Thank you very, very much.
Thank you for the work you've already done studying the issue of heritage in Canada, and now today studying this bill.
I also want to start by thanking in particular John Aldag for the fact that we are here discussing this at all. It has, in my view, as much, if not more, to do with him than with me. That, I think, says something about this bill.
I should say a bit about why I chose this as the subject for my bill.
I'm a former House leader. I have no illusions about my ability to count. I knew if I wanted to have something that was going to have any prospects of success, I would have to select a subject matter that was worthy, that was non-partisan in nature, that could do positive things for the country, and that, as a result, could earn support from all sides. This bill is exactly such a bill, and it addresses what I think has been an outstanding policy need in our country for some time. In fact, this bill builds on work that was done previously under both Conservative and Liberal governments but that has never been brought to a satisfactory conclusion. You, as a committee, have an opportunity to complete that work and to fill a very important policy void, at least in part, obviously not in its entirety, that calls out for federal involvement, as I think you heard from many witnesses.
The purpose of Bill functionally is to establish a tax credit for 20% of the cost of the restoration of heritage buildings. The rest of the cost, the remaining 80%, would then also be able to benefit from an accelerated capital cost allowance, for a three-year writeoff, whereas a normal project of that type might take a little longer to write off under the tax rules.
The tax credit and the accelerated capital cost allowance would apply only to properties that are on the Canadian Register of Historic Places, so in that sense their impact is limited and their scope is limited. As well, the work that was done, the costs for which the benefit of the credit is being sought, would have to be certified by a professional engineer as having followed the “Standards and Guidelines for the Conservation of Historic Places in Canada”, which have been prepared by Parks Canada. It should be noted that both the Canadian Register of Historic Places and the “Standards and Guidelines for Conservation of Historic Places” were developed within the Department of the Environment in anticipation of exactly a tax credit policy such as this, and they are there to support it. So we're in the fortunate position of being able to bring forward legislation for which that infrastructure has already been built in the department with legislation like this in mind.
Why does it matter that we preserve heritage buildings? When we think about the places we like to visit, the places that attract people from around the world, we think of places like London, Rome, St. Petersburg, and Paris. People want to go there because they will be surrounded by beautiful heritage buildings. Those buildings help to define those places. They tell us who we are. They tell our stories. And it's no different here in Canada. In Canada the places we find enjoyable to visit, the places where people want to gather and want to go are overwhelmingly the places with well-maintained and preserved heritage areas. Think of the Distillery District in Toronto or the Old Port in Montreal. Think of quaint small towns, whose main streets you like to visit and shop in. There's a reason for that, which is that those places tell our stories. We feel when we are there that we are absorbing what's gone before us, what has made us what we are, and what a place is all about, in a very physical way.
I think that's one reason it's important. But why take the step forward in terms of a tax credit to help preserve these buildings? The reality is, as anybody who has been involved in owning a heritage building or in a business that's in one knows, that while there's a strong public interest in preserving such buildings and seeing the restoration, there is an extraordinary cost. The cost of preserving a heritage building is usually well in excess of the cost of demolition and new construction of something equivalent. We've lost 20% of our national heritage over recent decades, according to evidence you've heard, because sensible people in business, who look at the cost of restoration and look at the cost of new construction will usually opt for new construction because it is financially advantageous.
When we ask individuals to restore and preserve a heritage building because it's good for society, it's good for the community, we are asking them to assume privately the cost of maintaining what is a public benefit for the entire community. The policy rationale is if we're asking them to bear that public burden privately, it is incumbent upon us to assist them somewhat, in fairness, if we actually want to see those historic buildings preserved. When a heritage designation falls on a property, that is one of the consequences. We put barriers in front of what they can do with it, and so on. Our laws fundamentally respect property rights. Those are not permanent barriers ultimately.
There's always the option of demolition. There's a real cost there. We don't want to see that demolition occur. We want to see the buildings maintained, restored, and become vital parts of the community. That's why the policy rationale for this bill is solid. If we accept that heritage buildings are a value, is this the right approach, correct approach, or positive approach to preserving them?
This tax credit is very much modelled on a U.S. program that you did hear evidence about, the heritage restoration tax credit. That program has been highly successful over recent decades. It's a rare program that actually returns more to the public purse than it takes away from the public purse. There have been abundant studies to that effect. You heard about the Rutgers study that regularly looks at it on an annual basis, and calculates that for every dollar impact on the public purse in terms of a credit going out, $1.25 or more gets returned to the public purse every year in the United States.
I'm often skeptical of these kinds of arguments because anybody who has been.... I think of Mark here. As a mayor he probably had all kinds of economic input. The basic rationale tends to be that if you just spent all the money there was in the world, we'd all be millionaires, because that's the kind of economic impacts these people put in front of you. This is actually a different kind of case. These have been so clearly studied and the results are so apparent.
I look at the Urban Land Institute which operates here in Canada as well as in the United States, and also around the world. It puts out a quarterly magazine. I was looking through it about six months ago, as we were working on this bill, for totally separate reasons just because of my interest in these things. What struck me was that it was an edition where it focused on all the top projects in North America. Virtually every single one in the United States that was a success story had taken a derelict downtown area and made it into a vibrant hub of commercial, economic, retail, and entertainment activity where people wanted to go. Almost every single one involved heritage restoration and a heritage restoration tax credit.
These have all been showcased as the best projects in the country. The fact that the restoration tax credit was present in virtually every one of them spoke volumes to me in a country like the United States where there's no real kind of planning push against suburbanization like we have here. I saw in that the very real economic impact that was occurring.
In the U.S., about $1 billion a year is spent on these credits, or at least those are the benefits that go out in the credits. They tend to generate about $5 billion a year in economic activity, and about $1.25 billion a year goes back to the public purse. They're netting out in a positive result to the public purse. That's very significant, and the evidence is there, as I said, from the Rutgers study and elsewhere.
In Canada, we've had a little bit of an example. We had a trial program which was a grant-based program, but Deloitte did some work reviewing its success in looking forward to a tax credit program. By its projections, we would have a similar kind of return here based on the evidence in front of you from witnesses between $1.25 to $1.90 for each dollar that would be a credit impact. You would have that much going back to the public purse. There would actually be a net gain.
It's not the only place where that's happened. I use the analogy, and some people have said this is a boutique tax credit. In fact, I put more on the grounds of something like the science, research and experimental development tax credit, a tax credit that we engage in the society, because we want to encourage certain economic activity that's desirable to make our economy and our country a better place. In Canada, that's about $4 billion a year, I believe. About 85% of our research and development spending goes out through that credit. It's done by the government, because we believe it is a worthy way of encouraging desirable economic activity that makes our country stronger and creates economic growth. If you're talking about analogies, that is the strongest analogy to that kind of a tax credit, the SR and ED credit compared with what we are talking about here.
I want to draw your attention to an amendment that needs to be made here. It is only in the French-language version, at line 11, on page 3. Right now, the way it reads, the way it was originally drafted, basically the effect is that the capital cost allowance would be applied against income tax payable, rather than deducted from your income from which tax payable would be calculated, so you'd be getting two credits instead of an accelerated capital cost allowance. We need to correct that, so we're asking
that Bill , in clause 1, be amended by replacing, in the French version, line 11 on page 3, with the following:
|| déductible dans le calcul du revenu d'un contri-
The way it would be calculated, the capital cost allowance goes against the revenue that's going to be taxed.
I'm happy to take as many questions as you have.
There's one story I would like to tell you. In my previous life in private practice as a lawyer, I ended up carving out a bit of an area of work where I did a lot of heritage work for some reason or other. It just worked that way. One that my firm was involved in, but that I personally was not, was BCE Place in Toronto. There was no tax credit like this in place, but the City of Toronto had a policy that if you were preserving designated heritage elements in certain areas of the central core, you got a two-times density bonus. At the corner of King and Bay, two-times density was kind of valuable, and at Yonge and Front streets, that's kind of valuable.
Every year, Andy Barrie on CBC would have a rant one day where he would talk about how great it was that the planners stood up to the evil, rapacious developers and forced them in BCE Place to save that bank building that became the Hockey Hall of Fame, to save the Chamber of Commerce, that gorgeous building that went inside, and to save all that beautiful facade of buildings along Yonge Street, and really protect that heritage character even though it was new construction, and thank God for the planners.
He was right in one regard, except they weren't standing up to the developers. What happened was incentives were put in place in the form of that density bonus. The developers said, “Hey, we want to get that additional density.” They hired some historians and heritage experts to make the case on why some of these buildings should be designated and preserved because they were of value. The heritage board for Toronto accepted that. They actually encouraged the process of this preservation so they could capture the density.
The point I'm making is that, with the right incentives in place, you will change the bottom-line equations that affect behaviour, and instead of demolition, you will get preservation. Anybody who has been to BCE Place will tell you that it's wonderful because there are beautiful new buildings that are enjoyable to be in, but there's also beautiful built heritage that makes the neighbourhood and the whole area a very valuable and wonderful place to be. It's a tourist hub, an economic activity hub, and it's positive in all those ways.
Thank you very much, Madam Chair, and to all members of the committee, good morning.
We would like to take this opportunity to explain the lens through which my colleagues and I in the tax policy branch examine and evaluate tax credits such as this one.
As a starting point, it's important to consider whether the goal of any tax measure is consistent with the functions of the tax system. The primary function of the Canadian tax system is to raise revenues needed to finance programs and initiatives that benefit Canadians.
However, the tax system has other secondary functions. One of these involves incentives within the tax system to support economic and social objectives, such as increasing saving and investment and charitable giving. The member also mentioned the research and development program, which is a very good example. Disincentives, such as excise taxes on tobacco, can also be used to discourage activities with negative externalities.
A tax measure of the variety proposed in this bill seeks to further a social objective, in this case, encouraging the rehabilitation of historic properties, its stated goal. The preservation of Canada's built heritage could be considered a socially beneficial behaviour. You talked a lot about that. But it endeavours to achieve this at the expense of another desirable goal, raising revenue. We have to strike a balance between the two. In making such an assessment, we strive to determine if the tax expenditure in question can effectively and efficiently fulfill its stated purpose.
Is offering a tax incentive, like this one, the most cost-effective or efficient means for providing these benefits? The tax expenditure associated with the measure represents amounts or dollars that could otherwise be used towards supporting a similar objective through spending. The colleagues from Parks Canada can talk about what happens on the spending side. There are advantages and disadvantages. You touched on this a bit in the previous round of discussion for tax incentives versus spending. With tax incentives, it is a bit more bottom-up, so there's more flexibility. However, in terms of spending, it's easier to control program costs and to ensure other types of equity, like regional and sectoral equity, so there are trade-offs.
A key consideration when considering any tax measure of this type is the extent to which it's effective in changing behaviours, as opposed to simply subsidizing activity that would have taken place anyway in the absence of the measure. On the one hand, this credit could have some effectiveness in encouraging owners to rehabilitate rather than demolish heritage properties. You touched on the U.S. experience. Things here are a bit mixed. There are studies that suggest the federal rehabilitation tax credit, in particular, has been effective. An important point we want to make is that the estimates of economic effects in these studies assume that none of the rehabilitation work would have happened in the absence of the credit, so zero. Is that a fair assumption?
On the other hand, the credit could represent a windfall gain for existing owners of historic properties. Those required to maintain their properties, in accordance with provincial, territorial, or municipal legislation, or to those who would have undertaken it anyway.
You also talked about equity, another criterion integral to policy analysis. A specialized credit offers tax incentives to a limited group of taxpayers. In terms of the bill at hand, the benefits of the tax incentive would primarily accrue to corporations and a limited number of, likely higher-income, individuals who own heritage homes. While heritage properties undoubtedly involve extra expenses, it is not clear that it is appropriate for these expenses of one home owner or property owner to be subsidized through the tax system.
Providing tax recognition for rehabilitation expenses for heritage buildings that are used as personal residences, which is part of the bill, could be inconsistent with the treatment of non-taxable assets such as a principal residence. Currently, neither the expenses related to owner-occupied housing nor the benefits, such as capital gains on a principal residence, are recognized for tax purposes. This approach ensures symmetry in the tax treatment of principal residences. To the extent that tax assistance is provided for renovations to personal residences, this would in many cases result in an increase in the value of these residences, providing a tax-free gain on disposition of the property.
To a certain extent, the tax system already provides measures to support the preservation of Canadian heritage. The Income Tax Act provides incentives for individuals and corporations to make donations to registered charities that support heritage properties. These tax incentives for donations to registered charities in Canada are among the most generous in the world. Generally, the tax policy in these instances has been to encourage donors to make contributions to registered charities, that is, organizations that have the mandate and the capacity to preserve and maintain important properties for the benefit of the public.
Tax measures also impose compliance costs for taxpayers and administrative costs for the government. In this case, you're probably talking about both the Canada Revenue Agency and Parks Canada, and it's important to take these into account in analyzing the overall efficiency of the measure. You want to see how these would compare if you tried to achieve the measure in an alternative way, say, through a spending program.
You had the discussion comparing it to the U.S. At the federal level, it's a 20% tax credit for designated properties. One important difference between the two appears to be the amount of rigour around ensuring compliance. In the U.S., the National Park Service is involved in certifying rehabilitation projects to ensure the work meets standards for rehabilitation both before and after the completion of the work, and they can also complete on-site inspections. We don't necessarily see the same types of authorities or protections in this bill, and if they were added, that would have an effect on the administrative and compliance costs.
Finally, the department recognizes that developing an equitable and efficient tax system requires that tax legislation be drafted in a manner that protects individual tax measures from being accessed in ways counter to the original policy intent sought by legislators. In our tax policy development process, which includes legislative review and drafting, we do our best to provide comprehensive legislation that will be free from technical flaws that can undermine or run counter to the desired effects of the measure as voted by Parliament.
In this respect, we do have concerns about a few areas of the bill. By way of example, the bill's use of the phrase property “used in the course of rehabilitating a historic property” could be treated as quite broad in terms of what's eligible for accelerated depreciation, going beyond the building itself.
I'll wrap up there.
Thanks, Madam Chair and members of the committee. We'd be very happy to answer questions.
Yes, thank you very much.
Madam Chair, members of the committee, thank you for this opportunity to discuss Parks Canada's perspective on Bill .
Bill would create a tax credit for the rehabilitation of historic properties. While its objective is worthwhile, there are shortcomings in its design that may impede its effectiveness with respect to heritage conservation.
Financial incentives can be a useful way to promote the conservation of heritage places. To be most effective, however, they must be carefully designed and properly integrated into a comprehensive and collaborative approach, supported by other Canadian jurisdictions.
In Canada, protection of heritage property not owned by the federal government falls within the purview of provinces and territories. As a result, a range of legislation and incentives exists across the country to protect our heritage places. These efforts are supported by hundreds of community groups who work directly in the conservation and preservation of heritage assets. It is a fact that heritage places are at risk and that their loss would be irreversible.
Through the Parks Canada Agency, Canada protects heritage places of national significance. The agency also works closely with numerous partners to conserve and present our heritage. As the federal lead for heritage conservation, Parks Canada also provides communities across the country with financial support for heritage conservation. I know that we provided information for your previous study in a broader context of heritage conservation.
This is not to say that Canada could not benefit from additional financial incentives; however, the bill makes specific references to accountability tools under Parks Canada’s responsibility without full consideration of some of the implications of these references. For example, the bill relies on Parks Canada’s various accountability tools for heritage conservation. While these tools appear suitable, there are challenges with each of them.
The bill sets out what historic properties would be eligible, including those commemorated under section 3 of the Historic Sites and Monuments Act, as well as properties listed on the Canadian Register of Historic Places. The Canadian register is the only pan-Canadian listing of historic places recognized at the municipal, provincial, territorial, and national levels. As such, it is widely used as a reference in the field of conservation. Unfortunately, the Canadian register is not yet a complete source of information for verifying eligibility as it is only 60% complete.
The bill also specifies that the standards and guidelines adopted and applied by Parks Canada must be followed in undertaking an eligible rehabilitation project. It requires an architect to certify that the work undertaken meets these standards. The “Standards and Guidelines for the Conservation of Historic Places in Canada”, while widely used, offers guidance only and does not set official requirements like a building code. This is why the certification process proposed in the bill raises concerns with the credentials and expertise of certifiers and their objectivity as well as with the timing of certification.
Parks Canada is of the view that the certification function needs to be defined in a comprehensive manner to ensure the consistency of the interpretation and application of the standards and guidelines. What is proposed in the bill is not equivalent to Parks Canada’s certification process, a comprehensive and internal practice that has proven successful in the past.
To conclude, financial incentives are widely recognized as a useful way to promote the conservation of heritage places; however, such incentives must be carefully designed in collaboration with other jurisdictions and partners to ensure their effectiveness. In addition, these incentives must include solid accountability tools.
I will be pleased to answer your questions.