FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 8, 2001

• 0946

[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order. I welcome everyone here this morning—

Hon. Lorne Nystrom (Regina—Qu'Appelle, NDP): Thank you.

The Chair: —including you, Mr. Nystrom.

As you know, we're doing clause-by-clause on Bill C-22, an act to amend the Income Tax Act, the income tax application rules, certain acts related to the Income Tax Act, the Canada Pension Plan, the Customs Act, the Excise Tax Act, the Modernization of Benefits and Obligations Act, and another act related to the Excise Tax Act.

Now that that's clear, we're going to move right to clause-by-clause. Pursuant to Standing Order 75(1), consideration of clause 1 is postponed.

I have some comments before we begin dealing with the groupings. The amendments will be grouped and voted on as follows: amendment numbers G-4, G-6, G-8 to G-14, G-17, G-19 to G-21, G-23, G-25 to G-27, G-31, G-33, G-35 to G-37, and G-40 are consequential to amendment number G-1. A vote on G-1 will apply to amendments G-4, G-6, G-8 to G-14, G-17, G-19 to G-21, G-23, G-25 to G-27, G-31, G-33, G-35 to G-37, and G-40. Amendments numbered G-30, G-35.1, and G-38 are consequential to amendment number G-22. A vote on G-22 will apply to amendments G-30, G-35.1, and G-38. All other amendments will be put and voted on separately.

(Clauses 2 to 5 inclusive agreed to on division)

(On clause 6)

The Chair: We have an amendment, I believe.

Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Yes, Mr. Chairman. This amendment and all the consequential amendments basically are here for the following reason. When we introduced the budget and economic statement we reduced the capital gains inclusion rate initially from seventy-five to two-thirds and from two-thirds to fifty. That creates three periods within the year 2000. The purpose of all these amendments and the way they've been grouped, as the chairman has proposed, is to make sure that in a number of different areas the legislation meets that policy intent, that the capital gains inclusion rate is actually divided into the periods as stipulated by the dates that were announced in the budget and the economic statement at the inclusion rate, at the three-quarters, the two-thirds, and then the fifty percent.

So there are a number of technical areas in terms of trusts and partnerships, but they're grouped in that way because they are intended to meet that policy intent.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 6 as amended agreed to on division)

(Clause 7 agreed to on division)

(On clause 8)

The Chair: I believe there is an amendment, G-2.

Mr. Roy Cullen: Yes, Mr. Chairman. Again, we have the officials here for more details. This basically deals with the issue of a Canadian taxpayer making a low-interest loan to a non-resident. It deals with those situations where there was an intermediary. If the Canadian loan is to a non-resident at a low-interest rate, we deem the interest rate to be at fair market value. This amendment deals with those cases where there is an intermediary. The act says we go through the intermediary to the non-resident and make sure that is where the deemed interest is spelled out. This amendment makes sure we collapse the transactions between the Canadian taxpayer and the intermediary and the intermediary and the non-resident.

• 0950

The Chair: Thank you, Mr. Cullen.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 8 as amended agreed to)

(Clauses 9 to 13 inclusive agreed to on division)

(On clause 14)

The Chair: I think we have an amendment by the government, G-3.

Mr. Roy Cullen: Yes, Mr. Chairman. This deals with what we call weak currency loans. There were examples where loans were being made at high interest rates in weak currencies—for example, the New Zealand kiwi. So the high interest rate was deductible against business income or taxable income. The currency exposure was hedged, so there would be a capital gain in many cases later. So there was a tax deferment of the gain and of course the capital gain taxed at a lower rate. This is meant to try to cover that off.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 14 as amended agreed to)

(Clauses 15 to 21 inclusive agreed to on division)

(On clause 22)

The Chair: I believe there's an amendment by the government, G-5.

Mr. Roy Cullen: Yes, Mr. Chairman. This deals with gifts of securities to qualified donors, and again it deals with the capital gains inclusion rate, the three-quarters, the two-thirds, and the one-half. Of course, these securities come in at one-half. It had to do with those entities.

Let's say a company came into existence before March 31 but chose a year-end of October 15, for example. They'd be in the middle of the budget and economic statement. It's meant to clarify that and to ensure that the act meets again with the policy intent.

(Amendment agreed to on division—[See Minutes of Proceedings])

(Clause 22 as amended agreed to)

(Clause 23 as amended agreed to)

(On clause 24)

The Chair: There is an amendment by the government, G-7.

Mr. Roy Cullen: Mr. Chairman, this is referring to the new subparagraph 104(21.4)(a)(ii) or subsection (21.7).

Mr. Lalonde, could you or one of the officials just clarify this?

Mr. Gérard Lalonde (Senior Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance): Further in this package of amendments you'll see a proposed new subparagraph, 104(21.7)(b)(ii). That rule is consequential on the variety of rules governing the treatment of capital gains in the year 2000. In some cases gains will come out to the taxpayer already as a taxable capital gain, and in other cases as a capital gain that has to be subject to the applicable inclusion rate.

The amendment here in clause 24 adds a new reference to subparagraph 104(21.7)(b)(ii), in order to provide the correct inclusion rate when you're reading this rule along with the proposed new subparagraph.

The Chair: Mr. Epp.

Mr. Ken Epp (Elk Island, Canadian Alliance): Is it appropriate for us to approve this amendment on a clause that is going to be but has not yet been approved? I know it's going to pass. We know that for certain. But should it not actually be done first before we approve that this refers to it? If we approve this amendment right now, it doesn't even exist.

Mr. Roy Cullen: It's a point, Mr. Chairman, that we discussed with the officials this morning. If the committee so wishes, one could hold this one out until we deal with the subsequent amendment and come back to it, if that's the vote.

The Chair: Could we stand this?

Some hon. members: Agreed.

(Clause 24 allowed to stand)

(Clause 25 agreed to)

(Clause 26 as amended agreed to)

(Clauses 27 to 35 inclusive agreed to)

• 0955

(Clause 36 as amended agreed to)

(Clauses 37 to 57 inclusive agreed to)

(Clauses 58 and 59 as amended agreed to)

(Clause 60 agreed to)

(Clause 61 as amended agreed to)

(Clauses 62 to 69 inclusive agreed to)

(Clause 70 as amended agreed to)

(On clause 71)

The Chair: G-15, Mr. Cullen.

Mr. Roy Cullen: Yes, Mr. Chairman. This is just to put in paragraph 128.1(1)(e). The “.1” was inadvertently left out of the bill.

(Amendment agreed to)

(Clause 71 as amended agreed to)

(Clause 72 agreed to)

(On clause 73)

The Chair: G-16, Mr. Cullen.

Mr. Roy Cullen: Yes, Mr. Chairman. This deals with the calculation of foreign accrual property income, affectionately referred to as FAPI. This says that the deductible loss of an affiliate...you're not required to claim the whole loss of the affiliate. It gives an elective provision with respect to foreign accrual property income.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 73 as amended agreed to)

(On clause 74)

The Chair: G-18, Mr. Cullen.

Mr. Roy Cullen: Yes, Mr. Chairman. This again is the same issue with the capital gains inclusion rate, to ensure that the legislation meets the policy intent in terms of the three periods, the 75, 66, two-thirds, and one-half, and it relates to partnerships.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 74 as amended agreed to)

(Clause 75 agreed to)

(Clauses 76 and 77 as amended agreed to)

(On clause 78)

The Chair: G-22, Mr. Cullen.

Mr. Roy Cullen: Yes, Mr. Chairman. This is linked to proposed subsection (21.6) in clause 78. Again, as I understand it—Mr. Lalonde, you can correct me if I'm wrong—this relates to the capital gains inclusion rate with respect to trusts.

The Chair: Consequential with G-1, yes. Any further explanation?

Mr. Roy Cullen: I think that's all, Mr. Chairman.

Mr. Ken Epp: What about G-23 on clause 78? Should we not deal with that before we...?

The Chair: G-23 is consequential.

Mr. Ken Epp: Okay.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 78 as amended agreed to)

(Clause 79 agreed to)

(On clause 80)

The Chair: Mr. Cullen.

Mr. Roy Cullen: Mr. Chairman, this has to do with indexed funds. Typically indexed funds are redeemed for cash, but in some cases they're redeemed for property. This provision allows...the unit holder would be taxed on the capital gain of the property, so it would flow right through to the unit holder. It deals with distributions of property as opposed to cash. It covers that off.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 80 as amended agreed to)

(Clauses 81 to 85 inclusive agreed to)

(Clauses 86 and 87 as amended agreed to)

(Clauses 88 to 93 inclusive agreed to)

(On clause 94)

The Chair: G-28, Mr. Cullen.

Mr. Roy Cullen: Mr. Chairman, this has to do with life insurance proceeds to a charity. It deals with a life insurance policy in Canada, but the government basically said it doesn't really make a difference where you were when you signed up to the policy. It just clarifies that policy intent that it would be a donation of life insurance proceeds to charity, irrespective of where you were when you signed up to the policy.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 94 as amended agreed to)

(Clauses 95 to 117 inclusive agreed to)

(On clause 118)

The Chair: G-29, Mr. Cullen.

• 1000

Mr. Roy Cullen: Yes, Mr. Chairman. This is just to clarify on flowthrough mining expenditure. There was some confusion about whether the tonnage was 1,000 tonnes. It's 1,000 tonnes per year, not in a lifetime.

The Chair: Not in a lifetime.

Mr. Roy Cullen: Not in a lifetime; in a calendar year.

Is that right, Mr. Lalonde?

Mr. Gérard Lalonde: Yes.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 118 as amended agreed to)

(Clauses 119 to 126 inclusive agreed to)

(Clause 127 as amended agreed to)

(On clause 128)

The Chair: G-32, Mr. Cullen.

Mr. Roy Cullen: Yes.

Mr. Chairman, as I understand it, this deals with capital gains inclusion rate rules again with respect to mutual fund corporations.

Mr. Lalonde, is there anything else with that amendment?

Mr. Gérard Lalonde: No. Essentially what the amendment does is ensure that the capital gains are included at the correct inclusion rate for gains arising in various periods.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 128 as amended agreed to)

(On clause 129)

The Chair: G-34, Mr. Cullen.

Mr. Roy Cullen: Yes, Mr. Chairman. Just to clarify, did we deal with clause 127 or was that done as a consequential...?

The Chair: It was consequential. I asked if clause 127 carried as amended, and it carried.

Mr. Roy Cullen: Good. Thank you.

On clause 129, Mr. Chairman, this provision ensures that there is no double taxation of capital gains realized by mutual funds and trusts, so that you're not taxing it in the fund and again in the hands of the taxpayer.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 129 as amended agreed to)

(Clause 130 agreed to)

(Clause 131 as amended agreed to)

(Clauses 132 and 133 agreed to)

(Clause 134 as amended agreed to)

(Clauses 135 to 185 inclusive agreed to)

(On clause 186)

The Chair: G-39, Mr. Cullen.

Mr. Roy Cullen: Yes, Mr. Chairman. There was an extra word, the word “to”, and we already have the word “to” in the preamble. So it's just a grammatical change. Too many “to's”.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 186 as amended agreed to)

(Clause 187 as amended agreed to)

(Clauses 188 to 193 inclusive agreed to)

(On clause 194)

The Chair: G-41, Mr. Cullen.

Mr. Roy Cullen: Yes, Mr. Chairman. This is what we call tightening changes. It's to ensure that companies are not caught off guard with respect to the taxation years and the small business deduction.

Mr. Lalonde, would you like to expand on this one?

Mr. Gérard Lalonde: Sure. This particular rule deals with a court decision, the Parthenon case, which upset the apple cart, if you will, in terms of the accepted theory of control, where you have a series of corporations in a chain—one controls the other. The concern was that the top corporation in the chain might not control the bottom corporation if it's considered that the middle corporation controls the bottom corporation.

The fix to ensure that the status quo ante was reinstated was proposed to be effective November 30, 1999. The difficulty is that there are occasions where the results of applying the rule are applicable for a whole taxation year. It's not clear what happens when you say the rule is applicable as of a certain day. This amendment changes the coming into force to say that it's applicable for taxation years that begin after November 1999, the month in which the change was announced.

The Chair: Mr. Epp.

Mr. Ken Epp: I think that's a very good amendment.

The Chair: I just wanted to get you on the record.

Mr. Lorne Nystrom: Why did you say that, Mr. Epp?

Mr. Ken Epp: Because he explained it so well. If you had been listening, you would know.

The Chair: Do you have a comeback, Mr. Nystrom?

• 1005

Mr. Lorne Nystrom: I want to know why he isn't...[Inaudible—Editor]

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 194 as amended agreed to)

(Clauses 195 to 230 inclusive agreed to)

(On clause 231)

The Chair: There is amendment G-42.

Mr. Roy Cullen: Yes, Mr. Chairman. This corrects a margin error, and it's basically to make sure the English version has the same intended effect and is consistent with the French version.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 231 as amended agreed to)

(Clauses 232 to 258 inclusive agreed to)

(On clause 259)

The Chair: Amendment G-43.

Mr. Roy Cullen: Yes, Mr. Chairman. I just want to thank the officials. A lot of this material is quite technical, and I'm glad the officials are keeping an eye on it and watching it on behalf of all Canadians.

The Chair: And here we thought you were doing all this work.

Mr. Roy Cullen: Well, we're very much involved, but....

Mr. Chairman, this deals with the Excise Tax Act, and it makes the wording the same so that it's consistent with other parts of the Excise Tax Act. It's a question of grammatical consistency.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 259 as amended agreed to)

(Clauses 260 to 264 inclusive agreed to)

(On clause 24)

The Chair: I have to go back to that clause that was stood, G-7 on clause 24.

(Amendment agreed to—[See Minutes of Proceedings])

(Clause 24 as amended agreed to)

The Chair: Shall clause 1 carry?

Some hon. members: Agreed.

The Chair: Shall the title carry?

Some hon. members: Agreed

The Chair: Shall the bill carry?

Some hon. members: Agreed.

The Chair: Shall I report the bill as amended to the House?

Some hon. members: Agreed.

Some hon. members: On division.

The Chair: Shall the committee order a reprint for use at report stage?

Some hon. members: Agreed.

The Chair: Thank you very much.

Before we leave, first of all, I want to thank the members of the committee. There is a lot of legislation going through this committee, particularly in the next few weeks, and last week.

Of course I want to express to the officials our sincerest and warmest gratitude for the work you do. I know a lot of work went into making this bill a reality, and we simply want, on behalf of the committee, to let you know that we certainly appreciate it.

And to all the researchers, staff, and everybody who makes this committee function—some of us do think it does function—I want to thank you very much.

The meeting is adjourned.