Evidence of meeting #79 for Environment and Sustainable Development in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was grant.
A recording is available from Parliament.
9:40 a.m.
Director of Policy and General Counsel, Office of the Parliamentary Budget Officer
Yes, but they would need funding for the expenses, of course.
9:40 a.m.
NDP
Wayne Stetski NDP Kootenay—Columbia, BC
Thank you.
Large-scale heritage projects are certainly important. In my riding of Kootenay—Columbia, though, when this bill first came forward, I was thinking of my heritage homeowners trying to make sure that they can retain the heritage characteristic of their private dwellings. The American example that we've used did not include those small homeowners.
In terms of your research, did you come across any reason that they didn't? Is there some other mechanism for individual homeowners in the United States to get some benefit from doing the right thing for heritage?
9:40 a.m.
Financial Analyst, Office of the Parliamentary Budget Officer
We didn't find any particular measure for homeowners in the United States, although there were multiple state and municipal initiatives that could be either grants or tax credits. We didn't do a complete review of what was available in the United States because that was outside the scope of this project.
9:40 a.m.
NDP
Wayne Stetski NDP Kootenay—Columbia, BC
In your research, did you come across any other potential benefits for heritage homeowners in Canada currently, in terms of being able to apply for funding?
9:40 a.m.
Financial Analyst, Office of the Parliamentary Budget Officer
Perhaps I could add to your previous question also.
The Americans might have limited it to income-producing properties possibly as a way of capping the costs, since there is a much higher stock of historic properties in the U.S. than in Canada. They have over a million recognized historic structures in the U.S. Here the number, as we mentioned, is somewhere between 20,000 and 60,000 historic structures. That could be a rationale for their decision to stick with income-producing properties.
As to Canada, again, there are probably multiple municipal or even provincial initiatives. We didn't have the time to do a complete search jurisdiction by jurisdiction of the incentives available, as it was somewhat outside the scope of this report. We were just trying to cost the measure per se.
9:40 a.m.
NDP
Wayne Stetski NDP Kootenay—Columbia, BC
Did you not come across any other federal initiatives to support individual heritage homeowners in your review?
9:40 a.m.
Financial Analyst, Office of the Parliamentary Budget Officer
The only other federal initiative that I'm aware of is the cost-sharing program that's managed by Parks Canada, but this one is targeted for not-for-profit organizations.
On the tax credit, obviously you need to have taxable income to claim it, which not-for-profit organizations usually don't. On the other side, the cost-sharing program is specifically targeting not-for-profit organizations.
9:45 a.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
When we did this report, I always asked myself this question: what is the profile of the homeowners of these kinds of heritage buildings who are using it for their dwelling and so on, as opposed to the commercial ones? I think it could be very interesting to have the kind of profile; we don't have it.
I can look in my own area, at the Kingsmere estate, for example. People certainly have higher incomes if they live in the Kingsmere estate. It is expensive to live there. We can expect that they probably have more fiscal room than other people who are just going back to rural areas and buying a heritage house. We have stories of people who cannot afford these houses, as you know, in your various ridings.
It would be interesting to see that. It would be interesting to have the profile of the people who can enjoy having the 20% credit, and not just because they don't have the fiscal room but also because they perhaps made a bad choice in buying a building that they knew would cost a lot of money.
9:45 a.m.
Liberal
The Chair Liberal Deb Schulte
We are at the end of our full round. We did say we would go until 10 o'clock. I am at the pleasure of the committee on whether we want to do one more quick round or whether we want to suspend and bring up our next guest.
9:45 a.m.
Liberal
9:45 a.m.
Liberal
The Chair Liberal Deb Schulte
Okay. Everybody is good with this.
Thank you very much. It was really nice to be able to drill in a bit on the report that you gave us. Thanks for coming in front of us and weathering our questions.
I'll suspend now for about five minutes and bring up our next guest. Thank you.
9:55 a.m.
Liberal
The Chair Liberal Deb Schulte
I want to get started with the second stage for today. I would like to welcome Leonard Farber to the table. Thank you very much for coming and joining us.
I understand that you are a senior adviser for Norton Rose Fulbright Canada. However, you have some past history with the PBO. You're going to share with us some information about yourself, and then we'll get into questioning.
Thank you, and welcome.
9:55 a.m.
Leonard Farber Senior Advisor, Norton Rose Fulbright Canada, As an Individual
Thank you, Madam Chair and members of the committee, for having me here this morning. It was a bit of a last-minute notice, but I'm delighted to be here.
9:55 a.m.
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
Yes, I am presently a senior adviser at Norton Rose Fulbright, which is a major international law firm. In my previous life, from the end of 2005 backwards, I was the general director for tax policy legislation in the Department of Finance. As such, I have a history of having worked with Professor Christina Cameron and others in developing the policy on heritage property. We were trying to deal with the fact that there were no real guidelines around how one can provide tax incentives for built heritage in Canada.
In my opinion, there has historically been a view that built heritage is a very important element of Canadian culture and that we should do something to preserve it. In that context, we worked closely together over the years to develop guidelines for this purpose, and those are now in place. Basically, we decided to have professional groups designate what a heritage property is. You cannot just provide criteria in the Income Tax Act to deal with heritage property, because heritage property is very different in various provinces across the country. In some provinces, a heritage property may be something in excess of a hundred years old, while in others a property well below a hundred years old could receive a heritage designation.
We developed the notion that there would be a provincial registry, as well as a national registry in Parks Canada, which I think is still very much involved in that registry.
I looked at the bill last night, and it's clear that through this private member's bill there's an intention to provide tax incentives to encourage the restoration of those heritage properties on the registry.
Income tax incentives, whether they are tax credits or whether they are through depreciation or capital cost allowance, are important incentives, but are only available to those with taxable incomes. If you're not generating a taxable income and therefore income taxes, no matter how generous the tax incentives are, they will not be of any use in the current year that you're doing whatever it is you're doing.
One of the first things I noticed about the bill was that no element of refundability of the tax credit was being proposed. I say that because without that element of refundability, it will not be generally available to all those who may be interested. I would suggest that this is very important. That element in the first instance could make funds available immediately to help support a budget. It could also enable whoever is developing a property to use those funds, along with all the other mechanisms listed in this bill, as an aid in the cost of renovating.
It is also likely to be something that's bankable. I would refer you to the credits for scientific research and experimental development, all of which are refundable.
They help in establishing a cash flow requirement to aid in having taxpayers do the kinds of things that these incentives are designed to achieve. I think that's one very important element.
Another thing that struck me about the bill is there's a delineation of the rehabilitation expenses that would be eligible for the credit. Given that this is the Standing Committee on Environment and Sustainable Development, I think it's important to point out that there's a golden opportunity to marry issues of rehabilitation of historic properties with environmental and clean energy and sustainable development that would be applicable to built heritage.
While you delineated the kinds of construction costs and other ancillary costs that would be relevant in having an architect who would be the professional who certifies the kind of expenses that would be important to know where these tax credits go, I would argue that it's also very important to deal with those kinds of issues that are important in built properties, existing properties, in making them energy efficient and relevant to the time frame we're in.
The examples that come to mind are things like windows that have high-quality energy efficiency, insulation, air conditioning equipment, roofing materials. There's a host of different things. The reason I raise that point is that on a one-off basis, those particular expenditure items might be regarded as deductible in the year incurred. The problem is there's no certainty to that, and developers and owners of these properties that are going to enter into analyses of the merits of doing something need certainty in knowing which expenses are going to be relevant to deductibility and which ones will only be capitalized into the cost of the property and only depreciated over time.
I would suggest that this is a very important issue. It's an issue on which I've had some experience in dealing with CRA in the last number of years. CRA has been developing a folio, which in my younger day we used to call an interpretation bulletin. These are bulletins they put out and revise from time to time to express their opinions about various items. This particular folio deals with what is a capital property and what is an expenditure.
While they've picked up examples like the windows that I was talking about earlier, the bulletin unfortunately ends with a caveat that every expenditure has to be looked at on its merits and judged accordingly. Therefore, there's no certainty.
I would argue that this may be an opportunity to deal with both certifying heritage properties for tax credits as well as ensuring that those properties, which would clearly be properties that would need to undergo those kinds of expenditures for energy efficiency, may very well be included in that mix.
That, Madam Chair, is my opening comment. I'm certainly prepared to take questions.
10:05 a.m.
Liberal
10:05 a.m.
Liberal
Mark Gerretsen Liberal Kingston and the Islands, ON
Thank you, Madam Chair.
Thank you, Mr. Farber, for being here today.
I understand you have a great deal of experience, having previously been with Finance Canada, and that you are definitely an expert when it comes to tax policy.
10:05 a.m.
Liberal
Mark Gerretsen Liberal Kingston and the Islands, ON
You weren't.
One of the things I'm really interested in understanding better is the behaviour of a grant versus a tax credit, and when that would translate into economic stimulus or into use by the organization or individual using it. Can you tell us about the difference in behaviour between the two? Does one, for example, provide more economic stimulus?
10:05 a.m.
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
Well, generally speaking, I would argue that at the end of the day, assuming taxability of the particular investor or developer involved, the dollar amounts could very well be the same. The question is about the quickness of delivery and the administration of the program. Clearly when you put criteria into the Income Tax Act, it's self-determining. Somebody would read the criteria, would assess whether or not he is eligible for it, and once he knew he was eligible, he would just go ahead and do it.
A grant program is an administrative program that's administered by a particular department—in the case at hand, likely Parks Canada—for which there would be criteria, for which there would be an appropriation, and for which somebody who was interested in availing themselves of a particular grant would put forward a proposal for eligibility, which would have to be analyzed and maybe have conditions attached to it.
10:05 a.m.
Liberal
Mark Gerretsen Liberal Kingston and the Islands, ON
Sometimes you have to spend money to do that, to put the proposal together.