Thank you, Mr. Chair.
My name is Dan Paszkowski. I am the president of the Canadian Vintners Association. We represent the Canadian wine industry across Canada. We're responsible for more than 90% of wine production. Our members are engaged not only in the grape-growing and wine-producing elements of the business; we are involved in grape harvesting, bottling, retail sales, and a significant amount of tourism.
I will restrict my remarks today to three areas, which I'll briefly discuss.
Agricultural plant replacement provisions is the first issue. We have addressed it for a number of years in our pre-budget submissions. The Income Tax Act's replacement planting provisions under subsection 44(1) do not provide Canadian farmers with the economic flexibility required to improve their businesses by shifting crops to better value-added opportunities.
The Income Tax Act presently permits the deduction of replacement plant expenditures if the replacement is within the same species group. For example, if I go from one Chardonnay to a Merlot, I'm allowed to write off my replacement expenditures against my taxable income. However, the current interpretation does not allow for the deductibility of such expenditures if we shift from one species to another. So if I go from tobacco to grapes or from apple orchards to grapes, I'm not allowed to write off our expenditures for moving into a new value-added opportunity.
We believe that amending the Income Tax Act or the interpretation of the act makes good sense and reflects the business realities of today's agricultural business. Farming businesses, like other businesses, base their decisions on solid research and sound business practices, and we should be provided the same flexibility as provided to the manufacturing industry, which is permitted to deduct expenditures when shifting production from one widget to another.
Our second element is winery infrastructure investment and taxation. Wine is the highest value-added agricultural product in the world, and our industry is an important generator of value-added revenue across wine-producing regions. We produce high-quality grapes and wine, but we're also a catalyst for complementary economic activity, such as shopping and dining, museum and art galleries, theatres, festivals, etc.
Furthermore, it's important to note, in contrast with the situation respecting most value-added products, that wine sales are restricted to the winery retail and provincial liquor board sales, as well as direct sales to restaurants. Direct consumer winery sales across provincial boundaries are not permitted in Canada by virtue of the 1928 federal Importation of Intoxicating Liquors Act; therefore, we have very limited sales opportunities for our product in this country.
Given this, it's critical that wine businesses be able to attract new and repeat customers and tourists. This requires not only top-quality wines, but first-class winery infrastructure. To meet these needs, we recommend that a two-year vintners investment tax credit be implemented to support winery infrastructure improvements, whether these be building, retail and tourism, production equipment, or environmental improvements. We are proposing a 30% non-refundable tax credit for eligible expenditures of not more than $1 million, resulting in a maximum annual credit of $300,000 for participating Canadian estate wineries. The tax credit, as we recommend, would apply to the fiscal years 2010-11 and 2011-12, making a two-year restricted program.
Further, in last year's budget the federal government recognized the importance of increasing the small business income threshold from $400,000 to $500,000. We support this measure, but given the large capital investments required by today's wineries, from land acreage to capital investment to tourism and retail stores, the small business deduction qualifying asset test often eliminates the intended benefits through a straight-line reduction for those businesses with capital assets between $10 million and $15 million. As winery and small business investments continue to grow, access to the lower rate on the first $500,000 of qualifying income is restricted, given the qualifying asset test, which has not been adjusted to compensate for inflation since its introduction in 1994.
Turning to wine excise taxes, in 2006 the federal government eliminated the excise tax on 100% Canadian wines; however, it also increased the excise tax by 21% on all wines. Some 85% of Canadian wine production is of blended wine product. What we're seeking is that the excise tax exemption be extended to the Canadian content in those blended wines, given that the excise tax increase has resulted in roughly an $11-million-per-year increase for our industry, in a difficult climate wherein we're trying to compete with low-cost value wines from around the world.
Thank you very much.