Finance Committee on Nov. 6th, 2012

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

Yes.

[Martin Lavoie]

Yes.

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

I have had a number of meetings with your organization. As a matter of fact, I had a meeting with four of your associates, and I have to say that really wasn't brought up. I understand that is an area of concern, but for instance, it's been mentioned that the lack of SR and ED will have an enormous impact, and I'm sure Mr. Jean will deal with that, on the oil sands, but most of our testimony does not show that as being the biggest issue.

The biggest issue is workers and the fact that there's an incredible lack. We've heard that not just from the organizations involved in pipelines and oil extraction and all those things but also from the colleges. I'm looking for the quote, but I know that the Association of Canadian Community Colleges said that attracting skilled workers would be our greatest challenge.

The other thing we heard from your organization was that ACCA, the accelerated capital cost allowance, was paramount and seemed to have a great impact for success in your industry.

I could go on. There's more. I was just looking for some more quotes. I think we heard mention too about red tape reduction. Again, I know the bill deals not only with that, but those have been the measures that our government has been most active in pursuing. I have found that your organization has been most supportive of that, and although SR and ED is an issue and it is something we're struggling with, it wasn't the primary issue. Could you elaborate on that discrepancy?

[Martin Lavoie]

It happens that SR and ED is part of that particular bill.

With regard to the accelerated capital cost allowance, I think that is going to be more of an issue for the next budget since the temporary extension of the measure means it will end at the end of next year. It will either be renewed, made permanent, or completely eliminated in next year's budget. That was part of our pre-budget submission, which was presented by Jayson Myers, I think two weeks ago during the pre-budget consultations.

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

When I visited I mentioned that we had a number of your organizations represented in my office. For instance, the forestry people were greatly excited about what was happening with the opening of new markets and how that has had an enormous impact on the forestry industry. Our government has amplified that and seen that as something that again is paramount to trade.

Do you want to comment on that? Are you hearing that as well from your organization? I picked forestry, but of course I could probably go through a number of different organizations. There was a gentleman there from Siemens, for instance. I forget what his function was, but one of his concerns was the lack of protection that we have for investments in China. Of course we've just had a bill passed that would protect those companies. Would you comment on those?

[Martin Lavoie]

Our general position on trade agreements is that we're in favour in principle, but there has to be a level playing field. If we do sign trade agreements with other countries, we hope that, for example, we're going to have the same access to their government procurements that they will have to our own government procurements, that the rules governing foreign direct investment will be similar.

This is where the devil is in the details. In principle we're quite supportive of the government's aggressive agenda on trade, if that's the answer you're looking for.

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

Again, I'm not saying that this isn't an area, and I've mentioned that SR and ED is very important, but most, if not all, of the testimony we've had has centred on other areas. I'm a little curious why suddenly this seems to be the focus of your organization.

[Martin Lavoie]

Again, that was in the context of Bill C-45 and I would be happy to circulate to the committee a compilation of testimonies from companies from across the country that gave me their comments about how SR and ED changes would impact R and D in their businesses. I'd be happy to circulate that to the committee members.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

Mr. Mai, you have the floor.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you, Mr. Chair.

Mr. Cudmore, I read this from the website of TSGI-Chartered Accountants:—our interpretation of Bill C-45 reveals that taxpayers will now be eligible to claim only 80% of their payments to approved universities, colleges, research institutions, or other similar institutions for conducting research and development on their behalf. This change was not highlighted at the time of the budget announcement, and would seem to be counter to the government's emphasis on increasing collaboration between industry and academia.

Is that correct?

[Ken Cudmore]

That's correct.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Can you expand on that?

[Ken Cudmore]

When the budget speech came out, it seemed to indicate they were dealing only with cases where someone was using a third party contractor, they hired XYZ Engineering Company to do part of their SR and ED program.

Then when Bill C-45 came out, they used the wording to actually encapture other parts besides third party contractors, the normal contractors. The budget speech said it was there to get rid of a profit margin. We can all dispute whether or not even that was necessary, but why would they want to put universities in there? If there is any group that does not make a profit—we're all supporting universities in many different ways. I don't understand why that would have been included in Bill C-45.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

We're wondering also about a lot of things.

Regarding SR and ED, we've heard from the other side that changes to the SR and ED tax credit would actually reduce red tape or do things like that. Have those changes really affected red tape reduction?

[Ken Cudmore]

You're asking good questions.

The government has tried diligently for a decade or more to reduce complexity and lack of predictability in the SR and ED program, and as other people have alluded to here, that continues to be the swan song. It is very difficult to do that. None of the measures the government is proposing to introduce would actually do anything other than make it more complex and more expensive for taxpayers. It would force some taxpayers to not want to even apply under the program, because the more complex anything is, the less likely they are to do it.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Mr. Lavoie, are your members having the same reaction?

[Martin Lavoie]

Yes. In our opinion and in the opinion of our members, the complexity of the program is much more related to the interpretation of technology assessment reports and especially to Canada Revenue Agency's change of direction over the past two or three years.

The success rate of some our members' claims used to be over 90%, but it has suddenly dropped to 40%. This drop stems from the CRA's sudden decision to no longer consider certain expenditures as eligible. That was not really addressed in the budget. No budgetary measure makes any mention of that. Reducing the rate will not simplify the program.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Some of my constituents actually used to be entitled to tax credits, but they are suddenly no longer eligible. They tried to contact the Canada Revenue Agency, but since the agency had cut some services, it provided less information.

I would very much like to talk about this, but unfortunately, I don't have much time.

Mr. Aylward, regarding CRA, we asked the officials questions with respect to negotiations. Can you tell us what the impact would be of going through the President of the Treasury Board, having to accept the mandate? How does that work in terms of labour relations?

[Chris Aylward]

Thank you for your question. I'll speak from personal experience because I've sat on five bargaining teams with PSAC across the table from CRA.

Since the inception of the agency in 1999, the labour relations have been steadily increasing in a very good way to the point that, when we come to the bargaining table with the agency, we know that we're negotiating with the agency and not some faceless, nameless person down the street. When we sit across from the representatives from the agency, that bodes very well in respect to the trust, as well as to the union-management relations that we take away from that.

As I said, during the last two rounds of bargaining, in 2007 and 2010, we reached tentative agreements prior to the expiration of that current agreement, and that's hardly ever seen. It was the first in the federal public service and it hasn't been seen since. Unfortunately, what's happening now, or what's going to happen, is that the staff relations, the union-management relations in the agency are going to deteriorate for sure.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Well, the reason we were given was to make CRA compliant with the other organizations. Does that really help? Is that a good excuse in terms of maybe affecting the—

[The Chair, Conservative, James Rajotte]

Please give just a brief response.

[Chris Aylward]

It makes absolutely no sense when, in 1999, it said that they wanted to create a separate agency to get away from Treasury Board and to entice as well new business, new acquisition of business for CRA.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Jean, go ahead, please.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you, Mr. Chair.

Thank you, witnesses, for attending today.

I'm very interested in talking a little more about SR and ED.

I have done some research online and I have actually come across some people who indicate that they are experts at SR and ED. R&D Partners, for instance, say that they have a reputation and track record as a leading Canadian independent R and D tax adviser that has been in business for over 10 years, has successfully filed over 1,000 projects and $100 million in R and D tax credits, has a comprehensive and thorough understanding of the current R and D tax rulings, and an excellent relationship with federal and provincial tax authorities across Canada.

Are you individuals familiar with this particular company, R&D Partners? It's on the web. It's one of the first three hits that come up. I just wondered. They seem to indicate that they have an excellent track record. They have successfully filed over 1,000 projects and $100 million in R and D tax credits. It seems to me that there are experts out there who seem to know what they're doing, and I am not one of those people.

I want to confirm my understanding of the changes to the SR and ED program. The total pot of money is going to remain the same. In fact, my further understanding is that some of your groups have lobbied for more direct funding before and fewer SR and ED credits. Is that fair to say, Mr. Lavoie, that there's more money going to direct funding? My understanding is that any savings from the SR and ED program will not go back into general revenues. They're going to be used to directly fund initiatives that SR and ED would have gone for. Is that fair to say? The money is not being reduced.

[Martin Lavoie]

I think we have never been against more direct support mechanisms, but we've never advocated that any money into new direct support should be taken out of SR and ED.