Evidence of meeting #87 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was capital.
A video is available from Parliament.
3:45 p.m.
Liberal
Rodger Cuzner Liberal Cape Breton—Canso, NS
Okay, if you could....
Do you have it broken down by industry?
3:45 p.m.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
There's a sectoral representation that's put out in the Jenkins report. They took some of the R and D data and program spending data and looked at the distribution by industrial sector.
3:45 p.m.
NDP
Dan Harris NDP Scarborough Southwest, ON
Thank you very much.
Following up on that, of course money is going to be saved with the reduction in the rates. Is the new spending that's being allocated going to be equal to what's being taken out of the other side?
3:45 p.m.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Certainly working from the fiscal framework that's set out in the budget, there's $1.1 billion on the spending side and $500 million has been made available for venture capital. The total of the R and D changes is about $1.3 billion, I believe, over the five-year period.
3:45 p.m.
NDP
Dan Harris NDP Scarborough Southwest, ON
Is that more or less than what was available overall before?
November 1st, 2012 / 3:45 p.m.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Overall there's $1.1 billion on spending and $500 million in venture capital, so that's new money. On the other side there's a $1.3 billion reduction in the SR and ED tax incentive.
3:45 p.m.
NDP
Dan Harris NDP Scarborough Southwest, ON
Okay. I'm sorry to hear studies didn't seem to be done on the changes for the proxy.
This morning I heard some troubling testimony in the industry committee from the Canadian Manufacturers and Exporters. They expect to face a serious hit with SR and ED. They're expecting to see a reduction in research and development funding of between 25% and 30% in their sector. These changes are going to cost their sector several hundred million dollars.
Is anything planned to help offset that big hit the manufacturing sector's going to have from these changes to SR and ED?
3:45 p.m.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
I'd certainly draw attention to the new spending that will be available. On the program side, certainly members of the CME, as would other businesses across Canada, would have the ability to access those funds. Where that comes out in the final analysis is uncertain, but it's certainly important to remember that those funds are available to industry.
3:45 p.m.
NDP
Dan Harris NDP Scarborough Southwest, ON
Some concerns were also raised about streamlining the application and monitoring process for SR and ED. Are there plans to do that?
3:45 p.m.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
In terms of the administration of SR and ED, one of the things that has been raised over time, certainly, is the complexity associated with the SR and ED program and the uncertainty of whether or not an SR and ED application will be favourably reviewed by the CRA.
Budget 2012 announces a couple of actions in that regard, one of which is that the Canada Revenue Agency will undertake a pilot project to look at the feasibility of a pre-approval system for the SR and ED program. They're enhancing some of their web-based tools that businesses can use to help work through the eligibility criteria. The CRA is committed as well to make more frequent use of tax alerts and to liaise with industry in the most productive manner possible. Certainly the CRA is undertaking efforts that will facilitate those compliance and administration issues.
3:45 p.m.
NDP
Dan Harris NDP Scarborough Southwest, ON
Another question, this one from Research In Motion. They were before the industry committee last week and they expect the SR and ED changes to lower the amount they're able to access by one-third. Would you expect that a company like RIM, which is one of our largest companies, would be able to access that new venture capital or the additional program funding to offset that one-third diminishment in the funds they will get?
3:50 p.m.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
I certainly don't want to speak for RIM. Some of the available programs may be of interest to RIM for sure, but I would leave that to RIM to comment.
One thing I would like to note is it's important to recognize that R and D tax incentives in Canada complement a very robust and attractive business tax regime. We've seen rates fall from 22% to 15% in terms of the statutory corporate income tax rate and the removal of capital taxes at the federal level. An incentive for provinces to do the same has resulted in the elimination of provincial taxes. We've seen the accelerated capital cost allowance for M and P equipment that's been brought into play, as well as the revision to certain capital cost allowance rates such as increasing VAT for manufacturing buildings.
Certainly companies such as RIM have done well by Canada's business tax system over recent years. I recognize that the R and D changes will have an impact, but it is important to have that broader perspective as well.
3:50 p.m.
NDP
Dan Harris NDP Scarborough Southwest, ON
The broader perspective is important.
How many of those reductions you mentioned have been tied to job creation?
3:50 p.m.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Could you be more specific?
3:50 p.m.
NDP
Dan Harris NDP Scarborough Southwest, ON
In the reductions in the tax rates from 22% down to 15%, and the other rate changes at provincial levels, have any of them been tied to job creation?
3:50 p.m.
Conservative
The Chair Conservative James Rajotte
We are here on the bill. We're getting into a general policy debate about corporate tax reductions.
3:50 p.m.
NDP
Dan Harris NDP Scarborough Southwest, ON
He spoke about the broader picture, so I was asking the question in that broader context.
3:50 p.m.
Conservative
The Chair Conservative James Rajotte
If you want to comment, Mr. Trueman, go ahead. This is beyond the scope of bill, but we can hear your comment.
3:50 p.m.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
A quick response would certainly be that a more competitive business tax environment will facilitate the kind of investment that leads to job creation. This is certainly the link that is hoped for out of that, that it will lead to economic growth and the creation of new jobs.
3:50 p.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you, Mr. Chair.
With regard to phasing out eligibility of expenditures of a capital nature for tax credit purposes, it seems clear to me that this will have a disproportionate negative effect on production and natural resources. Indeed, innovation in these areas often requires that pilot programs or projects be established in order to evaluate their effectiveness in the field.
The Jenkins report recommended that the change in eligibility of expenditures of a capital nature should not apply to small companies and that it be counterbalanced with new funding.
Given that this measure is going to have a disproportionate effect on certain industries, do you not think that the negative impacts are going to exceed the positive ones?