Finance Committee on Feb. 8th, 2007

[The Chair, Conservative, Brian Pallister]

Welcome, members of the committee.

Pursuant to the order of reference of Wednesday, June 7, 2006, Bill C-294, An Act to amend the Income Tax Act (sports and recreation programs), we have some witnesses here today.

Gentlemen, welcome to the committee. We're going to start with my colleague Mr. Fitzpatrick. We'll allocate a brief time, five minutes, for a presentation or an overview and then get right into some discussion and some questioning on the issue.

Whenever you're ready, Brian, take it away. I'll give you five minutes to give us an overview on your proposal.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Thank you, Chair, and thank you to the members for giving us the opportunity to advance our case.

I practised law in a community in Saskatchewan for 25 years. It's two and a half hours from Saskatoon and three and a half hours from Regina, and those are our two major communities, so it's a remote community. It has 5,000 people.

I'm a lawyer, and every fall I was called out to a meeting at a local financial institution where 15 people in the community would sign personal guarantees to finance the local junior A hockey team. The team in the fall doesn't have any money. It has to get a line of credit. At the end of the spring season everybody in the non-profit organization knows there's not going to be a profit, but they certainly hope the books will balance. About 30% or 40% of the team's revenue is derived from gate receipts. The other funding is from businesses that sponsor that team and from volunteers who sell raffle tickets and hold bingos and so on to try to finance the team's operation.

Almost all of the players come from long distances. These communities are not big, they're remote, so you get people from Manitoba, northern Saskatchewan, southern Saskatchewan, and even players from rural Alberta. The cost per player for room and board is about, I would venture to guess, $4,000 in a given year. The players are housed with good families. The parents who send their kids to these teams expect them to be in good homes, so they're housed in good homes in the community. They're paid $300 to $350 a month for room and board to offset the cost of housing these young men in their communities.

In 2001 the Canadian Revenue Agency came into that league, assessed the teams, and decided the room and board costs were a taxable benefit. The result of making them a taxable benefit is that Canada Pension, employment insurance, and income tax are applied on this $4,000-per-player allotment.

It doesn't take much of an imagination to realize that suddenly the teams had a new expense item on their books of $6,000 or $7,000 a year. You can't pick up that money on gate receipts. The market is small, it's saturated. There's no more money from gate receipts. It's pretty hard to get any more money out of bingos. I guess you could try to get a volunteer group to go out and start another campaign to try to raise $6,000 or $7,000 a year to pay the Canadian Revenue Agency.

The effect of this ruling has been very, very hard on that league. There are 11 teams in the league, and they all run on a shoestring budget. This decision has been a major hardship on that league. It's a non-profit league; they're not in it to run it as a business. The parents who send their kids there send the kids basically to promote their education and to advance their hockey skills. A lot of the parents are hoping they will receive an athletic scholarship to a division 1 or 2 American college, which happens quite frequently in the league.

At one time we had five coaches in the NHL who cut their teeth in the league, including Dave King, who has the Order of Canada and was the coach of the Olympic program and is, I think, a very well-known person in the league. There are lots of other coaches who cut their teeth in that league and moved on: Dave Tippett with the Dallas Stars, James Patrick, who's a prominent assistant coach with the Buffalo Sabres. It's been a very good league and obviously a very important part of Saskatchewan life in rural Canada. It's a part of our heritage. It's Gordie Howe country.

I think governments should be finding ways of promoting athletic activity and amateur athletics in the country, rather than finding ways of taxing it and punishing it. The purpose of this bill is to provide, I think, some tax relief to these teams so they can sustain their operations and survive.

I have two gentlemen with me today: Laury Ryan, who is the president of Saskatchewan Junior Hockey League; and Vernon Doyle, who is the president of the Maritime Junior Hockey League. The leagues are very similar. They operate under the same sort of model. Both of these individuals can certainly attest to the difficulty that this Canadian Revenue Agency decision has had on the Saskatchewan Junior Hockey League.

[The Chair, Conservative, Brian Pallister]

Thank you. Mr. Fitzpatrick.

Welcome to you both, gentlemen, and thank you for the work you're doing.

Also, welcome to our Department of Finance officials who are here to assist us today. We appreciate your being here.

We'll move right to questions and allow participation as you would see fit, committee members.

We'll begin with Mr. McKay, six minutes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

[The Chair, Conservative, Brian Pallister]

On a point of order, Mr. Pacetti.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

On a point of order, Mr. Chair, what kind of a committee is this? We have to hear from the Finance officials before we can start asking questions. We have to run a meeting according to what we normally--

[The Chair, Conservative, Brian Pallister]

The Finance officials are here as a resource to us in the conduct of our affairs.

Mr. McKay has the first question.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

We need to hear from the Finance officials--

[The Chair, Conservative, Brian Pallister]

You have no point of order.

Mr. McKay, you can begin your question now.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Let me understand this bill, Mr. Fitzpatrick. I understand the politics of the bill, but when you're trying to formulate public policy, you're trying to also deal with the law of unintended consequences.

Let me address my first question to the officials with respect, if you will, to how they see the law of unintended consequences working here. Is Mr. Fitzpatrick's proposal effectively a creation of a second layer of tax exemption? All Canadian filers get somewhere between $8,000 and $10,000 basic personal exemption. Effectively, in his proposal, does that essentially move it up to a $12,000 exemption for kids who are elite hockey players? Is that, in effect, the result of his bill? If that is true, where would be the next pressure to move up that exemption?

If I could get a quick response on that, I'll know where I'm going with my questions.

[The Chair, Conservative, Brian Pallister]

Who will be responding to that, gentlemen?

Mr. Short.

[Edward Short, Senior Tax Policy Officer, Tax Legislation Division, Tax Policy Branch, Department of Finance]

Certainly. The answer is that, yes, this would be over and above other deductions or credits such as the personal credit. In respect of pressures, I would expect that more than likely other non-profit employers would be asking for similar exemptions for their employees.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Can you give me an example?

[Edward Short]

It's not unusual for a non-profit organization. It could be a community organization in support of some kind of community activity. They have employees as well. They're not athletes, they're employees--office workers, for instance, or people who work in playgrounds or something like that. They are also subject to the same rules as other employers, and it's likely that there would be pressure from those types of non-profit groups to have this extended to them.

[John McKay, Liberal, Scarborough—Guildwood, ON]

What about within the athletic community?

I play hockey. I've played hockey all my life. I still play hockey. I'm not very good. I thought I'd admit it before anybody else pointed it out. I appreciate that hockey is very important, not only to city life but to rural life, and I understand the cultural issues, etc.

I'm hard pressed to know why we should preference, say, hockey players above swimmers, who don't necessarily have a career path to follow once their swimming days are over, either in a club or in a university, or other areas of athletic endeavour such as gymnastics, or whatever.

Help me here, Mr. Short, and I'll ask Mr. Fitzpatrick to answer after you answer. Tell me how there's going to be any ability on the part of any government of any stripe to resist the pressures of other athletic or community organizations to get the same sort of tax relief that Mr. Fitzpatrick is asking for.

[Edward Short]

I think the right answer to that is that those organizations would already be covered by this bill. So a swimming organization, if it were to pay cash allowances to the swimmers, would then be exempt under this as well. I think the difference is that I'm not aware of any other sport that has the same kind of payments to players as does junior hockey.

There are athletes who receive allowances from the Government of Canada, and those are treated separately under the Income Tax Act. But in terms of other non-profit organizations, I'm not aware of any that actually pay cash allowances to their participants.

[John McKay, Liberal, Scarborough—Guildwood, ON]

It's not likely that this is going to be of any benefit to any group, other than elite hockey players on their way to possibly being professional hockey players.

[Edward Short]

That's probably the case. There are some semi-professional teams that pay allowances or salaries to older players. The participants have to have other employment to supplement their income. This bill would not apply to them, because generally those organizations are not exclusive only to participants who are under the age of 19, I think.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I just want to give Mr. Fitzpatrick a chance to chime in here.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

An issue that is very important to understand is that CPP and EI start at the first dollar. Income tax, with the exemption, kicks in at only a certain level. It's the Canada Pension and EI that really create the hardship on this position. Most of these players don't make anywhere close to the personal exemption amount.

The bill is designed to encourage amateur athletics, whether it's gymnastics or swimming or hockey. We have diabetes and we have obesity problems among young people. It's good that government is encouraging our culture and participation by young people.

Where I come from, the kids idolize the junior hockey players. They're out on the rink playing peewee hockey rather than sitting around watching TV or playing computer games. I think this is a good attribute.

The exemptions under sections 7 and 8 already provide a lot of exemptions for arts groups, religious groups, and other organizations. You strain to find any real meaningful exemption for encouraging young people to get active and involved with things.

At the end of the day in rural Saskatchewan, junior hockey—I mean, this isn't Toronto, these are places like Nipawin, Melford, and Estevan—is the thing that brings all aspects of the community together. That's part of their culture and their heritage. This is Gordie Howe country. That's a big part of our country.

[The Chair, Conservative, Brian Pallister]

Thanks, Brian. I have to cut you off there.

We'll continue with Mr. St-Cyr. You have six minutes.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you very much, Mr. Chairman.

My first question is quite simple, probably. It is for the representatives of the Finance Department.

How much do you estimate this will cost the federal Treasury?

[Edward Short]

We don't think the cost will be very high because few organizations will benefit under this act.

Pardon me, but I have to change languages.

There are a small number of organizations that would qualify under this bill, so we don't expect it would be very high cost. I think, as Mr. Fitzpatrick has suggested, they may be small amounts in general, but for the teams they may be viewed as material. But from the perspective of the government, it's not expensive.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

What's the order of magnitude? The expression "not expensive" doesn't mean the same thing for everyone. Are we talking about millions of dollars, or several tens or hundreds of millions of dollars?

[Edward Short]

We haven't made an estimate. I'm not sure. It will probably be less than $5 million, or less than $2 million. Few organizations pay people to play or take part in a sport.