Special Committee on Cooperatives Committee on July 27th, 2012

[Vera Goussaert]

For sure.

Certainly, I think that when you go to a lender, they're going to look at the business case and they're going to analyze it based on the business case. Certainly, that does exist. Where I think the difference lies is when you have a conventional small business starting. Whether it's a single entrepreneur or a collection of entrepreneurs, they will put all their assets into it.

Sometimes in a co-op setting, it's a small group of people who, for instance, when you look at rural communities, maybe want to build a hotel in their town, and they want to own it as a community enterprise. All the farmers from the nearby communities are not going to put their livelihoods on the line, if you will. There's a need for this equity financing. I think that's the key difference, and that's where co-ops have a real struggle accessing that equity financing.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Okay, go ahead.

[Peter Hough]

I just want to make a comment as well.

From the straight getting of a loan, the process is somewhat the same when the institution looks at the financials. One of the differences comes down to the fact that they're actually collective entrepreneurships, but bankers and credit union managers as well—indeed, this happens in the credit union system as well—are used to dealing with one individual who will put a personal guarantee and sign off their house to take that risk. They are not used to dealing with a collective group of 5 or 10 people, with a start-up.

The other thing is this. I've seen some situations in which a bank will accept everybody basically taking a portion of their [Inaudible--Editor]. Generally, they want everybody to sign for everything. Now you're in a collective situation in which you now have 5 or 10 houses on the line—

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

What we've heard from the co-ops, though, is that the cooperative lending institutions understand the co-op model better. So they understand what you're proposing to them. Certainly the information we've received is that they are more willing to find solutions. You're pitching one solution that might not be palatable. But they seem to be more dedicated to finding other solutions that would work.

Let me just ask one more thing. In my riding, we have a Community Futures Development Corporation. It's not a great big regional development agency. It's a small but effective organization in my riding. They provide funding for things like what you're talking about—a business case or something that defines their mission statement and what they're all about—so that they can actually hire some help to get those fundamental documents that they would take to seek access to funding.

I'm assuming that it must be the same in your areas, as well. There is federal funding available to both businesses and co-ops that are seeking help with those primary steps, which they would then use to seek funding.

[Vera Goussaert]

Yes, there is. But again, it comes back to that whole vernacular thing. It's not often in the language of business developers. They don't understand the co-op model, so they won't recommend it. They won't advise people that it might be the most appropriate model for them to use. So they then get swayed or pulled in a different direction, and co-ops do not get formed because of that.

You know, you go to the lawyer in town. The lawyer has never worked with a co-op and doesn't understand the model and is going to say that it's much easier to incorporate this as a conventional business.

[Hazel Corcoran]

Plus, the Community Futures aren't in the cities. You can't go to Community Futures if you're in Calgary, as I am.

[The Chair, Conservative, Blake Richards]

Thank you.

Do you have something to add, Mr. Hough?

[Peter Hough]

Yes. I used to be on the board of Community Futures in Nova Scotia and on the local business development corporation. We did make some loans to cooperatives.

I've forgotten what I was going to say.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

It was a good thing.

[The Chair, Conservative, Blake Richards]

Well then, I guess we'll have to leave it at that.

[Peter Hough]

The point is that each Community Futures designs its own programs. Our Community Futures didn't provide any grants to anybody. There were no grants whatsoever for anybody. In our Community Futures, if you wanted to, you could borrow money from us. But there were no grants being provided for anything.

My point is simply that it's not the same across the country. It's quite different, depending on where you are.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We'll now move to Mr. Allen, for five minutes.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Mr. Chair.

Let me thank folks for being here this afternoon. And of course, to be on the record, I thank all the folks who have come here over these five days of testimony. Indeed, as many of my friends across the way have said, it's been a learning experience for some, and maybe less for others, depending on one's experience with cooperatives and credit unions, etc. Some of us have been around them a lot longer.

Mr. Nelson, if I could, there are some rather specific things you and Mr. Dobson have in your package. My friend, Mr. Lemieux, has been talking about the financial end, back and forth, trying to find a reason for saying, aren't they just the same?

It seems to me that near the end of your piece, you talked about classifying cooperatives as a unique business model for tax purposes. Let me just read the entire paragraph, because I know that Mr. Dobson paraphrased some of it, realizing that his 10 minutes was about to end:

Co-operatives are currently not defined as private corporations for tax purposes, but are allowed certain deductions and credits available to private corporations. We would recommend co-operatives be uniquely defined to avoid having to amend sections of the tax laws where there is an intention for a co-operative benefit. Currently, when tax rules change, there are significant uncertainties for how those rules are intended for cooperatives.

If I'm reading that correctly, when I listen to myself say that, you're suggesting that cooperatives don't quite fit exactly the same way, in the tax code at least, as something that would define itself as a corporation, per se.

Perhaps you could speak to that, because there's some significance, at least for me, in what that piece says.

[Bob Nelson]

That is absolutely correct.

As I mentioned earlier, co-ops are neither public nor private, by definition, and there are certain exemptions that take place. Really what we're talking about there is that certain parts of the tax act are applicable or exempt, and the waters are really quite murky. What we're really talking about there is simply calling it out as a distinct business model and taking out the ambiguity. Where that ambiguity exists today actually creates opportunities for us to misinterpret or be offside, totally unintentionally.

The other thing it does, with that simple clarification in the act, if it were to take place, is actually raise the awareness and the relevance of the cooperative business model, right there in that one singular thing. That is without changing anything within what is contemplated by the tax act as it exists today. So it does remove ambiguities, and it creates clarity for us.

[Malcolm Allen, NDP, Welland, ON]

If I can be so bold as to say, I think regardless of the size of the business, whether you are a small start-up with a couple of folks, say, 10 or 12 members, or a large cooperative similar to the United Farmers of Alberta, or others that are significantly large, one of the things they need when they're planning is clarity. It's very difficult to figure out what you should plan, if you're taking all of the aspects into consideration, if you're uncertain what indeed those pieces are.

As you said, it could be murky. It's like putting mud in the water and waiting for the mud to settle to the bottom to see if there's any clear water on top to drink from.

[Bob Nelson]

That's absolutely right. We've gone through tax audits in the past, and as we work our way through those audits, we can actually talk to three different people in a tax department and get three very distinct and different interpretations of what's there and being stated.

Again, anything that can be done to clarify, to eliminate that murkiness, is hugely helpful.

[Bill Dobson]

I'll just add that for us at UFA, we have dedicated accountants at an accounting firm who certainly understand cooperatives. But in my farming other life with other cooperatives, some of the accountants who you might have in a local accounting firm, for instance, struggle with some of these interpretations of exactly how cooperatives could be....

It seems to me that it would make sense to just have a distinct set of rules and regulations on identification of a cooperative. It would certainly simplify things for them as well, because I think there are lost opportunities.

[Malcolm Allen, NDP, Welland, ON]

It certainly seems so. I mean, clarity helps planning.

To Ms. Goussaert, you mentioned earlier—and I agree with Mr. Preston on this one—that you have this training program for high schools or for kids from the province of Ontario, and I happen to see it in my local high school. As much as we run cooperative programs in the sense of having kids in co-op programs, it really is about “Go work for someone”.

Do you see a need to find a way to have a co-op program that actually deals with a cooperative?

[Vera Goussaert]

Oh, absolutely, and that's the awareness-raising. We feel that if we can educate our young people from a very early age about what a co-op is, maybe they'll pursue careers in cooperatives and learn about cooperatives. They might become lawyers and accountants who know about cooperatives.

[Malcolm Allen, NDP, Welland, ON]

Or tax experts.

[Vera Goussaert]

Or tax experts—the whole realm of things, right? They might become leaders within their own cooperatives, or politicians.

So there is definitely value. It is a stand-alone program. It's a series of five lessons, and at the end they've actually built their own co-op. That's the process they go through. It's a really great program to engage young people.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We now go to Ms. Rempel for five minutes.

[Michelle Rempel, Conservative, Calgary Centre-North, AB]

Thank you, Mr. Chair.

To Mr. Hough and Ms. Corcoran, perhaps you can very succinctly summarize the differences, if there are any, between a worker cooperative and a regular cooperative.

[Peter Hough]

Cooperatives are generally defined by their membership bases. In a consumer cooperative, basically the consumers are the members of the cooperative. They elect the board of directors, and the board of directors then manages on their behalf.

Then there's the worker co-op. For instance, a grocery store in Cape Breton is a worker cooperative. The members of the cooperative are the employees in the grocery store.

[Michelle Rempel, Conservative, Calgary Centre-North, AB]

Oh, okay.