Finance Committee on Nov. 18th, 2013

[Geoff Trueman]

As I say, I think the key thing to look at in these measures is the fact that with the grandfathering and the transition, they will take place slowly over time.

The idea is to provide greater neutrality in the corporate tax system and to have investment decisions made in the mining industry undertaken based on economic fundamentals.

As you are also aware, certainly the government has put in place a number of measures on the other side to facilitate mining in this country, things such as the regulatory review that was announced in the previous budget.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Hsu.

We'll go to Mr. Saxton, please.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Chair.

Thank you to our witnesses for being here today.

I'd like to follow up on Mr. Hsu's questions as well.

Bill C-4 expands on the government's ongoing effort to make the tax system fair across industries. It follows through on our government's G-20 commitments to eliminate inefficient fossil fuel subsidies.

Can you elaborate on the phase-out of tax preferences that have favoured the mining industry?

[Geoff Trueman]

As noted, the idea behind measures being put in place to improve neutrality in the tax system is essentially to put the mining industry on an equal footing with other industries. Doing that involves removing some long-standing preferences in the tax system regarding the capital cost allowance system and the treatment of capital property.

These moves parallel changes that have already been announced and enacted in budget 2007 and budget 2011 regarding the oil sands sector. There were additional changes in budget 2012, including the phase-out of the corporate mineral exploration tax credit as well as changes to the Atlantic investment tax credit, which affected mining and oil and gas.

These further Canada's commitment under the G-20 to phase out inefficient fossil fuel subsidies as they affect oil and gas and also as they affect the coal mining sector as part of mineral exploration and extraction.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

Bill C-4 also encourages businesses to invest in clean energy generation technologies.

Can you provide details on how this measure will expand biogas production?

[Geoff Trueman]

That refers to the changes we're making with respect to class 43.2. Class 43.2 provides an accelerated capital cost allowance for certain assets that are acquired for clean energy generation.

Two changes are included in Bill C-4.

First of all, there is biogas production equipment that uses a broader range of feedstock. Eligibility is currently limited to equipment that uses sludge from an eligible sewage treatment facility, food and animal waste, plant residue, and wood waste. Bill C-4 proposes including equipment that will use pulp and paper waste and waste water, beverage industry waste and waste water, and separated organics from municipal waste. It simply expands the range of eligible feedstocks and will allow biogas production to take place on a more comprehensive scale.

Second, a broader range of cleaning and upgrading equipment that is used to treat gases from waste to obtain biomethane will be included. This simply expands the range of eligible equipment so we can facilitate that on a more comprehensive basis as well.

[Andrew Saxton, Conservative, North Vancouver, BC]

As was asked earlier regarding tax loopholes, C-4 closes a number of overly exploited and outdated tax loopholes.

Can you address the positive effects this will have down the road?

[Ted Cook]

In terms of the types of loopholes that are addressed, there is certain planning with respect to leveraged life insurance and leveraged insured annuities. More particularly, there are also changes with respect to the taxation of trust attributes and corporate loss trading transactions. Those are types of transactions that seek to use corporate losses and business losses incurred by trusts as essentially a commodity that can be traded between entities.

The measures would mean losses could be used only under appropriate circumstances, thereby allowing the tax system to prevent a particular taxpayer who has incurred a loss from using it for anything other than to recoup it in the operation of their business, instead of being able to transfer it to other taxpayers.

[Andrew Saxton, Conservative, North Vancouver, BC]

Do you have any estimates as to how much tax revenue will be generated as a result of closing these loopholes?

[Ted Cook]

To give you a couple of examples of the types of revenue impacts we're looking at with respect to character conversion transactions, there are approximately $55 million per year. Trust loss trading has been, as noted, $70 million per year. With respect to the leveraged life insurance arrangements, that's in excess of $100 million per year. It's significant.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Saxton.

Mr. Caron, you have the floor again.

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

Thank you very much.

Mr. Keenan, I want to continue with you on the topic of the labour-sponsored venture capital tax credit.

We have determined that no impact studies were done on the effect this measure would have on the level of available venture capital. I would like to know if impact studies concerning the level of savings were carried out, given that this is a very important incentive in that regard. Indeed, this has allowed Quebec savings to develop considerably. I am referring to impact studies on the level of savings, in light of the changes that are going to be made.

[Sean Keenan]

I couldn't point to anything specific on the level of savings, but I do know that in terms of individual savings in Canada, especially for retirement savings, there's a tax preferred savings regime that's in place where individuals receive an upfront deduction for their contributions to their retirement savings plans. That regime applies in the same manner across a multitude of eligible investments of other pensions.

LSVCCs are certainly, as I mentioned before, an eligible investment for an RRSP contribution. Will that change people's savings behaviour? We think the incentives are already in place for individuals to save.

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

I ask the question because it is clear that if I am an investor, I want to know whether I will have a return on my investment for my retirement. If I know that by investing in labour-sponsored funds, I am going to have a lower rate of return and a longer-term one than if I invest in a far more speculative fund, for instance, I may indeed turn toward other options. In this way, the 15% reduction in the tax credit is going to influence savers' behaviour. In light of that, we may expect a decrease in the level of savings, and we may see many investors turn toward other vehicles. That is why I would like to see an impact study.

I have a brief question; I would like a clarification. According to the government's 10-year venture capital plan, it intends to invest $400 million. We are not talking about a $400 million investment every year, correct? I am talking about the amount the federal government is going to invest in its venture capital plan.

[Sean Keenan]

The investments in the venture capital action plan are $400 million.

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

So we are not talking about an amount of $400 million per year, but rather about a single, one-time amount of $400 million.

[Sean Keenan]

It is a $400-million investment.

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

Fine.

I would like to know if a comparative analysis was done, and I would like to hear your thoughts about this.

I know that the Minister of Finance met with representatives of the labour-sponsored funds, i.e. the Fonds de solidarité FTQ and the Fondaction of the CSN. Since they saw that the drop in revenue related to the tax credit would be a problem, the representatives made him an offer. They suggested the possibility of limiting the number of shares issued, and thus of limiting the tax expenditures. They suggested investing $550 million in private funds in Quebec—the labour-sponsored funds will surely invest in private venture capital funds—with the possibility of investing everywhere in Canada, not just in Quebec. In addition, $400 million from these two funds would be invested in private funds outside Quebec, including $120 million in the two national funds of the Venture Capital Action Plan.

In all, the two funds proposed an investment of approximately $1.5 billion, but the minister rejected the offer.

Was a comparative analysis carried out on the advantages provided by that level of venture capital as compared to the government plan, and on the advantages of the available level of venture capital in Quebec and in Canada?

[Sean Keenan]

I'm not the expert on the venture capital action plan in terms of how much the funds are.... There's a certain amount of leveraging taking place in that plan.

I would say that the government has gone out and established a review panel, led by Mr. Tom Jenkins, to look at how to support venture capital in Canada. It came out with a report which said that a venture capital action plan was a better way for the government to use its resources in that area, that the labour-sponsored venture capital corporations tax credit has been the subject of many studies where it's found to be not an effective way to direct support to the venture capital industry, and that this new venture capital action plan is a better approach to supporting venture capital.

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

What I gather from what you have told me is that there was no impact study on the level of venture capital, nor on the effect this could have on savings behaviour. Nor was any comparative analysis done on the proposal made by the two funds and the minister's proposal.

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Sean Keenan]

I don't have a response.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

I'm going to Mr. Hoback now, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Gentlemen, it's great to see you this afternoon.

I want to talk about electronic suppression of sales software, ESS, or zappers.

Could you give us an overview of what zapper software would be and what it does?