Finance Committee on May 26th, 2015

[Mark Adler, Conservative, York Centre, ON]

Thank you.

In regard to the accelerated capital cost allowance extension for 10 years, writing off 90% after four years, 95% after five, would you agree it keeps Canada competitive in its tax treatment of investment and production technologies?

[David Podruzny]

Yes, I would agree with that.

[Mark Adler, Conservative, York Centre, ON]

Thank you.

Earlier you had indicated once again that we're in a global competition right now. Canada's marginal effective tax rate for new investment in manufacturing will be 9.1% in 2016. This compares to the United States, which will be the same timeframe, 31.7%, and 26.4% in Germany. How important is it that Canada's effective tax rate on new investment be that low in attracting investment for jobs to Canada?

[David Podruzny]

This is a pretty important consideration. The investor in many cases is in Germany or the United States, so they already have a bit of a home court bias, home court advantage, and with measures that encourage buying local, there is some pressure on some of these head offices to reinvest where they are. There has been some resistance to that, but there is a very real home court advantage, particularly since the market that we're going to be seeking...and thank you for things like the EU—

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[David Podruzny]

—free trade agreement. The market we're going to be seeking is the same market that the owner is in. It is important to be better than when you are a very small player in a big field.

[Mark Adler, Conservative, York Centre, ON]

How important is fiscal certainty for business confidence? When I say fiscal certainty, I mean a balanced budget.

[David Podruzny]

The business community would expect to see rates going up if there is a long-standing and long-term prospect of deficit.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Adler.

I'm just going to follow up on a few points.

Mr. MacDonald, I want to follow up on your presentation. You talked about the measures in the BIA. You also talked about charities being allowed to invest their assets in limited partnerships. You talked about it benefiting the sector in two ways, and the second benefit is that operating charities and non-profits may themselves be involved in limited partnerships. You're waiting for specific details on how this will work, but your initial estimate is that tens or even hundreds of millions of dollars could be available annually for partnerships involving charities and non-profits.

I'm going to take advantage of your being here today to have you indicate to the committee and perhaps Finance officials in the room how you would like to see these partnerships work.

[Bruce MacDonald]

Right now the sector is faced with the challenges around trying to build capacity-type dollars. In the future I think there is going to be this need for the sector to be allowed to work in ways that might be more akin to business in a sense. Ensuring that as this moves forward we're almost considered on the same level as small and medium-sized enterprises in looking to invest in businesses and limited partnerships I think would be important to keep top of mind.

[The Chair, Conservative, James Rajotte]

My understanding is the country that has done the most in this area is the U.K. Is that correct?

[Bruce MacDonald]

In many areas the U.K. is considered to be a little ahead of Canada when it comes to the relationship with charities and government and the climate they've set.

[The Chair, Conservative, James Rajotte]

Thanks very much. I appreciate that.

Mr. Podruzny, the ACCA measure I think is a sign of committees doing effective work. I think, going back, if we recall, and we're dating ourselves, this came out of a 2007 industry committee report, which was a unanimous report at the time. It called for ACCA for five years. Then as you know, it was put in place for two years and it kept being extended. Now I think the minister has very wisely put it in place for ten years, to judge how it will be for a five-year period initially and then for a second period.

Over the years you've argued for it to be longer than two years. Explain to the committee why it needs to be longer than the two-year renewal period.

[David Podruzny]

The two-year rollover works well for small investments. That was working fine there. When we're considering very large flagship investments that might be in the $1 billion to $4 billion range in manufacturing, the planning process before a board makes a decision to go ahead will take up to two years. It will then take almost two years to get regulatory approvals and for site preparation. It's only after anywhere from three years to four years, or four and a half years, before the machinery and equipment is brought onsite and is eligible for this reduction. Therefore, in the initial planning process where the board is trying to make a decision, they will not count this benefit in their calculations unless the measures are in place to that time period in the future when that machinery and equipment would be arriving. Therefore, it respects the business cycle and it also respects the ability to count on that measure being in place.

It was very important to go for a full business cycle.

[The Chair, Conservative, James Rajotte]

Okay, I appreciate that.

I have limited time remaining, but in your presentation, you talked about sales in 2014 being $621 billion, up 5.2% for the year, which is very good news. Exports were a record $525 billion. And 2015 is not starting out as positive, but can you give us some sense as to why figures were up that much in 2014? What led to that positive outcome?

[David Podruzny]

First of all, there was a significant increase in markets around the world that we could be a part of, and so we were exporting to a larger degree. That large and record export number represents increased improved access to certain markets around the world. That has a lot to do therefore with the growth in shipments. Our capacity utilization was up. Those are all linked together. If you have more exports to markets, you're going to have more production, more shipments.

[The Chair, Conservative, James Rajotte]

Offhand, just in my brief remaining time, which of the 21 subsectors performed best?

[David Podruzny]

I'm very biased on that, of course. It was the chemical sector.

[The Chair, Conservative, James Rajotte]

Yes, okay, other than yours—

[David Podruzny]

Food processing did very well. The machinery and equipment sector did well. We had a higher dollar in the beginning of 2014, but as it came down in 2014, the increase was right across all sectors. Aerospace was another one that did very well.

[The Chair, Conservative, James Rajotte]

I'd like to continue this conversation. I'd like to go to Mr. Bonnett on that theme, but unfortunately, our time is up for this panel.

On behalf of the committee, I thank all of you for presenting your views to the committee this morning. If you have anything further for us to consider, please do submit that to the clerk.

Colleagues, we'll suspend for about five minutes and bring our next panel forward.

Thank you.

[The Chair, Conservative, James Rajotte]

I call this meeting back to order. We are resuming our study of Bill C-59, an act to implement certain provisions of the budget tabled in Parliament on April 21, 2015, and other measures.

I want to welcome all of our officials here this morning. Thank you so much for being with us.

Colleagues, I've received some feedback in terms of priorities, so this is how I will proceed as chair. We will do part 1 first, then we will proceed to part 2, and then we will proceed to part 3. In part 3 we will do divisions 1, 6, 7, 10, 18, and 20. If we have time, and that's a big if, we will do part 3 divisions 8 and 19. Those are the sections that committee members have indicated are priorities for them.

I want to welcome our officials for part 1. I ask you to make an extremely brief opening statement. Members have all had extensive briefings on the bill itself, so we'll just do a brief introduction of part 1 and then we'll go to members' questions.

Mr. McGowan, I think you'll be doing the statement.

[Trevor McGowan, Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance]

Yes, I will. Thank you.

Part 1 of the bill implements a number of tax measures that were proposed in the April budget or that were referenced in that budget. Most notably, it reduces the required minimum amount that must be withdrawn annually from a registered retirement income fund, a variable benefit money purchase registered pension plan or a pooled registered pension plan. It ensures that amounts received on account of the new critical injury benefit and the new family caregiver relief benefit are exempt from income tax. It decreases the small business tax rate and makes consequential adjustments to the dividend gross-up factor and dividend tax credit. It increases the lifetime capital gains exemption to $1 million for qualified farm and fishing properties. It introduces the home accessibility tax credit. It extends for one year the mineral exploration tax credit for flow-through share investors. It extends for five years the tax-deferred patronage dividend regime for shareholders in agricultural cooperatives. It extends until the end of 2018 the temporary measure that allows certain family members to open a registered disability savings plan for an adult individual who may lack the capacity to enter into a contract. It permits certain foreign charitable foundations to be registered as qualified donees for income tax purposes. It increases the annual contribution limit for tax-free savings accounts to $10,000. It creates a new quarterly remitter category for certain small new employers. Last, it extends, with some modifications, for 10 years the accelerated capital cost allowance for investment in machinery and equipment in the manufacturing and processing sector.

[The Chair, Conservative, James Rajotte]

Thank you for that brief overview.

We'll begin members' questions with Mr. Cullen, please, for five minutes.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you to our officials.

Here we are again.

I'm going to focus in on part 1, paragraph (j) in the summary, regarding doubling the contribution to the TFSA. I'm wondering if the department has done any analysis of the fiscal impact of doubling the TFSA over the next 5 to 40 years.