mephisto
06-05-2007, 01:56 PM
I just sat in the House Finance Committee meeting today and this Bill made me think back of some of the advice given by some tax accountants in this site about setting up a foreign trust to avoid taxes. Well this Bill will prevent tax avoidance using this strategy, so basically this tax loophole is now closed.
Here is the transcript of today's meeting (June 5th, 2007) from Ms. Albonczy (Conservative) who is the parliamentary secretary to the Minister of Finance (In other words, the #2 politician dealing with Finance):
Thank you, Mr. Chairman, for the opportunity to appear before this committee to discuss Bill C-33, which implements certain measures or amendments to the Income Tax Act. Specifically, this Bill proposes measures regarding the taxation of Non-Resident Trusts and Foreign Investment Entities. It also contains a number of proposed technical amendments to the Income Tax Act.
The intent of this Bill before the Committee today is to help strengthen our tax system by ensuring its equity and integrity. This can only help build a competitive and efficient tax system, which, in turn, plays a pivotal role in creating a stronger, more productive economy. An efficient tax structure enhances incentives to work, save and invest. It also supports entrepreneurship and the emergence and growth of small businesses. A competitive tax system is also critical in encouraging investment in Canada, leading to greater economic growth and job creation. One of goals of Canada's New Government is to help build the framework for a competitive tax system. Bill C-33 builds on measures this New Government has taken in that direction.
Our framework for a competitive tax system started in our first budget by delivering immediate, real, and continuing results for people across the country. In fact, Budget 2006 provided almost $20 billion in tax relief for individuals over the next two years – more than the previous four budgets combined. Lower taxes for businesses are a crucial part of our framework if Canada is to remain competitive. Lower taxes encourage the investment necessary to create jobs and ultimately improve the living standards of Canadians. Budget 2007 builds on the initiatives in last year's budget by proposing personal income tax measures that will help make Canadians better off. Budget 2007 also proposes to implement the Tax Fairness Plan announced last fall. This plan will permit income splitting for pensioners beginning in 2007 and increased the Age Credit Amount by $1,000 effective January 1, 2006. The Tax Fairness Plan also announced a further one-half percentage point cut in the general corporate income tax rate starting January 1, 2011.
Mr. Chairman, the measures in Bill C-33 dovetail nicely into this New Government's framework for a competitive tax system. This Bill is not, as some people have suggested, a way to raise additional revenues. Rather, the measures in this proposed legislation are intended to prevent tax deferral and avoidance through the use of foreign investment funds and trusts. This type of activity has moderated substantially in recent years. Bill C-33 will ensure that, if someone tries to avoid taxes by using foreign investment funds, any income earned on that investment will be taxed as if it were earned in Canada.
Measures such as these proposed in this Bill support our goal of ensuring equity and integrity – qualities that must be at the very foundation of a competitive tax system. And Bill C-33 does just that by proposing to amend provisions of the Income Tax Act relating to the taxation of income earned from non-resident trusts and foreign investment entities – two investment vehicles commonly used by Canadian taxpayers. I should note here that the amendments in this Bill were developed in consultation with professional tax advisors and taxation authorities as well as with taxpayers themselves.
As you know, Canada generally taxes just the Canadian source income of taxpayers that are not resident in Canada. There exists therefore an income tax incentive for Canadian residents to earn investment income using non-resident trusts and foreign investment entities based in a country other than Canada that imposes no tax or a low tax. In other words, using these investment vehicles to earn investment income, residents of Canada could inappropriately defer – or worse, avoid – the payment of Canadian taxes. We can't have a competitive tax system if it allows a way for taxpayers to avoid paying appropriate taxes. Not only does it erode Canada's tax base, it creates inequities that undermine the very integrity of our tax system. We need to ensure that Canada has a tax system where everyone pays their fair share of taxes – where no one pays more than they have to. Because, when some people avoid paying taxes, other taxpayers must contribute more to pay for the Government programs that are valued by Canadians. The bottom line, Mr. Chairman, is that these changes will level the playing field and allow Canadian investment vehicles to compete on an equal footing with foreign-based investment opportunities. That is the way to help ensure a competitive tax system.
As I mentioned at the outset, Bill C-33 also includes a number of proposed technical amendments to the Income Tax Act that are essentially housekeeping measures. The intent of these amendments is to correct or clarify the application of existing income tax provisions. They will also implement measures that have already been announced and deal with other income tax situations that require a legislative response.
I would now be pleased to answer any questions from the Committee members about this proposed legislation. I also welcome officials from Finance Canada who have joined us here today.
Here is the transcript of today's meeting (June 5th, 2007) from Ms. Albonczy (Conservative) who is the parliamentary secretary to the Minister of Finance (In other words, the #2 politician dealing with Finance):
Thank you, Mr. Chairman, for the opportunity to appear before this committee to discuss Bill C-33, which implements certain measures or amendments to the Income Tax Act. Specifically, this Bill proposes measures regarding the taxation of Non-Resident Trusts and Foreign Investment Entities. It also contains a number of proposed technical amendments to the Income Tax Act.
The intent of this Bill before the Committee today is to help strengthen our tax system by ensuring its equity and integrity. This can only help build a competitive and efficient tax system, which, in turn, plays a pivotal role in creating a stronger, more productive economy. An efficient tax structure enhances incentives to work, save and invest. It also supports entrepreneurship and the emergence and growth of small businesses. A competitive tax system is also critical in encouraging investment in Canada, leading to greater economic growth and job creation. One of goals of Canada's New Government is to help build the framework for a competitive tax system. Bill C-33 builds on measures this New Government has taken in that direction.
Our framework for a competitive tax system started in our first budget by delivering immediate, real, and continuing results for people across the country. In fact, Budget 2006 provided almost $20 billion in tax relief for individuals over the next two years – more than the previous four budgets combined. Lower taxes for businesses are a crucial part of our framework if Canada is to remain competitive. Lower taxes encourage the investment necessary to create jobs and ultimately improve the living standards of Canadians. Budget 2007 builds on the initiatives in last year's budget by proposing personal income tax measures that will help make Canadians better off. Budget 2007 also proposes to implement the Tax Fairness Plan announced last fall. This plan will permit income splitting for pensioners beginning in 2007 and increased the Age Credit Amount by $1,000 effective January 1, 2006. The Tax Fairness Plan also announced a further one-half percentage point cut in the general corporate income tax rate starting January 1, 2011.
Mr. Chairman, the measures in Bill C-33 dovetail nicely into this New Government's framework for a competitive tax system. This Bill is not, as some people have suggested, a way to raise additional revenues. Rather, the measures in this proposed legislation are intended to prevent tax deferral and avoidance through the use of foreign investment funds and trusts. This type of activity has moderated substantially in recent years. Bill C-33 will ensure that, if someone tries to avoid taxes by using foreign investment funds, any income earned on that investment will be taxed as if it were earned in Canada.
Measures such as these proposed in this Bill support our goal of ensuring equity and integrity – qualities that must be at the very foundation of a competitive tax system. And Bill C-33 does just that by proposing to amend provisions of the Income Tax Act relating to the taxation of income earned from non-resident trusts and foreign investment entities – two investment vehicles commonly used by Canadian taxpayers. I should note here that the amendments in this Bill were developed in consultation with professional tax advisors and taxation authorities as well as with taxpayers themselves.
As you know, Canada generally taxes just the Canadian source income of taxpayers that are not resident in Canada. There exists therefore an income tax incentive for Canadian residents to earn investment income using non-resident trusts and foreign investment entities based in a country other than Canada that imposes no tax or a low tax. In other words, using these investment vehicles to earn investment income, residents of Canada could inappropriately defer – or worse, avoid – the payment of Canadian taxes. We can't have a competitive tax system if it allows a way for taxpayers to avoid paying appropriate taxes. Not only does it erode Canada's tax base, it creates inequities that undermine the very integrity of our tax system. We need to ensure that Canada has a tax system where everyone pays their fair share of taxes – where no one pays more than they have to. Because, when some people avoid paying taxes, other taxpayers must contribute more to pay for the Government programs that are valued by Canadians. The bottom line, Mr. Chairman, is that these changes will level the playing field and allow Canadian investment vehicles to compete on an equal footing with foreign-based investment opportunities. That is the way to help ensure a competitive tax system.
As I mentioned at the outset, Bill C-33 also includes a number of proposed technical amendments to the Income Tax Act that are essentially housekeeping measures. The intent of these amendments is to correct or clarify the application of existing income tax provisions. They will also implement measures that have already been announced and deal with other income tax situations that require a legislative response.
I would now be pleased to answer any questions from the Committee members about this proposed legislation. I also welcome officials from Finance Canada who have joined us here today.