Proceedings of the Standing Senate Committee on
National Finance
Issue 21 - Evidence - November 18, 2014
OTTAWA, Tuesday, November 18, 2014
The Standing Senate Committee on National Finance met this day at 2:17 p.m. to study the subject matter of Bill C-43, A second Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable senators, this afternoon, we are continuing our study of the subject matter of Bill C-43, A second Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.
[English]
This afternoon, we are pleased to welcome Kaity Arsoniadis-Stein, who is the president and secretary-general of the International Ship-Owners Alliance of Canada Inc. She is appearing via video conference from Vancouver. Ms. Arsoniadis-Stein will be speaking on Part 1, clauses 18, 71 and 74, which begin at page 28 of the bill.
Ms. Arsoniadis-Stein is accompanied by Mr. Mike Shields, partner in the International Taxation Department of PricewaterhouseCoopers.
We are also pleased to welcome, by video conference, Marie-Hélène Labrie, who is the senior vice-president, Government Affairs and Communications for Enerkem. She is appearing via video conference from Montreal. Ms. Labrie will be speaking to Part 1, clauses 85 and 90, which begin at page 221 of the bill.
We will begin with Ms. Arsoniadis-Stein, whom I introduced first, and then we will go to Ms. Labrie, followed by a question-and-answer dialogue.
[Translation]
Kaity Arsoniadis-Stein, President and Secretary-General, International Ship-Owners Alliance of Canada Inc.: I am delighted to appear before the committee today. I would like to thank the senators for the opportunity to share our position, as well as Jodi Turner for organizing this meeting.
[English]
My name is Kaity Arsoniadis-Stein, and I am the president and secretary-general of the International Ship-Owners Alliance of Canada. I am also director of the International Maritime Centre, president and director of the Vancouver Maritime Arbitrators Association and a trustee of the Vancouver Maritime Museum.
I appear before you today on behalf of the International Ship-Owners Alliance of Canada. This group represents local and international merchant ship owners, managers and operators of ships who collectively control a fleet of over 500 ocean-going vessels and employ over 10,000 sea-going and shore-based employees.
With me is Mike Shields, partner in the International Taxation Department of PricewaterhouseCoopers, who is a subject-matter expert in this area, should you have any technical questions.
I will start by providing a bit of background. Between 1991 and 1995, changes were made by the Government of Canada to taxation policies designed to attract international shipping companies to Canada. At that time, Canada created the policy to promote, foster and encourage the development of Canada as a location for the ownership, control and management of international shipping companies.
Since that time, the nature of international shipping has undergone tremendous change, becoming more complex and competitive. Unlike other jurisdictions, Canada's tax legislation has not kept pace with these changes and does not provide the necessary certainty with respect to international shipping companies' non-Canadian sourced income. Current legislation inhibits Canada's ability to attract head offices and places international shipping companies with Canadian operational headquarters at a competitive disadvantage. Shipping assets require major capital investments and, as a result, joint venture corporations and partnerships are often utilized to finance the capital costs, share the assumption of risks and operate and maintain vessels. Unlike other jurisdictions that modernized their taxation regimes, Canada's current tax rules do not recognize these common facets of the modern international shipping industry.
The proposed amendments would sharpen Canada's competitive edge to keep and attract new international shipping companies to base their operations in Canada, provide greater certainty to such companies and promote economic and employment growth with spin-off benefits such as additional maritime service enterprises such as ship brokering, marine insurance, ship finance and maritime legal sectors.
More specifically, you have asked for comment on Part 1, clauses 18, 71 and 74. I can provide the following summary.
Clause 18 is a technical amendment to allow the new definition of international shipping to apply to the existing exemptions under paragraph 81(1)(c) of the Income Tax Act.
Clause 71 addresses the vagueness in the current rules by specifically defining international shipping, thus providing certainty and clarity to the industry.
Clause 74 addresses several problems under the current rules which limit the acceptable investments of a shipping group to equity investments in 100 per cent owned corporate subsidiaries and severely limits the ability of shipping groups to provide ancillary services to the group. Changes brought about by clause 74 will now expand the ability for shipping companies to invest in equity, debt, investments in shipping partnerships, investments in shipping trusts and allow certain corporate ancillary service companies to qualify. Furthermore, the current threshold allowing the entity to qualify as a shipping company will drop from 100 per cent to 25 per cent.
In simple terms, currently for an entity's investments to qualify as an acceptable shipping group investment, the entity must be a corporation, must be 100 per cent owned and must primarily perform shipping activities and not ancillary activities.
The Bill C-43 amendments will allow investments through other means such as corporate shipping partnerships and shipping trusts, reduce the 100 per cent qualification to 25 per cent and allow for activities ancillary to the shipping business.
Such changes are very welcome and have been long overdue as it is rare these days to see international shipping companies operating by 100 per cent owned entities. This is a positive modernization to the Income Tax Act and allows Canada to play catch-up with commercial realities regarding international shipping companies.
These amendments will provide the necessary tax improvements needed to make Canada competitive globally with respect to international shipping.
Thank you very much.
The Chair: Thank you. I'll now call on Ms. Labrie for her comment.
[Translation]
Marie-Hélène Labrie, Senior Vice-President, Government Affairs and Communications, Enerkem: Good afternoon. Thank you for inviting us to appear before the committee.
[English]
My name is Marie-Hélène Labrie. I am the senior vice-president, Government Affairs and Communications at Enerkem. I am also a director on the board of the Canadian Renewable Fuels Association. I am also a director on the board of Écotech Québec, the Cleantech Cluster.
I will start by making a short introduction about Enerkem and then will present our position regarding Bill C-43.
Enerkem is a private clean technology company specializing in the production of biofuels and chemicals from non-recyclable municipal solid waste. With its proprietary technology, Enerkem converts waste destined for landfills into high-value products such as ethanol and biomethanol.
The company was founded by two visionary men who are still today part of the senior management team, Dr. Esteban Chornet, a world renowned scientist and retired professor of chemical engineering; and Mr. Vincent Chornet, a renowned entrepreneur and businessman.
Headquartered in Montreal, Enerkem employs 185 people across Canada. The company operates both a demonstration plant and a pilot facility in the province of Quebec and has started operating its full-scale commercial plant in Edmonton, Alberta. This game-changing plant is the world's first full-scale facility capable of converting residential waste into biofuels and renewable chemicals. In addition to creating $65 million in annual net economic benefits in the local area, this facility will help meet the federal renewable fuels standard of 5 per cent ethanol in gasoline while contributing to increasing the city of Edmonton's waste diversion rate from 60 per cent to 90 per cent.
Enerkem is also developing additional biorefineries in North America and globally based on its modular manufacturing approach. The next one will be a project located in Varennes, Quebec.
The benefits of converting non-recyclable garbage into biofuels such as cellulosic ethanol, as well as renewable chemicals such as biomethanol are significant for Canadians. It increases energy diversification and greens our energy basket. It helps meet federal and provincial 5 per cent renewable fuel standards. It reduces greenhouse gas emissions by approximately 60 per cent. When compared to gasoline production and landfilling activities. It provides municipalities with a cost-effective alternative to landfilling and incineration. It increases domestic production of biofuels and reduces biofuels and imports with locally produced new generation biofuels. It creates high quality green jobs, stimulates regional economies, revitalizes the manufacturing sector, in Eastern Canada, and elevates Canada's profile as a leader in clean technology.
As part of its Economic Action Plan 2014, Enerkem supports the objective of the government, which is to expand eligibility for the accelerated capital cost allowance for clean energy generation equipment. Today, classes 43.1 and 43.2, include a variety of equipment that generates or conserves energy by using a renewable energy source, using fuels from waste, or by making efficient use of fossil fuels. Bill C-43 proposes to make amendments to these classes to expand the list of equipment in order to include equipment used to gasify eligible waste for use in a broader range of applications.
Enerkem's technology and facilities gasify eligible waste. The synthetic gas produced is then converted into liquid transportation fuels and chemicals. This gas could also be used for the production of electricity, but Enerkem's ability to clean its gas allows the company to convert its producer gas into higher value clean energy products, such as biofuels and chemicals.
We understand that the objective of this fiscal incentive is to encourage businesses to invest in clean energy generation and energy efficiency equipment by providing an accelerated capital-cost allowance rate.
Unfortunately, today, neither the list of equipment eligible in classes 43.1 and 43.2, nor the proposed amendments in Bill C-43, include the production of clean energy, like liquid transportation fuels and biochemicals. While the intent of the bill is to expand the eligibility to a broader range of equipment, including equipment used to gasify eligible waste, it explicitly excludes the same equipment, if it's used to produce biofuels or chemicals.
Enerkem meets the definition of producer gas, proposed in clause 85(1), which amends subsection 1104(13) of the regulations. The composition of Enerkem's synthetic gas is substantially all non-condensable gases that are generated primarily from eligible waste fuel and in our case, municipal waste, using a thermochemical conversion process, which is not generated using any fuels other than eligible waste fuel or fossil fuel.
However, clause 90 of the bill, explicitly excludes producer gas that is to be converted into liquid biofuels and chemicals. Enerkem's technology would therefore be excluded, if Enerkem's producer gas is converted into biofuels or chemicals, but would be included, if it is converted into electricity.
Enerkem is asking for a level playing field with its peers, who are producing producer gas for electricity, or other purposes, covered by the definition. Enerkem should not be penalized if it decides to use its producer gas to convert it into biofuels or chemicals, in order to contribute to the federal renewable fuels standard, help reduce greenhouse gas emissions in the transportation sector or reduce imports of corn ethanol from the United States. In our opinion, this is a business decision driven by market demand.
In addition, Enerkem would like to highlight the fact that given the timing of the advanced biofuel sector commercial readiness, the advanced biofuels sector has not benefited from the programs and incentives that were put in place for the conventional biofuels industry, as these are based on new technologies. This emerging biofuels sector needs public policies that will help stimulate private investment. Today, the only program supporting this emerging biofuels sector is the Next Generation Biofuels Fund, managed by Sustainable Development Technologies Canada. This program is set to expire in March 2017, and only allows financing of one project per company.
Countries around the world have put in place policies to stimulate the development of the new generation biofuels sector. The United States, for example, has created a depreciation allowance for cellulosic biofuel plant property, in order to stimulate private investment, in the advanced biofuels sector.
In conclusion, Enerkem's technology is a Canadian clean tech innovation. It is the result of more than 10 years of sustained efforts to scale up our technology from pilot and demonstration to now the commercial scale.
Disruptive technologies are not overnight successes and they are crafted by resilient entrepreneurs and relentless employees. They take years to develop, require sustained efforts and long-term investments. They also need public policies and programs that stimulate private investment and open the marketplace.
Through the development of its technology, Enerkem benefited from the support through Natural Resources Canada, NSERC, and the Sustainable Development Technology Canada Tech Fund. Up to this day, the federal government has provided this support and has been an essential partner in our success.
The government must now ensure that a technology like ours can evolve in an environment that guarantees a level playing field with industry peers while ensuring that private investment will be made in Canada rather than abroad. Canadians deserve to benefit from the economic impact that the growing biofuels and biochemicals sectors can generate.
Thank you very much.
The Chair: Thank you very much. Your presentation is somewhat technical, but I think we can understand where you're coming from with respect to this emerging technology. We look forward to a discussion with you. I'll begin with Senator Hervieux-Payette from Québec.
[Translation]
Senator Hervieux-Payette: A number of years ago, I was involved in projects where household waste was converted into energy. Downtown Montreal had a project to heat the buildings of an entire neighborhood. Quebec City had a plant, and there was the Miron quarry, a landfill site where methane gas was collected.
One of the things I gathered from your presentation was that, if other projects were undertaken, the objective would not be to produce ethanol but, rather, to generate electricity. In other words, the gas collected would automatically have to be used to produce electricity in order to take advantage of the capital cost allowance.
What makes Enerkem innovative? Some of the plants I mentioned are 30 years old, and some are 10 or 20 years old. What makes your technique different, other than the fact that you have a process that collects liquid ethanol as opposed to methane?
What policy decisions, in your view, would explain why a company would not qualify for the accelerated capital cost allowance in the case of ethanol, but if the company were to take that ethanol and combine it with a power production unit, the project would automatically qualify for the allowance?
Ms. Labrie: What makes Enerkem innovative is that we use gasification technology to produce a synthetic gas. It is not a biogas, it is not methane. It is a synthetic gas made up of hydrogen and carbon monoxide, so it is completely different from a biogas.
Senator Hervieux-Payette: What is it used for?
Ms. Labrie: The synthetic gas is converted into methanol and ethanol using catalysts.
Senator Hervieux-Payette: Who buys them and what do they do with them?
[English]
Ms. Labrie: We build our own facilities and the ethanol is sold to refiners. They are the obligated parties that must blend ethanol with gasoline. We replace the use of corn to produce ethanol and we use the non-recyclable and non-compostable portion of our garbage. These usually can only be landfilled or burned. So we offer an alternative to landfilling and incineration by converting these wastes into high-value chemicals.
[Translation]
Senator Hervieux-Payette: What impact does the technology have in terms of the waste products and emissions generated?
Ms. Labrie: The process is fully contained. The risk of emissions is non-existent because combustion is not involved and the synthetic gas is not burned to produce electricity. The synthetic gas is converted using catalysts, and the process generates little in terms of waste products. Some inert matter is collected and can be used for construction aggregate.
Senator Hervieux-Payette: Did your company receive any funding or tax credits to develop that technology?
Ms. Labrie: As I explained, we received research and development support under the Department of Natural Resources' research and innovation programs, as well as R and D tax credits. We also received support from Sustainable Development Technology Canada, through its Tech Fund, for our demonstration plant in the Eastern Townships.
Senator Hervieux-Payette: You now have a commercial project under way, do you not?
Ms. Labrie: Yes. The Edmonton plant I mentioned is our first full-scale commercial plant. We had the grand opening in June, with the mayor of Edmonton, Alberta's then energy minister Diana McQueen and the province's environment minister all in attendance.
[English]
The Chair: Thank you very much for explaining your process, Ms. Labrie. I'm not certain that we have a full understanding of your — as you have described it — proprietary technology compared to other technologies that use corn, for example, to produce methane or ethanol gas. There have been municipal waste gas-producing plants for some time. Can you briefly explain to the senators how your technology differs from an anaerobic lagoon-type technology?
Ms. Labrie: Yes, definitely. What you are referring to is the material that is producible and can produce methane biogas by anaerobic digestion or aerobic digestion if you want to produce compost. In this case, we are taking textiles and plastic, we're not taking the reproducible material that converts into methane. In our gasification process there is solid material — the non-recyclable plastic and cardboard that is not recyclable, the textiles — that is broken down and this solid material becomes a gas. This gas is not a biogas; it is the compost of methane. It is composed of carbon monoxide and hydrogen. Those two molecules are the basic molecules of the petrochemical industry, and we can then convert them into chemicals and fuels using catalysts.
In the bill, clause 85 refers to producer gas, and in French, gasification, so the bill wants to include gas like us, not biogas. We are talking about a synthetic gas. We meet the definition of the bill so the intent of including our gas is there in the bill.
However, in clause 90, we say this gas we produce that is eligible cannot be used for chemicals or fuels. We're asking to include that because we prefer, as a company, to convert it in fuels and chemicals in order to meet the renewable fuel standard in Canada. As a business, we prefer to do that rather than producing electricity.
The Chair: I appreciate your comment that your company has received significant help from the people of Canada through various programs up until now, and I understand the point that you are making. Has there been any consultation between your company or association that your company may be related to with the federal government in relation to this exclusion of biofuels and renewable chemicals?
Ms. Labrie: We have been asking for a long time to extend a list of equipment to include a process like ours. Recently we participated in a parliamentary committee focused on waste, and we have mentioned that the list should be expanded to include our process as well.
The clean energy sector in general needs public policies to help stimulate private investment, and those are innovation. I think they should all be supported equally on a level playing field.
The Chair: Was it by chance the pre-budget consultations you participated in?
Ms. Labrie: We were not invited to participate in the pre-budget consultation. This was before. What I'm referring to was in the spring.
The Chair: Okay.
Ms. Labrie: However, as part of the pre-budget consultation, we did present that one option to support our industry would be to give cellulosic biofuels access to the exemption on the fuel tax, excise tax. This was given to corn ethanol a few years ago and we believe that the new generation of biofuels should be exempted from the 10-cent per litre fuel tax.
The Chair: That's something different from what we're looking at here today, but another program —
Ms. Labrie: Yes, but to answer your question, we did participate in the pre-budget and we made that request. In the past, we mentioned on a few occasions that this accelerated depreciation — the list of equipment — should be expanded to include our equipment. Today our gas is included, but the final product is excluded.
The Chair: I don't think we understand yet why that is the case. What is the policy reason for saying that if your product is used in gasoline it is in and you can get all the accelerated capital costs right off all the equipment, but if it's to be used for chemical production, it can't. What are you being told?
Ms. Labrie: The bill says that it excludes equipment used to convert producer gas into liquid biofuels or chemicals and we don't know why. We're here today to express that we should be included and be on a level playing field with other producers of gas, like us, that are using it for other purposes.
The Chair: You have obviously been advocating for this, but it hasn't happened and you don't know why?
Ms. Labrie: Yes, we don't know why.
The Chair: Okay.
[Translation]
Senator Chaput: My question is about international shipping. As you said in your presentation, we are studying clauses 18, 71 and 74, which would amend the Income Tax Act. Clause 71 adds a definition.
What is your interpretation of the new international shipping definition added to the Income Tax Act — if the bill is passed — and how might that new definition alter international shipping?
[English]
Mike Shields, Partner, International Taxation Department, PricewaterhouseCoopers: That definition that's been put in there is a way to more clearly define what international shipping is. In the current legislation, it's not specifically defined, and companies rely on a lot of interpretations out there. In this particular bill, they come up with a definition that specifies what is international shipping to give more certainty to the industry as to what qualifies.
[Translation]
Senator Chaput: Would there be a difference in the way the residence of an international shipping company would be established if this definition was adopted? How would the residence of an international shipping company be established and what reasons would justify certain revenues not being taxable?
[English]
Mr. Shields: The current rules in Canada require that a foreign company that has what we refer to as ''mind and management'' in Canada is considered to be a resident Canadian company. Therefore, all the activities of that company would be subject to tax in Canada.
The provisions provided in the bill, which is provided under current law, essentially say that if certain requirements are met, i.e. the company operates only in international shipping operations, then it can qualify. And even if its central management is located in Canada, the company will not be treated as being a resident of Canada, and therefore would not be taxable in Canada on its worldwide income.
That's consistent with the current rules, and what is happening with the current bill is it is expanding and clarifying those activities and which companies can clearly qualify under those activities.
[Translation]
Senator Chaput: Would this impact the number of eligible companies?
[English]
Mr. Shields: The expectation is that, yes, this would increase the number of companies that would qualify.
[Translation]
Senator Chaput: What would that increase be percentage-wise?
[English]
Ms. Arsoniadis-Stein: What we would like to see in Canada is the development and attraction of more headquarters coming to Canada, so that Canada can benefit from the corporate trade activity of international trade. Currently, our nation is pretty much a port maritime nation, meaning that we're putting billions into infrastructure development to develop our infrastructure so we can facilitate the through-put of all the ships that are coming in and out of our ports.
We need to optimize on these developments, on these initiatives, on these investments. Now, how do you do that? We need to bring that corporate activity of the corporate trade, of global trade to Canada. Right now it is happening abroad, and Canada does need to modernize and become more competitive in terms of attracting that type of industry.
With global trade increasing from 9 billion metric tonnes a year right now upwards of 24 billion metric tonnes by 2030, it is a great time for Canada to start to build and attract the corporate activity behind that international trade.
This is a good step forward for Canada to build on the existing policy that's there and create a good solid foundation so that we can put our flag up and say internationally ''We're open for business,'' and bring more headquarters and corporate activity into Canada.
We don't have an exact number. This is a step in that direction. There are a few other things that we need to fix as well. And hopefully with improvements — and this is a big, positive step forward should this come through — we can work to develop that industry for Canada.
[Translation]
Senator Bellemare: My question is for Marie-Hélène Labrie. What specific amendment are you proposing in clause 90?
[English]
Ms. Labrie: We would like the sentence that says: ''. . . but not including. . . equipment used to convert producer gas into liquid biofuels or chemicals'' to be removed. This is clause 90(4) relating to paragraph (d) of Class 43.1. I don't know if you can see this one.
Senator Bellemare: Yes.
Ms. Labrie: This is amended to replace ''and'' and ''or'' at the end of the paragraph, and it starts with:
. . . equipment used by the taxpayer, or by a lessee of the taxpayer, primarily for the purpose of generating producer gas . . .
But at the bottom it says: ''. . . but not including. . . equipment used to convert producer gas into liquid biofuels or chemicals.''
We would like this to be removed so that companies like us who are producing the producer gas that is included in paragraph 85 can use it for the production of chemicals or fuels; so that we leave it open to the businesses to decide what they want to do with the producer gas in terms of clean energy, and that it is not prescriptive.
In this same proposed section you have text in the first three sentences that says ''equipment used. . . primarily for the purpose of generating producer gas. . .'' and then in parenthesis, it says, ''. . . (other than producer gas that is to be converted into liquid biofuels or chemicals) . . .''.
So twice in the same paragraph, we are excluding the use of the producer gas and liquid biofuels and chemicals, and we would like those exclusions to be removed.
The Chair: This is all at page 261, colleagues, of the English version at subparagraph (4).
[Translation]
Senator Bellemare: Do you have an idea of what kind of financial impact your proposal would have? Would that impact be significant?
[English]
Ms. Labrie: This would give companies like us — and today we're the only one in Canada — so you would have companies like us who could use their producer gas into — when we invest in the plant, we would have access to the accelerated depreciation rate, as a producer of electricity would, so it gives more flexibility. I believe there are more opportunities for Canadians than cost, because we generate a lot of benefits.
The figure is $65 million in net economic benefit for all the investment we make. We reduce greenhouse gas emission and create high-quality jobs. I see more benefit than cost in there.
In terms of attracting private investment, which is the objective of these amendments, I think we would need the objective of the government.
The Chair: My understanding is the costs would be pretty minimal because you're just starting out in business. It's not as if this is some well-established business looking for some costly solution. You only have one production plant so far in Edmonton, you have plans to expand, but at this time it's only since June of this year that there's been any production on a full-scale basis; is that correct?
Ms. Labrie: Yes, we are in start-up mode right now as we speak. You're correct, Edmonton is the first one. Varennes, south of Montreal, would be the second one, but we haven't started construction yet on this facility.
The Chair: What this would do, if the amendments were made as you request them, is it would help to stimulate a new industry in Canada?
Ms. Labrie: Yes, exactly.
The Chair: Thank you.
[Translation]
Senator Hervieux-Payette: Although you are saying that there are other benefits, we have to remember that municipalities are in charge of waste treatment. If a plant has accelerated capital cost allowances, its manufacturing cost will decrease automatically and the per-tonne cost will be lower. There are definitely local benefits. There is a benefit for shareholders, but not all the profits will necessarily go to them. You will also be able to increase the number of plants and thereby help resolve a significant problem in Canada — the disposal of waste that is not necessarily treated using other types of technologies. As you say, plastic bottles, textiles and other products are not always used effectively by current recyclers.
Varennes is not a very big city — its population is perhaps 50,000, at the most. Edmonton is a big city. So Varennes setting up a plant is due to high profitability. I would like you to confirm that for me. Do you agree?
Ms. Labrie: Definitely. This helps provide municipalities with alternative options to deal with waste. This is a long-term solution that reduces landfills. The Varennes plant will be able to convert not only municipal waste, but also all the commercial construction and demolition waste from the surrounding area.
Senator Bellemare: I would like you to tell me again why this was specifically excluded. Elements were added in brackets. Do you have an idea of why that was done?
Ms. Labrie: No. Unfortunately, I cannot explain that. I can only tell you that, today, when we look at ways to produce energy, we have wind, solar, small hydro-plants and landfill gas. Those are all ways to produce electricity, but the infrastructure used does not have the capacity to produce anything else. Enerkem is trying to include producer gas. I think the idea was to continue in the logic of electricity, but other products can also be made with producer gas. In this case, a clean energy final product should be an option.
[English]
The Chair: I have a question of Ms. Arsoniadis-Stein. I'm not sure if you were able to hear all of the discussion we're having in relation to the new technology for the production of gas and chemicals, but that's the discussion we have been having in parallel with your discussion.
Ms. Arsoniadis-Stein: We're following.
The Chair: You will understand that in some industries they're not entirely happy with the extent to which the amendments have appeared. I understand that your testimony, and backed up by Mr. Shields, is that you are content with these proposed changes.
Ms. Arsoniadis-Stein: That's correct.
The Chair: Has there been consultation prior to these being implemented? In particular, was the International Ship-Owners Alliance of Canada consulted or have you been urging these changes for some time?
Ms. Arsoniadis-Stein: Yes, we have. In fact, there has been consultation across Canada through other shipping associations, from the Shipping Federation, Canadian Shipowners Association, the Council of Marine Carriers, the B.C. Chamber of Shipping. From coast to coast there has been further consultation beyond our group with other shipping associations in Canada.
All of them support this modernization of our tax code so that we can bring more business into Canada. You're looking at 90 per cent of global trade happening on ships, and 10 per cent is truck, rail and aviation. It's a great step in helping us to move forward and grab that corporate activity behind the trade. It's been supported by other associations across Canada for that reason.
The Chair: Thank you.
Ms. Arsoniadis-Stein: I might also add, that is in addition to allowing the shipowners we have in Canada to expand their operations in Canada. So they can do more work from Canada rather than the other offices they hold globally.
The Chair: Not necessarily specific with respect to the shipping industry, but other tax changes that would allow for some tax advantages for head offices in Canada has been a matter of some discussion between Canada and the United States and politicians in both areas. The Americans in particular are concerned about losing some of their head offices. Would this fit into that category?
Ms. Arsoniadis-Stein: I will have to promote that we will open our arms and take any companies that want to come from the U.S. into Canada. I'm all for that, senator.
The Chair: In your presentation you talk about the threshold for an entity to qualify as a shipping company and it talks about 100 per cent owned. Does that mean 100 per cent Canadian ownership? In this legislation that is being reduced to 25 per cent.
Ms. Arsoniadis-Stein: That's correct. I'll let Mike give you the technical explanation there.
Mr. Shields: What the rules said previously was that in order to be a shipping company, and qualify as a shipping company, it only looked at investments that were 100 per cent wholly owned. Any time you set up a joint venture with another party to do shipping, you would automatically be excluded from the rules. As a result, the rules are intended to expand the qualifications to take into account the way people invest today in the shipping industry. There are a lot of joint ventures and jointly owned companies that go out, get vessels and use those vessels in international traffic, and this legislation will allow those activities to qualify.
The Chair: As it now exists, 100 per cent owned means what in the existing rules?
Mr. Shields: As the rules exist now, the company trying to qualify under this provision has to own 100 per cent of the shares of another company. The rules have been rewritten to allow, number one, that threshold of 100 per cent to be reduced to 25 per cent, and number two, to allow investments in non-corporate entities such as partnerships to qualify also.
The Chair: Could the other 75 per cent be foreign owned under the proposed changes?
Mr. Shields: It could be foreign owned; it could be Canadian owned. It's not specified. The reason it's not specified is that the testing entity for purposes of this is the one that owns the investment. They are testing the entity that is making the investment into the shipping company or partnership. It doesn't examine who the other partners are to the investment.
The Chair: Thank you. Are there any questions arising from that line of questioning?
Seeing none, on behalf of the Standing Senate Committee on National Finance, I thank you very much, Ms. Arsoniadis-Stein and Mr. Shields.
[Translation]
Ms. Labrie, thank you very much for participating in today's meeting and explaining your position on this bill.
[English]
Colleagues, that concludes the work that we had scheduled for this afternoon. When you start going to these various sections and seeing how they impact industry, you can see that it's much narrower than it is when we were flowing through from section to section, and it's not easy for the clerk to line up witnesses for any of the areas of concern. If you have any areas, please let us know. We are moving ahead, planning to finish dealing with this bill — I've forgotten the schedule we talked about this morning. We're meeting tomorrow and Thursday, and probably not next Tuesday unless there is something else you wish to look into. By the end of this week, we're going to be in fairly good shape to start the next phase on this, which is to talk to the other six committees that have dealt with different aspects of this bill. We hope to start that next Wednesday evening.
Senator McIntyre: I have a short question for you. I'm sure you can answer this one. I was just looking at clauses 85 and 90. Those clauses deal with the clean energy equipment. As I recall, the budget was tabled in Parliament on February 11, 2014, and I was wondering if this change to the eligibility criteria applies to property acquired after February 10, 2014.
The Chair: Typically it would, but Mr. Shields, did you hear that question?
Mr. Shields: Yes, I did. I don't know the answer to it.
The Chair: Then I won't speculate, either. If you would like us to inquire into that question, we can do that. We will ask the Library of Parliament to provide us with an opinion.
Senator McIntyre: Thank you.
The Chair: If there is nothing further, this meeting is now concluded.
(The committee adjourned.)