Thank you very much.
I appreciate the opportunity to come and share some of my background with you. I'm currently a consulting tax economist, with funny letters that come from a variety of places. I've undertaken work for a number of organizations in Canada and have had international assignments. One of those organizations was the National Trust for Canada. Today, however, I'm speaking as an individual. Most of my federal public service career was with the tax policy branch in the Department of Finance. From 1995 to 2003 I was the director of the business income tax division within the department, responsible for all the business-related tax measures. From 2004 until 2009 I was the director responsible for the annual tax expenditure account. That's the account that examines each of the tax expenditures we have in our tax system. I was also the person responsible for our tax relationships with the various provincial and territorial governments.
I thought it would be useful, then, to provide a bit of background and perspective for this committee as you look at heritage preservation. One of those aspects, as I think you'll come to as part of your committee, will be looking at various incentives to encourage heritage restoration and rehabilitation. I think it's really important to take a bit of a broader approach, to think about things in a bit of a more holistic way. That's certainly how we looked at things in the department. There are various aspects in terms of the challenge of encouraging it, and it's important to identify what those challenges are. It's important to identify what those problems are before jumping too quickly to any particular approach that might solve a particular problem or scratch a particular itch.
It's also important to look at a variety of different levers and different aspects of what the government can do, and to frame the importance of heritage preservation in today's society. One of the aspects that I think is important to set out is that heritage buildings provide a real benefit to society. When we see buildings, we see a living history. The benefit to society is really over and above any benefit to the private owners of the buildings. In some sense, the overall social benefit, the benefit to society plus benefit to private owners, is more than just for the people who own the buildings. I think that's one of the challenges when those factors aren't taken into account, when that benefit to society isn't taken into account, because we'll then see less heritage preservation.
In other words, this is an area where government has a role to play, and it's important for government to see that benefit and somehow identify some of the issues relating to that. In some ways, this is similar to how we think about research and development. One of the reasons we support research and development is that any particular firm can't capture all the benefits of research. It's a broader benefit to society.
In terms of the instruments available, there's a variety of them. We're talking a little bit about regulations. There are historic registers. There are rules about what we can or cannot do with heritage buildings. There are also financial incentives, which I think you'll be coming to. I understand that people from a variety of different places will be coming here in the future. I've worked with Chris Wiebe at the National Trust. I think he may be coming to talk to you.
In terms of a framework, one of the approaches is to provide some kind of grant or incentive for building owners to encourage them to carry out preservation activities. One of the issues with grants is that you can apply that to a variety of different owners. It could be commercial, it could be non-profits, it could be municipalities. We have one example from the 2001 to 2007 era, which was the commercial heritage properties incentive fund. It provided funding to a variety of different programs. The grant programs can also be structured as cost-sharing or having a matching element to encourage provinces or municipalities. You can also match funds.
You have a variety of flexibilities in terms of how you would design a grant program. However, grant programs can be criticized because there's only a fixed amount of funds and that involves some bureaucratic discretion in terms of how that would be.
If one turns to tax incentives, there one of the key elements is exactly what kinds of costs are going to be identified as available for a tax incentive. We have a self-assessment system, and we have to carefully define those costs. They can easily balloon if they're not done properly. Therefore, that's of concern.
There are different types of incentives. For example, there's an investment tax credit where you essentially pay for part of the cost. For example, if you have $100 cost and the credit is 20%, then, obviously, you only have to pay $80 and someone else is paying the $20.
There are also measures that will accelerate the depreciation that a company can take. What this means is that instead of having a depreciation over a whole number of years, you can do that in a shorter period of time. That's, obviously, to an advantage.
One of the key issues with tax incentives, though, is that they only benefit those companies that actually have tax to pay. If you're not in that situation, or if you're a non-profit organization, or if you're some other owner of a building that doesn't fall into that particular category, then any particular tax incentive is not going to benefit.
There are some situations where you can make tax incentives refundable, which means that you're going to pay out an amount. Just like we have refundable tax credits in our personal system, you can pay out an amount to an owner. But then a refundable tax credit is very similar to a grant, there's no real difference, it's not really using the tax system other than as a delivery mechanism for a cheque. Again, you have issues about eligibility and in terms of identifying....
Another consideration you want to think about with tax incentives is provinces: do they have a role and are you encouraging them to participate? When you use a tax credit, some of that credit actually flows through the provinces in terms of increasing the provincial tax. If you look at the accelerated cost provisions, if you do anything on that front, then most provinces are forced to come along with that, because we have a series of agreements that say that the provinces follow the federal tax base.
In summary, I think it's important to look at exactly why this is important, what the issues around it are, as well as the how in terms of encouraging more heritage preservation. You can think about financial incentives coming in a variety of different forms—grants versus tax incentives. Both of them have a cost to the government; there's no real benefit going one way or the other, they all will affect the bottom line. On tax incentives, you have to consider the who. Is it just those corporations with tax that can use it, or otherwise do you want to broaden your scope? Consider the role for potential partners, whether that be provinces, municipalities, non-profit organizations, or foundations.
I look forward to your questions.