Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 13 - Evidence - Meeting of April 2, 2008
OTTAWA, Wednesday, April 2, 2008
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-10, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that act, met this day at 4:10 p.m. to give consideration to the bill.
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good afternoon, ladies and gentlemen. Welcome particularly to Minister Josée Verner. My name is Senator Angus from Montreal, Quebec. Present today are the deputy chair, Senator Goldstein, from Quebec; Senator De Bané from Quebec; Senator Tkachuk from Saskatchewan; Senator Gustafson from Saskatchewan representing Senator Meighen who is away today; committee clerk, Line Gravel, without whom we cannot operate this committee efficiently; Senator Ringuette from New Brunswick; Senator Moore from Nova Scotia; Senator Massicotte from Quebec; Senator Lapointe from Quebec; and Senator Fox from Quebec.
Beside Senator Fox is a mysterious guest who will be introduced later. We also have June Dewetering from the Library of Parliament who is of great assistance to this committee and its work.
[Translation]
Today, we continue our study on Bill C-10, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that act.
[English]
This title is a long one for a bill. This bill had a previous life as Bill C-33 in the First Session of this Parliament, known as the Income Tax Amendments Act, 2006. Bill C-33 was introduced in the House of Commons on November 22, 2006 by the Minister of Finance. However, that bill died on the Order Paper with the dissolution of the First Session of this Parliament, and was reintroduced in the Second Session as Bill C-10. This bill has been before the committee since December 4, 2007. We have already held hearings.
I want to make clear that this bill is a compendium of various amendments that have accumulated since the 1990s. It is one of those large bills that are always problematic for legislators like us. Every amendment is an amendment to a different provision of complex framework legislation, our income tax laws, and when a situation such as this one happens, it causes problems from time to time.
We continually exhort officials from the various departments concerned that legislating in this way is not desirable. We may fall into the same problem again because the law has much current, important, urgent, recent pieces of legislation for income tax purposes, as well as issues that go back to 1998 and 1999. However, the bill is what it is and we will deliberate in the most balanced way we can.
I think everyone knows that this committee dates back to 1867. It has a reputation that I think is well deserved for being a committee dealing with the integrity of our financial market system. We try to operate with an even-handed and balanced approach and we rarely take votes. We operate by consensus and we try to perform the real job that the Senate is supposed to perform, which is to give sober second thought to the legislation in an even way. We do not hold ourselves out as a forum for citizens to come forward and make particular representations in a way that is outside the spirit that I have outlined. We hear witnesses who have legitimate points to make that are relevant to the legislation.
An anomaly has arisen in this bill, according to our briefing notes from the Parliamentary Information and Research Service, Library of Parliament. Proposed section 125.4 would require the Minister of Canadian Heritage to issue guidelines about the circumstances under which proposed conditions in the definition "Canadian film or video production certificate" in proposed section 125.4(1) on page 348 of the bill would be met. This definition "would be amended to provide that the Minister of Canadian Heritage would `also certify that the public funding of the production would not be contrary to public policy. . . ."'
Those words have given rise to concerns and we have been approached by substantial numbers of the stakeholders to appear before the committee on this matter. Our briefing notes state, "The amendment would generally apply in respect to Canadian film or video productions for which certificates are issued by the Minister of Canadian Heritage after December 20, 2002."
To help us understand the intricacies of this proposed law, it is a great pleasure for our committee to welcome for her first appearance, the Honourable Josée Verner, Minister of Canadian Heritage. As she pointed out today in the House of Commons, she is also the Minister for the Status of Women and various other important portfolios.
The minister has with her from Canadian Heritage, Deputy Minister, Judith LaRocque; Assistant Deputy Minister, Cultural Affairs, Jean-Pierre Blais; and General Counsel Bruce Stockfish. The mystery guest is from the Department of Finance and is well known to this committee, Gérard Lalonde.
[Translation]
Hon. Josée Verner, P.C., M. P., Minister of Canadian Heritage: Mr. Chair, honourable senators, I am here to speak to you about certain aspects of Bill C-10: an amendment to the Income Tax Act. As you are aware, this bill has been the subject of discussion recently as it relates to film or video tax credits. The tax credit program for Canadian content productions is the cornerstone of the government's audiovisual toolkit in support of the Canadian audiovisual industry. Since 1995, it has contributed to over 12,000 productions, with a total value of nearly $22 billion.
The Department of Finance estimates that fiscal expenditures through the Canadian film or video tax credit will amount to $210 million in 2008. In 2006-2007, our government invested over $752 million in Canadian film and television content through other support programs for the industry. This does not include the over $1-billion funding for the CBC/Radio-Canada.
For example, Telefilm Canada is an important contributor to the development of the audiovisual sector. Our annual contribution to Telefilm is around $120 million. Bill C-10 contains a provision that would allow the Minister of Canadian Heritage to refuse to grant a tax credit to certain film and television productions for which public financing is considered "contrary to public policy."
It also requires the minister to develop guidelines clarifying the types of productions that would fall into this category.
[English]
As you know, I wish to work in close collaboration with the industry and establish a partnership. My department and I began preliminary discussions with key industry stakeholders to hear their concerns.
Despite what you may have read or heard, the "contrary to public policy" test is not a new concept. It has been a part of the tax credit landscape since its inception in 1995 through income tax regulations.
In 2002, the Liberal government of Jean Chrétien decided that a provision involving the exercise of discretion was best moved to legislation rather than left in regulations.
[Translation]
The provision was consequently announced as draft legislation by the Minister of Finance, Mr. John Manley, in 2002, and again in 2003 by Mr. Manley and the Minister of Canadian Heritage, Sheila Copps. In November 2006, Bill C-33, which included the amendments now proposed in Bill C-10, was introduced in the House but died at prorogation in September 2007.
In October 2007, Bill C-10 was introduced and adopted by the House with all-party support. And the "contrary to public policy" reference is not unique to the federal government. It is also echoed in several provincial tax credit regimes. Other provinces employ very similar concepts in their film and television programs.
[English]
The policy rationale for the "contrary to public policy" provision is simple. It ensures that the government has the ability, in exceptional circumstances, to exclude certain material from public support.
There is material that is potentially illegal under the Criminal Code, such as indecent material, hate propaganda and child pornography. Currently, no provisions in the Income Tax Act or regulations exclude such material. Bill C-10 addresses this loophole, in particular.
[Translation]
I need to stress that the application of the "contrary to public policy" test will not be taken lightly. The intent is to affect a very small number of productions — likely only a handful of the over 1,000 Canadian content productions that receive a tax credit annually.
Some in the film and television industry are worried that this provision is tantamount to censorship. This is absolutely not the case. It is simply a matter of responsibility and integrity.
Producers will remain free to finance their projects without public funding.
Our government is committed to freedom of expression and will continue to support the creation of excellent and entertaining Canadian content. We are also committed to ensuring integrity and accountability when it comes to managing public funds and maintaining the public's trust.
I have stated it, and I repeat it: Bill C-10 is absolutely not a matter of censorship. It concerns responsibility, integrity and efficiency. With all of this debate, it must not be forgotten that this bill also includes amendments that have been long sought by the Canadian audiovisual industry.
These amendments promise greater transparency since the names of tax credit recipients and creative personnel associated with the productions will be made public. This will address the potential abuses of the tax credit which have occurred in the past.
It also extends the scope of the tax credit program to the very early stage of script writing expenses. These are changes that the Canadian film and television industry is anxiously awaiting.
[English]
The recent celebration of Telefilm Canada's fortieth anniversary marks a significant milestone in the development of the Canadian film and television industry. Today, the total annual volume of audiovisual production is just under $5 billion, thanks to Telefilm Canada, the tax credit program and other important instruments in Canada's audiovisual tool kit. This industry develops world-class content in production centres spread across the country and boasts internationally recognized and award-winning producers, directors, writers and actors.
Our government and Canadians believe in this industry. We are proud to have contributed to its development and will continue to support it.
[Translation]
This is why, in the context of C-10, it is important to address the concerns of the industry and parliamentarians. However, in order to move forward and to continue to build on the success of the Canadian film and television industry, I am proposing the following strategy. First, after C-10 receives royal assent, the Government of Canada officially undertakes not to apply the "contrary to public policy" provision over the next 12 months.
During that time, I invite the Canadian film and television production industry to lead the development of guidelines and administrative procedures and propose them to me. These guidelines would cover the types of content that may be illegal under the Criminal Code as well as other types of content for which public support is clearly unacceptable.
The guidelines would also cover how they are to be applied and administered. I recommend this approach for the following reasons. First, it is a fair and transparent process aimed at continuing the open dialogue the government has always had with the Canadian film and television industry.
Second, this approach has been used before with the industry, notably Canadian broadcasters when they developed their voluntary code on violence at the request of the CRTC.
Third, it provides evidence of good faith on the part of our government. We believe that the industry itself has the maturity to play a leading role in developing guidelines that will apply to its members. And fourth, it reasserts the principle that there is audiovisual material which may not be illegal but which taxpayers should simply not be expected to pay for.
The audiovisual industry knows that the ongoing legitimacy of government support for their industry requires the utmost rigor on how tax dollars are spent.
I, along with officials from my department, have had initial discussions with key industry stakeholders on their concerns and on the proposed strategy. At this stage, they are still hesitant. I continue to leave the door open and invite them to seriously consider my proposal.
I firmly believe that working together is the best approach.
Let me reiterate that our government recognizes the important role in society that is played by artists and creators. The goal of this bill, as it relates to film or video tax credits, is to ensure that there is greater clarity for the industry with regard to ineligible content, and to ensure accountability when it comes to managing public funds.
Bill C-10 contains many important amendments that have been long sought after by the film and television industry. It is important that it be passed swiftly. My officials and I would be pleased to answer your questions.
The Chair: Thank you very much, minister. Before proceeding to questions, I would like to introduce another senator who has just arrived, Senator Trevor Eyton from Ontario.
I would like to add that we have with us today a number of representatives of the industries affected by the legislation in question, that is, stakeholder representatives.
[English]
We have provided facilities in two other rooms in the building: room 705, with television and audiovisual facilities in French; and room 505, with the same facilities in English. This session is being broadcast on the CPAC network, as well as on the World Wide Web.
Welcome to everyone who is here and to everyone who is watching. I have a long list of questioners.
[Translation]
If you have no objections, minister, we would like to start off with Senator Massicotte.
Senator Massicotte: Minister, thank you for being here today. As you know, the words in this clause directly concern Canadians and the importance of these three or four words in the bill raises some concerns.
I think your presentation helps to better understand the scope of these words and I have to say that I do not doubt your word or your good faith. Bills may become laws and those laws last for decades, sometimes even centuries, and sometimes people interpret the words in a way that is not necessarily consistent with the initial intent.
In your presentation, you said:
And fourth, it reasserts the principle that there is audiovisual material which may not be illegal but which taxpayers should simply not be expected to pay for.
Do you have any examples of that kind of situation?
Ms. Verner: Thank you, Senator Massicotte, for your question. I would like to go back to those few words that are raising questions and just remind you that this language is used by some provinces, including British Columbia, Nova Scotia and Prince Edward Island, as well as for one of the SODEC programs in Quebec, which contains the provision "contrary to public policy." Basically, this is found in a number of provinces.
What is surprising about the use of these words is that this is precisely what the previous government intended to do, as announced by Minister John Manley in 2002 and by Sheila Copps in 2003. They used exactly the same language. Nothing has changed. Absolutely nothing. All of a sudden, in 2008, people are asking questions about the language used. You can see why I am more surprised than anyone. That is the clarification I wanted to bring to this public policy issue.
[English]
The Chair: If you would permit a brief interruption, Ms. Verner, you have made reference to two documents that were released in 2003. Do you have those documents and can they be given to the clerk to form part of these proceedings?
[Translation]
Ms. Verner: Yes, absolutely. Copies will be provided.
When you ask me for concrete examples of problematic content, you have to understand that I am currently asking the industry to consider potentially problematic content, and guidelines. So I do not want to pull the rug out from under them. My offer is honest and sincere. I want to work in partnership with them.
Let me tell you that it is quite clear to me that it is entirely consistent for us, as a government, not to give a tax credit to a producer who could be prosecuted under the Criminal Code, for example. I think the left hand has to do the same thing the right hand is doing. Canadian taxpayers would not accept such an irresponsible attitude from the government.
Right now, I have no tool to protect against that. Technically, today, it could happen, so I think we need to correct the situation. As for other cases that might not necessarily fall under the Criminal Code, but that would be clearly unacceptable, think of certain forms of violence or denigration of targeted groups in society. As I say, I do not want to venture too far, but I think that as a society, we accept and promote freedom of expression so as a government, do we have to provide financial assistance for everything? It seems clear to me that the answer is no.
Certain types of content may be produced, but for some of those types a responsible government has the right to ask the question. I would call on the industry, which is perfectly aware that this type of content exists or could exist, to reflect on the issue and provide me with some guidelines.
Senator Massicotte: Yes, those words have been used in other provinces. I do not attach much importance to that because we have the right to make mistakes, but the important thing is to correct them when they are found. When you say that those things that are legally acceptable and that target only a part of the population would not be subsidized through credits, you are on a slippery slope. In other words, you are saying that it is legal and acceptable in our society?
Ms. Verner: Under the Criminal Code.
Senator Massicotte: Criteria have been established that state that this is not allowed even if it is completely legal?
Ms. Verner: As you know, for books and magazines, there is already a guide, but I would like to come back to the wording of the announcement.
Nobody said it was a mistake. That is the language used in British Columbia, Prince Edward Island, Nova Scotia, New Brunswick and Manitoba. We will give you the documents so that you can see this for yourself.
I will ask Mr. Blais to expand on what is being done in the area of books and magazines and on the concept of public order.
Jean-Pierre Blais, Assistant Deputy Minister, Cultural Affairs, Heritage Canada: Within our programs, the department deals with several programs in the areas of books, Canadian magazines, sound recordings, et cetera, and we have had guidelines for years. They have varied somewhat from one program to another. However, for several years now, a line has been drawn for certain types of productions and creations whose content consists of attacks on identifiable groups or whose content contains excessive violence, and is therefore excluded from these programs, pornography for example. This has existed for several years. I even believe that Mr. Fox was minister for a time when these policies were established. This has existed for a long time, and the experience is there to assess it, as well as the internal jurisprudence to apply it.
The concept of public order is not a new concept in law. It can be found in common law jurisprudence and even in several places in Quebec's Civil Code. This has been a familiar term since the creation of the new Civil Code. We all know that the Civil Code specifically states that contracts that go against public order are not allowed. This is an art term that is well known in legal circles and what Ms. Verner is proposing to the industry is to flesh out more clearly, and transparently, the content of this concept.
Senator De Bané: You are correct in stating that in the Civil Code, the words "public order" appear frequently. A contract that runs counter to public order is not valid. If I sign a contract with someone and I want to pay that person to kill someone else, that is a contract that is counter to public order. The minister clearly said that it may be legal, it may not be a breach of any law, but, quite frankly, providing a tax credit would be going too far. You are right, it means illegal. One cannot sign a contract in order to commit a criminal offence. However, the minister said — I would respectfully submit — that even if it does not break a law, providing tax benefits is going too far.
The Chair: This is not the place to be pleading the case.
Mr. Blais: I would like to add some supplementary information. In fact, one may think that, except when I look at what the Minister of Justice said at the time about the Civil Code, the words use are in fact illegal, illicit or immoral.
According to the interpretation of the Minister of Justice at the time, Mr. Rémillard, "public order" went further than "against the Criminal Code."
Senator Massicotte: Freedom of expression is a very sensitive topic. When you start setting limits on that concept, you are affecting something that is fundamental to our Canadian values. My impression is that it is dangerous to say that certain acts are illegal and unacceptable in a given area and that the criteria are used after the fact, that is, a decision is made to deny tax credits.
The minister says that criteria will be established and that there will be collaboration with the industry. Why are those words necessary? Are they used often? Does it happen often that illegal acts lead to a denial of tax credits?
Ms. Verner: I understand how important you feel it is to maintain freedom of expression. I also believe in freedom of expression. What I do not understand in your question is that this has been the government's intention since 2002 and it is only today that you are questioning the words "public order." The wording of the section is exactly the same as that put forward in 2002 and 2003. Why were you not concerned in 2002 and 2003?
Senator Massicotte: Because I was not a senator.
Senator Fox: You neglected to say that this was removed from the regulation in 2005.
Ms. Verner: I mentioned it. In 2005, it was removed from the regulation in order to put it in a bill, which means that without the bill being adopted I have no means, if the case arises, to withdraw the tax credit. That is why the situation needs to be corrected. That is the first point. Second, in response to Senator Massicotte's question, and I will be happy to respond to Senator Fox after, yes, there have been cases where the tax credit was withdrawn.
Senator Massicotte: Was it legal? Do you have any examples?
Ms. Verner: Under section 241 of the Revenue Act, I cannot speak about specific products here.
Senator Massicotte: Without naming anyone, I understand. I would still like to know where you are going with this.
Mr. Blais: This was content that included pornographic elements.
Senator Massicotte: Legal?
Mr. Blais: Yes, because everything that contains pornography is not necessarily criminal.
Senator Massicotte: I understand that this was in 2002 and 2003. I was not a senator at the time. It could be that that was the case. We are pleased that the debate took place and we are here to learn from these experiences. We are here today to set goals. To goal today is to ensure better understanding. We are not here because we doubt your good faith. Could you give us examples of pornographic contents that occurred in the provinces and that did not receive a tax credit?
Mr. Blais: This deals with the federal credit. The regulation specifically mentions pornography.
Senator Massicotte: Who decided to withhold this credit?
Mr. Blais: The power to certify or not is exercised by the minister. As in the case of all other government decisions, she acts upon the recommendation and analysis made by justice department officials.
[English]
The Chair: I ask other senators to be self-disciplined. As I said earlier, Senator Massicotte is keen to ask these questions and I gave him latitude.
Now we have Senator Fox. I am sure you will follow the guidelines and keep questions brief and to the point.
[Translation]
Senator Fox: Thank you for being here with us today. I would like you to clarify some things in your statement. I do not understand what occurred after 2002 and 2003. My understanding is that in 2005 the regulation was amended and this wording was struck from the regulation. You go from 2002-2003 to 2006. What happened in 2002-2003? You say that the draft legislation was used for discussion purposes only?
Ms. Verner: Yes, that is correct.
[English]
Senator Fox: This bill raises fundamental issues. The issues are not only about commas and paragraphs here and there. Two paragraphs in particular raise fundamental questions, rightly or wrongly, for anyone interested in civil rights in this country. The paragraphs are clause 123 and subclause 120(12).
The question they raise is whether this bill creates a mechanism to limit freedom of expression and to impose a form of censorship. The second part is worrisome to people in the milieu, and Senator Eyton knows a lot of them. A real concern was raised about financing of films in the future. There are films financed exclusively with the tax credit. If the tax censor decision is made after the film is completed, that would be disastrous.
I can think of companies the Senate knows well such as Incendo run by Stephen Greenberg and Jean Bureau. They finance themselves with the tax credit. Banks lend them the 25 per cent in advance that they receive from the tax credit and they can go ahead with their film and finance it. If the banks feel there is any possibility that certification could be withdrawn on the tax credit, the financial engineering of a number of films is in doubt.
There are at least two important questions here: whether we are unwittingly or willingly moving towards a system of censorship by a group of unknown people, all of which have the utmost good faith in the bureaucracy, who will decide whether a film goes against public order, basing their decision on guidelines that are not regulations. These guidelines do not need to be tabled in Parliament. As ministerial guidelines, they can be changed from one day to the next.
People in the film industry and the cultural community in general have brought this issue forward. I will not take it lightly. We want to encourage stakeholders that feel there are problems to request permission to appear before this committee by contacting Line Gravel. We want to ensure that we do not pass a bill that would have effects that the minister indicates she does not want either. In that sense, the bill is an important one.
Others on our side will go through some of these items in depth. I want to go back to the context. The whole film community, the audiovisual community and the cultural community are aghast that this bill somehow finds itself before Parliament at the moment. It comes forward in a 568-page document and in there are a few pages concerning audiovisual tax credits.
My first question to the minister is in the context of transparency. We all believe in transparency. The government of which the minister is a part has spoken a great deal about improving transparency. There must be a better way of doing things.
The Chair: Senator, your preamble has taken 4 minutes and 59 seconds. If you have more than one question, I suggest you bundle them quickly. You are making a speech, not asking a question.
Senator Fox: I assume no warning was given to the community that this provision was in that bill. Was a press conference held? Were they consulted in advance? Does the bill indicate its content? Did you appear in front of any committee in the House? Did you make a speech on second reading?
I expect the answer to all those questions is no. One can understand the real concerns that people have about the bill.
The last point is that we are talking about tax credits on Canadian productions. There are also tax credits on service productions. The service productions are not affected by this bill. Thankfully they are not affected because all the American productions shot in Montreal — and lord knows how important, economically, those productions are to Montreal and Vancouver in particular — do not need to meet that kind of test.
[Translation]
There is a double standard. Canadian productions must meet the strictest of requirements, whereas American productions are totally exempt. Do you intend to subject American productions to the same criteria, because this involves public funds?
Ms. Verner: I would like to address several things that you mentioned in your introductory remarks. First, nothing has changed in Bill C-10. Nothing was announced in either 2002 or 2003. At the time, and Mr. Blais can complete my response, industry was consulted, contrary to what you were saying. This also occurred after 1999. You say that a group of officials would decide on whether or not the tax credit would be applicable; I specified in my statement that I am giving industry the choice to suspend the notion of "public policy" until such time as industry submits guidelines to me, as was intended by the Liberal government. I am proposing an even more transparent approach; they will consult amongst themselves, and discuss the associated administrative parameters. I am open to establishing an advisory committee with the participation of industry representatives. My door remains open to the industry, and I hope that they will take up the offer.
Mr. Blais can complete my answer by talking about the service-oriented businesses that you referred to a few minutes ago.
Senator Fox: I do not understand the last part of your answer. Service-oriented businesses?
Ms. Verner: Mr. Blais will address that.
Mr. Blais: The wording that you find in the bill was first announced in 2003 and was part and parcel of the government announcement at the time. The phrase, "contrary to public policy" and the notion of guidelines has been publicly discussed ever since. Consultations were held with producers' associations as of 1999, on this very phrase. We have been in a dialogue with the industry for sometime now.
With respect to service-oriented productions, this involves credits as a way of supporting work in Canada. These credits are not tied to content. The rationale behind this credit is entirely different. Once it is certified, the content is less of an issue than the goal of attracting investments to Canada.
Senator Ringuette: I will try to be brief in my questions. You mentioned that the credit will serve to attract investment to Canada. In your statement, you clearly indicated that over the last 12 years, the industry has injected approximately $22 billion into the Canadian economy.
This proposed piece of legislation is an "income tax" bill; the government is raising revenue. As for those concerned, did you carry out an analysis of the economic impact this bill will have on industry and on jobs?
Ms. Verner: Your question is very technical. On that point, I will ask my officials to answer.
Senator Ringuette: It is not a technical question. What I am asking is if you carried out a study on the economic impact this bill would have on industry and jobs.
Ms. Verner: Allow me to make the following comments. We are talking about a few cases, and even a few exceptions. This is important to point out. With respect to the studies, Mr. Blais will answer your question.
Mr. Blais: At any given time, let us take 2007, as an example, the tax credit was an industry subsidy worth approximately $200 million, a rather significant amount. The guidelines would apply to a very small number of productions. The rest of this sector would continue along. Therefore, the economic impact would be minor.
Senator Ringuette: The answer, therefore, is that you did not carry out any analysis of the economic impact of your proposed legislation and its implementation?
Mr. Blais: We are in the midst of carrying out a very detailed assessment of this tax credit, which is part and parcel of the department's business plan since the beginning of the year. We are currently reviewing our programs. Therefore, this program is currently under analysis. But given that this measure will affect a very small number of productions, the impact should be proportional.
Senator Ringuette: Can you tell us why this measure does not apply to American productions produced in Canada? If the government is not willing to subsidize Canadian producers working in Canada through some tax credits, why is it willing to hand over Canadian dollars to U.S. producers? Explain that to me.
Ms. Verner: Mr. Blais already replied to that question in his response to Senator Fox. I will ask him to complete his answer.
Mr. Blais: The tax credit aims to attract investments to Canada. This tax credit is based on, calculated and administered with dollars spent in Canada, with no regard to Canadian content. This credit is not intimately tied to content. This tax credit has a different rationale.
Senator Ringuette: There is a double standard. There is one standard for Canadian producers and a very different and advantageous standard for American producers.
My question regards what you say on page 4 of your statement. You said:
There is material that is potentially illegal under the Criminal Code such as indecent material, hate propaganda and child pornography.
You say that currently, the Income tax Act does not make mention of excluding this content.
Why it was not included in Bill C-10, rather than in these supposed guidelines, that remain at your discretion, guidelines that include indecent material, hate propaganda and child pornography? Are these not specified in the legislation? All Canadians would support your intentions.
I can certainly affirm that for the last month and half, I received nearly 5,000 e-mails expressing many reasons for disagreeing with what you want to do.
The Chair: The question is clear. Do you wish to respond?
Ms. Verner: Thank you, Mr. Chair. There are a number of things in what you said. I would again refer back to 2002 and 2003.
Senator Ringuette: No, please, answer my question.
Ms. Verner: That is what I am trying to do. If you will let me speak, I would be pleased to respond.
Senator Ringuette: The chair has requested that I ask brief questions and that is what I did.
The Chair: You did indeed do so. So please do not add any comments after the questions.
Ms. Verner: If you know the historical background, then I am surprised that you asked such questions. It is clearly indicated in the 2003 documents that guidelines needed to be established.
I would go even further. I am calling on the industry to draft those guidelines and submit them to me. I think that we have a partnership and cooperation, as was the case in 2003, when the Liberal government announced its intentions and the industry was satisfied with them. We have exactly the same wording today in 2008.
Senator Ringuette: Mr. Chair, I am truly disappointed that the minister cannot answer the simple question: simply put, why not include obscenity, hate propaganda and child pornography in Bill C-10? Why not?
Ms. Verner: As a responsible government, we think that Canadian taxpayers should not have to give their hard- earned money to pay for things that are not covered by the Criminal Code. As I told you and your colleagues earlier, there are examples of excessive violence and the denigration of targeted groups in society. I will stop there, but I would like the industry to establish the guidelines.
[English]
Senator Moore: Minister, the burden is on you to satisfy us as to why you need these guidelines and this section. In support of your position, you mentioned the four provinces of British Columbia, Newfoundland and Labrador, Ontario, and my province of Nova Scotia. Their systems are all a matter of regulation. We have conducted research. It is interesting that none of those four provinces reports any plan to define the usage of "contrary to public policy" within their regulations or to move the power from regulation to legislation.
Further, they told us they have never encountered a case where a production that met the appropriate ownership requirements would have been issued a federal tax credit and denied one at the provincial level, or vice versa.
I want to know, and Senator Massicotte asked you at the beginning, the names of the films that have been made that would not have received funding, had this provision been in place.
[Translation]
Ms. Verner: Thank you for your question. First of all, when you say, among other things, that your province does not define the usage of "contrary to public policy" and that there are no guidelines, you have to understand that the evaluation at this point is to be taken in the broad sense of the word. The reason why we are suggesting that there be guidelines is to specify matters and maintain a fair, equitable and transparent process.
With regard to the names of films that did not receive tax credits, pursuant to section 241 of the Income Tax Act, that is tax information and I am not authorized to give the names of those films.
[English]
Senator Moore: If you cannot tell us the names, can you tell the committee how many films there are and the years they were made, please?
[Translation]
Ms. Verner: There have been two, but as for the reasons, I will let Mr. Blais answer.
[English]
The Chair: In which year?
Mr. Blais: In 2007, there were two cases related to the notion of pornography, which is specifically provided for in the regulations.
Senator Moore: Those cases are already covered.
Mr. Blais: They were the only two cases. With respect to the minister pointing out that she cannot give the names, senators are aware of a proposal in the bill that would allow the names of the productions to be listed on the website.
Senator Moore: There have been only two cases, and they were last year. There is nothing else?
Mr. Blais: I misspoke. The years were 2002 and 2007.
Senator Moore: There was one case in each of those years.
Mr. Blais: Yes.
Senator Moore: There has been nothing else so I wonder if we are trying to solve a problem that does not exist.
Out of interest, minister, have you or any of your officials met with, or had discussions with, Charles McVety of the Canada Family Action Coalition in Calgary, Alberta?
Ms. Verner: Never.
Senator Moore: Have your officials met with him that you know of?
Mr. Blais: I have not, and I do not think any of my officials have done so.
Senator Moore: The important second sentence of clause 120(12) on page 351, to which Senator Fox referred, states that "For greater certainty, these guidelines are not statutory instruments as defined in the Statutory Instruments Act."
If that provision passed, it would put these unknown guidelines beyond the reach of Parliament. The guidelines would be beyond the reach of the Standing Joint Committee for the Scrutiny of Regulations, and I think they might be beyond the reach of the courts. The content of those guidelines should be known first. Why is it necessary for you to have that power?
Bruce Stockfish, General Counsel, Canadian Heritage: It is true that the guidelines are not statutory instruments and, therefore, not subject to the regulatory process. In that sense, this clause was put into the bill to maximize flexibility in their making. It is not true that the guidelines would not be subject to judicial review, for example. The courts could look at these guidelines to ensure they are reasonably made, consistently applied and not arbitrarily applied. There is some judicial oversight.
Senator Moore: However, they are not subject to the purview of the Parliament of Canada, and that is not good. I do not know why any minister would want to have such an open-ended power. I am not satisfied that it is necessary, having listened to the evidence offered before the committee today.
[Translation]
Ms. Verner: I would add that the same goes for the guidelines of other departmental programs. I keep coming back to the Liberal government's intentions in 2002-2003. It is exactly the same thing. But we are also proposing to work with the industry and ensure that there is a working partnership.
[English]
Senator Moore: It is fine to say that it was before other governments but this particular piece of proposed legislation, in its current form, has never been before this committee of the Senate of Canada.
Ms. Verner: It is true.
The Chair: The bill has not been before us before December 4, 2007, in any form.
Senator Moore: The industry does not really matter.
[Translation]
Ms. Verner: It was passed by Parliament with the support of all parties.
Senator Ringuette: By the House of Commons?
Ms. Verner: By the House, yes.
[English]
Senator Moore: I am concerned about the sweeping, open-ended and unassailable authority that this provision gives to the minister, regardless of what government is in power.
The Chair: This committee has wrestled with guidelines many times in the form of the Office of the Superintendent of Financial Institutions Canada, OFSI, and all the powers it has in regulating companies and banks in the financial services sector. One has to be careful with this practice. It is a common form of operating within governments these days, whether or not we agree that it is a good practice.
In any event, Senator Goldstein has points of clarification.
Senator Goldstein: They will not be my main intervention, if I ever reach that point.
[Translation]
Madam Minister, you said earlier that in 2002-2003, when the regulations were developed, the industry was satisfied. That is what you said. Who within the industry said they were satisfied, when did this happen, and what did they say?
Ms. Verner: It was in a press release dated November 14, 2003.
[English]
"Producers Applaud Feds As They Boost Tax Credit"; that was from the Canadian Film and Television Production Association.
[Translation]
Senator Goldstein: They did not look at whether people could be turned down with regard to the tax credit. They only took a position on fiscal issues, and not on the issue you are looking at adopting now.
Ms. Verner: But these were the same provisions and I will read them to you. On November 14, 2003, it is clearly indicated that "public financial support of the production would not be contrary to public policy." It is clearly indicated, and a few pages down, beside "Guidelines," it says:
The Minister of Canadian Heritage shall issue guidelines respecting the circumstances under which the conditions. . .
I will spare you the rest. So in 2003, people were already talking about guidelines and public policy. But I can not tell you why they decided to issue a press release at the time. I cannot speak for them. But what I can say is that no one today can ignore the fact that this issue existed in 2003, that it had been announced in 2002, and then adopted by the House in 2007 with support from every party.
Senator Goldstein: Without the knowledge of several parties, as we learned in the House two weeks ago.
Ms. Verner: Funnily enough, only the Liberals claimed this. But they were all around when it was announced in 2003.
Senator Goldstein: Do you sincerely believe that a regular person could understand 560 pages of long and incompressible provisions, even for tax experts?
Ms. Verner: The 2003 press release issued by the Department Finance was not 600 pages long.
Senator Goldstein: Did it mention the tax credits?
Ms. Verner: Absolutely.
Senator Goldstein: But not the discretion given to the minister.
Ms. Verner: That is not true; it was written and clearly indicated.
Senator Goldstein: "At the discretion of the minister," does it say that anywhere? Find the quote.
Ms. Verner: It clearly says: "a certificate issued in respect of a production by the Minister of Canadian Heritage certifying that the production is a Canadian film or video production in respect of which that Minister is satisfied. . .," there you have it.
Senator Goldstein: Satisfied that. . .what?
Ms. Verner: That public financial support of a production would not be contrary to public policy.
Senator Goldstein: My question was this, Madam Minister, and you clearly understood it. Did the press release mention the discretion of the minister? The answer is no.
Ms. Verner: Listen, I have just read the press release to you.
[English]
The Chair: The record speaks for itself. Colleagues, I have been advised that there is a vote in the House of Commons at 5:30 p.m. The minister, needless to say, must leave us in time for that vote. We have other witnesses here. We have had questions. I want to go to one other questioner, Senator Tkachuk, and then I understand, minister, you must leave at 5:20 p.m. for the vote. Will you be able to come back?
Ms. Verner: I was supposed to leave at 5 p.m. I am pleased to stay for a few minutes, but I was supposed to leave then.
The Chair: I understand. Will you take questions from Senator Tkachuk, and then I think you will need to come back.
Senator Tkachuk: I will try to be as short as I can. I think the important point to make here, which you tried to make, is that there was no change in policy; therefore there was no reason to have an alert to something that was not changed at all.
The fact that there were a number of ministerial decisions not to fund particular programs may have something to do with the fact that the regulation or policy was already there. Therefore, deterrence would give the people in the industry less need to apply if they knew their request would not be approved.
Without this provision, do you have the right, as a minister, and do you have an obligation, to approve the application. Could you refuse to approve an application?
[Translation]
Ms. Verner: Thank you for your question. Since the regulations were repealed in 2005 because of the new legislation, if the provision is withdrawn from Bill C-10, we will have no way of preventing the granting of the tax credit to certain productions.
[English]
Senator Tkachuk: Even if you wished to, you would not be able to?
Ms. Verner: Absolutely.
Senator Tkachuk: How does that leave you responsible to Parliament for the approval of these applications, if you have no right to make approvals?
Judith A. LaRocque, Deputy Minister, Canadian Heritage: Right now, the approval process is twofold. A producer comes forward with a project and wants certification for a tax credit from the Canadian Audio-Visual Certification Office, CAVCO. Under that system, producers make a number of undertakings. For example, the director will be Canadian, the scriptwriter will be Canadian, the number-one star will be Canadian — or whatever those undertakings are.
On that basis, CAVCO issues a certification, which is a draft certification that is like a preliminary opinion. Producers take that certification to the bank to say that if they do all of these things, they will receive the tax credit. It is on that basis they usually receive loans for production.
After the film is made, CAVCO then goes through the entire list of promises or engagements that have been made and ticks them off to ensure the producer has lived up to the expectations. It is only at that point that the minister issues the final certification.
The minister still has discretion with respect to whether producers have lived up to their obligations. What the minister does not have discretion over right now is this loophole that something can be contrary to the Criminal Code, for which a person can be pursued, but for which the minister has no authority not to provide a tax credit.
It goes beyond the provision, "contrary to public order," because even though the situation arises in a small number of circumstances, there are cases where we believe strongly that it would be unacceptable to the Canadian public to have a tax credit issued for a certain type of production — the kind that the minister has put forward, which denigrates a specific group, incites hatred or that kind of thing.
Senator Tkachuk: Without the provision, the minister cannot say: I do not want to sign this certification. I think the film is illegal, or I think the public would find it abhorrent that we would fund Debbie does Dallas or something like that.
Ms. LaRocque: Right now, the minister cannot sign only if Debbie Does Dallas has not lived up to all its conditions for a Canadian director, a Canadian star, or another condition.
The Chair: Minister, will you allow us to question your officials in your absence? We will be in touch to have you appear before the committee again.
[Translation]
Ms. Verner: Yes, absolutely. I will just look at their agenda before making a commitment.
The Chair: You have a very important vote.
[English]
The Chair: The minister will return. For now, the officials will remain.
[Translation]
Would it be possible this evening after the vote?
Ms. Verner: No.
The Chair: Fine, in that case we will contact your staff.
[English]
Although we have another panel of witnesses, we had originally planned to spend the time from 4 p.m. to 5 p.m. with the minister and her officials so we should at least finish a round of questioning with these witnesses. Is that the will of the committee? We will bring the other witnesses forward following that round of questioning.
Hon. Senators: Agreed.
Senator Tkachuk: I want clarification on ministerial responsibility to the House of Commons. Under questioning in the House about particular public policy questions normally around a set of public policies or around guidelines, ministers can make certain decisions. However without guidelines, you are telling me that this situation takes away the right of the minister to make a decision. Is that right?
Ms. LaRocque: I will ask Mr. Stockfish answer because I am not a lawyer. I believe it removes any discretion the minister might have to refuse a tax credit other than for the specific purposes for which that tax credit was intended.
Mr. Stockfish: The minister has the discretion to act with regard to a particular matter to the extent that the discretion is afforded by statute. In this case, granting a certificate for the purposes of a tax credit is more or less automatic, given the lack of discretion with regard to content, so long as all the requirements under the act are met.
Ms. LaRocque mentioned the requirement for Canadian ownership and Canadian points. She also mentioned that certain productions are not excluded. Pornography is one of those excluded productions under the regulations so the example you gave might not have met the criteria. As long as those conditions are met, the minister has no other discretion to decide not to grant a certificate for purposes of content that she might find unacceptable.
Senator Tkachuk: The minister said that she is willing not to put into force this particular provision for one year while the guidelines are developed, and she has invited the industry to advise her on those guidelines. For clarification, is there reluctance on the part of the industry to advise the minister, or is it simply that the process has not been completed?
The Chair: Is that question addressed to Ms. LaRocque?
Senator Tkachuk: It is for anyone who wants to answer it.
The Chair: Which of our witnesses deals with the industry?
Mr. Blais: I have had dealings with the industry. The minister's speech used the word "hesitant." We are still in early days. As the minister pointed out, we hope to continue the partnership we have had with the industry over the years and, as the minister said, she extends her hand to them for partnership and collaboration.
Senator Goldstein: Have they not refused to deal with this issue, to your knowledge?
Ms. LaRocque: To our knowledge, they have not said yes.
Senator Goldstein: That is not my question.
Ms. LaRocque: I have not heard no from the industry. We believe it is in everyone's interest for the industry to be involved greatly. We prefer that the industry draft these guidelines because we expect the guidelines to be narrow, not broad. We hope that we can arrive at a mutual understanding of what should be in those guidelines so that it is clear and transparent to provide certainty to the industry, as opposed to the way it is now where discretion could be unfettered, which is not what this situation requires.
Senator Eyton: I appreciate the useful overview given by the minister. Have you had discussions about that 12- month holiday with the industry?
Ms. LaRocque: Yes.
Senator Eyton: In spite of the apparent generosity of the offer to sit down to try to work something out, do you still describe their reaction as hesitant?
Mr. Blais: The industry is a highly varied group. I have spoken to one group of producers. As Ms. LaRocque said, they have not said no but they have not said yes yet. They ask questions and that is the kind of relationship we have with industrial groups and cultural sectors all the time. They ask questions and we try to offer answers — it is a dialogue.
Senator Eyton: This offer has been on the table for a few weeks.
Mr. Blais: I would say it has been less than two weeks.
Senator Eyton: We have heard in the speech and read in our briefing materials references to various ways in which to deal with the provision at hand. We have heard the years 2002, 2003 and 2005. It would be useful to have a precise chronology of the provision in its different forms, and tie it to the dates so that we can see the progression. At some stage in the process, a decision was made to take the provision from regulation to legislation. There must have been a reason for making that decision because it is not the kind of thing we would think about doing or inventing overnight. Someone must have made a determination that it was appropriate for this regulation to be inscribed in legislation.
Gérard Lalonde, Director, Tax Policy Branch, Department of Finance Canada: This issue has a long history. The Canadian Film or Video Production Tax Credit was introduced in the February 1995 budget. It replaced an old capital cost allowance tax shelter program that was not terribly successful from a policy perspective. The program cost a great deal and much of the benefit was not delivered to film producers.
In the lead-up to the 1995 budget, we worked closely with film and television production associations to develop what was announced in the budget. That proposal included a number of income tax regulations, which were released in draft form on December 12, 1995. The regulations included a public policy test but did not include a provision for guidelines.
The process for preparing regulations was long and drawn-out, and rightly so to ensure that all the proper checks and balances are put in place. The process was also to ensure the regulations comply fully with Canadian laws, and more particularly, with laws applicable to subordinate legislation.
As all senators know, regulations, including those specific to income tax, are passed by order-in-council by cabinet and do not go through Parliament. However, they rely on authority provided in a statute to give authorization for the issuance of regulations.
One concern with regulations is that as delegated authority, the regulations should be clear about what they propose to do, and that they draw their authority from the enabling legislation.
I mentioned that the public policy test was included when these regulations were drafted and released originally. There were periods of time during the finalization of these regulations when they were closer to being passed. Note that they were not passed until 2005, and I can explain why later.
The Department of Justice, with whom the Department of Finance works closely, noted that it would be better — it was not a prohibition on the use of regulations in this manner and it has been pointed out that a number of provinces have their public policy test in the regulations — if the public policy test were in the enabling legislation which, in this case, is the Income Tax Act.
The Chair: When specifically was that noted, Mr. Lalonde?
Mr. Lalonde: That advice was given in the lead-up to the 2002 release of the proposed amendments to the Income Tax Act that would move the public policy test from the regulations. At that point, the amendments had been only proposed and not yet passed. However, they had been administered by the Canada Revenue Agency, or Revenue Canada as it was known at the time. It was proposed to move the public policy test to the Income Tax Act, in a release, I believe, on December 20, 2002.
We were also advised that when we have ministerial discretion, it would be advisable to require that guidelines be issued. Therefore, that requirement was put in the proposed law as well.
In the December 2002 draft amendments to the Income Tax Act that were released, we continued to discuss that proposal as well as a number of other measures of interest to the film and television production community. That discussion led to the November 2003 release of draft legislation specifically targeted to film and television productions. The public policy test, along with the guidelines, was repeated at that point.
They were originally proposed in the 2002 release which was a large release. They were repeated in the 2003 release, which was a small release because it dealt only with income tax legislation pertaining to the Canadian Film or Video Production Tax Credit.
The legislation announced on December 20, 2002 found its way into a notice of ways and means motion tabled on October 30, 2003 by Minister John Manley. However, in November 2003, Parliament prorogued and a new bill was required.
Further, the next day, legislation proposed for the relieving and enhancing amendments to the Canadian Film or Video Production Tax Credit were announced. Those additional amendments were then folded back into the larger bill and the bill was re-released in July 2005. In January 2006, an event caused Parliament to be dissolved and the bill was again reintroduced as Bill C-33 in November 2006.
Parliament prorogued on September 13, 2007 and the bill was again in limbo. It had passed the House of Commons but was here in the Senate. It was revived as Bill C-10.
That is the chronology of this particular piece of legislation.
The Chair: The direct question Senator Eyton asked you was: At some point, did it go from regulation to statute. You have given us a lot of information.
Senator Eyton: That was a long answer to a short question.
In particular, the question was whether the initiative came from the Department of Justice.
Mr. Lalonde: Yes.
Senator Eyton: Would this provision be better reflected in legislation?
Mr. Lalonde: We have Ms. Hassan here from the Department of Justice who can address that question.
Sandra Hassan, General Counsel, Director, Tax Law Division, Law Branch, Department of Finance Canada: The analysis was that it would be better to remove that provision from the regulation and put it into legislation because of a risk that it eventually would be declared void for vagueness. There is case law to support the allegation that courts are more lenient towards such a clause if it is found in the act rather than in the regulations. That situation is the one Mr. Lalonde explained.
When the initial proposed regulations were released in 1995, the provision was only one clause in the regulations. When it was added to the bill to ensure taxpayers knew what was expected of them, and to reduce the risk that it be considered vague, the additional paragraph was added. The paragraph indicated that the minister would issue guidelines. This addition reduced the risk from the perspective of the Department of Justice.
The Chair: Ms, Hassan, are you personally familiar with the issues on which you have been testifying?
Ms. Hassan: I was not present at the time. However, I am now the manager of the division and I am aware of that file.
The Chair: Thank you.
Senator Eyton: I have a strong sense that if that advice not been received and if had we stayed with the regulation, we would not be talking about this provision today.
Ms. Hassan: You are right.
Senator Eyton: What will happen if this particular provision does not pass? What would be the result?
Mr. Lalonde: The only way this particular provision would not pass is if the Senate did not pass it either on third reading or —
The Chair: That was not the question. Assume, for the purpose of your answer, that particular section does not pass through the Senate. Senator Eyton is asking what the consequences would be.
Mr. Lalonde: The bill would go back to the House. Presumably, a motion would have been tabled to excise that particular provision. The bill would go back to the House of Commons for a vote on that amendment.
The Chair: Senator Eyton, I think you need to pursue your question.
Senator Eyton: I was referring to the Department of Canadian Heritage and the process. You have a process in place now. I make the assumption that if this particular provision does not pass, you would carry on much as you are today. Is that correct?
Ms. LaRocque: Yes, senator, it would mean that the minister would have none of the authorities she seeks in this legislation. We would revert back strictly to monitoring the application of the tax credit for the purposes of Canadian content.
Senator Fox: That is the present situation?
Ms. LaRocque: Yes.
Senator Tkachuk: Could you then have a regulation?
Ms. Hassan: There is presently a regulation, and there are criteria in the regulation, as enacted. That regulation, SOR/2005-126, already excludes certain productions. Subsection (1) excludes talk show productions and news, current events or public affairs programming, or programming that includes weather or market reports. It also excludes a talk show, a production in respect of a game, questionnaire or contest; a sports event or activity; a gala presentation or awards shows; a production that solicits funds; reality television; pornography; advertising; a production produced primarily for industrial, corporate or institutional purposes; or a production other than a documentary, all or substantially all of which consists of stock footage.
The regulation presently exists.
Mr. Blais: The point about the subject matter we discussed is, if we go back to the existing regulation, the minister would continue to have the power to exclude pornography, but the definition is narrow in the current CAVCO guidelines. As the minister and our legal counsel pointed out, for things that are contrary to the Criminal Code, the minister would not have discretion to exclude productions that potentially could be contrary to the Criminal Code, like hate content or child pornography, and the other content, though not illegal, which the minister identified as a small number that might be beyond the line that the industry would draw, based on her offer.
The Chair: The next questioner will be deputy chair, Senator Goldstein. We have one other witness here who has not joined the table from your department, Ms. LaRocque and Ms. Gibbons. Would you like to have the witness join you, or is she there if needed?
New Speaker: She is there if needed.
The Chair: Good, I have seen her.
Senator Goldstein, you have the floor. After that, Senator Fox, am I correct that you would you like to carry on again?
Senator Fox: Yes, if there is time.
Senator Goldstein: Five provinces have a tax scheme of one kind or another to encourage Canadian or, in their case, provincial productions; and the federal government has a tax scheme that encourages productions here. Four of those five provinces have an exclusion for public order or public policy. You have had an exclusion for public policy without guidelines.
In addition, there are publication subsidies — that is, for books and magazines — granted by the federal government under two statutes, and by a variety of provinces as well. The net result is that if we add all the years of this tax aid together from provinces and from the federal government for cultural publications in the broad sense — I include magazines, videos and movies — we have almost 100 years of experience.
In those 100 years of experience, there have been two refusals, both of them relating to pornography, which is already specifically excluded. Can you help us understand why, with 100 years of experience and no problems, you suddenly discover that this matter is urgent and must be done or the world will collapse?
Mr. Blais: I cannot speak for the provinces. I do not know what the provincial authorities have or have not certified in the past. One can assume, as well, that if a rule is in place, there is a likelihood that someone may not apply for the subsidies under a program. One cannot draw a conclusion that because we have not excluded them, the legislation, scheme, guidelines or whatever it may be, have not been effective.
With respect to the federal authority, guidelines have been in place for a number of years, and there have been occasions. The two we mentioned were under the certification of audiovisual. There have been occasions under the other subsidy programs that have led to a particular cultural expression being excluded, based on those programs.
Senator Goldstein: How many?
Mr. Blais: In recent history, there may be three in the past two years. Again, we cannot necessarily draw the conclusion we would not have excluded them if the rule had not been in place. The problem is if the rule is not in place, it is too late under the credit. I think the deputy would like to add a comment.
Senator Goldstein: I think Canadians will draw their own conclusions about that issue.
The minister told us that the proposal is no different than what has existed in the past. She asserted that the language is the same, the details are the same, and the provisions have been dealt with, passed and accepted by a variety of governments.
However, the wording of the provision is radically different; proposed section 125.4, which is what we are talking about, reads that a "'Canadian film or video production certificate' means a certificate issued in respect of a production," et cetera, "in respect of which that Minister is satisfied that . . . public financial support of the production would not be contrary to public policy."
However, section 1106, which was the previous provision, said that an excluded production was a film or video production, the production for which financial support would, in the opinion of the minister, be contrary to public policy.
On its face, it appears that the distinction between the former legislation and the proposed legislation is slight. It is significant, do you not think, that in the previous drafting of section 1106, the presumption was that the film or production was not contrary to public policy, and the minister was required to make a determination that the production was contrary to public policy, whereas the way you have put it now, the situation is completely reversed? The presumption is that a production is contrary to public policy unless the minister renders a determination that the production is not contrary to public policy. Why did you make this fundamental change in your drafting?
Mr. Lalonde: For the most part, it is to make it fit grammatically into the legislative framework. The regulation that talked about an excluded production was phrased in the positive because that is how it was originally drafted. This particular test was proposed to be moved from the regulations into an existing structure. As a result, the provision had to be massaged grammatically to fit within the structure of the income tax law because there was previously existing income tax law at that time.
Senator Goldstein: Mr. Lalonde, you would agree that the change is not a grammatical one but rather a change of substance. Lawyers around the table recognize that amendment is a fundamental change of substance. There are questions of onus, of proof, of when an exclusion is determined, as well as the more important question of the inability of proposed financiers to know whether, in the future, the minister will declare that something is contrary to public order. Apparently, you have not considered the impact of financing on a $5 billion industry. I find it rather amazing that we are about to look at this change.
Mr. Lalonde: You have raised a number of issues in the context of one question. For the first question, in the context of the exercise of discretion, I do not agree that there is a difference in the application of this discretion. It is not the kind of exercise that has an on-off switch but rather it is an exercise of discretion. Hence, the switch from a positive test to a negative test ought not to make a difference, in particular where the question is: Is this discretion being exercised?
Further, in respect of the change to the Income Tax Act, an additional requirement was added that guidelines be created. The requirement for guidelines was not in the regulations. I suggest that the proposal to amend the Income Tax Act is more favourable from a public liberties perspective than that which was originally proposed in the regulations.
Your follow-up question dealt with the ability of industry to raise money from the banks, having received assurance that it will have a tax credit. There are a number of reasons, some of which Ms. Hassan outlined, why, in retrospect, a certified Canadian film or what was allegedly a certified Canadian film might not receive its certificate. It might not receive its certificate at the end if, for example, the star, the producer, the script writers, who are allegedly Canadian, were found to be not Canadian. That could happen.
Senator Fox: Those tests are objective.
Mr. Lalonde: As well, there would not be a tax credit if the film was never shown. My point is that there is a two- stage process, as described earlier by officials from the Department of Canadian Heritage, such that the producer of a film who applies for a tax credit will go to Canadian Heritage, obtain a provisional certificate based on what is alleged to be in the film, who is alleged to be the actors, who is alleged to be the screenwriters, and who the distributor is.
Provided all those elements stay reasonably on track by the time the film is produced and out the door, the certificate will be issued and the credit will be available. The public policy test ought not to be any different from that. If producers come to Canadian Heritage and say their film is about a family of people living in the Canadian Rockies, for example, and indeed the film is about that subject, then there ought not to be a problem. However, if the film is substantially different, enough that it gives rise to this extraordinary situation where the public policy test would be invoked, which occurs in exceptional circumstances, there would need to be a substantial misrepresentation between the time the original provisional certificate was sought and the time the final certificate was refused.
Senator Goldstein: I have no further questions.
Mr. Blais: There is a suggestion that the other criteria were objective and easily applied. I can tell you, having looked at this issue from both the private practice side and the government side, it is not always cut and dried who the scriptwriter is. We require that the producer or those exercising producing-related functions be Canadians. When Americans are on the set calling the shots, there is a great deal of ambiguity as to who the true producers of the production are. Currently, apart from the issues, we have extensive guidelines, similar to the ones that we envisage in this case, that help the industry to understand what we mean when we say that the producer must be Canadian and the scriptwriter function must be Canadian. Is someone who performs a rewrite a scriptwriter? These guidelines help the industry to judge better. I do not want you to assume that the tests in the current system are objective and can almost be done on a computer because at least some analysis is required.
Senator Goldstein: At best, to try to analyze your answer, we are adding subjectivity to an industry that already has a fair chunk of subjectivity, according to your answer. With respect, you are not helping the industry but rather you are hindering it.
Mr. Blais: The guidelines are precisely what we do currently at the Canadian Audio-Visual Certification Office with the industry, to create that certainty so the industry does not face uncertainty with the financing. There is nothing any different. The industry has lived with the guidelines in the past.
Senator Goldstein: Mr. Blais, it is my understanding that the industry has told you that it does not want to be involved in these guidelines.
Mr. Blais: As I mentioned earlier, I have spoken with some in the industry only. I repeat: The group I spoke to was hesitant.
The Chair: We need clarification arising out of Senator Goldstein's questions. The minister was unequivocal in stating that a public order provision was brought in, in 2002 and in 2005. She produced documentation and said it is word for word with no change. Now, if I understood the line of questioning that just ended, Senator Goldstein elicited the fact that the wording is different and is not the same word for word as the provisions of 2002 and 2005.
Honourable senators, is that your understanding as well? If that is the case, then the minister might be labouring under a misconception. We are all trying to resolve this issue in a decent way.
Mr. Lalonde: It is not different from what was proposed in 2002 and 2003. The grammatical structure only is different.
Senator Massicotte: It does not matter. That is politics. Trying to determine what was there in 2003 is simply trying to say that politically, does anyone have anything to gain? We need to determine whether it is good or bad legislation, or appropriate or inappropriate. We do not care what happened in the past. We need to determine what is best for Canada and whether it is appropriate today.
The Chair: My question was not designed in any way to be political. Rather, it was to find out whether we were told the truth, and now it has been clarified. As far as whether the policy is good or bad, that is not for our committee to decide. If flaws exist in the proposed legislation and this committee decides in its wisdom that we consider the bill clause-by-clause, then we will do so.
[Translation]
Senator Fox: First, I share Senator Goldstein's concern. Indeed, in changing the wording by including "not," it seems at first glance as if the onus of proof has been reversed. If it does not change anything, why make the change? Just leave it the way we are used to.
Second, Ms. Laroque, the new paragraph (b) in subsection 120.3 states that public financial support of the production would not be contrary to public policy. You also say that the same provision is found in provincial legislation. Is that correct?
Ms. LaRocque: Yes, in some provinces.
Senator Fox: Are there regulations under the provincial legislation?
Ms. LaRocque: I have no idea.
Mr. Blais: It is very different. In the case of British Columbia, Saskatchewan, Newfoundland and Labrador and Nova Scotia, it is found both in the guidelines and in the legislation. In the case of the Yukon, Prince Edward Island, Nunavut, Alberta and Quebec, it is in the guidelines. In the case of Manitoba, New-Brunswick and Ontario, it is in the legislation.
Senator Fox: So it would be in line with the legislation of several provinces if it were only contained in the federal legislation, and if the amendment was made without necessarily amending subsection 120 (12). Is that correct?
Mr. Blais: There are several models we could follow.
Senator Fox: I did not understand Mr. Lalonde's answer. Is it impossible to conceive that instead of having guidelines, we would have regulations? As you know, normally regulations are presented before a committee of Parliament.
[English]
Mr. Lalonde: Are you asking if it would be impossible to put a requirement for guidelines in the regulations?
Senator Fox: No, instead of saying the minister will issue guidelines, which is a fantastic thing for a minister to do, could it not be regulations? The minister would issue guidelines in a regulatory form, which Parliament then would have the opportunity to examine.
A guideline by a minister can be changed by the minister the next day, if the minister desires that — I am not saying the minister would do that — whereas there is a process for dealing with regulations.
I was not sure if I understood you to say that under the Income Tax Act, it was not possible to have regulations; that you had to go the guideline way.
Mr. Lalonde: Not at all; it is possible to have regulations under the Income Tax Act and we have many of them.
Senator Fox: We could amend this bill to say we want regulations, and the minister could put whatever guidelines she had in mind, after discussions with the industry, into regulations. Is that possible from a drafting and statutory or legal point of view?
Mr. Lalonde: It is possible. In this case, we started off with a regulation that did not have guidelines, moved it into the act and introduced the concept of requiring guidelines, but guidelines that were not statutory instruments. That approach was to ensure that the guidelines were as flexible as possible, instead of being a regulation. In the event the guideline needs to be changed — for example, where it needs to be less strict — it is not simple to revise a regulation.
Senator Fox: I cannot speak for everyone on this committee, but certainly some of us would feel more at ease — I feel more at ease — with regulations today than I do with guidelines. I take it that the answer is, we could have regulations, as opposed to guidelines.
[Translation]
Ms. Hassan: In answer to your first question in which you stated that the amended version reverses the onus of proof, the criteria, in fact, were originally contained in draft income tax regulations, which were made public in December 12, 1995. When people say the criteria were positive, they are referring to that document. The reference was to productions which, in the opinion of the Minister of Canadian Heritage, went against public policy and so should be denied public funding.
As Mr. Lalonde explained, the criterion presently found in Bill C-10 has been reworded to grammatically fit the definition of "Canadian film or video production certificate," but there was no intent. The criterion per se has not changed.
The criterion we have before us has existed since 2002-2003, as Mr. Lalonde explained, and it has been repeated many times. It is now contained in Bill C-10, which is before us, and it has not changed. It is worded in a negative manner. The minister answered the question correctly; since 20002 the criterion has not changed.
Senator Fox: I would like to come back to guidelines and to what Mr. Blais said with regard to what is objective and what is subjective. If you want to determine whether someone is a Canadian citizen or not, the answer is yes or no — perhaps after inquiry, but it is ultimately an objective answer. A person is a citizen or not.
If you ask yourself what is obscene, that is not an objective criterion. Is there anything which goes against the Criminal Code? Unless a judge decides that it goes against the Criminal Code, it is not an objective decision which the department takes. It is very subjective. That is where the rubber hits the road. You would be asking the minister to decide whether something goes against the Criminal Code, when it is not her role, nor is it the role of the department.
Asking the department to decide whether something is obscene is tantamount to opening the door to censorship. Take Lady Chatterley's Lover — many years ago — which triggered a debate on obscenity. It is always difficult and subjective to reach these types of conclusions. If we are to have guidelines, I would prefer to have objective criteria, and if a movie turns out to violate the Criminal Code, we would have to find a different way to retroactively withdraw the tax credit. It is not up to people within the department to decide whether something is obscene or not. You are moving from what is objective to what is subjective. I would like to know what you think of this.
Ms. LaRocque: Do not forget that our main objective is to create certainty in the industry. We would be willing to support guidelines developed by the industry so people are clear about the rules of the game before applying for a tax credit. The industry can only function well if it is sure about what it can do. So the idea was to frame that — in areas where there might be a lack of objectivity — with guidelines.
Senator Fox: I understand the objective, but this is not how we are going to meet it.
[English]
The Chair: Senator Tkachuk has a supplementary question. Would you accept that, Senator Fox?
Senator Fox: Of course.
Senator Tkachuk: I wanted to clarify the position of members in this committee. Since we are on TV, to be clear and to make the position part of the public record, this bill received all-party support in the House of Commons, did it not?
Mr. Lalonde: Yes, it did.
Senator Tkachuk: One of those parties, as far as I could tell, was still the Liberal Party of Canada.
Senator Moore: That is why we have the Senate.
Senator Tkachuk: That is why you need the Senate maybe.
Mr. Blais: I want to respond to Senator Fox, when he talked about objectivity. I have been involved in certification in private practice, where there have been long debates on things such as is the production stock footage or not; is a producer Canadian; and are other people on the set? These questions that we have been involved in are difficult.
Although you may think at first blush that the decision is clear-cut, I can tell you that there are many different types of productions. People try to push the line. For example, they have people reconfiguring a script but saying that these people are not really scriptwriters. These issues are difficult.
We do not take lightly the administration of the tax credit. We know it has an impact on people. To help them have as much certainty as possible, we have guidelines and always update them so they know exactly how we interpret the rules.
The Chair: Thank you for that comment.
Senator Tkachuk: I know we have another set of witnesses.
The Chair: No, we do not now. We have integrated them all.
Senator Tkachuk: Both Senator Eyton and I have a committee that starts at 6:15 p.m.
The Chair: As do I, but we have the officials here. I think most senators now are getting the issues off their chests. This is our chance. I think the minister will come back if members of the committee would like to have her back.
Senator Massicotte, you are the last one to have your hand up.
[Translation]
Senator Massicotte: Ms. LaRocque, you said you would be willing to go so far as to ask the industry to develop guidelines and that you would be willing to accept its recommendations without any political or bureaucratic involvement. Am I correct in assuming this?
Ms. LaRocque: We wish to have a dialogue. Of course, we have public policy objectives. However, we believe that we can work with the industry in all good faith.
Senator Massicotte: And if the industry responds that the guidelines are two empty pages, and that three or four words could be dropped, what would you say?
Ms. LaRocque: Parliament might decide to adopt Bill C-10 without amendment, and then it would be our duty to adopt guidelines as is stipulated under the act. If we realize at some point that the industry does not want to work with us, it will be our duty, if Bill C-10 is adopted, to find other ways of involving the public and the industry.
Senator Massicotte: We are here today to learn and not to make any decisions. We are asking questions for clarification. I am not an expert in the field. However, allow me to point out that we have received over 5,000 e-mails, and you have probably received just as many, as would have the minister. Canadians are very sensitive to their freedom of expression, and with good reason. As soon as you start to play with the definition of freedom of expression, Canadians become even more sensitive.
History has shown that there only have been two such cases in five years. Yet we are on the verge of creating an enormous amount of work, with guidelines which might be very complex, and very bureaucratic, and this is raising many concerns. So we have to ask ourselves why we should even contemplate doing this, because it might only have a negligible positive impact. It is true that perhaps only two somewhat offensive movies might not get made. So what? Is it worth engaging in all this controversy? It is not too late to backtrack. The bill has not yet been adopted.
Ms. LaRocque: It is a matter of political will. And if we are here today, it is for political reasons. The issue can be examined under another light. If we grant tax credits to productions deemed by most Canadians to be inappropriate, be it because of ultra violent, disparaging or hateful content —
Senator Massicotte: But legal.
Ms. LaRocque: But legal, is that the intent behind the tax credit? The question remains.
Senator Massicotte: We are referring to two occurrences over the last five years.
Ms. LaRocque: Two projects which were denied. We do not know about projects for which tax credits were not claimed.
Mr. Blais: Nor do we know about those that could not be excluded due to a lack of criteria.
Senator Massicotte: That is the question. We may find a scene to be offensive, but it is dangerous to go down that path and we should ask ourselves whether it is worthwhile to do so. That is why we are holding these meetings.
Ms. LaRocque: And that is exactly why we believe guidelines are important and necessary to identify the problem and have a very good understanding of the matter. We are aiming for a shared agreement between the government and the industry so as to be fully clear about the application of these regulations or guidelines.
[English]
The Chair: Do the officials have any parting words for us?
On behalf of all honourable senators, I thank you for your input in dealing with these rather complex moral issues and legal issues.
The committee adjourned.