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.
NDP
Wayne Stetski NDP Kootenay—Columbia, BC
If an owner paid $400,000 for a heritage home in Cranbrook, for example, and wanted to do some improvements while retaining the heritage value, what's the best way to encourage that?
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
The best way to encourage that is through a grant system. The same kinds of criteria that denote heritage quality in this bill would be used to deliver a grant.
I say that because a tax credit is not relevant for them, since there's no income from the property to be offset by a tax credit.
NDP
Wayne Stetski NDP Kootenay—Columbia, BC
In your view, Bill C-323 primarily helps larger commercial heritage properties.
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
Not necessarily larger, but it would help any heritage property that would incur the kind of rehabilitation expenses that you delineate here that is used for commercial purposes. Rental would be considered commercial as well. You can think of things in the restaurant business or residential rental, whether it's in Kingston or elsewhere, but it is that kind of milieu.
Wayne Stetski NDP Kootenay—Columbia, BC
Okay.
Just to be specific and to build on your experience from the past, you said three types of heritage property. I'm interested in what you think is the best way to encourage heritage preservation going forward for each of those three categories of heritage property. You said commercial, home ownership—which we've talked about a little bit here—and then non-profit. How do we best encourage heritage continuation and appreciation going forward, when you break it down to those three types of properties?
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
I think Bill C-323 certainly addresses any issues in the commercial context. For any buildings that are used for commercial purposes, rental purposes, or anything that generates a stream of income that is taxable, and against which one can claim investment tax credits or refundable investment tax credits, as well as depreciation or capital cost allowance, the bill is very helpful and workable in the commercial context.
For home ownership, I believe a grant mechanism to stimulate that kind of work is what would deliver the necessary results and a similar mechanism for non-profit organizations or charities that have heritage properties that would be important to renovate. We need a mechanism that gets them the capital that they would need in order to do the kind of work that this bill foresees, in terms of heritage property. That's the way to deliver that.
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
I beg your pardon?
NDP
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
It would be grants for those kinds of investments or for those kinds of entities that are not taxable.
Liberal
William Amos Liberal Pontiac, QC
Thank you, Mr. Farber, for the presentation. I share my colleague's pleasure at having an expert in taxation with us today.
I'd like to explore the issues around equity in the context of heritage conservation.
We've been through a process of evaluating tax credits across the board with our government, such as a public transit tax credit, supports tax credits, etc. The opposition wants to criticize our government for having dialed these back. My understanding is that the real issue with tax credits is that it's those who can most afford to use them who will use them. Therefore, the most socio-economically advantaged Canadians, and quite often those who were already going to do something, will be the ones who garner the most benefit. However, those who are least socio-economically endowed don't have that opportunity, cannot take advantage of the credits, and end up no further ahead than where they were at the beginning.
I don't want to bring you down any path other than just.... Can you please explore the equity considerations around a tax credit approach to heritage conservation?
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
The examples you point out are the kinds of tax credit mechanisms that governments over the years, on either side of the House, have put in place in order to benefit certain kinds of activities. There were tax credits for fitness, bus passes, mechanics' tools. It's as long as your arm. They come and go.
In my view, when I was in government, I can assure you these were not recommendations coming out of the department. These were political imperatives that were put forward and implemented into the Income Tax Act.
Oftentimes, once measures like that end up in the Income Tax Act, they're very difficult to get rid of. They complicate the system. There are always questions about the fairness, as you pointed out, for those who maybe least need it. They're not for large amounts of money, but they're designed to encourage people to get into that area. I'm not a big fan of those kinds of credits.
For scientific research and experimental development, for example, there are two tiers of credits. There are credits for small business corporations, which get refundable credits because small business corporations don't have as easy an access to financing. There's refundability there, whereas large corporations or public corporations don't get refundability. There are different rate structures.
The idea there is to encourage scientific research. The tax expenditure associated with it is one of the higher tax expenditures in all the measures in the Income Tax Act. They have had a stimulative effect. In my view, they have been well founded.
However, some of the more minor ones you would describe as not necessarily economically motivated. They're designed to get people to do certain things. They're not very expensive. As I said, they do complicate the system.
What we're talking about here, in my view, doesn't fall into the same realm as the examples you put forward. This is not for the average family to make use, as in the case of their child going to go to a ballet class or a fitness class or anything of that nature. This is designed to stimulate the preservation of built heritage in the country. You and I would not avail ourselves of this tax incentive—or I should speak for myself, not you; I would not avail myself of this tax incentive, because I either don't have the means or I may not have the interest. I'm not in that area.
However, for those people who are giving this consideration, it will be a stimulative kind of thing. They would have thought of it, but the economics didn't make any sense. When there's a tax credit or an accelerated capital cost allowance and there are taxable entities or taxable individuals, this is something that they would take into account in their budgeting to see whether it makes economic sense. Oftentimes, this is the line in the budget that may be the determining factor in making this a go or not.
Conservative
Conservative
Joël Godin Conservative Portneuf—Jacques-Cartier, QC
Your presentation this morning is interesting. In fact, you are talking about a duality, the tax credit and the grant.
The tax credit does not apply to not-for-profit organizations, but you have to think about maintaining the grants, and I do not think one is preventing the other. You say that the tax credit is more complicated than the grant and it makes the process more cumbersome. I don't think this is a reason for not being receptive to a tax credit.
You mentioned the children's fitness tax credit. The advantage of a tax credit is that parents, in the case of a child tax credit, must invest in society by taking concrete action to ensure that the money circulates, to allow for collective sharing and to allow other organizations to earn money. It's sort of the same principle.
Earlier, my colleague opposite mentioned that a tax credit favours the wealthy. However, I am from Quebec and I will give you the concrete example of the energy efficiency tax credit that the Government of Quebec grants for window repairs, for example. Not only the wealthy benefit from this tax credit, but anyone who owns a home. Sooner or later, they have no choice, they have to repair their homes, as time leaves its mark. That is why it is unrealistic to say that tax credits benefit only the wealthy.
I am the member for Portneuf-Jacques-Cartier. My riding is made up of three types of regions: urban, resort and rural. I share my colleague Mike Bossio's specific concern about investment in the regions.
What could we add to this bill to allow people in the regions—I am going to say rural regions, but this is not meant to be pejorative, far from it—like those of the major centres, to have access to this credit? What could be improved in the current bill to allow the credits to be distributed, or to encourage people in the rural sector to use the credit?
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
What's particularly valuable about a tax credit program is that it doesn't discriminate between urban or rural. It's a uniform program. Whoever wants or needs to access it, providing they can meet the rehabilitation expense criteria and it's certified, no matter where in the country that is, it would be available for them. There's no discrimination here, which I think is a very valuable aspect of it.
I want to touch for a moment on your point, and it was raised earlier, about a tax credit potentially being of more interest to the so-called rich.
The fact of the matter is that a tax credit is more beneficial to lower-income people than it is to the rich, because the tax credit is calculated at a percentage of the expenditures. Therefore, if you're in a lower tax bracket, that tax credit is worth more to you than it is to the rich, because it's dollar for dollar. If the so-called rich are paying at a top marginal rate of 53.5% in Ontario, or a little less in Quebec, that impact is not as much as it is for somebody who might be, let's assume for the moment, at the 20% marginal rate. If it's a 20% tax credit based on expenditures, it could potentially wipe out their tax liability. It's actually worth more there, so I don't see any basis for arguing that this would be a mechanism that is of greater benefit to the wealthy.
On one other point you made—and if I suggested it, I didn't mean to—is there is no more complexity in a tax credit than there is an a grant type of program. When I referred to complexity, I was referring more to the proliferation of tax credits for various activities that complicate the Income Tax Act. When I first started out in tax policy as a young man with pitch-black hair, the Income Tax Act was maybe half an inch thick. Thank god for iPhones and computers today, because when I go to meetings out of town, I can't take the Income Tax Act with me. It's literally that thick, with all the regulations. It's that thick because of the proliferation of different mechanisms added into the act.
As I said earlier, once something is there, it's oftentimes very difficult to take it away, because there is now a constituency that relies on it, and they argue very strongly that it should not be taken away. That was the context I was talking about in terms of complexity.
Liberal
Liberal
Mike Bossio Liberal Hastings—Lennox and Addington, ON
Mr. Farber, thank you very much. This has been very enlightening. I agree that our tax act right now is far too complex, and we don't need to add further to the complexity.
When I look at the cost-sharing or grant side versus the tax credit side, I'll tell you right up front that my focus is very much on the rural side of things and individuals who are maybe not as wealthy being able to take advantage of it. Do you not agree that with a grant process or cost-sharing process versus a tax credit process or mechanism, there is greater control to target or focus investments into the rural versus urban, or large versus small, and a greater control of cost?
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
In general terms I would agree with that, but that's both a plus and a minus. What I've seen with grant programs over the years in various applications is that just at the point in time when an application for something very relevant comes up, the appropriation has been totally used. Therefore, you have to wait for the following year, if it's extended. As well, it has to be funded either year to year or whatever the appropriation mechanism is.
A tax mechanism is something that gets into the Income Tax Act and is a permanent feature unless it's repealed or sunsetted in some manner, but these are not the kinds of mechanisms that you would necessarily sunset unless the incentive was designed to stimulate action in a particular period of time. For example, if you wanted very quick action on rehabilitation of heritage properties from coast to coast, one might consider a tax credit that would say it commences on such a date and it ends two years or three years from now. Those people who are then interested have to take action fairly quickly. It has those kinds of benefits.
Liberal
Mike Bossio Liberal Hastings—Lennox and Addington, ON
I know you've said that the great thing about a tax credit is that there's no discrimination between urban, rural, small, or large, in that it's open to everyone, but I would argue that the reality on the ground may be different.
For example, I live in a big old house in a rural setting. When the energy efficiency grants became available, there were a number of individuals out there promoting them, because they stood to benefit. You become far more aware of these things. I did install ground-source heat, insulation, windows, and all the rest of it to take advantage of those opportunities when they arose. If it had been a tax credit type of vehicle, I may not have been as aware that it existed.
I guess I'm arguing that those who are wealthier and have individuals on their staff looking for these opportunities to benefit their properties and others have a greater degree of involvement in these programs than do those who come from smaller communities and don't have the wherewithal, or are from smaller businesses that don't have the resources to take advantage of things.
Would you agree, then, that in reality it does or could benefit wealthier individuals in urban centres versus those in small rural centres who may not be as wealthy? Anecdotally...?
Senior Advisor, Norton Rose Fulbright Canada, As an Individual
It's very difficult to argue with the premise generally, but those people who have these kinds of properties and are interested in doing something generally find out about these kinds of mechanisms, to the extent that there are tax credits in the system or grants available. I mean, government does have a habit of promoting those kinds of mechanisms, because they're there for a reason.
Oftentimes municipalities promote these kinds of things because they're interested in built heritage within their communities as well, so I think people do become aware of them and will take advantage of them. To what degree is very hard to speculate on, other than anecdotally, and possibly those people of more means make themselves more knowledgeable. I don't know.
Liberal
Mike Bossio Liberal Hastings—Lennox and Addington, ON
There's a final aspect to this. The previous witness put together a chart for us that outlined those who would benefit and those who would not. Of course, as you note, there is the not-for-profit sector, the government sector, and others.
Once again, a lot of those types of properties exist in a rural setting. The commercial properties, such as offices, office buildings, banks, stock exchanges, and wholesale establishments and structures like that, are typically based more in urban settings than they are on small rural main streets. My deep concern is that all of these projects would be automatically ineligible under this system, so in and of itself it acts as a discriminatory type of credit. It isn't even applicable to the vast majority of rural areas. They're ineligible for this program.
