EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, June 4, 1996

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[English]

The Chairman: Order.

The finance committee is continuing its investigation of the concept of taxable Canadian property under the Income Tax Act and the Canada-U.S. tax treaty. We're very pleased that the Auditor General, accompanied by Messrs. Minto and Elkin, has agreed to return to us on such short notice to continue with the explanations of this very complex area of the law.

We'll begin the questioning this afternoon with Ms Whelan, please.

Ms Whelan (Essex - Windsor): Thank you, Mr. Chairman.

I want to start the questioning this afternoon with a reference to a news release issued byMr. Williams. I was wondering if the Auditor General had seen the news release put out on May 8 as a result of the report. The release talks about backroom deals with senior government executives and politically motivated deals.

Mr. L. Denis Desautels (Auditor General of Canada): I don't recall seeing that news release.

The Chairman: Perhaps you can have a copy of that made and have it distributed, and go on to another line of questioning.

Ms Whelan: Sure.

The second line of questioning I had was that earlier this morning we were talking about the ruling. I'd like to pose a hypothetical question. Whether or not there had been an advance tax ruling, if the same transaction had occurred how would it be assessed by Revenue Canada?

Mr. Shahid Minto (Assistant Auditor General, Office of the Auditor General of Canada): It's very difficult to deal with hypothetical situations like that, but if all the circumstances were the same, I suspect there would be not much difference from what they've done now.

Ms Whelan: So there wouldn't be any type of issue today.

Mr. Minto: No, that's not what I said.

Mr. Barry Elkin (Principal, Audit Operations, Office of the Auditor General of Canada): I think what Revenue had done, if this arose as a result of audit...probably you would have looked at the roll-over transaction as to whether in fact those shares were considered to be taxable Canadian property. They would have looked at that transaction. As to what conclusions they would have come to at audit, I would assume they would either be the same...

It's very difficult for me to tell you what conclusion they would come to at audit.

Ms Whelan: But they would follow the same process, would they not?

Mr. Elkin: At audit?

Ms Whelan: They would seek legal advice if they needed legal advice -

Mr. Elkin: They could seek legal advice -

Ms Whelan: - from the same department?

Mr. Elkin: Yes, or I believe Revenue also has a budget to seek legal counsel from outside if Justice can't accommodate them. But certainly they would seek counsel's advice.

Ms Whelan: But in the normal course of business, if it was being assessed, they would follow the exact same procedure as when they issue an advance tax ruling.

Mr. Elkin: I can't tell you that. I would think you'd expect them to do exactly the same thing. What Revenue Canada would have done, in looking at this transaction, is sort of hypothetical, as you pointed out, and I -

Ms Whelan: I'm just asking in general terms. If I had a trust situation and my family trust had moved funds out of the country, I would expect Revenue Canada to assess it in the same manner.

Mr. Minto: It depends on how it comes to their attention.

Ms Whelan: Well, they're going to be assessed at some point.

Mr. Minto: If they pick it up during the course of an audit, that's one course of events; if it goes through the avoidance auditors, there's another course; and if it goes through the SI group, it's another course. So it depends on what the auditors found, how they reflected on it and who they would send it to. If they send it to special investigations, there's another course, and if they send it to anti-avoidance people, there's another one.

Mr. Elkin: The other point is that it would depend on the point in time the auditor came in. If you assume that this transaction was completed in 1991, it would be three or four years before the audit process came in. As an example, if in fact the taxpayer did a bump-up, which Mr. Beith referred to, you'd probably have them applying some type of revision to do away with the bump-up and conceivably treat this as an avoidance transaction.

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So ultimately they're looking down the road, and I would expect they would be looking at a transaction maybe three or four years after it's settled. If you assume that the taxpayer did a December year-end, he would file within six months, and by the time you got it through the process you'd be looking down the road.

So a lot of things settle in that period. You're always concerned about subsequent transactions, which obviously they were concerned with in this particular ruling.

Ms Whelan: From what you're telling me, though, basically it's exactly the same procedure in assessing.

Mr. Elkin: No, not at all.

Ms Whelan: What factors do you look at that are different?

Mr. Elkin: I think you'd have seen the transaction. The testimony before you was that if there was a bump-up, as an example, Revenue Canada had a waiver to protect against that. Well, if that bump-up had materialized down the road, I assume Revenue Canada would have assessed - based on the testimony they gave.

Ms Whelan: I'm not following you. Maybe you can explain what you mean by a bump-up.

Mr. Elkin: The issue is this. If this property is not taxable Canadian property to the non-resident, it comes back into Canada at fair market value. It left Canada at tax cost, which is considerably below fair market value. That's the reason no tax was paid, because it left at tax cost. Then it could come back in at fair market value. So if that transaction had settled, actually been completed - and right now it's hypothetical whether this -

Ms Whelan: But I was talking about the very same transaction. You're changing the terminology of the transaction.

Mr. Elkin: No, I'm telling you that you look at something with a number of years of hindsight when you're in auditing. That's just the way audit life is.

Ms Whelan: That's if you were audited, if it came across the audit desk. If it hadn't, it would be assessed in the same manner.

Mr. Elkin: No, if it had come... I don't know what you mean. If the taxpayer had self-assessed -

Ms Whelan: Right.

Mr. Elkin: - however the taxpayer filed it, they would have accepted it.

Ms Whelan: You're just assuming it would be audited and analysed in a different fashion.

Mr. Elkin: If I left you with that impression, I apologize. I thought you had said if they had ``audited'' the transaction. I had assumed that assessing an audit...maybe I was...

Ms Whelan: Maybe we could move on to my other issue. I want to know when the Office of the Auditor General first discovered this issue.

Mr. Minto: We were doing a chapter in 1993 relating to rulings and the whole process they had at that time. In the course of that audit we examined a number of advance rulings to understand the process, to understand what happens with them.

In the sample we had selected to understand those rulings, these transactions were included. We then looked at them and became aware of certain things, unusual items around this transaction, such as the waiver and the undertaking, and the magnitude of the occurrence. That is when we said, okay, this needs a second look. That's when we became aware of it.

Ms Whelan: So from 1993 to 1996 the Auditor General's department was aware of this - and they bring it to the public's attention in 1996?

Mr. Minto: This was reported to the department in early 1995.

Ms Whelan: It took two years to report it to the department?

Mr. Minto: In November 1993 we reported our chapter on advance rulings. Then we started work on this. Our discussions started with them in I would imagine late 1994. In early 1995 we reported this to the department. In July they had a draft copy of our report about what was going on. We've since been having discussions with them on the subject, and we're reporting this to you now.

Ms Whelan: So in over a year no one did anything about it -

Mr. Minto: Excuse me -

Ms Whelan: - yet in your observations you say there are serious concerns about the administration of the Income Tax Act. ``Serious concerns'' sit for over a year before anyone looks at them?

Mr. Minto: You say we didn't do anything for a year, but that is not a reflection of what actually happened. What we did for a year is have very serious, deep discussions with all levels of management. The normal process, which I'm sure you would want us to go through, is to have clearance, to have acceptance of the fact and to get all the advice we can. That is what we did in this case.

Ms Whelan: The transaction in 1985: when was that first learned about?

Mr. Minto: Exactly the same time.

Ms Whelan: It was learned about in 1993?

Mr. Minto: When we came across this ruling we found references to the other transactions, and that's when we put the whole thing together.

Mr. Elkin: I'd like to say that I think it's important -

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Mr. Fewchuk (Selkirk - Red River): How could you make a ruling in 1993 with no information? Answer that one.

Mr. Minto: I'm sorry, I don't understand your question.

Ms Whelan: Go ahead, Mr. Elkin.

Mr. Elkin: I would like to clarify this. We had intended to report this earlier, but unfortunately, I had open-heart surgery on August 29. Without getting into the details, I was just rushed in. As a result, this was held back. This was the earliest opportunity we had to report it.

Mr. Minto: The original schedule for reporting this was last November, and that's what the department was aware of.

Ms Whelan: With all due respect - I mean, I apologize for your illness, Mr. Elkin - the Auditor General's office continues to function, I assume, when someone is ill.

Mr. Minto: Irrespective of that, the timing is not out of whack, because the people who could have solved the problem would have been made aware of the problem. They were dealing with this problem.

Ms Whelan: I just want to clarify this. So you let Revenue Canada know immediately about the problem? That's all I want to know.

Mr. Minto: Absolutely.

Ms Whelan: So they knew in 1993, right after their first report -

Mr. Minto: No. I suspect we started talking to them about this in detail toward the end of 1994.

Ms Whelan: Okay. You now have in front of you a copy of the news release fromMr. Williams.

Maybe you can tell me, Mr. Desautels, if you notice how the release talks about back-room deals with senior government executives and politically motivated deals. Do you think this is an accurate representation of your findings?

Mr. Desautels: The representation of our findings is in our report. If you read our report carefully I think you'll see we make no reference to some of the detail you're finding here. So I stand by exactly what's in our report. I would suggest that Mr. Williams should be the one questioned on this press release.

Ms Whelan: As the Auditor General's department, when someone issues a press release based on your report do you have an obligation to correct anything that is inaccurate, or that misrepresents your report?

Mr. Desautels: I don't take responsibility for what everybody does with our report. There would be no end in sight.

Some hon. members: Oh, oh!

The Chairman: I think that was a good answer, Mr. Desautels.

Ms Whelan: I would think it would bother you that in a press release there are allegations about the personal and professional integrity of public officials. I'm asking you today whether or not you believe Mr. Williams's press release is correct.

Mr. Desautels: I don't want to comment on Mr. Williams's press release, but I mentioned on previous occasions - and I think Mr. Minto indicated this to the committee in a previous meeting - that we have not questioned the integrity of the officials at Revenue Canada, and we have no reason to suspect any bad faith in those transactions.

Ms Whelan: That's fine.

Mr. Desautels: We've said that quite clearly more than once.

Ms Whelan: I just wanted to make sure Mr. Williams was aware of it.

Thank you, Mr. Chairman.

The Chairman: Thank you, Ms Whelan. Mr. Campbell, please.

Mr. Campbell (St. Paul's): Thank you, Mr. Chairman.

We discussed the issue of confidentiality in one of your earlier appearances, Mr. Desautels. I take it you support the principle that taxpayers should have a right to confidentiality in their dealings with Revenue Canada. Do you support that?

Mr. Desautels: I do.

Mr. Campbell: I'm just concerned that the extent of the details in your report with respect to the particular transaction that has been discussed appears to have violated that right. It could be taken to be a violation of that right, because I think from the amount of information given one can draw conclusions, as indeed some have. I'm not sure if they're correct or not, but people have been out there making all kinds of guesses.

Are you concerned about that, about the amount of detail you've made available in the report in order to raise the policy issue you were concerned about, that you've breached that right of confidentiality, indirectly and in all good faith, but nonetheless with that impact?

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Mr. Desautels: We had to make a judgment call in this case as to the amount of detail we would give in order to present the case properly to parliamentarians. As we were doing that, we were very conscious of the requirements of the Income Tax Act, in particular section 241, and in fact had legal guidance as we went along to make sure we were not breaching the confidentiality requirements of the Income Tax Act. So we were quite conscious of these requirements and we think we struck a proper balance between the level of detail we gave and respect for confidentiality.

Mr. Campbell: So you would characterize yourselves as quite concerned about the matter of confidentiality, and you struggled with how to make the point you needed to make about process without giving clues to members of the public as to who we might be talking about?

Mr. Desautels: Definitely.

Mr. Campbell: And you think your report is a fair reflection of that concern?

Mr. Desautels: Obviously we didn't do this lightly. We exercised our judgment as best we could and with proper legal advice in the process.

Mr. Campbell: You had legal advice as to...?

Mr. Desautels: As to whether or not the way we reported respected the confidentiality requirements of the Income Tax Act.

Mr. Campbell: The advice was to what effect - that it would respect it?

Mr. Desautels: Of course.

Mr. Campbell: So were you at all surprised or concerned about the media speculation and the speculation from the opposition - politics being such as it is - as to the identity of individual taxpayers in light of how carefully you had worked to protect confidentiality? Were you surprised at the outcome?

Mr. Desautels: I was somewhat surprised -

Mr. Campbell: Or distressed?

Mr. Desautels: - and I would have preferred that the discussion focus on the other issues we were raising and not on the identity of the taxpayers concerned.

Mr. Campbell: Okay.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Campbell. Mr. St. Denis.

Mr. St. Denis (Algoma): Thank you, Mr. Chairman.

Thank you, gentlemen, for coming back again. I'd like to begin by just discussing the nature of the word ``ambiguity'' as it relates to this particular problem. I think you've said yourselves that it's an appropriate word to describe perhaps the dilemma - and I don't mean to put words in your mouth - that faced officials as they attempted to work their way through this.

Was it just a matter of time, in your view, that the ambiguity would come to light? Did it take a few cases to shed light on the fact that there was an ambiguity? Or had you not done the audit of the rulings process and discovered this, is it possible that this ambiguity would have stayed there indefinitely? Can you talk to me a little bit about the nature of the ambiguity as you see it and why it came up at this time? Why didn't the initial drafters recognize this?

Mr. Minto: At the time statutes are drafted it's often difficult, if not impossible, to pick up all the nuances and all the things that could happen. One of the things the testimony has shown here is that Mr. Dodge and Mr. Gravelle and everybody else have talked about the ambiguity part.

This taxpayer was asking for a ruling because of the ambiguity. I think other taxpayers have asked for clarification of the same issue. I suspect at some stage the situation may have come to a head, and somebody would have said, hey, let's do something.

But again, we're into speculation and theoretical stuff. I think the whole body of the Income Tax Act as we read it points to one direction. One section that was introduced in 1984 -

Mr. Elkin: In 1982.

Mr. Minto: - yes, 1982 - was paragraph 97(2)(c), which gives the slight indication, especially in a partnership situation, of something else that is possible. This is the section the department hooked onto for this transaction.

The other thing, to reflect on the nature of the ambiguity, is the technical opinion issued last year, for example. It took the department a whole year to answer the taxpayer's request on that. So it was not a simple issue. It took a whole year to respond to that.

That's all I can add.

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Mr. St. Denis: But presumably ambiguity is part of the problem of drafting legislation that attempts to deal with various kinds of tax scenarios. As I understand the ambiguity, it relates, if one were able to focus on a particular stage in this, to the declaration that the private - which became public - shares would still maintain a TCP status as public shares held by the trust.

Mr. Elkin: There are basically three sections involved.

Mr. St. Denis: Three sections of ambiguity?

Mr. Elkin: Three sections of the act that interplay with each other. Each of them may contribute to the ambiguity. It's difficult to isolate it.

One of the sections is paragraph 97(2)(c), which seems to have been the provision in the law relied on to determine that a Canadian can hold taxable Canadian property. The other provision was subparagraph 85(1)(i), a roll-over provision that said, gee, these public company shares are now taxable Canadian property. The next question is, can a Canadian resident own taxable Canadian property? So between those two sections, you're getting into the issue, in simple terms, of taxable Canadian property.

The other issue deals with distribution by a trust to a non-resident, because this wasn't the case of a Canadian moving with the assets; it was a case, if you look at it this way, of a father remaining in Canada, a son being in the U.S. and the father wanting to send his son a significant amount of public company shares. The question then became, when father sent those shares to son, did father trigger a taxable event in Canada? Well, father doesn't trigger a taxable event in Canada if those shares are considered to be taxable Canadian property. So you get into that rule under subsection 107(5) under -

Mr. St. Denis: Again, you'll forgive my not being a tax expert, but is it really three smaller ambiguities that combine to create a more complex and bigger ambiguity?

Mr. Elkin: I would see one of the major issues as this: can a Canadian resident own taxable Canadian property in its simplest term?

Mr. St. Denis: So among the ambiguities, that is the most significant?

Mr. Elkin: Right. From what I've seen, all the testimony I've heard and all the documents I've had the privilege of seeing, it seems this problem came into existence when paragraph 97(2)(c) was enacted in 1982. The difficulty we had is that the problem paragraph 97(2)(c) was designed to solve, according to testimony given by Mr. Dodge, had already been solved or dealt with in the act, under I think paragraph 115(1)(b).

So when we took a look at paragraph 97(2)(c), we threw all these things together and said, hey, what's the meaning of it? We knew before the birth of paragraph 97(2)(c) that we didn't seem to have a problem. All of a sudden, paragraph 97(2)(c) we've given life to, in 1982 - and now we seem to have a problem.

Mr. St. Denis: Would it be your recommendation to us, as we work our way through this...? Obviously we need to understand the individual ambiguities that create the bigger question.

Mr. Elkin: I guess the best way I can tell you is that when I stand back and look at the legislation I think an awful lot of other people stand back and look at the legislation. If in fact you had a situation where a Canadian could not own taxable Canadian property, it seems to me all the rules would fall into place. All the other policy objectives that have been set with respect to distributing shares out, with respect to the 21-year deemed realization rule, seem to fall into place.

Mr. St. Denis: So the essence of a solution might be in that area.

Just hypothetically, had the ruling on the cases at hand been, no, a Canadian can't hold TCP, leaving aside all the precendents and everything that happened before, then there would have been a deemed realization, presumably, and we would have some money...

Mr. Elkin: If the taxpayer had decided to carry on the transaction, there would have been a deemed realization, and the taxpayer would have paid tax. I would think that would be highly unlikely.

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There's another course out that follows in line with the policy objectives that I understand are in place. What you're trying to do is to get a trust to distribute assets to a human beneficiary. That seems to be the thrust when you look at the 21-year deemed realization rule.

So in this particular case, if the trust could have distributed the shares to a human individual, and that individual left the country, then there would be no question that it would be TCP to that individual. It seems to me we wouldn't be sitting here - assuming how it was done. I guess you can always structure a transaction the way I'm putting it, in simple terms with a lot of complexity behind it, but I certainly don't think we would have been here. We would have accomplished the policy objective that was underlying the 21-year deemed realization rule, where you wanted to either tax a 21-year trust or you wanted the trust to distribute the assets to beneficiaries. So everything seems to fall into place not having the situation where a resident can own TCP. I can go through it at great length.

The other problem is that generally in an avoidance transaction you have the unusual situation where you take the literal interpretation of rule A and the literal interpretation of rule B and you turn around and get onion soup. You get something other than what you really wanted. This ultimately happened in the interplay between subparagraph 85(1)(i) and subsection 107(5).

So you get something different from what you expected. I would suspect that this is what happened.

Mr. St. Denis: Is it a fair characterization that this is not clear-cut, that with respect to the officials who may have been involved they face the same complex set of questions we do?

Mr. Elkin: Without question, there is nothing in tax that is straightforward.

Mr. St. Denis: Thank you, Mr. Chairman.

The Chairman: I would agree with Mr. Elkin.

[Translation]

Thank you, Mr. St. Denis.

[English]

Mr. Williams, please.

Mr. Williams (St. Albert): Thank you, Mr. Chairman. With your indulgence, I've taken the liberty of photocopying a few pages of the Income Tax Act, the consolidated technical amendments up to July 13 of 1990, which is the old numbering system referred to in the Auditor General's report. Some of these sections have been renumbered since.

I've also photocopied a couple of pages of the Canada-U.S. income tax convention, which I have circulated as well.

What I want to do is take a step back and examine fairly closely the sections we are dealing with so we can get beyond the generalities and start having an understanding of (a) the complexity, (b) the ambiguity, and (c) the concern that the Auditor General has raised in his chapter.

The Chairman: I'd be the last person who could criticize that approach, Mr. Williams.

Mr. Williams: Thank you, Mr. Chairman. I do apologize that it's not in both official languages, but after the meeting this morning, where the noise level was fairly high, I thought this might be a preferable way to proceed.

Mr. Desautels, you can certainly have Mr. Minto and Mr. Elkin answer some of the questions, as you so desire.

Let's take a look at part I of the Income Tax Act and division A, which I have circulated. It has three sections, 1, 2 and 3. Section 1 deals with Canadian residents. Would you agree with me that by and large section 2, which refers to division C of the Income Tax Act, deals with taxation by Canadian residents?

Mr. Elkin: Yes, I would. Section 2 is the charging section.

Mr. Williams: Section 3, with the subheading, ``Tax payable by non-resident persons''... As you can see, paragraph 2(3)(c) says ``disposed of a taxable Canadian property''.

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Am I correct in my understanding that taxable Canadian property, as is stated right here in the global division A, is taxable in the hands of non-residents, and taxes under division C are for residents?

Mr. Elkin: Yes, there's no question. It sets out who is responsible for paying tax on taxable Canadian property. Obviously, as you point out, it sets out that a non-resident is responsible for paying tax on taxable Canadian property.

Mr. Williams: Thank you.

Let's move on to section 48, with the heading ``Deemed disposition of property where a taxpayer has ceased to be resident in Canada''. If I can give an overview, perhaps you can clarify and confirm for me that it deals with two types of property - property that is deemed to be disposed of immediately prior to a person leaving the country and other property that is taxable Canadian property and so on, as described in paragraph (1)(a), which says that taxable Canadian property is not deemed to have been disposed of immediately prior to a person leaving the country.

Mr. Elkin: You're correct. Just for the record, section 48 was in place in 1991. It's now been repealed, but it's basically been replaced with I think subsection 128(1). But it doesn't affect anything you're saying. You're absolutely right.

Mr. Williams: If we move on to paragraph 48(1)(c), the first line says:

(c) where the taxpayer is an individual other than a trust or was, immediately before the particular time,

This was the issue you raised, that only individuals were able to elect and put up security. As you can see quite definitively there, ``other than a trust'' excludes a trust from putting forth security and making an election regarding property.

Mr. Elkin: Yes, that's correct, and that ties in with the issue of security and hard-to-collect tax.

Mr. Williams: It's quite definitive, in your mind, because it says an individual ``other than a trust''. The act is quite specific that a trust is absolutely and completely excluded from making that election.

Mr. Elkin: That's correct.

Mr. Williams: Moving on to paragraph 85(1)(i), section 85 deals with roll-over of property, the conversion of property from one form to another within the allowable limits of the Income Tax Act without triggering capital gains. Is that the general intention of section 85?

Mr. Elkin: Yes, section 85 is a roll-over provision, which you can do on a tax-deferred basis.

Mr. Williams: Which means you don't dispose of the property; you just convert it into a different form.

Mr. Elkin: Yes, and you carry on with the cost base of it.

Mr. Williams: And the original cost for which you acquired the property remains the same.

Mr. Elkin: Yes, in general terms.

Mr. Williams: Okay. If we look at paragraph 85(1)(i), it says:

(i) where the property so disposed of is taxable Canadian property of the taxpayer, all of the shares of the capital stock of the Canadian corporation received by the taxpayer as consideration for the property shall be deemed to be taxable Canadian property of the taxpayer.

Can you explain what the paragraph actually means?

Mr. Elkin: First of all, when you're dealing with Canadians, when you exchange capital property... I'm sure for anybody around this table who has ever filled out a tax return and had a capital gain, the term ``taxable Canadian property'' has no relevance. Whether a Canadian trades this glass case for this pen, ultimately when the pen is sold there'll be tax. It has no relevance.

In my view, this provision was designed - and it's my understanding this was also agreed to in testimony by other people who appeared before either this committee or the public accounts committee - to ensure that a non-resident couldn't avoid tax. It's exactly the same provisionMr. Dodge was referring to in paragraph 97(2)(c). You didn't want to create a situation where an individual left with taxable Canadian property. You had your hands on it. You could hook into it. Then that individual did something to get away from paying tax. He converted it to something that was not TCP.

This provision prevents that, and it ties in with the provision under paragraph 115(1)(b), in which all the loose ends are tied. But in my view, you have to deal with this provision on the basis that it was intended to prevent a non-resident from avoiding Canadian tax.

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Mr. Williams: So to recap in my words, there are two kinds of property when a person leaves the country - property that is deemed to be disposed of immediately before he goes and property that he can hold without triggering a tax burden. Subparagraph 85(1)(i), you are saying, is the property a non-resident is holding without triggering a tax bill. If he were to convert it into something that he should have declared when he left - but now he's gone - in order to either trigger a tax bill after that time, we've now allowed a subsequent additional deferral now that he converted to this state after he has gone.

Mr. Elkin: You want to avoid his converting it after he has gone. That was confirmed in testimony Mr. Dodge gave to this committee - I have the blues, but obviously I don't have anything else - when he said:

There's one more rule that I should mention, a rule to prevent what would otherwise be an easy form of tax avoidance. It's described in the fifth point

- I believe that's the handout he gave -

on the second page of the handout.

If non-residents were taxed only on their gains on TCP, it's quite easy to imagine how a non-resident could avoid Canadian tax. The person owning a share of a private company could take advantage of the roll-over provisions of the Income Tax Act and roll that share over to become a public share. Since a public share is not taxable Canadian property, they could avoid all the Canadian tax.

If you go to point five of Mr. Dodge's handout, he's referring to this type of situation. Tax in the context of the Canadian...this has no relevance, absolutely no relevance, that anybody has been able to show me.

Mr. Williams: Perhaps we can move on to subsection 97(2), ``Rules where election by partners''. This is the situation I believe Mr. Dodge was using to justify his ruling. As we can see, it deals strictly with partnerships. It says:

Notwithstanding any other provision of this Act, other than subsection 85(5.1), where at any time after November 12, 1981 a taxpayer has disposed of any capital property, a Canadian resource property, a foreign resource property, an eligible capital property or an inventory to a partnership that immediately after that time was a Canadian partnership of which the taxpayer was a member, if the taxpayer and all the other members of the partnership have jointly so elected in prescribed form and within the time referred to in subsection 96(4), the following rules apply:

First of all, we have a mention in there of a Canadian partnership.

Mr. Elkin: That's correct.

Mr. Williams: A Canadian partnership is defined in section 102, ``Definition of `Canadian partnership''', that:

In this subdivision, a Canadian partnership means a partnership all

- with an emphasis on ``all'' -

of the members of which were, at any time in respect of which the expression is relevant, resident in Canada.

Mr. Elkin: That's correct.

Mr. Williams: Is this the part Mr. Dodge is suggesting justifies his conclusion? I take it that it is, because it talks about all the members of a Canadian partnership, so it has to be a Canadian resident.

Mr. Elkin: Not only does Mr. Dodge take that position, but I believe when Mr. MacGregor from the Department of Justice gave testimony - I have it before me - he said:

Section 97(2) speaks of the transfer of taxable Canadian property to a partnership that immediately thereafter is a Canadian partnership of which the taxpayer is a member...

Section 102 defines Canadian partnership: all members are resident in Canada. So the partnership interest taken back which is deemed to be TCP by definition is taken back by a Canadian resident.

We understand and we accept the validity of Mr. MacGregor's logic. However, we do not find it compelling in light of what we feel are even clearer provisions in the act that lead to the opposite conclusion.

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First of all, you should note that prior to the introduction of paragraph 97(2)(c) in 1982 there was no question that only non-residents could hold TCP. We don't think the introduction of paragraph 97(2)(c) was meant to reverse that fundamental principle.

Why paragraph 97(2)(c) was introduced, in that it was covered under paragraph 115(1)(b), is anybody's guess. I've had tax practitioners tell me that they thought it was just an unfortunate error in legislative drafting. I really don't know.

Mr. Williams: Mr. Dodge or Mr. Gravelle, I can't remember which - I think it wasMr. Dodge - said there was no Canadian partnerships involved in this particular transaction. That was on the record of the public accounts committee. This section 97 deals with partnership. I'm quoting from your report on the conclusion, the comments by Revenue Canada:

In interpreting the law that applies to transactions to be undertaken, Revenue Canada determines the intent of the law by considering not only the words of the particular provision, but also the context in which the particular provision is found.

We're dealing with partnerships. Partnerships have nothing to do with this particular transaction in question. That was admitted by Mr. Dodge or Mr. Gravelle. Revenue Canada says the context in which a particular provision is found has a significant bearing on its interpretation. Is this part of the rationale for your raising the flag regarding this particular issue?

Mr. Elkin: I think we're raising the flag because when you come to the conclusion, we always like to look at what the interpretation ends up doing. You have a situation where if you take the position that the law intended for a resident to own taxable Canadian property, you have to conclude that this came into being in 1982. So what you now have is a situation where you can have a trust, have something that is considered to be TCP, taxable Canadian property, that trust doesn't have to pay tax, doesn't have to give any security and that trust can then move it to a non-resident.

In this particular case, it happened to move it to a non-resident trust situated in the United States. What's to prevent it from moving it to a non-resident trust situated in Bermuda, Liechtenstein or any other tax haven? I'm at a loss to see where there's any prevention if you take this position.

Mr. Williams: Moving on to division D, paragraph 115(1)(b), again I quote:

(b) the only taxable gains and allowable capital losses referred to in paragraph 3(b)

- remember we talked of paragraph 3(b) as a global paragraph that tells you what is taxable in the hands of non-residents -

were taxable capital gains and allowable capital losses from disposition of property, each of which was a dispositions of property or an interest therein, (in this Act referred to as a ``taxable Canadian property'')

Am I correct in saying that the words in brackets, ``in this Act referred to as taxable Canadian property''...? In essence they have put a label on a block of items referred to in subparagraphs 115(1)(b)(i) through (ix), and rather than repeating these each time they have just given a label to that block of items.

Mr. Elkin: Yes. Section 115 provides an order in the types of things you're going to tax non-residents on. So you're correct that section 115 sets the order. It says these are taxable Canadian property; these are the things you're going to tax non-residents on. In particular, we're dealing with dispositions of capital property.

Mr. Williams: It defines there what taxable Canadian property is within division D, which deals with taxable income by non-residents, referring back to the global section of paragraph 2(3)(b).

Mr. Elkin: Yes.

Mr. Williams: I'm going to move over to the Canada-U.S. income tax convention of 1980, which is also part of the issue we're dealing with. There are two ten-year rules here - ten years before they leave and ten years after they leave. Because they're both ten years, let's not get them confused.

Am I correct in saying that the convention has higher priority than the Income Tax Act.

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Mr. Elkin: You are correct.

Mr. Williams: Therefore, if there's a conflict between the act and the convention, the convention dictates.

Mr. Elkin: You are correct.

Mr. Williams: Looking at paragraphs 3(b)(i), (ii) and (iii), these specify what is real property within the context of the convention.

Mr. Elkin: Section 3 wants to tax gains on real property, yes.

Mr. Williams: Did this particular transaction at issue fall within paragraphs 3(b)(i), (ii) and (iii)?

Mr. Elkin: No, not that I'm aware of. This provision wouldn't come into play. What happens is this provision would only come into play when a disposition was made. Let's assume the underlying value of the public shares were made up of pencils. If at the time those public company shares were sold the underlying value was made up of real property, this would come into play at that particular point in time.

Mr. Williams: But in your opinion, paragraph 3(b)(ii), which says ``a share of the capital stock of a company, the value of whose shares is derived principally from real property situated in Canada'', does not apply to the transaction we are debating.

Mr. Elkin: I believe it doesn't. That wouldn't have been an issue Revenue Canada would even have been concerned about. You'd only be concerned about this issue at the point of time a sale was made.

Mr. Williams: Because there was no disposition, this section was not triggered.

Mr. Elkin: Right.

Mr. Williams: Section 5 deals with the ten years before and the ten years after. It says:

The provisions of paragraph 4 shall not affect the rights of a Contracting State

- if I can call that Canada -

to levy tax on gains from the alienation of property derived by an individual who is a resident of the other Contacting State

- and I call that the United States -

if such individual:

(a) was a resident of the first-mentioned State - which is Canada -

for 120 months during any period of 20 consecutive years preceding the alienation of the property

What does this section mean?

Mr. Elkin: When you go into paragraphs 5(a) and (b) and on from there, you'll note that all of these things are with ``and''. What this section is basically trying to say, in very general terms, is that if a non-resident has gains from capital property that's not supported by real estate - it's another type of capital property, public company shares, say, where the underlying value is pens, perhaps, or something else - then if the non-resident, in this case let's say a resident of the United States, wasn't resident in Canada for a period of ten years before the person left to take up residency in the United States, then obviously condition A is not met.

The other thing is when you look at condition B, this is where we keep our hook into it for ten years in the case of the Canada-U.S. treaty. So even though a Canadian left Canada with property that wasn't supported, by shares that weren't supported, by real estate - they were supported by pens - we still want to maintain our right to tax for ten years. This gives us that right. That was also referred to by Mr. Dodge in his testimony.

The other thing is that it says ``and if such property...was owned by the individual at the time he ceased to be a resident of'' Canada... So when the individual left Canada, he had to have owned that property. In this particular case, we didn't have an individual leaving with property; he distributed property to somebody else who was outside of the country. Basically what happened - from the documentation I saw, where the taxpayer's representative acknowledged it to Revenue Canada - is that the moment those shares left Canada it was possible to claim exemption under this provision of the treaty.

When you take a look at Finance's policies letter, Finance said they had no objection to a resident owning taxable Canadian property as long as Canada maintained its right to tax. Obviously Canada could maintain its right to tax, so I assume this is how the undertaking came into being. You said to the taxpayer, look, if everything had gone the way we think it should have gone, you could have gone across with those shares and we would have maintained our right to hook into those shares. What you've done is recharacterized this transaction.

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If I can use an analogy, we all know that when you sell property to a relative - to a child, as an example - you have a disposition taking place at fair market value. So when you start getting into the realm of dealing with undertakings and waivers, you end up in a situation where I sell property to my son, at my cost, and then Revenue Canada comes along and says, gee, you should have sold it at fair market value. I say, what the heck, my son will give you an undertaking that he'll start at my cost, and I'll give you a waiver that I'll pay the tax if my son doesn't pay it. You start making arrangements that are outside of the act.

To me, that's an important administrative policy issue that somebody has to come to grips with. I haven't seen anything in any published document dealing with advanced rulings or with the audit process that indicates how we are going to deal with waivers and undertakings in this context. That's an important policy issue.

Mr. Williams: And all the -

The Chairman: Mr. Williams, may I ask a favour of you and all members? I'd like to do something that's frightfully political at this particular moment.

Mr. Williams: Please.

The Chairman: I would like to introduce three people who are in our audience from Willowdale. Rabbi Gopin has brought two students here, Ari Feldman and Hadassah Rais. These two young students have been granted a scholarship to come to Ottawa and then to spend part of the summer working in Israel. I'm very proud to be entertaining them today.

Thank you very much, Mr. Williams and members.

Some hon. members: Hear, hear!

The Chairman: I apologize for interrupting what was a very compelling story.

Mr. Williams: Not a problem, Mr. Chairman, and I appreciate your indulgence for the amount of time I have taken here. I'll just wrap up with one final question.

The concerns you have raised, Mr. Elkin...and I think you quoted this morning that you as an auditor found empty files, and there was absolutely nothing to document and substantiate the concerns you have raised. Therefore, you being an auditor, what else would you do but bring it to the attention of the committees to whom you are supposed to report? Is that in essence a summation of the rationale?

Mr. Elkin: Yes, we certainly didn't have documentation to support a lot of the issues that were raised in the ruling, as we pointed out - as I'm sure the record shows.

Mr. Williams: Again, thank you, Mr. Chairman. I do appreciate your indulgence.

The Chairman: Thank you, Mr. Williams. I'm sure you've made this tome, the Income Tax Act of Canada, a best-seller. That was a good way to do it. I think everybody has a very clear explanation of the charging sections and the ones that are applicable.

I have on my list Mr. Dhaliwal, Mr. Shepherd and Mr. Campbell.

Mr. Dhaliwal.

Mr. Dhaliwal (Vancouver South): Thank you very much, Mr. Chairman.

Just following up on the point my colleague made in terms of the file and the information in the file, could you tell me if you found any analysis as to the decision made - what impact it would have in terms of any gains or any losses to the Treasury of Canada? Was there any analysis done at all?

Mr. Minto: Mr. Chairman, that issue was specifically raised with both Finance and Revenue Canada. In both cases the answer was that there was no documentation in the files to indicate that this analysis had been done.

Mr. Dhaliwal: Did it surprise you, considering the amount of money involved, that there was no impact by Finance or by Revenue in terms of any loss now or in the future to the Canadian taxpayer?

Mr. Minto: The question of documentation here has two dimensions. One, if you were to go into a company as an auditor and you saw people buying helicopters or other weird things you would expect to see an invoice -

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The Chairman: Can you please not use the analogy of helicopters?

Some hon. members: Oh, oh!

Mr. Minto: Mr. Chairman, in my other life I also have a responsibility for the Department of Transport.

Let's say you were buying buses for a company for transportation. You would expect some kind of a needs analysis -

The Chairman: That involves Newfoundland.

Mr. Minto: Let's go to widgets or pens; is that safer? Yes, pens are safer; my colleague has already brought it up.

You would find an analysis of the needs, you would find analysis of the market, you would find analysis of the cost and you would find a cost-benefit analysis. In some businesses, one is more appropriate than the other. You don't expect all of those things, but you need somebody to have looked into it, to have asked, what is the impact on the balance sheet, what is it going to do for us?

It's the same way here, sir, when you're giving advance rulings. They're no different from writing out cheques when you tell people they don't have to pay tax. Considering the magnitude of the numbers, considering the nature of the transaction - and we have all agreed on the ambiguities around this transaction - and most of all considering the fact that up to a certain date everybody was going one way and then it changed, yes, we would have expected those documents to be there, and were disappointed they weren't.

The second part of the documents not being there, the first part being a breakdown of controls, is that you ask who has the accountability for this transaction. In both cases the documents weren't there.

Mr. Dhaliwal: Your testimony earlier was that you could not make certain judgments because you perhaps didn't have all the information, or didn't have access to it, or it wasn't available. Do you feel there needs to be a further inquiry into these areas to determine whether there was a breakdown in communication, a problem within Revenue and Finance where maybe they misinterpreted the letter? Sometimes in these big organizations these things happen. There's just a miscommunication.

Does it need to be looked into further in terms of making that determination as to when the decision was made? Maybe it was made by a problem of not analysing it in the comprehensive fashion it should have been.

Mr. Minto: Earlier there was a very useful remark, I thought, by I think Mr. Campbell, that to look at the future you have to sometimes look at the past, and if you want to see how the law should be in the future, you could see how it was interpreted in the past.

We can't tell you the basis of this decision. The reason we can't really tell you the basis is because the documents that would explain that to us just aren't there. Maybe you need to find out more about the basis of this decision.

Mr. Dhaliwal: Let me just say further that I made a couple of phone calls to some tax experts in Vancouver who frequently deal with this issue on trust. One of the comments made to me was that this may be accomplished through a number of other steps. Are you aware that if this interpretation had not been made the party in question could have taken other steps to accomplish the same thing? Can you comment on that? You may not be able to comment. I don't know.

Mr. Elkin: I can tell you that the party could have taken up residence in the U.S. with the property. I don't know what you mean by accomplished with the same steps. Are you saying the same transaction could have taken place in another form and we would still have no Canadian tax?

Mr. Dhaliwal: That's right. That's what I'm saying.

Mr. Elkin: Well, that's another weakness that I really can't comment on. But if you're saying there's another weakness, another set of transactions and another structure that could take place to give you a non-tax result, perhaps there is.

Mr. Dhaliwal: Thank you very much, Mr. Chairman. I have no further questions. I think I was a lot shorter here than you thought.

The Chairman: Your conciseness just overwhelmed all of us. Our gratitude goes out to you, Mr. Dhaliwal.

Mr. Duhamel, please.

Mr. Duhamel (St. Boniface): Very briefly, I just want to review the major points as I understand them.

This transaction occurred in 1991. It was discovered in some form in 1993. Between 1993 and 1995 it made some progress in terms of being shared with government; there were different forums. It is just now, in 1996, that it surfaced within the formal report.

Is that correct? Are those the essential points of reference?

Mr. Minto: I agree.

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Mr. Duhamel: Therefore are we spending perhaps a whole lot of time trying to understand what occurred in 1991 in order to try to set a new course and perhaps come forth with a better policy in 1996? Is there some merit in perhaps just talking about what we could be doing now, for the future, as opposed to...? 1991 was five years ago. While it may be relevant and have some significance, that was under another government, another watch, another administration. What specific recommendations do you have that we might be able to do in order to make sure this doesn't happen again? Are there specifics you should share with us now, today?

Mr. Desautels: I think we said earlier the technical interpretation chosen in 1991 in a sense clarified the ambiguity we were all concerned about, but at the same time it opened up new possibilities of tax planning. I think personally this is what I would like to see dealt with. I agree with Mr. Duhamel there's more to be gained by focusing on that, at least in this particular committee. There are things that can be done. Again, it would have to be based on legislators' intentions, and I don't want to presume what those might be, but you could, for instance, clarify the rules so clearly non-residents can own TCP. Right now there seems to be an ambiguity about that. If that was clarified, that might settle some of the problems. But again, you'd have to decide that's what you want.

Mr. Duhamel: I understand that. I'm just very much interested in what you think we should be considering. We'll decide, I suppose collectively, whether or not that is appropriate. I understand that distinction. So if you have other suggestions, I would really appreciate them.

Mr. Desautels: We could say whether or not this can be done, you could add a rule that would ensure when a Canadian resident trust transfers TPC to a beneficiary on a tax-free basis, the property would maintain its TPC characterization in the hands of the non-resident beneficiary. That's something that could be done to overcome some of the problems we've indicated.

Thirdly, I think you could add a rule to ensure security is posted for all public company shares leaving the country on a tax-deferral basis, if in fact you're not ready to do the first thing, which would be to clarify that only non-residents could own TPC.

Those are some examples. I'm sure if we talked about it longer, my colleagues would be able to come up with maybe a little clarification.

[Translation]

Mr. Tremblay (Rosemont): If you continue that, we might suggest you be appointed deputy minister of Finance, since that is part of his job.

The Chairman: I think it is the job of all of us.

[English]

Mr. Duhamel: Mr. Chairman, may I continue?

If these three points you've raised were to be brought to independent assessors, people who work in this field and who are experts, and if I were to ask on behalf of the committee, are these sound ideas, are these ideas that would be useful to the Canadian public, would there be

[Translation]

a consensus?

[English]

Would there be some who would say yes, others who say maybe, others who say no, not at all, it's going to cause some other problems? Or do you know that?

Mr. Desautels: Mr. Chairman, I don't know that for sure, and I don't want to put myself in the position of suggesting what parliamentarians ought to decide on policy.

It depends on who you ask. There could be tax practitioners who see some advantages in maintaining a system along those lines, because it does offer interesting tax planning opportunities.

I'll go back to the 1992 report we prepared on the taxation of foreign affiliates of Canadian companies. At the time we pointed out some potential loopholes in that area. It's fair to say a number of tax lawyers thought there was not really a problem with that; it should be left alone.

Mr. Duhamel: With what was, as opposed to what you proposed.

Mr. Desautels: With what was the situation at the time. Since then that's been looked at by successive governments. In fact, this government introduced changes in a recent budget that changed some of those rules, and I would hope for the better. That may not have been supported at that time by some tax practitioners, but in the end I think government policy makers decided that -

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The Chairman: The government has always supported everything you've suggested,Mr. Desautels.

Mr. Duhamel: I take it, then, with respect to the fundamental issue that we're discussing, where there was a particular ruling subsequent to advice received by two departments, you're questioning whether or not that was the most appropriate way to deal with it. I don't know if there are better words by which to say it.

I suppose one could go to another party and get some dissension there too. Some might agree with you; others might agree with the government.

Is that correct?

Mr. Desautels: I suspect there are people who don't agree that there's a problem. So I don't think it's unanimous. I would be naive to tell you that.

Mr. Duhamel: And that's why you said we should resolve that, as opposed to the Auditor General.

Mr. Shepherd (Durham): When you get into areas of convergence in the legislation, there obviously are things that people don't agree with at all. They're outside the law and there are grey areas.

From the time when I was practising tax law myself, I can remember a Revenue Canada official once telling me, regarding the deductibility of expenditures, that if my profession puts it in, when they're in doubt they take it out. I thought that was a very clear definition of where we all are on that stage.

This leads me into the whole analysis of the question of intent. We talk back and forth here about intent. If you look in the index in the Income Tax Act, you will see that there's no definition of the word ``intent''. So basically it's something that practitioners and others, through understanding the law over time, develop into the law itself.

So I would just like to ask you a couple of specific questions on what you feel the intent of certain provisions of the Income Tax Act, as they relate to this, are.

For instance, we talk about taxable Canadian property. When I read the basic framework of the Income Tax Act, and it talks about taxable Canadian property, it seems to me that it's related to immovable property. In other words, it's not easy for somebody simply to pick up a mine or a forest and walk out of this country. So in some ways it gives us a degree of ability to collect the taxes. In other words, even if they're in Australia or Venezuela or some tax haven, if we want to collect the taxes, we have the ability to do that.

What do you think the intent of the whole concept of taxable Canadian property is?

Mr. Elkin: The intent of ``taxable Canadian property'' is basically defined in subsection 115(1). The heading of subsection 115(1) says it all. It says ``Non-resident's taxable income in Canada'' and ``taxable Canadian property''. When you get into the issue we're talking about you're getting into paragraph (b), and basically it's saying that we have a non-resident and under certain circumstances, certain types of transactions relating to capital property, we want to tax that non-resident on them. So it deals with real property situated in Canada; it deals with any property used by the non-resident person in carrying on a business other than an insurance business, and it lists a whole bunch of things. It definitely includes real estate. So it includes real and other types of property, such as an interest in a partnership.

Mr. Shepherd: Would it be true that the general intent is that taxable Canadian property is not liquid?

Mr. Elkin: No.

Mr. Shepherd: You wouldn't -

Mr. Elkin: Well, yes, taxable Canadian property would not be, other than that I don't know how you would deal with a public company share to get a certain amount of liquidity.

Mr. Shepherd: In other words, the marketable securities are somewhat inconsistent with the definition of ``taxable Canadian property''.

Mr. Elkin: No, they're included.

Mr. Shepherd: I know they're included, because of one section here, but basically, through the philosophy of the Income Tax Act, there would be some inconsistencies with marketable securities being found in the same classification as mines and forests, and other immovable assets.

Mr. Elkin: That's a complicated issue. You could have a situation wherein public company shares are capital property to me. They might be inventory to a broker. So we're getting into a complex area. But generally speaking, if it's an individual like me or you, perhaps, who holds shares in various public companies, to us they would be capital property, because they would trigger a capital gain rather than a gain on account of income.

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Mr. Shepherd: I always look at the people who draft this legislation. One thing in the back of their minds is always the ability to collect the tax. You can have as many great laws as you want, but the bottom line is that somehow you have to be able to collect it when the sun goes down.

Do you believe it is the general intention of the act to collect taxes?

Mr. Elkin: Yes. Basically when it comes to capital property, like shares, you generally would like security when somebody leaves with them. Somebody can't leave with the real estate; you have the real estate.

Mr. Shepherd: We can comment on that, on replace property, looking at things such as waivers and undertakings. Generally speaking, these would be of lesser value than actually using the precepts of the act itself. In other words, you've gone into giving replace security, a promise that some day if something happens we'll pay our taxes as opposed to actually enforcing the provisions of the Income Tax Act at the time.

Mr. Elkin: A waiver and an undertaking is an issue as to how you deal with them. How Revenue Canada accepts them is a major administrative policy issue. In my view, we're going into very uncharted waters. How do we want to use them to resolve disputes? Do we use them to recharacterize transactions?

Ideally, you want to have the law apply. It's a law that applies to everybody equally. We all look at the words, and they would interpret them for me the same way as they would interpret them for anybody else sitting around this table. Certainly you'd want some type of security that everybody would have to put up, whether I or anybody else moved with the shares. Certainly to start negotiating on waivers and undertakings is a course, but...

Mr. Shepherd: In the short analysis, replaced property is not nearly as valuable or as good as what the real property was, which is marketable securities.

Mr. Elkin: Do you mean by the waiver and the undertaking they took instead of a security?

Mr. Shepherd: Yes.

Mr. Elkin: Yes. First of all, the undertaking was unenforceable, or in addition to that, the taxpayer could conceivably accomplish what the undertaking wanted to avoid by not reneging on the undertaking. For instance, we went through this before, but because it's not taxable Canadian property to the non-resident trust the taxpayer at the point in time of disposition could say they're not claiming exemption under the treaty, which is what the undertaking tried to get him to do, but it's just not taxable Canadian property to them.

Mr. Shepherd: Is it the intent of Revenue Canada to collect taxes or not to collect taxes?

Mr. Elkin: I think the intent of Revenue Canada is to collect the correct amount of taxes due under the law.

Mr. Shepherd: Do you think these officials acted with the best intentions of the law?

Mr. Elkin: The position we've obviously taken in the note is that we see this transaction as circumventing the intent of the law.

Mr. Shepherd: Is there any benefit for Canada in doing this?

Mr. Elkin: Not that we can see.

Mr. Shepherd: There's a significant downside to Canada, in fact.

Mr. Elkin: Yes.

Mr. Minto: Canada has given up, as the note says, substantial future claims for taxes. The tax base has been eroded.

Mr. Shepherd: When I look at the ruling, it seems to me somebody almost had to go out and look for this paragraph 97(2)(c) to justify this. It is the unusual section, the section that doesn't fit with anything else. We use this basically to justify this transaction.

Mr. Minto: When you read it, it's a major stretch, a major leap of logic, to say how that would fit in the circumstances.

The Chairman: Thank you, Mr. Shepherd. Mr. Campbell.

Mr. Campbell: Thank you, Mr. Chairman.

I must confess that quite frankly, while one expects to be clearer on things as time goes on, as I listen to our witnesses who have given us an enormous amount of time respond to questions, I'm now baffled and verging on confused. I was clearer an hour ago. The last couple of questions lead me to wonder if you are saying something in response to those questions that is different from what you said before.

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One of the earlier questioners asked if officials misunderstood the advice they were given. Now you have been asked if something is a stretch, and you're saying that maybe it is.

I thought I heard you say before us on earlier occasions, in discussing the ambiguity point, on which we spent a lot of time earlier, that there are ambiguities and that what bothered you was not being able to understand why a decision was made. I never heard you suggest that anybody misunderstood what they were doing, or that they couldn't have come to this conclusion logically, or that there was anything other than good faith.

I heard you say all those things.

I also heard you say, re testimony you've given before another committee, that decisions such as this can sometimes go in one way or the other, depending on many factors and technicalities and the entities involved.

Further, you've said - and you said it again here today - that a decision like this is not clear-cut and people can argue on both sides of the issue, and this is why people go for rulings.

Which is it? We can't have it all ways. The help you're trying to give us today is becoming unhelpful, because you're leaving this one member decidedly confused about what you're trying to tell us.

I wonder if you'd like to comment. I'd appreciate the help.

Mr. Minto: Let's start by saying what is the ambiguity we're talking about, and maybe from there we'll move on. My colleagues have tried to explain that at different levels of ambiguity here.

The fact of the matter is that when we looked at the transaction, we found that within Revenue Canada itself a lot of people were taking positions on one side, based on the body of evidence, based on all the sections of the act, based on their concern that there may be potential for avoidance at some stage.

Then we started saying, okay, if all these sections talk about non-residents owning TCP, where did you come to this conclusion about residents owning TCP? The subsection they gave us was 97(2). We said, okay, we'd like to see the rationale behind it, the analysis behind it, from Finance, from Revenue. But that was not there. There was no rationale, no analysis.

So that's where we say, yes, this thing may have caused them some ambiguity, but let's not overstate the fact that there's a whole body in the Income Tax Act that goes this way.

Mr. Shepherd just read the stuff to you, sir. Without analysis to explain how to solve it and give the ruling, the ambiguity there remains.

But let's not overstate that. The main thing here is the administration of the Income Tax Act, and we're looking at how they arrived at that conclusion.

So, yes, there is ambiguity, but it was not that great, and when we look at it now, without their explanations, without their notes, without the analysis, we don't know how they applied the section.

That's exactly the same question as the one Mr. Shepherd addressed.

Mr. Campbell: So you've said earlier, and Mr. Desautels was very careful to say, that there's no issue here of bad faith or a suggestion you've seen of undue influence or people misunderstanding or being frivolous in the way in which they go about their work. You just haven't seen evidence to satisfy you that there was justification for a certain decision.

Mr. Minto: I think that very clearly what we said is we don't understand the basis for the decision because the analysis and the documentation weren't there to explain that.

Mr. Campbell: But you said more than that.

Mr. Minto: Let me just continue. Mr. Desautels and all of us have clearly said that this is not a question of integrity that we've raised with you. This is a question of saying that we don't know how they could have used this one section on the side, one leaf fluttering here with the whole body down here, and hook into that to justify this. That's what we are putting there for you.

On the question that was raised earlier about where we went, perhaps the committee would like to explore the need for this section and what it was really meant to do. But that's not for me to decide.

Mr. Campbell: I have one other question, because it arose again this afternoon, and it came up this morning as well. It is the suggestion that the ruling gives rise to tax planning alternatives. I'll use that phrase. Mr. Desautels said it this afternoon. Again, I'm confused. Maybe I'm burdened by having a little bit, but not a great deal, of knowledge of the Income Tax Act.

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Again, I'm confused. Maybe I'm burdened by a little knowledge of the tax act and not a great deal. I'd like to know what you think those are.

Mr. Minto: This is going to be simplified. This is not the way a legal opinion or a tax ruling would have gone, but let me just try to explain.

If an individual has public company shares right now and if they wish to emigrate, you have to make an election, provide security - this becomes TCP, and you leave.

On the other hand, if there's a situation now, after this ruling, where if you own a private corporation there is a buy-out by a bigger corporation which has publicly traded shares in this country right now, all you do is swap the shares of your private corporations for these public shares. You can pick up these public company shares and leave the country without having to post any security.

So you and I may have shares in that same company. When you leave, you're just leaving without posting any security. When I leave I have to. They are the same company shares.

This is the effect of the ruling. That's the kind of tax planning opportunities we're looking at.

Mr. Campbell: And indeed you've suggested maybe that's something this committee should look at.

Mr. Minto: My colleague explained earlier the tax planning opportunities for the trust.

Mr. Campbell: But these things don't exist in a vacuum, Mr. Minto. You would think the people would make those decisions based on emigrating from Canada to some jurisdiction somewhere else. What I can't fathom is why you see an opportunity for tax planning when, if you look at comparative tax rates in moving to the States, which is the case you've been focusing on, the rates for the most part are as high or higher.

Mr. Minto: What if you are moving to the Bahamas? What if you are moving to a tax haven?

Mr. Campbell: But if you were moving to a tax haven, then we would collect our tax.

Mr. Elkin: No, you wouldn't.

Mr. Minto: No, you wouldn't.

Mr. Elkin: Not if the transaction was carried out the same way, you wouldn't.

Mr. Campbell: And in the States, which is what this transaction involves, by your description, wouldn't you be moving to a jurisdiction with as high a tax, or perhaps a higher tax?

Mr. Minto: As Mr. Dodge said the other day, it would depend on which state you go to.

Mr. Campbell: For the most part, would it not be higher or as high? Do you know that?

Mr. Minto: Do I know what?

Mr. Campbell: Whether the tax rate in the States in this particular situation would be as high or higher or lower, generally.

Mr. Minto: Mr. Chairman, for me to answer that I would have to reveal the state this taxpayer moved to, and I'm not sure I'm prepared to do that.

Mr. Campbell: Are you aware that in some states the tax would be higher?

Mr. Minto: Absolutely.

Mr. Campbell: Are you aware that in many states the tax would be the same?

Mr. Minto: I go with Mr. Dodge's testimony on the subject, sir. He said in some it's higher, in some lower, and in some the same.

Mr. Campbell: All right. So we don't know, and on this point I guess following your legal advice you're not going to reveal the particular state, because that would further identify the taxpayer.

Mr. Minto: I would like you to reconsider that question.

Mr. Campbell: I appreciate that. But I'm just suggesting that because again, there are people who from this example, regrettably, form unfounded conclusions. We've discussed some of them today. One of those conclusions out there is that somebody is not going to pay tax, or is going to get away with paying less tax. They are not going to pay tax anywhere.

Mr. Loubier (Saint-Hyacinthe - Bagot): In Canada.

Mr. Campbell: In fairness, people are concerned about tax in Canada as well. But we do exist in the world, Mr. Loubier, and we do try to encourage investment in this country as well. There are two sides to the coin.

So in some cases, on this alternative tax planning, it would be a bizarre outcome, wouldn't it, if the result of this were to pay a higher tax in the United States, or the same tax.

Mr. Minto: If we can just stay with your hypothetical situation... I don't know if that trust has remained in the U.S. We don't know if that trust has moved from the U.S. or which state it went to or where it has gone. We don't know the other circumstances of the taxpayer.

Mr. Campbell: And the inheritance tax issue.

Mr. Minto: Inheritance tax issue? But if you go by the ruling that was published, you will find the department identified the taxpayer as a child. So I think the inheritance tax is way down the road somewhere.

Mr. Campbell: But that would be an additional tax -

Mr. Minto: That's right.

Mr. Campbell: - over and above what might be a similar, higher, or lower tax in that particular state.

Mr. Minto: Surely the question here is how do we collect the tax. The point is we don't see a monitoring system by which Revenue Canada knows what the taxpayer is doing, knows when the taxpayer is going to sell their property, knows when the taxpayer is going to leave the U.S. So how do you collect the tax?

Mr. Campbell: Mr. Chairman -

Mr. Tremblay: [Inaudible - Editor]

Mr. Campbell: Mr. Chairman, Mr. Tremblay may want to ask a question. I'm not sure what he's carrying on about there.

The Chairman: Mr. Tremblay has made an incredible contribution to the solemnity of our discussion.

Mr. Campbell: Yes, he's been very helpful. I'm sure Mr. Tremblay has something he'd like to add.

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Mr. Tremblay, the floor is yours. I cede the rest of my time. Maybe he'd like to ask a question instead of just nattering away.

The Chairman: Mr. Elkin, I believe, would like to respond.

Mr. Elkin: I would like to clarify perhaps the issue of a taxpayer leaving for another jurisdiction. I agree that there's a possibility that you could pay a higher rate of tax. We could probably certainly find jurisdictions. I don't think there's any question.

Mr. Campbell: Some of them are in the United States.

Mr. Elkin: Yes, and I would also agree that with respect to the United States, nobody has really looked at the issue of whether the taxpayer gets a bump up. The comments I had from tax practitioners was that maybe in fact the taxpayers got a bump up and the assets were moved into the U.S. at fair market value. So with the difference between cost and fair market value, nobody's going to get taxed on it.

So there are two sides to the coin, but again, you make a very valid point. Perhaps this is the kind of analysis one would expect to see.

Mr. Campbell: Mr. Chairman, generally when we have these proceedings - I've been a member of this committee for two years - members who come here who are full members of the committee, or alternates or guests in our midst, usually show the courtesy toward other members of keeping their comments quiet, or giving their comments to the colleagues quietly so that members can ask questions and members can hear the responses. That has not happened today.

The Chairman: I apologize, Mr. Campbell.

Mr. Campbell: Regarding Mr. Tremblay, he didn't used to do that.

The Chairman: As chair, I have to depend on the courtesy and good manners of all members. I cannot, unfortunately, be a parent or a cop; I wish I could be.

Mr. Campbell: So do I.

The Chairman: Do you have anything more? Could I just do a little follow-up on whatMr. Campbell said? It's a supplementary question.

If the trust, having obtained this ruling of taxable Canadian property, had moved not to the United States but to a tax haven jurisdiction - say Bermuda - what would the tax reach of Canada be?

Mr. Elkin: The tax reach of Canada?

The Chairman: Yes.

Mr. Elkin: There would be no tax reach of Canada based on the published ruling whereby Revenue Canada has now, the way I interpret it, said that they will give rulings of this nature without any undertakings or waivers. Basically what you have is a situation in which there would be no TCP to the trust in Bermuda or any other jurisdiction. It doesn't matter whether the trust is in the United States or any other jurisdiction. The question is: is it TCP to that trust that received it?

The Chairman: The ruling was that it was TCP.

Mr. Elkin: No, the ruling wasn't that. The ruling was silent on the issue. I agree with you that although the ruling was silent on that issue, the ruling in fact was on that issue, which would clearly violate Revenue Canada's published policy whereby they don't rule on completed transactions.

The Chairman: I'll have to go into this in more detail. As I understood it, the whole ruling you're complaining about is based on the fact that the shares in the public company were classified as TCP.

Mr. Elkin: They accepted that as a fact in the ruling.

The Chairman: Okay. Accepting that they're TCP, then if the shares had been transferred to Bermuda rather than to the United States, which is a treaty jurisdiction, would they not be TCP?

Mr. Elkin: No, the ruling was that they were TCP to the Canadian trust, not to the non-resident trust. They didn't accept that. When the undertaking -

The Chairman: Did they reject it?

Mr. Elkin: I have no idea. Everybody was silent on that key issue.

The Chairman: Just a second. You're saying that Revenue Canada officials, in assessing, would suck and blow on the same issue? They would say it's TCP for one purpose but not for another?

Mr. Elkin: I can tell you, sir, that I raised this issue with Revenue Canada's technical people. I can't remember approximately when, but it was a month or two before the report was tabled. Their response to me on this particular issue was this. The first line of the response they gave me was in response to this new issue you raise. What does that mean? I interpret that it was an issue that was not addressed at the point in time the ruling was given.

The Chairman: Well, I can't imagine that our Revenue Canada officials would say that these shares in a public company were TCP and then that they weren't. If it has been your experience that they will do this type of thing, then I would welcome far greater insights from you on it.

Mr. Elkin: What happened, sir, is that everybody was careful. The taxpayer obviously wanted the ruling to be TCP to the Canadian trust. That's because once it's TCP, the distribution can go under subsection 107(5) tax-free. So the taxpayer, specifically in the undertaking, said the undertaking was being given on the condition that the ruling was TCP.

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When Revenue Canada verbally advised the taxpayer, in the notes I have of that meeting, they said they will accept that the shares to the family trust, the Canadian trust, are TCP on the condition that you provide a waiver and an undertaking. But that issue was not technically ruled on; it was accepted as a fact.

The Chairman: I am sure that if it's TCP for the goose, it's TCP for the gander. I can't understand why it would be otherwise.

Mr. Elkin: Paragraph 85(1)(i), sir, says that it's -

The Chairman: So what is this TCP?

Mr. Elkin: That's to the taxpayer who did the conversion. The trust that received it didn't do a conversion.

If you want to carry this further, let's assume that I did a the conversion. Now I have public company shares and let's assume that there are TCP. I float them in the market. I want to get rid of them. Everybody around this table buys some of those public company shares. Are they TCP to everybody around this table? It's highly unlikely, sir, that you could even attempt to write legislation that would do that.

The Chairman: Well, you've raised another technical argument that I have a great deal of difficulty accepting on the face of it.

Mr. Elkin: I can go through it quite in detail.

The Chairman: I would be interested if maybe you could drop me something on this, just because our meeting is coming to an end here.

Mr. Elkin: Revenue Canada has the correspondence we've exchanged on this issue.

Mr. Desautels: We can make a representation on that, sir.

The Chairman: I would welcome that.

[Translation]

Mr. Loubier: My colleague has asked to speak.

The Chairman: I know; I will give him the floor.

[English]

I will give him all of the courtesies of the committee. I will please ask Mr. Tremblay to not talk while you're talking, Mr. Pomerleau. At least he has a good sense of humour.

I would welcome something in writing on that so we can see it. But I just find it difficult to accept that they would characterize it for one purpose and not for the other. But anyway, thank you.

I have received notice earlier from Mr. Williams that he has a motion. I also received notice earlier from Mr. Loubier that he has a motion, as well as Mr. Pomerleau.

[Translation]

You would like to ask a question?

Mr. Pomerleau (Anjou - Rivière-des-Prairies): I really want to table the motion and start speaking to it.

The Chairman: I would first like to give the floor to Mr. Williams so that he can table his motion.

[English]

Mr. Williams: Thank you, Mr. Chairman.

For clarity and for the record, I would move that the various sections of the Income Tax Act, including subsection 107(5), which we have discussed this afternoon and which I circulated in a brief memo, be attached to the record as if it were read in. That would also include article 13, sections 3, 4, 5, of the Canada-U.S. income tax convention of 1980.

[Translation]

Mr. Loubier: No problem.

[English]

The Chairman: Could I request that not the whole sections, but just the relevant -

Mr. Williams: Relevant sections.

The Chairman: - ones and those portions of the sections that are relevant to your presentation...? Would you accept that amendment?

Mr. Williams: Yes, I will.

Motion agreed to

The Chairman: Okay. There's unanimous support. Thank you, Mr. Williams.

[Translation]

Mr. Pomerleau.

Mr. Loubier: Did we give our consent?

Mr. Pomerleau: I would like to table a motion similar to the one on the floor and then comment on it, if I may have a few minutes to do so.

I move that the chairman of the Standing Committee on Finance be authorized to approach the Standing Committee on Public Accounts so that the latter will conduct a more detailed investigation, as per its mandate, of special cases that occurred in 1985 and 1991, as described by the Auditor General, whereby one of several Canadian residents interpreted the concept of taxable Canadian property in their favour to avoid paying taxes on the capital gains on $2 billion transferred to the United States, and that the Standing Committee on Finance, as stipulated in the mandate conferred upon it by the Finance Minister,

[English]

examine and make policy recommendations concerning both the taxation of non-residents' gains on Canadian property and the treatment of capital property belonging to immigrants to and emigrants from Canada.

.1705

[Translation]

That is the motion I wish to table. I would like to briefly explain the rationale for it.

We are dealing with an advanced ruling which we have been discussing for a number of days now. We have looked at the matter from every angle. There are obvious improprieties.

First of all, there is nothing to support the way the ruling was made; since there is a standard procedure, this is most unusual. Revenue Canada tells us their decision was based on analyses done by the Justice Department which, in turn, based its decision on analyses conducted by the Finance Department.

The Chairman: Was your motion seconded?

Mr. Loubier: Yes, I seconded it.

The Chairman: Fine. This is now a matter for debate.

Mr. Pomerleau: Yes.

The Chairman: Excuse me, but I think it's the same motion as the one we received this morning.

Mr. Loubier: No, it was amended.

The Chairman: Is it very different?

Mr. Loubier: We withdrew the words "the chairman". There was an amendment. It is not the same as this morning's motion.

The Chairman: May I ask our clerk whether the substance of the motion is the same?

Mr. Loubier: We have followed the rules.

The Clerk of the Committee: The substance of the motion is the same.

[English]

The Chairman: According to our clerk - and I would have to agree with her suggestion to me - this in substance is the same motion as was voted on this morning and presented by you.

[Translation]

Mr. Loubier: No, it is not the same.

Mr. Pomerleau: Notwithstanding that fact, I ask for your permission to table it again if there is unanimous consent.

[English]

The Chairman: Is there unanimous consent for him to present it again?

Some hon. members: No.

Mr. Campbell: We went through it this morning.

[Translation]

Mr. Pomerleau: I spoke about it this morning and I would have liked to explain the grounds for tabling it because we have made some headway in our study of these matters since this morning. We now know it is much more ambiguous and dubious; we have to get to the bottom of things.

Mr. Loubier: They have too many things to hide.

[English]

The Chairman: I find myself, as the chair, not wishing to cut off debate on any issue, but I know our meeting here is scheduled to end at 5 p.m. and we have a vote at 5:30.

How long did you propose to discuss this? Maybe there will be consent for you to say something.

[Translation]

Mr. Loubier: If you don't want to discuss the motion, one day we'll have to start back at square one. I would like to ask you if during our next meeting, instead of studying Bill C-36, we could call back the senior officials from Revenue Canada and from the Finance Department, because we have a lot of questions for them on how to change our tax policy so that we can avoid having cases similar to those of 1985 and 1991. At least give us the chance to fulfil our mandate!

[English]

The Chairman: That's another motion.

[Translation]

Mr. Loubier: No, it is not a motion.

The Chairman: A suggestion.

Mr. Loubier: I am talking about our agenda for future business.

Mr. Tremblay: With a great deal of courtesy.

Mr. Loubier: Yes, I did do that.

[English]

The Chairman: Just because I have been asked to deal with a motion that is before us,Mr. Pomerleau - and I don't want to cut off members...

[Translation]

I do not want to cut off any members who might wish to speak.

Mr. Loubier: Yes, but you made the decision, Mr. Chairman. You said the motion was the same as the one tabled this morning and that we could not table it again. So we feel the matter is settled. We will set it aside.

The Chairman: Fine.

Mr. Loubier: I am asking you a question about the committee's agenda.

Given what has just been said and given our mandate - need I remind you of the mandate we were given by the Minister of Finance - , could we ask the senior officials to appear again so that they can tell us what happened and tell us how we can make sure idiotic decisions such as those made in 1991 are not made that way again? Could we have your guarantee of that?

[English]

The Chairman: Mr. Campbell.

Mr. Campbell: We are all anxious. We all welcomed the mandate that was given to us by the Minister of Finance. I think in fact today it was Mr. Minto, just a few moments ago, who said we were quite right to conclude that in order to understand what needs to be done for the future, we have to look at the past and how the law has been interpreted. So I see a direct link, as I said this morning.

As to the suggestion that we put aside another scheduled meeting to continue on with officials, I'm not in favour of that, Mr. Chairman. We have a meeting scheduled tomorrow to begin consideration and to hear from officials on the 1995 tax measures bill, which has long been awaited.

.1710

Among the things -

Mr. Loubier: [Inaudible - Editor]

Mr. Campbell: Excuse me, Mr. Loubier. I'd like to finish. There will be time. We have time to talk here.

One of the complaints Mr. Loubier made earlier on was that we didn't have enough work to do. Now, at a time when we have all kinds of different things to deal with, he seems to want to focus just on one, which I think is a little unfair, given all of the things we have before us.

We are going to hear from officials tomorrow. That's the meeting that has been called. That's organized for tomorrow. All of us look forward to the return of senior officials. Other questions have come up as a result of today's testimony.

There are also other outside experts I think we should hear from. I'm sure members will indicate to you, Mr. Chairman, or to the clerk other people who might speak to this issue before us. We have lots of time this month to deal with this issue and the other work before us.

[Translation]

The Chairman: Mr. Loubier.

Mr. Loubier: Mr. Chairman, on the one hand, you are telling me the Liberal members of the Standing Committee on Public Accounts refuse to deal with Chapter 1 of the Auditor General's Report and with the two rulings made in 1985 and 1991 which resulted in the transfer of $2 billion tax free.

On the other hand, if we don't delve further into the matter, we will never talk about the 1985 and 1991 cases again, we will never shed light on the multi-faceted scandals, for which we have received no explanation from senior officials, and we will just let those things slip by us. The 1991 rulings were only published in March 1996. Some things were hidden from Canadians. You think it is going to stop there?

Are you telling us that our Standing Committee on Finance will continue with its work as if we had cleared up the matter raised by the Auditor General and as if we had unveiled it, when in fact there has been great aberration in the past month?

People will start thinking you have something to hide and that you are trying to protect someone, some interests, perhaps your pals. That stinks. It reeks of scandal. Why do you not want to clear this up? Is it all over? We will never refer again to the matter raised in Chapter 1 of the Auditor General's Report?

Mr. Pomerleau: It is finished?

Mr. Loubier: There is a scandal, that occurs year after year, and we are not going to touch it? I don't believe it!

[English]

Mr. Campbell: Mr. Chairman, if the suggestion following my comments has been to the effect that we're finished with this, we're not. What I said is to deal with the future and the mandate we've been given to look at whether our laws are adequate, we need to look at what happened in the past and how the law's been interpreted. The witnesses before us today have shed enormous light on that. They've been helpful and have held up I think enormously well under some intense questioning from all sides.

It is integral to the work we're going to be doing here in making recommendations that we understand what happened in those earlier years. I don't understand what the problem is on the other side of the table, why anybody thinks somehow what went on in the past is not relevant to what we're doing now and what we will be recommending for the future.

The Chairman: Mr. Tremblay.

[Translation]

Mr. Tremblay: Mr. Campbell said we had a lot of time between now and the end of the month to pursue our work on this. Could you tell us when?

The Chairman: As quickly as possible, as far as I am concerned.

Mr. Tremblay: Could Mr. Campbell answer me?

[English]

Mr. Campbell: First of all, Mr. Chairman, I'm not sure how many members of the opposition we're hearing from here today, but I'm happy to respond to Mr. Tremblay, because he finally asked a question waiting for me to finish and didn't interrupt. I'm very pleased to answer him.

The decision as to the timetable for the committee is in the hands of the chairman and the steering committee. There had been a discussion here - Mr. Tremblay wasn't here on that particular day - about what we would be doing in the month of June. A number of mandates are before this committee. Mr. Tremblay is not a permanent member of the committee, so for his benefit I'll just tell him.

We've been asked to undertake a review of the Special Import Measures Act; that will be getting under way shortly. We have other legislation before us or soon to be before us, we have this issue and we still have three weeks until the House rises for the summer. Members all around this table - I don't know if Mr. Tremblay wants to be included - have indicated their availability this summer to continue our work as necessary.

.1715

[Translation]

Mr. Tremblay: So, if I understood correctly, even though Mr. Campbell confirmed that we had plenty of time to study this between now and the end of June, he did not know exactly when we would do so nor how much time we had at our disposal.

An Honourable Member: They don't know what they are doing.

[English]

Mr. Campbell: If Mr. Tremblay has witnesses to suggest, he should give you a suggestion.

[Translation]

The Chairman: I would suggest the standing committee organize the next meetings and call the witnesses. It could do so Saturday, Sunday, Monday or Tuesday...

Mr. Loubier: He's crazy. Are we going to call a meeting of the steering committee and talk about serious matters once and for all? Stop fooling around.

The Chairman: I'm sorry.

Mr. Loubier: Act like a real chairman. If you can't carry out your duties, let someone else take over; it's that simple. If you are incapable of chairing this committee, without being cynical or disrespectful of our colleagues and the representatives from the Auditor General's Office, let someone else take your place. That is the message you have been sending us since this morning.

We certainly want to work, but we want to do serious work, and we want to work to make sure people know what is going on and not to hide things from them.

Obviously, you want to take the chapter 1 of the Auditor General's report off the Public Accounts Committee agenda, thereby imposing a gag on us, because you do not want us to question senior officials again who have been taking notes since this morning so that they can corner the Auditor General's staff.

The public will have to know about this. Tell canadians you are not interested in delving any further into such cases nor are you prepared to be accountable to Canadians for the breakdown and management of public funds. That's another kettle of fish. But that will have to come out in the open at some point.

I am certainly willing to attend a meeting of the steering committee and to plan the agendas right away. We can start working and calling all the officials from Revenue Canada and from the Finance Department so that they can enlighten us, so that they can suggest something other than passing legislation to avoid this same type of nonsense in future years. Enough is enough! We will not let them make fools of us forever!

So if you are ready, let's call a meeting of the standing committee for tomorrow morning, let's talk about the agenda, but don't count on my cooperation.

The Chairman: Why not now?

Mr. Loubier: You won't have any input from the Official Opposition when you do clause by clause study of the upcoming bills if we don't have any guarantee that both cases raised by the Auditor General will be reviewed during a real public inquiry commission, which only the Standing Committee on Public Accounts can set up. Does that suit you?

The Chairman: It goes exactly...

Mr. Loubier: It's a serious matter.

The Chairman: You would get exactly what you want.

We suggested holding two meetings, one yesterday and today's. We have already adopted tomorrow's agenda and now you want to change it. Would you like to continue these discussions another day?

Mr. Loubier: It doesn't matter which day it is. My colleagues from the Opposition and I want the Standing Committee on Public Accounts to shed light on the 1985 and 1991 cases and to amend the fiscal policy to ensure such nonsense does not occur again in coming years and that taxpayers don't have to pay for it. That's what we want.

The Chairman: You have changed your mind, because last week, you suggested that only the Standing Committee on Finance should handle this matter.

Mr. Loubier: No. Stop saying just anything. Last week, I said that the Standing Committee on Finance and the Standing Committee on Public Accounts should not work in parallel on the same topic. I suggested that the Standing Committee on Public Accounts deal with the 1985 and 1991 cases that are mentioned in the Auditor General's report, and that our committee recommend to the government that changes be made to the fiscal policy so that such cases do not arise again.

That is what I told you. If I am not being clear enough, I can put that in writing. I did not want both committees to work in parallel on the same issues; I wanted to separate the two special cases from the economic policy.

The Chairman: Last week, you asked me what would happen and you suggested this committee be informed of the outcome.

Mr. Loubier: Last week, the Auditor General was wondering whether he should appear before the Standing Committee on Public Accounts or appear before us today. Stop talking nonsense. I have requested ten times that the Standing Committee on Public Accounts review the two cases and that we review the fiscal policy.

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The Chairman: Your motion was negatived, but we will nonetheless continue working hard and remain relatively open to the Auditor General's questions.

[English]

Mr. Fewchuk.

Mr. Fewchuk: Mr. Chairman, I'd like to make a suggestion to our members today. We have very specialized people with us from the department. If we are to continue on with this kind of foolishness and nonsense, as grown people, from the Bloc... It's very embarrassing. I suggest we let the department officials go, and we can sit here for some time if they want to act -

[Translation]

Mr. Loubier: You are irresponsible.

[English]

Mr. Fewchuk: - like a bunch of foolish people trying to represent the province of Quebec.

Thank you.

The Chairman: Thank you, Mr. Fewchuk.

[Translation]

Mr. Loubier, will you be staying for the steering committee meeting?

Mr. Loubier: No, I have another meeting to attend.

The Chairman: Excuse me, but you received something from the clerk regarding...

Mr. Loubier: No, absolutely not.

The Chairman: Fine. At what time tomorrow?

Mr. Loubier: At 9 a.m.

The Chairman: The steering committee could perhaps meet in my office at 12 noon, immediately after the caucus meetings.

Mr. Loubier: Fine.

Mr. Campbell: I would prefer to have the meeting in the afternoon.

The Chairman: In my office at 3 p.m., after question period.

Mr. Duhamel

Mr. Duhamel: This afternoon, we heard of accusations, there was talk of scandal, protecting people, hiding things. As far as I am concerned, I am not willing to accept having such accusations being made without any proof. I would like to have a legal opinion, not necessarily today, but in the near future on the responsibility of those who make such unsubstantiated accusations. We don't need to come here and be abused by anyone. If there is proof, it should be put on the table. If there isn't any, then people should keep their mouth shut.

The Chairman: Mr. Loubier tends to act that way; even though I am used to it, I feel as ashamed as you do.

Mr. Tremblay: Mr. Chairman, you have a lot of decorum and know full well that Mr. Duhamel has been a parliamentarian for many years and is very familiar with the committee rules.

Mr. Duhamel: Are you then telling me you can make unsubstantiated accusations?

Mr. Pomerleau: We want the two cases to be opened?

The Chairman: May I suggest we continue this discussion tomorrow?

[English]

Thank you to our witnesses, who have come here and interrupted their busy days to help us.

This meeting is adjourned.

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