I call this meeting to order. This is meeting 39 of the Standing Committee on Finance. We are televised, colleagues. Pursuant to the order of reference of Tuesday, April 8, 2014, we are continuing our clause-by-clause consideration of Bill an act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.
We are dealing with part 5. As you know, we dealt with parts 1 to 4 at Tuesday's meeting. Part 5 deals with the Canada-U.S.A. enhanced tax information exchange agreement implementation act.
We have with us two officials from the Department of Finance, Mr. Ted Cook and Mr. Brian Ernewein, whom colleagues on the committee know very well. Thank you for being with us.
(On clause 99—Enactment)
The Chair: We will start with clause 99. I'll just indicate, as your agenda shows, that we have an awful lot of amendments pertaining to this clause, so I suspect there'll be quite a debate on this.
We are going to start with amendment NDP-6, and I will just identify that if NDP-6 is moved, LIB-2 cannot be proceeded with, as they are identical. Obviously that deals with LIB-2.
If LIB-3 is adopted, Green Party amendment PV-1 cannot be moved, line conflict, nor NDP-7, as it's consequential. Also, if Green Party PV-1 is adopted, NDP-7 cannot be proceeded with.
We have all of these amendments. We'll start with the NDP. It's up to members, but sometimes they wish to group their amendments, or sometimes they wish to speak individually to each amendment. I'll leave that up to the respective members and parties themselves.
I will start with NDP-6, and I'll go to Mr. Rankin, please.
I'd like to set the context before I move the first of several amendments to part 5 of the budget implementation act pertaining to the implementation of the U.S. Foreign Account Tax Compliance Act, or FATCA, as it's more popularly known.
I'd like the members across to carefully consider the serious issues that have been raised at this committee concerning the implementation of this deeply flawed agreement. I hope they'll carefully consider and support our NDP amendments that address some of the serious problems that have arisen.
It has become increasingly clear through departmental and witness appearances at this committee that the Conservative government simply has failed to adequately study the implications of FATCA and the implementation agreement with respect to privacy, constitutionality, and cost.
Rushing it through in an omnibus bill without proper study is not only reckless, but it's also entirely unnecessary. The U.S. has recently delayed the application of FATCA sanctions until January 2015. Canada is already deemed in compliance with the U.S. law, and legal experts have testified to this committee that there's ample time, therefore, to properly study and amend this agreement.
More than one million Canadians could be negatively affected by this deeply flawed agreement. So, we're simply asking, yet again, that the Conservatives slow it down and remove FATCA from this budget bill, so it can be properly scrutinized and amended, and so we can ensure that Canadians' privacy and constitutional rights are protected. Surely that's of concern to every member of this committee. It's more important, we say, to fix this and protect those many Canadians who are going to be affected than it is to ram this through in an omnibus budget bill, in which this agreement has no place being in the first place.
The first amendment, Mr. Chair, is NDP-6, which simply would say, in clause 99, that it be amended by adding after line 11 on page 73, the following:
“(2) Despite any other provision of this Act or the Agreement, for all purposes related to the implementation of this Act and the Agreement, “U.S. Person” and “Specified U.S. Person” does not include any person who is
(a) a Canadian citizen within the meaning of the Citizenship Act or a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act; and
(b) ordinarily resident in Canada.”
This amendment is intended to address one of the most central issues pertaining to FATCA and perhaps its greatest flaw, that this will impact Canadian citizens who are deemed to be U.S. persons and targeted by this agreement, but who are in every other way our fellow Canadian citizens and permanent residents of this country.
I'd like to thank Lynne Swanson, who appeared before this committee, Dr. Stephen Kish, and so many others for their dedicated work to advocate for those who will be undeservedly caught in the FATCA net. Many experts have analyzed the agreement, and it was really negotiated with the protection of banks in mind, they have told us, not the people who will be affected.
I ask the members opposite to carefully consider and support this amendment which, if passed, would protect our fellow Canadian citizens who, for all practical purposes, should not be affected by this agreement, and who should have the same rights as every other citizen. We should not create a second class of Canadians with a second set of rights just because American law deems them to be U.S. persons. Even those born in Canada can be caught in the FATCA net.
Finally, this would help the government avoid an inevitable charter challenge, which I hope they would be interested in avoiding.
That is the purpose and intent of NDP-6, Mr. Chair.
This is where I'll end.
In terms of the use of that data, one of the concerns that's been raised, and this has happened, by the way, when health records have been subcontracted to an American company. The American company then is exposed.... Some of the committee members will have constituents that this has happened to. Health records get exposed under the Patriot Act. A Canadian crosses the border; there's a trigger that comes up because the person, under their health information, had—I don't know—accessed mental health services, or some issue, and then they get stopped.
It's a disturbing thing, as you can well imagine, that information like that would suddenly end up in the hands of a U.S. border guard when it has nothing to do with....
Our concern is, what real protections can we have that the IRS, under the Patriot Act or other provisions under U.S. law, completely outside of our control, doesn't allow that financial information, which one might argue is as sensitive as health information? You can learn a lot about a person through their financial records—a lot; more than maybe you should.
Considering the nature of data breaches that have happened both at the CRA and the IRS in the last number of years, how do we control the U.S.? Once that information enters the U.S., it is subject to U.S. law, and we can't control what the U.S. does with that information once it crosses the border.
I just wanted to respond to Mr. Keddy's comments with respect to my proposed amendment. He said, and I agree with him entirely, that this is really a function of a U.S. tax law and a citizenship-based taxation. I totally accept that. But Canada is a sovereign country. Canada has rights at international law. Canada has chosen through this agreement and this budget implementation act to treat some of our fellow Canadians, even those who are born here of U.S. persons, as second-class citizens.
That, of course, is going to be the thrust of a charter challenge which is being prepared right now. I just want to put that on the record.
Mr. Keddy, it's not just dual-citizens. It's people who are married. That is through you, Mr. Chair, but in response to his comments.
Dual citizenship is a smaller category than what we're subject to in this intergovernmental agreement and BIA. We're talking about people who are married to U.S. persons; we're talking about people born here of U.S. persons, and they are now different from other fellow Canadians.
The purpose of the amendment is just to say that we are all the same in Canada and that our government ought not to have sacrificed our sovereignty just because of a U.S. citizen-based taxation regime.
I think Mr. Keddy also said, and I agree, that the purpose of this bill appears to be to protect our banks from a withholding tax in the United States. I'm here, in this amendment, Mr. Chairman, to protect our fellow citizens from this law.
Mr. Chair, through you, I just have a couple of comments and clarification questions for our witnesses.
Mr. Ernewein, you did indicate that there is a narrower level of information that is being contemplated under the IGA than what would have been contemplated under FATCA, or what would be in place under FATCA if we did not have an IGA.
I think this is one of the questions we seem to be arguing: the IGA or not an IGA. We have an IGA, but we could be in a situation where we don't have an IGA, but FATCA is going to apply to Canadians and to banks even if we don't have an IGA. It's going to happen anyway.
There were two factors that you talked about. One was a narrower level of information. I also understand that the due diligence procedures that you just commented about with respect to the electronic checking of low-value accounts, those actually less than $1 million, require basically a much higher level of information and less scrutiny than most other countries have received.
I think it's important because there are a number of these amendments that we're going to be looking at. I think a lot of them are going to try to accomplish the same thing, but I think the answer to most of them is the same. Under this case and this amendment that's being proposed, and which Mr. Rankin talked about, if not dangerously, we would be in non-compliance with the IGA if we started restricting their U.S. citizens, and they talk about permanent residents as well.
The question is, if we invalidate the IGA, what situation will we be in? The U.S. may say, “Fine. No problem. You're too restrictive, and that's not what we're going to have any more. We're going to come back with FATCA, and we're going to negotiate one-on-one deals with your banks”, which is what they would have done.
There would not only be a 30% withholding on the banks, but also on transfers of dollars to individuals in Canada as well. I could imagine the sputtering that would be going on in our offices if 30% withholding was based on transfers coming to individuals.
In that context we have to be very cautious about looking at any amendments to this. I look at this amendment as being one that would potentially invalidate the IGA in the mind of the U.S.
Can you give that context for us right here?
Yes, I'll try to be succinct.
To the point first of all as to whether or not U.S. citizens are intended to be captured in the agreement, I think without hesitation the answer has to be yes. The agreement describes a U.S. person as including a U.S. citizen or resident individual.
If we were to say that U.S. citizens or a class of U.S. citizens resident here were not captured or were exempt in whole from the reporting obligation, I know that the U.S. would consider that inconsistent with the obligations that we were thought to have accepted under the agreement itself.
To your point about the scope of the agreement, yes, there is a narrower scope or field of accounts that have to be reported or are subject to reporting under the intergovernmental agreement as compared to FATCA itself. I won't list them all, but we've talked before about all the registered accounts that are kept out of this reporting obligation as a result of this. There are also exemptions for small financial institutions and the like. All of those slice reporting off of what has to be done as compared to FATCA.
Finally to your point, if we didn't do this and if instead we went to FATCA, then yes, we would be back in that sort of hard world where either banks would be trying to find a way to cope with U.S. compliance by sending information to the U.S. directly in relation to a much wider range of accounts than the IGA would contemplate, or facing withholding tax on their behalf and on behalf of their clients, which I think would probably shut them out of the U.S.
As you mentioned, Liberal amendment LIB-2 is the same as NDP amendment NDP-6. Because this amendment is being moved by the NDP, I won't be moving Liberal amendment LIB-2, but I will be making some remarks.
I want to thank you, Mr. Chair, for allowing me to group all my remarks for the next three clauses. I will put all my remarks on the record now, and I will not be making extensive remarks for the next three clauses.
This legislation regarding the Conservative government's FATCA deal with the United States should not be part of an omnibus budget bill that is being rushed through Parliament in the last few weeks of our sitting in June. This deal will affect a lot of people, approximately a million or so deemed Americans living in Canada. Many of them are Canadian citizens. There are examples of people who are accidentally Americans; for example, Canadians from Canadian border towns who were born in a U.S. hospital because that was the closest hospital. I know a priest from New Brunswick who is in exactly that situation. He lived right on the border in New Brunswick. Then there are parents who mistakenly thought they lost their U.S. citizenship upon becoming a Canadian citizen. Their child, who was born in Canada, has never been to the United States, but finds out they have U.S. citizenship and are subject to the obligations under the legislation that we're debating today.
There hasn't been an information campaign from the government to let Canadians know how the Conservatives' FATCA deal with the United States will affect them. Perhaps that should have been done even before this legislation was considered so that we parliamentarians, as their representatives, could hear from them after they had been properly informed. That's the way accountability of the government to Parliament, to the Canadian people through Parliament, should work. I think informing Canadians first is very important.
What limited information is out there has sometimes been misleading. For example, the government has boasted that registered accounts such as RESPs and RDSPs are not reportable. In other words, the CRA will not be reporting them to the United States. But even though Canadian banks won't report those accounts, Canadians who have U.S. citizenship will still have to fill out forms to report those accounts to the IRS in the United States if the total aggregate value of all accounts exceeds $10,000. It's unfortunate that wasn't dealt with in the negotiations leading to the IGA. If these Canadians don't report their accounts to the IRS, they face U.S. penalties of up to $100,000, or 50% of the balance of the account, whichever is greater, per violation.
Under this deal, Mr. Chair, the CRA will share personal tax information on Canadians with the IRS, but our officials, our government, have been unable to tell us and the Canadian people on a granular level exactly what information will be shared. We know that under this deal the CRA will punish Canadians who don't provide the Canadian government with their U.S. tax identification number. In most cases, it will be the social security number in the U.S. When Canadians do provide this information to the CRA, the CRA will then hand it over to the IRS.
The CRA already collects information on Canadians' income, of course—it's part of filing taxes—and all our information about all our registered accounts, but we don't know in detail how much of this information the CRA will then pass on to the IRS.
The Conservative government claims that the government will not use this information to help the IRS go after U.S. taxes on Canadian assets and Canadian income earned by Canadians. However, the government is introducing a $100 penalty for Canadians who don't provide their U.S. tax identification number to the CRA, but the CRA has no use for a U.S. tax identification number, except to pass that number over to the U.S. government under the IGA.
It's clear, unfortunately, that our Conservative government has signed a deal with the United States that has the Canadian government doing work for the U.S. government, namely, collecting information for the IRS. Our officials have been unable to give Canadians granular details on how this deal will financially impact Canadian citizens, so they've been unable to give a full response to their representatives here in Parliament.
There's another example. We know that RESPs, the registered education savings plans, and the RDSPs, will be subject to U.S. taxes under this deal, but we don't know how much Canadians will have to pay in U.S. taxes on these accounts. One example where that's a problem is that if these accounts are being used by Canadians to help pay for a child's education or help disabled Canadians avoid poverty. These accounts were not created to help the U.S. Treasury pay down its debts across the border.
We know that Canadian spouses of so-called U.S. persons in Canada will also be affected if they have joint accounts and that these joint accounts will be subject to U.S. taxation, but Canadian officials haven't been able to tell us if the entire account would be subject to U.S. taxation or just a portion of it.
There's a lot about this deal that will be put into practice that we don't know.
Parliament's study of the Conservatives' FATCA deal has been rushed. We haven't been afforded the time or the resources to write proper oversight, listen to constituents who are informed, and fulfill our responsibility to them. If this section of the bill passes, we will have passed an agreement into law without properly understanding how it will work and how it will affect Canadians. That is why the Liberal Party opposes part 5 of this bill.
I will wait until we get to the point of the agenda where we reach the other Liberal amendments, and at that time I'll simply move those amendments.
Let's be clear that anyone who's solely a Canadian citizen is not caught up in this. Yes, if they're married to an American and they have a joint account, there's some possibility, but the reality is anyone who is solely a Canadian citizen is not caught up in this. If you're a Canadian citizen married to an American and you don't have a joint account, you're not caught up in this.
This, again, is a tax for U.S. citizens. If you're the son or the daughter of an American and you've been born in Canada outside the jurisdiction of the United States, you're not automatically a U.S. citizen. What I'm hearing from the opposition is somehow you are. You are absolutely not. You have to apply for U.S. citizenship on or before your 18th birthday and it's not a guarantee. It's an application form.
Let's be clear that without this agreement, this law is in place anyway in the U.S. These people are subject to the tax. We don't have to like it. We don't have to agree with it. That is not the point. We have to find a way to make this at least acceptable that if these individuals want to travel to the U.S., they don't get flagged and picked up at the U.S. border, that they're not subject when that happens to a 30% withholding tax in their personal bank account, and that the financial institution that holds that bank account is not subject to a 30% holding tax.
There's nothing nefarious there. This is a very complicated process that we're trying to find a reasonable way, through the FATCA agreement and through the IGA, to work through. To be fair, I think the officials have done a very good job at doing that.
In closing, Mr. Chair, I want to make it clear once again. There's a lot of talk from the other side, and I'm sure it just happens to be language, a slip of the tongue. Canadians know that only if you're a dual citizen will you be caught in this. And only in the rare possibilities of those individuals who may have a joint account are you caught in this. But as for the children of American parents, as was mentioned by Mr. Rankin, or an American mother or an American father born in Canada, they're not automatically American.
I've certainly spoken with a woman in Calgary who was a U.S. person although a Canadian for many years, whose son was born in Canada. She is concerned that her son does not have the mental ability, because he has a mental disability, to renounce his U.S. citizenship. He didn't apply in the United States before his 19th birthday. He's deemed to be a U.S. person under a foreign law. He's a fellow Canadian, and he's caught up in the FATCA web.
I don't understand why we as a sovereign country have to simply go along with this law, presumably to protect the banks. I realize the importance of the economy and the like, but this is a human rights issue, Mr. Chairman.
We've heard testimony as well from Professor Cockfield who was here at our committee who pointed out:
...by entering into the IGA we are in compliance. That has bought us time. The July 1 withholding tax, as I understand it, as a matter of technical law, will not kick in because we've complied. We're a democracy, a sovereign country. We're investigating certain concerns surrounding the IGA, and it will be implemented at a later date.
Mr. Chairman, there's plenty of time for us to get this right. To have it rammed through in an omnibus budget bill without proper time to scrutinize such a complicated piece of legislation with such impact on our fellow Canadians is simply wrong.
In a sense, this has a similar intention as that of the Green Party amendment, so it may not be acceptable, but I put it out as an amendment, again, to provide greater certainty to phrase other law in the proposed subsection to which she spoke. It does not include any other act. It expresses fundamental values such as the Canadian Charter of Rights and Freedoms, the Canadian Bill of Rights, the Canadian Human Rights Act, the Privacy Act, the Official Languages Act, and the Access to Information Act.
Chair, in the courts, all of these statutes have been considered quasi-constitutional in nature, except in the case of the charter, of course, which is called a constitutional law. They are part of our fundamental framework of laws in Canada. There seems to be some ambiguity in proposed section 4 about inconsistency between this act, the budget implementation act, and the provisions of any other law. It does say that the agreement prevails to the extent of the inconsistency. Does it prevail over the Privacy Act? That can't be the case. It can't be the case, so this would simply clarify that and give Canadians some comfort that we're not selling the farm and our fundamental rights by passing a law of this sort.
Okay, so it's all well and good to say, “We went to Justice and we asked them whether this will survive a charter challenge” and not discuss what the survival rate was actually like. It's like saying you got the car tested and it tested out fine, but you only looked at 5% of the car. Yes, you got your car tested, but you got it tested badly.
Our question around this is.... What's unfortunate about this, this process that we're in, is the Government of Canada is so likely to end up in court under this part of the tax treaty that they're signing with the U.S. and it's going to cost the Canadian taxpayer so many millions of dollars and untold number of Canadians the financial grief of going through this. It's like this predictable problem that the government's creating for itself.
Sorry, Chair, but it's ultimately frustrating that all of these things hang in confidence. If it had a good test of its charter-proofness, certainly the government would be proud of it and it's hiding behind the confidentiality screen.
All this does, Chair, is it enshrines into the act itself what Mr. Allen asked Mr. Ernewein with respect to what happens in other practices and other tax treaties.
Why the government wouldn't vote to clarify that the Charter of Rights, the Bill of Rights, the Human Rights Act, the Privacy Act, the Official Languages Act, and the Access to Information Act will supersede anything we sign in this tax treaty is beyond me. If it's redundant, then so be it. Let's have a redundant aspect of a legislative bill. I'm stunned that something so obvious can't be accepted into law.
Well, thanks, Mr. Chair.
This is relatively straightforward, although the drafting would make it look complicated. It's simply an amendment I'm putting forward to ensure that if the FATCA is repealed in the United States—and after all, it is a U.S. law in origin, facing its own constitutional challenges down there—the amendment would seek to clarify what would occur in the event that it is struck down in the United States, and ensure that the changes made to implement the intergovernmental agreement would be repealed in such a case.
What would happen as well, incidentally, if the amendment were accepted, is it would restore the pre-existing information exchange, because it deletes references to FATCA measures that are inserted in that paragraph of the IGA.
Once again, it simply addresses the eventuality of a successful constitutional challenge in the United States, of which many are proceeding, and just takes us back to the status quo with our law, if that were to occur in the United States.
I'm grateful, Mr. Chair, for your generous nature and the aspects of your personality that make you a delight to work with, and that is known widely throughout the House of Commons.
Some hon. members: Oh, oh!
Ms. Elizabeth May: No, it's true.
The reality of what we're dealing with here is that taking them one at a time makes it particularly challenging, because this is a very complicated bill.
I want to go back and remind everyone—and this is relevant particularly to amendment PV-2, which I'll speak to briefly—what the committee heard from one of Canada's leading tax law experts, Allison Christians, who holds the Stikeman chair in tax law at McGill University. One thing she said about this is that one of the main reasons, therefore, that time is needed to study the IGA, the intergovernmental agreement, carefully and to think about what the implementation act should do in terms of the interpretative work, is that the IGA has inadvertently highlighted an existing unresolved ambiguity about whether the exchange of information is or is not “assistance in collection” as a matter of law.
There are many ambiguities, many questions here that make it particularly inappropriate, as my friend Murray Rankin has already said, to deal with FATCA in the body of an omnibus budget bill that is being moved rather rapidly through this House. Let me go to just one of the concerns.
I appreciate what my friend Mr. Keddy has said, that this is all normal and that it is obvious that U.S. citizens are always identified as U.S. citizens, but as numerous experts have said, including Peter Hogg—whose letter I obtained under access to information and who is Canada's leading constitutional law expert—and including Ms. Christians and others, it's not at all clear that FATCA only applies to U.S. citizens who would obviously be U.S. citizens. As Professor Hogg also pointed out, there's nothing in this that will provide any notice to Canadian citizens, who might also be U.S. citizens under the understanding of “U.S. persons”, that their information has been handed off to the IRS.
There are some very fundamental constitutional law questions here as well as tax law questions.
Let me try to go through my amendments fairly quickly.
What amendment PV-2 attempts to do is basically insert two paragraphs, so that where, on page 76, it says that '“U.S. reportable account” means a financial account that, under the agreement, is to be treated as a U.S. reportable account” my amendment clarifies things, and I think in a way that actually meets what we're hearing from the government's arguments in defence of this agreement, by adding:
(a) if the account holder is an individual, a financial account that, at any time during the reporting period, was held by an individual that is
(i) a Canadian citizen within the meaning of the Citizenship Act or a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act, and
—“and”, not “or”—is also:
(ii) ordinarily resident in Canada; and
(b) if the account holder is an entity that is a company, estate or trust, a financial account that, at any time during the reporting period, was held by an entity that derived its status from the laws in force in Canada.
In other words, this is to provide protection against turning over information that, on a common sense understanding of what being a Canadian citizen is versus being a U.S. citizen, will not expose non-U.S. citizens to the implications of their personal information being turned over to the IRS.
The second of these amendments, amendment PV-3—and again, this is to narrow the understanding of “U.S. person” and is based directly on the evidence that has been already presented to committee—does the same thing through a slightly different approach.
In amendment PV-3, what we've done is clarify, by adding another line on the next page so that we create a new subsection 263 (2.1) to ensure that “U.S. person” is narrowed in its understanding. It would be:
(1) a U.S. citizen or resident individual who is not a resident of Canada.
This is again a clarification based on the best legal advice that has come before this committee.
Amendment PV-4 is very straightforward. It's a change to proposed section 264, which in the current draft of the bill says that a reporting Canadian financial institution “may” designate a financial account to be not a U.S. reportable account, if the following circumstances prevail.
My amendment PV-4, and if my colleagues are keeping up with me, it's at line 39 on page 77, is a straightforward change from the discretionary “may” to the mandatory “shall”. This is a further effort to ensure that, as Murray so eloquently describes it, the FATCA web doesn't ensnare any more people who are completely inappropriately engaged by it.
In the last amendment to clause 101, or I think it's my last amendment to clause 101, but it might not be my last one. No, there are a few more. Amendments PV-4, PV-5 and PV-6 are all on clause 101.
Again, they're to the same effect, to repeat that due diligence has been used by the reporting Canadian financial institution to make sure that the form is authorized by it or the minister is the only one that can be used. That's in PV-6.
PV-5 again, was very much like PV-4 “...by an individual who is a resident of Canada for purpose of this Act.”
Turning to PV-6 which amends clause 101 on page 78, this one is the one I just referenced, about making sure that due diligence is used. It's an inserted clause that would occur at line 22. The previous line is:
265. (1) Every reporting Canadian financial institution shall establish, maintain and document the due diligence procedures set out...
This amendment would add:
The due diligence procedures established—
—which are already in the act—
—by the reporting Canadian financial institution shall provide that only a form authorized by it or the Minister may be used.
PV-6 is, as you may recall, based on the evidence that we've heard in committee, based on a recommendation that was also made by Allison Christians, the Stikeman chair in law at McGill University. That concludes my amendments to this section.
Mr. Chair, in a brief closing, this is really fundamental. We know that this bill, if passed as it is, going to go before the Supreme Court. We know this from the best constitutional legal brain in this country, Professor Peter Hogg, who by the way was given an A in constitutional law by the late Jim Flaherty. We have that last anecdote from Jim: he agrees that Peter Hogg is the constitutional expert in Canada. Professor Hogg says very clearly that this act contravenes section 15 of the charter. I don't know why we're pushing it through in an omnibus budget bill when it will clearly fail at the Supreme Court.
I think the proposed amendment, which currently as proposed allows the financial institution to designate certain low-value accounts, would change the nature of it to require a financial institution to make that designation, to effectively exclude all accounts below $50,000.
The reason for the proposal, the way it's framed, is to allow that flexibility for financial institutions and their clients, in terms of trying to come up with the most efficient way of collecting information. To explain that a little bit further, it may be the case that some financial institutions will choose not to collect any information in respect of accounts having a value of less than $50,000, and if and when those accounts exceed $50,000, to try to get that information at that time. What we understand is that some financial institutions believe that it's in their and their customers' interests to try to seek that information as to their account-holder status when the account is opened, so it's not necessary to try to get that information at a later point in time. That's the reason for the legislation as it's currently framed.
I see your argument. I feel like the argument could be made, as is often the case, the other way as well, just in terms of costs and clarity.
A second point to this, and this is for our officials. What I assume Madam May is trying to clarify here is to narrow the description of what a U.S. person is. Now, we know under U.S. law they are going to leave that interpretation up to themselves, but certainly on the Canadian side of things, we would seek an agreement that would make obvious Canadians, if I could put it that way, and not accidental Americans, clarified in the law.
We've talked a lot about misinformation. I know on tax treaties it's the potential on both sides to oversimplify and ramp-up rhetoric. We heard a number of times from the minister and from others in the government suggesting that no Canadian will be impacted by this. I keep struggling with that comment simply because it's to suggest that somebody who is a dual citizen is not a Canadian. That would be quite offensive to anybody who has citizenship in this country, or anybody who was born in the U.S. and becomes a Canadian. They're not a Canadian, yet they will get swept up into this law. That's a fact.
Mr. Saxton can argue against that, but under the U.S. definition as it exists right now in the incorporation of this law that Canada is willing to sign off on, those would be U.S. persons. We can bemoan the fact that the Americans define it that way, but they do. I think these amendments are attempting to narrow that scope, to remove those people so they don't end up in that accidental American trap. My worry is that these folks are going to end up with their information passed on without any notification.
This is my question, Mr. Ernewein. We have an amendment coming up around a requirement of notification from the banking institution to the client. For the life of me, I don't understand why this is a problem or would be a concern to any right-thinking person. If the banking institution is maybe seeking additional information, and deems by their test, by a computer test, in some cases...and is about to pass their information on to the CRA knowing it's going to end up in the hands of the IRS, why not tell the client? Why not require the bank to tell the client?
My question is simply this, Mr. Ernewein. Is it possible, under the powers of the Canadian government, to make that requirement of the banks? If they're about to pass forward that information from their clients, do we have that power that they explicitly inform that client that this is where their information is going and why? Does the Canadian government have that power over the chartered banks?
I'll end on this, Chair.
There may be a market reality to this that the banks are going to hear complaints. Because the person who believes themselves and acts and operates like a Canadian citizen, the first letter they get from the IRS saying they owe back taxes under this new intergovernmental agreement that they have with Canada, that Canadian is going to talk to their bank and say how did they possibly get my banking information in the first place? The bank will say that they passed it on to them under this intergovernmental agreement.
There may be that call-in response within the market, but if it's within our power to do this to notify under these provisions...because you raise—and I think this is fair to raise, and Mr. Keddy has done the same—those clearcut cases: an American citizen living and working in Canada with revenue coming in from some holdings in the States; everybody gets it.
The cases we're concerned with are those people who in all good faith don't file taxes in the States, because they're Canadians and haven't lived there since they were three, but the U.S. government is going to deem them American persons and they will be swept up in this and they will have their information passed on with no notification at all. Those are the folks we should be concerned about, those people who are not dual citizens, who are Canadians.
Again, on these amendments by Madam May, we'll be supportive, because if it's clarity that's being offered and clarification of the case, why not support it?
Mr. Ernewein and I had a small discussion about this earlier, just in terms of what the impact of this would be.
We have heard testimony from him and from some others, that maybe in the process of a bank inquiring after a client's information, that may not tip them off, but give them the indication that they may be in this FATCA net. That seems a passive way to go about this. If privacy laws are of any interest, and sovereignty is of any interest to my friends across the way, then this simple notification measure here requiring the banks to notify somebody, it's not....
Maybe I can ask this specific question of Mr. Ernewein. Is there any concern that the notification process that we're passing your information on to the CRA, which will go to the IRS, would have some negative...?
We seem dispassionate about the passing of this information. We say the Americans are deeming these people as American persons. We are the conduit. We are agnostic about the amount of taxes that may or may not be collected by the IRS. Is that fair to this point, in terms of the way this agreement is structured?
I will. I'll attempt to be brief.
Just as a small parenthetical note, I don't think we've said this properly to all of our departmental officials gathered with us here tonight. I would offer our condolences or apologies for the process that you're engaged in. It's somewhat ridiculous to have all of you here for so long. Maybe I can move a friendly amendment to order in pizza, Chair, because I know there isn't enough food to go around, but maybe that's a budgetary matter.
This specific clause—when asking departmental officials, I'm not sure if it was you, Mr. Butler, before, but I don't think it was, at the departmental briefing—is about the clawback that the government instituted and was taken to court successfully. That started in 2006. What our provision does is it simply brings the clawback right back to 2006 when it began.
I've asked the department officials very clearly what the reasoning was for stopping before 2006, for not doing the full clawback, and I was told that it was a policy decision, which doesn't say much. It doesn't say much for our veterans. We move this motion to bring some fairness to our veterans and allow them the proper compensation, especially those who are injured, which is whom this applies to. We would see that the government hopefully would find some support in this, but that is our amendment, Chair.
I have a ruling on amendment NDP-10 that applies to LIB-10 as well.
Bill establishes retroactively a period for which earnings loss benefit applicants and recipients will receive a compensation. The amendment seeks to expand this period. As House of Commons Procedure and Practice, Second Edition, states on pages 767 and 768:
Since an amendment may not infringe upon the financial initiative of the Crown, it is inadmissible if it imposes a charge on the public treasury, or if it extends the objects or purposes or relaxes the conditions and qualifications specified in the royal recommendation.
In the opinion of the chair, therefore, the amendment, by modifying the period of admissibility, infringes on the conditions and qualifications specified in the royal recommendation. The amendment is therefore ruled inadmissible.
That applies to amendments NDP-10 and LIB-10.
We will move to discussion on clause 102.
I will take speakers for clause 102. I'll start with Mr. Cullen.
My ruling is that Bill establishes retroactively a period for which Canadian Forces income support applicants and recipients will receive compensation. These amendments seek to expand this period.
House of Commons Procedure and Practice, Second Edition, states on pages 767 and 768:
Since an amendment may not infringe upon the financial initiative of the Crown, it is inadmissible if it imposes a charge on the public treasury, or if it extends the objects or purposes or relaxes the conditions and qualifications specified in the royal recommendation.
In the opinion of the chair, this amendment, by modifying the period of admissibility infringes on the conditions and qualifications specified in the royal recommendation. Therefore, I rule the amendment inadmissible. That applies to NDP-11 and LIB-11.
Therefore, I'll move to discussion on clause 103.
Do you have a question, Mr. Cullen?
The date of May 29, 2012, was the date that the Government of Canada made the announcement that they would cease the offsetting of the disability pension from these three programs. Moving from that date, the common—as you know, it took six months to implement the cessation of the offsetting for the first two programs, earnings loss and the Canadian Forces income support program, and then it took another six months to, because legislative change was required, to end the offsetting for the war veterans allowance program.
If you look at both those programs, you're right, Mr. Cullen. The earnings loss program and the Canadian Forces income support program did come into effect in April 2006 as a function of the introduction of the new Veterans Charter. The War Veterans Allowance and Civilian War-related Benefits Act, those pieces of legislation go back further in time. The WVA actually goes back to the 1930s.
The concern was to find a common date, or that was one of the issues: find a common date for calculating this benefit. The other issue really was, again and for clarity, with the SISIP ruling as it relates to the service income security insurance plan. That was the subject of the Federal Court ruling in Manuge.
As we discussed previously the last time we were here, the Government of Canada was not in fact mandated to cease the offsetting of the disability pension benefit under Veterans Affairs Canada programming. These are two separate and distinct constructs. Under the service income security insurance plan, that was a policy, an insurance policy administered by the Department of National Defence.
Our programming is legislative in nature, and the Government of Canada was not in fact mandated to cease the offsetting of the disability pension benefit pursuant to that decision. In other words, the Government of Canada simply chose, on its own motion, in light of the decision, to make the determination that it would in fact stop the offsetting. That was on May 29, 2012.
Those were the reasons, Mr. Chair, for that May 29, 2012, date.
Sure, since it's available to me, I'm not going to go over ground we've already covered, but one of the challenges—I know it's not in this particular budget implementation act—we have with the format we're in right now is giving these types of conversations their proper due. I know that Mr. Butler takes it seriously, as I imagine many of our colleagues do, but it's about the scrutiny that we've been unable to apply to this conversation, because it is somewhat complicated, as Mr. Butler has said. There's an insurance program that's somewhat differentiated from these other compensation programs. My concern always is whether committee members are aware of what it is they're voting on and what it is we're trying to amend.
One of the challenges that veterans have come to us about is not just the package as offered back to 2012. Having to go to court and prove certain cases with the government, after there being so much fanfare about standing up for troops and treating our veterans properly, has been incongruous, if not offensive. When the government is seeking to rectify mistakes that have been made or to enhance programs that have been offered, these should be stand-alone pieces of legislation. That's one way to show respect, actually. It's to allow bills to be properly understood, fixed, voted on, and passed through the House of Commons. Burying this in the middle of a 360-page omnibus bill is not the way to show that seriousness or respect. On process and on substance, the opposition, the NDP, has problems with this.
Of course, we'll be rejecting this amendment, not simply.... There is something being done, but that something is not enough, and we should always seek to do more than just a little.
Thank you, I understand that.
Perhaps the government recognizes its mistake. It simply said it would make a change that would cost nearly $20 million. That is something the government may lose in the future. The error does not only go back to 2012, but also to 2006.
Does this rule stem from that decision? I understand this is not explicitly stated in the bill, but is there another measure, a rule or a new mandate for your department indicating that, in the future, you will resolve problems related to a given program in a specific way?
To be clear, because my French isn't so hot, what I'm interested in is whether, because the government.... Having watched what went on in Manuge, can you remind the committee what was spent by the federal government just going through the process in Manuge? Do we have a court figure?
Mr. Butler, thank you so much for being with us tonight. We appreciate that.
We shall move now to division 2, colleagues, with respect to the Canada Deposit Insurance Corporation.
We have only two clauses under this division, clauses 108 and 109. As I'm very generous with time, I'm hoping we can perhaps group these clauses together.
(Clauses 108 and 109 agreed to)
The Chair: Those clauses both carry unanimously.
We shall move to division 3, the Regulatory Cooperation Council Initiative on Workplace Chemicals. This deals with clauses 110 to 162. We do have a number of amendments in this division.
If I could, I would like to group certain clauses together. I will only proceed as quickly as the committee allows me. I do not have an amendment for clauses 110 to 113. Can I group those clauses together?
I'll start by going back to the origin of why the requirement was put in place. When ACOA was first created, it was time-limited for five years. At that time there was a need to report on activities and results to Canadians every five years, and report to Parliament.
Two key things have changed since then. The government has confirmed ongoing funding for ACOA, and there are also new, more rigorous, effective means of reporting and making sure there's transparency, accountability, and oversight of federal government operations. The legislative requirement of the five-year report predates the new reporting mechanisms that are now being required of all government departments, such as the departmental performance reports to Parliament. We do that on an annual basis, as every other government department does, and we publish reports on our website in terms of quarterly financial statements. We do evaluations of all of our programs.
Under the evaluation policy and also the requirements of the FAA, there is a requirement to cover all of our programs on a four-year cycle and do program evaluations of all of our programs. Those results of the evaluations are also posted on the agency's website.
Thank you to Ms. Frenette for being here today.
I thank her for covering that, because she's right. When ACOA was set up, it was a five-year cycle, funded five, then requested for five. That's the way it was set up. Now that it's a permanent structure, it has that.
Basically what this does is align it with the other regional development agencies, which are also on a yearly reporting cycle, if you look at those, and the financial reports and your yearly performance report. This just makes sense.
So to the whole idea of the amendment being ruled out of order, Mr. Cullen should not despair because the reporting is actually much more robust than it was before.
Because they are related to each other. I'm under some disadvantage in that this is normally Mr. 's file. These are two amendments that we are basing upon the findings of the Public Sector Integrity Commissioner for the wrongdoing of ECBC CEO John Lynn.
I'm just quoting from the report which says:
The investigation found that:
Mr. Lynn committed a serious breach of ECBC’s Employment Conduct and Discipline Policy, which was ECBC’s own code of conduct at the time. This finding is as a result of the appointment of four individuals with ties to the Conservative Party of Canada or the Progressive Conservative Party of Nova Scotia into executive positions at ECBC with little or no documented justifications and without demonstrating that the appointments were merit-based.
The report also says:
There was an element of deliberateness to Mr. Lynn’s actions....
Mr. Lynn’s actions were incompatible with the trust that the Government of Canada and the public has placed in him as Chief Executive Officer.
There are two problems with Bill in light of the commissioner's wrongdoings. The two amendments seek to address these problems. Under clause 182, the individuals were improperly hired by Mr. Lynn. They are still at ECBC and have become permanent employees of the public service. Under clause 183, it singles out CEO Mr. Lynn as the only member of the board eligible for compensation or termination.
In quick summary, Mr. Chair, what we have is a serious breach of the ethical and hiring practices, yet there's a reward at the end, by turning these folks into permanent employees of the public service and giving Mr. Lynn a good payout.
The first amendment will ensure that an employee who was hired after June 1, which is when Mr. Lynn became a CEO, through a process that the Public Sector Integrity Commissioner considers to have been a wrongdoing, under paragraph 8(e) of the Public Servants Disclosure Protection Act, would be excluded from the ECBC employees who have automatically become employees of the public service. It would prohibit them from becoming members of the public service.
The second amendment removes the exception of allowing the CEO, and only the CEO, to receive compensation on termination. It's not clear why the service decided to give the CEO the special treatment in the bill. Removing this is the only appropriate...given the report of the Public Sector Integrity Commissioner's finding of wrongdoing.
They're still in recovery.
We don't want to reward bad behaviour. I think Mr. Keddy's point here to this amendment was whether it was connected back to the minister and whatnot, and that's all for that investigation. But on this amendment, if it has been identified that there was an inappropriate appointment and then that appointment then hired other inappropriate appointments, the last thing we want to suggest is that's good behaviour.
I can remember the 's words when he was in Atlantic Canada at one point and said there's a culture of defeatism here. I just saw this one quote that I thought I would bring up here because it's absolutely germane, the people in Atlantic Canada shouldn't “sit around waiting for favours”.
I suppose the idea is that it's who you know in the PMO. What this amendment, which we'll support, is trying to suggest is that, if what's been found out has been found out in terms of the way this appointment process happened and that people were rewarded for political connection, and certainly if that's what the public commission has found, then we would not want to just simply roll that into some kind of a permanent status.
So if that's what the amendment attempts to do, then we should all be supportive of it because what we don't want is to reward any sense of patronage or cronyism that goes on within the public service using the taxpayer dollars to reward people—who may be nice people and may be lovely and whatnot—who got their positions because of who they were connected to, which is what this case has been talking about through the integrity commissioner.
We disagree with the Conservatives' view on this, obviously, and will be supporting this amendment.
I'll deal with Mr. Keddy's arguments in order. If he thinks this is out of order, well, if you haven't ruled it out of order, then it's in order and within the scope of the legislation that's been put forward by the government. It's a terrible thing that they are hoisted on their own petard. I feel badly for you.
As to the smearing of Mr. Lynn's reputation, well, there's nothing here that I'm smearing his reputation with. I'm just simply quoting from the report. I suppose if you think that the integrity commissioner is smearing Mr. Lynn's reputation, you should take it up with the integrity commissioner.
The core issue, Mr. Chair, is that in light of the findings of the commissioner, are we going to reward bad behaviour? Let's face it, if this amendment doesn't go through, the four individuals involved will automatically become members of the civil service with all the security that means, which is very fortunate for them, but not quite so fortunate for those who might have aspired to those positions.
My second point would be that Mr. Lynn has had some considerable benefit out of his appointment, and I don't know why, when he is being so rudely treated by the Public Sector Integrity Commissioner, he should get a reward for his bad behaviour.
We will have a recorded vote for clause 207.
(Clause 207 agreed to: yeas 5; nays 4)
(Clauses 208 and 209 agreed to)
(On clause 210)
The Chair: I want to thank Mr. Halverson for being with us this evening.
Colleagues, we now have division 13 on the Bank Act. We have one clause, clause 210. We have amendment PV-12, which you have in your documents, so it is deemed moved.
All in favour of PV-12?
(Amendment negatived [See Minutes of Proceedings])
The Chair: PV-12 is defeated. All in favour of—
An hon. member: On the main motion....
The Chair: Okay.
I think we have officials from Finance here.
We welcome Mr. Foster to the committee. We are on clause 210.
We will have a debate on that.
Mr. Caron, the floor is yours.
Thank you very much, Mr. Chair.
In our opinion, the content of clause 14 is not in line with the government's commitment to establish an effective and fair regulatory framework for the demutualization process.
I think the provisions that enable the government to bring certain matters before the courts illustrate a lack of seriousness. They also illustrate a lack of political will to establish a real framework and to protect the industry against private interests.
Once again, clause 14 of Bill does not take into account the need to modernize laws and procedures relative to subscription notes and, consequently, to subscribers' right to vote in the context of a demutualization process. This bill contains no information on the nature of mutual companies' assets and the way they should be used and allocated following a demutualization.
In addition, a witness representing the Canadian Association of Mutual Insurance Companies said that mutual companies' assets should be considered as the mutual insurance industry's collective assets. That's especially the case when a mutual insurance company goes bankrupt, as other mutual companies should handle any outstanding contracts.
We heard a number of witnesses discuss this. Several of my colleagues from this committee were there when we studied the issue of demutualization during a meeting entirely dedicated to that topic. The discussion was interesting because this is a very complex sector. During that study, some fairly informative facts were brought forward, especially when a typical case was discussed involving the Economical Mutual Insurance Company, which talked about some issues with demutualization.
The company currently has over one million insurance policies. However, only 943 individuals are mutual insurance policyholders. The company has a capitalization of about $1.3 billion. An attempt at demutualization had begun that would have enabled each of the mutual policyholders—so each of the 943 individuals—to obtain personal assets in the amount exceeding $1 million. What would have happened to regular policyholders? They would have been left high and dry.
In short, it is really important to think about the interest of all those mutual insurance companies' users. It is also important to ensure that those policyholders—not only mutual policyholders, but all policyholders—can have a say in the case of demutualization proposals.
Currently, the bill delegates far too much authority to the courts. It relieves the government of its responsibility to make a decision, despite the commitment the government has made. Finally, the legislation allows the courts and tribunals to determine what happens in the case of a demutualization, and that could put all the power in the hands of mutual policyholders.
So if mutual insurance companies or shareholders are driven by short-term profits, the mutual company itself is at risk. The company is also potentially at risk. In fact, the president of the Economical Mutual Insurance Company did not even conceal the fact that the company, or the mutual, planned to be absorbed by or to merge with another company and eventually disappear altogether.
Once again, individual policyholders ultimately suffer in a situation where mutual policyholders are interested in short-term profits.
I know that our amendments are somewhat similar to those moved by the Liberal Party. However, ours aim to integrate policy holders, either by ensuring that they are invited to general meetings where demutualization would be discussed, or by giving them a say should they participate in that general meeting.
I invite my colleagues to seriously consider the decision they will make during this vote because some fairly significant consequences will arise for thousands, if not millions, of individuals. I know that Mr. Van Kesteren, among others, has done business with a mutual insurance company in his riding.
Give this some serious thought because your vote will have a fairly considerable impact.
However, that reduces transparency and accountability toward Canadians.
The purpose of publishing regulations in the Canada Gazette is to make them official and to ensure the participation of the public or stakeholders, as you mentioned, in the process of developing, amending or eliminating regulations.
This is a matter of motor vehicle safety. Consequently, a large portion of the population will be affected by the various regulatory amendments proposed by the government. Regarding what is proposed, I am glad to hear you confirm that this is indeed the case. You are actually proposing to eliminate the publication in the Canada Gazette. That is currently a required step.
You said the publication is not a mandatory step for several regulations, but it is for most proposed regulatory amendments. Once again, in the interest of transparency, I would like to know whether the government is not providing itself with flexibility,
Some would say flexibility. Others would say expediency
by sacrificing public interest and transparency.