Finance Committee on Nov. 7th, 2024

[Katie Crocker]

—who are expecting pathways to permanent residency.

[The Chair, Liberal, Peter Fonseca]

I'm sure you'll be able to expand with other questions. We're just a little bit over time here.

We are moving into our second round, members, and we're starting with MP Morantz.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

I want to thank all of our witnesses for their excellent testimony.

Mr. Clarke, I'll start with you.

In your submission, you say that TMX continues to oppose the increase in the capital gains inclusion rate because it is a tax on investment at a time when Canadian businesses and the economy most need that investment.

In the April budget, the government increased the inclusion rate from 50% to 66.66%. In your testimony, you said something I found a bit curious, and I want you to elaborate on it. It's the idea that not all capital gains increases are created equal.

In the end, your recommendation is to lower the inclusion rate on Canadian-based investments that drive growth and productivity in the economy. I'm wondering if you could elaborate on that. Parse that out for me. What kinds of investments do you think it should be lowered on?

[David Clarke]

Thank you, MP Morantz, for the question and for pulling that out.

I was freelancing a bit in my comments, so for anybody who was listening through translation, I hope that came through.

What I meant was recognizing that there are lots of reasons the government might have wanted to raise the capital gains tax. When I said that not all capital gains are created equal, what I was really referring to is a difference between productive investments—productivity-generating investments—and other investments.

A non-productive investment is your cottage. If the government really needs the revenue and they want to tax that, go ahead. We hear about this all the time in terms of a productivity gap and in terms of lagging growth in Canada. We want to create tax policies and policies in general that incentivize Canadians and others to invest in Canadian businesses. What we're suggesting here is that if you need to raise taxes somewhere else, we can talk about that, but we would suggest that you should not raise capital gains on Canadian investments in Canadian companies, the kinds of companies that list with us, and private companies as well.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you.

Mr. Rock, from your testimony, it sounds like you feel the same way. Would you agree with Mr. Clarke's position?

[Dr. Terry Rock]

I would, wholeheartedly, yes.

There are enough headwinds when you're getting going. We're seeing a lot of traction right now. We want to keep it going.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

One thing you said in your testimony that I found interesting is that we need to be globally competitive. You have folks in your incubator who have taken tremendous risks. You talked about those risks and the ramen noodles and all that.

How are they feeling about this? When somebody makes a decision like that, they look at all of the economic factors, including the tax environment. They went into whatever they're trying to create or innovate based on the capital gains tax being 50%. What goes through their minds when they see a government basically pull the rug out from under them in the middle of their taking this huge risk in their life?

[Dr. Terry Rock]

It's exhausting. It's already frustrating when you're working on this stuff, and when you're getting an ecosystem like ours going, you need the winds at your back.

I'd just point out that we spend hundreds of millions of dollars on creating IP through our universities, and then when we try to build it out through private businesses, we add friction, and that's a problem.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you.

You also said something about how a decrease in the capital gains inclusion rate results in a certain number of new start-ups. Do I have that right?

[Dr. Terry Rock]

Yes. We found some data that a 5% decrease is a 15% increase in the rate of start-up creation. The U.S. has had a lot of start-up creation since COVID, and Canada hasn't followed suit, so we should do more of that.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Would the corollary also be true that the increase in the capital gains inclusion rate would have the opposite effect?

[Dr. Terry Rock]

The experience we're having is that we would consider that to be friction, and our whole job is to get rid of friction.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Very good.

I have a question for Mr. Ross from the agricultural producers union.

In your submission to the committee, you said that the government should eliminate or limit taxable capital gains on the gifting or low-cost sale of certain farm assets to a nephew or niece. I'm wondering if you have an opinion on what the government did this April in the budget to increase the capital gains tax inclusion rate, which seems to go against the intent of your recommendation.

[Charles-Félix Ross]

I will let Mr. St‑Roch, the tax and accounting expert, answer that question.

[Marc St-Roch, Coordinator, Accounting and Taxation Department, Union des producteurs agricoles]

Good afternoon.

The request for a tax accommodation with respect to a niece or nephew expands on an existing provision in the Income Tax Act that allows a parent to transfer farm property to their child without having to declare capital gains. So it facilitates the transfer of family businesses.

Increasingly, however, several families are involved in farm businesses. Let's take the example of two brothers who are co-owners. One brother would like to leave the farm and, since he has no one to take over, he would like to transfer part of his interests by gifting them to his niece or nephew. Under the act, he must declare capital gains, even if he hasn't made any money.

We'd like the existing rule for property transfers between parent and child to also allow transfers to a niece or nephew.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I'm really sorry to interrupt, but I'm getting the hook from the chair. I had only five minutes and we're at seven, so thank you for your answer.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Morantz.

We're going to MP Dzerowicz, please.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank all the witnesses for their excellent presentations today. I will only have time to ask a couple of people some questions, and I'm going to start with Ms. Benjamin.

Ms. Benjamin, as you may know, I feel very blessed and proud that I have so many artists and musicians in my downtown west Toronto riding of Davenport. I believe that every community is made better by local artists and live performances.

The federal government has a Canada music fund, and I think that over the last nine years, we've probably announced around $400 million through that fund. We also have great programs like the Canada arts presentation fund.

Hold on a second. Mr. Chair, I'm sorry, but I can barely hear myself talk over some of the side talk here. Could we just keep that under wraps?

I'll start from top with my questions.

I know we have a Canada music fund. We've funded that to the tune of about $400 million since 2015 to support Canadian musicians. Then we also have a Canada arts presentation fund and the Building Communities through Arts and Heritage program, which I believe also support both live music and arts festivals across Canada.

My first question to you is this: What have programs like these meant for your members? What's the importance of having these types of programs, and why is it important for us to continue to fund them?

[Erin Benjamin]

Those are three incredibly important programs, and they were increased in the last budget to a certain extent. However, right now on the CAPF side, there are reductions to each individual client due to an increased competition for the funds. There is simply not enough investment in that program, the CAPF program, currently, no matter how....

[Julie Dzerowicz, Liberal, Davenport, ON]

Which fund is that?

[Erin Benjamin]

CAPF is the Canada arts presentation fund, a program that incentivizes artistic risk-taking by non-profit organizations like festivals, municipal theatres, etc. It's an incredibly important program, and it has really brought forward all kinds of work that may not find its way into different parts of Canada from coast to coast to coast.

Think about contemporary dance, theatre and live music—absolutely—so it's a really important program. It has certainly incentivized an increase in artistic content, and it has enabled, as I say, presenters and promoters to bring certain types of content into certain types of markets. It's exclusively for non-profits. It's an important program, and it should continue to grow in terms of investment.

It is the same with the BCAH program, the Building Communities through Arts and Heritage program, which is also exclusively for non-profits.

Then there is the Canada music fund, for which Minister St-Onge announced an increase during the Junos in Halifax, which was wonderful news. The Canada music fund has only recently—as recently as October, in fact—been made accessible to the commercial live music industry. In October, FACTOR, the agency that delivers the Canada music fund on behalf of Canadian Heritage, announced a pilot program called the promoter program, which is the first of its kind. The deadline was Halloween. We don't know yet the outcomes of the program, but it was developed after 10 years of our conversations with Canadian Heritage around the opportunity that the commercial music sector represents.

I'll be very blunt. There is a lot of room for investment into the commercial side of the music industry, the live music industry, which, as I say, we've just taken a baby step toward. The Canada music fund is absolutely an important program, and if my colleagues from our adjacent sectors in the independent music industry and the recorded music industry were here, they would certainly agree. Live music is a newcomer to the table, and there are many mouths to feed.

However, one of the points I want to make in my remarks today is that I think we're not necessarily looking at the policy through the lens that we should—through something like music tourism and the opportunity that live music represents—in a really scalable way. These programs are essential, absolutely, and there's room to do more.

[Julie Dzerowicz, Liberal, Davenport, ON]

That leads perfectly into my next question, actually, because I want to talk to you about the tourism-focused program you were talking about.

It seems that we have some great programs in place, but they're programs that need more funding. Are there any other programs that are helpful toward this tourism-focused program recommendation that you have, and where do you feel there's an opportunity for us to do more? Could you be a little more specific?

[Erin Benjamin]

I can, absolutely.

In our budget submission, our second recommendation is around a tourism-focused festivals program. Going back several years, some may remember the marquee tourism events program. Ostensibly, the essence of that program was to incentivize larger festivals across the country through a tourism lens to grow their activity and, through marketing, etc., try to increase their audience base and therefore the exponential direct and indirect tourism benefits.

We're supporting festivals to a certain extent through the CAPF program and through the tourism growth program to a certain extent. There is an events component there. However, our recommendation around the festivals program is fundamental to really leveraging the music tourism piece. That's where the opportunity is. Every market in this country would love to have a Taylor Swift event. We have Bruce Springsteen coming this weekend to Ottawa. It's incredible. We just don't think about the infrastructure. It's just a huge opportunity.

I know you're not used to having live music people come to the finance committee. In a 30-year career, this is my first time presenting, and I'm so happy to be here to talk about this, because from a policy perspective, it's low-hanging fruit in our opinion; it truly is. This is not about what's wrong with arts and culture and how COVID crushed us; this is about looking at how, as I said in my remarks, we take on the risk and everybody benefits—not just the hotels and the restaurants that I talked about, but also transit, the local corner store, the parking lot and the airlines, etc. It is a way to pay it forward, unlike many other industries.

The opportunity is to sit down with the live music industry to really unpack the scalability of this industry. I know that Taylor Swift is not necessarily coming to every market, but when we look at it from a policy perspective, we can start to fine-tune how to leverage live music activity.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Dzerowicz. We are well over time.

Now we're going to MP Ste-Marie, please.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Mr. Ross or Mr. St‑Roch from the UPA, I have two and a half minutes, so I'm going to ask you two questions.

First, you're asking that the federal government align with the tax assistance Quebec provides for food donations made by an agricultural producer. Can you elaborate on that?

Second, why is it important to establish a personal silvicultural savings and investment plan for forest owners?