Evidence of meeting #37 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was industry.
A recording is available from Parliament.
12:10 p.m.
Conservative
The Chair Conservative Brian Pallister
Thank you, Mr. Savage. After that, you've run out of time, so you're no longer with us either.
We will continue with Mr. Dykstra.
October 19th, 2006 / 12:10 p.m.
Conservative
12:10 p.m.
John McKay
Free Garth!
12:10 p.m.
Conservative
12:10 p.m.
John McKay
I don't know why none of you like him.
12:10 p.m.
Liberal
12:10 p.m.
Conservative
12:10 p.m.
Conservative
12:10 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Mr. Chair, through you, I think I have the floor and I'll ask Mr. McKay to give me a couple of minutes here.
One of the things I wanted to ask the Canadian Foundation for Economic Education is.... I'm pretty sure most of us have had the Canadian Bankers Association in to see us on an individual basis to talk about a number of things to do with the banking industry per se, but specifically the programs they have actually begun or are running with respect to educating individuals, young, middle-aged, and seniors as well, in terms of financial responsibility.
One of the concerns I have, and I think any member of Parliament would have, is the duplication of service. My concern is based on the presentation you made and the focus, obviously very positive in terms of educating individuals across the country, is that we already have a service that the private sector, or the banking industry, if you will, is prepared to provide and is providing. Yet at the same time, you're looking for funds to move into that area.
I wonder if you could comment on that.
12:10 p.m.
President, Canadian Foundation for Economic Education
Yes, there are a couple of things. One is that the Canadian Bankers Association was one of our founding organizations, so I'm certainly not going to be at all critical of the programs they undertake.
The reality is that there are two things. One was in the document that I brought to share with you today. We have an outline of what were identified as the areas of knowledge and skill that Canadians thought were important to have as a capacity to build an economic future. About 17% of those relate to money and finance. There are all sorts of other things that relate to an economic education that would fall outside the purview of the Canadian Bankers Association. I commend them for their efforts and their job, but they only do part of it.
The other thing is that I speak again to the essential matter of trust. As well-intentioned as the CBA is in what they do, I think there's a need for an impartial, non-partisan organization out there, especially working with the schools and with others who are somewhat hesitant about engaging with private sector organizations and others. I am fully supportive of the CBA's efforts, but as in everything, I don't think one organization is able to take on the monumental task there. In some areas they have a competitive advantage and in other areas they do not.
I believe there is definitely a need for a wider array of activities beyond only the efforts of the CBA.
12:10 p.m.
Conservative
The Chair Conservative Brian Pallister
Thanks very much, Mr. Dykstra.
We will conclude now with Mr. Pacetti.
12:10 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you, Mr. Chairman.
Mr. Fournier, I know that your proposal has raised a lost of interest. Funding has already been allocated to festivals. In your proposal, you said that the money should be allocated to festivals or events, but do they include sports and cultural events, or just festivals?
12:10 p.m.
Spokesperson, Canadian Festivals Coalition
We're talking about events, whether they're cultural, entertainment or sports, provided they recur every year.
We want to prevent an event like the Vancouver Olympic Games, for example, from being included in this program. We want to avoid this kind of major event which is suddenly held in an area and would take up the entire machinery.
12:10 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
That's why you've indicated a minimum and a maximum.
12:10 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Most of the $50 million reserved for special events has been allocated to Quebec. How is this $50 million distributed across Canada?
12:10 p.m.
Spokesperson, Canadian Festivals Coalition
Under the agreement reached with the four major regions, the funds are allocated as follows: 30% to 33% to Quebec, 33% in Ontario, approximately 20% in the West and 10% in the Maritimes. Those percentages are representative of our industry. However, the figures aren't complete.
12:10 p.m.
Liberal
12:10 p.m.
Conservative
The Chair Conservative Brian Pallister
Thanks to all of you. It's been nice to spend time with you, inside and outside, this morning.
We have been engaging in a rather intensive process of hearing close to 325 submissions so far. We will be travelling to eastern Canada next week, but because this is our last day in Ottawa, I wanted to publicly offer, on behalf of our committee, our thanks to the staff here, our translators, our research staff, our clerks, and others who you do not see--and we should mention as well, today, the fireman--who have worked very diligently through this process and who deserve our thanks.
Committee members, perhaps we should do that.
12:10 p.m.
Some hon. members
Hear, hear!
12:10 p.m.
Conservative
The Chair Conservative Brian Pallister
Thank you all again for your time today. It's valuable and we very much appreciate it.
We invite the second panel to come forward now. We will suspend only briefly and will recommence discussions momentarily.
12:20 p.m.
Conservative
The Chair Conservative Brian Pallister
I welcome our witnesses, and thank you very much for being here.
I assure you that despite the gradual reappearance of our committee members today, they are going to be reviewing your briefs in detail. In addition, they receive transcribed copies of all discussions and presentations. I want you to understand that.
You probably understand the process better after this morning's theatrics than most of our presenters. It's somewhat unpredictable here.
In any case, I welcome you. Thank you for your time in being with us today; it's much appreciated.
We'll move right into the presentations. I will signal when there's a minute remaining for you and when there's less. I will cut you off at five minutes.
We'll begin with the Investment Counsel Association of Canada. Thomas Johnston is here.
Welcome. Please proceed for five minutes.
12:20 p.m.
Thomas Johnston Executive Director, Investment Counsel Association of Canada
Thank you very much.
The Investment Counsel Association of Canada is the representative entity for investment counsel and portfolio management firms that manage in excess of $500 billion on behalf of Canadians. Much of that money is pension money.
It is our view that to ensure the future economic health and prosperity of Canada, employees and the employers managing money for them must be able to save for retirement to reduce the burden on future generations. This is particularly important with the pending baby boom demographic event, which all of you are aware of, and also with the defined benefit pension crisis we're faced with.
As a small economy—we're 3% to 4% of the global market—Canadians must be able to invest abroad, a fact recognized last year with the removal of the foreign content limit.
The issues I'm raising today are not just those relating to the Investment Counsel Association of Canada and its members. These are issues that affect all Canadians—$800 billion of pension assets, $600 billion in the mutual funds, another $250 million in non-registered savings, and 5.6 million people with group RRSPs. I'm going to talk about three issues that are materially important to them, and I really hope the committee recognizes their significance.
The first topic is to expedite the process to recognize foreign stock exchanges. The second issue is to reduce the arbitrary 150 unitholder threshold to achieve mutual fund trust status for a unit trust. It sounds technical, and I'll get into that very shortly. The third issue is to call for a fresh approach to the proposed amendments to the Income Tax Act, dealing with offshore investments. And to the financial services community and pension managers, the FIE and NRT rules are treated akin to the gun registry rules. But we'll get into that in a minute.
Briefly, on the first topic, there are about 200 stock exchanges in the world, but only 36 are recognized under the Income Tax Act of Canada. In an increasingly global world, that is just not acceptable, and this has a material impact. An RRSP can only invest in an issue listed on one of those 36 exchanges. We would call for that list to be updated to the benefit of Canadians, pure and simple.
The second issue is this arbitrary 150 unitholder threshold for a unit trust to be a mutual fund trust status. Rumour has it that this 150 unitholder number was concocted by a representative of the Department of Finance in a restaurant many years ago in Ottawa, but it just doesn't work for pension plans in the institutional world.
The reality is that most commercial trusts are formed to manage money. The reality is also that it's efficient to manage similar accounts in the trust, and institutions like to do it. Moreover, for certain asset classes that are a small percentage of total portfolio—emerging market equities or high-yield debt—the only way to invest in them to get diversification is through a trust.
Now what is mutual fund trust status? A unit trust with that status has about 16 different benefits under the act. It's eligible for an RRSP. A 149 unit trust is not, but 150 is. It's a little ludicrous, but that's just the rule. It gets benefits: the capital gains refund mechanism, alternative minimum tax, and it can do non-taxable mergers. There's a host of things not to go through here.
In an institutional world, many funds will not be able to meet that threshold. Moreover, the manager of a fund that's up and running but suddenly loses an investment faces immediate tax and restructuring issues to the detriment of remaining holders, many of whom have pension plans. So we would call for that to be changed.
The last issue—realizing time is short—is the proposed FIE-NRT rules. These are complicated rules. They were drafted in June 2000, then amended August 2001, and again in October 2002, October 2003, and June 2005—and deemed to have retroactive effect from January 2003.
It's incredibly intense. There is an administration that is unduly pushing costs on Canadians, and it's a disincentive for people to invest abroad to their long-term benefit. These rules apply to pension plans that shouldn't even be subject to the tax regime. They are viewed like the gun registry system. There is almost $2 trillion out there in investable assets, and this needs to change.
12:30 p.m.
Conservative
The Chair Conservative Brian Pallister
Thank you, sir.
From the Pembina Institute, Amy Taylor is with us. Welcome.
12:30 p.m.
Amy Taylor Program Director, Pembina Institute
Mr. Chairman and members of the committee, thank you for hearing from me on this day. I'm a program director with the Pembina Institute, which is pleased to have the opportunity to appear before you today.
I am here to recommend that the Minister of Finance eliminate the accelerated capital cost allowance for oil sands. This measure would put the oil sands on a level playing field with natural gas and conventional oil.
In 2000 the Commissioner of the Environment and Sustainable Development undertook a study on the level of federal government support for energy investments in Canada. One of the key objectives of this study was to determine whether this support favoured the non-renewable energy sector relative to the renewable energy sector.
The commissioner was particularly interested in support provided through the federal tax system, as this type of support is less transparent and more difficult to track and quantify. The commissioner found that in most cases federal government support for energy investments, including support through the tax system, did not particularly favour the non-renewable sector. He found oil sands to be an exception.
His analysis revealed that oil sands receive a significant tax break. More specifically, with respect to the income tax, oil sands projects qualify for a 100% accelerated capital cost allowance—the ACCA. With this generous provision in place, a company only pays federal income tax on the income from an oil sands project once it has written off all eligible costs.
These tax rules make oil sands projects much more attractive than they would otherwise be. According to the Commissioner of the Environment and Sustainable Development, this situation results in a significant tax concession. Conventional oil and natural gas, for example, qualify for a 25% capital cost allowance, significantly lower than that provided to the oil sands.
In 2001 the Department of Finance estimated that the benefit of this tax concession was between $5 million and $40 million for every $1 billion invested by oil sands, and that between 1996 and 2002 expenditures on the accelerated capital cost allowance amounted to $41 million.
Since the time of that study, capital expenditures in the oil sands have continued to skyrocket, exceeding previous predictions. Between 1996 and 2005, capital expenditures increased 677%, from $1.3 billion in 1996 to $10 billion in 2005. This means potentially billions in deferred tax revenue up to today.
To put the oil sands on a level playing field with conventional oil and natural gas, the Pembina Institute recommends that the Department of Finance eliminate the 100% accelerated capital cost allowance for oil sands. This can be done by creating a new capital cost allowance class within the Income Tax Act for oil sands and setting the capital cost allowance at 25%, the same rate received by conventional oil and natural gas.
The 100% accelerated capital cost allowance for oil sands is a waste of taxpayers' money. The money saved by eliminating this preferential tax treatment could help facilitate the transition to a sustainable energy future by providing funds for investment in renewable energy and energy efficiency.
Implementing this recommendation will result in a wise use of public funds, because of the elimination of an unmerited tax benefit to the oil sands projects; an increasingly fair tax regime, by levelling the playing field between oil sands and other energy sources, including conventional oil and natural gas; and an opportunity to invest in Canada's energy future, owing to the availability of significant funds for investment elsewhere.
Prime Minister Stephen Harper recently said that Alberta must become a world leader in environmentally responsible energy production. By eliminating the accelerated capital cost allowance for oil sands, the Government of Canada will be making available significant funds that could be used to facilitate Canada's transition from energy superpower to environmentally responsible energy superpower.
Thank you.
