Evidence of meeting #10 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was quebec.
A video is available from Parliament.
November 25th, 2013 / 4:10 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Mr. Chair, you shouldn't say that you “have” to go to Mr. Brison; you should indicate that you're “delighted”.
4:10 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Thank you.
On the change to the labour-sponsored venture capital tax credit, the CVCA, representing the industry across Canada and also representing the companies that have received funding and investment, has come out very clearly against this change. The CVCA doesn't represent only labour-sponsored venture capital funds; it represents also venture capital funds like Round13 Capital, with John Eckert and Bruce Croxon, and all of these funds that are private sector funds that invest in innovation.
Given the challenges faced by the venture capital industry in Canada right now, is it not terrible timing to actually withdraw funding at a time when the industry's already struggling? What could be the effects of these changes on biotech and IT discovery five years, ten years, fifteen years out?
4:10 p.m.
Chief Executive Officer, Fonds de solidarité des travailleurs et travailleuses du Québec
Well, I think you're absolutely right; the Canadian Venture Capital Association sees the elimination of the tax credit as being bad news, as being probably not the wisest decision to be made at this time. Why? Because we've become over the years a very important source of capital for VC in particular, and that has been acknowledged by the players in the industry.
We've been able to restructure, particularly in Quebec, a very strong industry. That places Quebec, in a table that was prepared by Thomson Reuters and based on the statistics of Thomson, in third rank worldwide if Quebec were a country. If we look at Ontario, where the tax credit has been abolished, they're trailing at the back here. We can table these documents for the committee.
My point is why not learn from what we've been doing right in Quebec and apply it across Canada? Why not find a solution that would be Canadian-based, where we would be able to continue to contribute to the development of the industry in Canada?
You know, we've learned a lot over the past 10 years. From that learning, I think we can certainly make the country benefit and the industry benefit. The CVCA is in accordance with that. We've become co-investors. We are not there to crowd out the money. We're co-investors, and we're a leading source of fund of funds capital.
4:10 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
How important were labour-sponsored fund investments in early-stage technology-type deals over the last few years? It's my understanding, and I think CVCA has presented evidence, that there are deals, a lot of deals, important deals, that would not have been closed without the labour-sponsored funds participation. So these companies, these technology, biotech companies creating future wealth and innovation for Canadians, would not have been funded.
4:10 p.m.
Chief Executive Officer, Fonds de solidarité des travailleurs et travailleuses du Québec
Just to give you an example, in the venture capital action plan program there was a decision made to support four funds, three of which we have started. Lumira, CTI, and Real Ventures were supported by the venture capital action plan. The other fund is Summerhill, and they were talking to them.
That shows that we're probably making good decisions in that field. Otherwise, I don't know why the venture capital action plan would have decided to go with those funds.
4:15 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
The point is that these investments in Atlantic Canada, and also in places like Saskatchewan, are nationally important.
To Mr. Colborne, I have just a final point on the changes to the mining tax approach. Would this imperil Canada's role...in the financing of 80% of the mining transactions in the world over the last 10 years? Could this have an effect on that success in the future?
4:15 p.m.
Conservative
4:15 p.m.
Partner, Thorsteinssons LLP
It may. I think the greater risk is that the decision to employ capital in-ground, usually in existing mature mining areas, may be imperilled. I think that's the greater risk.
4:15 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Brison.
I'm going to go to Mr. Adler, please.
4:15 p.m.
Conservative
Mark Adler Conservative York Centre, ON
Thank you very much, Chair.
Thank you all for being here today. This is a very exciting session. I wish I had a lot more than five minutes and I would love to have an hour with each of you to go over all the fine points.
I do want to focus my questioning on Mr. Spiro.
Our government, as you know, is committed to a fair tax system and we've been very earnest in closing as many loopholes as we can possibly identify. There are some that we closed in Bill C-4, which have been overly exploited in the last number of years—somewhat outdated—for example, synthetic dispositions and leveraged life insurance arrangements.
Could you comment on what those loopholes were costing the federal treasury? And how important was it to actually close those?
4:15 p.m.
Dentons Canada LLP, As an Individual
Well, Mr. Chair, I believe the Department of Finance would have all the numbers in terms of taxes to be recovered respectively, as a result of these changes, of plugging the loopholes, which I believe is an important part of preserving the integrity and fairness of the entire tax system. The government has been very diligent over time in addressing those kinds of concerns.
I think there are some measures in Bill C-4 that are anticipatory. The Department of Finance has picked up signals, either through the Canada Revenue Agency and its relationship with them, or on their own, that certain things might be on the verge of taking off in terms of fiscal effects. Others are simply things that have been in effect, like the leveraged life insurance schemes. Those have been used for many years and I'm sure the cost of that has been significant over the last number of years.
4:15 p.m.
Conservative
Mark Adler Conservative York Centre, ON
Was the use of these loopholes widespread, from your experience in the field?
4:15 p.m.
Dentons Canada LLP, As an Individual
I know from my own experience the leveraged life plans for investors were certainly quite popular.
4:15 p.m.
Conservative
Mark Adler Conservative York Centre, ON
Okay.
The bill also gives CRA a three-year extension to reassess the foreign income verification statement. Could you comment on how important that would be for CRA to reassess people who right now do not fall under that regime but who subsequently will? As well, how important will that be for closing, again, another avenue of tax avoidance?
4:15 p.m.
Dentons Canada LLP, As an Individual
As you know, the Canada Revenue Agency administers and enforces the Income Tax Act. They have a daunting task, especially when taxpayers do not fulfill obligations imposed on them under the Income Tax Act, particularly with respect to assets that they own offshore that may produce income that's taxable in Canada, because they are Canadian residents so all their worldwide income is taxable in Canada, sometimes with credit and sometimes not. But in any event, they have to report all of that income.
That form, T1135, which is called the foreign income verification statement, is an important part of that effort in terms of enforcement and tracking assets and income.
In Bill C-4 it has been proposed to extend the audit period, essentially, the period that the Canada Revenue Agency has to look at the taxpayer's affairs for a particular year. If the taxpayer hasn't reported income from a specified foreign property in their return for the year, and hasn't filed that form T1135, or hasn't filed it with all the required information on it, that then extends the audit period effectively for three years from the date on which the form was filed or was filed properly. That's an important enforcement tool for the CRA to have in its tool box in order to track down foreign income that should be reported on Canadian tax returns.
4:20 p.m.
Conservative
Mark Adler Conservative York Centre, ON
From your practice, have you seen a lot of cases that would verify that a lot of people are taking advantage of that loophole, if you will?
4:20 p.m.
Dentons Canada LLP, As an Individual
I think people are taking this obligation very seriously. I think the government is beefing up the form itself to require more detailed reporting and more specified sources of income. So I think people have taken heed of that step and are being very diligent in terms of reporting their foreign-based income.
4:20 p.m.
Conservative
4:20 p.m.
Dentons Canada LLP, As an Individual
Yes, with the additional time given for reassessing, I think that's also of assistance to the CRA.
4:20 p.m.
Conservative
Mark Adler Conservative York Centre, ON
We've had a number of organizations appear before committee that claim to be not-for-profit organizations. Is there a requirement for not-for-profit organizations that claim a profit in a given year to pay tax on that?
4:20 p.m.
Conservative
4:20 p.m.
Dentons Canada LLP, As an Individual
They may no longer be a not-for-profit organization if they are in business and making a profit. That may actually take them out of that scheme.