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Ted Cook
View Ted Cook Profile
Ted Cook
2013-05-09 8:47
Thank you, Mr. Chair, members of the committee.
I'm here today with Sandra Phillips, the associate assistant deputy attorney general of the tax law services of the Department of Justice; Sean Keenan, director of the personal income tax division of the Department of Finance; and Geoff Trueman, who is director of the business income tax division of the Department of Finance.
To give you a brief overview, I'll go through the measures as set out in the summary, and then we can turn to the committee's specific questions.
Part 1 contains a number of measures that were announced in budget 2013. The first relates to the adoption expense tax credit. Specifically, certain expenses are eligible for the adoption expense tax credit if they are incurred during what's known as the adoption period. What this measure does is to extend the adoption period by allowing it to start at the earlier of the time that an application to register with a provincial ministry responsible for adoption is made, or with an adoption agency licensed by a provincial government, and the time at which an application for adoption is made to a Canadian court.
The second measure relates to the first-time donor super credit. This measure provides for an additional 25% tax credit for a first-time donor on monetary gifts of up to $1,000 in donations. A first-time donor is defined in the legislation as a person who has not made a donation since 2007, and this credit is available on a one-time basis for taxation years 2013 to 2017. The credit can be split between an individual and a spouse.
The next measure relates to the deductibility of expenses for safety deposit boxes. This measure provides that expenses for the use of a safety deposit box of a financial institution will no longer be deductible. This applies to taxation years that begin after March 20, 2013.
The next measure relates to the dividend tax credit. In order to ensure better integration of dividends other than eligible dividends received by an individual, this measure adjusts the gross-up factor and dividend tax credit associated with dividends.
The next measure relates to taxes in dispute and charitable donation tax shelters. This measure allows the Canada Revenue Agency to take collection action on up to 50% of the taxes, interest, and penalties in dispute in respect of a tax shelter that involves a charitable donation. That's in respect of the donor and the donation tax shelter.
The next measure relates to the mineral exploration tax credit for flow-through share investors. This measure extends that credit for one additional year, and it's applicable to flow-through share agreements entered into before April 2014.
The next measure relates to manufacturing and processing machinery and equipment. It provides that the 50% straight-line capital cost allowance rate currently available to machinery and equipment on a temporary basis be extended for an additional two years. It will apply in respect of equipment and machinery acquired in 2014 and 2015.
The next measure relates to reserves for future services and provides that the reserve currently available under paragraph 20(1)(m) of the Income Tax Act in respect of future services and goods to be provided is not available in the context of reclamation obligations.
The next measure relates to credit unions and would provide a phase-out of the additional deduction, allowing credit unions to access the small business tax rate on amounts that would not be eligible for the small business rate. This measure will be phased out over the current year to 2016.
The next measure relates to information requirements regarding unnamed persons. Currently, in order to obtain a judicial authorization to require a third party to provide information in respect of an unnamed person, the CRA must apply to a court for judicial authorization using an ex parte application. That is an application without notice to the third party. What this measure would do is actually streamline the measure by requiring the CRA to provide notice to the third party. This would allow the third party to participate in the actual judicial application and obviate the need for potential judicial review after the application has been heard.
The next measure relates to international banking centres. In recognition of the fact that the international banking centre rules haven't been used by any financial institution since 2007, what this measure would do is repeal the international banking centre rules in section 33.1 of the Income Tax Act.
There are additional measures contained in part 1. The first relates to caseload management for the Tax Court of Canada. This measure would do three things. It would update the monetary limits for access to informal appeals. In the case of income tax appeals, it would change the informal appeal limit from amounts of tax of $12,000 to $25,000. In respect of losses of a taxpayer, it would change the informal appeal threshold from $24,000 to $50,000. It would introduce an informal procedure appeal limit in respect of GST/HST appeals of $50,000.
As well, it would allow the Tax Court to separate issues. Currently, the Tax Court must deal with all issues at once relating to a particular taxation year of a taxpayer. What this measure would do is allow taxpayers and CRA to agree to deal with some issues separately. Perhaps if there's a question of law that could advance more quickly, that could be dealt with in one decision, and then the questions of fact could take their normal course without holding up the question of law issue. As well, on application, it would allow the Tax Court to hear appeals affecting groups of two or more taxpayers that arise out of substantially similar transactions and provide that the results of any applicable decision would be binding on all the taxpayers involved.
The bill also provides a measure to streamline the provision of relief for Canadian Forces members and police officers deployed on international operational missions. Currently, for missions that are assessed at risk level 2, in order to receive the tax relief available under the Income Tax Act, the mission must be prescribed by regulation. What the new measure would do is allow the Minister of Finance, on recommendation of the Minister of National Defence or the Minister of Public Safety, to designate the mission, and that designation would implement the tax relief for the members involved.
Part 1 also contains a technical amendment with respect to registered disability savings plans. In order to clarify the application of a measure that was introduced in budget 2012, allowing qualifying family members to open an RDSP for a beneficiary whose contractual competence is in question, this measure would simply ensure it is clear that the qualifying family member who opens the RDSP can continue to hold that RDSP on behalf of the beneficiary.
The final measure contained in part 1 of the bill relates to Canadian-source income for non-resident pilots. In a recent Tax Court of Canada case, Price v. The Queen, the Tax Court indicated how complex it was to determine the Canadian-source income of non-resident pilots. In order to deal with this issue, we have introduced a simplified determination of income for non-resident pilots. If a flight takes off and lands in Canada, the income associated with that flight will be Canadian-source income. If the flight takes off or lands in Canada and the other end of the flight is outside Canada, it will be 50% Canadian income. If a flight takes off outside Canada and lands outside Canada, there will be no Canadian-source income.
Those are the measures that are contained in part 1.
View Cathy McLeod Profile
CPC (BC)
Thank you, Mr. Chair, and I also would like to thank the officials.
I'm going to start by asking for some clarification around the dividend tax credit. I understand this is a very technical change. It was to correct an inconsistency in the tax system that we reduced the rate to 11%. Can you confirm that this will simply, for tax purposes, treat small business owners who use dividends to take money out of their company the same as those who do it through salaries or bonuses?
Sean Keenan
View Sean Keenan Profile
Sean Keenan
2013-05-09 9:03
Dividends are essentially paid out of after-tax corporate earnings and taxed as part of an individual's personal income. The dividend tax credit mechanism ensures that income is not taxed twice, once at the corporate level and once at the personal level. The gross-up factor and the dividend tax credit rate are set such that the overall amount of tax that's paid on the dividends would be equivalent to the same tax rate that would apply if the individual earned the income as labour income. So essentially there's more neutrality in deciding whether to take the income out of dividends or as labour income.
View Ted Hsu Profile
Lib. (ON)
Thanks, and that's the best you can do.
In terms of the dividend tax credits for other than eligible dividends, how many Canadians will be affected by that tax change?
Sean Keenan
View Sean Keenan Profile
Sean Keenan
2013-05-09 9:09
Our estimate is that in the first year, when the measure takes effect in 2014, 750,000 Canadians will be affected.
View Scott Brison Profile
Lib. (NS)
So it was the Senate's diligence that resulted in that change ultimately. That's a reminder of the benefit of our hard-working Senate from time to time as to changing legislation, improving it, and removing unintended consequences.
I have a quick question on the change in upstream loan rules. Other than tax avoidance, is there any other reason why one would transfer to an upstream loan, or patriate or bring to Canada funds through an upstream loan, as opposed to a dividend? Is there any other reason besides tax reasons?
Shawn Porter
View Shawn Porter Profile
Shawn Porter
2013-02-28 10:15
There are other reasons. For the purposes of this discussion, we are focusing on Canadian tax reasons. There may well be foreign tax reasons why the distribution would take the form of an upstream loan instead of a dividend. There could also be foreign corporate law or other commercial restrictions on that foreign affiliate that preclude it from making a dividend distribution so it has to make a distribution in some other form.
So—and I touched on this a moment ago—the rules accommodate that practical reality in those circumstances where there isn't any Canadian tax policy issue or tax mischief issue. The rules will operate to allow offsetting deductions for what would otherwise be deemed income inclusion under these new upstream loan rules. In effect, in those circumstances, if there is no Canadian tax planning, there will be adequate underlying tax paid surplus or adjusted cost bases that will provide a full offset, so those rules would have no practical application.
Bill Dobson
View Bill Dobson Profile
Bill Dobson
2012-07-27 15:34
Good afternoon, Mr. Chairman, and members of the special committee on cooperatives.
My name is Bill Dobson, and I am a member of the board of directors of United Farmers of Alberta Co-operative Limited, also known as UFA. With me is Bob Nelson, president and chief executive officer of UFA. I will be skipping over some of the things in the original brief that may have been sent to you, so it will cut some of the fluff out to make the timeline.
Thank you very much for the opportunity to address this special committee. We consider your work critical, and we both look forward to answering your questions after our presentation.
The Government of Canada has always taken a keen interest in the role of cooperatives. Co-ops are supported and utilized by people from all parts of Canada, regardless of their political interests or economic status. Those of us who spend a lot of our time in the cooperative sector greatly appreciate the relationship that has existed for so many years.
This year has been a time to celebrate and showcase cooperatives and credit unions around the world, as the United Nations has designated 2012 as the International Year of Cooperatives. It has also been a time of reflection and self assessment. It is very appropriate that the federal government also take this opportunity to examine their role in assisting the cooperative sector to flourish. Cooperatives and credit unions provide economic activity and employment throughout all of Canada. Having the most effective and efficient business environment ensures the financial health of the sector.
Today, UFA is a well-established cooperative that serves nearly 120,000 members through an extensive network of 113 petroleum agencies, 35 farm and ranch supply stores, and 25 outdoor adventure stores operating under the wholesale sports banner. We have grown from a small-scale local cooperative into a comprehensive enterprise, with $2.1 billion in sales in 2011.
Improving the economic and social well-being of our agricultural owners and their communities is our core purpose. Every day we work toward enabling rural success by supplying agricultural products and services, by protecting our members' investments in the cooperative, and by championing and supporting local causes, rural programs, and job development.
Currently, UFA proudly employs almost 1,200 people, and 65 independent petroleum agents. Approximately 500 people are further employed by the UFA petroleum agents.
UFA probably has the most interesting evolution story of any business in Canada. A look at our history provides living proof of the agility and the endurance of a cooperative enterprise. We take great pride in learning from our heritage, but we are cognizant that we will only be viable in the future if we are relevant to the needs of our owners and customers.
We say that we have been around for over 100 years, which is true, but we have not actually been a cooperative for over 100 years. Formed in 1909, UFA’s core purpose was to improve the livelihood of farmers in the province of Alberta. That purpose remains much the same today, although it is met in a much different manner than at that time.
Originally, UFA was a rural social and lobby organization. In 1918, UFA began to purchase farm supplies collectively, to distribute to community locals. As a farm organization, United Farmers of Alberta was seeking the most effective way to lobby the provincial government. They felt it would be a good idea to elect some members of the legislature to have direct access to the governing Liberals.
Thus, in 1921, UFA ran candidates in 45 out of 61 ridings. Before they realized what had happened, they had elected 38 MLAs and formed a majority government. I'm sure everyone would like to get a hold of their campaign manager.
Voices: Oh, oh!
Mr. Bill Dobson: 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.
Bob Nelson
View Bob Nelson Profile
Bob Nelson
2012-07-27 16:33
I think we simply wanted to add on to that. This is the TDCS program that is scheduled to end in 2016, and it does reference patronage to our members. What it effectively does is to enable the issue of eligible shares that defer members' obligations to the time of the actual cashing of those shares. In our case, that could be any time subsequent to 65, or exiting the business, or any number of other triggers.
It would encourage our owners, our members, to leave their capital in the cooperative rather than pulling it out at the first opportunity. As a business, we obviously need to be generating returns on those invested shares, and that becomes a management challenge.
When you talk size and order of magnitude, in terms of Bill's comments, we're actually in a very unique position as a large cooperative. We are a cooperative with in excess of $2 billion. We're too large to be small and too small to be really large. We're kind of in a no-man's land and looking to try to compete with some very large global players, which requires some very significant investment. The past investments that we've talked about, of $20 million or $30 million annually, are the tip of the iceberg. We're thinking in terms of multiples of 10 of that now.
Lorraine Bédard
View Lorraine Bédard Profile
Lorraine Bédard
2012-07-25 15:32
I want to begin by saying that Agropur wishes to thank the committee for its invitation and its interest in Canadian cooperatives. I am a corporate secretary and am joined by Serge Riendeau, who is the president of Agropur's board of directors. I see that you have received our brief, which I will discuss briefly in order to stay within my allocated time.
Before I go ahead with my presentation, I want to invite you to visit our web site at www.agropur.com. There, you can learn about Agropur's main trademarks, the many awards and honours our products have received, our mission, our values, the highlights of our history and the annual report for the most recent fiscal year. We take great pride in that document because it has much to say about cooperation and the manner in which Agropur expresses its cooperative pride.
The 13,000 Canadian dairy farms produce about 8.4 billion litres of milk annually. That milk makes its way to 455 processing plants, with combined sales of an estimated $13.4 billion, or 15% of total sales in the Canadian food and beverage industry. The Canadian milk-processing sector provides employment for almost 24,000 people in every region of Canada.
Our industry is rationalized. Three major processors—Saputo, Lactalis-Parmalat and Agropur—share slightly over 75% of Canadian milk production in approximately equal shares. It is interesting to note that cooperatives have a very strong presence in the Canadian dairy sector. In addition to Agropur, which processes 25% of Canadian milk, other major dairy cooperatives are Agrifoods, Gay Lea Foods, Scottsburn, Amalgamated Dairies, Farmers Dairy, Dairy Town, Nutrinor, Northumberland, Agrilait, Fromagerie St-Albert, Organic Meadow and the Société coopérative agricole de l’Isle-aux-Grues.
The cooperative was founded in 1938. Agropur is a major player in the Canadian dairy industry. We process almost 2 billion litres of milk per year in Canada; our 3,349 members produce slightly more than 1.7 billion litres of milk; and we provide competitive and attractive jobs for 4,600 Canadians in every region of the country.
The dairy industry operates under a supply management system. We believe that this system has provided a stable environment over the years, within which the dairy industry has been able to develop while coping with the challenges arising from changing conditions in domestic markets and from international trade rules. The industry has been successful in providing consumers with quality dairy products at competitive prices. Our partners in this industry are the producer marketing boards and their national organization, the Dairy Farmers of Canada.
We strongly believe that everyone must play their role in the industry if it is to retain its balance. The government must be careful not to take any actions or adopt any programs or structures that affect the balance between producers and processors, or that allow foreign processors to gain access to the Canadian market without being bound by the same regulations as Canadian processors.
Agropur is a major player in the dairy industry, and it is also the third largest non-financial cooperative in the country. Considering all economic sectors together, Agropur ranks among the six largest national cooperatives. Agropur has a real and significant impact on the agricultural sector. Thanks to its management style and leadership, the cooperative distributed $482 million to its members in patronage dividends in the five fiscal years from 2007 to 2011, with 25% having been paid out in each corresponding fiscal year and 75% having been distributed in the form of capital issued by the cooperative to all its members.
This capital is redeemable by decision of the board of directors after a minimum period of five years. This means that, over that same five-year period, Agropur members received $230 million—the cash portion of the patronage dividends and the repurchase of shares that were previously issued by Agropur.
Agropur also plays a significant role in the Canadian cooperative movement. It is a member of the Conseil québécois de la coopération et de la mutualité—Quebec council on cooperation and mutual plans—and is working to promote the creation of a bilingual national body that will represent all Canadian cooperatives before various authorities, including the Government of Canada.
It is also a member of SOCODEVI, which works in the area of international development to encourage populations to take their respective situations in hand through the creation of cooperatives. Agropur provides financial support to these cooperative organizations in order to promote recognition of the cooperative movement and cooperatives as a viable business model that offers an alternative to the dominant model.
Like all large cooperatives, Agropur receives numerous requests to support the cooperative movement. It has been responding positively to these requests for a long time. However, like any other cooperative, our organization must ensure its own profitability. There is a limit to how much support can be provided from within the sector. That support must not serve as justification for the government to disengage from assisting and supporting the development of cooperatives and the cooperative sector.
We must not forget that Canadian cooperatives belong to Canadians, that they are active in every sector and every region, and that they contribute to the collective well-being through the cooperative values of self-determination, equity, equality, and solidarity. All Canadians, including the Canadian government, should take pride in their cooperatives, and the government should renew its support for this economic sector.
Previously subject to Quebec's cooperatives act, Agropur decided in 2000 to place itself under the Canada Cooperatives Act, which would better reflect its business situation and put it in a position to take on members from other Canadian provinces if the opportunity arose.
Since that time, Agropur has had the opportunity to consider entering into strategic alliances with other cooperatives. The fact that it is already governed by the federal act was clearly advantageous and could have facilitated the execution of any such plans. We have been operating under this legislation for 10 years and have had the opportunity to examine it more closely at various times, especially during the consolidation of our by-laws in 2000 and 2009.
In general, Agropur is of the opinion that the act provides a suitable framework for the development of our organization. We greatly appreciate the fact that the legislator has incorporated section 159, which recognizes the distinctive cooperative nature of agricultural cooperatives operating under a supply management system. That allows them to continue to express their specific cooperative nature despite the existence of the legislative framework for supply management.
We understand that, at this time, the special committee has adopted a mandate to examine the situation of cooperatives in Canada, and not to amend the act. We ask that the committee, the government and the legislator devote the necessary time and effort to conducting a proper consultation process with the cooperative sector and Agropur in the event that amendments to the act are contemplated.
You can rely on our organization to contribute to the assessment of the potential impacts of any such amendments on the cooperative sector, on our organization, and on our way of doing business. Similarly, we can only encourage the legislator to take into consideration the specific characteristics of cooperatives when it undertakes to amend any legislation. It must ensure that any legislation that is adopted by the government includes the cooperative business model instead of excluding it.
For a long time, Agropur’s cash flow from operations has been sufficient to meet its needs in terms of reinvesting in its existing infrastructure. The real problem for large cooperatives arises when a major acquisition or investment project presents itself. The fact that our members have already contributed to their cooperative's capital by having the discipline to reinvest a significant portion of the surplus earnings that it has generated each year—combined with the financial demands placed on them by their own farms—limits the additional amount or effort we can ask of them.
Agropur has welcomed the federal government's decision to introduce the program for deferred taxation of patronage dividends, which gives members the option of deferring the taxation of the value of the investment shares issued at the time of the patronage dividend until the time of their disposition.
We would be pleased to be able to announce to our members that this program will not only be renewed when it expires in 2016, but that it will be made permanent. We would also look favourably upon the federal government’s creation of a program based on the example of Quebec's Cooperative Investment Plan. Programs of that kind, which do not come at high cost to the government, favour the capitalization of cooperatives by encouraging members to be disciplined or patient, and to reinvest in their cooperatives.
A number of unpublished studies prepared by large firms will be released to participants during the International Summit of Cooperatives, which will be held in Quebec City in October. One of these studies, prepared by Deloitte, will examine the productivity, financing, and capitalization of cooperatives. It would be worthwhile for your committee to take note of the results of this study.
The government has announced the cancellation of the Co-operative Development Initiative program. This program constituted a minimal effort on the part of the government to promote cooperatives. Similarly, the downsizing of the Rural and Co-operatives Secretariat may indicate that the government underestimates the role of cooperatives in Canada. It is important to re-establish these support structures. We invite the committee to recommend that the government renew that program and provide adequate support for the Rural and Co-operatives Secretariat.
Cooperatives are associations of persons who own democratically managed economic enterprises and share in the surplus earnings. As such, cooperatives are not like other enterprises, but they are indeed enterprises, and therefore, they must be viable and prosperous.
Toward this end, we would like to draw the committee's attention to government financial and tax assistance for enterprises, be they cooperatives or not. Regular support programs usually favour applicants who announce the creation of jobs.
However, for already-established enterprises, it is important that the government distinguish between the creation of wealth and the transfer of wealth. Job creation should not be the main factor considered in connection with financial assistance because this adversely affects Canadian companies, be they cooperatives or not.
The government should incorporate a criterion related to increasing the productivity of the applicant into its financial assistance programs, in order to favour investment in Canada as well as improvement of the competitiveness of enterprises with respect to foreign competition and in international markets. A certain degree of simplification of the requirements attached to the assistance provided would also be helpful to enterprises, whether they are cooperatives or not. All Canadian enterprises, including cooperatives, would benefit from these improvements.
Thank you very much.
View Pierre Lemieux Profile
CPC (ON)
If a co-op has a 10% deficit, there will be no wealth. Members' investments would certainly be at risk. The cooperative must therefore review its spending and balance its financial situation. That is what the government is doing.
I would also like to say that no cuts were made to the CDI. The initiative merely reached the end of its natural life. The CDI was in place for two five-year periods. Very positive results were seen after five years. The government must now review its spending and balance its budget.
In closing, I would like to ask another question about the funding of other projects. According to some witnesses, it is still difficult to find money to carry out or expand certain important projects, implement initiatives and strengthen cooperatives. However, I believe, Mr. Riendeau, that you said that you put $550 million dollars aside for future capital investments in projects. I would like to know whether the other cooperatives are in a position to do the same thing. Rather than returning a large portion of their revenue to their members, could cooperatives put a little bit of that money aside each year in order to create a venture capital fund to help them carry out future projects?
Serge Riendeau
View Serge Riendeau Profile
Serge Riendeau
2012-07-25 16:28
Agropur has not always been in such a good financial position as it is now. We exercised great discipline over the past few years. In order to be able to pay dividends to our members and in order for them to be in a position to give part to the cooperative, the company first has to make money. That is the first criterion. The company therefore has to be competitive and present in the markets and we must meet the needs of our customers and consumers. As with any company, that is the first step.
I cannot speak for other cooperatives because I am not familiar with their situations, but in our case, most of our surplus earnings are given to our members. In return, the members leave part in the cooperative to be used as working capital. There is also a general reserve. We therefore combine the two. The cooperative can use some of the surplus earnings and the capital held by the members to help it to grow.
That is why we included in our brief examples of support for cooperatives when the phenomenon you just spoke about occurs. We would therefore like to see the renewal of the measure that allows deferred taxes to be paid when the capital is redeemed or when the members receive it, rather than when it is issued. This would make it possible to better capitalize cooperatives and such a measure would not cost the government very much money. It is inexpensive assistance that would help cooperatives generate revenue and develop more quickly. This is one of our requests and, in our opinion, it makes sense for both the company and the government.
View LaVar Payne Profile
CPC (AB)
View LaVar Payne Profile
2012-07-24 10:27
Obviously you've had some better times, and you did talk a bit about those. In terms of investment and dividends, what did that look like for investment back into your industry and potential dividends to the shareholders?
Jeff Malloy
View Jeff Malloy Profile
Jeff Malloy
2012-07-24 10:28
During our good times...probably seven years back, for instance, we had a year that we had profits of $1.3 million. What we did at that time—because of the regulations that exist within P.E.I.—is we paid 9% interest on their shares. If somebody had $10,000 in shares, we paid 9% interest on that.
At the time I think we kept $400,000 or $500,000 within the company and the remainder was divided amongst the fishermen. It was divided up depending on what they sold or what they bought from us. They got a share of it, so each member might have received 1.5% of the remaining money. If that amount of money was, say, $10,000, our members voted that half of that would go out in the form of a cheque, as a dividend to the fishermen, and the other half would go into their shares.
During the good times it's obviously a lot easier for them to keep their money in the co-op. Now that things are tough, they're sort of forced to keep it in there to keep the plant going.
View Jacques Gourde Profile
CPC (QC)
Thank you, Mr. Chair.
I want to thank the witnesses for being here this morning.
My question is for all three witnesses.
The cooperative system is extremely beneficial, particularly in terms of the relationship between members and the cooperative. There is also the relationship with the board of directors. As Mr. Malloy mentioned earlier, at the end of the day, it's the board of directors that decides what direction the cooperative will take.
As you said, there are years when cooperatives do well and other years when they don't do so well. As regards profit distribution, the board of directors can divvy up all or part of the profits in a given year among members. That is a legitimate decision the board of directors makes. Some boards, however, keep a portion of the profits for recapitalization, whether to fund projects or bolster their balance sheet. There are also years when the board decides to pay out a little more.
In those years when cooperatives make a bigger profit, what would you say is the best strategy? Is it preferable to allocate a portion, say a third or half, to long-term recapitalization, or just redistribute the money to members? The second option could in fact weaken the cooperative's financial standing.
A number of strategies are possible. As I see it, every cooperative can decide for itself, but I would like to hear what you would recommend.
Mr. Malloy.
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