Bill C-323 (Historical)

An Act to amend the Income Tax Act (rehabilitation of historic property)

This enactment amends the Income Tax Act to establish a tax credit for expenses related to the rehabilitation of a historic property. It also establishes a tax deduction for the capital cost of property used in the course of such a rehabilitation.

[Wayne Stetski, NDP, Kootenay—Columbia, BC]

In your view, Bill C-323 primarily helps larger commercial heritage properties.

[Leonard Farber]

There's nothing in Bill C-323 that would affect home ownership, because these are tax measures, and tax credits in particular, as well as accelerated capital cost allowance, which is only relevant for people who are earning income from property or using that property in their business. Home ownership, which is a non-income tax event, the disposition of which gives rise to the principal residence exemption, is not impacted by that.

In my view, the only way one can stimulate the kinds of results that this bill is looking for in the commercial area is through a grant mechanism, either provincial or federal, whereby similar criteria for heritage quality is used as the basis for stimulating those renovations when home ownership is involved. The tax system can't do that.

[Wayne Stetski, NDP, Kootenay—Columbia, BC]

Thank you.

In my riding of Kootenay—Columbia, which is located in southeastern B.C., we have a few commercial heritage properties, but by far what we have are homeowners who wanted to live in a heritage home and want to try to maintain that heritage value. It's very much a personal home ownership situation. These are basically middle-class people making middle-class incomes, but they have an appreciation for and want to maintain heritage.

Given your experience with taxes, what do you think is the best way to make sure they can continue to benefit from living in a heritage home but keep up its heritage values? Does Bill C-323 move us in the right direction, and if not, how can it be improved?

Let's go back to the first question, home ownership.

[Govindadeva Bernier]

Thank you very much for your invitation.

As you know, on December 1, 2016, Peter Van Loan introduced a private member’s bill, Bill C-323.

This bill would amend the Income Tax Act to create a 20% tax credit for expenses related to rehabilitating a historic property, and to create a tax deduction for the capital cost of property used in the course of such rehabilitation.

The Office of the Parliamentary Budget Officer based its analysis on data obtained from the Canadian Register of Historic Places pertaining to the number of eligible historic properties, and from Statistics Canada data on the average cost of home repairs and renovation.

We estimated that the annual cost of the credit will range from approximately $55 million to $67 million in the first five years, if the average cost of rehabilitation and the take-up rate of the credit are similar to projects that have been undertaken in the United States, where they have somewhat similar credit, but only for income-producing properties.

As Summary Table 1 shows, large-scale projects, which primarily involve commercial and industrial buildings that are somewhat similar to those eligible for the U.S. tax credit, are the major cost driver of the credit. Although there are fewer large-scale projects, they cost a lot more because their costs are substantially higher than smaller projects. This will have a more significant impact on the total cost of the credit.

While there are also costs associated with implementing the tax deduction for the capital cost of property used in the course of rehabilitation, PBO has deemed that these costs are not fiscally material. If you consult appendix D, in particular table D.2, you'll notice that these costs are below $10 million per year.

As a little note on that, there are two tables in appendix D, tables D.1 and D.2, because at first when we did the costing analysis, the way the bill was written, it was unclear whether the capital cost allowance would be on top of the credit or if the individual had to choose between one or the other. The first table applies if you have to choose between one or the other, while table D.2 applies if the CCA is on top of the credit. Mr. Van Loan's testimony last week made it clear that his intention was that the capital cost allowance would be on top of the credit for the 80% of costs remaining that are not covered by the 20% credit.

That's the end of our presentation.

We are ready to answer any questions you may have.

[Jean-Denis Fréchette, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Madam Chair, Mr. Vice-Chair and members of the committee, thank you for inviting us to appear before you today.

It is the first time that a PBO team has been invited to appear before your committee. As per our legislative mandate, it is our role to support you in your parliamentary debate, and we always appreciate the opportunity to exchange directly with parliamentarians.

We hope that our costing analysis of Bill C-323 will be useful in your future discussion and for your report back to Parliament.

With your authorization, Madam Chair, I would like to ask my colleague Govindadeva—see, I have the same problem.

[The Chair (Mrs. Deborah Schulte (King—Vaughan, Lib.)), Liberal, Deb Schulte]

I call the meeting to order.

We are continuing with our evaluation of Bill C-323, an act to amend the Income Tax Act (rehabilitation of historic property).

I'd like to welcome some guests here today to give us some advice. From the PBO's office, we have Jean-Denis Fréchette, the parliamentary budget officer. Thank you very much for being with us.

We have Mark Mahabir. Thank you very much. You're the director of policy costing and general counsel.

We have Govindadeva Bernier. Thank you for being patient with my pronunciation.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Thank you, dear colleague.

I listened to your comments this morning and I must say it is unfortunate that you are not open to finding solutions. We all know there is a problem with the preservation of historic monuments in Canada. Through Bill C-323, my colleague is seeking to make certain provisions for preservation.

We understand that a bill is never perfect and that it will evolve. Our witnesses, particularly from the Department of Finance, raise some big question marks and seem to be closed, which I find disappointing.

You are here as managers, while we are parliamentarians and MPs. Since we wear different hats, I can understand that you have some reservations.

Mr. LeBlanc, I have some questions for you.

You stated in your presentation that one of the benefits of direct funding programs as compared to tax incentives is that they can give the government greater flexibility. They are not mutually exclusive, however. Why are you closed and why do you say that the proposed tax credit is not acceptable and is not the solution? I think it is a possible solution. We know it is not perfect, but that does not mean it should be ruled out.

[John Aldag, Liberal, Cloverdale—Langley City, BC]

You've had a chance to have a look at Bill C-323. In your comments you note that there are shortcomings in its design.

I have a very simple question. Can we fix the shortcomings in our clause-by-clause consideration through amendment or do we need to scrap it and start over?

[Joëlle Montminy, Vice-President, Indigenous Affairs and Cultural Heritage Directorate, Parks Canada Agency]

Yes, thank you very much.

Madam Chair, members of the committee, thank you for this opportunity to discuss Parks Canada's perspective on Bill C-323.

Bill C-323 would create a tax credit for the rehabilitation of historic properties. While its objective is worthwhile, there are shortcomings in its design that may impede its effectiveness with respect to heritage conservation.

Financial incentives can be a useful way to promote the conservation of heritage places. To be most effective, however, they must be carefully designed and properly integrated into a comprehensive and collaborative approach, supported by other Canadian jurisdictions.

In Canada, protection of heritage property not owned by the federal government falls within the purview of provinces and territories. As a result, a range of legislation and incentives exists across the country to protect our heritage places. These efforts are supported by hundreds of community groups who work directly in the conservation and preservation of heritage assets. It is a fact that heritage places are at risk and that their loss would be irreversible.

Through the Parks Canada Agency, Canada protects heritage places of national significance. The agency also works closely with numerous partners to conserve and present our heritage. As the federal lead for heritage conservation, Parks Canada also provides communities across the country with financial support for heritage conservation. I know that we provided information for your previous study in a broader context of heritage conservation.

This is not to say that Canada could not benefit from additional financial incentives; however, the bill makes specific references to accountability tools under Parks Canada’s responsibility without full consideration of some of the implications of these references. For example, the bill relies on Parks Canada’s various accountability tools for heritage conservation. While these tools appear suitable, there are challenges with each of them.

The bill sets out what historic properties would be eligible, including those commemorated under section 3 of the Historic Sites and Monuments Act, as well as properties listed on the Canadian Register of Historic Places. The Canadian register is the only pan-Canadian listing of historic places recognized at the municipal, provincial, territorial, and national levels. As such, it is widely used as a reference in the field of conservation. Unfortunately, the Canadian register is not yet a complete source of information for verifying eligibility as it is only 60% complete.

The bill also specifies that the standards and guidelines adopted and applied by Parks Canada must be followed in undertaking an eligible rehabilitation project. It requires an architect to certify that the work undertaken meets these standards. The “Standards and Guidelines for the Conservation of Historic Places in Canada”, while widely used, offers guidance only and does not set official requirements like a building code. This is why the certification process proposed in the bill raises concerns with the credentials and expertise of certifiers and their objectivity as well as with the timing of certification.

Parks Canada is of the view that the certification function needs to be defined in a comprehensive manner to ensure the consistency of the interpretation and application of the standards and guidelines. What is proposed in the bill is not equivalent to Parks Canada’s certification process, a comprehensive and internal practice that has proven successful in the past.

To conclude, financial incentives are widely recognized as a useful way to promote the conservation of heritage places; however, such incentives must be carefully designed in collaboration with other jurisdictions and partners to ensure their effectiveness. In addition, these incentives must include solid accountability tools.

Thank you.

I will be pleased to answer your questions.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

In that case, use it.

In the meantime, I have to remind my colleague, unfortunately, that we will not be indulging in petty politics on this. I could ask him what has been done in the past 20 years. We could actually go more than 10 years back and look at the past 20 years. That is not the objective of our meeting today though. I think we get along well in this committee and manage to avoid partisanship. We cannot change the past, but we can take action for the future.

You are here to help us, Mr. Van Loan, and the bill is interesting. For my part, I think the concept is good.

I would like to go back to the 20% that you suggest in Bill C-323. Earlier, you mentioned that construction projects that use built heritage are more, what should I say, not profitable, since that is probably not the right term to use, but rather more attractive in terms of commercial development than new construction is.

You know that developers always look at the cost of a project and the return on investment. My question is simple: is the 20% credit enough of a deal maker to entice developers or citizens to develop their project and move forward? In other words, is that 20% credit enough to generate interest?

[Peter Van Loan, Conservative, York—Simcoe, ON]

Thank you very, very much.

Thank you for the work you've already done studying the issue of heritage in Canada, and now today studying this bill.

I also want to start by thanking in particular John Aldag for the fact that we are here discussing this at all. It has, in my view, as much, if not more, to do with him than with me. That, I think, says something about this bill.

I should say a bit about why I chose this as the subject for my bill.

I'm a former House leader. I have no illusions about my ability to count. I knew if I wanted to have something that was going to have any prospects of success, I would have to select a subject matter that was worthy, that was non-partisan in nature, that could do positive things for the country, and that, as a result, could earn support from all sides. This bill is exactly such a bill, and it addresses what I think has been an outstanding policy need in our country for some time. In fact, this bill builds on work that was done previously under both Conservative and Liberal governments but that has never been brought to a satisfactory conclusion. You, as a committee, have an opportunity to complete that work and to fill a very important policy void, at least in part, obviously not in its entirety, that calls out for federal involvement, as I think you heard from many witnesses.

The purpose of Bill C-323 functionally is to establish a tax credit for 20% of the cost of the restoration of heritage buildings. The rest of the cost, the remaining 80%, would then also be able to benefit from an accelerated capital cost allowance, for a three-year writeoff, whereas a normal project of that type might take a little longer to write off under the tax rules.

The tax credit and the accelerated capital cost allowance would apply only to properties that are on the Canadian Register of Historic Places, so in that sense their impact is limited and their scope is limited. As well, the work that was done, the costs for which the benefit of the credit is being sought, would have to be certified by a professional engineer as having followed the “Standards and Guidelines for the Conservation of Historic Places in Canada”, which have been prepared by Parks Canada. It should be noted that both the Canadian Register of Historic Places and the “Standards and Guidelines for Conservation of Historic Places” were developed within the Department of the Environment in anticipation of exactly a tax credit policy such as this, and they are there to support it. So we're in the fortunate position of being able to bring forward legislation for which that infrastructure has already been built in the department with legislation like this in mind.

Why does it matter that we preserve heritage buildings? When we think about the places we like to visit, the places that attract people from around the world, we think of places like London, Rome, St. Petersburg, and Paris. People want to go there because they will be surrounded by beautiful heritage buildings. Those buildings help to define those places. They tell us who we are. They tell our stories. And it's no different here in Canada. In Canada the places we find enjoyable to visit, the places where people want to gather and want to go are overwhelmingly the places with well-maintained and preserved heritage areas. Think of the Distillery District in Toronto or the Old Port in Montreal. Think of quaint small towns, whose main streets you like to visit and shop in. There's a reason for that, which is that those places tell our stories. We feel when we are there that we are absorbing what's gone before us, what has made us what we are, and what a place is all about, in a very physical way.

I think that's one reason it's important. But why take the step forward in terms of a tax credit to help preserve these buildings? The reality is, as anybody who has been involved in owning a heritage building or in a business that's in one knows, that while there's a strong public interest in preserving such buildings and seeing the restoration, there is an extraordinary cost. The cost of preserving a heritage building is usually well in excess of the cost of demolition and new construction of something equivalent. We've lost 20% of our national heritage over recent decades, according to evidence you've heard, because sensible people in business, who look at the cost of restoration and look at the cost of new construction will usually opt for new construction because it is financially advantageous.

When we ask individuals to restore and preserve a heritage building because it's good for society, it's good for the community, we are asking them to assume privately the cost of maintaining what is a public benefit for the entire community. The policy rationale is if we're asking them to bear that public burden privately, it is incumbent upon us to assist them somewhat, in fairness, if we actually want to see those historic buildings preserved. When a heritage designation falls on a property, that is one of the consequences. We put barriers in front of what they can do with it, and so on. Our laws fundamentally respect property rights. Those are not permanent barriers ultimately.

There's always the option of demolition. There's a real cost there. We don't want to see that demolition occur. We want to see the buildings maintained, restored, and become vital parts of the community. That's why the policy rationale for this bill is solid. If we accept that heritage buildings are a value, is this the right approach, correct approach, or positive approach to preserving them?

This tax credit is very much modelled on a U.S. program that you did hear evidence about, the heritage restoration tax credit. That program has been highly successful over recent decades. It's a rare program that actually returns more to the public purse than it takes away from the public purse. There have been abundant studies to that effect. You heard about the Rutgers study that regularly looks at it on an annual basis, and calculates that for every dollar impact on the public purse in terms of a credit going out, $1.25 or more gets returned to the public purse every year in the United States.

I'm often skeptical of these kinds of arguments because anybody who has been.... I think of Mark here. As a mayor he probably had all kinds of economic input. The basic rationale tends to be that if you just spent all the money there was in the world, we'd all be millionaires, because that's the kind of economic impacts these people put in front of you. This is actually a different kind of case. These have been so clearly studied and the results are so apparent.

I look at the Urban Land Institute which operates here in Canada as well as in the United States, and also around the world. It puts out a quarterly magazine. I was looking through it about six months ago, as we were working on this bill, for totally separate reasons just because of my interest in these things. What struck me was that it was an edition where it focused on all the top projects in North America. Virtually every single one in the United States that was a success story had taken a derelict downtown area and made it into a vibrant hub of commercial, economic, retail, and entertainment activity where people wanted to go. Almost every single one involved heritage restoration and a heritage restoration tax credit.

These have all been showcased as the best projects in the country. The fact that the restoration tax credit was present in virtually every one of them spoke volumes to me in a country like the United States where there's no real kind of planning push against suburbanization like we have here. I saw in that the very real economic impact that was occurring.

In the U.S., about $1 billion a year is spent on these credits, or at least those are the benefits that go out in the credits. They tend to generate about $5 billion a year in economic activity, and about $1.25 billion a year goes back to the public purse. They're netting out in a positive result to the public purse. That's very significant, and the evidence is there, as I said, from the Rutgers study and elsewhere.

In Canada, we've had a little bit of an example. We had a trial program which was a grant-based program, but Deloitte did some work reviewing its success in looking forward to a tax credit program. By its projections, we would have a similar kind of return here based on the evidence in front of you from witnesses between $1.25 to $1.90 for each dollar that would be a credit impact. You would have that much going back to the public purse. There would actually be a net gain.

It's not the only place where that's happened. I use the analogy, and some people have said this is a boutique tax credit. In fact, I put more on the grounds of something like the science, research and experimental development tax credit, a tax credit that we engage in the society, because we want to encourage certain economic activity that's desirable to make our economy and our country a better place. In Canada, that's about $4 billion a year, I believe. About 85% of our research and development spending goes out through that credit. It's done by the government, because we believe it is a worthy way of encouraging desirable economic activity that makes our country stronger and creates economic growth. If you're talking about analogies, that is the strongest analogy to that kind of a tax credit, the SR and ED credit compared with what we are talking about here.

I want to draw your attention to an amendment that needs to be made here. It is only in the French-language version, at line 11, on page 3. Right now, the way it reads, the way it was originally drafted, basically the effect is that the capital cost allowance would be applied against income tax payable, rather than deducted from your income from which tax payable would be calculated, so you'd be getting two credits instead of an accelerated capital cost allowance. We need to correct that, so we're asking

that Bill C-323, in clause 1, be amended by replacing, in the French version, line 11 on page 3, with the following:

déductible dans le calcul du revenu d'un contri-

The way it would be calculated, the capital cost allowance goes against the revenue that's going to be taxed.

I'm happy to take as many questions as you have.

[The Chair (Mrs. Deborah Schulte (King—Vaughan, Lib.)), Liberal, Deb Schulte]

Good morning, everyone. Welcome.

Pursuant to the order of reference of Thursday, March 23, the committee commences consideration of Bill C-323, an act to amend the Income Tax Act (rehabilitation of historic property). As the summary says, this enactment would amend the Income Tax Act to establish a tax credit for expenses related to the rehabilitation of historic property. It also establishes a tax deduction for the capital cost of property used in the course of such a rehabilitation.

I would like to welcome Honourable Peter Van Loan to the table. If you're good to go, we'll open the floor to you.

[Wayne Stetski, NDP, Kootenay—Columbia, BC]

Just to clarify, Bill C-323 just talks about heritage properties, so I guess at some point we'll get into a discussion about private residences versus commercial, if we go there.

Mr. Archambault, I'll ask you the same question. What is the number one thing that we could recommend to help heritage in Canada from your perspective?

[Wayne Stetski, NDP, Kootenay—Columbia, BC]

Thank you, Madam Chair.

I have three questions for you, Mr. Eisenberg, if I can. We're looking at Bill C-323, which is looking at providing tax credits for private residences to encourage preservation of heritage. Tax credits always cost the government money. One of the things I've been thinking about is whether we should potentially cap the amount an individual can claim for a tax credit. It could be $50,000, it could be $100,000, or perhaps you could have it linked to income testing. I'm curious as to whether a person who is a millionaire and who owns a million-dollar heritage home actually needs a tax credit.

I'm interested in your view on, first, that concept of tax credits, and second, who it should apply to.

[Jacques Archambault]

I am sorry, my presentation really was very short.

The first point is about Bill C-323, which proposes tax incentives for private owners. Measures like that would encourage and help a lot of people. The measures should be widely available to all private owners of heritage properties, such as houses, mills, lighthouses or industrial buildings.

Ten or so years ago, a federal government program provided assistance for renovating houses. I was able to take advantage of it and it helped me a lot. If a similar program could be established for heritage houses, that often cost two to four times more than a normal house, it would be a great help.

If they do a quick calculation on the return on investment, real estate developers have little incentive to preserve a heritage house. We have even seen a number of cases in Quebec where they have deliberately been made to disappear. If they could have financial or tax incentives, real estate developers would realize, when they did the math, that it may be advantageous to incorporate a heritage building into their real estate projects or to preserve it.

The idea of historic or heritage property has to be broadened beyond the list in the Canadian Register of Historic Places. The list is very helpful, but it is not complete because it does not include certain buildings.

The department could become a leader in supporting heritage by working together with the various levels of government to establish things like tax incentives. Heritage Montreal, with the appropriate ministry in Quebec, has been working for 10 years to create tax incentives along the lines of the examples in the United States. The National Trust for Canada has also been working on it for a long time.

So other departments must be encouraged to safeguard heritage, but also municipalities, which derive tax revenue from new projects. Clearly, a heritage building brings a municipality much less in taxes than 100 condos in a single building. So all levels of government must support those who are working to safeguard our heritage.

This year, Parks Canada's national cost-sharing program for heritage places has been given $10 million. We have gone from nothing to $1 million and now to $10 million. That is a help, but, one day, we are going to have to stabilize that funding because a lot of people involved with heritage buildings in Canada need support.

Organizations that raise funds also have to be supported. In Canada, fundraising initiatives to preserve natural sites, and other places, have matching gift programs. Natural sites are our natural heritage. If there were similar programs for cultural heritage, it would help organizations like ours that have to raise funds to pay for restoration projects costing hundreds of thousands of dollars, even a million.

The gifts we receive are $30 and $35 at a time. A quick calculation makes you realize that we need a lot of $30 and $35 gifts to raise hundreds of thousands of dollars. It means contacting a lot of people.

In Canada, organizations are putting a lot of effort into conserving heritage buildings, but they are not being recognized. Even in Quebec's Cultural Heritage Act, those organizations are not mentioned. However, a number of organizations like ours are working to conserve heritage buildings and support other owners in their conservation efforts.

In broad terms, those are the points I wanted to bring up. I hope I have given you enough detail.