Mr. Chairperson (Marcel Laurendeau): The committee has before it for its consideration The Statute Law Amendment (Taxation) Act, 1996. Does the minister responsible have an opening statement?
Hon. Eric Stefanson (Minister of Finance): Yes, I do, Mr. Chairman, a very brief one.
The Statute Law Amendment Act has several matters being dealt with that I think most members are quite familiar with.
I did just want to put a few comments on the record about the one issue that was discussed earlier today, and that is the issue of what is called the Quebec shuffle.
Mr. Chairman, our government strongly supports lower taxation as a means of attracting and keeping business in this province. In nine budgets we have introduced at least 36 measures that enhance the competitiveness of Manitoba's tax regime. We are committed to removing impediments to growth in Manitoba's business environment. We have undertaken comprehensive reviews and implemented measures that simplify rules, regulations and forms. We have been innovative and successful in promoting Manitoba to investors from all around the world. We have made starting up enterprises and doing business in Manitoba easier and more efficient. We have accomplished all of this while putting Manitoba's finances back on a solid footing. We are committed to dealing fairly with taxpayers.
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The individuals in businesses who thrive and succeed in Manitoba benefit directly from the taxation and other development initiatives that we have put in place. In turn we expect them to pay their fair share of provincial taxes. If they do not, they jeopardize continued progress in our fiscal situation, Manitoba's business environment, and the continued commitment of Manitobans to sound public finances and competitive taxes.
This is why it is not acceptable that some taxes may have avoided paying provincial income tax, not only to Manitoba, but also to any other province, by exploiting differences between federal income tax rules to which Manitoba is a party under the Canada-Manitoba tax collection agreement and income tax rules in provinces which administer their own income tax acts.
The federal Income Tax Act and the income tax acts of provinces that collect their own income taxes, like Alberta, Ontario and Quebec, contain many provisions that allow taxpayers to make elections so that businesses do not incur tax liabilities every time they reorganize their enterprises. Some taxpayers may have avoided paying any provincial income taxes by reporting transactions in one way for federal and Manitoba purposes and in another way for purposes of calculating provincial income taxes in provinces that administer their own income taxes. This is clearly an abuse of these provisions and of the income tax system as a whole. It is an abuse that attacks the agreements under which the government collects income taxes for provinces like Manitoba, a system that promotes efficiency by having a common tax base and a single administration. It is an abuse that our government cannot tolerate.
At the same time, our government is sensitive to the implication of retroactive application of taxing statute. We did not make a decision to have these rules apply to previous years lightly. We felt strongly, however, that this tactic went far beyond the bounds of normal tax planning, indeed even beyond the aggressive tax avoidance strategies that governments typically deal with on a regular basis.
It is inconceivable that any taxpayer or tax practitioner who utilized this strategy would not have recognized the tactic as abusive and offensive. It is not simply a variant possible interpretation of the law as enacted by Parliament. Even though this avoidance tactic was not specifically prohibited until now, it is quite frankly an impossible construction of the intent of the Canadian legislatures.
The reason it was not prohibited before is quite simple. Governments do not expect citizens to undermine basic principles of responsible government in this way. Because the strategy is so corrosive to every principle of good governance, we felt we had no alternative but to make the application of the rule introduced this session retroactive to all taxation years that are not statute barred. The avoidance technique the amendment is addressed to should never have occurred in the first place and, to the greatest extent possible, it should be undone. To do otherwise would send the wrong signal to taxpayers who, despite intense competitive pressures, resist these kinds of strategies.
The amendments included in Bill 63 were developed in consultation with federal Finance and Revenue Canada. Other provincial governments are also aware of the issue and Manitoba's response. However, taxpayers who may be affected should--this next issue, I will wait till we get into the actual bill itself, Mr. Chairman, and, with that, those are my opening comments.
Mr. Chairperson: I thank the honourable minister. Does the critic for the official opposition party, the honourable member for Brandon East, have an opening statement?
Mr. Leonard Evans (Brandon East): Mr. Chairman, I thank the minister for his remarks. Of course, this is a bill normally putting into legislation various tax changes proposed in the Budget Address and, therefore, we are following the tradition.
Although I might add that I do not necessarily agree with all the minister's remarks on taxes, I think we all can agree that taxes should be equitable and fair. It is, indeed, a challenge to government to ensure fairness and equity in taxation, and I am not so sure whether we necessarily have that in Manitoba.
I would also point out that while a tax regime is one element in attracting business, one element in economic development, it is not the only element. There are so many other factors involved. Sometimes it is very regrettable to see governments engaged in tax giveaways and tax adjustments to attract business, in some cases business that would have perhaps come here anyway. It is corollary to various industrial grants that are given out to business to attract them to develop in the province of Manitoba or indeed any jurisdiction.
So I am not sure that I agree, therefore, that the tax regime is necessarily significant in the rate of economic development that occurs in this province. So many other factors are involved, including forces well beyond the control of the provincial government, namely the North American economy, particularly what is happening in the United States, certainly trade agreements such as NAFTA, certainly monetary policy by the federal government as well as trade policy by the federal government and, obviously, as well our natural resource base and the world demand for the natural resources that we have.
The minister referred to this tax avoidance situation. It is very regrettable. It has become known as the Quebec shuffle. It should never have been allowed in the first place. I would suggest, Mr. Chairman, that in view of the importance of that particular piece of this particular bill, that section of this particular bill, in view of the importance, it should have really been brought in as a separate bill.
The advantage, of course, of the separate bill is that it gives Manitobans an opportunity to come before a committee of the Legislature and present their views one way or the other. Therefore, we find it surprising, in view of the importance of that section and in view of the importance of the issue that is was not made into a separate bill but rather included in this omnibus bill. I believe also it is not in keeping with the tradition of bringing forward tax changes that were highlighted in the Budget Address and I do not believe this fits that criteria.
At any rate, when we come to that section, members on this side will have more to say. I know the member for Crescentwood (Mr. Sale) has a lot of information and a lot of views that he would like to put on the table.
So with that, Mr. Chairman, I suppose we could proceed section by section and ask the minister various questions of some of the important proposals that are being made in this bill.
Mr. Chairperson: I thank the honourable member for that. The bill will be considered clause by clause. During consideration of a bill, the title and the preamble are postponed until all other clauses have been considered in their proper order by the committee.
Clause 1--pass.
Is it the will of the committee to group the clauses? Agreed?
Mr. Tim Sale (Crescentwood): Mr. Chairperson, on a point of procedure, would it be acceptable to the committee if those of us who want to ask questions move to the front bench so you could see our hands when we put them up?
Mr. Chairperson: If I could only caution you on this one matter, if you are going to move down we will have to identify where you are for Hansard so that they can get this. If it is okay with Hansard, it is going to be okay. It is okay? Okay. Is there leave of the members to come to the front rows then to ask their questions? [agreed]
Shall Clauses 2 through 4 pass?
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Mr. Sale: The critic--sorry, I have a question as well. The critic should go first.
Mr. Leonard Evans: Clauses 2 through 4, well, that brings us into the health and post-secondary education tax levy. What you are doing here seems to be to accommodate businesses that, having associated, get into a higher category and therefore subject to the tax. They are no longer subject to the exemption, as I understand it. I wonder if the minister could elaborate on that. Specifically, I wonder how much money is involved here in going along with this proposal of providing this exemption for a portion of the year.
Mr. Stefanson: Mr. Chairman, I believe the member for Brandon East was correct with his interpretation. What Section 4 of the bill provides is that commencing in 1997 corporations which become associated partway through the year will be allowed a prorated amount of payroll tax exemption if their payroll for that period prior to becoming associated is within the prorated exemption amount.
Without getting too technical, the proration will be based on the number of days before becoming associated in the calendar year applied to the $750,000-exemption limit but, for the post-association period, the corporations will be associated for payroll tax purposes and the tax exemption that may be available to them collectively is $750,000 less the prorated exemption for the preassociation period.
Basically what we are saying is really because we were receiving a concern from some businesses that the previous rules were if you became associated at some point during the year you were deemed to be associated for the entire year. That is just not fair, that you should be deemed to be associated from that day forward, but why should you be deemed to be associated for the full year? So we are allowing the exemption for that period of time during the year up until they become associated.
Mr. Leonard Evans: I gather from the minister's statement that there are not very many companies that are impacted by this. I do not know whether he knows, but I wonder if he could tell us how much revenue will be lost with this particular amendment.
Mr. Stefanson: The member is absolutely correct, that we do not expect very many companies being impacted by this. As a result, the impact on revenue is so minimal that we did not provide an estimate even in the budget document because it is expected to be so small that no estimate was provided.
Mr. Leonard Evans: We are dealing up to Clause 4, which includes this one.
Well, I have some other questions on Clause 5, so I wondered if--
Mr. Chairperson: Shall the clauses pass? Pass.
Clause 5.
Mr. Leonard Evans: As I understand it, here we terminate the Payroll Tax Refund Program for employee training effective April 3 of this year, and, apparently by eliminating this refund, according to the information the minister supplied previously, this will increase the payroll tax net revenue by about $4 million annually, and it is in the 1996 budget.
My question is, why did the government decide now to terminate this program?
Mr. Stefanson: Mr. Chairman, I believe, as the member for Brandon East knows, it was part of the overall review of Workforce 2000, and, as part of the same review, the grant aspect of Workforce 2000 was also eliminated. So this is the payroll tax refund side for companies that have payrolls over $750,000. Really, it was a matter that this program had served Manitoba well during a period of recession and some difficulties, so the training initiatives were very worthwhile and helped to create additional opportunities for Manitobans, particularly young people. But, now that the recession is basically behind us and we are seeing some better job numbers in Manitoba and, indeed, nationally to a certain extent, it was determined that this is a program that could be done away with. It served its purpose, it helped when it was required, but it does not have to be there ongoing forever and a day.
Mr. Leonard Evans: I wonder if the minister could indicate just how many employees were trained. Does he have some estimates of the impact of this particular Payroll Tax Refund Program?
Mr. Stefanson: Mr. Chairman, I do not have that information with me here today. I will certainly undertake to provide the member with as much information as I can related to that question.
Mr. Leonard Evans: Okay, the minister said he would provide as much information as he can.
So, if he could give us an idea of not only the number of employees trained under the program, but also some sort of a breakdown by the type of industry, which should make the figures more meaningful, and I guess over whatever period of time--I have forgotten whether it has been going for two years or three years, I am not sure--if he could break it down by year, that would be great.
Mr. Stefanson: I just reiterate, Mr. Chairman, as much information as I can make available to the member for Brandon East that is available and can be released--obviously, I always caution-- without any third-party confidentiality. But the member is not asking for that; he is asking for numbers of employees and breakdowns by sectors, so I will certainly undertake to provide as much information relating to those questions as I can.
Mr. Leonard Evans: That is fine. I am not interested in the names of companies or individuals, strictly the statistical summaries so we can get some idea of the impact of the program.
I have no further questions on that area, unless the member for Crescentwood (Mr. Sale) has. No?
Mr. Chairperson: Clauses 5(1) and 5(2)--pass; Clauses 6 and 7--pass; Subclauses 8(1) through 8(3).
Mr. Leonard Evans: Clause 8 touches upon personal care homes and the whole question of property tax credits and I guess cost-of-living tax credits for residents of these institutions. This bill attempts to presumably clarify how these credits will be calculated, but we are concerned about the impact on the residents. It is still not clear from the explanatory notes that we have seen just what will happen to the residents.
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I am fearful that this particular amendment will cause a reduction in the property tax credits and the cost-of-living tax credits for those individuals. I just want to make the point, as I did earlier in this House, that many residents of personal care homes have been very badly hurt by escalating rates that have been charged; so much so that those--I recall at least two years ago--who were on the basic old age pension had practically nothing left to purchase personal items.
In the organization of personal care homes, in the rules of personal care homes, normally the resident has to pay for his or her personal effects, clothing, toothpaste, hearing aids, candy for grandchildren or great grandchildren or whatever; and the rates were raised to such an extent there was only one or two dollars left per day for those people.
What I discovered was that they had so little money that they could actually qualify for provincial welfare. I contacted many, in fact I wrote to every resident in a nursing home in my riding, and lo and behold, some did qualify, and I know some did receive provincial welfare assistance. It seems to me rather ridiculous whereas on one hand a government department raises rates to such an extent that the people are qualified for supplementary welfare and on the other hand you have the Department of Family Services paying those monies out. It just seems to be a very inefficient way of operating.
At any rate, Mr. Chairman, I wanted to get some assurance from the minister as to what will happen? What will be the impact of this particular amendment with regard to those two credits?
Mr. Stefanson: I am starting on the assumption we all recognize that the per diems do cover a culmination of accommodation and food and in some cases maybe some other costs, but certainly those would be the two major aspects of the per diem. They would be a blend or they would be covering both accommodation and food. So this amendment is meant to address that fundamental issue.
But I guess what is most important to point out to the member for Brandon East is for individuals who claim one-half of their per diem charges against the property tax credit, even at the lowest per diem, they will automatically get the maximum. They will qualify for the maximum property tax credit. So, by claiming half of their per diem against the property tax credit, they are still receiving the maximum property tax credit that would be available to them, so beyond that this is meant to acknowledge that the rest of it goes for, obviously, other services or benefits they are receiving as a result of the per diem that they are paying.
Mr. Leonard Evans: Mr. Chairman, I was not sure whether I heard everything that the minister stated because of certain interruptions, but I gather that we are getting the minister's assurance that the senior citizens, the handicapped people and anyone who lives in a nursing home, a personal care home in Manitoba, will not see his or her tax credits, property tax credit and cost-of-living tax credit reduced because of this particular amendment. Is he giving us his solemn assurance to this effect?
Mr. Stefanson: I think it is important to make this clear for the member for Brandon East. For an individual who is in a personal care home for a year, for a full year, if they choose to allocate the one-half of their per diem and claim it against their property tax credits, they will receive the maximum property tax credit. If, for whatever reason, they choose to allocate it differently-- I am not sure why they would want to because I would think the most tax advantageous would be to apply it against, to qualify for the Manitoba property tax credit, but obviously there is some discretion here, if they choose to apply it in a different fashion.
The other part of what this was meant to get at, besides the fact that the per diem covers both accommodation and food and so on, is that we had individuals who were claiming the full amount twice. They were claiming the full amount as a medical expense, and they were claiming the full amount against cost of living. That just is not right. It is not fair, and it is a principle that you should not be allowed to claim the same item twice in two different areas that affect your tax return. So this was meant to address that.
In terms of the fairness the member is looking for, if those individuals make the allocation of claiming half of their per diem against their property tax credit, they will qualify for the maximum. Now, I cannot give an absolute assurance of how people will file their tax returns; it is obviously up to them at the end of the day. But, if they file it on that basis, which I assume they would, they will qualify for the maximum.
Mr. Leonard Evans: I thank the minister for that explanation. I gather, then, that people have been claiming--do I understand properly?--the medical expenses against their income for income tax, like as a deduction to reduce the amount of income on which they are taxed. On the other hand, what we are talking about here are credits, and that is another section of the income tax form that people fill out to qualify for a credit. That is related to the definition of income, I guess.
Mr. Stefanson: Again, Mr. Chairman, the member is partly right, but what you are doing is you are taking the same payment and under one situation, if you claim it all for medical, you are treating it as attendant care or medical expenses, and then under another definition you are claiming it all as rent. That is just not right. It is either one or the other. It is not both, and what this has meant to do is to address that split but to obviously still give the taxpayer some discretion in terms of how they want to allocate it based on how their tax situation is.
Mr. Leonard Evans: Unless others have questions on this particular item, I think--
Mr. Chairperson: The honourable member for Crescentwood.
Mr. Sale: Two short questions, Mr. Chairperson, first of all, are the tax credits, if received, deemed to be income for the calculation of the nursing home fee structure?
Mr. Stefanson: No, Mr. Chairman.
Mr. Sale: The other question is, I had a number of constituents ask me for guidance around the income tax question that the minister raises, which is, what proportion should government recognize as a medical expense and what proportion is room and board because, as the minister knows, there have been people claiming anywhere from very little to all as a medical expense, and clearly neither are probably correct?
Does the minister think it might be wise for either government to require or for government to at least encourage personal care homes to provide their residents with some guidance as to what the breakdown really is, because I am sure that given the modern administration at personal care homes, they know what that number is?
Mr. Stefanson: Mr. Chairman, that is precisely what this is. This is an attempt, for the first time, to provide some guidance because the member is correct that there have been extremes in terms of how these have been claimed before, and there have been instances where they are being claimed twice for the full amount for medical and the full amount for occupancy, which I think we would all agree is not right. This is the first attempt to do that. We will certainly undertake to be sure that people in personal care homes are made aware of this and these provisions, and obviously I think this will work well, but we will have a chance to assess if there are any problems. This is the first attempt to do precisely what the member is looking for.
Mr. Sale: Mr. Chairperson, the problem that people who have talked to me about this have is that if there is no guidance about what is a reasonable medical claim, people might well make claims that might turn out to be excessive, maybe 80-20, for example, and then after the fact have Revenue Canada at some point come back and say, wait a minute, folks, you made claims for your deceased mother for five years; we do not think those are reasonable. So, in the absence of guidance, people are at risk. Maybe they are sometimes at risk from their own greed; maybe they are sometimes at risk because they do not claim enough because they are afraid to claim what they think might be reasonable. It seems to me that government could assist by requiring nursing homes to provide a form which says, in the declaration of income, you should claim 75 percent or 66 or 52, or whatever it is, but a real number so that people are not at risk of after the fact finding they have a tax liability.
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Mr. Stefanson: Well, Mr. Chairman, without dragging this on or being repetitive, as I indicated to the member, this is the first attempt to do that, but I think he raises a point that is worth pursuing. I will work with our department in terms of whether of not there is anything else we can be doing at personal care homes in terms of providing either some additional information or even examples of how it might apply.
I think nowadays many people have their tax returns done and I know there are different organizations that go into many of our personal care homes. I know the Institute of Chartered Accountants do that and so on, and so there are the services available from a professional, but that does not mean that everybody always takes advantage of those or gets the best advice. I think what we will undertake is to see if there is some useful information that we can be providing that will assist people in the homes with this issue.
Mr. Sale: Mr. Chairperson, I thank the minister very much for that undertaking; it would help a number of my constituents feel a lot more confident that they were doing the right thing.
I would just note for the record that this is the only area that I can think of where there is a blend of two kinds of services being provided for one bill. Every other medical receipt, Pharmacare, dental, glasses, it is all very clear that this is a single item and therefore it is eligible. This is the one that I am aware of that is not clear, and so I very much appreciate the minister's response and I have no further questions.
Mr. Chairperson: Shall subclauses 8(1) through 8(3) be passed?
Mr. Leonard Evans: On 8(3), that is the next item, with regard to Manitoba's learning tax credit, this subsection (3) adds a clause to the act, and I was wondering if the minister could explain now, what is the purpose of this particular amendment and what will the impact be?
Mr. Stefanson: Mr. Chairman, this was an issue that was announced in our 1996 budget, the introduction of the Manitoba learning tax credit, I believe the first of its kind in Canada. Basically, how it works is that qualifying students will receive a credit, a refund of 10 percent of the tuition that they pay to a post-secondary qualifying institution. If the students do not need to claim it, they can transfer it to a supporting spouse or parent. It really is a way for helping to make post-secondary education much more affordable, and it goes a long way to enhancing accessibility and affordability for Manitoba students.
In our 1996 budget document we did indicate the estimated annualized cost of the learning tax credit, which is some $12 million to the government, so it is a significant cost, but we see it as being obviously a worthwhile cost that will continue to ensure that post-secondary education is accessible and affordable in Manitoba.
Mr. Leonard Evans: I thank the minister for that information. He answered one of my questions, that it is going to cost about $12 million to the Treasury.
I wonder if the minister could indicate how many students have taken advantage of this or have used this credit, and does he have a breakdown by universities, the three universities?
Mr. Stefanson: Mr. Chairman, the first year that it is applicable is the 1996 taxation year. So individuals, when they are filing their 1996 personal income tax return come March and April of 1997, will be able to qualify for this, and subsequent to that, we should be in a position to provide some of the general information.
Mr. Leonard Evans: First year of this program.
Mr. Stefanson: This will be the first year of the program.
Mr. Leonard Evans: I guess we will ask this question next year.
Mr. Chairperson: Subclauses 8(1) through 8(3)--pass; subclauses 8(4) and 8(5)--pass.
Subclauses 8(6) and 8(7) and Clause 9--
Mr. Leonard Evans: On Clause 9, we are dealing with the allocation of tax revenues to municipalities, and I wonder if the minister could elaborate, how does this differ from what exists today? How is this different from the existing situation?
Mr. Stefanson: Mr. Chairman, there is a fairly technical explanation, and at the outset, I will undertake to provide--I have had this question by municipalities, and I have written some letters, so I will certainly undertake to provide copies of the letters to the member for Brandon East and his colleagues. Really what it is is, under primarily, I guess, mutual fund corporations, corporations that deal in mutual funds, there is a situation where they get a capital gains refund through their corporate tax when the amounts are allocated to individuals, but it does not show up on the corporate tax return. So the net effect is that as a result of not factoring that in, our corporate taxes are inflated in terms of what is calculated originally for the provincial municipal tax-sharing formula. Again, that is not right. We have to refund those taxes as a result of the allocation to individuals, and then, of course, they are taxed to individuals. So we then pick it up on the personal side, which is factored in.
So what was happening is, municipalities were getting the benefit of those taxes twice, once through the corporations and once as individuals. This allows for the deduction from the corporate tax side. Our view is, what we are doing is treating municipalities fairly and flowing them what they should be entitled to based on what we receive on a net basis from corporate income taxes. I will certainly provide a copy of the letter which goes into a little more detail than I just have, Mr. Chairman.
Mr. Leonard Evans: I thank the minister for that offer and will look forward to getting a copy. Does the minister have any idea of what the revenue implications are on this particular amendment?
Mr. Stefanson: Mr. Chairman, to date this has not been all that significant an amount. I will undertake to provide as precise numbers as I can to the member for Brandon East in terms of what has occurred to date. It is as much a preventative issue, that as more and more individuals are investing in mutual funds, I guess, probably even more so now that interest rates are down at 30-year lows that it really, as I have already said, factors in the fact that we should not be refunding taxes or providing a share of taxes to municipalities on corporate and then again on personal, when we have to refund the corporate capital gains when they flow through to individuals. So as more and more individuals invest in mutual funds, this potentially becomes a more significant issue, but it is as much a fairness issue as anything else, and I will undertake to provide whatever I can in terms of the estimates over the last couple of years.
Mr. Chairperson: Subclauses 8(6) and 8(7) and clause--
Mr. Leonard Evans: What section was the minister referring to, is it 7(4.1)?
Mr. Stefanson: Yes, Mr. Chairman.
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Mr. Chairperson: Are we ready to proceed? Subclauses 8(6) and 8(7) and Clause 9--pass.
Clause 10 and subclause 11(1).
Mr. Leonard Evans: Section 10 refers to the manufacturing investment tax, and I gather it extends the credit by one year. What has been the impact of this credit? We have had one year's experience with it, I believe, two. Maybe the minister could enlighten us on when the credit became effective, how much money was involved in this, and then what has been the impact in terms of manufacturing investment?
Mr. Stefanson: Mr. Chairman, this initiative was introduced actually in the 1992 budget, and the estimated impact on revenue for 1996-97 is $6.5 million. But, I think, as the member for Brandon East has probably seen from the economic stats, Manitoba continues to perform amongst the best in the manufacturing sectors in Canada. I will certainly willingly provide him with the stats on manufacturing jobs, on manufacturing investment, on manufacturing shipments, where Manitoba is performing very well. We are seeing it in the whole range of our manufacturing businesses.
So when we speak to the businesses, to the business community, business organizations and individual businesses, they do point to this program as being part and parcel for their level of investment and so on in our province. So it is and has been a very successful program. I believe other provinces have looked at it. Some have introduced a similar program. I believe the province of Saskatchewan is one that has introduced a fairly similar program to what we have here. So it has served us well, and I think the economic indicators attest to that.
Mr. Leonard Evans: Mr. Chairman, it takes a great deal of technical analyses to determine whether such a tax credit indeed is responsible for the increase in manufacturing shipments in the province. I am aware of many of those statistics that the minister refers to, the value of manufacturing shipments, the value of manufacturing investment, the number of people employed in manufacturing and so on. There has been some expansion, but the question to be answered is whether the tax credit can take responsibility for that particular expansion. I do not know whether the minister is really suggesting that. It could be a factor. It is probably a positive factor, but just how much of an impact it has made is a debatable question, because I would submit that a great deal of what has been happening in manufacturing is a result of what has been happening to the North American economy.
Manufacturing has expanded throughout Canada. That is one industry that has been growing, and we know that we have benefited from a very cheap Canadian dollar. The cheap Canadian dollar vis-à-vis the American dollar has made it possible for us to expand our exports to the United States, including manufacturing exports. Generally, there are a number of factors that impact on the manufacturing industry. I would think that this would be a relatively minor impact. That would be my judgment, that the tax was probably looked upon by the manufacturer very positively, and why not, because you are giving the manufacturer a gift in a way. The question that always arises is whether the manufacturer would have invested the money anyway without this particular credit or whether it be a direct loan, say a forgivable loan.
We have examples of companies in this province who have stated that Manitoba is a great place to be in, and they are going to develop and they are going to provide jobs, then we turn around and see that we have given them a forgivable loan. The question then arises, really, was that loan necessary; and the question then arises, are these tax credits really necessary?
I raise the question, because we find so many other areas of government spending have been cut back, and we know there are a lot of poor people in this province who are being deprived. We certainly know that a lot of people in education and the health care sector feel that they are being deprived as well. So the question is whether we are really getting value for our money. I guess that is what it boils down to.
Mr. Stefanson: Mr. Chairman, I think I indicated that this is one of several factors. I do not think anybody would suggest it is the only factor for our success in the manufacturing sector, but I think most would acknowledge that it is one factor contributing to our success.
Certainly, from the discussions we have had, it has been an important factor or issue when businesses have looked to expand their existing operations in Manitoba or even when they are looking at a relocation in terms of provinces to relocate or establish new facilities in. So it is serving our province well, Mr. Chairman.
Mr. Leonard Evans: This is a debate that can go on for a long time, and it is not peculiar or particular to the province of Manitoba, any jurisdiction, I mean, whether it be a tax credit on one hand or a grant or a forgivable loan.
I have had the experience in government where we have given direct financial assistance to business. We had to ask the same question then and it was a good question--you know, whether that grant or that forgivable loan or credit really was significant, and would we have gotten those jobs anyway. I mean, that is always the question being asked. It is a question asked of any jurisdiction or any governmental administration.
Certainly, you will always get a positive feedback from those who get the credits, and saying that these are significant. I really am a Doubting Thomas in this area, because I feel that a lot of so-called developments would have taken place regardless, because there are other fundamental factors in the equation, one of which, of course, is the demand for your output. If there is no demand for your output, if you do not have the market and you cannot supply the market efficiently at a competitive price, then it does not matter what kind of a tax credit setup we have. Anyway, I do not want to delay this because we would like to get on to the other report section dealing with the so-called Quebec shuffle.
Mr. Stefanson: Mr. Chairman, I think the member for Brandon East (Mr. Leonard Evans) is right. I will not take the bait. We could debate this at length, but I think we should move on.
Mr. Chairperson: Clauses 10 and 11(1)--pass; Clauses 11(2)-11(3)--pass.
Clause 12.
Mr. Stefanson: Mr. Chairman, I have an amendment. I should point out--I cannot recall if I said it in my opening remarks--that I have about four or five amendments. I know that there was not an awful lot of advance notice, but I did undertake to provide the member for Brandon East with copies of them just earlier today.
This is the first one that we will be dealing with. Mr. Chairman, with that, I move, in both official languages,
That the proposed section 53.1 of The Income Tax Act, as set out in section 12 of the Bill, be amended by striking out "1988" and substituting "May 23, 1996".
[French version]
Il est proposé que l'article 53.1 de la Loi de l'impôt sur le revenu, énoncé à l'article 12 du projet de loi, soit amendé, par substitution, à "1988", de "le 23 mai 1996".
Motion presented.
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Mr. Stefanson: In explanation and as well I have provided some copies of some brief explanatory notes to the member for Brandon East (Mr. Leonard Evans), but Section 53.1 of The Income Tax Act, as proposed in Section 12 of Bill 63 as amended, incorporates federal, general anti-avoidance rules into the act for provincial purposes. The bill proposed that this provision be retroactive to 1989, its date of introduction for federal purposes, but after consultations with tax professionals on adverse impacts of this measure on investor confidence, the measure will be made effective in respect to events or transactions after May 23, 1996, the date of first reading of Bill 63. It was deemed that--as we get into it over these next few sections, we will be discussing the issue of the so-called Quebec shuffle--that this provision was not required to deal with the Quebec shuffle, and, in effect, could have broader implications. Therefore, we determined that it was not necessary to make it retroactive, but it is to the benefit of Manitobans to put it into effect and have it progress and move forward.
Mr. Chairperson: Is it the will of the House to adopt the amendment? Agreed?
An Honourable Member: No.
Mr. Leonard Evans: As I understand it, the existing section had many negative implications, because it affected everyone and did not deal necessarily with the problem that we saw with regard to this one instance of the Winnipeg Jets. So, on the advice of professionals, you decided not to make it retroactive to everybody.
Mr. Stefanson: Mr. Chairman, I should point out that the member for Brandon East (Mr. Leonard Evans) made reference to the application of the Winnipeg Jets, the provisions that are being dealt with here over these next couple of sections deal with the Quebec shuffle. When that issue was brought to our attention, as I have responded to publicly and here in the House, it was deemed that that transaction is offensive, and it goes beyond tax planning--and even goes beyond aggressive tax planning--to a fundamental flaw in The Income Tax Act. As a result, it should be amended and should be addressed and should be addressed retroactively. But, when we looked at this issue, these general anti-avoidance provisions are not required on a retroactive basis to deal with the Quebec shuffle. So the concern of the professions was that a general anti-avoidance regulation can have broader implications, and if somebody wanted to start trying to apply them in other areas, could conceivably do that. That is not the intent of government nor should it be. We wanted to address the Quebec shuffle, and we do that very specifically in these next couple of sections we will get to. So this was deemed to be not required on a retroactive basis. It certainly has the support of all of the tax practitioners, the tax lawyers, tax accountants and so on, and we feel the amendment is appropriate.
Mr. Chairperson: Is it the will of the committee to adopt the amendment? Agreed? Agreed.
Clause 12 as amended--pass. Clause 13.
Mr. Stefanson: Mr. Chairman, this is another area that I have an amendment, and I would move
That the proposed Section 53.2 of The Income Tax Act, as set out in Section 13 of the bill be struck out and the following substituted:
I am wondering, Mr. Chairman, the amendments are being circulated to the members, whether it can be deemed to be dealt with as submitted as opposed to me reading all of this, or what is the wish of the committee.
Mr. Chairperson: Is it the will of the committee that it be taken as read? Agreed? [agreed]
Mr. Stefanson: That the proposed Section 53.2 of The Income Tax Act, as set out in section 13 of the Bill, be struck out and the following substituted:
"Untaxed income" defined
53.2(1) In this section, a person's "untaxed income" in relation to a disposition of property is the total of all amounts each of which is the portion of the person's income or taxable income earned in a year in a province, as determined under the federal regulations, that
(a) is attributable to the disposition; and
(b) because of a difference between the transferor's cost or adjusted cost base of the property for federal tax purposes and its cost or adjusted cost base to the transferor under the income tax law of the province, is not included in the person's income for the year under that law.
Provincial tax avoidance
53.2(2) Where, as part of a series of transactions or events,
(a) a person or partnership (referred to in this section as the "taxpayer") disposes of property to another person or partnership with whom the taxpayer does not deal at arm's length for proceeds of disposition under the federal Act less than the fair market value of the property at the time of the disposition; and
(b) the property or other property
(i) the fair market value of which is derived primarily from the property, or
(ii) that is acquired by any person other than the taxpayer in substitution for the property
is subsequently disposed of for proceeds of disposition under the federal Act greater than its adjusted cost base under that Act;
any untaxed income arising from the subsequent disposition shall be added to the taxpayer's proceeds of the disposition referred to in clause (a).
Computation of tax payable
53.2(3) Despite any other provision of this Act or the federal Act, where subsection (2) applies to a disposition, all amounts required to be determined under this Act or the federal Act for the purpose of determining the tax payable under this Act shall be determined as if the proceeds of disposition were equal to the proceeds of disposition determined under that subsection
Application
53.2(4) This section applies to dispositions that occur after 1991.
Transitional
53.2(5) Despite any other provisions of this Act, where a taxpayer to whom subsection (2) applies in respect of a disposition of property that occurred before May 23, 1996 or, where the taxpayer is a partnership, a member of the partnership
(a) reports the disposition and any additional income resulting from the application of that subsection to the disposition; and
(b) remits any increase in tax payable under the Act because of the application of that subsection;
not more than 180 days after the later of the day that this Act receives royal assent and December 31, 1996, the following rules apply:
(c) no interest or penalty is payable in respect of the amount so remitted; and
(d) the taxpayer or member may deduct from the tax otherwise payable under this Act the amount determined by the formula
where
A is the increase in the tax that payable under this Act by the taxpayer or member because of the application of subsection (2) to the disposition, and
B is the total of all amounts each of which is the increase in the tax that would be payable by the taxpayer or member under the income tax law of a province if the cost or adjusted cost base under that law of the property disposed of in the disposition referred to in clause (2) (b) were equal to its cost or adjusted cost base under the federal act.
[French version]
Il est proposé que l'article 53.2 de la Loi de l'impôt sur le revenu, énconcé à l'article 13 du projet d loi, soit remplacé par ce qui suit:
Définition
53.2(1) Pour l'application du présent article, le "revenu non imposé" d'une personne à l'égard de l'aliénation d'un bien est le total de tous les montants qui constituent le revenu ou le revenu imposable que la personne a gagné au cours de l'année dans la province, déterminé conformément aux règlements fédéraux, et qui:
a) provient de l'aliénation;
b) en raison d'une différence entre le coût que le transfert représente pour le cédant ou le prix de base rajusté aux fins de l'imposition fédérale et ce coût ou ce prix fixé en vertu de l loi de l'impôt sur le revenu de la province, n'est pas inclus dans le revenue que la personne a gagné au cours de l'année en vertu de cette loi.
Èvitement fiscal
53.2(1) Le revenu non imposé qui découle de l'aliénation subséquente visée à l'alinéa b) est ajouté au produit de disposition du contribuable visé à l'alinéa a) si, dans la cadre d'une série d'opérations ou d'événements, les conditions suivantes sont remplies:
a) une personne ou une société en nom collectif (le "contribuable") aliène des biens au profit d'une personne ou d'une société en nom collectif avec qui le contribuable a des liens de dépendance à titre de produit de disposition, au sens de la loi fédérale, qui est moins élevé que la juste valeur marchande du bien au moment de l'aliénation;
b) le bien ou l'autre bien:
(i) dont la juste valeur marchande découle principalement du bien,
(ii) qui est acquis en remplacement du bien par une personne qui n'est pas le contribuable,
est de nouveau aliéné à titre de produit de disposition, au sens de la loi fédérale, qui est moins élevé que son prix de base ajusté au sens de cette loi.
Calcul de l'impôt
53.2(3) Malgré les autres dispositions de la présente et la loi fédérale, si le paragraphe (2) s'applique à une aliénation, les montants qui doivent être déterminés en application de la présente loi ou de la loi fédérale aux fins du calcul de l'impôt payable en application de la présente loi le sont comme si le produit de disposition était le même que le produit de disposition déterminé en application du paragraphe visé.
Application
53.2(4) Le présent article s'applique aux aliénations qui sont faites après 1991.
Disposition transitoire
53.2(5) Malgré les autres dispositions de la présente loi, si, au plus tard 180 jours après la santion de la présente loi ou le 31 décembre 1996 si cette date est plus éloignée, les contribuables visés par le paragraphe (2), ou un membre d'une société en nom collectif si celle-ci est le contribuable, remplissent les conditions énconcées aux alinéas a) et b) à l'égard de l'aliénation d'un bien qui a été faite avant le 23 mai 1996, les règles prévues aux alinéas c) et d) s'appliquent:
a) ils déclarent l'aliénation et les revenus supplémentaires résultant de l'application du paragraphe susmentionné à l'aliénation;
b) ils remettent le montant supplémentaire d'impôt payable, sous le régime de la présente loi, en raison de l'application du paragraphe en question;
c) aucun intérêt ni aucune pénalité n'est payable à l'égard du montant remis;
d) le contribuable ou le membre peut déduire de l'impôt qui'il doit par ailleurs payer en application de la présente loi le montant calculé à l'aide de la formule suivante:
A Représente le montant supplémentaire d'impôt que doit payer le contribuable ou le membre en application de la présente loi en raison de l'application du paragraphe (2) à l'aliénation;
B représente le montants qui constituent un impôt supplémentaire que le contribuable ou le membre serait par ailleurs tenu de payer en application de la loi de l'impôt sur le revenu d'une province si le coût ou le prix de base ajusté, au sens de cette loi, pour le bien faisant l'objet d'une aliénation visée à l'alinéa (2)b) était égal à son coût ou à son prix de base adjusté, au sens de la loi fédérale.
Mr. Stefanson: Mr. Chairman, again, these amendments are summarized in a summary document I have provided the member for Brandon East (Mr. Leonard Evans). But just to read a few of the explanations into the record: Section 13 of Bill 63, add Section 53.2 which deals with potential tax avoidance for use of different tax values for a single transaction. The intent of Section 53.2 is to eliminate the tax benefits of the so-called Quebec shuffle which involves a series of dispositions designed to exploit differences in the application of similar tax laws of agreeing and nonagreeing provinces in order to avoid the provincial level of tax on gains and recapture that would be realized on a direct disposition of property to be held by the purchaser. For example, a Manitoba taxpayer might elect roll-over treatment for Manitoba and federal income tax purposes on a disposition to a transferee taxable in another province and not participate in a similar election under the province's tax laws. A number of technical problems with Section 53.2, as printed, were identified after consultation with tax professionals from industry and government. The government proposes to clarify the circumstances in which this provision will apply. Consequently, Section 13 of the bill is struck out and replaced.
Subsection 53.2(1) provides a definition of untaxed income. Untaxed income arises on the sale of an asset when the tax value of the asset on acquisition is different for federal and provincial tax purposes and the asset is disposed of for a gain at the federal level but no gain is allocated for provincial tax purposes.
Subsection 53.2(2) defines provincial tax avoidance. It will eliminate the tax benefits of the Quebec shuffle under this subsection where a Manitoba taxpayer disposes of an asset to a related party for proceeds of disposition that are less than the asset's fair market value at the time and the asset is sold for an amount greater than its adjusted cost under the federal act; any untaxed income arising on the subsequent sale will be added to the taxpayer's proceeds of disposition. This provision applies to a series of transactions as well as to single transactions; hence, a roll-over to a related party in one province with subsequent roll-over to a related party in Quebec would be caught.
Subsection 53.2(3) is consequential to subsection 53.2(2). It ensures that the proceeds of disposition determined under that subsection is reflected in the calculation to the Manitoba income tax liability of a taxpayer to whom this subsection applies.
Subsection 53.2(4) is an application provision making these provisions effective after 1991. Subsection 53.2(5) is a transitional provision for taxpayers who have disposed of property before May 23, 1996, and to whom subsection (2) applies.
A taxpayer--this is important to note, Mr. Chairman--who, within 180 days of the end of 1996, voluntarily reports the disposition and the untaxed income and pays the tax otherwise payable thereon, no interest or penalty will be applied in respect of the additional tax. The taxpayer may also claim a reduction from the Manitoba tax equal to the difference between the tax that would have been payable in the other province in respect of the untaxed income and the tax payable in Manitoba in respect of the untaxed income. In its effect, this subsection will put a taxpayer to whom subsection (2) applies retroactively in the same position as a taxpayer who has not completed a shuffle and who may still elect to pay tax in the other province. That is it. That is the first one.
That last issue that I read into the record outlines that for people or corporations or individuals who come forward on a voluntary basis, they will have the opportunity to pay the equivalent taxes today that they would have applied had this legislation been in effect since 1991 and for a period of time not charged any interest or penalty. So it is a voluntary declaration incentive which, we think, is reasonable to individuals or corporations that might have used this during the period of 1991 till the present time, Mr. Chairman, and certainly should give them the added reason or incentive to come forward and acknowledge having used this and pay the tax. Obviously, beyond the retroactivity, this issue will be in place for any future transactions that might occur here in Manitoba.
I do not want to understate the significance of retroactivity. It is something that governments do not do very often. We take it very seriously. We looked long and hard at the issue, but because of the nature of this transaction that it is what I would deem to be more of a flaw in the income tax system. As I have said before, we are one of seven provinces that integrate with the federal government, and, in part, because of that integration with the federal government in terms of how our taxes are applied, this flaw has been able to exist. These amendments will close that flaw and will close it--retroactive under what we can go back based on being statute barred--it from 1991 forward, and I would certainly encourage all members to support this amendment.
* (1610)
Mr. Leonard Evans: I just have one question or statement of clarification. As I would gather then from subsection 53.2(5), specifically the Winnipeg Jets corporation, or whatever the legal term is, will be able to come forward within, I guess, that is six months of the end of 1996, by the middle of 1997, and voluntarily report the disposition and the untaxed income and, therefore, will in effect escape a penalty. As such, the minister is saying he is providing that organization or anyone, but we know it is this particular one we have in mind, will have an incentive to come forward now and voluntarily pay the tax. Is that correct?
Mr. Stefanson: Mr. Chairman, this provision from 1991 till May 23, 1996, will apply to anyone who took advantage of what is called the Quebec shuffle and comes forward on a voluntary basis and pays the tax. They will not be subject to penalty and interest for a period of time.
The transaction that the honourable member refers to, I believe, we all know the proceeds of the disposition on the sale occurred on July 1. How those organizations file their tax returns are up to them, and they will have to abide by the laws that exist in Manitoba. Obviously, once this bill passes the Legislature, these will be the laws of Manitoba.
Mr. Sale: Mr. Chairperson, first of all, I am glad to see that the minister has put the GAR rules in and made them effective the date of the announcement of the legislation. I think that is appropriate, and we welcome that.
I have a number of questions about this section, and I have one overall comment that I want to make now, which, I think, is an important comment without taking away from the fact that we support the legislation, as obviously the government does as well.
I took the opportunity of talking with a number of tax lawyers and with a number of chartered accountancies around understanding this issue because I, obviously, have nowhere near the knowledge that the minister has as an accountant nor a fraction of the resources available that he has through his department. So I must say that I take exception to what I think could only be called cheap shots in Question Period when the minister suggests that we are suddenly, after the fact, experts when his claim is that he did not know either and has considerably more expertise, both at his disposal and personally in his background, than I do. So I have tried to inform myself as to the issue and to the history of it, and I have spoken with people like Mr. Reid [phonetic], who is now a tax partner of Arthur Andersen in Vancouver about this avoidance technology called the shuffle.
I think I have done the appropriate thing to inform myself as an opposition member about a complex issue, but I do not claim to be an expert. I think that it is inappropriate of the minister to suggest that it is wrong for us to raise questions on this issue as though we had expertise. We have never claimed that and do not claim it now.
Secondly, Mr. Chairperson, I am aware that the minister received at least three letters from the Manitoba Bar tax committee or tax group, whatever they call themselves, and from the Canadian Chartered Accountants organization and from the Manitoba section, all on the issue, I believe, of retroactivity and on some of the complexities in his original legislation. I believe that at least one of those bodies, and maybe more than one, indicated to the minister that they believe this should be a separate bill. I am aware that at least one person signed up, hoping they could present to the hearings. Of course, we do not make provision for that in Committee of the Whole.
I, in general, think that when you are moving such fundamental legislation, it is not appropriately part of a tax statute law amendment. It really is a very significant and major act, and a very important act, which I am glad to support and my party is glad to support, but it is one in which there are a lot of professional groups interested, and I believe that we should have afforded them the opportunity to come before the committee.
The third comment, Mr. Chairperson, is that I have great difficulty at the very last moment dealing with complex amendments of three-pages length which deal with tax law. Tax law is impenetrable to many tax lawyers, let alone to those of us who do not pretend to be tax lawyers. So I think that the minister, in good faith and with the best of intentions, put forward an act that he thought did the job in May. Clearly, those who are experts in the field came to him and said, we do not think this does do the job, and you should change it. To the minister's credit, he has proposed changes, but with all due respect, we are not in any stronger position to judge this legislation than we were to judge the May legislation when it came forward.
If we were to give proper scrutiny to this, we would want to call people involved in the field, and we would want to ask them whether they have seen these amendments and whether they think they now, in fact, do the job that the original amendments did not do and to gain their insights as to whether we should be supporting in detail what we all agree we support in principle. Does this in fact do the job? We have the minister's word and I take him at his word, but I also took him at his word in May.
Clearly, in May, he was not as strong as he is today because his legislation has apparently been very substantially changed, and he would say substantially strengthened and improved, but I am not in a position to judge that, Mr. Chairperson, so I find this a very difficult debate because I simply have to take him at his word. Of course, ultimately we will do so, but I think this underlines the problem of having in statute law that which is really much more complex and ought to be in a free-standing piece of legislation and could be properly debated with expert witnesses available to the committee and with the insights of the Manitoba Bar and chartered accountancy organizations able to be laid before the committee.
I have some questions, but if the minister wishes to respond to that, I would welcome his response.
Mr. Stefanson: Mr. Chairman, I do not want to get into rehashing Question Period today, but I think our concern on this side was the impression that was being left by members opposite that somehow this should have been an issue that we should have known about. As I pointed out in Question Period, the federal government was not aware of this, other provinces are not aware of this, we are the first government in Canada to address this issue. I fully anticipate that we are going to see action out of other provinces based on discussions we have had with them and information we have provided to them. So that was the nature of today's Question Period.
But rather than dwell on that, I want to move more to the substance of the member for Crescentwood's comments. I can appreciate it is difficult to deal with some of these issues on fairly short notice and, unfortunately, at times that is the nature of this building, but I do want to assure him that, obviously, we took the concerns of the professional associations very seriously. The amendments that we have put forward here today go a long ways to address almost all of those concerns.
He touched on one, the issue of GAR, general anti-avoidance regulations, not being done on a retroactive basis. The amendments now focus very specifically on the one particular abuse, which we call the Quebec shuffle, that it does not provide the capability for a government to go back on a broad range of other issues, which was never the intent, that some of the original bill was viewed by the professionals as being too restrictive and were too all-encompassing going back.
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We have narrowed the focus very much, but I think the one thing that I have to point out, I think the professionals, by and large, will support everything they see here other than they will continue to have a concern with retroactivity even as it relates to the Quebec shuffle, which is as much on the basis of principle that I think people are concerned with retroactivity. It is not something, as I said earlier, that you do lightly under any circumstance. I do not want to leave the wrong impression. I think the professionals will support everything that we have brought forward here today. If there is still one concern of some of them, it might even be the whole issue of the retroactivity on the Quebec shuffle, but we have certainly made the decision as government that that transaction is so offensive it goes beyond aggressive tax planning, that it has to be dealt with, and I would hope that we have the support of the opposition with that specific amendment.
Otherwise, the amendments we have here I believe address all of the other concerns that were brought to our attention by the various professionals, Mr. Chairman.
Mr. Sale: Mr. Chairperson, I thank the minister for those comments. Would he be willing to table the letters of advice that he received from the three organizations so that we might see the degree to which the three organizations might be satisfied by this, first question, and the second question, I will wait till the minister finishes. I will ask it separately.
Mr. Stefanson: Mr. Chairman, the letters that the member refers to, we were waiting to respond to those organizations after we table the amendments. Obviously, it would have been inappropriate and premature to be responding to them before we actually introduced the amendments here to the House. We will be responding to them very shortly. We have been working on a draft response to them. What I would like to do is to provide the member with copies of both, what our response is to those professional organizations and a copy of the letters that they have sent us.
Mr. Sale: Mr. Chairperson, through you to the minister, I appreciate that, and I think we would be very pleased to receive that information, both the letters from the organizations and the response of the government to them. That I think answers my second question, but let me just be clear.
Did the government consult with the organizations over draft amendments, over draft wording pursuant to their various concerns that they raised?
Mr. Stefanson: Mr. Chairman, representatives from Finance met with both the Manitoba Bar Association and the Institute of Chartered Accountants of Manitoba. Obviously, those organizations that had corresponded with us, with government, we went over their correspondence, discussed their concerns and, in general, talked about the kinds of amendments that could be introduced but not sharing with them the specific amendments that we are seeing here today, although we believe that these amendments do deal with the concerns and the issues that those organizations have raised with us other than that one concern that I cautioned on, the whole issue of retroactivity on the Quebec shuffle.
Mr. Sale: I appreciate the minister's answer. I can only just underline that it is difficult to deal with this kind of change in a piece of legislation that we have had since May, to suddenly have it on the last day in detail, and they are substantive changes.
So I am kind of torn, Mr. Chairman. I appreciate the fact that the department and the minister responded to the organizations and to the concerns, and has come up with amendments that he believes appropriate. That is a good thing.
I remain concerned that at the very last moment we get amendments that are very substantive, and we therefore have not had a chance to do our homework appropriately. However, we will take the minister at his word and appreciate his willingness to share the advice he received, as well as his response, with us as soon as it is possible to do so.
I do have a couple of other comments before we reach 4:30.
I would like to ask the minister, given the fact that the minister's department--let us not put too pejorative a term on it, but clearly had some difficulty responding to a Freedom of Information request in regard to the Jets, and agreeing, I think, that in the Manitoba Securities Commission there are at least three volumes totalling close to 3,000 pages of information, and that in the minister's files and the Treasury Board files and other files in the government, there are similarly some thousands of pages of information. I am not sure how many it is, but it is in the thousands.
Could the minister tell the committee how he thinks it was possible that, with so many lawyers involved and so much legal advice, nobody seemed to have picked up the fact--and I agree, including ourselves, but we did not have lawyers working on this--that these companies, the limited partnerships, not the general partnership, but the limited partnerships no longer resided in Manitoba and, in fact, had decamped for Quebec over the period of about a year and had all gone by the time Burke and Gluckstern's offer was received in May of 1995?
How could all of those lawyers miss the most elementary thing that a lawyer does when dealing with a corporate transaction, which is to say, who are the clients, who are the parties and where are they?
Having asked a number of legal firms how this could be, their response was, we do not have any idea, because the first thing you try to find out when you are in a corporate transaction is, whom are you dealing with, and where are they? Of course, it was very easy once we asked that question at the Corporations branch.
Immediately, they showed us that indeed there were companies here being dealt with that were not registered in Manitoba. Once we recognized that this was the case, it was a question of where they are, and the tax people that we consulted said, well, that is easy; they will either be in Ontario, Alberta or Quebec, most likely Quebec. So, within a matter of hours of finding out that these companies were not registered in Manitoba, we were able to pinpoint the fact that they were indeed registered in Quebec and knew immediately that what was going on here was tax avoidance.
This was not rocket science from the tax lawyers that we talked to, so I just am puzzled by how this could have not been seen, given the hundreds of thousands of dollars in legal fees that went on all sides of this deal.
Mr. Stefanson: I guess what I was going to say is, we are very specifically dealing with an issue called the Quebec shuffle as this amendment--I have indicated very clearly why it is being introduced and the member for Crescentwood (Mr. Sale) has introduced an entirely different issue, which is not the amendments that are before us as it relates to the Quebec shuffle. Again we are into this speculation about a particular Manitoba company; how they might file returns, how they might not; when they will and so on, and I am not at liberty, as Manitoba's Finance minister, to talk about individuals or about a corporation's tax returns.
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Mr. Chairperson: The hour being 4:30 it is time for Private Members' Business.
Committee rise, and call in the Speaker.
Mr. Sale: Point of order, Mr. Chairperson. Can we not see the clock for a couple of minutes?
Mr. Chairperson: Cannot do it.
Mr. Sale: Cannot do it?
Mr. Chairperson: That is one thing I cannot do. That is it.
(Madam Speaker in the Chair)
Mr. Marcel Laurendeau (Chairperson of Committees): Madam Speaker, the Committee of the Whole has been considering Bill 63, The Statute Law Amendment (Taxation) Act, 1996 (Loi de 1996 modifiant diverses dispositions législatives en matière de fiscalité), and has directed me to report progress and also asks leave to sit again.
I move, seconded by the honourable member for Gimli (Mr. Helwer), that the report of the committee be received.
Motion agreed to.
Mr. Edward Helwer (Gimli): I move, seconded by the member for La Verendrye (Mr. Sveinson), that I rescind the composition of the Standing Committee on Industrial Relations. This was a--made an error. This is for the Industrial Relations committee for Monday, November 4, at 6:30: the member for Arthur-Virden (Mr. Downey) for the member for La Verendrye (Mr. Sveinson).
Motion agreed to.
Hon. Darren Praznik (Deputy Government House Leader): If you canvass the House, you will find that there is agreement to go back into Committee of the Whole to complete the particular work of the committee, which is the completion on Bill 63.
Madam Speaker: Is there leave of the House to revert back to Committee of the Whole to continue to consider Bill 63? [agreed]
Hon. Jim Ernst (Government House Leader): Madam Speaker, I move, seconded by the Minister of Culture, Heritage and Citizenship (Mr. Gilleshammer), that Madam Speaker do now leave the Chair and the House resolve itself into a Committee of the Whole to consider Bill 63, The Statute Law Amendment (Taxation) Act, 1996.
Motion agreed to, and the House resolved itself into a Committee of the Whole to consider Bill 63, with the honourable member for St. Norbert (Mr. Laurendeau) in the Chair.
Mr. Chairperson (Marcel Laurendeau): Is it the will of the committee to adopt the amendment? [agreed]
Clause 13 as amended--pass; Clauses 14 to 17--pass; Clause 18--pass.
Clause 19.
Hon. Eric Stefanson (Minister of Finance): Mr. Chairman, Clause 19, I move
THAT subsection 19(3) of the Bill be amended by adding the following after the proposed subsection 3(34):
Exemption re certain coin-operated devices
3(35) Notwithstanding section 2, no tax is payable in respect of the purchase of tangible personal property dispensed from, or a service rendered through the operation of, a mechanical coin-operated device that is designed to accept only a single $0.25 coin as the total consideration for the purchase.
[French version]
Il est proposé que le paragraphe 19(3) du projet de loi soit amendé par adjonction, après le paragraphe 3(34), de ce qui suit:
Exemption - Appareils automatiques
3(35) Malgré l'article 2, aucune taxe n'est payable pour des biens réels matériels achetés d'un appareil automatique qui n'accepte qu'une seule pièce de 25 cents à titre de contrepartie ou pour des services obtenus par l'entremise d'un tel appareil.
Motion presented.
Mr. Stefanson: I have had an opportunity to discuss that amendment with the member for Brandon East (Mr. Leonard Evans). I believe there is support for it and it does exactly what it says with a coin operator--
Mr. Chairperson: Order, please. Before the honourable member speaks, could the minister speak to the motion. I have to advise the committee that this amendment is out of scope in that it is establishing an exemption to payment of tax under The Retail Sales Tax Act, a matter not otherwise raised in Bill 63. Therefore, this motion is out of order. Is there unanimous consent to allow this motion to be carried? To be put? [agreed]
Is it the will of the committee to adopt the amendment? [agreed]
Clauses 19(1) and 19(2)--pass; Clause 19(3) as amended--pass; Clauses 20(1) to 20(3)--pass; Clauses 21(1) and 21(2)--pass.
Shall Clauses 22 to 25(3) be passed?
Mr. Tim Sale (Crescentwood): I just saw this date, 1978. I thought we were uptight about retroactivity. That is retroactivity with a vengeance. Can you just very briefly explain?
Mr. Stefanson: Mr. Chairman, that is the issue of the provincial-municipal tax sharing that we discussed earlier, the whole issue of mutual funds and the rebating of corporate income taxes, that the application to municipalities has been applied on the basis of factoring in, that that refund should be deducted from the corporate taxes. So this basically puts in place how we have been treating municipalities and how we have been applying it. I undertook to provide the details of how much that has been up until present. We are not talking very significant amounts to date, but there is the potential. As I say, it is more preventive than moving forward. It is really putting in place how we have treated municipalities since--I see here for each year after 1977, so this--in Section 9.
Mr. Sale: Mr. Chairperson, I have some concern about this. The minister, on the one hand, says that this is a minor item in terms of impact at the present time, but it is going to be major as the role of mutual funds and tax planning, et cetera, gets expanded, yet he is proposing to take this act back some 19 years or 18 years. I am confused. Either it is major, and we are plugging a problem here, or it is minor, in which case, why are we going after nickels and dimes from municipalities that are already hard pressed? This seems very onerous if there are any significant dollars here that you are going to go to the R.M. of Brokenhead and say, hey, folks, you owe us money going back to 1978. If it is not substantive, why put it in? If it is, then I do not believe we should agree to it without knowing how substantive and how it will affect the municipalities of this province.
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Mr. Stefanson: Mr. Chairman, I think for clarification what is important is, we will not be going after municipalities for refunds. We have not overpaid municipalities. When we were looking at the amounts due municipalities, we realized that in effect they were getting a double benefit. They were getting taxes that they should not be entitled to, so we withheld those. What we have provided to the municipalities has been on the basis of net, which I would suggest is fair. There is no reason municipalities should get corporate taxes and personal taxes on the same transaction, which gives them the tax twice. What we have done is factor that in, and this now basically puts it in this amendment, is what it does. I want to make it perfectly clear, we are not going to be going back to any municipality suggesting that they have to make a refund to the provincial government.
Mr. Chairperson: Shall Clause 22 to subclause 25(3) be passed?
Mr. Sale: I believe the minister is still conferring with his official, and I am still very puzzled by why we need to go back if we are not making any changes to people's entitlements or to tax adjustments. It is not clear to me.
Mr. Stefanson: Mr. Chairman, I provided the explanation that we will not be going back to municipalities. This really reflects how we have provided the provision of corporate and personal income taxes to municipalities, and I am told the reason for 1978 is because if you have a chance to look on page 8 of the bill, Section 741, it says, for each year after 1977 the government shall allocate. So it is basically adjusting for the date that implemented the provincial-municipal tax sharing.
This mutual fund issue that I have described in much more detail earlier has really been only an issue in the last couple of years, but I am told that because that is the date that PMTS was introduced that that is also the date that is being used here to provide for the adjustment as to how we are providing those taxes to municipalities.
Mr. Sale: Just to conclude then, the minister is saying that this is a technical use of a date, and there is no intent to go back and recalculate benefits?
Mr. Stefanson: That is correct.
Mr. Chairperson: Clause 22 to subclause 25(3)--passed; subclause 25(4)--pass.
Subclause 25(5).
Mr. Stefanson: I move
That subsection 25(5) of the Bill be amended by striking out "January 1, 1989" and substituting "May 23, 1996".
[French version]
Il est proposé que le paragraphe 25(5) du projet de loi soit amendé par substitution, à "1er janvier 1989", de "23 mai 1996".
Mr. Chairperson: Subclause 25(5) as amended--pass; subclauses 25(6) to 27(3)--pass.
Clause 27(4).
Mr. Stefanson: I move
THAT the following be added after subsection 27(4) of the Bill:
27(4.1) Subsection 3(35) as enacted by subsection 19(3) is retroactive and is deemed to have come into force on April 24, 1996.
[French version]
Il est proposé d'ajouter, après le paragraphe 27(4), ce qui suit:
27(4.1) Le paragraphe 3(35) édicté par le paragraphe 19(3) est entré en vigueur le 24 avril 1996.
Mr. Chairperson: Subsection 27(4) as amended--pass; subsection 23(5)--pass.
Mr. Stefanson: I move that Legislative Counsel be authorized to change all section numbers and internal references necessary to carry out the amendments adopted by this committee.
Motion agreed to.
Mr. Chairperson: Preamble--pass; Title--pass. Bill as amended be reported.
Committee rise. Call in the Speaker.
Mr. Marcel Laurendeau (Chairperson of Committees): Madam Speaker, the Committee of the Whole has considered Bill 63, The Statute Law Amendment (Taxation) Act, 1996, and reports the same with amendments.
I move, seconded by the honourable member for Gimli (Mr. Helwer), that the report of the committee be received.
Motion agreed to.
Hon. Darren Praznik (Deputy Government House Leader): Madam Speaker, I believe if you canvass the House, there would be a willingness not to see the clock, in which case, do you want to call these bills to finish them? [interjection] Have we waived private members' hour? So we are into private members'? Oh, I understand then there is not that consensus.
Madam Speaker: The hour being 4:30 p.m., and time for private members' hour, what is the will of the House? Private members' hour commencing now at 4:50 p.m. till 5:30 p.m.? [agreed]
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