UFA governed Alberta until 1935, at which time they were defeated. During this period, UFA's farm supply business was also flourishing. In 1932, it was felt that the formation of a centralized cooperative would be the most effective way of serving the needs of agriculture in Alberta. Today, the political involvement and farm lobby efforts are long gone, but the cooperative business continues to grow and improve the livelihoods of rural Albertans.
The UFA sees three areas of focus, quite distinct from one another, that should be of significant interest to the federal government: the business environment for larger existing cooperatives; support in rural Canada for emerging cooperatives; and cooperative-based foreign aid.
Of most significant interest to UFA is the business environment for larger existing cooperatives, and therefore today's comments will be largely directed towards this point. However, we'll make a few observations on the other two at the end of our presentation.
It is certainly our belief that being a cooperative should provide neither an advantage nor disadvantage to a Canadian business. Co-ops have a unique way of operating that needs to be recognized and respected. UFA operates through its own, specific provincial charter, but federal taxation rules have a profound influence on our business. Also, the raising of capital in a cooperative structure continues to be a significant challenge.
Historically, cooperatives started small, from a common need, and gradually grew over a long period of time. In today’s corporate world, it is vital that a business quickly be of a certain scale to be competitive and relevant. This is true in the cooperative world. We would like to see the federal government re-establish a permanent interdepartmental cooperative committee. The unique nature of cooperatives needs to be understood and leveraged so that rural communities succeed. We would also recommend that a small group of financial experts be assembled to determine if there are areas of inequity that could be rectified to ensure that cooperatives and corporations operate on a level playing field.
Our chief financial officer offered us the following suggestions as to how tax rules might be modified to simplify and clarify reporting.
First, exempt cooperatives from part VI.1 tax. Part VI.1 tax tends to be an additional tax burden for most cooperatives that are carrying on business in limited or constrained jurisdictions. It is based on an assumed combined federal and provincial tax, which deviates from the specific provincial tax rate where the cooperative is doing business. In addition, paying out this extra tax reduces the ability of the cooperative to pay out more patronage dividends to its members, whom it is mandated to serve. And it is an added burden when co-ops are operating at a loss.
Second, classify the cooperative as a unique business model, for tax purposes. We would recommend that cooperatives be uniquely defined to avoid having to amend sections of the tax laws where there is an intention for a cooperative benefit.
Finally, extend the tax deferred cooperative share, the TDCS. The TDCS was set up by the 2005 budget reforms to assist agricultural cooperatives in their capitalization needs by deferring patronage dividends paid by way of the TDCS to the members. This program is scheduled to end in 2016, but we believe that it is worth extending, as capitalization remains a crucial challenge in the coming years. We also request that other measures be considered to ensure that there are no barriers for cooperatives that are seeking capitalization outside of their member base.
Hopefully these ideas could be given consideration and discussed with other cooperatives across Canada.
UFA is concerned not only about the cooperative but about our member-owners, as well. The third of seven International Co-operative Alliance principles is entitled “Member Economic Participation”. We feel that it's vital that we live up to that obligation. It is very important that our members receive fair tax treatment in regard to patronage allocations and that they also have the ability to invest in their own cooperatives.
The third point, regarding co-op shares, is advantageous both for the cooperative and the member. We would recommend working with our national cooperative associations to ensure that together we create the optimum environment for member support and investment in the co-op sector.
On emerging cooperatives, UFA has not always been a large, successful co-op. Like any other business, we had a beginning. That start was, at many times, challenging and difficult. Through experience, we are confident that the cooperative business model is a very effective way of doing business. It creates a good working atmosphere for owners and employees. There is a sense of loyalty among members, who are also customers.
There is certainly a public interest and benefit in maintaining a strong rural Canada. We would hope that your committee will examine ways the federal government can assist in stimulating growth in rural communities through the development of the cooperative system. Although the cooperative development initiative, CDI, was designed to foster this type of partnership, we understand the need for fiscal restraint and the efficient use of tax dollars. We are not here to complain about the end of that program but rather to encourage an examination of just what the role of the federal government should be in the future. We would be pleased to further discuss ideas on how government and industry could partner in the development of emerging cooperatives, especially in rural Canada.
Also, our membership in the Canadian Co-operative Association is an avenue that we utilize to forward our ideas for such initiatives.
Although cooperative foreign aid may not be the primary focus of this committee, we feel that it is worth briefly mentioning. Canada has a proud history of providing foreign aid to those who are born into circumstances beyond their control. We are probably all in agreement that the wisest use of aid money is to help people help themselves. Canadian cooperatives and credit unions fund several international development programs that partner with others, including CIDA, to provide funding for people who face extraordinary challenges. Cooperative enterprises definitely help people help themselves. We are willing do our part, and we invite you to work with us. We encourage you to continue partnerships that will provide cooperative-based foreign aid programs.
In conclusion, we thank you for the opportunity to address this special committee on the future of cooperatives. We are pleased to answer any questions you may have.