Industry Committee on Oct. 17th, 2006

[Jean Lapierre, Liberal, Outremont, QC]

Then if we could use the tax system as other than neutral, maybe we could correct the lag we have.

[Nancy Horsman]

Right now the SR and ED incentives are $2.6 billion, and they are provided to over 12,000 businesses in Canada, which is quite advantageous in an international context.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Monsieur Arthur, then to Monsieur Vincent, then that will be the end of questions.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Thank you, Mr. Chair.

A printing press is eternal. It's like a snowplow. Properly maintained, it will last forever. Then you connect it to a computer and it becomes scrap in a few months, or at least in a few years. How did you manage to be identified by the printing industry and its suppliers as their main problem? You do not get it.

[Nancy Horsman]

I guess I'm not sure of the exact....

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Do you not understand that the printing industry says that the capital cost allowance that they are submitted to is ruining their industry in Canada? Are you not familiar with that?

[Kevin Shoom]

We have been engaged in discussions with the printing industry in recent years. As I understand their arguments, they talk about the technological change that has occurred in their sector such that certain processes, which used to be much more mechanical, let's say, have now become more digitized and computerized. Some of their assets, as you indicate, such as the large offset printers, may still last for quite a long time, and they may have a digital interface added to them. Other parts of the printing process have undergone significant change and they don't look anything like they did a couple of decades ago.

We're continuing to take a look at the information the sector has brought to us to determine whether we think there might be a useful-life argument to make to support an adjustment such as they would like to see.

Currently, a lot of their equipment would be considered manufacturing and processing equipment and would be eligible for a 30% CCA rate.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

At this point, though, they indicate that most of the equipment the printing schools use is much more modern than the printing equipment they use in their shops, because they cannot use the tax system to modernize their own shops. So their students go to good schools, study on good equipment, graduate, get to a printing shop, and barf on the equipment and leave because this is completely out of....

This is a fact.

[The Chair, Conservative, James Rajotte]

I know. You're making a good argument, but let's keep the language....

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

“Barf” is not allowed here? Okay.

In French, it's rather more... They curse their equipment and abandon their jobs. Are you aware of the situation?

[Kevin Shoom]

We're continuing to evaluate the concerns they've raised. One of the questions we are interested in discussing with them is whether the separate class election provisions, which we talked about earlier, are of assistance to them, and, if not, why they wouldn't help. Our analysis suggests that a separate class election can cover a large part of the gap that would result if our CCA rates are too low for a particular piece of equipment.

An additional consideration is that right now our system is fairly simple with respect to manufacturing and processing equipment. We provide a 30% rate to this very large category of assets, and that rate is set so as to ensure that it's sufficient to reflect at least the average experience of assets in that class. It would be an interesting question as to whether to start pulling out particular sectors or subsectors if the analysis showed there may be a useful argument for them.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

At this time, today, is there any process of exchange of information with the printing industry, or is it treated as part of a larger universe with you people, concerning the CCU?

[Kevin Shoom]

We've met with the printing sector and we've done our own analysis specifically related to printing assets. We've been doing that.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

How optimistic are you of giving them the chance they need to keep being competitive in Canada? How optimistic are you at this time?

[Kevin Shoom]

It's really not for me to say. For any analysis that we would do, it would be up to the minister to decide whether to make a change.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Vincent.

You have five minutes, Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chairman.

I met with industry representatives in my riding to discuss R&D. I learned that while the program is considered to be sound, filling out forms is a never-ending task and having to hire an accountant to complete the required paperwork in order to obtain R&D funding is a very laborious process.

Is there some way that you could synthesize or simplify the process so that more industry people could obtain funding?

[Nancy Horsman]

We're certainly very interested in simplification of the tax system, and we know that our colleagues at the CRA are also interested in simplification, and we are actively looking at ways of simplifying the administration and compliance of the credits.

[Robert Vincent, Bloc, Shefford, QC]

What does that mean in actual fact? What's going to happen? Should we be telling our industries that you're going to look into this? What concrete steps will you be taking? The process seems laborious. People must jump through hoops to accomplish anything. Even when people manage to make some kind of headway, they receive a notice advising them that documents are missing and that their application is incomplete.

Is there some way of streamlining the process so that small businesses, which still cannot afford to hire several lawyers or accountants to handle their affairs, can manage to fill out the applications on their own?

[Kevin Shoom]

We're not going to deny that filling out a nine-page form or whatever can be a bit of a burden. Unfortunately, because research and development is a very complicated question, and verifying that is difficult and the incentives are so generous, certain administrative processes need to be in place that the Canada Revenue Agency has decided to put into effect.

That said, CRA is also very sensitive to the needs of particularly smaller businesses. They've developed a variety of initiatives to try to help out small businesses and deal with some of these things. I can quickly identify a couple of them.

They have public information seminars, for firms that are interested in applying, talking about the program generally, going through eligibility criteria, what expenditures are eligible, and how to file a claim.

They have industry-specific seminars that reflect that there are particularities about research and development, when conducted in particular sectors, that require a more in-depth analysis to see how the activities in that sector relate to the question of whether it is R and D.

They have put in place a first-time claimant service. A business can get in touch with a representative from the SR and ED directorate, who can provide them with information tools and assistance to help complete the first-time claim. There is a pre-claim project review service--

[Robert Vincent, Bloc, Shefford, QC]

You're reading your text. That's not what I want to know.

The process is so complicated and costly that any company that can afford to apply doesn't really need your money. Companies have to be wealthy in order to benefit from R&D incentives. Unfortunately, that's not always the case. So then, what can be done to streamline the process?

[Kevin Shoom]

There are two perspectives to this--the administrative perspective at the agency and then the perspective from us, at the Department of Finance, who are responsible for the policy and the legislation.

Where things relate to the administrative policies, the agency is always interested in hearing from stakeholders about where the administrative burden is difficult. They'll entertain any suggestions to reduce that. There is really not a lot that we at Finance can do about that, because administering the Income Tax Act is their purview.

On the legislative and policy side, where there are elements of the legislation that cause administrative burden, that is something that we at Finance would be responsible for analyzing.

[Robert Vincent, Bloc, Shefford, QC]

The problem is not solely one of an administrative nature. Business must have a certain amount of capital in order to qualify for these incentives. They've told me that if they had this kind of money, they wouldn't be bending over backwards to get the paltry sums being offered to them. In any case, they wouldn't have to pay tax on the 20 per cent they would receive. Basically, they don't qualify for any kind of tax credit.

[The Chair, Conservative, James Rajotte]

What is your question?

[Robert Vincent, Bloc, Shefford, QC]

Earlier, we heard that private sector businesses make fewer requests because they never manage to qualify.

First of all, do you plan to lower your criteria? And secondly, will you be streamlining your application forms?