Clause 28.

Clause 29. Page 14, clause 29.

Page 15, clause 30.

Bill as a whole?

Does the committee agree that Bill 7 is now ready for third reading?

Bill 7 is now ready for third reading. I would like to thank the Minister and his witnesses. Thank you. As agreed, we will now deal with Bill 13, An Act to Amend the Income Tax Act. At this time, I would like to ask the Minister responsible for introducing the bill if he has any general comments. Mr. Handley.

Thank you, Mr. Chairman. Thank you for the opportunity to present Bill 13, An Act to Amend the Income Tax Act, No. 2, to the committee.

In February 2001, I announced in the budget address that effective with the 2003 tax year, the GNWT intended to change its personal income tax regime from one based on tax on tax to one based on tax on income. Tax on income refers to the fact that territorial tax will be calculated as a percentage of taxable income, rather than as a percentage of basic federal taxes, as is now the case.

As the Members are aware, we have proposed that the time frame for implementation of tax on income be accelerated to 2001. As of the 2001 tax year, all provincial governments will have moved to tax on income. The federal government, for reasons of harmonization of the national tax system and administrative simplicity, would like the entire country to use one system. The three territories have thus announced they will be working towards moving to tax on income for the 2001 taxation year.

When I met with the Honourable Paul Martin, Minister of Finance for Canada, last March, he specifically requested that the Northwest Territories move to tax on income effective 2001.

Recognizing the strain such a move would place on our resources, he offered to provide the necessary technical assistance and to reimburse us for our transition costs if we move to tax on income in 2001.

This bill was drafted with substantial technical assistance from Finance Canada. In allowing us to structure our own tax brackets, rates and tax credits, moving to tax on income will give the GNWT more flexibility to design our own tax system to meet the needs of northern residents.

However, many of the characteristics of the existing system will not change. We will continue to use the federal definition of taxable income. The Canada Customs and Revenue Agency will still administer our income tax and NWT residents will still file only one income tax return.

In June when I advised the Legislative Assembly of the government's intention to change to tax on income in 2001, I made several commitments:

1. The change to tax on income will simply convert existing personal income tax rates. Individuals will pay no more tax in 2001 than they would under the current system. This legislation before the Assembly reflects this commitment.
2. If the federal government lowers its tax rates for 2002, I will bring forward the legislation necessary to amend GNWT tax rates so that NWT residents pay no more tax than they would under the current tax on tax system.
3. I also committed to establishing a Minister's Advisory Committee directed to consider options available to us under the new system and to come forward with recommendations for change by this fall. The committee has been working since May 1, and I anticipate being able to review its recommendations with Members before the 2002 budget.

We have also communicated with NWT residents to explain the change to tax on income. This summer, the Department of Finance distributed pamphlets explaining the change to all NWT households.

I believe this bill represents a change that is in the best interests of NWT residents. Moving to tax on income will give us more flexibility to design a made-in-the-Northwest Territories tax system.

Mr. Chairman, some minor technical amendments to the bill are proposed. These amendments will:

1. Correct references in the act to definitions, whose section numbers have been changed by the amendment in the NWT Income Tax Act.
2. Allow a credit of 45 percent of the federal credit for individuals with severe and prolonged physical or mental impairment to be transferred from an individual outside the Northwest Territories.
3. Allow a credit of 45 percent of the federal credit to be transferred to a relative in the Northwest Territories by a student who is a resident of another province or territory.
4. Ensure that mutual fund trusts receive a refund of NWT tax in the amount of 45 percent of the federal tax refunded on capital gains under Section 132 of the federal act.
5. Correct wording in the French version.

Mr. Chairman, these amendments are necessary to ensure that all taxpayers in the Northwest Territories pay the same NWT tax under tax on income as they would under the old tax on tax system. Thank you, Mr. Chairman.

Thank you, Mr. Minister. At this time, I would like to ask the standing committee responsible for reviewing this bill if they have any comments. Mr. Dent.

Thank you, Mr. Chairman. The Standing Committee on Accountability and Oversight conducted a public review of Bill 13, An Act to Amend the Income Tax Act, No. 2, on Monday, September 10, 2001.

The committee would like to thank the Minister of Finance and his officials for presenting the bill. The bill will change the income tax system in the Northwest Territories from one that calculates income tax on the amount of federal tax payable to a system that calculates income tax on the amount of taxable income.

This bill also makes technical changes to the territorial Income Tax Act to clarify the language and to update references to the federal Income Tax Act.

During discussions on the bill, the committee expressed concerns that the amendments will result in:

• • an increase in the amount of income tax payable;
• • a decrease in the level of NWT tax credits; and
• • a more complex tax filing exercise from the current tax system.

The Minister advised the committee that the proposed change to tax on income would simply convert existing personal income tax rates. Individuals will pay no more tax in the 2001 tax year than they would under the current tax system. The committee expressed concerns that although our territorial tax rates may remain the same, our territorial tax credits may not.

The department assured the committee that people will be entitled to the same tax credits available under the current system. The only change to our territorial tax credits is an increase to our northern cost of living tax credit, which was approved earlier by this Legislative Assembly.

The committee also observed that under the proposed tax system, it may be more complex for tax filers to complete an income tax return. The Minister replied that the proposed tax system would result in a different calculation, but it is not any more complex and may be simpler to use than the current system.

Bill 13 was amended in standing committee to renumber two French sections of the bill. As well, clause 4 of the bill was amended by striking out "on the last day of taxation" in that portion of the English version of the proposed subsection 2.3(4), preceding paragraph (a) and by substituting "on the last day of the taxation year."

Mr. Chairman, following the committee's review, a motion was carried to report Bill 13, An Act to Amend the Income Tax Act, No. 2, to the Assembly as ready for committee of the whole as amended and reprinted. Additional comments or questions of the Members may be posed as we proceed. Thank you, Mr. Chairman.

Thank you, Mr. Dent. At this time, I would like to ask the Minister if he will be bringing in any witnesses.

Yes I will, Mr. Chairman.

Does the committee agree?

Sergeant-at-Arms, can you escort the witnesses in? Mr. Minister, for the record, could you introduce your witnesses, please?

Thank you, Mr. Chairman. Mr. Chairman, with me are Ms. Margaret Melhorn, deputy minister of Finance; Mr. Pawan Chugh, mmmanager of tax policy, Department of Finance; and Ms. Diane Buckland, legislative counsel with the Department of Justice. Thank you.

Thank you, Mr. Minister. Welcome, witnesses. General comments. Are there any general comments on Bill 13? Clause by clause?

Mr. Braden.