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Bill C-3

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RECOMMENDATION

Her Excellency the Governor General recommends to the House of Commons the appropriation of public revenue under the circumstances, in the manner and for the purposes set out in a measure entitled ``An Act to amend the Canada Pension Plan and the Canada Pension Plan Investment Board Act''.

SUMMARY

This enactment amends the Canada Pension Plan and the Canada Pension Plan Investment Board Act to

    (a) permit all amounts held to the credit of the Canada Pension Plan Account to be transferred to the Canada Pension Plan Investment Board, by repealing the requirement to maintain in the Account a three-month operating balance;

    (b) establish a means by which the Investment Board may be required to transfer funds to the government, to the credit of the Canada Pension Plan Account, so that the immediate obligations of the Account can be met;

    (c) transfer to the Investment Board, over a three-year period, the right, title or interest in each security held by the Minister of Finance, and establish the conditions on which the securities may be redeemed or replaced;

    (d) provide that the foreign property limit in the Income Tax Act applies to the Investment Board and its subsidiaries on a consolidated basis and to provide that the Investment Board will be considered to hold the property of its subsidiaries for the purpose of applying the foreign property limit; and

    (e) make housekeeping amendments to the Investment Board's reporting requirements.

EXPLANATORY NOTES

Canada Pension Plan

Clause 1: Section 91 and the heading before it read as follows:

Interpretation

91. In this Part, ``Minister'' means the Minister of Human Resources Development.

Clause 2: Subsection 108(4) reads as follows:

(4) No payment shall be made out of the Consolidated Revenue Fund under this section in excess of the amount of the balance to the credit of the Canada Pension Plan Account.

Clause 3: New.

Clause 4: (1) and (2) Subsections 109(3) and (4) are new. Section 109 reads as follows:

109. (1) There is hereby established in the accounts of Canada an account to be known as the Canada Pension Plan Investment Fund.

(2) There shall be paid out of the Consolidated Revenue Fund and charged to the Canada Pension Plan Investment Fund the cost of all securities purchased by the Minister of Finance under section 110, and there shall be paid into the Consolidated Revenue Fund and credited to the Canada Pension Plan Investment Fund the proceeds of redemption in whole or in part of any securities purchased by him under that section.

Clause 5: (1) to (11) Section 110 reads as follows:

110. (1) In this section and sections 111 to 117,

``appropriate provincial Minister'', in respect of a province, means the province's minister of the Crown who has primary responsibility for that province's finances;

``Investment Board'' means the Canada Pension Plan Investment Board established by section 3 of the Canada Pension Plan Investment Board Act;

``operating balance'' means the amount of the balance to the credit of the Canada Pension Plan Account less the balance in the Canada Pension Plan Investment Fund;

``security'' means

      (a) an obligation

        (i) that was held to the credit of the Canada Pension Plan Investment Fund before the coming into force of the Canada Pension Plan Investment Board Act,

        (ii) that, as applied to Canada, is an obligation of the Government of Canada and, as applied to a province, is an obligation of the government of the province or an obligation of any agent of Her Majesty in right of the province that is guaranteed as to principal and interest by that government, and

        (iii) that complies with the conditions that were set out in section 111 as that section read before the coming into force of the Canada Pension Plan Investment Board Act, or

      (b) an obligation that

        (i) is purchased by the Minister of Finance under this section after the coming into force of the Canada Pension Plan Investment Board Act, and

        (ii) is an obligation of the government of a province or an obligation of any agent of Her Majesty in right of a province that is guaranteed as to principal and interest by that government.

(2) Interest shall be credited to the Canada Pension Plan Account on the last day of each month, calculated at such rate on the average daily operating balance in that Account for the preceding month as the Minister of Finance may fix.

(2.1) Where an amount referred to in paragraph 108(3)(a) is charged to the Canada Pension Plan Account pursuant to subsection (3), interest shall, notwithstanding that the amount has been so charged, be credited to the Canada Pension Plan Account, at the prescribed time and in the prescribed manner, in respect of that amount until the amount is effectively paid out of the Consolidated Revenue Fund.

(3) On the maturity of a security of a province held to the credit of the Canada Pension Plan Investment Fund that was issued before January 1, 1998, the Minister of Finance shall purchase another security issued by that province if

    (a) the Minister of Finance is requested to do so, in writing, by the appropriate provincial Minister of that province at least 30 days before the date of maturity; and

    (b) the operating balance in the Canada Pension Plan Account exceeds the amount that the Minister of Finance estimates will be required to meet all payments under subsection 108(3) in the month in which the security comes to maturity and in the two months immediately following that month.

(4) The principal amount of the replacement security shall be not more than the principal outstanding under the maturing security.

(5) The replacement security shall be for a term of 20 years.

(6) The replacement security shall bear interest at a rate fixed by the Minister of Finance. In fixing that rate, the Minister of Finance shall choose a rate that is substantially the same as the interest rate that the province would be required to pay if it were to borrow the same amount for the same term through the issuance of a security on the public capital market.

(6.1) The replacement security shall be issued to or payable to the credit of the Canada Pension Plan Investment Fund and shall be expressed to be not negotiable and not transferable or assignable.

(6.2) The replacement security shall be redeemable in whole or in part before maturity only at the option of the Minister of Finance where

    (a) the Minister of Finance considers the redemption necessary in order to meet any payments that will be required to be made under subsection 108(3);

    (b) the Minister of Finance gives notice in writing to the appropriate provincial Minister of the province at least six months before the date of the redemption; and

    (c) there are no securities of the province held to the credit of the Canada Pension Plan Investment Fund that have a shorter remaining term to maturity than that of the replacement security.

(6.3) Where one or more securities of a province held to the credit of the Canada Pension Plan Investment Fund is redeemed in whole or in part by the Minister of Finance at any time before the maturity of the securities, the amount redeemed under those securities shall not exceed the amount determined by the formula

A x B/C

where

A is the total amount to be realized at that time on the redemption of securities held to the credit of the Fund;

B is the total amount outstanding at that time under securities of the province held to the credit of the Fund; and

C is the total amount outstanding at that time under all securities held to the credit of the Fund.

(6.4) Despite subsections (6.2) and (6.3), the Minister of Finance shall redeem a security in whole or in part before maturity if

    (a) the Minister of Finance is requested to do so, in writing, by the appropriate provincial Minister of a province at least 30 days before the proposed redemption date; and

    (b) the appropriate provincial Minister has agreed to pay on the redemption date

      (i) any payments of principal or interest due on or before the redemption date but not yet paid,

      (ii) interest on the principal amount being redeemed accrued to the date of redemption, and

      (iii) an amount equal to the present value of the remaining instalments of principal being redeemed and interest on that principal.

(6.5) For the purposes of subparagraph (6.4)(b)(iii), the present value shall be calculated by discounting the instalments of principal being redeemed and interest on that principal using an interest rate fixed by the Minister of Finance. In fixing that rate, the Minister of Finance shall choose a rate that

    (a) if the security to be redeemed was issued before January 1, 1998, is substantially the same as the rate the Government of Canada would be required to pay if it were to borrow the principal amount being redeemed for a term equal to the remaining term of the security to be redeemed through the issuance of a security on the public capital market; or

    (b) if the security to be redeemed was issued after January 1, 1998, is substantially the same as the rate the province would be required to pay if it were to borrow the principal amount being redeemed for a term equal to the remaining term of the security to be redeemed through the issuance of a security on the public market.

(7) At the request of the provincial treasurer or other similar officer of a province, the Minister of Finance may accept in the place of any series of securities of that province purchased by the Minister under this section during any consecutive period of not more than twelve months, on payment of any interest then accrued thereon, another security of that province in an amount equal to the aggregate amount then outstanding of the securities of that series, and bearing interest at a rate determined by the Minister of Finance to be the average of the rates of interest on each of the securities of that series weighted according to the amounts then outstanding of each of those securities.

(8) Nothing in this section shall be construed as limiting or restricting the authority of the Minister of Finance, when he deems it advisable for the sound and efficient management of the Canada Pension Plan Account,

    (a) to purchase or acquire short term obligations of the Government of Canada not limited or restricted as to the negotiability or the transfer or assignment thereof, in an aggregate amount that, when added to the amount of all those obligations then held by him that were purchased or acquired as described in this subsection, does not exceed in any month the amount estimated by him to be required to meet all payments under subsection 108(3) in the immediately following period ending three months after that month, and to pay for those obligations out of the Consolidated Revenue Fund and charge the cost thereof to the Canada Pension Plan Account; or

    (b) to hold or sell any of those obligations and to pay any interest thereon or proceeds of sale thereof into the Consolidated Revenue Fund and credit the interest or proceeds to the Canada Pension Plan Account.

Clause 6: Section 111 reads as follows:

111. (1) Where, on the maturity of a security of a province held to the credit of the Canada Pension Plan Investment Fund that was issued before January 1, 1998, the Minister of Finance does not purchase another security under subsection 110(3), or uses only a portion of the principal amount of the matured security to purchase another security, the principal amount of the matured security, or the unused portion, as the case may be, shall be transferred to the Investment Board. The amount shall be paid out of the Consolidated Revenue Fund and charged to the Canada Pension Plan Account.

(2) Where in any month the operating balance in the Canada Pension Plan Account exceeds the amount that the Minister of Finance estimates will be required to meet all payments under subsection 108(3) in the immediately following period ending three months after the end of that month and to purchase securities under subsections 110(3) and 110(8) in that month, the amount of the excess in that month shall be transferred to the Investment Board. The amount shall be paid out of the Consolidated Revenue Fund and charged to the Canada Pension Plan Account.

Clause 7: Section 111.1 reads as follows:

111.1 The Minister of Finance may enter into an agreement with the Investment Board for the administration of the Canada Pension Plan Investment Fund by the Investment Board.

Clause 8: The relevant portion of subsection 112(1) reads as follows:

112. (1) The Minister shall, as soon as possible after the end of each fiscal year, prepare annual financial statements for the Canada Pension Plan in respect of that year setting out

    (a) a statement of the amounts credited to or charged to the Canada Pension Plan Account and the Canada Pension Plan Investment Fund during the year;

    (b) a statement consolidating the accounts of the Canada Pension Plan Account, the Canada Pension Plan Investment Fund and the Investment Board for the year; and

Clause 9: (1) The relevant portion of subsection 113(1) reads as follows:

113. (1) Where any regulation has been made under subsection 3(2) prescribing a province as a province described in paragraph (b) of the definition ``province providing a comprehensive pension plan'' in subsection 3(1),

    . . .

    (b) the Minister of Finance shall pay an amount calculated as provided in subsection (2) to the government of that province, by the transfer to that government in the first instance and to the extent necessary for that purpose, of securities of that province held to the credit of the Canada Pension Plan Investment Fund, and in the second instance and to the extent necessary for that purpose, of securities of Canada held to the credit of that Fund, and by the payment to that government of any balance then remaining in such manner as may be prescribed.

(2) New.

Clause 10: The relevant portion of subsection 114(4) reads as follows:

(4) Where any enactment of Parliament contains any provision that alters, or the effect of which is to alter, either directly or indirectly and either immediately or in the future,

    . . .

    (e) the management or operation of the Canada Pension Plan Account or the Canada Pension Plan Investment Fund, or

    . . .

it shall be deemed to be a term of that enactment, whether or not it is expressly stated in the enactment, that the provision shall come into force only on a day to be fixed by order of the Governor in Council, which order may not be made and shall not in any case have any force or effect unless the lieutenant governor in council of each of at least two thirds of the included provinces, having in the aggregate not less than two thirds of the population of all of the included provinces, has signified the consent of that province to the enactment.

Clause 11: New.

Canada Pension Plan Investment Board Act

Clause 12: (1) New.

Clause 13: Section 5 reads as follows:

5. The objects of the Board are

    (a) to manage any amounts that are transferred to it under section 111 of the Canada Pension Plan in the best interests of the contributors and beneficiaries under that Act; and

    (b) to invest its assets with a view to achieving a maximum rate of return, without undue risk of loss, having regard to the factors that may affect the funding of the Canada Pension Plan and the ability of the Canada Pension Plan to meet its financial obligations.

Clause 14: New.

Clause 15: Section 37 reads as follows:

37. The Board and its subsidiaries shall invest their assets in such a way that tax would not be payable by them under subsection 206(2) of the Income Tax Act if Part XI of that Act applied to them.

Clause 16: Section 50 reads as follows:

50. The Board shall send copies of the quarterly financial statements prepared in accordance with subsection 39(6) to the Minister and the appropriate provincial Ministers within 45 days after the end of the three month period to which it relates.

Clause 17: Subsection 51(1) reads as follows:

51. (1) The Board shall as soon as possible, but in any case within 90 days, after the end of each financial year provide the Minister and the appropriate provincial Ministers with an annual report on the operations of the Board in that year and the Board shall make copies of the report available to the public.

Clause 18: (1) Section 56 reads as follows:

56. The Minister may, on giving the Board 30 days notice in writing, require a transfer of an amount from the Board to the Canada Pension Plan Account established under subsection 108(1) of the Canada Pension Plan if the Minister considers that the transfer is necessary to meet any payment that is required to be made under subsection 108(3) of that Act.

(2) New.

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