Finance Committee on May 9th, 2013

[Geoff Trueman]

Certainly, there is a broad range of credit unions across Canada. The Desjardins Group is probably the most well known—the caisse populaire—and is the largest organization. Without speaking for them, I will say that they have an asset base that is quite significant and would be similar to that of a bank such as the Laurentian Bank of Canada.

Outside of Quebec, credit unions in the rest of the country, in aggregate, would have an asset base that is a little bit less than Desjardins, but significant. What you'll see there are larger regional credit unions in each particular market, and then a broad range of smaller credit unions that serve more rural and small communities across Canada.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

You did mention, then, that there are no preferential tax advantages available for those sizes of banks that are equal in size?

[Geoff Trueman]

No. That's absolutely correct. The additional deduction is unique in providing this tax advantage to the credit union and caisse populaire section. There are no other equivalent provisions to provide extended access to the small business deduction for other businesses or corporations in Canada.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Can you confirm that the Province of Quebec eliminated a similar deduction for credit unions in 2003? Is that correct?

[Geoff Trueman]

Absolutely. Across Canada, provinces may or may not offer an equivalent form of the additional deduction. Quebec, in particular, eliminated it in 2003. Alberta does not offer a special deduction for credit unions, nor do New Brunswick, Newfoundland, or Nova Scotia.

[The Chair, Conservative, James Rajotte]

Thirty seconds.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Okay.

Just to follow up on that, the ones that do only do because certain income is not eligible for small business deductions in those provinces. Is that correct?

[Geoff Trueman]

What they're doing in most cases in those provinces is providing an additional deduction for income that would be beyond the small business limit.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Very quickly, we've introduced legislation and a regulatory framework that would allow credit unions to move federally across the country. Can you elaborate on how this would help credit unions grow and expand their business?

[Geoff Trueman]

It's not my particular area of expertise, but again, it would allow credit unions to operate under a federal model across provincial borders, whereas currently, as provincially regulated, they would have operations only in one province.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Caron, go ahead.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

My questions for Mr. Trueman will be in the same vein as those asked by Ms. Nash.

I am curious about one of the measures you mentioned. Based on that measure, caisses populaires would be involved in a level playing field with private banks. You did talk about a level playing field, right?

[Geoff Trueman]

A level tax playing field.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Okay. However, I have a problem with that argument, which may apply to larger municipalities. But municipalities with under 3,000 people—such as those in my own riding—have caisses populaires and no banks. Banks do not invest in those municipalities, but caisses populaires do.

Based on the description of additional deductions, those caisses populaires benefit from them. Therefore, they can invest more in the community, while banks have decided to close their branches there.

So the idea of a level playing field can work in urban areas. However, when it comes to rural areas, that notion puts caisses populaires at a disadvantage and will actually make them invest less in the community.

Could you comment on that?

[Geoff Trueman]

I think I may have mentioned this earlier, but in fact the vast majority of credit unions that are located in the rural communities, the smaller credit unions, would have access to the small business deduction serving that smaller market. It would be a relatively smaller credit union or caisse populaire. With ongoing and continued access to the small business deduction, it's unlikely that there would be a change in their taxable status. Again, the additional deduction primarily benefits the larger, growing credit unions.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Based on the definition, the deduction is intended for all caisses populaires with a capital of at least $15 million and up to $500,000 in income. So a wide variety of caisses populaires—including small ones—have access to that additional deduction.

[Geoff Trueman]

No, to be clear, a credit union that has currently less than $500,000 in income and taxable capital less than $15 million would not be making use of the additional deduction. They would be paying tax at the small business rate, and that would continue unchanged.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

For instance, some caisses populaires form my riding become affiliated. So they create a network of three or four caisses populaires that will eventually become a single entity. Those entities will serve the community and come close to the threshold you mentioned. So the same question comes up.

Currently, the level playing field may exist in large municipalities and major cities. However, when it comes to caisses populaires set up in the regions—where they join forces in order to try to survive and provide a service on the ground—the elimination of that deduction will not provide them with a level playing field. It will rather put them at a disadvantage, as their mandate obligates them to provide local services, and that is not the case for banks.

[Geoff Trueman]

Without commenting on the particular tax situation of any given amalgamation of credit unions, again, as credit unions consolidate, merge, and become larger, they're able to realize economies of scale as they pass those thresholds for taxable income and taxable capital. Yes, they would be affected, but if they remain small, again, there's absolutely no change.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Caisses populaires' mandate is different from chartered banks' mandate. They have a very community-based mandate to invest locally. Chartered banks do not have that obligation.

Was that factor taken into account when the impact of the deduction was being assessed?

[Geoff Trueman]

Yes, certainly it was. It's also important to remember that, again, the additional deduction only benefits credit unions and caisses populaires. There are other business forms. A mutual insurance company, which may also be based on similar social objectives, would not have extended access to the small business deduction, nor would other forms of cooperatives. So again, this is a unique attribute in place that benefits only one group of taxpayers.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Normally, mutual insurance companies do not have the same mandate as caisses populaires. I am talking about direct local investments made by caisses populaires. That is why branches are set up in small municipalities. A municipality in my riding with 1,000 to 1,500 people has a caisse populaire, but no banks want to open a branch there. Mutual insurance companies are not involved in small municipalities either.

[Geoff Trueman]

Well, a mutual insurance company may have particular objectives, but when we speak of very small credit unions in small communities, they are very unlikely to be affected by this change.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

However, the elimination of that additional deduction is projected to increase revenue by about $250 million. A $250-million increase in tax revenues over five years will affect a number of caisses populaires.

[Geoff Trueman]

I'm not sure where the $255 million comes from.