FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 5, 1999

• 1848

[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order. The order of the day, in accordance with the order of reference of the House of Commons of Tuesday, April 20, 1999, is... the committee is not studying Bill C-72; it's actually doing clause-by-clause consideration.

(Clauses 2 to 7 inclusive agreed to)

(On clause 8)

The Chairman: There's an amendment. Go ahead, Mr. Valeri.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman. I'm going to get the officials to speak to the amendment. It's a somewhat technical amendment that deals with a Canadian corporation lending money to a foreign entity, but I would rather have the officials speak to it in more detail, if the chairman wishes.

The Chairman: Okay, go ahead.

Mr. Brian Ernewein (Director, Tax Legislation Division, Tax Policy Branch, Department of Finance): Thank you, Mr. Chairman.

Clause 8 is a set of amendments to section 17 of the Income Tax Act, a rule that applies to interest-free or low-interest loans made by Canadian corporations to non-resident persons. There is a set of revisions proposed in the 1998 budget that these amendments try to capture. One of the changes that was made between the release of the draft legislation in October of last year and indeed the original introduction of a ways and means motion in December of last year was a change to an exception from the application of that rule. The exception, without going into detail, was based on whether or not tax was paid on the particular amount under another provision or part of the Income Tax Act.

The clarification of the exception, which was made in the March 10, 1999 ways and means motion that was tabled in the House of Commons, was not in the earlier versions, although it was expressed to take effect from the original budget date of last year because of some concerns that it was new in the legislation and that people wanted to make sure it only applied as of its announcement date. It's proposed that this particular change does indeed apply only from the day on which it was announced, the day it was tabled as part of a ways and means motion, March 10, 1999.

• 1850

The Chairman: Do you have a question?

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): On this particular section, has there been any consideration related to its relevance to NAFTA? If you're dealing with someone outside the country, there's always the issue of favouritism, a special deal, and the agreements we made for parallelism, not to provide certain giveaways... You understand the principles of NAFTA. I'm just looking at that angle as to the agreements we've made and how this may or may not relate. Can you comment on that?

Mr. Brian Ernewein: The quick reaction is that there hasn't been any consideration or assessment of this rule as against the NAFTA or other trade agreements. This is our own tax rule, and I'm not aware if there are or are not parallels in other countries' rules specifically like this. There are generally provisions in other countries' rules that try to do the same thing, protect the domestic tax base by making sure that income or income-earning capacity is not diverted outside the country.

Mr. Paul Forseth: But as you know, we made special deals and special commitments under NAFTA, and we've committed ourselves to not do certain things, such as subsidies and so on. I'm just wondering, in terms of that aspect... it may be a provision that's going to give us a little bit of a headache later if we haven't carefully thought it through in advance.

Mr. Brian Ernewein: Perhaps the easy answer then—and the correct answer, by the way—is that this is an anti-avoidance rule. It is not a benefit to any corporation. It's an anti-avoidance rule designed to prevent them from shifting income offshore.

As far as we're aware, and we're quite confident of this, there is no conflict between this rule and NAFTA or any other trade agreement. Indeed, with NAFTA in particular, the application of that agreement to tax measures of this sort we think would be quite limited.

Mr. Paul Forseth: Thank you.

(Amendment agreed to)

(Clause 8 as amended agreed to)

The Chairman: If you don't mind, I need consent here to deal with clauses 9 to 31 as a group.

Some hon. members: Agreed.

(Clauses 9 to 31 inclusive agreed to)

(On clause 32)

The Chairman: We have an amendment on clause 32, I believe.

Mr. Tony Valeri: Yes, Mr. Chairman. Again, I'll ask the officials to speak to it, but essentially the amendment deals with section 118.1, and that section provides for the determination of an amount to be the fair market value of a proposed gift of a certified cultural property... for a two-year period, even if the gift is instead characterized as a normal charitable donation.

The bill as originally drafted incorrectly provides that the rule apply if the gift is given as cultural property. In essence, the drafters inserted the words in reverse, so we should eliminate one. I believe it should read “as amended”. I don't know whether the officials need to...

The Chairman: Do the members want further clarification of this, or is it straightforward?

Mr. Tony Valeri: It is merely the replacement of a word.

Mr. Paul Forseth: How did it originally read?

Mr. Tony Valeri: It originally read “normal charitable donation”. The bill incorrectly provides that the rule will apply if the gift is given as cultural property. So incorrectly the bill included it as cultural property. It should have been “charitable donation”.

Mr. Paul Forseth: Yes, it's quite a difference.

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

(Clause 32 as amended agreed to)

The Chairman: Can I deal with clauses 33 to 48 together?

Some hon. members: Agreed.

(Clauses 33 to 48 inclusive agreed to)

(On clause 49)

The Chairman: We have an amendment, I believe.

Mr. Tony Valeri: Mr. Chairman, this particular amendment corrects an error in the French language version of paragraph 127.4(1)(b) of the Income Tax Act, by substituting the word “régime” for the word “fonds”. The comparable English language phrase is “registered retirement savings plan”. The word “régime” is a term used elsewhere in the act in this context. So it's merely a clarification of the wording.

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(Amendment agreed to)

(Clause 49 as amended agreed to)

The Chairman: Do I have your permission to deal with clauses 50 to 61?

Some hon. members: Agreed.

(Clauses 50 to 61 inclusive agreed to)

(On clause 62)

The Chairman: I believe there's another amendment.

Mr. Tony Valeri: Mr. Chairman, this particular amendment has two parts to it. I'll have the officials speak to the second part, but the one aspect that it does deal with... I can give you an example of a student who enters into a program or a post-secondary educational institution. Under the existing registered education savings plan, within a three-month period they're able to withdraw up to $5,000. This allows the student, if in fact they find themselves in a program that they're not interested in and they subsequently attend another institution... they would not have to wait another three months in order to access the $5,000, but in fact it takes the time cumulatively as they enter the first institution. It merely limits the time to three months, regardless of whether a student enters a new program or another institution, in order to withdraw $5,000.

There is a second part to this, and I'll ask the officials to speak to that.

Mr. Bill Murphy (Tax Policy Officer, Personal Income Tax Division, Tax Policy Branch, Department of Finance): The second part is in essence a clarification that this $5,000 limit is going to apply on the basis of all RESPs that a particular individual may have with a particular financial institution. So one cannot simply get around the $5,000 limit for the three months by having the financial institution set up a bunch of different RESPs and taking $5,000 out of each of them, potentially without a limit, and thereby getting around the $5,000 rule.

So the clarification is that for a particular financial institution, you cannot remove more than $5,000 from all RESPs for the first three months.

(Amendment agreed to)

(Clause 62 as amended agreed to)

The Chairman: Can I now deal with clauses 63 to 92?

Some hon. members: Agreed.

(Clauses 63 to 92 inclusive agreed to)

(Clause 1 agreed to)

The Chairman: Shall the title carry?

Some hon. members: Agreed.

The Chairman: Shall the bill carry?

Some hon. members: Agreed.

The Chairman: Shall I report the bill with amendments to the House?

Some hon. members: Agreed.

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

Some hon. members: Agreed.

The Chairman: Thank you very much.

Before everyone leaves, I want to once again thank the staff for making things easy for us and of course the officials, who as always have been very efficient, effective, and productive. Thank you very much.

The meeting is adjourned.