Thank you very much for inviting us to appear before your committee.
Worker co-ops are inherently more productive than other business types because they make workers into business owners. They are also longer lasting than other business forms. We've quoted various studies in our brief that provide evidence for this.
I have four main points to present to the committee. The first is on business succession using co-operatives. As previously mentioned, a wave of business owner retirements is coming, estimated to be about half a million in Canada. This is only now starting, and the issue will be most acute in rural areas. Many companies risk closure, as a result of which thousands of jobs could disappear. However, the employees of these companies could mobilize to save their jobs and their communities by creating worker and other types of co-operatives. It's another way beyond family business succession.
This is why our federation, along with Co-operatives and Mutuals Canada, has submitted a joint proposal for a support program for co-op business succession so that Canada can maintain more locally owned jobs and services. This approach can also help to increase salaries, helping to strengthen the middle class.
The Careforce home health care worker co-op in the Annapolis Valley is a great example of this potential. When the owner there decided to look at the options for succession nine years ago, there were about 20 workers. A worker co-op was then formed to purchase the business. The co-op has been profitable every year, now has about 80 employees, and has received numerous business awards.
The second is on the need for a RRSP program adapted for employee entrepreneurs. Unfortunately, a change was made in budget 2011 that hurt the capacity for co-ops to capitalize themselves through member investment. The measures on self-directed RRSPs in that budget rendered co-op shares ineligible for RRSPs by members who hold more than 10% of any class of shares in the co-op. If an individual is affected, there are very high penalty taxes. We believe that these provisions are unfairly putting jobs in co-ops at risk. We further believe that the old limit of $25,000 should be adjusted for inflation.
The third is on distinctive tax treatment for indivisible reserves in worker co-ops. An indivisible reserve in a worker co-op is property owned by the co-operative that cannot be divided among members as is typical in non-profit societies. Because indivisible reserves cannot be cashed out by members, they provide long-term investment capital that supports the longevity of the co-op and more clearly demonstrates the community benefit of the co-op. Such a reserve can be created either because it's required by law, as in Quebec and Newfoundland, or because the co-op decides to adopt it, which is the case in other jurisdictions. Providing distinctive tax treatment for such reserves would be fair because the co-op would be receiving a benefit for its commitment to community, reflecting the same logic that says that non-profits are not taxed on their surpluses, and also because co-ops generally cannot access a capital gains tax exemption.
The fourth is on co-operative capital. One of the key differences between co-ops and other corporations is the role of capital. In a co-op, capital is simply one of the tools required to achieve the goals of the co-op. Under most co-op acts, capital receives a limited return and most shares have par value, so that there is no potential for capital gains. In seeking capital, emerging co-ops have two barriers that conventional corporations do not face. First, the democratic structure and the limited returns on capital mitigate against the usual sources of venture capital, which seeks significant control of the enterprise. Second, because co-op par value shares do not generate capital gains, members don't receive the same taxes they do from the government to reinvest in their enterprises.
To help address these barriers, Co-operatives and Mutuals Canada announced just yesterday the creation of a $25-million Canadian co-op investment fund, or CCIF, funded by co-op sector contributions, including from our federation. CMC is requesting a federal contribution that would give the fund the capacity to meet more of the needs of emerging co-ops in Canada.
I would urge the committee to recommend to the government an investment on a matching basis in the fund. We note that better resourcing of this fund could fit well under the federal social innovation and social finance initiative being developed by ESDC. We urge the government to adequately fund this social innovation initiative and to equip it to resource entities like this fund.
Thank you for the opportunity to present.