:44 p.m., the sitting was suspended.

At 6:27 p.m., the sitting resumed.

The Committee resumed consideration on the Natural Disaster Reduction Plan (See Minutes of Proceedings, Wednesday, May 3, 2000, Meeting No. 53).

The Committee proceeded to consider a draft report.

It was agreed, -- That the draft report be adopted as the Eighth Report of the Committee.

It was agreed, -- That the title of the Report be: "Prevention Today… Savings Tomorrow".

It was agreed, -- That the Chair, researchers and clerk be authorized to make such typographical and editorial changes as may be necessary without changing the substance of the report.

It was agreed, -- That the Chair present the Eighth Report of the Committee to the House.

At 6:28 p.m., the Committee adjourned to the call of the Chair.

Pat Steenberg

Clerk of the Committee