FINA Committee Report

Among the many issues facing Canadians, those related to climate change and the environment are likely to have significant and long-lasting effects. Many scientists believe that climate change will result in harsh weather conditions, including storms, floods and forest fires, and that these conditions will become more severe over time. For example, warmer temperatures in forested areas may lead to increased evaporation and the loss of soil moisture, and grasslands may replace forests in areas that become too dry for trees. Higher temperatures and drier conditions may increase the frequency of forest fires, and forest disease and pest infestations may also increase as warmer summers place additional stress on trees and warmer winters increase pest survival. Air and water quality issues are also likely to exist for some time.

In recent years, the federal government has announced several environmental initiatives. For example, in November 2002, prior to its December 2002 ratification of the Kyoto Protocol, the federal government released its Climate Change Plan for Canada designed to reduce annual greenhouse gas emissions. In particular, the plan set out a three-step plan to reduce annual greenhouse gas emissions by 240 megatonnes.³³

The Climate Change Plan was supported in the 2003 federal budget by an allocation of $1.7 billion over five years to support innovation and cost-effective measures resulting in greenhouse gas emission reductions; this allocation is part of a $3 billion plan to address climate change and the environment, with the $3 billion plan itself augmenting $2.3 billion invested in climate change and the environment since 1997. Furthermore, in August 2003, the federal government committed an additional $1 billion to implement the Plan through incentives for individuals to make their homes more energy-efficient, among other things, and to help industry, governments and communities reduce emissions. Initiatives include, for example, Technology Early Action Measures (TEAM), which bring industry, community and international partners together in support of projects that develop technologies that reduce greenhouse gas emissions and that sustain economic and social development. Previously, support was provided through the Climate Change Action Fund as well.³⁴

Homeowners are encouraged to contribute to greater energy efficiency through such measures as Home Energy Efficiency Retrofit Grants, launched by the federal government in 2003 to encourage homeowners to retrofit their homes for greater energy efficiency.³⁵

Federal support also exists for renewable energy, which is beneficial in an economic sense and as a means of improving the environment and meeting Canada’s Kyoto commitments. The 2001 federal budget proposed a production incentive for electricity produced from qualifying wind energy projects. It announced the Wind Power Production Incentive with an initial incentive of 1.2¢ per kilowatt hour of production, gradually declining to 0.8¢ per kilowatt hour, for eligible projects commissioned after 31 March 2002 and before 1 April 2007; the incentive is available for the first 10 years of production.³⁶ Renewable energy also received support in the 2003 budget, as did ethanol and methanol. In particular, the budget proposed that the ethanol or methanol portion of blended diesel fuel would be exempted from the federal excise tax on diesel fuel, as well as bio-diesel when used as a motive fuel blended with regular diesel fuel.³⁷

As well, the 2003 federal budget allocated $2 billion over five years to support climate science, environmental technology and cost-effective climate change measures and partnerships in areas such as renewable energy, energy efficiency, sustainable transportation and new alternative fuels. Particular initiatives included funding to Sustainable Development Technology Canada (SDTC) and the Canadian Foundation for Climate and Atmospheric Sciences, as well as funding for other climate change measures, including targeted initiatives and partnerships. SDTC, which received additional funding and an expanded mandate in the 2004 budget, is an arm’s-length foundation supporting the development and commercialization of new technologies that address climate change, clean air, water and soil. The 2004 budget announced an investment of $15 million over two years to develop and report better environmental indicators on clean air, clean water and greenhouse gas emissions, as well as a Green Procurement Policy to govern federal purchases.³⁸

As well, brownfield redevelopment has received federal support. Brownfields are polluted lands, and are often found within cities. Even when they are located in desirable areas, liability issues and cleanup costs frequently mean that the lands remain undeveloped. In addition to the benefits of cleaning up the environmental damage of brownfields themselves, greater redevelopment of brownfields increases urban intensification while reducing urban sprawl and air pollution. Recognizing these benefits, the 2003 federal budget allocated $175 million over two years to address the highest-risk federal sites. It also indicated its commitment to supporting the clean-up of the Sydney tar ponds.

Green space is also supported by the federal government. For example, the 2003 federal budget committed the federal government to establishing 10 new national parks and 5 new national marine conservation areas, and to restoring the ecological health of existing parks. The budget allocated $74 million over two years for these measures.³⁹

Measures to enhance air and water quality also receive federal support. In the 2003 federal budget, $40 million was allocated over two years to promote best practices and to develop regulations on air pollution, recognizing the transborder nature of air quality concerns. As well, as mentioned in Chapter Four, the budget allocated $600 million over five years to upgrade, maintain and monitor water and waste water systems on reserves.⁴⁰

The Green Municipal Enabling Fund and the Green Municipal Investment Fund, which are funded by the federal government and administered by the Federation of Canadian Municipalities, assist with environmental initiatives. In particular, the Enabling Fund is a $50 million revolving fund that provides grants to support studies of the technical, environmental and/or economic feasibility of innovative municipal projects, while the $200 million revolving Investment Fund supports the implementation of innovative environmental projects.⁴¹

Urban public transit, which has environmental, trade and quality-of-life aspects, is also supported by the federal government. By moving people from cars to buses, subways and light rail, public transit relieves pollution and congestion on roadways, reduces the amount of time it takes for employees to get to work and improves delivery times for trucks that ship goods. The federal government provides support for urban public transit. For example, funding is provided across Canada, from the Halifax Regional Municipality in Nova Scotia to GO Transit in Ontario to the Greater Vancouver Transportation Authority (Translink) in British Columbia. Federal tax assistance might also occur. The Greater Vancouver Transportation Authority, for example, is exempt from federal income and capital taxes.

In commenting on the need for “fundamental change in the way in which we think about the environment,” the October 2004 Speech from the Throne committed the federal government to working with “the private sector to improve the commercialization of the best new environmental technologies… .The Government will place increased focus on energy efficiency and energy research and development. It will engage stakeholders in developing comprehensive approaches to encourage increased production and use of clean, renewable energy and to promote greater energy efficiency… . [I]t will continue to pursue multilateral and bilateral approaches to what are ultimately global challenges.”⁴²

The Committee received a broad range of suggestions about how Canada might ensure a sustainable environment and meet Kyoto commitments. These included ideas about incentives for the production and use of renewable energy. For example, we were told that low-impact renewable energy is the fastest-growing source of new energy in the world, and it was urged that the following suggestions be implemented in order to encourage its use in Canada: establishing other incentive programs similar to the Wind Power Production Incentive (WPPI) in order to encourage the development of other low-impact renewable power technologies; expanding the existing Market Incentive Program; enhancing — by $50 million annually — federal research spending on the research and development of innovative Canadian technologies for low-impact renewable energy; and establishing a “Sustainable Energy Trust” with proceeds from the sale of the federal government’s PetroCanada shares that would provide long-term funding for the deployment of sustainable energy technologies.

The development of wind energy capacity received particular attention, and the Committee was told that companies that make use of the WPPI are not permitted to use the Canadian Renewable and Conservation Expense, despite the fact that the two initiatives serve fundamentally different purposes. We were also informed that, under the current proposal for a national greenhouse gas emissions trading system, companies that use the WPPI would not be allowed to create a greenhouse gas offset credit despite the fact that offset credits are financed by the private sector and that the WPPI does not require participants to transfer the environmental attributes of the energy produced to the federal government.

Regarding the Green Municipal Funds administered by the Federation of Canadian Municipalities, it was observed that many of the funds are now committed. As such, it was suggested to the Committee that the federal government double the Funds’ endowments to $500 million from the current $250 million.

Witnesses also shared their concerns about the implementation of the Kyoto Protocol and its potential consequences for several industries. In their view, reductions in greenhouse gas emissions must be done in such a manner that the international competitiveness of Canadian producers is protected. The Committee was told that the reduction targets must be reasonable, cost-effective and achievable in practice, and that market-based incentives should be provided for businesses to meet these targets.

Many witnesses proposed that the federal government establish investment incentives to accelerate the transition of existing production facilities to more environmentally friendly technology. For example, it was urged that the government provide businesses with an immediate tax deduction for 100% of the cost of vehicles that meet low emission standards, a measure that was introduced in the United Kingdom in 2002.

Another suggestion presented to the Committee was the need to support and encourage investment in green car manufacturing in Canada by leveraging the manufacturers’ investment to produce energy-efficient vehicles. The Committee was told that General Motors is currently evaluating whether to produce hybrid vehicles at its Ingersoll and Oshawa plants. Market-based incentives could also be directed at consumers by providing a $4,000 incentive to consumers and a $500 incentive to dealers for the purchase or sale, as the case may be, of low-emission vehicles. Such other consumer incentives as consumer rebates, sales tax rebates and income tax credits for the purchase of Advanced Technology Vehicles and Alternative Fuel Vehicles were urged.

With respect to nature conservation, two approaches were proposed. First, the federal government could establish a leveraged national conservation fund with an initial investment of $250 million to support, on a project-by-project basis, priority initiatives identified in the government’s Environmental Policy Framework. Second, the government could use the tax system to create incentives for the conservation of ecologically sensitive private lands, such as eliminating the remaining capital gains tax on gifts of ecologically sensitive lands or conservation easements.

The Committee was told that there are many benefits to encouraging brownfield redevelopment, including revitalized communities, reduced urban sprawl and increased tax revenues for all levels of government. We were informed that the federal government could encourage brownfield redevelopment through such initiatives as existing infrastructure programs, targeted programs, revenue-sharing agreements, brownfield-specific mortgage insurance and tax credits. Several witnesses also recommended that the government amend the Income Tax Act in order to treat remediation expenses for the development of brownfield sites as a deductible expense.

The Committee supports the ratification of the Kyoto Protocol by the federal government and the initiatives that have been taken to date to meet our commitments. We believe, however, that vigilance is required on an ongoing basis to ensure continued progress toward both meeting our commitments and ensuring the health of our environment. A sustainable environment is an important contributor to the health and quality of life of Canadians, and to the prosperity of Canadian businesses. Moreover, Canada has an obligation to be part of the solution in meeting global environmental challenges.

The Committee believes that the federal government should lead by example on environmental issues. We recognize the commitment made in the October 2004 Speech from the Throne to “build sustainable development systematically into decision making,” and the announcement in the 2004 federal budget of a Green Procurement Policy to govern federal purchases. While we support both statements, we believe that more specific recommendations for action are required. It is from this perspective that the Committee recommends that:

RECOMMENDATION 7

The federal government take a leadership role with respect to protecting the environment by: purchasing fuel-efficient vehicles for government use; ensuring that government buildings are energy-efficient; encouraging the use of public transit by public service employees; and maintaining the commitment to its Green Procurement Policy.

In the Committee’s view, a range of investments in our environment — including in renewable energy and alternative energy development and commercialization, energy efficiency, and energy research and development — continue to offer a great deal of potential, both in an economic sense and as a means of meeting our Kyoto commitments. Moreover, we believe that brownfield redevelopment could make an important contribution to improving the environment and, because of its effects on urban sprawl and air pollution, the health and well-being of Canadians. We believe that the positive benefits of action in this area would outweigh any costs. Moreover, attention must be paid to the quality of our air, water and soil, recognizing that cooperation with the United States may be required to ensure that citizens in both countries benefit from clean, high-quality shared ecosystems. We also feel that consumers, homeowners and other individuals should be provided with incentives to encourage their adoption of more energy-efficient measures and behaviours. Consequently, the Committee recommends that:

RECOMMENDATION 8

The federal government — in order to encourage more environmental production, practices and purchases by businesses and individuals — develop and implement appropriate incentives and supportive policies in the following areas:

•	the production, purchase and use of fuel efficient vehicles;

•	housing retrofits and other measures that would result in enhanced energy efficiency;

•	public transit, including measures related to the tax treatment of employer-financed transit passes;

•	renewable and alternative energy development and commercialization, including measures related to wind energy and fuel cells, as well as ethanol and methanol;

•	within the context of Recommendation 14 regarding revision of Canada’s capital cost allowance rates, the treatment of Class 43.1 regarding renewable and alternative energies;

•	the commercialization of new environmental technologies;

•	brownfield redevelopment; and

•	green space.

Moreover, the government should develop and implement measures designed to enhance air, water and soil quality, bearing in mind the need for transborder cooperation in areas where ecosystems are shared.

COMMUNITIES

Like many other countries, Canada is a nation of communities, and our cities and towns are the engines that, in some sense, power the Canadian economy. Sustainable communities that are desirable places within which to live and work are a key ingredient for providing Canadians with the standard of living and quality of life we need and deserve.

Data from the 2001 census reveal that, in that year, 79.4% of Canadians lived in an urban centre of 10,000 people or more, an increase from 78.5% in 1996. Most of this growth was centred in four major urban regions: Ontario’s extended Golden Horseshoe; Montreal and the adjacent region; British Columbia’s Lower Mainland and southern Vancouver Island; and the Calgary-Edmonton corridor.⁴³

In contrast to cities and suburban areas, rural and small-town areas⁴⁴ experienced a population decline of 0.4% between 1996 and 2001.The population in these areas fell in every province except Ontario, Manitoba and Alberta. In 2001, 20.3% of Canadians lived in rural and small-town areas, a decrease from 21.5% in 1996. Some rural and small-town areas did, however, grow over the 1996 to 2001 period. For these areas, growth depended on the proportion of their residents that commuted to urban centres. The population of rural areas in which more than 30% of the residents commuted to urban centres increased 3.7% over the period, largely as a result of people who moved just beyond urban boundaries to live in a more rural setting.

The Rural Secretariat within Agriculture and Agri-Food Canada is the focal point for the federal government’s work with Canadians in rural and remote regions to build their communities. It provides leadership and coordination, facilitates the creation of partnerships regarding rural issues and priorities, promotes discussion between rural stakeholders and the government, plays a role in the ongoing rural dialogue, and promotes the use of the Rural Lens to ensure that rural concerns are considered throughout the government.⁴⁵ The government also has regional development agencies that may play an important role in remote regions of Canada, including the Federal Economic Development Initiative for Northern Ontario and the Economic Development Agency of Canada for the Regions of Quebec.

Sustainable communities — large, small, urban, rural and remote — share some common characteristics. They have strong, safe and reliable social and physical infrastructure: recreational facilities, walkways and bike paths, roadways, sewers, telephone lines, power plants, water and waste water systems, public transit and housing, among other elements. Infrastructure is the responsibility of all levels of government, although it is often thought that municipalities lack adequate financial capability to address infrastructure needs, since they rely mainly on property taxes to raise revenues.

Federal efforts to address Canada’s infrastructure deficit involve a number of initiatives. For example, the 2000 federal budget introduced the $2.05 billion Infrastructure Canada Program, which was created to enhance municipal infrastructure in rural and urban communities, and to improve Canadians’ quality of life through investments that protect the environment and support long-term economic growth.⁴⁶

The Canada Strategic Infrastructure Fund was created in the 2001 federal budget to fund, through private-public partnerships, large-scale strategic infrastructure projects that improve quality of life and further economic growth. The budget provided at least $2 billion through 2007-2008, which was augmented by $2 billion over 10 years in the 2003 budget. A maximum of 10% of the $2 billion allocation, or $200 million, has been designated for use in national priority projects that will be of national importance such that the federal government is required to take a leadership role. Moreover, at least 20% has been allocated for projects that benefit communities with fewer than 250,000 people.⁴⁷ Other funds will finance new municipal infrastructure investments over the next 10 years that will focus on projects that are typically smaller in scale.

Rural communities received targeted support with the announcement of the Municipal Rural Infrastructure Fund in the 2003 federal budget. The $1 billion in funding, which in accordance with the 2004 budget will now be allocated over 5 years rather than the 10 years initially proposed, focuses on the needs of communities with fewer than 250,000 people and includes a component addressing the infrastructure needs of First Nations communities. In particular, 20% of the funds are targeted to projects that benefit communities of 250,000 or more residents, while the remaining 80% of the funds are dedicated to municipalities with a population of fewer than 250,000 people. The fund addresses such areas as water quality, waste water treatment and local roads.⁴⁸

As noted in Chapter Three, trade with the United States is critically important, and mutually beneficial trade requires that the shared border function well. In cooperation with provincial/territorial/municipal governments, and academic and research institutes — and with Canadian and American partners from the public and private sectors — the federal government operates the $600 million Border Infrastructure Fund that supports key infrastructure initiatives identified in the December 2001 Smart Border Action Plan.⁴⁹

Also important for reasons that include trade is the Strategic Highway Infrastructure Program, which was announced in 2001. Canada’s National Highway System, covering more than 25,000 kilometres of roads running across the country, is essential for the prosperity of the economy, and must be well maintained to protect the health and safety of Canadians. Announced in the 2000 federal budget, the Program has been allocated $600 million over four years, with $500 million directed to highway construction and the remaining $100 million to national system integration. According to the allocation formula with respect to the $500 million in the Program, each jurisdiction receives a minimum of $4 million as well as a share based on population and a 50:50 cost-sharing ratio. Initiatives to be funded by the $100 million in the Program include the deployment of Intelligent Transportation systems, improved border crossings and better transportation planning.⁵⁰

The Green Municipal Enabling Fund and the Green Municipal Investment Fund, mentioned above, also support Canadian communities. As well, the 2004 federal budget announced $7 billion in Goods and Services Tax/Harmonized Sales Tax (GST/HST) relief for municipalities over the next decade. This goal will be achieved through increasing the rebate to 100% in respect of the GST/HST for municipalities.⁵¹

In the October 2004 Speech from the Throne, the federal government recognized communities as being key to Canadians’ social goals and Canada’s economic competitiveness, and mentioned the New Deal for Canada’s Cities and Communities, a component of which involves giving municipalities part of the federal tax on gasoline. The Speech also made a commitment to regional and sectoral development.⁵²

While all communities in Canada face challenges, the challenges they face are not necessarily the same. Canada’s large urban communities, for example, may have challenges related to the integration of immigrants to Canada. Rural and remote communities may have challenges that might be met, in part, through healthy regional economies. In particular, the October 2004 Speech from the Throne said that “Canada’s regional economies are a vital source of economic strength and stability. Support for regional and rural economic development will target the fundamentals — skills upgrading, support for research and development, community development, and modern infrastructure such as broadband communication. … ”⁵³

The October 2004 Speech from the Throne also mentioned Canada’s North, and indicated that the federal government “will develop, in cooperation with its territorial partners, Aboriginal people and other northern residents, the first-ever comprehensive strategy for the North. This northern strategy will foster sustainable economic and human development; protect the northern environment and Canada’s sovereignty and security; and promote cooperation with the international circumpolar community.”⁵⁴

Many witnesses commented on the need for sustainable communities and on the sizable infrastructure deficit that currently exists in many of our communities. The Committee was told that a revenue-sharing agreement is needed to provide municipalities with a new, stable and predictable revenue source to address the infrastructure deficit — estimated at $60 billion — faced by them. The federal government was urged to conclude agreements with provincial/territorial governments by the end of 2004 to provide municipal governments with a total of $2.5 billion in federal fuel tax revenue annually — the equivalent of 5¢ per litre of the federal gasoline tax and 2¢ per litre of the federal diesel fuel tax — to support needed infrastructure investments. Moreover, a fuel-tax escalator tied to GDP was urged in order to ensure that the revenues are not linked to fuel consumption but rather to economic growth.

It was observed, however, that revenue-sharing agreements will not replace the need for ongoing capital grants to support large-scale strategic projects and infrastructure investments. As a result, current federal commitments of $1.1 billion annually for infrastructure, currently delivered through the Canada Strategic Infrastructure Fund and the Municipal Rural Infrastructure Fund, are still needed, and it was suggested that funding should be increased because of serious municipal infrastructure requirements. Furthermore, the federal government was urged to amend the investment categories under the Canadian Strategic Infrastructure Fund so that marine infrastructure projects could be eligible for funding.

Witnesses also shared the view that a portion of the funds transferred to municipalities should be used for direct investments in public transit, cycling and pedestrian infrastructure in cities and in freight rail and road infrastructure in rural communities. Similarly, it was suggested that a portion of the funding directed to urban transportation should be allocated to “active transportation” infrastructure, including bike paths and lanes, sidewalks, paths and trails, and inter-modal connection facilities, such as secure bicycle parking at transit connections. This type of infrastructure has community, environmental and health benefits.

It was also proposed that the Income Tax Act be amended to make employer-provided transit passes a tax-exempt benefit. In this regard, the Committee was informed that 80% of Canadian automobile commuters receive subsidized parking from their employers, but most do not pay tax on this benefit; on the other hand, employer-subsidized transit fares are a taxable benefit for employees.

The Committee was told that Canadian transit authorities are facing a $9 billion shortfall in funding for the 2004 to 2008 period, and that an estimated $6.9 billion is needed to keep existing equipment in good repair during this period. In the view of witnesses, improved transit and active transportation infrastructure would both improve the standard of living in our communities and contribute to reducing carbon dioxide emissions, thereby helping Canada to fulfill its commitments under the Kyoto Protocol.

With respect to remote communities, several witnesses urged the federal government to expand broadband access to rural and remote communities. Moreover, the Committee was told that per capita funding for new infrastructure or infrastructure upgrading does not meet the needs of small and rural communities, since these communities lack the funds to finance the gap between the amounts that they need and what they receive on a per capita basis. Consequently, distribution formulas that mitigate the inequalities associated with per capita funding should be considered; in some circumstances, allocating funds on the basis of land mass or other factors may be appropriate.

The Committee was told that, despite the significant federal funding for highways announced in the 2002 federal budget through the Strategic Highway Infrastructure Program, Canada’s highways are still being neglected. We were informed that highways are vital for Canada’s commercial well-being. At present, since the United States is investing more funds into its highway systems, Canada is being placed at a competitive disadvantage. The federal government was urged to enhance the Strategic Highway Infrastructure Program by providing sustainable, predictable long-term funding dedicated to the National Highway System.

Moreover, witnesses described the St. Lawrence Seaway as an important federal facility that has had insufficient investments made in upgrading and improvements. Therefore, it was suggested that the federal government adopt a long-term infrastructure strategy for the St. Lawrence Seaway and ensure that sufficient funds are allocated to finance the strategy.

CHARITABLE GIVING AND VOLUNTEERISM

The Committee agrees that Canada has a substantial infrastructure deficit, and that action is needed on a priority basis to ensure that our economic prosperity and quality of life are not further compromised. This deficit exists across Canada — in urban, rural and remote areas — and across types of infrastructure — roads, public transit, waterways, water and waste water systems, and others. In our opinion, infrastructure renewal is a responsibility shared by all levels of government, and governments must work cooperatively toward the development of a comprehensive plan for infrastructure renewal.

Difficult choices may be required and investments may have to be phased in over time, but the Committee believes that all levels of government are committed to sustainable communities within Canada, and sustainability requires infrastructure investments. The need is urgent and the time for action is now. Further delay is not, in our opinion or in the opinion of our witnesses, an option. Therefore, the Committee recommends that:

RECOMMENDATION 9

The federal government develop and implement a long-term, adequately funded infrastructure plan consistent with its responsibilities. The development and implementation of the plan should occur only after consultations with relevant non-governmental stakeholders. In determining how infrastructure funds should be allocated, an allocation mechanism that is not limited to population but that recognizes the strategic and development needs of communities should be considered.

Moreover, the government should allocate the equivalent of 5¢ of the federal tax on gasoline to a program delivered through the provinces/territories for cities and communities. These funds should be used for sustainable infrastructure investments.

Finally, the government should, in conjunction with stakeholders, undertake a comprehensive review of the Canada Strategic Infrastructure Fund, the Municipal Rural Infrastructure Fund, the Border Infrastructure Fund and the Strategic Highway Infrastructure Program. This review should focus on funding levels and allocation mechanisms, and should be completed no later than 30 June 2005.

Charities play an important role in providing services to Canadians. Figure 2.1, for example, shows that Canadian charities have the following purposes: religion, health, education and research, social services, and culture and art. In recognition of their value, the federal government has developed tax measures designed to encourage charitable donations and to lessen the financial burden of reduced direct government funding to charities.⁵⁵

Source:

Department of Finance.

One such initiative was the implementation, in 1997, of a temporary measure to set the capital gains inclusion rate on donations of publicly traded securities to public charities at one-half the amount included for other capital gains. A similar measure was introduced for donations of ecologically sensitive lands in the 2000 federal budget. In 2001 and beyond, 25% of the capital gains resulting from the donation of publicly traded securities or ecologically sensitive lands to a registered public charity must be included in the donor’s income, rather than the 50% rate that would have applied had the measures not been implemented.⁵⁶

In the 1997 federal budget, the federal government indicated that the temporary provision would be terminated after five years if it had not been effective in increasing donations and in distributing the additional donations fairly among charities. In October 2001, following a study of the temporary measure, the Department of Finance reported that these objectives had been achieved and the tax measure was made permanent.

Charitable giving by individual donors is also encouraged through the non-refundable charitable donations tax credit, which is worth 16% of the first $200 donated and 29% of donations exceeding this amount, up to 75% of the taxpayer’s annual net income. As indicated in the 2004 federal budget, in 2002, about 5.5 million Canadians made financial or in-kind donations that had a value of about $5.8 billion. Federal tax revenues forgone as a result of these donations totalled more than $1.7 billion.⁵⁷ Corporations, on the other hand, can deduct the fair market value of charitable donations up to a maximum of 75% of net income. Moreover, corporations making a charitable gift for the purpose of earning business income can deduct the amount of the donation as an ordinary business expense in computing their taxable income.⁵⁸

Currently, the Income Tax Act restricts the kind of activities that charitable organizations are allowed to undertake if they wish to retain their charitable status. Restrictions also exist with respect to the disbursement quota for charitable endowments. The 2004 federal budget proposed changes to the rules for registered charities, in particular by proposing a new compliance regime, a more accessible appeals regime, and improved transparency and more accessible information. As well, it was announced that the rules that determine the proportion of charitable donations that registered charities must devote to delivering charitable programs and services would be improved. Announcements were also made regarding a Charities Advisory Committee, additional funding of $6 million over two years to advance the Voluntary Sector Initiative (VSI), a proposed Not-for-Profit Corporations Act and the notion of a bank for the charitable sector. The VSI was launched in 2000 with funding of $95 million.⁵⁹

Noting the role played by voluntary organizations and social economy enterprises in finding local solutions to local problems, the October 2004 Speech from the Throne committed the federal government to helping create the conditions for the success of these organizations and enterprises. The Speech commented that a new Not-for-Profit Corporations Act will be introduced.⁶⁰

As in previous years, witnesses’ concerns with respect to charitable giving focused on essentially three issues: the elimination of the capital gains inclusion rate on donations of publicly traded securities and ecologically sensitive lands to public charities; the extension of the preferential tax treatment of these donations to private foundations; and the extension of the preferential tax treatment to donations of other asset classes. In their view, donors should be allowed to benefit from favourable tax treatment when giving other types of assets, and private foundations should not face discrimination. Moreover, they believe that eliminating the capital gains will enhance the level of charitable donations.

Other charitable giving requests were also made. Witnesses advocated changes to the Income Tax Act that would allow charities to engage more actively in the public policy process without losing their charitable status. They told the Committee that, at present, charities cannot use more than 10% of their financial and human resources on “political activities.” These activities include advocacy efforts directed at effecting changes in government policies. They argued that this restriction is inconsistent with the role of charities in a modern democracy.

Witnesses also spoke to the Committee about the impact of rising insurance costs on charities, since rising liability insurance rates have had detrimental effects on many Canadian voluntary sector organizations and have reduced their ability to deliver services.

Other suggestions presented to the Committee included a proposal that charities be given preferential treatment by Canada Post when they use address admail and business reply mail services, and when they mail donation receipts. As well, it was proposed that registered charities be exempt from the requirement to issue receipts for income tax purposes when donations are less than $250; this change would eliminate red tape. Finally, federal examination of potentially unfair competition between the not-for-profit and private sectors was urged.

The Committee continues to support measures that would improve the ability of Canadians to contribute to the work of charitable organizations, both as volunteers and as donors. Such activities have wide-ranging benefits for the volunteers, the donors, the donee charitable organizations and the ultimate recipients of the charitable organizations’ efforts. While we have, in the past, supported the elimination of the capital gains inclusion rate on donations of publicly traded securities and ecologically sensitive lands to public charities, we feel that we are unable to do so this year. Instead, we believe that a more appropriate action, in the context of other recommendations that we make with respect to capital gains, is to urge reduction in the capital gains inclusion rate for these donations, rather than elimination.

The Committee believes that donors should have greater flexibility with respect to the assets that they can donate to charitable organizations and qualify for the lower capital gains inclusion rate. We support a number of our witnesses in believing that the eligible asset classes should be extended to include donations of real estate and of land, subject to proper valuation. It is for this reason that the Committee recommends that:

RECOMMENDATION 10

The federal government, bearing in mind Recommendation 16 regarding a review of capital gains, take the following two actions:

•	reduce the capital gains inclusion rate for donations of publicly traded securities and ecologically sensitive lands to public charities; and

•	subject to proper valuation, extend the asset classes to which this reduced capital gains inclusion rate applies to include real estate and land.

CULTURE

Canadian culture — however it is defined — makes a vital and pervasive contribution to the lives of our citizens. The ongoing challenge for our cultural industries, however, has been to compete in a marketplace with a high proportion of foreign content. Consequently, nurturing Canadian content and Canada’s cultural industries has been a longstanding objective of the federal government.

The federal government undertakes a range of activities to support Canada’s cultural industries, which receive about $3 billion annually from the federal government, contribute about $28 billion to our GDP and employ about 740,000 individuals. Figure 2.2 shows the average contribution to GDP by cultural sub-sector over the 1996 to 2001 period. Most of the federal government’s arts and culture programs operate under the Department of Canadian Heritage. Programs that provide financial support for arts and culture include:⁶¹

•	Arts Presentation Canada

•	the Canada Travelling Exhibitions Indemnification Program

•	the Book Publishing Industry Development Program

•	the “Celebrate Canada!” Program

•	the Canada Magazine Fund

•	the Movable Cultural Property Program

•	the Canada Music Fund

•	the Museums Assistance Program

•	the Canadian Film or Video Production Tax Credit

•	the Applied Research in Interactive Media Program

•	the Film or Video Production Services Tax Credit

•	the Canadian Independent Film and Video Fund

•	the Canada New Media Fund

•	the Canadian Television Fund

•	the Canadian Memory Fund

•	Cultural Capitals of Canada

•	the Community Memories Program

•	Cultural Spaces Canada

•	the Electronic Copyright Fund

•	the National Arts Training Contribution Program

•	Francommunautés virtuelles

•	the National Training Program in the Film and Video Sector

•	the New Media Research Networks Fund

•	the Publications Assistance Program

•	the Partnerships Fund

•	the Virtual Museum of Canada Investment Program

•	Trade Routes.

Source:

Statistics Canada.

In 2001, the federal government announced the creation of the Tomorrow Starts Today initiative, which is the most significant cultural investment made by the government since the establishment of the Canada Council for the Arts. The Tomorrow Starts Today initiative includes a number of the programs noted above, while the Canada Council for the Arts provides financial support to artists and art organizations in performing, literary and visual arts. As well, the government supports Telefilm Canada, which develops and promotes the Canadian film, television, new media and music industries.

Of particular importance to the television sector is the Canadian Television Fund (CTF), which was created in 1996 to encourage the production of Canadian television programming. The CTF is a public/private partnership with an annual budget of approximately $250 million, funded by the federal government, cable companies and direct-to-home satellite service providers. In the 2003 federal budget, the federal government announced that it would extend the CTF for an additional two years, but at a reduced level of funding. Annual federal support would have decreased from $100 million to $87.5 million in 2003-2004 and to $62.5 million in 2004-2005.⁶² The 2004 budget, however, announced that the funding would be restored to $100 million annually.⁶³

Moreover, the 2003 federal budget increased the rate available under the Film or Video Production Services Tax Credit, which is a refundable credit for the cost of Canadian labour engaged in foreign films and videos produced in Canada. The budget increased the tax credit rate from 11% to 16%. Regarding the Canadian Film or Video Production Tax Credit, which is a refundable investment tax credit equal to 25% of labour costs incurred in Canadian film or television productions, the budget indicated that consultations with the industry would continue in order to ensure that the structure and operation of the credit are appropriate to achieve the intended support.⁶⁴

Sport is also supported by the Department of Canadian Heritage through such programs as:

•	the Athlete Assistance Program

•	the Hosting Program — International Single Sports Event

•	the National Sport Organization Support Program

•	the Sport Participation Development Program.

Sport is an element of our national pride. It is also an important means by which Canadians can take preventative action that will have positive health effects. The federal government currently invests $75 million annually in a range of sport activities. The importance of sport to the welfare of Canadians was identified in the October 2004 Speech from the Throne in the context of health, when it was noted that better health for Canadians requires “the promotion of healthy living, addressing risk factors such as physical inactivity … ” and the commitment was made that the federal government will “work with partners to enhance sports activities at both the community and competitive levels.”⁶⁵

In addition to arts and sport, another aspect of our cultural heritage is the preservation of our historic buildings. The 2003 federal budget built on the Historic Places Initiative announced in 2000 by creating a three-year contribution program with $10 million annually to compensate businesses for a portion of the costs incurred in restoring heritage buildings. In addition to developing incentives for the private sector to preserve heritage properties, the Department of Canadian Heritage has been developing a national register in respect of restoration expenditures.

The October 2004 Speech from the Throne recognized cultural life, and commented that the federal government “will foster cultural institutions and policies that aspire to excellence, reflect a diverse and multicultural society, respond to the new challenges of globalization and the digital economy, and promote diversity of views and cultural expression at home and abroad.”⁶⁶

The Committee received a wide range of suggestions about how the federal government should be supporting culture and the arts. For example, we were told that the government must look at ways of improving the financing of production companies as well as cultural industries in general. It was suggested that the government collaborate with industry to find new and innovative ways of attracting corporate private investment to the industry.

Many witnesses spoke to the Committee about the increased credit rate for the Film or Video Production Services Tax Credit that occurred in the 2003 federal budget. They noted that, at that time, no corresponding increase occurred in the credit rate for the Canadian Film or Video Production Tax Credit. Consequently, the rate differential between the two tax credits was changed, and witnesses urged the federal government to increase the tax rate under the Canadian Film or Video Production Tax Credit in order to restore that differential.

Furthermore, witnesses remarked that the three-year $560 million financing plan for the Tomorrow Starts Today initiative will end in 2005. They noted that since no commitment has been made about the initiative’s renewal, the uncertainty creates difficulties for artists and arts organizations. Witnesses urged renewal of the Tomorrow Starts Today Initiative, with a permanent funding commitment.

The Committee’s witnesses also expressed their support for the Canada Council for the Arts, and asked that its funding be increased. Regarding the Canadian Television Fund, most witnesses expressed support for the re-establishment, in the 2004 federal budget, of funding to the previous level of $100 million for the next two years, but urged permanent funding of at least $100 million annually in order to reduce uncertainty.

Witnesses also suggested that the upcoming federal budget should include an increased and stable funding commitment to the Canadian Broadcasting Corporation for at least the next five years, arguing that the Corporation’s role within the broadcasting system has been weakened by a lack of funding in past years. It was also pointed out that the Corporation allocates a large share of its prime-time programming to Canadian-produced television shows, unlike the majority of English-speaking privately owned Canadian television networks.

Furthermore, the contribution of physical activity, sport participation and athletic development to our health and culture was noted by witnesses. The Committee was told that the federal government should contribute at least 1% of the federal health care budget to predictable and adequate long-term investments for sport participation, physical activity and athletic development. More specifically, in their view, minimum annual commitments of $180 million for sport and $100 million for physical activity are required. Witnesses also urged the implementation of a number of tax measures recommended by the 1998 report of the SubCommittee on the Study of Sport in Canada of the House of Commons Standing Committee on Canadian Heritage.

In addition, the Committee was informed that Canada lost between 21% and 23% of its historical housing stock between 1970 and 2000. Witnesses pointed out that the Auditor General of Canada concluded in a 2003 report that Canada’s built heritage is currently jeopardized. It was recommended that federal funding for the Historic Places Initiative be renewed on an ongoing basis, that the capital gains inclusion rate on donations of real property to such bodies as the Heritage Canada Foundation be reduced to zero and that, among other recommendations, the federal government consider the conclusions reached by the Auditor General of Canada with respect to heritage properties.

Moreover, the Committee was told that the federal government’s museum policy is 14 years old. Over this period, there has been a substantial reduction in federal government support for museums and a deterioration in museum assets. We were informed that cutbacks at all levels — from operating grants to education and community outreach programs — have meant that many museums are facing critical shortfalls, and are unable to plan adequately for the future or to maintain facilities and collections.

The Committee was told that the Canadian Arts and Heritage Sustainability Program, through which grants are provided to arts organizations in order to encourage private donations to endowment funds that assist in diversifying and sustaining revenue sources, does not apply to museums. Witnesses urged the federal government to expand this Program’s endowment incentives to museums. It was also recommended that federal funding for the Museums Assistance Program be increased to $1 per capita. Finally, it was suggested that increased investments in museums and other tourism attractions, as well as a $100 million increase in Park Canada's budget for the repair and maintenance of current infrastructure, would encourage tourism activity and thereby benefit the Canadian tourism industry.