Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 37 - Evidence - June 11, 2013
OTTAWA, Tuesday, June 11, 2013
The Standing Senate Committee on Banking, Trade and Commerce, to which
was referred Bill C-48, An Act to amend the Income tax Act, the Excise Tax
Act, the Federal-Provincial Fiscal Arrangements Act, the First Nations Goods
and Services Tax Act, and related legislation, met this day, at 11 a.m., to
give consideration to the bill.
Senator Irving Gerstein (Chair) in the chair.
The Chair: Good morning and welcome to the Standing Senate
Committee on Banking, Trade and Commerce. This morning our committee will
begin its study of Bill C-48, An Act to amend the Income Tax Act, the Excise
Tax Act, the Federal-Provincial Fiscal Arrangements Act, the First Nations
Goods and Services Tax Act and related legislation.
Today we are pleased to welcome the Honourable Ted Menzies, P.C., M.P.,
Minister of State (Finance). He is accompanied by officials from the
Department of Finance Canada: Ted Cook, Senior Legislative Chief; and Ed
Short, Senior Chief, Business, Property and Personal Income. Joining us by
video conference from Edmonton is Grant Nash, Senior Tax Policy Officer,
Business Income Tax.
Can you hear us, Mr. Nash?
Grant Nash, Senior Tax Policy Officer, Business Income Tax, Department
of Finance Canada: Yes, Mr. Chair. Good morning.
The Chair: With that, minister, the floor is yours.
Hon. Ted Menzies, P.C., M.P., Minister of State (Finance): Thank
you for that kind welcome. I see the weather looks better in Edmonton than
it is in Ottawa, but what can I say? That is Alberta.
It is always a pleasure to sit between two Edwards. Once again, as when I
was here another day, we had three Edwards in a row. It is not always the
case, but we will do our best to answer your questions, whichever Edward the
question is addressed to.
Mr. Chair, I want to thank you and all of the members of the Standing
Senate Committee on Banking, Trade and Commerce for beginning their study on
Bill C-48, the Technical Tax Amendments Bill. I will begin with relatively
brief remarks in order to provide the senators of this committee ample time
to ask myself and our learned officials from the Department of Finance as
many questions as possible about this legislation.
The technical tax act amendments, or the proposed technical tax
amendments act as the title not so subtly implies, is an extremely technical
piece of legislation. While technical, it is nevertheless of great
importance to taxpayers as it has important implications for both
individuals as well as businesses. In fact, Bill C-48 represents a clearing
of a backlog of miscellaneous tax amendments that have left large swaths of
Canada's tax system in limbo for over a decade. I am sure that the witnesses
you will be hearing from will share those concerns that we have heard for
This is a backlog that has, unfortunately, become an increasingly large
and festering problem as successive parliaments from 2001 onward have failed
to pass, for a myriad of different reasons, these technical tax pieces of
legislation that are necessary. Indeed, the glut of technical tax amendments
has grown to such a degree that even the Auditor General of Canada was
compelled to release a detailed report on the situation and urged Parliament
to move forward to address this situation. I quote at length from the
Auditor General's report of 2009:
Taxpayers' ability to comply with tax legislation depends on their
understanding of how the rules apply to their own circumstances. . . .
Uncertainty about how the law should be applied can also add to the time
taken and costs incurred by tax audits and tax administration.
I want to assure this committee and all Canadians that our government
absolutely agrees with the sentiment of the Auditor General and took this
report with the utmost urgency. Indeed, over past few years our government
has been working to prepare this ambitious legislation and to clear this
decade-long backlog. We have been working to prepare this legislation
through repeated open and public consultations on these amendments from 2009
and 2011. This process allowed Canadians the opportunity to give their input
in advance to ensure we could address their questions and concerns with the
draft legislation before its formal introduction.
As a representative from Ernst & Young told the House of Commons Finance
Committee during their study of Bill C-48:
. . . we commend the Department of Finance for its ongoing efforts to
constructively consult with taxpayers and other professional and
business organizations regarding these matters.
When that unprecedented and far-reaching consultation was completed,
departmental officials took account of the feedback that they had received
and began the next stage of what has been an extremely long journey
preparing the legislation that is in front of this committee today.
As we witnessed in the House of Commons where all political parties
worked cooperatively and supported this legislation, I sincerely believe
that all parliamentarians recognize the imperative to work together to
complete a timely study to finally end this backlog. To that end, I want to
share with the committee what we heard from non-partisan and independent
organizations at the House of Commons Finance Committee about the need to
move forward with this legislation.
The Canadian Institute of Chartered Accountants said:
We support Bill C-48. The CICA understands how important it is for
taxpayers to have greater certainty and a clearer understanding of
Canada's federal income tax system. . . . Bill C-48 helps improve
clarity and certainty, and it mitigates the negative effects of
uncertainty identified by the Auditor General.
As well, the Certified General Accountants Association of Canada told the
. . . we support the tabling of the bill and . . . we encourage you
to move swiftly to pass this important piece of legislation. The bill
deals with a massive backlog of unlegislated tax measures. Its passage
would, in our opinion, bring greater clarity to the tax system and
strengthen the integrity of our laws.
Finally, the Canadian Tax Foundation, an independent tax research
Bill C-48 . . . represents 10 years of repairs and maintenance in
updating the Income Tax Act and the Excise Tax Act. Its passage is
important to all Canadians. . . . Delays in the passage of tax
legislation leave taxpayers and their advisers in a no man's land of
With that context in mind, let me briefly provide an overview of the
Part 1 of the bill proposes modifications to the Income Tax Act to better
target and simplify rules relating to non- resident trusts. I should note
that this portion of the bill took into account the extensive comments
received as part of our government's consultations.
Parts 2 and 3 seek to create a more fair and equitable international tax
system with amendments related to the taxation of Canadian multinational
corporations in respect of their foreign affiliates.
Part 4, an extremely technical portion of the bill, simply seeks to make
certain that the tax rules are harmonized under both common and civil law.
Part 5 looks to close a series of tax loopholes to ensure that all
Canadians pay their fair share. For instance, we are closing tax loopholes
relating to specified leasing property, preventing schemes designed to
shelter tax by artificially increasing foreign tax credits, implementing
tough information reporting rules for tax avoidance transactions, and many
more. I am sure all senators would agree that fighting tax loopholes is
absolutely vital to ensuring the continued integrity of the tax system and
protecting law-abiding Canadians from having to pay for those tax cheats
with their own higher taxes.
I would like to note that many provincial governments are looking at this
very legislation to help guide their efforts in combatting tax loopholes.
Indeed, Ontario's 2013 Budget specifically highlighted Bill C-48 in this
place. I will read verbatim from page 266 of the Ontario budget document:
. . . the government will be proposing legislation to introduce new
disclosure rules for aggressive tax avoidance transactions similar to
the rules introduced by the federal government as part of Bill C-48 in
November 2012. This new measure would require taxpayers to report
aggressive tax avoidance transactions that attempt to avoid Ontario tax.
Before moving on, I will note that Part 5 also implements a minor but
very important amendment related to the Fairness for the Self-Employed Act
by providing a tax credit in respect of Employment Insurance premiums paid
by self-employed individuals.
Part 6 implements technical amendments to the GST and HST, including
relieving the GST and HST on the collection and distribution of the
Copyright Act's levy on blank media.
Part 7 makes technical amendments to the Federal-Provincial Fiscal
Arrangements Act and the First Nations Goods and Services Tax Act to provide
more flexibility for tax administration agreements.
Finally, Part 8 merely consists of numerous standard coordinating
amendments to ensure that tax amendments in Bill C-48 properly interact with
other pieces of legislation.
I indicated at the beginning that I would attempt to keep my remarks
brief, so I will conclude here. My officials and I are open to questions
from the committee.
However, let me again stress why passage of this admittedly lengthy bill
is of such importance. Putting it very simply, it provides certainty for
taxpayers, it makes compliance easier and it improves tax fairness for all
I will finish by quoting an op-ed written by Tim Wach, a respected tax
professional with Gowling Lafleur Henderson LLP:
When taxpayers are uncertain about their obligations, their trust and
faith in the system diminishes.
. . . parliamentarians can bring a higher degree of certainty to our
tax laws by moving forward swiftly, in a non- partisan, non-politicized
manner, to enact outstanding changes. Let's hope they do just that.
Thank you, Mr. Chair.
The Chair: Thank you, minister, for those opening remarks. I have
two questions, just to lead off.
It is very clear from what you said that this is very much a technical
bill, clearing up past situations that require clarification. Can I assume,
then, from the other side of the coin that this does not really involve the
reconsideration of tax policy?
Mr. Menzies: No. As I have said many times, this is clarification.
These do go back a long ways — prior to even our government — to things that
were never put into law, so that is what we are doing. As I say, there is no
one party or government to blame here. It is an accumulation that should
have been cleaned up a long time ago.
However, it is not changing. We have other things. We had to make some
changes in this budget that passed the House of Commons, by the way,
yesterday afternoon; we were happy to see that. The BIA 1 cleared the House
of Commons yesterday afternoon. There are changes in there, but this is
clearing up and clarifying things that have been done some time ago.
The Chair: You mentioned in your opening remarks that you have
been cleaning up things dating back to around 2001. Recognizing that this
bill is some 955 pages long, does this do the job? Is it now cleared up, or
is there another one to come forward in another year to clear things up
further? Does this get us all the way or are we part way there?
Mr. Menzies: It dates back to before the time I was elected to the
House of Commons, so I would certainly hope it clears everything up. I would
defer to one of our officials to reassure you, if he can.
Ted Cook, Senior Legislative Chief, Department of Finance Canada:
In terms of where this stacks up with regard to the outstanding legislative
amendments, I would refer to the 2009 Auditor General's report. At that
time, the division and branch I worked in at the Department of Finance
Canada was subject to an audit. At that time, the Auditor General noted that
there were, by their count, approximately 400 outstanding technical
amendments and approximately 250 comfort letters, in particular, that had to
I think outstanding comfort letters is probably a good measure, because
that is a measure of commitments that the Department of Finance Canada has
made to taxpayers to make a recommendation to the Minister of Finance that a
particular technical amendment be made.
As I say, the Auditor General found there were approximately 250
outstanding comfort letters. With this technical package, plus a smaller
draft release in December 2012 for public comment, we have approximately 20
to 25 comfort letters to deal with out of those 250. In terms of us having
substantially dealt with the group of comfort letters that were identified
by the Auditor General and were outstanding in 2009, we have certainly done
It is an ongoing process; obviously we issue new comfort letters each
year. Hopefully we will never get to this stage, but there certainly will be
further technical amendments to be made.
The Chair: Thank you very much, Mr. Cook.
I will move first to the deputy chair of the committee.
Senator Hervieux-Payette: A particular issue is causing me great
concern, and I have not found an answer to my questions in the document's
We are learning that Canadian citizens of U.S. origin, after decades,
have to submit tax information to the U.S. authorities. Does a Canadian-born
American who returns to the United States have the same problem? This issue
is probably not covered in the bill. However, there are usually measures —
and we see that in a number of provisions — that help us determine where the
income was earned and where it is taxable.
How will the government treat those Canadian citizens who have incurred
absolutely incredible obligations to the U.S. tax system?
Mr. Menzies: If I can just start off, we actually were debating a
bill in the House of Commons yesterday on double taxation agreements or
treaties with other countries. We have a number of those in place — correct
me if I am wrong, but I believe it is at least 60 different treaties on
double taxation — to ensure that if you pay taxes in one jurisdiction, you
do not pay the same tax in another jurisdiction.
You are referring to FBAR; that is the acronym used. Minister Flaherty
has been working with his counterparts in the United States. The officials
will correct me if I am wrong, but it is the legal right of the United
States. American citizens should have known that they at least have to
report tax, even if it is not payable. It gets to be a real challenge.
I have constituents who have come to me and said, "I cannot believe my
tax bill." They claim they did not know.
As to the reverse, I do not know. I would refer to one of my officials.
You are asking more about the reverse, and I do not have an answer for you.
Senator Hervieux-Payette: Yes, how do we treat that here?
Mr. Cook: I can give some brief comments generally on how the
Canadian tax system works in comparison to the U.S. tax system.
In terms of your specific question, there is nothing that I am aware of
that specifically goes to the treatment of Canadian residents or U.S.
citizens in terms of how their tax treatment in the U.S. is affected in any
significant way by this bill.
However, as a general matter, Canada, like most countries, taxes on the
basis of residence. Residence is a test as to where you make your habitual
abode, where you live and where you carry on your activities. For those
people, we tax them on their worldwide income. For people who are not
residents of Canada, we just tax them on their Canadian- sourced income.
The actual question of citizenship does not directly come into play in
terms of Canada asserting its tax to right. The U.S., on the other hand —
and in contrast to just about all other major countries — has made the
decision that it will continue to try to exert the right to tax over its
citizens. It has created a number of tricky issues. In fact, there are a
host of rules in the Canada-U.S. tax treaty to deal with various issues that
arise where you have someone who might be a citizen in the U.S. but who is
resident in Canada. The short answer is not directly dealt with in the bill;
it is just as a result of the U.S. taxing on a different basis than we do.
Senator Hervieux-Payette: I would have been tempted to put a
section in that bill just as a negotiation with the U.S. because our own
people are being penalized, so if it has anything in exchange — I think that
might not have been a bad thing.
What are we doing? Is there a section that will deal with Tim Hortons or
Starbucks or all those multinational corporations? Are they all paying taxes
in this country? Are we making sure? Do we have a section here that will
cover that so that there is no billing in one place and revenue declared in
the other place? Have we managed to correct the situation that happened in
England and maybe in other countries?
Mr. Menzies: I was just at the OECD annual meetings. The OECD is
working on what is referred to as "base erosion" and "profit shifting,"
which is exactly what you are talking about. All of the OECD countries are
seized with this and very concerned about it. However, it is a matter of
this country giving tax credits. Are they realistic credits or is it just an
opportunity for a company to shift its profits? Everyone is very concerned.
The G8 has asked the OECD to do some analysis on this, and that will be
later this year. I believe they are coming forward with a report to the G8
because it is certainly an issue, and it has been highlighted in the media
It is not just Canada that is concerned about it; other countries are,
Senator Hervieux-Payette: No, but we have 900 pages. I thought we
might have addressed this question before the others. I agree that other
countries have to make their own decisions, but it is up to us. We are
importing manpower and exporting profit. I have a little problem with that.
Mr. Cook: To build on the minister's remarks, at a general level,
what you have been talking about is transfer pricing and profit allocation
between different jurisdictions. That is one aspect of taxpayers seeking to
take advantage of advantages through creative use of the tax system.
In terms of what is in this bill, it does contain a number of integrity
measures designed to protect the Canadian tax base and in some cases to deal
specifically with foreign tax planning.
To give you one example, the implementation of a measure first announced
in Budget 2010 is a measure dealing with what we call "foreign tax credit
generators." It is tax planning that was being used by Canadian taxpayers,
primarily financial institutions, which would seek to set up a series of
arrangements in another jurisdiction to artificially create income and tax
in the foreign jurisdiction, which would create foreign tax credits in
Canada. In a sense, that is the same kind of basic issue because they are
trying to take advantage of differences between the Canadian tax system and
the foreign tax credit generators we have seen, the U.S. tax system.
Senator Tkachuk: You mentioned in Parts 2 and 3, minister, our
wish to have an equitable tax system on multinationals and their foreign
holdings and how they are dealt with. Are these confirmations of existing
tax laws that multinationals may not have understood properly or are they
Mr. Menzies: My understanding is that these are taxes that were
already in existence; we are not changing them. The amendments in respect of
foreign affiliates, which are in Part 3, are to tighten it up. I will let
the officials elaborate further on it. However, we put in a number of
measures in Budget 2013. We put forward 75 different improvements to close
loopholes, some of them within Canada itself.
Senator Tkachuk: They were not avoiding taxes.
Mr. Menzies: "Progressive tax planning" is how it is referred to.
Senator Tkachuk: We did not make our laws clear. My view is if the
government does not ask for it, you should not have to pay for it. Maybe you
could help me with this, Mr. Menzies, but it seems to me these are new
Mr. Cook: I would characterize the amendments in Parts 2 and 3
more as a technical response to tax planning that was being undertaken by
taxpayers in the foreign affiliate context. Our foreign affiliate system
seeks to manage the taxation of Canadian residents, in this case more
particularly Canadian resident corporations, that earn income through
As I mentioned, we tax our residents on worldwide income, and we tax
non-residents on the bases of Canadian revenue source income. That gives an
incentive for Canadian taxpayers, including corporations, to establish
foreign corporations that are non-resident in Canada to earn income
We have a particular regime that when income earned by these foreign
affiliates is repatriated to Canada by way of dividend, those dividends are
what we call "taxable surplus" and included in income and tax, or they can
be paid out of exempt surplus of the foreign affiliate and not be subject to
tax in Canada. Exempt surplus arises where the foreign subsidiary is
carrying on genuine, active business activities in a foreign jurisdiction,
earning business income; foreign jurisdiction is one with which we have a
tax treaty, or a TIEA.
We were seeing specific tax planning by corporate groups to avoid
appropriate taxation on dividends returned to Canada. To give you one
example, instead of paying a dividend, the foreign subsidiary might just
loan the money. If they had paid a dividend, it would have been subject to
Senator Tkachuk: They were not breaking any law, were they?
Mr. Cook: No, they were not breaking any law.
Senator Tkachuk: This is a way to tax someone who has found a way
not to pay tax legitimately, not illegitimately.
Senator Massicotte: It is market stuff.
Mr. Cook: In some ways it is the difference between tax evasion
and tax avoidance. This is tax planning. When it is within policy, we will
respond to the tax planning to ensure what we think is an appropriate policy
Senator Tkachuk: I always worry when the tax people say that it is
tax fairness and when there is a tax loophole. All it means to me is more
Mr. Menzies: May I make a comment? This is only available to
larger corporations that are multinational.
Senator Tkachuk: I understand that.
Mr. Menzies: I think more about the individual that receives a
paycheque from an employer two times a month. Their taxes are deducted, and
they do not have ways to avoid taxes aggressively. That is who I am more
concerned about, senator.
Senator Tkachuk: They all go to accountants or they all are trying
to take advantage of any tax credits or tax deductions they have. We should
be assisting individual taxpayers to ensure that they are not paying too
much tax, that they are taking advantage of every opportunity the law
provides for them.
I am not saying we have different laws; I am just saying it should all be
You talked about tax loopholes. Are tax loopholes simply a question of
people not paying tax legitimately? They are not breaking the law or
anything. They are not paying tax that the government is not requesting. Do
not blame them. We should blame us, right? I do not blame them. They are
playing by the rules. It is not a tax loophole. It is simply that you have
not asked for the money.
Mr. Menzies: In some of the discussions that we have had around
the Finance Department decision-making table, they certainly look like
loopholes when you see how large they have become. Successive governments
have all attempted to make taxes as fair as they can for all individuals.
Senator Tkachuk: I am with you there.
Mr. Menzies: That should be the premise and I think that is always
the premise of any government that has managed this country. However, there
are some smart accountants out there. That is not to discredit the
accountants at all. That is what they are paid to do. However, they have
found ways for certain clients to aggressively approach the tax system.
Senator Tkachuk: I have been on the Banking Committee off and on
since 2006 and we have had these comfort letters dealt with by both
governments from time to time when there was a particular amendment or some
particular legislation that was passed. In order for us to deal with the
budget, these comfort letters were to clarify something that was totally
confusing. Of course, these comfort letters are sent to us.
The Chair: Senator Tkachuk, the question, please.
Senator Tkachuk: I need a little context. Is there any way we can
pass a regulation that would require the Department of Finance, when a
comfort letter is issued, that the following budget year that comfort letter
of clarification is put in the Income Tax Act for clarification so we do not
have this situation arising again? The comfort letters just simply lead to
Mr. Menzies: If I can quickly answer that, you used the term "us."
I have never received a comfort letter, so I do not know exactly what they
Senator Tkachuk: We have received them here. I have been here
Mr. Menzies: That may be it. I have never requested one either.
Senator Tkachuk: I know we all have received them.
Mr. Menzies: That is certainly what our plan is, to keep current.
It is uncertainty for those individuals.
If there is a change of government, is my comfort letter valid? That is a
concern for taxpayers. Certainly, our attempt will be to keep it more
current. Whether we can put it in the next budget bill, we are not sure.
Senator Ringuette: Could you clarify, please, the non-resident
trust in this bill? What, practically, will be happening?
Mr. Menzies: I will defer to an official to explain that.
Mr. Cook: Partly it depends what you mean practically will be
happening in the sense that, as draft legislation that has been released by
the Department of Finance, we encourage the CRA and taxpayers to generally
comply with the draft legislation that is in this bill. In that sense, the
passage is obviously very important, but for most of the elements of this
bill, they have been incorporated into the tax system already.
In terms of the non-resident trust measure itself, that is why we have
Mr. Nash here from Edmonton. Maybe I will turn it over to him.
In response to that, the non-resident trust measures in this bill were in
Bill C-10, which was before this committee back in 2007-08. At that time,
the committee expressed a number of concerns with respect to that particular
version of the non-resident trust rules. In response to the concerns raised
by, I believe it was actually this committee back then, a significant amount
of additional work went into those measures.
Senator Ringuette: You are listening to us.
Mr. Cook: Absolutely. The concerns raised with respect to Part 1
of Bill C-10 have been largely addressed in this bill. They were re-released
for consultation in Budget 2010. That also proposed a separate consultation
process. We had a group of senior practitioners come in and look at the
legislation. It was released in draft again in August 2010. It has been
through a fairly significant revamping since then.
I do not know if that is responsive to your question.
Senator Ringuette: Maybe Mr. Nash will want to add something.
Mr. Nash: Senators, are you interested in understanding a little
more about the circumstances in which these rules apply to a non-resident
Senator Ringuette: Yes. I think it would be very helpful if you
could give us a few examples.
Mr. Nash: There is a current legislative regime in the Income Tax
Act that responds to the use by Canadians of non- resident trusts in
circumstances in which there is a risk that a current year's income
requirement will be avoided. Those rules were subject to some of the types
of tax planning that the committee has heard about this morning, people
arguing that they are attempting to comply with the rules but perhaps
stretching the boundaries of what that means, with the result that the
current regime is not fully effective.
These proposals take the current regime and attempt to improve upon it,
with the particular view of focusing on the question of whether the money
that has found its way into the trust has been contributed by a Canadian
resident. In those circumstances, these rules can come into play.
The extent of the impact of the rules in those circumstances will depend
upon the terms of the trust. There are different outcomes, depending upon
whether, broadly speaking, the trust is a commercial trust or not.
Senator Ringuette: That is quite a handful for the CRA to
supervise and make sure it is implemented and that there is compliance.
A few months ago, in researching another bill, I did something incredible
in that I read the tax agreements between Canada and the provinces. One
thing that was a revelation to me was that the income tax changes we make
here that have provincial implications also require, as you said earlier,
minister, that the provinces also have to enact legislation so that there is
an overall same standard or same definition if you are looking at tax
issues. This is quite a bill. We are looking at GST issues, corporate income
tax and trust issues.
Are the provinces onside with the changes in this legislation? My
recollection of my reading is that there is not really a time frame for the
provinces to enact similar legislation.
First, are the provinces onside with what is in the bill? Second, is
there a time constraint so that everything is lined up to make sure that it
happens and everyone is applying the same set of rules?
Mr. Menzies: It is a good question. Because of the comment from
Ontario, I am familiar with that, but perhaps Mr. Cook can elaborate.
Senator Ringuette: You triggered my memory of reading that
agreement between the provinces.
Mr. Cook: We are having another official come up who is actually
our director of our intergovernmental division. Did you want to make some
Kei Moray, Director, Intergovernmental Tax Policy, Evaluation and
Research, Department of Finance Canada: You were referring to the tax
Senator Ringuette: Yes.
Ms. Moray: Provinces that have signed a tax collection agreement —
and that is all provinces and territories except for Quebec, as well as
Alberta on the corporate tax side — are required to have the same tax base
as the federal government. When we make changes to our tax base, they are
obligated to follow and do need to make changes to their own legislation.
The federal government notifies them of the changes they need to make, and
they go ahead and make the changes.
Senator Ringuette: That is my understanding of what I read.
However, there is a section there that means that the provinces, if they do
not agree, can refer that tax ruling to their superior court. Is there any
possibility that, for what we have in front of us — 900-some pages — some
provinces have already indicated that they do not agree and would put that
ruling in front of their superior court?
Ms. Moray: No provinces or territories have made any negative
comments about this bill. In the tax collection agreements, if there is a
dispute, there is a provision in there for a dispute to go forward through
courts. However, that dispute resolution mechanism has never been invoked.
Senator Oliver: My question is for Minister Menzies.
Thank you, minister, for coming. Your presentations are always clear and
you help us a lot.
I would like to follow up on some of the questions on process raised by
the chair at the beginning of the meeting. You said in your remarks that the
AG said, "We would like Parliament to address this problem." You talked
about the backlog since 2001, and you explained that it is a very serious
thing, that all of the current problems are probably not even in this big
bill and that there is more to come.
In the Senate we cannot, as parliamentarians, introduce a bill like this,
and so I wonder what it means when organizations, groups and people say, "We
would like Parliament to address this problem of the backlog," because if we
cannot introduce legislation, what should be done?
Later on, I noticed that you also said that you have gone to a number of
stakeholders and sought their input before this bill was tabled in
Parliament. My other question is: Why can parliamentarians not be included
as stakeholders to be given some advice and to be briefed a lot earlier?
When you have a bill this big coming to you at the last moment, which has to
be passed in a hurry, that makes it more difficult. In order to overcome
this process problem, I am wondering if you engaged parliamentarians in
advance, as you do chartered accounting firms and other stakeholders, that
that might be one of the ways you could overcome the problem.
Finally, in terms of the REITs, I noticed that that was done because Part
5 of the technical amendments includes numerous proposals in relation to
REITs. These particular amendments were the result of extensive,
collaborative discussions and consultations between the government and the
REIT sector, along with tax professionals and other Canadians but not
Maybe some of the success you had in REITs could have even been improved
in other sections if parliamentarians had been engaged earlier.
Mr. Menzies: Senator, we meant no disrespect, please believe me. I
would refer to the officials to give you an overview of who we have
consulted with. In follow-up to Ms. Moray's comment, our officials consult
on a regular basis with their counterparts in the provinces, if I am not
mistaken. They certainly do on other issues, so I would assume they do on
tax issues as well.
We have signalled by this that we want to consult very broadly. I would
refer to the officials to see if they can give you a better idea of what the
consultation process is made up of.
Mr. Cook: With respect to this particular bill, the consultations
that were undertaken would vary, depending on the particular measure you are
talking about. As I indicated with respect to the non-resident trust and
foreign investment entities, there was kind of a wide-ranging and very
detailed consultation process that was undertaken with respect to the vast
majority of these measures. They have been released on many occasions for
You mentioned the REITs. They have had additional consultation.
With respect to this bill, in fact, Department of Finance officials
provided a number of briefings outside of the usual framework of appearing
before committee, so I guess we have been open to that in this particular
bill and, recognizing the number of pages and the breadth of it, have tried
to do our best to provide briefings to both parliamentarians and other
officials, as needed.
Senator Oliver: When the Auditor General says that he would like
Parliament to address this problem, what do you understand by that? It is
the executive, really, not Parliament.
Mr. Cook: With respect to the Auditor General's report in 2009,
the Auditor General actually made two recommendations. One is that we
establish a database to better track, prioritize and deal with outstanding
technical amendments. The Auditor General did recognize that ultimately the
choice to pass legislation or not, or even to introduce legislation, goes
beyond the purview of officials. What the Auditor General did recommend is
that smaller packages of draft legislation be prepared for release on a more
regular basis and that that would provide an opportunity for consultation.
We have very much taken that on board at the Department of Finance. In
fact, we released a package of draft technical amendments in November 2010.
We released one in November 2011. Both of those packages are contained in
this bill. We released another package of draft technical amendments on
December 21, 2012, and we continue to work on draft technical amendments for
In that sense, ultimately, the passage is out of our hands, but in terms
of what the government can do at the departmental level, we have seriously
taken the Auditor General's recommendations and have been acting on them
Senator Moore: The bill contains 955 pages. Minister, you
mentioned that things have been in consideration since 2001. However, I
think Mr. Cook said that the Auditor General's report of 2009 really
stimulated action here. What percentage of the bill is a result of the AG's
report of 2009?
Mr. Menzies: What percentage of it? I do not know that I can
Senator Moore: There are almost a thousand pages. Has his report
resulted in half of it or three quarters of it? How much is old and how much
is really old here?
Mr. Menzies: I would say the overall fact is that it was put
together and actually received the attention that was necessary. The Auditor
General tends to make us, as parliamentarians and officials, focus on his
reports, and the report said we should get this done. I do not know if Mr.
Cook might be able to comment.
I do not know if you could portion out any amount of it as reaction to
that. It was all there.
Mr. Cook: In terms of the makeup of this bill, we have talked
briefly about Part 1, the non-resident trust and foreign investment
entities. That was contained in Bill C-10 but has been significantly
revamped. Parts 2 and 3, dealing with foreign affiliates, are newer measures
that were not in Bill C-10.
In terms of responding to your question, I think Part 5 — about 300
pages, a third of the bill — is really bringing forward draft amendments
that were brought before the committee as part of Bill C-10 in 2008. The
other 100 or 200 pages deal with newer measures that were either announced
in Budget 2010 or as part of our technical packages. If you want an estimate
of those technical packages, probably 50 to 80 pages of the bill are
proposed legislation. It is difficult to say how much is in response to the
Auditor General in the sense that the Auditor General kind of promoted
cleaning up everything.
Senator Moore: I understand that. How much is really old?
Mr. Cook: The really old would be the 300 pages in Part 5 that
were before this committee in almost the exact same form in 2008.
Senator Moore: As you said, tax uncertainties to be avoided, the
CRA issues advance rulings to taxpayers that they try to get out within 60
days. In 2004-05, it was 62 days; and in 2011-12, it was 106 days. Is the
CRA being given the people and the budget it needs to meet what will
probably come here by way of requests for rulings and to clean up the
backlog? I do not see any official from the CRA on the witness list. Can you
speak to that?
Mr. Cook: The advance tax ruling system, I would say, is distinct
from the comfort letter system and what is dealt with in this bill. I guess
there are not any CRA officials here because we are talking about
legislative change. Advance income tax rulings are interpretations, if you
will, that the CRA makes for a particular taxpayer in respect of a
particular set of circumstances, usually to facilitate a particular business
transaction. In that sense, advance income tax rulings do not deal with
legislative change but are just interpretations of the existing law.
In terms of how it relates to our work, if the CRA is unable to come to a
taxpayer's interpretation in an advance income tax ruling, the taxpayer
might come to the Department of Finance and say, "What I am intending to do
is clearly within the policy scope of what the provision should allow. Will
you issue me a comfort letter?"
Senator Moore: When it is from your department, it is a comfort
Mr. Cook: That is correct.
Senator Moore: In terms of the current apparent backlog and what
may come as a result of this bill, has the CRA been considered and provided
with the necessary resources to clean up that backlog?
Mr. Cook: Certainly, the CRA is consulted in developing technical
amendments. By passing this bill, there will be greater certainty for the
CRA in administering the Income Tax Act and dealing with taxpayers.
Senator Massicotte: Thank you, minister and officials, for being
with us. Obviously, this is an important step. I read the bill last night,
955 pages, before I went to bed. It was good reading.
I missed the beginning of your very important speech, minister, so I may
be duplicating. I assume the purpose of this amendment is simply to tie up
some loose ends to make it consistent with the intent of the act as
originally intended. I hate the word "loopholes" because it is the
responsibility of everyone to minimize their tax.
Going back to the intent, some sections have been in discussion and
dispute with many taxpayers for several years. Part of the provisions,
section 95, goes back effective five years, I presume, because it has been
debated for that long. Are all these stakeholders satisfied with the
amendments? Is there any significant issue outstanding? Will someone tell us
tomorrow or today that this is not the intent and that you guys are pulling
a fast one? What is the dispute? What is the critical issue that we should
be concerned about in trying to interpret the intent of these amendments?
Mr. Menzies: I agree with your comment, senator, and through you,
Mr. Chair, that everyone wants to pay the least amount of tax that is legal.
Our premise is to ensure that everyone pays their fair share of tax. Whether
you call it loopholes or aggressive tax planning is open for interpretation.
The changes we have proposed are simply to make it fairer for everyone.
Will everyone be happy? No, because those who have found a way to reduce
their tax or to shift their profit to a lower tax jurisdiction will not be
happy. Who may be happy is the ordinary taxpayer who has tax deducted from
his or her paycheque every two weeks but still pays a fair share.
I completely understand when they look at a multinational company that
shifts their tax to a lower tax jurisdiction and does not pay their fair
share of tax in this country. I tend to put more credence in whether those
people and their tax advisers are comfortable with this. The consultations
have been very broad throughout this process.
Senator Massicotte: Everyone has a right to minimize tax, but I do
not think anyone has much difficulty with the department clarifying the
rules to make sure it is fair and consistent with the intent of taxation.
However, is that all there is or is there something in these 955 pages that
is a stretch or that one would say goes far beyond what would be fair and
comparable to other countries?
Mr. Menzies: My answer to that would be, no. I have not seen
anything that I would call "a stretch."
Senator Massicotte: What about the defined residency, where
beneficiaries in excess of 10 per cent would have a pro rata? There has been
a lot of debate in past years on that issue. Has that been largely
satisfied? Did we come to a reasonable solution with taxpayers on that
Mr. Cook: I will respond to the specific question. I believe you
were asking about the critical thing to know about this bill: To the extent
that you can ascribe a feeling to the tax community at large, the response
to this is relief that hundreds of grey pages in the Income Tax Act that
represent draft amendments will be clear, finally, and be law so that
taxpayers and the CRA both understand completely where they are with respect
to them. It creates issues for corporations that may file based on draft
legislation but cannot use it in preparing their financial statements.
Senator Massicotte: You are saying that all the witnesses in the
next couple of days will have accolades for the amendments.
Mr. Cook: I certainly hope so. Clearly, the House of Commons
committee has had a number of hearings on it. Issues will always be raised
but, in general, the response has been as I have indicated.
To deal with your technical issue on foreign investment entities, it was
raised before the Senate that it was too complex for individuals to comply.
Actually, we have moved away and dropped that aspect of the bill. In terms
of the foreign investment entity rules, this bill contains a couple of small
improvements to the existing rules.
Senator Massicotte: That will not come back via previous
legislation. Is that for further study or will we get another bill six
months from now?
Mr. Cook: One day we may consider it. There is nothing active at
the Department of Finance on it.
The Chair: Minister, to you and your departmental officials, on
behalf of all of the members of the Standing Senate Committee on Banking,
Trade and Commerce, I express appreciation for your being here today.