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.

On the agenda

MPs speaking

Also speaking

Govindadeva Bernier  Financial Analyst, Office of the Parliamentary Budget Officer
Jean-Denis Fréchette  Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Mark Mahabir  Director of Policy and General Counsel, Office of the Parliamentary Budget Officer
Leonard Farber  Senior Advisor, Norton Rose Fulbright Canada, As an Individual

8:45 a.m.

Liberal

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.

8:45 a.m.

Govindadeva Bernier Financial Analyst, Office of the Parliamentary Budget Officer

No problem.

8:45 a.m.

Liberal

The Chair Liberal Deb Schulte

He's a financial analyst with the PBO office.

We're going to turn the floor over to you, and then we'll have questions following your witness statements.

Thank you.

8:45 a.m.

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.

8:45 a.m.

Liberal

The Chair Liberal Deb Schulte

I'm not surprised.

8:45 a.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Jean-Denis Fréchette

That's why we call him Govinda. It's easier. This is your....

8:45 a.m.

Liberal

The Chair Liberal Deb Schulte

It's my cue. Thank you.

8:45 a.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Jean-Denis Fréchette

That's right. Govinda will walk the committee through the main findings of our report.

Thank you, Madam Chair.

October 24th, 2017 / 8:45 a.m.

Financial Analyst, Office of the Parliamentary Budget Officer

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.

8:50 a.m.

Liberal

The Chair Liberal Deb Schulte

We will start with Mr. Aldag.

8:50 a.m.

Liberal

John Aldag Liberal Cloverdale—Langley City, BC

Thank you, and good morning.

The report was a very interesting read. I had a chance to review it again on the flight from Vancouver.

When I look at the numbers of $55 million to $67 million, I'm wondering if you looked at the cost as the bill was laid out. I suppose it would be beyond the scope of your duties to run any other analysis.

Where I'm going with this is that one of the notes you made on page 6 of the report is that in the States, their tax credit is available only to commercial and industrial buildings or residential buildings for leasing, so I'm wondering if there was any sort of analysis done on what it would look like in Canada if we were to use a bit of a tighter box than Mr. Van Loan has done and if an analysis would show that it would bring the cost down significantly or if that would be a negligible cost.

Did you have that kind of look, or did you just look at everything on the heritage register and the assumptions that you applied?

8:50 a.m.

Financial Analyst, Office of the Parliamentary Budget Officer

Govindadeva Bernier

We looked at everything on the register, but if you look at the summary table, you can see that we split the projects into two types, small scale and large scale. We assumed small-scale projects would be mostly for owner-occupied principal residences, while the large-scale projects would be mostly commercial and industrial buildings or large housing projects, which are the types of properties you would expect to be income-producing properties, the types of properties that would be eligible for the U.S. version of the credit.

If you want to limit the scope of the bill to these types of properties, then you could assume that cost of credit for large projects, which is the line before last, which is just a few million dollars lower, would be the approximate cost of the bill. The small projects, basically the owner-occupied houses, don't have a very significant impact on the total cost of the credit.

8:55 a.m.

Liberal

John Aldag Liberal Cloverdale—Langley City, BC

Would it be within the scope of the Parliamentary Budget Office to provide any commentary on value for this kind of initiative?

I think the dilemma that we have is knowing what the best investment is for the government to go with, a grants and contributions program or a tax incentive program. Was that part of the analysis that you looked at, or did you stay with just what was put out in the bill itself? That really is the dilemma that we have: finding the most effective way to support heritage in Canada.

8:55 a.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Jean-Denis Fréchette

You're not the only one who has the dilemma. My answer is that we never make recommendations. We don't have commentary and so on, and we are really careful about that. We provide evidence and impartial, non-partisan analysis to all the members, and it's really up to the members to have the parliamentary debate. That's why I mentioned in my opening remarks that it's up to you now to come up with that.

I have one comment, and I don't want to take up too much of your time. This was a fishing expedition, really, because first we had to clear the list of all these projects because it wasn't clear what was there. We gave the example in the report of Ontario, because a project can be identified by a province or by a municipality, and then it will end up on the list of the federal government.

It was difficult. We had to clean up the list, number one. Number two, there was not much to go on, except for the U.S. experience, which is a little bit different, as Govinda mentioned, because it's for buildings that have revenue. In this case, it's not that. The parameters were a little bit different.

It was a really interesting project, but very difficult because of the lack of information. There was a lack of precise, accurate information.

8:55 a.m.

Liberal

John Aldag Liberal Cloverdale—Langley City, BC

Thank you.

In the analysis, there really seem to be two parts. One is the capital gains, and then there's the second piece, the.... There are two parts to it, as I understand, right?

8:55 a.m.

Conservative

Ed Fast Conservative Abbotsford, BC

Do you mean the accelerated capital cost allowance?

8:55 a.m.

Liberal

John Aldag Liberal Cloverdale—Langley City, BC

Yes, it's the capital cost allowance.

Again, from your perspective, are those two tied, or would there be a way of going forward by separating those out and maybe not moving on the capital cost allowance piece?

We don't have Mr. Van Loan here today to talk about why he went with both. From your perspective, though, could it be an either/or, or do they need to go together as a package?

8:55 a.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Jean-Denis Fréchette

No, we presented both. As we said, our understanding was that the CCA was not on top of the credit. After that, we realized it was, so we added appendix D. It's only a $10 million difference per year over the period if you had the CCA. It's really up to this committee to decide whether it's for it or not.

8:55 a.m.

Liberal

The Chair Liberal Deb Schulte

You mention that it's only $10 million, but $10 million is the amount we have today to help with heritage.

8:55 a.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Jean-Denis Fréchette

Exactly. You are correct. I always talk about the total federal budget, so it's in that context.

8:55 a.m.

Liberal

The Chair Liberal Deb Schulte

Fair enough.

8:55 a.m.

Liberal

John Aldag Liberal Cloverdale—Langley City, BC

Where am I at with time?

8:55 a.m.

Liberal

The Chair Liberal Deb Schulte

You have one minute.

8:55 a.m.

Liberal

John Aldag Liberal Cloverdale—Langley City, BC

On page 7 in the analysis, you also talk about how you had grossed up the previous amount by a factor of 67%. That certainly caught my eye. It seemed to be a very large premium for heritage.

Would you be able to provide just a bit of commentary on that? I was surprised you assigned that kind of premium.

8:55 a.m.

Financial Analyst, Office of the Parliamentary Budget Officer

Govindadeva Bernier

As Jean-Denis mentioned earlier, there's not much information on this type of expense, so the best we had was a study in 2002 carried out by the State of Michigan. The study concluded that on new construction projects, 50% of the cost was materials and 50% was labour, as opposed to historic rehabilitation, where the labour part could go up to 70% of the total cost, while the materials stay at 30%.

We simply took the average cost based on the survey of household spending done by Statistics Canada, and we took half of the total amount that was spent and said that was for materials. Suppose that amount represents only 30%, rather than 50%, what would be the remaining 70%? That's how we came up with the factor of 67%.

It may seem a bit high, which is why in appendix B we provide multiple different scenarios. Obviously the cost of the credit is going to change relative to the different assumptions we make, so in appendices B and C, we present different hypotheses to show what the range of the credit could be if the cost changed.