Hon. Barbara McDougall (Minister of State (Finance)) moved

that Bill C-7, an Act to amend the Income Tax Act and related statutes, be read the second time and referred to the Committee of the Whole.

She said: Mr. Speaker, I am very pleased to introduce amendments to the Income Tax Act. The Government recognizes the importance of these amendments to the small business community. Therefore, the Bill has been brought forward early in the session to allow Canadians to benefit from the changes. As the House will know, most of the measures contained in the Bill were first proposed in the February 15 Budget of the former Government. A number of provisions which facilitate the implementation of the tax laws were contained in a draft version of the Bill, together with technical explanatory notes, published in August.

The present Bill is virtually the same as the Bill which was drafted in August except for some minor improvements. The changes to the Income Tax Act contained in the February Budget included important measures to simplify tax computations for small business. This Government is fully aware that small business is the lifeblood of the economy and employs two-thirds of Canadians. The new measures will significantly alleviate the paper burden which has fallen unduly on small business. The following changes are now being introduced to help small business to continue productively.

The small business tax simplification package will be effective for the 1985 and subsequent taxation years. It will provide certainty to taxpayers. The test to determine the eligibility of small corporations for the 35 per cent rate of credit on research and development, and the eligibility for a 40 per cent rate of refundability of investment tax credit, as well as an extra month to pay the balance of tax, will be based on a taxable income for the preceding instead of the current taxation year. This measure will provide more certainty in planning.

A special rule to prevent corporations from obtaining the low rate when they are controlled by means of options by

public corporations or non-residents is being deferred and will start to apply in 1986 rather than 1985. This measure will provide taxpayers with adequate time to rearrange their affairs. These legislative changes will simplify and shorten the corporate income tax form. In addition, the cost of tax compliance for small business will be reduced. That is why this Government is proceeding quickly to introduce these changes in the first session of the Thirty-third Parliament.

Also included in the Bill are a number of changes to the income tax provisions which affect registered charities, primarily charitable foundations. These changes are the result of very extensive and successful consultations with the voluntary sector. The charities are most anxious for these amendments to be passed into law. This Government recognizes the tremendous contribution of the voluntary and charitable sectors to the prosperity of Canada. In fiscal year 1979, 2.7 million people, or 15.2 per cent of the working age population of Canada, were involved in unpaid voluntary work. Canadians volunteered 373 million hours of labour in 1979. A calculation of the value added to the Canadian economy by the 40,000 charities which are registered in Canada suggests that this sector contributed $4.5 billion to the Gross National Product in 1980, which represents roughly 2 per cent of the total Gross National Product. The contribution and the dedication of the voluntary sector to the well-being of all Canadians should be commended and encouraged. That is why I am pleased to announce these changes to the income tax provisions affecting registered charities.

The Bill further contains a broad range of other important tax measures which will promote the growth and economic renewal of Canada. Changes to the provisions relating to employee stock option plans are designed to promote greater employee participation and increased productivity in the workforce. Another measure allows farmers a deduction of up to $120,000 of taxable capital gains on the sale of qualifying property where the money is invested in a registered retirement savings plan. This change will better enable farmers to plan for their retirement.

In addition, amendments are provided to further facilitate the transfer of family farms and shares of small business corporations from one generation to another.

The decision to proceed with these changes reflects the Government's commitment to the preservation and development of family farms and small business. The Government will establish a parliamentary committee to examine a number of agricultural tax issues. If changes are to be made to the treatment of farm losses in the next Budget, farmers will have the option of applying the 1985 tax regime to their 1984 tax returns.

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I will not take the time to enumerate all the measures included in this Bill. They have been announced previously and have benefited from substantial public consultation. However, I would like to mention some of the important provisions relating to the administration of the tax system.

The Bill provides increased exemptions from the requirements to make tax instalment payments. The new thresholds will benefit some 480,000 individuals, most of whom are senior citizens, from tax instalment requirements. The four-year limit on reassessments is being reduced to three years. The Tax Court of Canada will be allowed to establish guidelines for the award of costs to appellants. The Bill allows a taxpayer who files a waiver of the usual time limit on reassessments to revoke that waiver.

A number of other administrative improvements are introduced in the Bill. These measures deal with a range of matters including three refund mechanisms for certain taxes in dispute and measures allowing for the revision and late filing of various taxpayer elections.

The Government is pleased to proceed with these important measures because they are in keeping with our efforts toward improving the administration of our tax law. I would like to add that the economic statement and the accompanying agenda paper entitled "A New Direction for Canada" are documents of substantial importance to all Canadians. They are evidence of the determination of our Government to change the approach of' government in the formulation of public policy. Such a change is critical, not only to my income tax amendments but to other legislation, because we believe the key to successfully managing change lies in building greater understanding of our problems and casting a broad net in our search for solutions, at all times being fair and open.

[DOT] (mo)

Further amendments to the Income Tax Act will be brought forward as the need for revision is identified and after close consultation with Canadians during the consultative process following our economic statement.

The provisions of this Bill, Mr. Speaker, have had a lengthy period of public review. Most of the amendments were published in draft form in April for public comment and those draft amendments were reviewed in the last Parliament by the Standing Committee on Finance, Trade and Economic Affairs. The response to the draft amendments was very positive.

Prompt passage of this Bill will enable taxpayers to benefit from its many simplifying and relieving amendments. I urge all Hon. Members to support the Bill and to encourage its speedy passage.

Miss Aideen Nicholson (Trinity):

Mr. Speaker, I will be brief in my remarks because, indeed, most of the measures in this Bill before us are measures which originated from the Lalonde Budget in February and which have been further examined by a finance committee in the last Parliament.

It is interesting to note that out of the economic statements of the Minister of Finance (Mr. Wilson) the only concrete

steps which are before us are those which were adopted from the Lalonde Budget. The economic statement included promises, or perhaps threats, but the only real measures which have been implemented have come from the Lalonde Budget. Therefore, despite all the rhetoric about the bare cupboard, the prescriptions of the last Minister of Finance are being adopted and, clearly, the present Government have found that they are significant building blocks for economic recovery.

I commend the Government for adopting from the Lalonde Budget two very good measures, in particular, which would be helpful to Canadians. They are the proposals for tax simplica-tion and the measures to help small business. These were good measures last February and they are good today. I am happy to see them being implemented.

I am concerned, however, about two provisions. I hope that they will be addressed by other speakers from the government side. The first provisions is the reduction of the period of filing a notice of objection to a tax assessment from 180 days to 90 days. The Government claims that the February 15, 1984 proposal to increase the time to file a notice of objection from 90 days to 180 days is not being proceeded with due to more efficient procedures being introduced into Revenue Canada. However, this longer period does work in favour of the taxpayer and 1 regret that it is not being proceeded with. Surely what is at issue is not the efficiency of Revenue Canada but fairness in allowing the taxpayer adequate time.

My second concern is the matter of security for taxes payable. The February 15, 1984 proposal to require a Minister of National Revenue to accept satisfactory security for dispute taxes is not being proceeded with. We are told that this is because of the work which is actively underway to allow for the postponement of payment of such taxes until there has been a court resolution of the matter. I do have questions about this matter. Will there be a hiatus? How soon will the Government be prepared to issue a directive allowing for the postponement of such taxes? And if there is a hiatus, how will it be covered?

M5)

Finally, the Government has suspended advance rulings. The Minister referred to the desirability of providing certainty in planning for business and we all support that. However, many businesses relied on advance rulings to assist them in their planning and I have difficulty in understanding why the provision for advance rulings has been dropped. I trust that these matters will be responded to by someone on the other side, either immediately or when we are in Committee of the Whole.

One final comment, Mr. Speaker. The Minister said that the Government intends to establish a parliamentary committee. We have seen some regrettable examples in the last week of the Government behaving as though this were a one-party state. May I remind the Minister that parliamentary committees are established by Parliament, not the Government, and this cannot be a unilateral decision of the Government.

November 26, 1984

M(r. Nelson A. Riis (Kamloops-Shuswap): Mr. Speaker, I am very pleased to have the opportunity to rise in this debate, and I would like to extend my congratulations to the Minister of State for Finance (Mrs. McDougall). 1 look forward to a number of years of interesting dialogue and useful discussion on ways and means of improving the tax system of this country in particular. I know she comes here with impeccable credentials and I assume that she is well aware of the boondoggle that we find our tax system in today. Undoubtedly we will be anxious to get into consultations and discussions to make the necessary changes and I welcome her to her new position.

As the previous speaker indicated, I think it is only right that we recognize that the Bill that we are debating today, Bill C-7, an Act to amend the Income Tax Act and related statutes, is really a Liberal Bill. Its provisions were introduced in the last Parliament by the Liberals. I vividly remember the debate. For days and days the members of the Conservative Party railed on and on, hour after hour, about the rack and ruin this Bill would bring to the people of Canada if it was ever passed. They went on and on about how this clause would absolutely drive business out of the country if it was introduced, or how that clause fell so short of what the agricultural community was requesting that, again, rack and ruin would be the order of the day. Now we have those same provisions, almost verbatim, being introduced in this Bill today by the Conservative Government, which describes it as a fantastic breakthrough, a new advance, enlightened legislation which will send a clear message to these various sectors of the community.

Mr. Thacker:

A small step in the right direction.

Mr. Riis:

Or, as some Members are calling out, a small step in the right direction. Why were those words not used only a few months ago when exactly the same Bill was introduced? I just wanted to make it clear, Mr. Speaker, that we are debating a Bill, introduced by the Liberals not so long ago.

Having said that, in spite of the Liberals having introduced this Bill, there is very little in it that is going to bring about any significant change. I recognize, as with any Bill, that there are provisions in this Bill which have some merit. In a Bill of about 125 pages, you will have a number of provisions that are long overdue and which should have been introduced many months or years ago. We have to recognize that as being advantageous.

To be specific, I refer to the small business sector and the item that will assist that sector in particular. Up to this point businesses had to keep track of their cumulated income until a target of $1 million was reached. After that, they were no longer eligible for the small business deduction. Many small businesses have made the case that year after year they struggle until they finally reach the magic cumulation mark. They then become a large business and consequently must pay the corporate tax rate. That was not fair and this Bill is going to remedy that problem. However, that same clause will allow doctors, lawyers, accountants and the like to qualify for a tax

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rate of 25 per cent as well. That points out the very essence of the problem with our tax system.

We are talking about the Bill in principle at second reading but I would like to refer to two or three of the specifics in the Bill. As all members of the House are well aware, as our tax system is presently constituted it results in thousands of individuals with incomes in excess of $200,000, $500,000, and in some cases $1 million, paying not one single penny in income tax. Granted, there are just a few thousand people in the $200,000 or $300,000 income range who do not pay any income tax year after year.

We can also identify large corporations which find themselves in a very similar situation. We recognize that during these difficult economic times many businesses, large, medium and small, do not pay any income tax because there is no income being generated. However, that is not the case with all corporations. In 1982 in the heart of the recession, companies like the Hudson's Bay Company, Steinbergs Incorporated, Simpsons-Sears Limited, Domtar Incorporated and many others were very profitable. That is fine, but if your profits are high, surely you should pay some income tax whether it be $2, $50 or $1,000. In spite of being profitable, the companies which I named paid no income tax whatsoever.

The existing tax system has become a laughing stock. Ordinary working Canadians are asked to pay their fair share to enable the Government to provide the necessary services- medicare, children's allowance, pension programs and veterans' programs. Ordinary Canadians willingly pay taxes for the services which they receive, but they become disillusioned when they learn that people in the upper income levels and profitable companies pay no income tax. In 1982 when a teller in the Royal Bank of Canada or the Bank of Montreal paid a few hundred or a few thousand dollars in income tax, or even $1 in income tax, that teller paid more income tax than the entire Royal Bank of Canada or Bank of Montreal. There is something wrong with a tax system in which a teller who pays $200 or $300 in taxes is actually paying more than the entire bank for which she works. This system is wrong. It has gone mad.

There is not a single thing introduced in Bill C-7 which alleviates these unbelievable and unfair practices. There is not one clause within this 125-page Bill that will result in those people in the upper income ranges paying any income tax. There is nothing mentioned about those many extremely profitable corporations, like the Bank of Montreal and the Royal Bank of Canada, who pay no income tax.

When the Hon. Member for St. John's West (Mr. Crosbie) was Minister of Finance back in 1979, he introduced something called the tax expenditure account. Such a measure should be introduced again by the present Minister of Finance (Mr. Wilson) alongside Bill C-7. That tax expenditure account identified all of those tax expenditure programs and the costs

November 26, 1984

Income Tax Act

associated with them so that Members of Parliament and Canadians generally could identify a program and what it cost in lost revenue. It could then be determined whether that particular program was benefiting Canada and Canadians.

I applaud the Hon. Member for St. John's West for that particular measure and I suggest the Minister of Finance has a responsibility if not an obligation to introduce a similar measure so that we can identify those loopholes and see what they are costing Canadians. We would then be able to determine if such programs should be continued, curtailed or perhaps even expanded.

There are reports out now that indicate that various tax expenditures to corporations are costing Canadian taxpayers approximately $ 11,000 million a year. I wonder if the average Canadian taxpayer who pays from S300 to $2,000 in income tax recognizes that the Parliament of Canada gives an average of $ 11,000 million each year in tax breaks to the corporate sector in Canada? Are we getting what we should in return for that expenditure?

If one examines the record carefully to see how most of this money, which they do not pay in income tax, is spent by corporations, it would show that it is not spent to expand their operations for new lines of production or new venture opportunities elsewhere. Those corporations use that money to finance mergers and takeovers that often result in reduced producivity and job loss. If we had a mechanism for reviewing these programs we could evaluate whether Canadian taxpayers are getting their bang for the buck.

The Liberal Minister of Finance introduced a scheme which was a research and development quick-flip scheme. I recall his saying that this scheme would encourage research and development in the critical areas of our economy in the months and years ahead. He said that it would not cost much, perhaps $100 million or $200 million at the most in lost revenue while resulting in bountiful research and development opportunities. We discovered that this did not happen. The Minister's quick-flip research and development scheme resulted in the loss of well in excess of $1 billion in simply a matter of a few months. Did it result in new R and D opportunities? No. It was simply another opportunity for tax accountants and lawyers to take advantage of a loophole for their clients. If the facts were known, those who believed that there would be more research and development will be sorely disappointed when they face the reality of that so-called tax break.

I applaud the Government for seeing fit to shut that drain of public funds. It said that this scheme was not working in the best interests of the country and it stopped that nonsense. How many other nonsenses are there within the system? There are dozens of tax breaks, bribes or loopholes-however one wants to call them-given to corporations.

1 think one of the most sorrowful sights was when the Minister of Finance said during his economic statement that the Government will stop one of these incredible loopholes called the PIP grants. PIP grants refer to the thousands of millions of dollars we give each year to oil companies to explore for gas and oil.

I want to give an example of what another country does. Norway has natural gas and oil reserves off its coast. It depends on corporations in the business to explore. The Government of Norway tells the corporations that if they want to explore they will not be given a single penny, that they must fund their exploration 100 per cent. But if they find oil and natural gas, automatically the Government of Norway gets 80 per cent and will negotiate the other 20 per cent. All the oil companies are there, Mr. Speaker, and basically there is no incentive for them. The split is 80-20, with the 20 being negotiated.

We have a different idea here.

Mr. Benjamin:

We give it away.

Mr. Riis:

We say to the corporations: "If you folks want to come in and explore, we will pay up to 80 per cent of the cost and if you strike oil or gas, for our 80 per cent participation we want 25 per cent of the action". This 80 per cent is taxpayers' money. This is not a bad deal for the oil companies. Not surprisingly, all the companies are taking advantage of that opportunity. But in Norway where there is a similar situation, there is no 80 per cent funding. There is no 25 per cent cut of the action. It is an 80-plus per cent cut of the action.

These are the kinds of tax giveaways that must stop. We hear people saying: "We have to come down with a heavy hand on all those people collecting UIC because we think they might be getting an extra $3 a week or an extra $17 a month and we have to stop this nonsense". Nothing, however, is ever mentioned about $11,000 million of corporate tax giveaways each year.

Mr. Benjamin:

That is called free enterprise.

Mr. Riis:

Some of these giveaways are worth while. Some of them result in an excellent payback to the people of Canada. It is certainly not the case for all of them, and they need to come under the same kind of review as the UIC is to undergo.

Members listening to this discussion or people looking in via television must believe that these are sensible people on the government side.

Mr. Benjamin:

Maybe.

Mr. Hnatyshyn:

Order.

Mr. Riis:

But why do they give away all of these particular bribes to corporations which obviously do not want them? As a matter of fact, the President of the Bank of Montreal, not many months ago, said that the Canadian corporate sector is awash in tax incentives. They do not know what to do with them any more. If Government members are intelligent, as we all know they are, why do they continue to do this? Why do they continue, if you like, to allow thousands of people each year to pay no income tax whatever? Why do they allow hundreds of corporations in some years to pay no income tax whatever? It is because of this old belief that if you assist those

November 26, 1984

folks in the upper income levels and if you give tax breaks to large corporations, domestic and foreign, eventually good things will trickle down to folks.

Mr. Benjamin:

The crumbs.

Mr. Riis:

I think my colleague, the Hon. Member for Regina East (Mr. de Jong) explained to me not long ago about feeding the horse oats. Here we are shovelling and jamming oats into this horse in the name of tax breaks or tax incentives. Eventually the oats will flow through the system, and out the other end will come the odd kernel. That is what we are getting. The ordinary Canadians are getting kernels, Mr. Speaker. We do not like to dig around and pick up those kernels any longer. Has that trickle-down theory worked anywhere? It does not work, but that is the myth on which this tax system is based. Whether it is the Conservative Party in power or the Liberal Party, it is the same old assumption. It does not work.

We are going to debate Bill C-7 in some detail over the next number of hours. I have identified one of what I think are very important clauses that will assist the small business sector, particularly regarding the elimination of the ceiling. On the other hand, I hope the Minister will explain, when we get into clause by clause study in Committee of the Whole, why doctors, lawyers, accountants and so on were included so that they too should have a special tax rate of 25 per cent. Why is it that we have included those particular professions and not other professions? I suspect again it is a reflection of the assumption under which this tax system is based-that if we can assist those in the upper income brackets, then benefits will accrue because they will invest. That investment has not happened. We have been giving tax breaks to individuals and corporations for years and years on that assumption, but the investment is simply not happening.

I remember when the Prime Minister of Canada (Mr. Mulroney) was out on the campaign trail; he was saying that virtually the day after the Conservative Government was elected there would be this swelling sense of confidence in the country, a sense of confidence in the ability of the new government, and that jobs, I think he said hundreds of thousands, would be created overnight.

Miss MacDonald:

He got 100,000 in the first month.

Mr. Riis:

Maybe it was only tens of thousands of jobs that would be created overnight.

Mr. Blackburn (Brant):

We lost 80,000.

Mr. Riis:

We have now been under this new Government for many weeks. That confidence does not seem to be boiling up. On the one hand the Government is saying this, and on the other hand the Government is saying that. The Minister of National Revenue (Mr. Beatty) says: "We are now going to treat people fairly. To do that we are going to hire 350 goon-squad members to beat the bushes to try to squeeze more tax from people". The reason people are not paying taxes out there is not because they do not want to pay tax. They are not

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tax evaders; it is because they do not have any money to pay. You cannot beat them over the head and bash out more money because people simply do not have it, Mr. Speaker.

We all know that when we go back to our constituencies every week we meet with people who say: "I owe Revenue Canada $16,000. I am a rancher. I do not have any money. I cannot pay it but I want to pay it. If I can come up with some kind of repayment plan, I will". When you say one thing one day and your behaviour is different the next day, it is not the kind of thing on which confidence is built, Mr. Speaker.

I want to say a little bit about how this Bill affects agriculture. My colleague, the Hon. Member for Prince Albert (Mr. Hovdebo), will certainly have more to say about what this Bill means for agriculture.

Mr. Blackburn (Brant):

Nothing.