Canadian House passes controversial budget bill

OTTAWA, June 12 (Reuters) - The House of Commons passed the Canadian government's budget implementation bill on Tuesday, supporting a measure that has been marked by rancor over Ottawa's treatment of provincial oil revenues.

The House approved the bill by a vote of 157 to 103, with the minority Conservative government winning the support of the separatist Bloc Quebecois. The bill now goes to the Senate, which is most likely to back it as well.

The premiers of Nova Scotia and Newfoundland have charged that the 2007-08 budget breaks federal promises to accord them special treatment for their offshore oil and gas resources when Ottawa decides the level of fiscal transfers to the provinces.

Prime Minister Stephen Harper countered that Ottawa had not broken any agreements, and both sides testily warned of possible legal action.

One Conservative member of Parliament from Nova Scotia broke ranks with his party last week and voted against an earlier version of the bill. That resulted in his expulsion from caucus, but no other Conservatives voted against the bill on Tuesday.

The budget bill also includes a tax on income trusts, which angered some investors when it was announced by Finance Minister Jim Flaherty on Oct. 31.

The Conservatives had promised not to tax income trusts but Flaherty said in October that government revenues were being eroded by a wave of big companies converting to the low-tax structure.

The tax applies right away to any new trusts but gives a four-year grace period for existing trusts.

The legislation introduces several other tax changes, including a half a percentage point cut in the corporate income tax rate as of 2011 and income-splitting for seniors, effective this year.

Flaherty expects Canada will post a budget surplus in 2007-08 for the 11th straight year.