CONTENTS
Thursday 11 June 1992
Labour Sponsored Venture Capital Corporations Act, 1992, Bill 150
Ministry of Revenue
Hon Shelley Wark-Martyn, minister
Jim Evans, executive director, revenue services and operations division
Gerald Sholtack, director, legal services branch
Catherine Macnaughton, senior solicitor, legal services branch
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
*Chair / Président: Hansen, Ron (Lincoln ND)
*Vice-Chair / Vice-Président: Sutherland, Kimble (Oxford ND)
*Caplan, Elinor (Oriole L)
*Carr, Gary (Oakville South/-Sud PC)
*Christopherson, David (Hamilton Centre ND)
Jamison, Norm (Norfolk ND)
*Kwinter, Monte (Wilson Heights L)
*Phillips, Gerry (Scarborough-Agincourt L)
Sterling, Norman W. (Carleton PC)
*Ward, Brad (Brantford ND)
Ward, Margery (Don Mills ND)
*Wiseman, Jim (Durham West/-Ouest ND)
Substitutions / Membres remplaçants:
*Johnson, Paul R. (Prince Edward-Lennox-South Hastings/Prince Edward-Lennox-Hastings-Sud ND) for Ms Ward
*Owens, Stephen (Scarborough Centre ND) for Mr Jamison
*In attendance / présents
Also taking part / Autres participants et participantes: Whitehead, John, senior budget adviser, Ministry of Treasury and Economics
Wright, Diana, economics specialist, taxation policy branch, Ministry of Treasury and Economics
Clerk / Greffier: Decker, Todd
Staff / Personnel: Tucker, Sidney, deputy chief legislative counsel
The committee met at 1009 in committee room 1.
LABOUR SPONSORED VENTURE CAPITAL CORPORATIONS ACT, 1992 / LOI DE 1992 SUR LES CORPORATIONS À CAPITAL DE RISQUE DE TRAVAILLEURS
Consideration of Bill 150, An Act to provide for the Creation and Registration of Labour Sponsored Venture Capital Corporations to Invest in Eligible Ontario Businesses and to make certain other amendments / Loi prévoyant la création et l'inscription de corporations à capital de risque de travailleurs aux fins d'investissement dans des entreprises ontariennes admissibles et apportant des modifications corrélatives.
The Chair (Mr Ron Hansen): This morning's business will be amendments to Bill 150, An Act to provide for the Creation and Registration of Labour Sponsored Venture Capital Corporations to Invest in Eligible Ontario Businesses and to make certain other amendments.
MINISTRY OF REVENUE
The Chair: This morning we have the minister, the Honourable Shelley Wark-Martyn, starting off. She has until 10:30. She has another engagement and will be leaving us at 10:30. Would you like to make your comments, Minister?
Hon Shelley Wark-Martyn (Minister of Revenue): I am pleased to be given the opportunity this morning to reflect on the public submissions we have heard so far and to move into clause-by-clause consideration of Bill 150.
I would like to begin by saying that I have monitored the committee process with interest. A number of insightful and interesting comments have been raised by both presenters and committee members. Although there have been some criticisms of parts of the bill, on the whole comments have been useful and positive. Some of the suggestions put forward have been adopted and are reflected in amendments which will be considered during clause-by-clause. One such example has been the decision to allow worker cooperatives to form labour-sponsored investment funds.
Before we go on, I would like to respond briefly to a few points which have been raised.
In relation to the question of support for the bill which was raised by Mr Kwinter in the House, I would like to make note of the strong support from labour for the concept of worker ownership and venture capital investment contained in Bill 150.
The United Steelworkers of America union in particular has been very much in favour of the concept and, with the restructuring of Algoma Steel in Sault Ste Marie, is embarking on one of the largest and most innovative experiments in worker ownership in North America.
The Canadian Federation of Labour is very supportive of this bill. The CFL, as you know, has sponsored the Working Ventures Canadian Fund, a nationwide venture capital fund which in Ontario alone raised over $28 million in new capital for investment in Ontario business. It is my hope that their investments, and others, will help to encourage good ideas and new businesses in our economy.
A number of presenters that have appeared before this committee, including the Ontario Federation of Labour and the Canadian Auto Workers, have expressed some reservations about the labour-sponsored investment fund side of the bill while supporting the concept of worker ownership. Both the CAW and the OFL endorse a rather different type of worker investment than that contained in Bill 150.
I would also like to emphasize, in response to some comments that have come forward, that the labour-sponsored investment funds were designed not just to benefit or encourage the participation of organized labour. The LSIFs will be sponsored by labour; they are designed for the participation of all working people and all Ontarians in the economic regeneration of our province.
I would finally like to address concerns that have been expressed, particularly by members of the opposition, that persons investing either in their own company or a labour-sponsored investment fund will feel that because it is a government-sponsored program the government is guaranteeing the investment. There is of course no such thing as a guaranteed investment in these situations, and this must be recognized, especially by investors. The government's responsibility, as members have noted, is to protect the investors to the maximum extent possible while at the same time disclosing the very real risks investors are taking.
I believe both of these imperatives are well served by the many checks and balances in the investor protection regime in this bill. Both LSIFs and worker ownership ventures will be required to undergo a rigorous process of approval and will have to fulfil ongoing disclosure requirements. Most important, the risks investors are taking will be fully described to them.
In fact, the substantial tax credits are offered as a partial offset against the risks investors take in these types of investments. On the LSIF side of the bill, units in the funds will be sold by registered dealers who are required to point out to clients that investment in funds providing venture capital is considered a risky investment. On the worker ownership side of the bill, so-called "health warnings," or large, upfront warnings, about the investment are a requirement under the investor protection regime.
The bill has been carefully constructed to help foster the process of economic development in this province. The bill is not a bailout program and it is not an ill-conceived bonus scheme. For each government dollar spent on tax credits, $4 of individuals' money will be invested. I believe that is good value, and the money will be going where it is needed in the economy.
It is important to recall that this bill is not a cure-all for all the ills of our economy but will be very useful in certain situations and sectors of the economy. It is one of this government's first initiatives designed to encourage economic renewal and it is an example of this government's commitment to developing real partnerships among business, labour and government. This strategy will help the province to emerge from the current recession in a strong and more competitive position to respond to the economic challenges of the 1990s and beyond.
Mrs Elinor Caplan (Oriole): You mentioned Algoma in your opening remarks. It's my understanding and belief that this bill does not reflect the Algoma model at all. I was surprised that you would use the Algoma worker ownership plan as an example of organized labour support for this bill. Could you explain why you would have done that?
Hon Ms Wark-Martyn: The Algoma Steel workers and the union people were very much a part of why this bill was created and a part of our economy that was missing for workers who wanted to get involved in the workplace. So although they are not now using this plan, they are still very supportive and were very much a part of the concept of having this sort of plan in Ontario's economy.
Mrs Caplan: Given some of the negative comments from some of the organized labour union leadership about this model -- we've had some of them say they would not recommend this to their membership. I think the fact that the Algoma solution is not the solution at all suggests that perhaps you've got a different picture from the one you've tried to present to us this morning. If this is such a good model, why was this not the model that Algoma chose to use?
Hon Ms Wark-Martyn: I think you're referring to some of the comments that were made by some of the presenters as they came forward to the committee. My understanding from talking to them was that there was one part of the bill, the labour-sponsored investment funds or LSIFs, which they did not agree with, and at this time they have no reason to need or to have access to that part of the bill, but they were in favour of the worker ownership part of the bill, of which they are very supportive. Hence, that's why their comments were made. We still feel and I still feel that it's a bill that can be used by companies if they need to use it, and it's accessible for them now to use it.
Mrs Caplan: I was also pleased to hear your comments regarding the opportunity for participation, and I'm assuming that what you've said has implied that you will be supporting the amendment we're putting forward regarding the definition of employee organization. I note that the government amendment you have tabled still includes other organizations of employees or class associations of employees that are not either co-op or worker ownership, and I'm hopeful that perhaps you've reconsidered and will allow the amendment to go forward that would include other organizations and associations that are capable of sponsoring this kind of plan, so that they're not excluded.
Hon Ms Wark-Martyn: We've decided not to allow that amendment, and maybe, Jim, you can explain the technical reasons for that.
Mrs Caplan: No. I don't want the technical reasons; I want the policy reasons. The minister's here and I'd like the minister to explain why this is only going to be available to organized labour and co-ops.
Originally the policy pronouncement we heard from the government was so that it would be compatible with the federal government. We know that what's in place in Saskatchewan and British Columbia is a broader definition. We're very supportive of worker ownership and believe the sponsorship of these plans should be available to organizations who have the capability. There may be many that are not within the definition of co-op and worker ownership, and I don't understand why, from a policy point of view, you're excluding them. I'd like you to explain that.
Hon Ms Wark-Martyn: The decision not to include them would be the Treasurer's under the policy. My role is to implement the policy as set out by the Treasurer.
Mrs Caplan: Minister, you are a member of the cabinet that made the policy decision here at committee. As you defend your legislation, I'd like you to explain your policy decision to us. It's the government's policy decision, not the Treasurer's, and you're a member of the government.
Mr Kimble Sutherland (Oxford): I don't know whether the member for Oriole would like an answer or not. We're going to have an answer provided and --
Mrs Caplan: Yes, I would like an answer, Mr Sutherland, from the minister as to the policy of the government. I don't want a technical, bureaucratic analysis of the bill. What I want to hear from the minister is defence of her policy.
Hon Ms Wark-Martyn: The decision was made that worker co-ops and unions could have a different interest than when you get into associations. You don't know what you're getting into for associations. They can have broader mandates. They could have different interests within an association; hence, the decision was made that we would accept worker co-ops and unions into this legislation. That was the policy decision and that was the reason for that decision.
Mrs Caplan: Were you aware of the experiences in Saskatchewan, where this is open and available to other organizations?
Hon Ms Wark-Martyn: My understanding is that there was no experience of that sort in Saskatchewan.
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Mrs Caplan: Given the fact that that is the situation there, it seems to me that the policy decision, which is exclusionary, is not in the public interest in Ontario. I'm wondering whether you felt there might be some benefit for Ontario to have a compatible definition with other jurisdictions such as Saskatchewan.
Hon Ms Wark-Martyn: My understanding is that Saskatchewan does not also have that definition you are describing, and the advice of my staff agrees. If you have different information and places where you see it's been tested and worked and is part of legislation, we can deal with it then, but our understanding is that it has not been tested and used in Saskatchewan.
Mrs Caplan: I believe the amendment that has been put forward would make this legislation compatible with other legislation in other jurisdictions in Canada. The opportunity for other associations or organizations of employees or class of associations that could prove they were able to provide the infrastructure to participate in this legislation it seems to me would be in the public interest and not as exclusionary as your policy decision seems to be. If you're really committed to worker ownership and participation and there is an association of employees or a class association and this is going to further enhance their opportunity, I have some difficulty understanding your policy development process that would exclude. I would think you'd want to make it as broad as possible.
Hon Ms Wark-Martyn: No, you don't want to make it as broad as possible, especially if you know it hasn't been used or experienced in any other place in the country. You want to go with some of the programs you know have worked with unions and cooperatives, rather than expanding a program into all areas without knowing and being able to consult with anybody else across the country who has had experience with associations becoming part of the process. That hasn't happened. Therefore, if it does happen we will then be looking at it, but we're not going to jump in with both feet knowing that experience is not there anywhere else in the country.
Mrs Caplan: Again, I would argue that in fact the opportunity is there in other plans. In other words, this amendment is permissive and would allow for that development, whereas in order for that to happen in the future under your legislation would require a legislative amendment and change, which would hamper that kind of development. Ontario has always taken positions of leadership in this country and, as I say, there are other jurisdictions where legislation is in place which is permissive and would allow for that, in my view, appropriate development to move ahead. It seems to me very short-sighted of your government to not at least have that opportunity available in the legislation without the future cumbersome process of requiring legislative change.
Hon Ms Wark-Martyn: We're not prepared to include that amendment. From talking with the other provinces, they've stated yes, it is there, but no one is coming forward or is asking to use it, so there is no need for it. They also could not tell us the impact that would have on the rest of our programs if we allowed smaller entities to become involved.
Mrs Caplan: I think it's very short-sighted of the government at a time when you're moving forward with the kind of legislation that may -- as this is new anyway in the province of Ontario -- may enhance opportunities which have not been available to this point in time. To make it exclusionary, only for organized labour, only for big unions, only for those who have the ear of the government, and for co-op workers -- I am pleased that at least you have opened it that far -- I think is a misguided public policy and not in the interests of the people of the province of Ontario. Many other organizations -- associations of employees and class associations -- may have an interest in this at some point in the future, and you've placed a barrier and a roadblock to their participation by requiring legislative amendment before that could even be considered. It seems to me to run contrary to Ontario's policy development position in this country, and I'm very disappointed that you've taken that misguided and short-sighted point of view.
Hon Ms Wark-Martyn: I must clarify. Under the employee ownership part of the bill, any group of employees can become involved. They don't have to be unionized or part of a union organization. Any group of employees can become involved.
Mrs Caplan: But they must do it through a labour-sponsored plan, a union-sponsored plan.
Hon Ms Wark-Martyn: Not under employee ownership, no. Only under the labour-sponsored investment fund, yes. Under the employee ownership part of the bill, no.
Mrs Caplan: And the labour-sponsored investment fund is the part you are excluding: any other organization or association.You are saying only unions and only co-ops.
Hon Ms Wark-Martyn: That is so we could get the same credits the federal government also gives to the unions and the co-ops. That's why we have done that. We also feel that to expand it to allow anybody, we'd then be getting the criticism from the opposition that we are allowing anybody to make investments and get the tax credits, and we can't afford to do that as a province. Going into this kind of economic initiative, we feel we are going to go along with other jurisdictions and with the federal government on the tax credits.
Mrs Caplan: Thank you, Mr Chair.
The Chair: Any other questions of the minister? I would like to thank you for coming to the committee this morning.
Hon Ms Wark-Martyn: Thank you.
The Chair: I guess we're ready for clause-by-clause. Mr Kwinter.
Mr Monte Kwinter (Wilson Heights): No. I wouldn't mind repeating the question I asked yesterday. I was waiting for the minister to be in the House for the last couple of days and she unfortunately wasn't there, so I didn't get a chance to ask her.
I've had this discussion with the Premier and I had it with the Minister of Labour. I want to emphasize that I am not in any way trying to be critical, obstreperous or anything else in this bill. I came into this committee quite prepared to support it because I felt that labour was supporting it. You can see that we as a caucus have put forward three amendments, relatively few amendments. Most of the amendments are government amendments.
I ask the same question: If this bill, which is called a labour-sponsored venture capital bill, does not have the support of the Ontario Federation of Labour in one of its aspects, does not have the support of the Canadian Auto Workers in both of its aspects, we now have the then-president or still president of the CAW becoming the president of the Canadian Labour Congress saying, "Not only are we not supportive of this bill, but we will actively discourage our members from participating."
So my question is this: If this bill is intended to be labour-sponsored and to be for the benefit of labour members and they are not supportive of it in their organized institutions, how can you possibly expect that this thing is going to have any takeup? We have quotes from the CAW saying that hard-earned money of workers should not be put at risk in these kinds of proposals. We have the Ontario Federation of Labour saying in convention, "We do not support this." If this is meant to be for their benefit and they are not supportive of it, then surely there's got to be something wrong with the vehicle, and we've got to go back and redesign it. Surely there has to be a move to say, "How can we get labour to buy into this thing?" because if they don't buy in, who is going to buy in? It's a labour initiative, and organized labour is saying: "We don't want any part of it. It's not what we wanted. It's not going to serve our purposes and we're going to discourage our members from participating." I would be very interested in hearing what the minister has to say about that.
Hon Ms Wark-Martyn: The Canadian Federation of Labour, the only large labour organization to have actually set up an LSIF, is very much in favour of the legislation.
Mr Kwinter: That was under the old president. There is a new president who is opposed.
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Hon Ms Wark-Martyn: Their fund, Working Ventures, has been extremely successful and raised over $28 million in Ontario during the last RRSP season, as I believe the committee heard when they presented here. The worker cooperative movement is very much in favour of the LSIF concept and plans to make use of it as indicated by John Brouwer to the committee. The Canadian Federation of Independent Business' own statistics indicate that access to capital is deemed to be a serious problem by almost a quarter of its members, and these members do not include the many people with innovative and potentially viable business ideas who were not able to enter the economy because of lack of access to venture capital.
The structure of the labour-sponsored investment fund was largely dictated by existing federal legislation in order to receive matching tax credits. The motivation for offering tax credits is both to make the investment more attractive and to better offset the risks to investors.
The OFL and the CAW are certainly entitled to their views, but it should be noted that their proposal for a social investment fund has rather different objectives than LSIFs. The LSIF program is one of general application, not designed to benefit any sector in particular but to assist Ontarians to invest in all emergent sectors of the economy. Any Ontarian can invest in LSIFs and claim the tax benefits while participating in Ontario's economic development.
Mr Kwinter: Can I make another observation before we leave this?
The Chair: We have one problem. The minister has to leave right at 10:30 sharp. I said that at 10:05; that's why we started.
Mr Kwinter: Maybe the minister can leave and I'll just make my comments to the committee.
The Chair: Fine.
Mr Kwinter: One of the problems I have with this concept is that if it doesn't have the wholehearted support of labour, what it becomes is a vehicle for evading taxes as opposed to a vehicle for creating a labour fund.
We had a similar situation when the federal government brought in its fund to provide incentives to invest in research. Immediately the accountants and the lawyers got hold of it and said, "Here's an opportunity for us to set up deals that in effect will give you some tax credits." What happened was that we found there were many proposals, many vehicles registered as research-driven funds, but no research got done. The only benefit was that people got tax credits. What you had was a whole series of -- the only word I can use to describe them is "vehicles" because they weren't actual companies -- these dummy corporations that were set up, their purpose being to invest in research. The people got tax credits for them, no research was conducted, and finally the federal government just scrapped the whole thing and said it was a scam.
My concern is that that is exactly what can happen in this, that if you're saying, "Labour doesn't have to participate, anybody can," the first thing that's going to happen is that the accountants and lawyers are going to get together and say: "Hey, here's an opportunity for you to shelter some income. Here's an opportunity for you to get some tax breaks. We are going to set up some kind of vehicle, we'll go through all of the motions getting it approved and everything else, but nothing is going to happen with it."
To my mind, the key ingredient is that it's got to have the basic support of labour. They're the ones who are going to have to initiate this thing in the real sense. If it's just going to be sham projects put together by people just to get the tax breaks, we're going to have some problems.
Again, I want to emphasize that I have no criticism at all with this initiative. I just have a concern when I hear that labour's not supporting it. I would suggest that there might be some merit in sitting down and saying to them, "How can we make this thing so that it's attractive and we can get your wholehearted support?" Because it's going to need it. The government is not going to be able to go out there and stimulate this investment; labour's going to have to do it. I think it's very important that that happen.
The Chair: Maybe Mr Evans could make some remarks. I think we had in committee last time, if I remember right, that where the investment was coming from or how much was invested -- if you invested $5,000 what it's worth after eight years, and if people bought Canada savings bonds how much they would have after eight years; that the length of time you stay in here was sort of a credit up front, in order that over the period of time it would be a safe investment and you wouldn't actually lose money. If you don't mind, Mr Evans, I think there was one --
Mr Jim Evans: That was part of the CAW presentation, as I remember it. They had a crossover point where, beyond eight years, it was their belief that the yield from the other traditional instruments would be equal to or possibly better than. But within the eight-year period -- and the redemption under the act is a five-year period -- then there was a benefit to the labour-sponsored investment strategy. We have not proofed those tables, but on the surface they do appear to be reasonable.
The Chair: I don't know if that's answered your question, Mr Kwinter.
Mr Kwinter: No. That just highlights my concern that accountants will look at these various programs and say, "If you stay in this thing for five years, you'll get a better return on it from the tax break point of view than you would if you went into a traditional investment instrument." My concern is that this legislation could be used to drive tax breaks as opposed to doing what it's supposed to do, that the whole raison d'être of the thing gets totally distorted and the only people who are using it are people who look upon it as a vehicle for getting some tax breaks as opposed to doing what it's supposed to do.
Mr Evans: There's a very challenging design feature that we have to address, and I think it has been addressed in part from your colleague this morning.
If the question of eligibility in terms of sponsorship is broadened and we do not have a basis of experience in operation, then there is a risk that as administrators we are faced with the issues you're describing. One of the benefits of maintaining a relatively narrow base of eligibility is that if there are so-called operators out there who want to create imaginative schemes that are going to have the tax credit as their primary beneficiary, then they are going to have to find a sponsoring group which is an association or federation of cooperatives or labour organizations before they can in fact bring forward that proposal. It is the sponsoring group that has to bring forward the proposal.
The possibility of broadened eligibility does allow for other smaller, relatively ad hoc groups being formed, ostensibly for other purposes but primarily for the purpose of benefiting from the tax credit.
Our desire is to have an administrative structure, at least until we've gained some experience with the administration of the act, which avoids those issues, and the relatively narrow definition does help in that respect.
Mr Stephen Owens (Scarborough Centre): I appreciate the comments of Mr Evans, because I think they provide, along with Mr Kwinter's comments, a perfect counterargument for the expansion of the definition as was requested by the member for Oriole. I would agree with Mr Kwinter that the scientific tax credit scheme was an unmitigated disaster and that little or no research and development was actually carried out, and ultimately the taxpayer was shafted.
However, I don't think there's a basis for comparison between this program and the scientific tax credit fiasco, and I think we've discussed this during the time I've been substituting on this committee. The difference is when people are looking at investing their life savings and weighing: "Will we lose our homes now, will we lose our livelihoods now? Or can we somehow save the plant" -- as was done in Kapuskasing and in Sault Ste Marie -- "or are we going to let it die?"
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In terms of the labour support, I'd like to make an observation: Knowing what we know about the plant in St Catharines and perhaps what may happen in Oshawa and what will happen at the Scarborough van plant, I seriously doubt that, should this legislation become law and the workers at any of the plants I've described decide they want to pursue an employee ownership buyout, the CAW will stand in their way. I have my serious doubts about that.
The OFL has some reasonable concerns with respect to social and labour screens, but I think in terms of the LSIF portion it's up to the administrators of the fund to ensure that these types of principles are held intact. I think that ultimately it's the drivers of the LSIF who should maintain their trade union principles and not invest in businesses that go out of their way -- I know Gary Carr is going to have a stroke -- to conduct anti-worker or anti-democratic campaigns against their workforce.
I can't see the comparison between the scientific tax credit fiasco as I've described it and this program. I think your concerns provide a perfect counter at this time to the argument that we should expand the definition. We share some of those concerns, and until we have a level of experience to draw from, we're interested in the best deal possible for all parties with the maximum amount of protection that can be afforded under this rather unique investment process.
The Chair: Mr Carr, do you have any comments at this point?
Mr Gary Carr (Oakville South): No.
The Chair: I thought you were working out your income tax for next year if you bought Working Ventures.
Mr Carr: I wish I was. MPP LSIF.
The Chair: Mr Kwinter, any more comments?
Mr Kwinter: Yes. I'm a little unhappy that my comments have been construed as support for not including what we consider to be a reasonable addition to the list of what are considered employee organizations. It would seem to me that if a group of employees or an organization does not fall into the category of a trade union or an association or federation of trade unions or a non-profit corporation or cooperative, it is being excluded arbitrarily, really arbitrarily.
I mean, where does the province of Ontario come off deciding that unless you belong to a trade union or some organization that can be loosely described as falling under that umbrella, you cannot participate in benefits everybody should be entitled if they fall into that general category? It would seem to me that employees of a company that is not organized in a formal way or affiliated in a formal way but have every other qualification in that they are a group of employees, they have the same concerns and the same interest for their jobs, why should they be arbitrarily excluded? It's as simple as that.
It highlights my original concern. Is this an organized labour bill that is being put forward by organized labour and supported by this government? We have the contrary evidence of that, in that the OFL and the CAW -- and, as I say, I predict the Canadian Labour Congress, now that Bob White is going to be the president, will not be actively supporting this, notwithstanding that it may have an internal conflict and that at the federal level it does have a plan. But they will not be actively supporting it.
Why would a group that is in every other way in exactly the same position: the same concern about saving their jobs, the same concern about investing in a fund, doing all of these things -- the only thing they haven't got going for them is that they are not formally affiliated in some group that is recognized as a trade union or a cooperative. I don't see why they should be excluded. I don't see any rationale for that.
The Chair: Mr Johnson, didn't you answer that last week?
Mr Paul R. Johnson (Prince Edward-Lennox-South Hastings): Yes, in fact I believe I did answer that. Mr Kwinter keeps revisiting this question. I've answered it once. I out and out disagree with what he says.
The Chair: Maybe you could, because we haven't got Hansard in front of us, revisit last week very quickly.
Mr Johnson: I couldn't quote what I said verbatim, but we have to be clear that when we're talking about LSIFs and LSVCCs they're certainly two different things. Here they're talking about labour-sponsored venture capital corporations and that part of the act that would include them. I think it's clear that we have to limit in some way the organizations that can come together to create these corporations under the act. I think some of the arguments made by the members opposite would lend some credence and necessity to that. I don't think it's exclusionary in any way, except that these organizations announced in the act have that opportunity. I just disagree with what Mr Kwinter says. Of course he'll disagree with what I say, but that's where we're different, I guess.
The Chair: Mr Carr had a quick question.
Mr Carr: I did want to point out and talk about the fact that it's my belief there isn't anything we can do to make this bill better. I look at the government's amendments, and it's an embarrassment that we've brought a bill that has to have this many changes come through. I don't blame a lot of people in the ministries because I suspect what happened is that they were told to put something together. They get their instructions; they get changed minute by minute.
My basic feeling is what the CFIB said on page 2 of its brief:
"Our analysis of the program shows that the program is not an appropriate vehicle for encouraging modernization, growth and restructuring in small and medium-sized Ontario companies. It also shows that Ontario taxpayers, including the small business community, will not get good value for their hard-earned tax dollars from this program. A better use of $250 million, which would accomplish the above-noted objective of the program, is to exempt the $400,000 of payroll from the purview of the employer health tax."
That's why I'm going to be voting against all the amendments, because I believe there isn't anything we can do to change this bill. I'll be very brief in all my comments because I think it's an absolute waste of time.
The Chair: I'm going to make one comment here. A lot of the changes in there were changes in about four or five different clauses; like when you change your name you've got to change your licence, your social security and everything else. A lot of them are just small technical changes, not changing the scope of the bill, though.
Mr Carr: Yes, and that's my feeling. It doesn't change the scope of the bill. What you had is people coming before you, small and medium-sized businesses, saying, "This is what you should do." Typically, the government is saying, "No, we know better than you do in spite of the fact that you've been in business, that you're represented by these people." We're not talking about the big Fords and the big GMs. We're talking about small businesses of five to 10 people that are saying: "You're wrong. This isn't what the problems are." But typical of this government, it just pushes it through.
Quite frankly, it's a waste of time. The only thing I hope is that this thing was generated by the government and not by the bureaucrats who put it together, because it will do nothing to help businesses. I'll be voting against every amendment that comes through.
The Chair: You must be a member of the CAW then.
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Mr Owens: I have a couple of comments on Mr Carr's observations. Mr Chair, I'm glad you used your fine wisdom to clarify some of the amendments; that in fact we only had three policy changes. The rest were consequential amendments, as you quite accurately pointed out.
In terms of the issue with respect to non-union people being able to access the employee ownership section of this bill, I thought it was very clear this morning. I thought Mr Evans clarified it one more time with feeling. I thought I had spoken quite clearly that these people are eligible in terms of the employee ownership portion of this bill, so we are not excluding people in terms of their ability to access this legislation, if their plant or their office, or whatever their business is involved with, is experiencing difficulty.
In terms of non-union people investing in LSIFs, it's my guess, and I'll ask Mr Evans to either confirm or deny my guess, that if a person wants to invest through a local union, that is possible, so it's not simply restricted to labour groups in terms of the investment portion.
Mr Evans: When I made my initial presentation to this committee as to the objectives of the bill, they were described as to expand the current capital markets; to provide business access to new sources of capital to help them grow and adapt to new technologies and the increasing globalization of the market; to initiate partnerships committed to the development of innovative programs to help Ontario meet the economic challenges of the 1990s; to encourage individuals to invest in Ontario's businesses and facilitate employee growth; to provide labour with a greater opportunity for participation in the decision-making process, and to develop new partnerships between business, labour and government to help Ontario increase productivity, improve labour-management relations and set the groundwork for sustained prosperity and remaining competitive.
In that respect, the role of any labour-sponsored organization establishing an investment fund is in fact a vehicle. I do not think in the context of this bill that a labour-sponsored group, of itself, is intended to be a beneficiary. They're a vehicle whereby everybody gets the opportunity to participate and invest. Those are on the labour-sponsored investment side.
On the employee ownership side, it is quite clear within the bill that any group of employees can be formed for the purpose of taking over or gaining control of its company.
Mr Kwinter: My concern is that the implication is that it isn't labour in the broad sense; it's organized labour. If you're not organized, you're not considered labour. If I was a cynic, and you obviously know I'm not a cynic, I would say this is a wonderful way to encourage people to get organized into unions. If they want to become recognized as a labour organization or as an employee organization, the answer is very simple: Go out and get affiliated. Get yourself accredited as a union and then you can be an employee organization under the act. This is a wonderful opportunity for us to get more people into the union movement. That's if I was a cynic.
All I'm suggesting to you is that when we talk about a labour-sponsored vehicle, if there is a recognized group of employees -- and we have suggested in our amendment an association of employees, a group that wants to be considered an employee organization under the act -- the act, as it now stands, precludes that from happening. Yes, they can participate in an employee buyout. Yes, they can participate as individuals in investing in a labour-sponsored investment fund, but they cannot initiate one on their own as an employee organization unless they are affiliated or a trade union. That is my concern.
My concern is, why should these people be disadvantaged from doing what anyone else who is in a labour group can do by the mere fact that they are not members of an organized union? They may be a group of employees. It could happen, let's say, that Dofasco, which is non-unionized, would want to get together an employee organization. They can't because they are not a union and they're not affiliated and they're not a co-op. The only way they can do it is to get themselves unionized.
I think that is unreasonable, I think it's draconian and I think there should be a provision that any employee association, whether it has the title that it is a trade union or not, if it is an association of employees, bona fide, representing the employees of a particular company, should have the same rights and privileges as any other employee. I'm not talking about what I talked about earlier, a group of investors on Bay Street who are not employees and who put together a shell company. I'm talking about a bona fide company that just doesn't happen to be unionized but has the same aspirations, goals and requirements as anyone else in Ontario. Why should they be excluded?
The Chair: Mr Evans, perhaps you don't mind commenting on that.
Mr Evans: Very briefly, as pointed out earlier, in terms of parallel legislation in other jurisdictions, this whole issue is untested. Such a group, if it approached an existing association or federation as described by the act to gain sponsorship, could conceivably form such a group, but the sponsor would have to be organized labour. If the act were broadened, based on our experience at the present time, then they would not be treated equitably because the federal government would likely deny the 20% credit from the feds. That is merely from our experience with trying to get the matching 20% federal credit in relation to the EO side, where we have been turned down. That is the framework of the practical experience we have.
Mr Owens: I just want to finish up the comments I made earlier in terms of the remarks made by Mr Carr with respect to the government not listening etc.
I recall that one of the presenters last week -- was it last week that the Canadian Federation of Independent Business came in, or about two weeks ago? I recall looking at their chart. I understand that something like 80% of the respondents to their survey said that regulation and taxes were their highest concern. When one examines that particular survey, one discovers that first of all these folks are established businesses, so yes, they would have moved on from the initial stage. But as you look down the chart a little bit further you'll note 23% saying they have had difficulties in obtaining capital. That's fully one quarter of the respondents to the survey who have indicated that they are having difficulty obtaining capital of some sort.
I can tell you that in my riding, when I go out and speak to small businesses, whether they're established or whether they're looking to start or expand or simply stay alive, the biggest problem they have is obtaining money. This bill, whether it's through the EO option or the LSIF, is going to assist small business in this challenge of obtaining money. We in fact are listening to the businesses out there.
I think one has to look fairly closely at some of the studies and statistics coming forward and certainly conduct more than a superficial analysis which is used to simply accuse the government of not listening. That's simply not true. I think one has to look at the subtleties of surveys like that. I suggest that 23% of those surveyed responding that they have had difficulty in obtaining capital is fairly significant. It may be a smaller number than the 80%, but it's still a significant number. This bill, this piece of legislation is clearly a beginning to allow businesses to access pools of capital. It's an opportunity to allow workers to fully participate in the businesses they are employed by. That's the intent and that's the spirit of the bill, and I think we clearly have listened to the parties who are involved in this process.
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Mr Kwinter: I just want to make a comment. I think there is a misconception on that business survey. When you talk to the small businessmen, and I speak to them all the time, there is no question that they have a problem. They don't have a problem with getting capital in the sense that we're talking about this venture capital fund. They're having trouble with their banks. They're having trouble going in to their bankers and saying: "Look, I don't have any collateral for you. I'm in a tough situation. Business is bad, I've got debts and I need a greater line of credit."
The bank is saying, "We can't give you any more credit because you're at the end. You've stretched your credit-worthiness." I don't see that this particular project, this bill, is aimed at providing funds for people who are having difficulties at their banks.
I was up in Sault Ste Marie a couple of days ago and I was meeting with a guy who tells me he can't sleep at night because he owes the bank about $8 million and he doesn't know how he is going to resolve that. This is not going to help him. I don't care what happens; if the advisory committee or anyone else looks at it, they are going to say, "That is not our role to put money into a situation that is not economically viable." One of the criteria is that it's got to have some prospect of being viable.
When you talk to the small businessmen, there are hardly any who don't say the banks are being very tough right now and are giving them very little leeway. They are not giving them enough capital so that they can function on a day-to-day basis.
On the other hand, if you take a look at the representations of the Ontario Federation of Labour, if you take a look at some of the other people, they say there is no evidence there is a shortage of venture capital, that if anything, it's the opposite, that there is a shortage of worthy projects in which to put venture capital, so I don't think you can relate one to the other.
When you talk about the list of where it is on that survey, that is a different issue. It's a banking issue. Again, I'm saying to you that any five businessmen whom you talk to who are in a small business will tell you the same story: Given their inventory, given their accounts receivable, given all these things, they are stretched and they are having difficulty getting capital to keep working. But that is not going to be solved by this project because the criteria will not allow these funds to be used in this way.
Mr Owens: The traditional sources of venture capital are just not available at this point. We had a person in on the standing committee on government agencies whom we were looking at for the Ontario Development Corp, and we had a good conversation around not only venture capital but pre-venture capital in terms of developing the plan or developing the business.
This is a good bill to address startup, and as Mr Evans just read to us, the intent of the legislation is to provide growth. It's not simply a bailout process. It's not simply writing cheques to keep failing businesses in some sort of health. The bill is designed to promote growth, it's designed to encourage employee participation, it's designed to allow the business people a greater pool of capital in which to access funds. I disagree strongly that people, in terms of the venture capital, do not find that an issue in terms of accessing to start their business. I disagree with that strongly.
Mr Gerry Phillips (Scarborough-Agincourt): Can I ask a question and then follow up with a comment? On the definition of employee organization, I assume that teachers' organizations would fall under that definition -- a trade union.
Mr Evans: I'm not familiar with whether the teachers' organizations are an association or federation of labour-sponsored organizations.
Mr Phillips: Can someone answer the question for me?
Mr Gerald Sholtack: No, they're not.
Mr Phillips: They're not? This makes my point that I'm getting very angry about, which is that originally I was told that the reason why the definition wouldn't be expanded was because of the federal tax credit. That doesn't make any sense to me. Now co-ops don't have access to the federal tax credit, but they're going to be included. So you've violated that principle, and that's fine; we're supportive of the co-ops. I don't know whether they're here or not, but we're very much supportive of them. But we would argue, as we do in our motion, that you've already agreed that it isn't just the tax credit that sets the criteria here. Why in the world you won't agree to any other association of employees --
I can very easily see the teachers' organizations wanting to participate in this. The OFL has already said: "Listen, we don't want to. Count us out of this. We're not going to participate in the venture capital." So who is going to run this? The Canadian Federation of Labour said it would, and that's great, but the OFL probably have three or four times as many members here and it said it's not going to.
Why in the world the government won't accept our amendment is beyond me. As I say, I can see the Ontario Teachers' Federation saying: "Listen, this is something we want to participate in. Why aren't we eligible?"
Mr Owens: I'd ask for a clarification on whether or not the Ontario Secondary School Teachers' Federation or the other teachers' associations are in fact eligible.
Mr Phillips: Fine, but why won't you just accept the amendment? I thought there was agreement here four weeks ago that you were going to bring forward the Saskatchewan model.
Mr Owens: No. As I pointed out to you in the Hansard of a number of weeks ago, and I believe the page was F42 in the Hansard of the day, I clearly indicated that the Saskatchewan model was not the model that was going to be introduced. If we could find the Hansard for that particular day, I'll point it out to you one more time.
Mr Phillips: This is totally ridiculous why we would not accept that model. It doesn't make any sense at all to me. The Premier has said this is one of his big economic planks, and the big player that can run it says it doesn't want to participate in it. Why not give other employee groups a chance?
Mr Sutherland: I think, Mr Phillips, yourself and your colleagues have certainly made your points as to what you see as criticisms of the legislation that is there. I think we've had a great deal of --
Mr Phillips: Give me the reason the government doesn't want to do it.
Mr Sutherland: Wait a minute. We've had a great deal of explanations. We've had staff explanations, we've asked the minister --
Mr Phillips: What is the explanation? Will somebody tell me why they won't?
Mr Sutherland: Do you want one more clarification?
Mr Phillips: Yes, I do.
Mr Evans: On the point of eligibility, I think the point was made that the cooperatives do not qualify for the federal matching credit. That is not a point we know at the present time. That is being clarified with the federal officials. By virtue of the similarity between the present definition and the amended, there is a possibility the co-ops will receive a matching credit, and we expect to have that advice from the federal government very shortly.
Beyond that, using again our employee ownership model, we know other employee associations definitely will not attract the federal credit.
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Mr Phillips: Say that again. You have asked the federal government whether the Saskatchewan model would qualify for --
Mr Evans: We have sought clarification from the federal government as to whether the amendment that has been introduced by this government to the bill would qualify for the 20% matching credits on the grounds of its similarity with the existing bill which they had reviewed and had agreed they would administer and would match on the labour-sponsored investment fund.
We know from our own direct negotiation with the federal government on the employee ownership side that it does not accept that broader definition. So as to where the boundary is, our belief at the present time is that the boundary may include both working co-ops and the association or federation of labour-sponsored organizations as both receiving 20% matching credits. We expect to have confirmation of that within a short period of time.
Mr Phillips: Have you asked the question whether the Saskatchewan model would qualify?
Mr Evans: We have not. The only people who could answer that would be the treasury officials who've been negotiating directly.
Mr Phillips: I'm getting the runaround here.
The Chair: Do we have anyone from treasury? Could you please come forward to a mike. Do you have the answer in this particular question of Mr Phillips?
Ms Diana Wright: Would you repeat the question, please?
The Chair: Could you please identify yourself, also, for Hansard.
Ms Wright: My name is Diana Wright from treasury.
Mr Phillips: The question is, has the government asked the federal government whether the Saskatchewan model would qualify for matching tax grants or not?
Ms Wright: Maybe I'm not the best one from treasury to -- I wasn't involved in the earlier discussions. I came on fairly late. Can we get back --
Mr Sutherland: If I can just make a process suggestion, we've had the minister back in again this morning. We've been running back and forth. Maybe we could ask treasury to provide us with a clarification or to try to find out whether it did ask about the Saskatchewan model.
In the meantime, my concern is that I'd like to know when we're going to maybe move on and start getting into actual clause-by-clause vote. If it's a question of that actual issue being resolved and we need to come back to that issue, fine, once we get a clarification as to whether we have asked that specific question that Mr Phillips raises, but I do think we have discussed a lot of the other issues around and around, both during presentation time and during other times last week as well, when we had staff back in. I would think that we should be looking at moving into our voting process pretty soon.
The Chair: I don't know whether Mr Phillips has got an answer there as yet.
Mr Phillips: I think we're putting the bureaucracy in a totally untenable position.
The Chair: Can I get a question from Mr Carr while we're waiting for Mr Phillips's answer?
Mr Carr: I'll be very brief because, like Kimble said, I'd like to move on. I appreciate Mr Owens's and Mr Evans's comments and their intentions. You have good intentions to help small and medium business, as does Mr Evans, as does Mr Kwinter. The only point I want to make is what the chamber said: "Unfortunately, we do not believe that the proposed legislation moves us forward on these very legitimate objectives." What I'm saying is that the Canadian Federation of Independent Business said the program is not an appropriate vehicle.
You have very good intentions, as Mr Evans's intentions were. All of us here want to help small and medium-sized businesses. What I'm saying -- it'll be the last point and then I'll let us get into clause-by-clause -- is you have good intentions, but the CFIB, which represents -- and they've listed in here the people saying you're not going to achieve that objective. The Ontario Chamber of Commerce, which represents 88,000 small businesses, says that you're not going to achieve your objectives.
So the bottom line is, in spite of the good intentions of all of us in the room, we are not going to achieve our objective. I'm saying to the people of this province: Don't listen to me, don't listen to Mr Owens, don't listen to Mr Evans; listen to the people who are involved, who are saying it will not work.
I'm prepared now to go on to clause-by-clause and I'll save all the rest of my debates to when we get into the House. That's all I'm saying.
The Chair: Mr Whitehead, are you able to answer Mr Phillips's question at this time, or would you like to get back to the committee?
Mr John Whitehead: If I understand the question correctly, it is, did we ask the federal government if, were we to have a definition similar to Saskatchewan's, it would match it and prescribe it. Is that an accurate rendition?
Mr Phillips: That's correct.
Mr Whitehead: We've approached the federal government on this program a couple of different times, early in the design stages and specifically again on the employee ownership side. They've been quite solid thus far -- if they're going to be involved in administering the program and matching it, they want us to be as close to their model as possible. With respect to the specific question asked, the answer is no, we didn't ask that for the time being. We didn't ask that because the government had a view that extending it to worker cooperatives would be an appropriate action on the basis of worker cooperatives being similar to trade unions in many respects. As Mr Evans has pointed out several times this morning, this is a new program for Ontario. There's no experience rating on the other kinds of employee organizations across the country, as far as we know. We felt it would be prudent to stay with a beginning point which was tried and known.
That's not to say that something couldn't happen at another time, but I must say that in talking with the federal government -- and we don't yet have an official answer on whether it'll even parallel our worker cooperative amendment -- the feeling I have from the federal government is, it's starting to look hard at the other provincial acts as well. Seeing a variety of different kinds of definitions growing out of different provincial acts, I think the federal government is starting to reassess its own position there.
Mr Phillips: If I might comment on that: The reason I'm getting very frustrated is, we went to the briefing, we asked, "Why aren't co-ops in here?" and we were told: "It's because we can't get the federal matching tax credit. We're only including ones in here that we can get the federal matching tax credit." I said, "I don't agree with that, but I understand that."
Then, several weeks later, a co-op movement comes in and says -- and I support the co-op movement, but now I say, if that's the case, we don't have any assurance of it, why don't we include any other employee, as the Saskatchewan model does? So it's the inconsistency of the message. I say the civil servants are being put in an intolerable position here because I know what --
Mr Sutherland: Sorry, Mr Phillips. But in terms of the explanations that have been given this morning, that inconsistency is not likely to exist.
Mr Phillips: Have you asked the federal government whether it will?
Mr Sutherland: No. If I heard correctly, Mr Evans indicated that the federal government has now given some indications that the worker co-ops and the association of co-ops may be eligible for that tax grant.
Mr Phillips: So you've asked the question, yes.
Mr Sutherland: That was my sense of what Mr Evans had said this morning.
Mr Phillips: But I said, why not ask the question the other way?
Mr Sutherland: So that makes it consistent with the others. However, at the same time they have indicated here this morning that the federal government has given them the indication that it's not moving in other areas in terms of broadening it up.
Mr Phillips: Is that the case, what he just said?
Mr Whitehead: The federal government hasn't announced any formal review or anything, but my understanding from federal colleagues is that in fact it is looking at all the provincial acts at this point to determine exactly how wide these things are and the appropriateness of its matching them.
Mr Phillips: I'd like to see that in writing, then.
The Chair: Okay, fine.
Mr Kwinter: Can I get a clarification? Has anyone gone to the trouble of asking the Saskatchewan government whether its employee organization definition is acceptable to the federal government?
Ms Wright: Officially they're in the Income Tax Act as being prescribed to receive matching federal credits. There have been no employee organizations as defined set up, and I understand that administratively the Saskatchewan government is reluctant to actually prescribe any employee groups that match its definition right now. So there are no foreseeable employee groups that will be taking advantage of that particular definition at this point.
The Vice-Chair: Mr Owens.
Mr Kwinter: I'm not finished.
The Vice-Chair: All right. One more and then we'll go to Mr Owens.
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Mr Kwinter: My question is to the government members. Is your objection to including the definition of other employee groups because they are not members of organized labour, or is the objection to the fact that they will not be eligible for matching federal participation? Can anyone answer that?
The Vice-Chair: I can give you my comments, but I don't think it's appropriate, being in the chair right now.
Mr Johnson: I would think it was the latter comment you made.
Mr Kwinter: If we can get verification that in Saskatchewan, even though the government hasn't encouraged any one, or no one has come forward in that category, they have an understanding or they have a ruling from the federal government -- and it would seem to me that they would have -- I can't imagine that they would have all these definitions of employee organizations and one of them would not be subject to the same availability of matching funds as all the others. I just assume that's the case. If we can get assurance of that, would there be any objection to including it?
Mr Johnson: Personally, I would like to check with the minister directly. I don't know that that presents any great problem, but I don't know what the results of the investigation are going to show, whether they're going to show specifically yes or no if there's going to be some other implications that aren't immediately evident until we hear from the federal government.
Mr Owens: I don't want to get into a debate with Mr Carr over the issue, but in terms of his reliance on the Ontario chamber's presentation as a source for quotations, I find that interesting. It's my recollection that presentation was technically flawed and that in fact Mr Evans, out of consideration for time and courtesy, requested that he work with the presenter outside to correct some of the inaccurate information that was contained in that presentation. We're talking about technical information as opposed to a philosophical difference, so in terms of relying on that particular presentation as a way to turn your argument that this bill is going to be non-functional, I'm not sure that's absolutely effective at all.
The Vice-Chair: Mr Wiseman.
Mr Jim Wiseman (Durham West): No questions.
The Vice-Chair: If there are no other comments at this time, I guess maybe what we can do, or hopefully do, is start the process of going through some clause-by-clause here. I believe the package we were dealing with is the one that was distributed this morning.
I just want to get a sense as to how we want to proceed on the clause-by-clause. My understanding is that there are some substantive amendments, and then some of the other amendments are wording changes throughout as a result of those substantive ones. I guess if we make changes to some of them, we may have to go back and make changes to the others.
Let's maybe then just start. I guess we need to go through this process. Officially, we will need to have the amendments read into the record. We could go through each one and then have a vote on it, and if somewhere along the line there should be a change and we need to come back and make a wording change, we'll have to do that. But we'll rely on the folks at hand to get that done. I think we're ready to go into clause-by-clause voting.
Section 1:
The Chair: Mr Johnson, the first amendment, subsection 1(1).
Mr Johnson: You'd like me to read it into the record now?
The Chair: Into the record, please.
Mr Johnson moves that subsection 1(1) of the bill be amended
"(a) by striking out the definition of `employee group'; and
"(b) by adding the following definitions:
"`commission,' `director,' `material fact,' `misrepresentation' and `reporting issuer' have the meanings specified in the Securities Act;
"`disclosure document' means a document that contains prescribed material relating to a specified employee ownership corporation;
"`distribution' has the meaning specified in the Securities Act and `distribute,' `distributed' and `distributing' have corresponding meanings;
"`specified employee ownership corporation' means a corporation that has notified the minister under subsection 4(2) of its intention to apply for registration as an employee ownership labour sponsored venture capital corporation;
"`trade' or `trading' includes the meaning specified in the Securities Act."
The Chair: Would you give an explanation of the amendment?
Mr Johnson: Yes, Mr Chair. The amendments are consequential upon the proposed amendments to sections 4 and 5, which eliminate the concept of a certified employee group in part II, and add definitions required for the proposed amendments relating to investor protection.
The Chair: Any comment or debate? Is the committee ready for a vote? All those in favour? Opposed?
Motion agreed to.
The Chair: Mr Johnson moves that subsection 1(1) of the bill be amended by adding the following definition:
"`worker cooperative' has the same meaning as in the Co-operative Corporations Act."
Mr Johnson: An explanatory note: The amendment adds the definition of a "worker cooperative" for the purposes of the proposed amendment to the definition of "employee organization."
The Chair: Any comments or debate? The committee is ready for a vote? All in favour? All opposed?
Motion agreed to.
The Chair: Mr Phillips moves that the definition of "employee organization" in subsection 1(1) of the bill be struck out and the following substituted:
"`employee organization' means,
"(a) a trade union;
"(b) an association or federation of trade unions;
"(c) a non-profit corporation all of whose shareholders are employees of the same employer;
"(d) a cooperative incorporated pursuant to the Co-operative Corporations Act, that has as one of its principal objects, as stated in its articles of incorporation, the investment of its equity capital in accordance with the act, and all of whose members are employees of the same employer; or
"(e) any other association of employees or class of association of employees that is prescribed in the regulations."
Mr Phillips: By way of explanation, this is the model that's used in Saskatchewan. It would permit a much broader number of employees in this province to participate and would overcome what I think's going to be a fundamental flaw in the bill as it's currently developed by the government, and that is that most of the employee organizations that can participate under the government's act don't want to.
This would broaden it. Also, it would ensure that the teachers are eligible. I haven't yet heard whether the teachers are regarded under the current act as eligible, but this would make certain that they were.
The Chair: Any comments or debate?
Mr Carr: My feeling is that if groups are going to turn the government down in terms of participation, we should let as many as want to be eligible to turn them down. This would do that, broaden it, clarify it. So this I will support.
The Chair: Any other comments or debate? Is the committee ready for the vote? All in favour of the motion? We have three. Opposed?
Motion negatived.
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The Chair: Mr Johnson moves that the definition of "employee organization" in subsection 1(1) of the bill be struck out and the following substituted:
"`Employee organization' means,
"(a) a trade union,
"(b) an association or federation of trade unions, or
"(c) an association or federation of worker cooperatives."
Mr Johnson: Explanatory note: The amendment expands the list of organizations that may sponsor a labour-sponsored investment fund corporation to include an association or federation of worker cooperatives.
The Chair: Comments or debate.
Mr Carr: Obviously the government has said all along that its intention was to expand the number of groups. This certainly will not do it. Their definition leaves out some of the groups. It obviously relates to the last one, which would have included the other ones. My feeling is if you're not going to include as many groups as possible, I cannot support the government motion and will be voting against it.
The Chair: Any more comments or debate?
Mr Phillips: Can we have a clarification on the teacher situation?
Mr Sutherland: It would appear we can't get that clarification for you right now.
The Chair: Is anyone making any telephone calls from the ministry to --
Mr Phillips: I'm not.
The Chair: No, I'm talking about staff here.
Mr Sutherland: I thought Mr Johnson had indicated earlier that we were working on getting a more definite statement on it, if possible.
Mr Phillips: Tried to get hold of Jim Head but he's in a meeting.
The Chair: Maybe we could have an answer at 3:30 this afternoon. We'll try for that.
Mr Sutherland: In terms of the definition issue and employee organizations, I know the opposition has concerns. They think it should be expanded right now. We've tried to make the case as to what some of the concerns and some of the issues are. I don't think that rules out the possibility that once the program is up and operational and they've had some experience in terms of dealing with these, some practical experience in how things work out, at a later date the definition may be broadened.
I think certainly some would say, "Well, why don't you start it out?" But remember, this is a bit of a new area that we're going into and may be we should start out and get some of the bugs worked out of it from practical application. Then I would think that at some point that will obviously be one of the key issues, that any review of the legislation that would take place would deal with that issue, once they had seen how it works in the current state.
Mr Carr: But let's be fair. If we were going to do that, we would do that now. Let's not hold a carrot out and say that somewhere down the road it may be changed if things work out. I know it isn't your intention to try to be unfair on that, but let's be upfront with people. Let's say you don't want them included, for whatever reason, but let's not hold a carrot and stick out and say it might be somewhere down the road. If you're going to do it, it should be included now. If you're not, then don't do it. But let's not hold out a little bit of a carrot and say, "Well, maybe we will change it and broaden it."
My suggestion on this particular one is that if Mr Phillips has some concerns and needs a clarification, we maybe stand this one down and come back to it after we get some clarification. Certainly I can respect that for whatever reasons you're going to make a change and not include whatever groups, but let's not lead these groups to believe it will be broadened at a later date, because obviously if you were intending to do it you would do it now.
Mr Sutherland: Mr Carr has suggested that we stand this one down for the time being. If we can get some more clarification for this afternoon, and that's agreeable to Mr Phillips, then I think that's a reasonable request.
The Chair: How does the committee feel about this one being put off until this afternoon? Agreed? Okay. You agree with Mr Carr on that one.
Mr Johnson moves that section 1 of the bill be amended by adding the following subsections:
"Specified employee ownership corporation
"(8) A corporation ceases to be a specified employee-ownership corporation if one of the following occurs:
"1. The corporation withdraws its notification given to the minister under subsection 4(2).
"2. The corporation is refused registration under part II and the refusal is confirmed under section 31.
"3. The registration of the corporation is revoked and the revocation is confirmed under section 31.
"4. A cease trade order has been issued against the corporation, but this paragraph does not apply if the cease trade order has expired or been rescinded.
"5. A receiver, receiver-manager, trustee, liquidator or other person acting in the similar capacity is appointed to assume possession or control of all or a substantial portion of the property and assets of the corporation.
"Idem, application of Securities Act
"(9) Except as specified in this act and the regulations, or either of them, a class A share and any other share of a prescribed class of a specified employer ownership corporation shall be deemed not to be a security for the purposes of the Securities Act until such time as the specified employee ownership corporation becomes a reporting issuer within the meaning of that act."
Mr Johnson: An explanatory note: The amendments provide technical rules for when a corporation shall cease to be a specified employee ownership corporation. Under this and other related amendments, corporations which propose to register as employee ownership labour-sponsored venture capital corporations will be defined as specified employee ownership corporations. Such corporations, both before registration and while registered as employee ownership labour-sponsored venture capital corporations, will be subject to a separate securities code to be made by regulation under Bill 150 and will not be subject to the Securities Act.
The Chair: Comments or debate?
Mr Phillips: Have we checked out the Steelworkers' concern about opening ourselves and opening the employees up to countervail actions by the minister signing these documents?
Mr Johnson: I think it was clear that we have. In fact, we've given that answer already in this committee, but just to revisit that, if it's an order in council that applies broadly to organizations within Ontario, then it would seem highly unlikely that there would be any concern, especially from the Americans, and that was their concern.
But let's be frank and say that we know too that the United States, whenever it sees any kind of problem with regard to advantages given to -- I'm speaking of course of Ontario now -- Ontario corporations, it's very likely that under many circumstances, they may take issue with this. We think that this application is broad enough that it shouldn't be seen to be as negative as you might suggest -- at least, if not you, certainly the American government.
Mr Phillips: Have we looked at Mr Gerard's suggestion and said, "No we don't want to follow that"?
Mr Johnson: Could you be more specific?
Mr Phillips: He was saying that rather than having the process that's prescribed in the bill, he recommended a different process that didn't lead to ministerial signing of the business plan. But you've looked at that and decided that you don't want to bring forward that amendment.
Mr Johnson: That's right.
The Chair: Any further comments or debate? The committee's ready for a vote. All in favour of the motion? Opposed?
Motion agreed to.
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The Chair: Maybe what we can do is we can pass sections 2 and 3, as we're coming back to revisit section 1 this afternoon, subsection 1(1).
Mr Sutherland: Just as a point of process, there are no amendments proposed to sections 2 and 3 but there are amendments coming forward; there may be other ones. Do we want to wait to pass those sections in case there's any possibility of potential wording changes in those specific sections as a result of any other amendments that may come forward that are changed?
Mr Phillips: What other amendments?
Mr Sutherland: I mean, there are some proposed amendments here. I don't know if all the amendments here have any impact on any other wording changes later on in any other sections.
The Chair: On the wording changes, other amendments will automatically change 2 and 3.
Mr Sutherland: All right, that's fine. Thank you.
The Chair: Do we carry sections 2 and 3? All in favour? Against?
Sections 2 and 3 agreed to.
Section 4:
The Chair: We move on to section 4.
Mr Johnson moves that section 4 of the bill be struck out and the following substituted:
"Definition, `board'
"4(1) In this section, `board' means the Ontario Labour Relations Board.
"Intention to apply for registration
"(2) A corporation that intends to apply for registration as an employee ownership labour sponsored venture capital corporation shall notify the minister of its intention before making the application.
"Action by minister
"(3) After receipt of a notice under subsection (2), the minister shall direct the board to conduct a vote of the eligible employees of the business in which the proposed applicant corporation intends to invest.
"Condition
"(4) The minister shall not direct the board to conduct a vote in respect of a proposed applicant corporation until the minister is satisfied,
"(a) that the proposed investment has been reviewed by the Employee Ownership Advisory Board;
"(b) that the eligible employees entitled to vote have been provided with a disclosure document; and
"(c) that the eligible employees have been provided with advice relating to the proposed investment by an independent adviser.
"Questions
"(5) The vote shall be conducted to answer the following questions or any prescribed alternative questions and to answer any prescribed additional questions:
"1. Do you support the application for registration of the corporation as an employee ownership labour sponsored venture capital corporation under the Labour Sponsored Venture Capital Corporations Act, 1992?
"2. Do you support the proposed investment in the corporation for the purpose of reinvestment in your employer as outlined in the business, human resources and investment plans to be filed under the Labour Sponsored Venture Capital Corporations Act, 1992?
"Voters re some of eligible business activities
"(6) If the proposed investment in the proposed applicant corporation is in respect of only some of the eligible business activities of the employer, no employee may vote unless the employee is an eligible employee employed in carrying on one or more of those activities.
"Questions
"(7) If a question arises at any time as to whether a person is an eligible employee or is employed in carrying on some of the eligible business activities of the eligible business, the question may be referred to the board and the decision of the board is final and conclusive for all purposes.
"Procedure
"(8) Votes conducted by and proceedings before the board under this section shall be in accordance with its rules, practice and forms, and, for the purpose, sections 104, 105, 108, 110 and 111 of the Labour Relations Act apply with necessary modifications.
"Results
"(9) The board shall provide the minister and the eligible employees with the results of the vote taken under this section."
Mr Johnson: Explanatory note: The new section 4 provides that the eligible employees of the eligible business will have the right to formally vote at a vote to be conducted by the Ontario Labour Relations Board on whether or not to proceed under the act with the proposed investment in the eligible business through an employee ownership labour-sponsored venture capital corporation. The certification of employee groups has been eliminated as no longer adminstratively necessary.
Other proposed amendments will remove references in other sections of the bill to the employee group.
The Chair: Comments or debate? Mr Phillips.
Mr Phillips: Help me along a little bit in the explanation. Who was going to conduct the vote before this amendment? The same --
Mr Johnson: Counsel tells me that it wasn't provided in the act. It wasn't a formal vote before and now this allows for that to happen.
Mr Phillips: Is this something the Ontario Labour Relations Board normally would do? I know they do it in the collective bargaining process --
The Chair: Please identify yourself for the purposes of Hansard.
Ms Catherine Macnaughton: My name is Catherine Macnaughton, legal services at Revenue. Could you repeat the question please, Mr Phillips?
Mr Phillips: Yes. Is this an action the labour relations board is normally involved in in dealing with non-unionized employee groups?
Ms Macnaughton: It's my understanding not, but that they offer their assistance in ensuring the vote would be done on an independent basis; it would be carefully monitored to ensure that the employees were not in any way coerced into cooperating with the plan, that it would be a secret vote and the other assorted rules that apply for trade union votes would apply.
Mr Phillips: The other problem we have with this is the fundamental concern we have with the Employee Ownership Advisory Board certifying that this is -- I think the words are "economically viable," or words to that effect. I think the Steelworkers made a reasonable point. We have some real concerns about the implications for legal redress and moral redress, as the employee advisory board, as I say, puts its stamp of approval on it.
The reason I mention that is because it's mentioned here. I know it's only a subissue on this particular one, but I once again register our concern about where it's going. The government, I think, has acknowledged it is going to accept our amendment, but that probably still doesn't go nearly far enough. Who was it just the other day who was suing government because they felt they weren't properly advised? I can't remember. Those are my comments on it.
The Chair: Any other comments or debate? The committee is ready for a vote.
All in favour of the motion? Opposed?
Motion agreed to.
Section 5:
The Chair: The next amendment is subsection 5(1).
Mr Johnson moves that subsection 5(1) of the bill be struck out and the following substituted:
"Application for registration of corporation
"(1) A corporation may apply for registration as an employee ownership labour sponsored venture capital corporation under this part if, on the vote conducted under section 4, at least 50 per cent of the votes cast were in support of the application and proposed investment."
Mr Johnson: Explanatory note: The amendment to subsection 5(1) is consequential on the elimination of certified employee groups by proposed amendments to section 4.
The Chair: Comments or debate? The committee is ready to vote.
All in favour of the motion? Opposed?
Motion agreed to.
The Chair: Shall subsections 5(2) through 5(5) carry? Carried.
Mr Johnson moves that clause 5(4)(b) of the bill be amended by striking out "or the employee group" in the sixth and seventh lines.
Mr Johnson: Explanatory note: The amendment is consequential upon amendments to section 4 which eliminate the concept of certified employee group.
The Chair: Comments or debate?
Mr Phillips: What you just said, what does that mean?
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Mr Johnson: What does what mean, Mr Phillips?
Mr Phillips: What you just said.
Mr Johnson: I said quite a bit. I moved that clause 5(4)(b) --
Mr Phillips: I understand all that.
Mr Johnson: You mean the explanatory note?
Mr Phillips: Yes. What does it mean?
Ms Macnaughton: All we're doing is removing the reference to the employee group from that provision. The section will read the same as it did in the bill at first reading, but there was a reference in it to the employee group.
Originally, under section 4 in the bill that had first reading the Minister of Revenue would certify an employee group to represent the employees in forming an employee ownership labour-sponsored venture capital corporation. That's gone now that the formal voting provision is in there in section 4, so there are consequential amendments throughout the bill to remove references to the "employee group."
Mr Phillips: Okay. Thank you.
Section 5, as amended, agreed to.
Section 6:
The Chair: Mr Johnson moves that clause 6(1)(a) of the bill be amended by striking out "the Securities Act" in the sixth line.
Mr Johnson: Explanatory note: The amendment removes the requirement that employee ownership labour-sponsored venture capital corporations comply with the Securities Act and is consequential upon the proposed investor protection amendments which would permit the establishment, by regulation, under this act of a securities code tailored to the circumstances applicable to employee ownership labour-sponsored venture capital corporations.
The Chair: The committee's ready for the vote. All in favour of the motion? Opposed?
Motion agreed to.
The Chair: Mr Johnson moves that paragraphs 1 and 2 of sub-subclause 6(1)(e)(i)(D) of the bill be struck out and the following substituted:
"1. The holder of the share receives an amount on the redemption that does not exceed the amount that would otherwise have been payable on the redemption less an amount equal to the tax credit percentage of the lesser of,
"(i) the amount of equity capital received by the corporation on the original issue of the share, or
"(ii) the amount that would otherwise have been payable on the redemption, and"
"2. The corporation remits to the minister an amount equal to the amount required to be deducted under paragraph 1 in the calculation of the amount receivable by the holder of the share on the redemption."
Mr Johnson: The amendment provides that where the fair market value of class A shares of an employee ownership labour-sponsored venture capital corporation has declined below the issue price of the shares, the recapture of the tax credit from the shareholder on an early redemption of a class A share will be proportionately less than the full amount of the tax credit.
The Chair: All in favour of the motion? Opposed?
Motion agreed to.
The Chair: Mr Johnson moves that subclause 6(1)(e)(iii) of the bill be struck out and the following substituted:
"(iii) the corporation shall not register a transfer by the original purchaser, or by a registered retirement savings plan under which the original purchaser or the original purchaser's spouse is the annuitant of a class A share in respect of which an investment certificate has been issued under this act except if the transfer occurs more than five years after the date on which the share was issued, or the amount if any payable under subsection 27(2) to the minister has been paid, or the corporation is notified in writing that the share is being transferred,
"(A) to be held as an investment of a registered retirement savings plan under which the original purchaser or the original purchaser's spouse is the annuitant,
"(B) as a consequence of the death of the original purchaser,
"(C) at a time when,
"1. the original purchaser has retired from the workforce, or has attained 65 years of age, but the share has been issued and outstanding for at least two years, or
"2. the original purchaser has satisfied the condition in paragraph 2 or 3 of sub-subclause (A) of subclause (i), or
"(D) in accordance with the other prescribed conditions."
Mr Johnson: Explanatory note: The amendment clarifies that a transfer of a class A share of an employee ownership labour-sponsored venture corporation may be registered if any tax credit recapture arising on the transfer has been paid to the minister. A recapture of part or all of the tax credit will normally arise on a transfer of a class A share within the five-year minimum holding period unless: (1) the transfer is to the shareholder's RRSP or a spousal RRSP; (2) the transfer occurs as a result of the death of the shareholder; (3) the transfer occurs when the shareholder has retired or reached age 65 and the share has been issued for at least two years; (4) the shareholder has become permanently disabled; or (5) the shareholder's employment has been involuntarily terminated with the eligible business in which the employee ownership labour-sponsored venture capital corporation has invested.
The Chair: Comments or debate? Mr Carr.
Mr Carr: I just had a question regarding (D). What other ones would be included in there? Does anybody know?
Mr Johnson: Pardon me? I didn't hear the question, Mr Carr.
Mr Carr: What would be included in (D), what other prescribed conditions?
Ms Macnaughton: At the moment I understand there were none proposed.
Mr Carr: None proposed? What do you envision could be one? I'm just wondering why that particular one is in there. What would be the particular reason for it?
Ms Macnaughton: It was put in primarily as a drafting style so that if it should occur that other conditions are the wish of the government, rather than having to amend the act they could be added by regulation.
Mr Carr: So conditions could be thrown in there once the bill passes. Then of course we do it through the regulations, which I think most elected people on all sides are very concerned about but which is happening more frequently in a lot of bills, where basically we pass it through and say, "Trust us with it." That scares me, but it'll pass, I'm sure.
The Chair: Any other comments or debate? The committee is ready to vote. All in favour of the motion? Opposed?
Motion agreed to.
The Chair: The next amendment is clause 6(1)(f).
Mr Johnson moves that clause 6(1)(f) of the bill be struck out and the following substituted:
"(f) the articles of incorporation prohibit the corporation from lending money, guaranteeing a loan or providing other financial assistance to a shareholder of the corporation, to a person related to a shareholder of the corporation or to an employee organization."
Mr Johnson: Explanatory note: The amendment is to eliminate the reference to employee group and is consequential upon the amendments to section 4.
The Chair: Comments or debate? The committee is ready for a vote. All in favour of the motion? Opposed?
Motion agreed to.
The Chair: Next clause, 6(1)(h).
Mr Johnson moves that subsection 6(1) of the bill be amended by striking out clause 6(1)(h).
Mr Johnson: Explanatory note: The amendment strikes out clause 6(1)(h) for administrative simplicity. The clause required an employee ownership labour-sponsored venture capital corporation to contain the term "employee ownership" in the corporation's name.
The Chair: Comments or debate? The committee is ready to vote. All in favour of the motion? Opposed?
Motion agreed to.
The Chair: Shall subsection 6(1), as amended, carry? Carried.
Okay, an amendment to subsection 6(2).
Mr Johnson moves that subsection 6(2) of the bill be struck out and the following substituted:
"Interpretation, tax credit percentage
"(2) For the purposes of clause (1)(e) and section 27, the tax credit percentage means the percentage of the equity capital for which the share was originally issued that is applicable in the determination of any tax credit to which the original holder may be or may have been entitled under section 8 of the Income Tax Act."
Mr Johnson: Explanatory note: The amendment is required to remove reference to a federal tax credit, as the federal government will not provide a matching tax credit on investments in employee ownership labour-sponsored venture capital corporations.
Motion agreed to.
The Chair: Mr Phillips moves that section 6 of the bill be amended by adding the following subsection:
"(4.1) Approval of a business plan, human resource plan and proposed investments of an employee ownership labour sponsored venture capital corporation does not imply that the Lieutenant Governor in Council guarantees the survival of the eligible business or the rate of return of the investments."
Mr Phillips: The explanation is that this is the mildest thing we could propose in terms of trying to ensure that people understand that because this body has put its stamp of approval on its economic viability doesn't mean it's economically viable. We would prefer to go to something like the Steelworkers proposed, but I don't think that's in the cards. So this is, as I say, the mildest thing we think we can get through the government.
The Chair: Comments or debate?
Mr Carr: I was just going to say that the intent obviously seems reasonable. I think it's a valid point, so I'll be supporting it.
The Chair: Mr Owens and then Mr Johnson.
Mr Owens: I'll yield to Mr Johnson.
Mr Johnson: I just wanted to say that I don't think there's anything implicit that the government would be responsible, even as the bill was presented, but we feel that in order to appease the Liberals and to allow for this notion that there is indeed some extra protection here, we will support this.
The Chair: In other words, you're saying it's more clarification in the bill. Is the committee ready for the vote?
Motion agreed to.
The Chair: Shall subsections 6(3) through 6(6) carry? Carried.
Section 6, as amended, agreed to.
The Chair: This committee will adjourn until 3:30 this afternoon.
The committee recessed at 1204.
AFTERNOON SITTING
The committee resumed at 1551.
The Chair: We resume clause-by-clause of Bill 150. We'll go back for some clarification on the Ontario Teachers' Federation. Could you give us some clarification, sir, on the definition if it's within the scope of this bill?
Mr Sholtack: We've looked at this issue, we've discussed it with legal counsel at the Ministry of Education and the Ministry of Labour and the answer is, we're not sure. As a lawyer, I could say on the one hand and on the other hand. They're not at all covered by the Ontario Labour Relations Act, which generally regulates activities of trade unions. However, we feel they do the same sorts of things as trade unions and come within the purpose and intent of the legislation. So in answer to your question, we will ensure that they do in fact qualify, possibly through a regulation clarifying the matter.
The Chair: Are the committee members satisfied with the answer?
Mr Phillips: I used the teachers as one example. I believe there are lots of other groups out there. I just want to make sure that groups like teachers are covered by the legislation.
Mr Sholtack: We have to look at the whole area to make sure they all come within. Different organizations are there for different purposes. From our review of the statute that covers the teachers' federation, the School Boards and Teachers Collective Negotiations Act, it's the same sort of legislation as the OLRA, authorizing the federation and the affiliates to do the same sorts of things, bargain with school boards. As such, we consider the provincial level association of teachers similar to trade unions.
Mr Carr: If I'm a particular organization, who do I go to now to get clarification? It's obviously a policy decision. What ministry do I go to? Are you going to decide through the regulation? Who is going to have the final decision on this if I'm Mr Joe Blow out there who says, "My group qualifies"? Where does the buck stop?
Mr Sholtack: The Minister of Revenue is charged with the administration of the statute. However, policy is made at treasury. The minister, in consultation with treasury, will give a ruling to particular organizations.
Mr Carr: Are there going to be any formal procedures towards that? How do you see it working and how would one proceed with that?
The Chair: Are you talking --
Mr Carr: It was a question. I think we got a handoff, but it got fumbled.
The Chair: Are you finished your question?
Mr Carr: Yes. I'll ask it again. My question was, who --
The Chair: I thought you were looking for me to answer it. I was listening.
Mr Carr: I see them looking at each other. I didn't mean to be so difficult.
Mr Sholtack: Maybe Mr Evans would like to set out the administrative approach.
Mr Carr: The question was, I'm an organization that now may or may not be covered. It's up to treasury and the Ministry of Revenue. Who do I go to and what's the formal process?
Mr Evans: You will go to the Ministry of Revenue. The Ministry of Revenue, within the framework of the legislation, will have guidelines it will operate under. In the event that the application is clear in relation to the guidelines, we would make a recommendation to the Minister of Revenue.
In the event that we had a situation that was not clear within those guidelines in the regulations, we would take that, as Mr Sholtack has described, to the Minister of Revenue and to treasury to seek clarification. You may have an extension of the regulations through the experiences we have, but essentially it will be within the domain of the Minister of Revenue to provide a response to the applicants as to whether they qualify or not.
Mr Carr: Briefly, what guidelines would you be looking for, what criteria? Could you just lay them out?
Mr Evans: The criteria we will be dealing with will be those that render the application of the act, the achievement of the goals and the intent of the act practical -- they will therefore probably relate to the size of the organization so that they have a prospect of creating the appropriate size of capital pool -- and whether they are in fact bona fide organizations for purposes that are similar to labour organizations and established trade unions. What we would be looking for is to avoid organizations that appear to have been created for the specific purposes of attracting tax credits for the proposal. So we'll be looking for the extent to which they are bona fide organizations of a similar nature.
Mr Carr: So the minister is going to interpret it rather broadly, other than the fact that somebody who's in it just to get tax credits and beat the system obviously will not. But in terms of legitimate groups, what you're saying is it will be interpreted widely.
Mr Evans: We will have to interpret it consistent with our expectation of what the federal legislation will also allow. That will be one of the guidelines, because we do have federal administration of this bill and we must be sensitive to that fact as well.
Mr Sutherland: I think it might be important to clarify here. Mr Phillips, you brought up the example of teachers. When you asked that, my impression was you were asking for those similar labour organizations that may not fit specifically under the definition of "union" but are really labour organizations, such as the the teachers' federation. In your definition, though, when you talk about other organizations, you're still referring to those that are within a labour framework such as teachers' federations and not just broad organizations in general?
Mr Phillips: All of this is just, I guess, reinforcement. My feeling is it would be in everyone's interest to approve the amendment we proposed, because what I just heard was that you will use the regulation process to identify other associations of employees that may qualify for this. When I had the original briefing with the staff, they said, "We can only go by" -- I think they said -- "the federal definition of a trade union." Now I'm hearing something different, that is, that the government's prepared to accept trade unions or other organizations as prescribed in the regulations.
I just wonder why we don't make it easier on all of us by giving the government the latitude to be able to do that in regulation rather than handcuffing the government by the employee organization being only those kinds of very formal definitions that are in the government motion. I don't know why we wouldn't try and get around this problem -- regulations are going to have to be put out anyway for the teachers' organizations -- by just going back to our original motion.
Mr Johnson: If I could just give some additional background to the reasons why we wouldn't agree to the motion to expand the eligibility of employee organization, let's start with the Treasurer has deemed that broadening the eligibility parameters to establish labour-sponsored investment fund corporations is inadvisable at this time because this is a new type of program. We do not know how popular it will be or what the takeup will be. Broadening it greatly at the onset could result in a proliferation of very small LSIFs without enough funds. Of course, if they are too small, they wouldn't be viable for investors or for the business to meet the program's objectives, which are to create new sources of equity funding for small and medium-sized businesses in Ontario.
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Another point is that the government would also like to maintain control of the size of the program and the level of revenue involved. Broadening it greatly would make this impossible. Of course, there are risks. Established long-term and large entities sponsoring and managing LSIFs will reduce risk to investors of failure of the fund.
The opposition mentions often that they want to know why or whether we should adopt the Saskatchewan approach and simply let virtually any employee organization establish an LSIF. There are some reasons why we don't want to do that. The government has elected to restrict the meaning of employee organization with respect to the LSIF component of Bill 150 for several reasons. These include the newness of the program for Ontario. There is a need to establish a body of experience on the administration of this program before any substantive expansion is undertaken.
The government also views worker cooperatives, or teachers' federations for example, as being very similar to trade unions in many respects and therefore they do not represent an inconsistent expansion of the original legislative provision.
From the perspective of the original policy objectives for this program, allowing the creation of a potentially wide range of very small investment funds may actually be counterproductive and the risks to investors of fund dissolution will be minimized by restricting the creation of these investment funds to establish long-term entities.
I understand that we have received today preliminary advice from Finance Canada that the federal government will be prepared to match and prescribe worker cooperatives as proposed under the amendments to Bill 150. I would also, however, note that this is still subject to formal written confirmation.
I note, for the committee's reference, that looking to Saskatchewan or other provinces as a precedent for federal-Ontario tax policy arrangements is not always relevant. Ontario has a history, perhaps because of its size, of being treated somewhat differently from other provinces in federal-provincial matters. A case in point would be in 1988, when Ontario sought the federal government's approval to introduce a flat tax identical in structure to flat taxes in place at the time in Saskatchewan and Manitoba. When it was Ontario asking, the answer was no. In fact a moratorium was imposed by the federal government on the introduction of any new flat taxes.
The government is therefore satisfied that the proposed definition of employee organization for LSIF purposes is both reasonable and prudent for the time being. The government does not, however, preclude at some future point, after some necessary experience on this program has been gained, a wider range of employee organizations which may establish LSIFs.
Mr Phillips: I don't know whether you think we're stupid, but we're not, and what staff just said was that you're going to include teachers in this, for example. If they are not deemed legally to be a trade union, I don't know how you're going to include them, other than through regulation.
Mr Johnson: But I think --
Mr Phillips: Let me finish. As I see this, you don't have the authority to do that. All I'm suggesting is that you give yourself the authority to do it. I'm getting frustrated about this. We have sent out a letter to the federal government about the co-ops. I want to be assured, because Mr Sutherland said you've had an opinion about the Saskatchewan thing. I'd like that in writing, as I said before, and I hope we will get it.
If teachers aren't a trade union, an association or federation of trade unions or an association or federation of worker co-ops, the way I read the legislation, you don't have the authority to include them. I'm saying, "Why don't you give yourself the authority?"
Mr Sutherland: I stand to be corrected, but my understanding of the interpretation was that there is potential for the teachers to be included, possibly under regulation. I assume too, though, that again it would be subject, as Mr Evans has pointed out, to what the federal government is willing to allow and concede. So it may be subject to that as well, whether they would accept that as a definition as they have on the basis of the worker co-ops.
The Chair: Mr Owens, did you have something to add to that?
Mr Owens: I'm just sitting here looking at groups like the Ontario Secondary School Teachers' Federation, the Ontario English Catholic Teachers' Association and others, confused as to why they wouldn't be captured by the definition that currently exists in this proposed piece of legislation. I suppose the question could then be ventured, what about a group like the Ontario Medical Association that is now applying the Rand formula to its members? Are they now classed as being eligible under this particular bill? I don't think so.
In terms of how the teachers' unions, as I've always addressed them as, function in terms of their responsibilities and the ability to access the grievance arbitration process, which is clearly covered by the Labour Relations Act, it's my humble opinion that these groups are captured. I don't think I've heard yet a definitive opinion that no, they're not eligible for this particular bill.
Mr Phillips: I think the staff said they don't know. That's what they came back and said.
Mr Owens: That's not no.
Mr Phillips: I understand that, but if down the road they are not under the legal definition of a union, then we have to come back and amend the damned bill. Why don't you just give yourself the latitude so that you can by regulation say they are included?
Mr Sholtack: I think what I said was that it isn't clear, and we will ensure that it is clear. If they're clearly not trade unions, then we don't have the authority, as you say. But it's my view that the issue is not clear. There is a certain uncertainty.
Mr Phillips: I agree totally with you.
Mr Sholtack: As such there is authority to clarify, because the cabinet has the authority to define terms and expressions.
Mr Phillips: It has the authority to define who an employee organization is?
Mr Sholtack: No, not an employee organization -- that's already defined in the act -- but to clarify terms under the definition of trade union.
Mr Phillips: Where is the definition of trade union?
Mr Sholtack: Specifically if I could refer you to the definition of trade union in section 1 of the bill, that is not a proposed amendment; it's set out in the bill itself.
Mr Phillips: Just tell me where it is.
Mr Sholtack: It's on page 5. "`Trade union' means," in one of the parts, "a designated or certified provincial employee bargaining agency...." In my view, that term is broad enough to be defined to include the teachers' federation, which is so close to being a trade union that it would not be out of line to do that. But as the member said, it can't be expanded that much to include, for example, the Ontario Medical Association. It's still within the context of what a trade union is, and the teachers' federation does the sorts of things trade unions do.
Mr Owens: I would like to follow up on this question. What would then be the view of Revenue should this bill pass as it is? What would your view be in terms of OSSTF approaching you on Monday or whenever and saying, "We want to set up one of these LSIFs"? Would Revenue be of the view that the enabling language is there?
Mr Evans: Under the section of the act Mr Sholtack has just described, I think the interpretation we would take would cause us to recommend to the minister that it would be eligible.
Mr Brad Ward (Brantford): I think Mr Phillips's concern is to broaden the definition, and he just used the teachers' federation as one example. My colleague Mr Johnson here quite clearly explained why the government would be reluctant to do that at this time. This is a new initiative. We have the Canadian Federation of Labour, which is ready to go under this bill with its fund. I can't think of any other organizations that are as far ahead as the federation of labour.
Since this is a new initiative I think, as Mr Johnson said, we want to take it a little bit slowly and ensure we're doing it properly. There will be room, as the success of this initiative develops, for expanding the definitions in conjunction and cooperation with, I'm assuming, the federal government, at a later date.
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Section 1:
The Chair: Are we ready to go on to the amendments, subsection 1(1) of the bill?
Mr Johnson moves that the definition of "employee organization" in subsection 1(1) of the bill be struck out and the following substituted:
"`employee organization' means,
"(a) a trade union,
"(b) an association or federation of trade unions, or
"(c) an association or federation of worker cooperatives."
Mr Johnson: I think the explanation is quite clear.
The Chair: Is there any further comment or debate? Mr Owens.
Mr Owens: In terms of the inclusion of the worker cooperative section, I think this is a great step forward for this group. I know they've worked long and hard, especially Mr John Brouwer, the president of the Ontario Worker Co-op Association. I know he's quite pleased to see this amendment and I'm quite pleased to assist him in having this amendment added.
Mr Phillips: This isn't contingent, though, on federal government approval, is it? This stands alone.
Mr Evans: I understand from what Mr Johnson shared with us earlier in response to a question that we have had a communication from the federal government which confirms that it will match the credit. We are merely waiting at this time for the written confirmation of that decision.
Mr Phillips: Good.
The Chair: Okay. Is the committee ready to vote? All in favour of the amendments? Those against?
Section 1, as amended, agreed to.
Section 7:
The Chair: Now we'll be going on to, I believe, section 7, clause 7(1)(b).
Mr Johnson moves that clause 7(1)(b) of the bill be struck out and the following substituted:
"(b) the corporation fails to file the material required by this act or the regulations."
Mr Johnson: Explanatory note: The amendment removes the reference to a certified employee group and is consequential upon the proposed amendments to section 4.
The Chair: Comments or debate. The committee is ready for the vote. All in favour of the amendment? Opposed?
Motion agreed to.
The Chair: Does subsection 7(2) carry? Carried. The next amendment is to subsection 7(3).
Mr Johnson moves that subsection 7(3) of the bill be amended by striking out "the eligible business or the employee group" in the fourth and fifth lines and substituting "or the eligible business."
Mr Johnson: Explanatory note: The amendment removes the reference to an employee group and is consequential upon the proposed amendments to section 4.
The Chair: Comments or debate? The committee is ready to vote. All in favour? Opposed?
Motion agreed to.
Section 7, as amended, agreed to.
Section 8:
The Chair: Mr Johnson moves that section 8 of the bill be amended by striking out "the corporation and the employee group comply" in the first and second lines and substituting "the corporation complies."
Mr Johnson: Explanatory note: The amendment removes the reference to an employee group and is consequential upon the proposed amendments to section 4.
The Chair: Comments or debate? Is the committee ready for the vote? All in favour of the amendment? Opposed?
Motion agreed to.
Section 8, as amended, agreed to.
Sections 9 to 11, inclusive, agreed to.
Section 12:
The Chair: Mr Johnson moves that section 12 of the bill be amended by adding the following definition:
"`qualifying debt obligation' means a debt obligation that, if secured, is secured solely by a floating charge on the assets of the entity or a debt obligation in respect of which a guarantee has been given."
Mr Johnson: Explanatory note: This defines "qualifying debt obligation" for the purposes of determining whether an investment by a labour-sponsored investment fund corporation is an eligible investment under the act. This definition parallels the provisions in the federal LSVCC program.
The Chair: Comments or debate? The committee is ready to vote. All those in favour of the amendment? Opposed?
Motion agreed to.
The Chair: Mr Johnson moves that clause 12(c) of the bill be amended by striking out "$35,000,000" in the fourth line and substituting "$50,000,000."
Mr Johnson: Explanatory note: The amendment will implement the Treasurer's 1992 budget proposal to permit investment by labour-sponsored investment fund corporations and eligible businesses having not more than $50 million in assets. The original limit was $35 million in assets.
The Chair: Comments or debate? The committee is ready to vote. All those in favour of this amendment? Opposed?
Motion agreed to.
Section 12, as amended, agreed to.
Section 13:
The Chair: Mr Johnson moves that subsection 13(1) of the bill be amended by,
(a) adding after "if" in the fifth line "the corporation has a permanent establishment in Ontario and"; and
(b) striking out "and has a permanent establishment in Ontario" in the third and fourth lines of clause (b).
Mr Johnson: Explanatory note: The amendments clarify that every corporation applying for registration as a labour-sponsored investment fund corporation must have a permanent establishment in Ontario.
The Chair: Comments or debate? This committee is ready for the vote. All in favour of the amendment? Opposed?
Motion agreed to.
Section 13, as amended, agreed to.
Section 14:
The Chair: Mr Johnson moves that subclause 14(1)(d)(i) of the bill be struck out and the following substituted:
"(i) assisting the development of eligible businesses, creating, maintaining and protecting jobs by providing financial and managerial advice to eligible businesses and by providing capital to eligible businesses through the acquisition and holding of shares and qualifying debt obligations issued by eligible businesses that are corporations, and ownership interests of and qualifying debt obligations issued by eligible businesses that are Canadian partnerships, as permitted under this act, and."
Mr Johnson: Explanatory note: Changes to the references to voting shares and unsecured debt obligations to shares and qualifying debt obligations for the purposes of describing the types of investments in which a labour-sponsored investment fund corporation may invest. Labour-sponsored investment fund corporations will be able to invest in both voting and non-voting shares of eligible businesses and in the same type of debt obligations of eligible business which are permitted under the federal LSVCC program.
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The Chair: Comments or debate? How does the committee vote, in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that paragraphs 1 and 2 of sub-subclause 14(1)(e)(i)(D) of the bill be struck out and the following substituted:
"1. The holder of the share receives an amount on the redemption that does not exceed the amount that would otherwise have been payable on the redemption less an amount equal to 20% or, if a percentage has been prescribed, the prescribed percentage of the lesser of,
"(a) the amount of equity capital received by the corporation on the original issue of the share, or
"(b) the amount that would otherwise have been payable on the redemption, and
"2. the corporation remits to the minister an amount equal to the amount required to be deduced under paragraph 1 in the calculation of the amount receivable by the holder of the share on the redemption."
Mr Johnson: Explanatory note: The amendment provides that where the fair market value of the class A shares of a labour-sponsored investment fund corporation has declined below the issue price of the shares, the recapture of the tax credit from the shareholder on a early redemption of a class A share will be proportionately less than the full amount of the tax credit originally paid on the share.
The Chair: Comments or debate? Are we ready for the vote? All in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that subclause 14(1)(e)(iii) of the bill, exclusive of the sub-subclauses, be struck out and the following substituted:
"(iii) the corporation shall not register a transfer by the original purchaser, or by a registered retirement savings plan under which the original purchaser or the original purchaser's spouse is the annuitant, of a class A share in respect of which an investment certificate has been issued under this act, except if the transfer occurs more than five years after the date on which the share was issued, or the amount if any payable under subsection 27(2) to the minister has been paid, or if the corporation is notified in writing that the share is being transferred."
Mr Johnson: Explanatory note: The addition of the words, "or the amount if any payable under subsection 27(2) to the minister has been paid," clarifies that a transfer of a class A share of a labour-sponsored investment fund corporation may be registered if any tax credit recapture arising on the transfer has been paid to the minister.
The Chair: Comments or debate? All those in favour of the amendment? Those opposed?
Motion agreed to.
The Chair: Mr Johnson moves that clause 14(1)(f) of the bill be struck out and the following substituted:
"(f) the articles of incorporation prohibit the corporation from lending money, guaranteeing a loan or providing other financial assistance to a shareholder of the corporation, to a person related to a shareholder of the corporation or to an employee organization."
Mr Johnson: Explanatory note: The amendment removes the reference to employee groups and is consequential upon the proposed amendments to section 4 which eliminate employee groups.
The Chair: Comments or debate? All in favour of this amendment? Those opposed?
Motion agreed to.
Section 14, as amended, agreed to.
Sections 15 to 17, inclusive, agreed to.
Section 18:
The Chair: Mr Johnson moves that clause 18(1)(b) of the bill be struck out and the following substituted:
"(b) the investment is the purchase from the eligible business by the labour sponsored investment fund corporation of,
"(i) shares or a qualifying debt obligation issued by the eligible business in exchange for a consideration paid in money, if the eligible business is a corporation, or
"(ii) an ownership interest in the eligible business or a qualifying debt obligation issued by the eligible business in exchange for a consideration paid in money, if the eligible business is a Canadian partnership."
Mr Johnson: Explanatory note: The amendments permit labour-sponsored investment fund corporations to invest in voting and non-voting shares as well as debt obligations issued by an eligible business which are secured by a floating charge or in respect of which a guarantee has been given. As such debt obligations are eligible investments of federally registered labour-sponsored venture capital corporations. The amendment is required in order that corporations may register under and comply with both the federal program and the Ontario program. Without the amendment, only voting shares and unsecured debt obligations would be eligible investments for labour-sponsored investment fund corporations.
The Chair: Comments or debate? How does the committee vote? In favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that clauses 18(1)(c) and (d) of the bill be struck out and the following substituted:
"(c) the labour sponsored investment fund corporation does not control the eligible business after the investment is made."
Mr Johnson: Explanatory note: The amendment clarifies that a labour-sponsored investment fund corporation will be entitled to own a majority ownership interest in an eligible business as long as it does not have control of the eligible business, as defined in subsection 1(3) of the bill.
The Chair: Comments or debate? Committee votes in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that subsection 18(5) of the bill be amended by striking out "or (d)" in the fourth line.
Mr Johnson: Explanatory note: The amendment removes the reference to clause 18(1)(d) and is consequential upon the amendment to strike out that clause.
The Chair: Comments or debate? Committee votes in favour of the amendment? Against?
Motion agreed to.
Section 18, as amended, agreed to.
Section 19 agreed to.
Section 20:
The Chair: Mr Johnson moves that subsection 20(2) of the bill be struck out and the following substituted:
"Idem
"(2) A labour sponsored investment fund corporation shall not invest or maintain an investment in a business that is or was at any time an eligible business if,
"(a) the labour sponsored investment fund corporation controls the business; or
"(b) as a result of the investment, the labour sponsored investment fund corporation would have invested more than $10,000,000 in the business."
Mr Johnson: Explanatory note: The amendment clarifies that a labour-sponsored investment fund corporation will be entitled to own a majority interest in an eligible business as long as it does not have control of the eligible business, as defined in subsection 1(3) of the bill.
The Chair: Comments or debate? Committee votes in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that subsection 20(3) of the bill be amended by striking out "Clause (2)(a), (b) or (c)" in the first line and substituting "Clause 2(a)."
Mr Johnson: Explanatory note: The amendment is consequential upon the amendment to subsection 20(2) which renumbered the clauses in subsection 20(2).
The Chair: Comments or debate? Committee votes in favour of this amendment? Against?
Motion agreed to.
Section 20, as amended, agreed to.
Sections 21 to 24, inclusive, agreed to.
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Section 25:
The Chair: Mr Johnson moves that clause 25(4)(b) of the bill be struck out and the following substituted:
"(b) $3,500, if the class A shares were paid for after the 6th day of November, 1991, and before the 1st day of March, 1992, or $5,000, if the class A shares were paid for after the 31st day of December, 1991, with no labour sponsored venture capital corporation tax credit deducted in respect of the shares in the determination of tax payable under the Income Tax Act for the 1991 taxation year."
Mr Johnson: Explanatory note: The amendment would implement the Treasurer's 1992 budget proposal to increase the maximum annual investment in labour sponsored investment fund corporations that is eligible for a tax credit for the year from $3,500 to $5,000 for 1992 and subsequent taxation years.
The Chair: Committee votes for the amendment? Against?
Motion agreed to.
Section 25, as amended, agreed to.
Section 26:
The Chair: Mr Johnson moves that clause 26(1)(c) of the bill be struck out and the following substituted:
"(c) the labour sponsored venture capital corporation is registered under part II and becomes a party to a transaction or a series of transactions that result or would result in a direct or indirect change of control of the labour sponsored venture capital corporation, including an amalgamation, merger, arrangement or winding up of the corporation, unless,
"(i) the date of the transaction or the first transaction in the series of transactions is at least five years after the last date on which a class A share was issued by the corporation, or
"(ii) the action has been approved in advance by the Employee Ownership Advisory Board and the Minister of Industry, Trade and Technology."
Mr Johnson: Explanatory note: The amendment provides that any change in the control of an employee ownership labour-sponsored venture capital corporation within five years of the last issue of shares must be approved by the Employee Ownership Advisory Board and the Minister of Industry, Trade and Technology.
The Chair: All in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that clause 26(1)(e) of the bill be amended by striking out "or employee group" in the fifth line.
Mr Johnson: Explanatory note: The amendment removes a reference to an employee group and is consequential upon the proposed amendments to section 4.
The Chair: All in favour of the amendment? Against?
Motion agreed to.
Section 26, as amended, agreed to.
Section 27:
The Chair: Mr Johnson moves that clause 27(1)(b) of the bill be amended by striking out "fair value" in the ninth line and substituting "fair market value."
Mr Johnson: Explanatory note: The amendment clarifies that the amount referred to is the fair market value of the class A share.
The Chair: All those in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that clauses 27(2)(a) and (b) of the bill be struck out and the following substituted:
"(a) if the share was issued by a corporation registered under part II, the tax credit percentage of the lesser of the amount of equity capital for which the share was originally issued or the fair market value of the share at the date of the transfer unless the share is being transferred under circumstances set out in sub-subclause 6(1)(e)(iii)(A), (B), (C) or (D); or
"(b) if the share was issued by a corporation registered under part III, 20 per cent or the prescribed percentage if a percentage has been prescribed, of the lesser of the amount of equity capital for which the share was originally issued or the fair market value of the share at the date of the transfer, unless the share is being transferred under circumstances set out in sub-subclause 14(1)(e)(iii)(A), (B) or (C)."
Mr Johnson: Explanatory note: The amendment provides that where the fair market value of the class A shares of an employee ownership labour-sponsored venture capital corporation or of a labour-sponsored investment fund corporation has declined below the issue price of the shares, any recapture of the tax credit arising by reason of the non-exempt transfer of the share by the shareholder before the expiry of the five-year holding period will be proportionately less than the full amount of the tax credit.
The Chair: All those in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that subsection 27(4) of the bill be struck out and the following substituted:
"Idem, liability of holder
"(4) If a person as the holder of a class A share issued by a labour sponsored venture capital corporation within the immediately preceding five years receives an amount in respect of the reduction of the stated capital account attributable to the class A shares, other than by way of a redemption of the class A shares, the person shall immediately pay to the minister an amount of money equal to,
"(a) if the share was issued by a corporation registered under part II, the tax credit percentage applied to the amount so received; or
"(b) if the share was issued by a corporation registered under part III, 20% of the amount received or, if a percentage has been prescribed, the prescribed percentage of the amount received."
Mr Johnson: Explanatory note: The amendment clarifies that reductions of stated capital other than by way of share redemptions are contemplated by subsection 27(4), and that any recapture of tax credits from shareholders on such reductions of stated capital will not include any amount representing any federal tax credits provided on the purchase of labour-sponsored investment fund corporation shares.
The Chair: All those in favour? Against?
Motion agreed to.
Section 27, as amended, agreed to.
Section 28:
The Chair: Mr Johnson moves that section 28 of the bill be amended by striking out subsection (2).
Mr Johnson: Explanatory note: The amendment eliminates interest on the refundable penalty imposed on labour-sponsored venture capital corporations which fail to meet the minimum level of eligible investments required under the act.
The Chair: All in favour? Against?
Motion agreed to.
Section 28, as amended, agreed to.
Section 29:
The Chair: Mr Johnson moves that subsection 29(1) of the bill be struck out and the following substituted:
"(1) An amount payable under this act to the minister or the crown by a labour sponsored venture capital corporation or any other corporation shall be deemed to be a tax imposed on the corporation under part II of the Corporations Tax Act, payable on the date the liability arises, for the purposes of collection and enforcement under that act."
Mr Johnson: Explanatory note: The amendment clarifies that no interest is payable on tax credits recaptured under the act and that amounts owing under the act will be deemed to be tax owing under the Corporations Tax Act, only for the purpose of authorizing the minister to use the legal remedies available under that act to enforce collection of the debt.
The Chair: All in favour of the amendments? Against?
Motion agreed to.
Section 29, as amended, agreed to.
Section 30 agreed to.
Section 31:
The Chair: Mr Johnson moves that subsection 31(1) of the bill be amended by striking out clause (a).
Mr Johnson: Explanatory note: The amendment removes provisions relating to employee groups and is consequential upon the proposed amendments to section 4.
The Chair: Everyone in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that subsection 31(2) of the bill be struck out and the following substituted:
"Service of notice of proposal
"(2) The minister shall serve the notice under subsection (1) upon the corporation in the prescribed manner, together with written reasons for the proposal."
Mr Johnson: Explanatory note: The amendment removes provisions relating to employee groups and is consequential upon the proposed amendments to section 4.
The Chair: All those in favour of the amendment? Against?
Motion agreed to.
Section 31, as amended, agreed to.
Section 32:
The Chair: Mr Johnson moves that section 32 of the bill be amended by adding the following subsection:
"Inquiry by commission or director
"(8) The commission or the director, as the case requires, has all the powers of the commission under parts III and VI of the Securities Act for the purposes of an inquiry by either of them upon being authorized under subsection (4), and for the purpose references to the Securities Act shall be deemed to refer to this act and references in that act to securities shall be deemed to include class A shares and any other shares of a prescribed class of a specified employee ownership corporation."
Mr Johnson: Explanatory note: The amendment provides that where the minister designates the Ontario Securities Commission or the director of the OSC to make inquiries to ensure compliance with the act and regulations, the commission and director will have the same administrative, investigative and enforcement powers that may be exercised under parts III and VI of the Securities Act.
The Chair: Comments or debate? All in favour of the amendment? Against?
Motion agreed to.
Section 32, as amended, agreed to.
Section 33 agreed to.
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Section 34:
The Chair: Mr Johnson moves that subsection 34(1) of the bill be amended by striking out "or" at the end of clause (b) and adding the following clauses:
"(d) fails to comply with an order, decision, direction, requirement or demand made under this act or the regulations; or
"(e) contravenes this act or the regulations."
Mr Johnson: Explanatory note: The amendment is consequential upon the amendments to add an investor protection code by regulation under the act in respect of employee ownership labour-sponsored venture capital corporations. The purpose of the amendment is to provide that failure to abide by any order, requirement, decision, direction or demand made under the act or the regulations will be an offence which may be prosecuted under the act.
The Chair: Comments or debate? All in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that section 34 of the bill be amended by adding the following subsection:
"Penalty, disclosure document
"(2.1) Every person convicted of an offence described in clause (1)(a) in respect of a disclosure document is liable on conviction to a fine of not less than $5,000 and not more than $1,000,000 or to imprisonment for a term of not more than two years, or both such fine and imprisonment, and not as provided in subsection (2)."
Mr Johnson: Explanatory note: The amendment provides for a higher maximum penalty for false or misleading statements in disclosure documents since eligible employees will rely on information provided in disclosure documents in making the decision of whether to proceed to invest in the employee ownership labour-sponsored venture capital corporation.
The Chair: Comments or debate? All those in favour of the amendment? Against?
Motion agreed to.
The Chair: Mr Johnson moves that the bill be amended by adding the following sections:
"Application to court by minister
"34.1(1) The minister may apply to the Ontario Court (General Division) for an order against a person who fails to comply with or contravenes this act or the regulations.
"Nature of order
"(2) An order under subsection (1) may direct the person to comply with, or may restrain the person from contravening, one or more specific provisions of this act or the regulations, or the court may make such further or other order as the court considers appropriate in the circumstances.
"Persons affected by order
"(3) An order under subsection (1) may be directed also to any one or more of,
"(a) the directors and senior officers of the person if the person is a corporation;
"(b) the partners, if the person is a partnership;
"(c) the members who comprise the person, if the person is an unincorporated association, unincorporated syndicate, unincorporated organization or a trust;
"(d) the directors and senior officers of a corporation that is a partner or member mentioned in clause (b) or (c); and
"(e) the partners of a partnership that is a member mentioned in clause (c).
"Effect of other remedy or penalty
"(4) An order may be made under subsection (1) despite any other remedy or penalty under this act or the Securities Act.
"Appeal
"(5) An appeal lies to the Divisional Court from an order under subsection (1).
"Cease trade order
"34.2(1) The minister, in the circumstances specified in subsection (2), may order that trading cease in respect of the class A shares or any of them or any other shares of a prescribed class of an employee ownership labour sponsored venture capital corporation for such a period of time as is specified in the order.
"Conditions precedent
"(2) The minister may make an order under subsection (1) on the recommendation of the director or if the minister is entitled under this act to revoke the corporation's registration under this act.
"Limitations
"(3) An order under subsection (1) may be made subject to such limitations as the minister imposes when making the order.
"Appeal
"(4) An appeal lies to the Divisional Court from an order under subsection (1).
"Designation by minister
"34.3 The minister may designate the commission, the director, or another person to exercise the powers of the minister under sections 34.1 or 34.2.
"Application of part V of Securities Act
"34.4 Part V of the Securities Act applies to a decision of the director in respect of an employee ownership labour sponsored venture capital corporation or the shares of such a corporation in the same manner as for a decision of the director referred to in that part and, for the purpose, a reference to the minister shall be deemed to be a reference to the Minister of Financial Institutions.
"Disclosure document
"34.5(1) A specified employee ownership corporation or selling security holder on whose behalf a distribution of Class A shares or shares of a prescribed class is made shall send a disclosure document by prepaid mail to the purchaser of each such share either before or forthwith after agreeing to sell the share to the purchaser.
"Delivery
"(2) A disclosure document sent by prepaid mail in accordance with subsection (1) shall be deemed conclusively to have been received in the ordinary course by mail by the person to whom it was addressed.
"Civil liability
"34.6 (1) A purchaser of a Class A share of an employee ownership labour sponsored venture capital corporation or of a share of a prescribed class of such corporation who suffers a loss due to misrepresentation in the disclosure document by which the share was offered has a right of action for damages for the loss.
"Reliance on misrepresentation
"(2) For the purposes of subsection (1), the purchaser shall be deemed to have relied on the misrepresentation in purchasing the share.
"Other right
"(3) The right of action under subsection (1) is in addition to and without derogation from any other right the purchaser may have at law other than the right of rescission provided in subsection (6).
"Persons liable
"(4) Subsection (1) applies only if the share was purchased during the prescribed period of distribution of such shares and the misrepresentation was a misrepresentation at the time of purchase of the share.
"Idem
"(5) The right of action under subsection (1) lies against,
"(a) the employee ownership labour sponsored venture capital corporation, or the security holder, on whose behalf the distribution is made;
"(b) every person who was a director of the employee ownership labour sponsored venture capital corporation at the time the disclosure document was filed with the director;
"(c) every person whose consent has been filed with the minister or the commission in compliance with the regulations, but only with respect to any report, opinion or statement made by the person; and
"(d) any other person who signed this disclosure document.
"Rescission
"(6) The purchaser may elect to rescind the purchase of the share, if the share was purchased from the employee ownership labour sponsored venture capital corporation or the security holder on whose behalf the distribution was made, in which case subsection (1) does not apply in respect of the corporation or security holder, but the right of rescission is in addition to and without derogation from any other right the purchaser may have at law.
"Application of Securities Act
"(7) Subsections 130(2) to (9) of the Securities Act apply with necessary modifications in respect of an action under this section and, for the purpose, a reference to a prospectus shall be deemed to be a reference to a disclosure document.
"Time limit, rescission
"(8) No action to rescind the purchase of a share mentioned in this section shall be commenced later than 180 days after the date of the transaction that gave rise to the cause of action.
"Time limit, other
"(9) No action mentioned in this section, other than to rescind the purchase of a share, shall be commenced later than the earlier of,
"(a) 180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action; or
"(b) three years after the date of the transaction that gave rise to the cause of action.
"Transitional rule
"(10) This section does not apply in respect of an employee ownership labour sponsored venture capital corporation and each selling security holder of the employee ownership labour sponsored venture capital corporation in respect of sales of securities occurring after the date that the corporation becomes a reporting issuer."
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Mr Johnson: Explanatory note: The proposed amendments implement and support the proposed investor protection provisions.
Section 34.1 authorizes the minister to apply for a court order requiring compliance with the provisions of the act and regulations.
Section 34.2 permits the minister to issue a cease trading order on the recommendation of the director of the OSC or if the registration of the LSVCC may be revoked for non-compliance with the act.
Section 34.3 authorizes the minister to designate the OSC or the director of the OSC to exercise the minister's powers to apply for the court order under section 34.1 or to issue a cease trading order under section 34.2.
Section 34.4 provides for an appeal from an order made by the director of the OSC.
Section 34.5 requires the provision of a disclosure document in respect of shares of employee ownership labour-sponsored venture capital corporations.
Section 34.6 provides legal remedies to an investor in respect of any misrepresentations made in a disclosure document relating to shares of employee ownership labour-sponsored venture capital corporations.
The Vice-Chair: We'll give Mr Johnson a second here to catch his breath after that. I guess we can then see if we're ready to have any debate on these several sections.
Interjections.
The Chair: Any comments or debate?
Mr Phillips: I didn't hear all that. Could we have that read again?
The Chair: I missed it. I was out of the room, Mr Phillips. I'm in the same situation. I guess the committee's ready for the vote. All in favour of the amendments? Against?
Motion agreed to.
Section 34, as amended, agreed to.
Section 35:
The Chair: Mr Kwinter moves that the bill be amended by adding the following section:
"Review
"35.1(1) The minister shall initiate a review of the operation of this act if the amount of tax revenue forgone by Ontario from the issuing of tax credit for investments in employee ownership labour sponsored venture capital corporations and labour sponsored investment fund corporations exceeds $250,000,000 in any year.
"Scope
"(2) The review shall examine,
"(a) whether the cost of the program exceeded the benefits derived;
"(b) the level of the investment credit; and
"(c) the government's monitoring mechanisms to prevent fraud and misuse of the program.
"Report
"(3) The report of the review may make recommendations to the minister as to any changes to this or any other act to improve compliance by eligible investors and to limit the cost of the program."
Mr Kwinter: If I can just elaborate, this is in keeping with some of the concerns expressed this morning that if this program should be found by investors who have no interest in the program per se but who use it as a vehicle for avoiding tax -- it would seem to me that the government has made a projection as to what the level of the forgoing of taxes will be in order for this program to be implemented and by calling for this review, if it is found that the program in fact has a larger amount of tax forgoance, there is a vehicle whereby someone can take a look at it and make adjustments or cancel the program and do whatever they have to do.
I think it's important that there be some provision to allow that to happen just in case we have to have a similar program to the scientific research, which turned into a real boondoggle and cost the taxpayers of Canada hundreds of millions of dollars without any benefits.
The Chair: Any comments or debate?
Mr David Christopherson (Hamilton Centre): The government understands the spirit of this proposed amendment. In fact, treasury board was recently established by this government and one of its major ongoing functions is to review the appropriateness and cost-effectiveness of all the government's programs including tax expenditure programs. For example, treasury board in the past year reviewed over 20 programs.
Therefore, while we agree with the spirit of the proposed amendment, it would be redundant to introduce a special provision in this one bill. It is, in this government's view, important to review all programs in the context of the government's priorities and fiscal capacity. We think treasury board is best positioned to undertake these reviews.
The Chair: Any further comments or debate? Mr Kwinter.
Mr Kwinter: Yes, I'd like to respond to that. The concern I have -- it's very much like the Provincial Auditor. The Provincial Auditor does his mandated audit work and then, in the last couple of years, has undertaken an additional responsibility of taking a look at some of the transfer agencies. The auditor goes in, and quite frankly I don't know how the selection is made, but he will go into a university, a hospital or some of the major transfer agencies and it may take him 10 or 15 years until he gets through all of them.
Notwithstanding that the treasury board is going to look at all programs, my concern is that it may get to this and it may not. It's like estimates: Some ministries never get to estimates because, for whatever reason, there's no real interest in pursuing it because it doesn't appear to be an urgent public interest. My feeling is that if this is provided for in the bill, then there will be that little red flag that says we must continue to monitor this particular program, given the possibility of abuse. That is really the reason for it.
I understand your position that we monitor these things on an ongoing basis. I am concerned that it may be 20 years until they get to this particular one. By that time the horse has been stolen, the barn door is open and you sort of know about it in retrospect and say, "Gee, it's too bad that happened." That is really the concern I have.
The Chair: Further comments or debate? Mr Christopherson.
Mr Christopherson: It's not that this is a bad idea. As I've noted, we do have a treasury board and it does review programs, even tax expenditure programs, on a regular basis. The idea of including specific programs in each spending program has merit, but it should be approached on a coordinated basis, not on an ad hoc, bill-by-bill basis.
I also remind the member that the kind of analysis being undertaken by the current treasury board, I suggest, is unlike anything that has happened in terms of its comprehensiveness, the areas it's covered and the checks and balances that have been built into those reviews so that it's not just a one-time shot, never to happen again for another couple of decades.
In summary, I would again acknowledge that the principle is not one we have a great deal of difficulty with, it's the idea of putting it into each bill, one by one, on such an ad hoc basis. We really and sincerely believe that the coordinated approach treasury board can bring to these kinds of reviews is the best one for the government.
The Chair: Further comments? Mr Kwinter.
Mr Kwinter: Obviously, I don't want to drag this on for ever, but I just want to make an additional comment. I don't think you can categorize this particular type of bill with the normal bills, that every single bill -- we can't have a specific provision in it for review. We have to have uniformity; we have to have some coordinated effort.
I suggest in all humbleness and candour that this is not an ordinary kind of a bill. This bill is designed to do a specific thing: to encourage investment. In return for that investment, the province is prepared to forgo taxation. It is prepared to give the participants tax breaks. Those tax breaks are an inducement to get people to invest. Because of the very specific nature of this bill, it isn't just like any other bill, it's relatively unique. It's a relatively unique concept where investors who invest their money in these vehicles will get tax benefits.
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My concern, spelled out in our amendment, is the cost of the program exceeding the benefits. Are we as taxpayers getting full value for forgoing potentially $250 million? Is it doing what it's supposed to do? If it isn't -- and surely I don't have to impress upon anybody in this room that the Treasurer could sorely use that $250 million in many other programs. Because of the very specific intent and the very specific nature of this bill, I think it's incumbent upon us to monitor it far more closely than we would normal bills or normal activities or normal agencies or normal ministries. This is a specific initiative to do a specific thing. Everybody acknowledges -- and Mr Evans acknowledged earlier today that the reason they didn't want to expand the scope of the participation is because they want to monitor it very closely in case it is being abused. All I'm saying is let's put that in the bill to make sure that happens. I really can't say any more about it.
The Chair: Any further comments?
Mr Christopherson: No, thank you, Mr Chair.
The Chair: Okay, I guess the committee's ready for the vote. All those in favour of the amendment, section 35.1? All those against?
Motion negatived.
The Chair: The next one's a government motion, section 35.1.
Mr Johnson moves that the bill be amended by adding the following sections:
"No action against commission, etc.
"35.1(1) No action or other proceeding for damages shall be instituted against the commission, the director, any member, employee or agent of the commission or any person delegated to carry out any of the minister's duties or powers under this act for any act done in good faith in the execution or intended execution of his or her duty or for any alleged neglect or default in the execution in good faith of his or her duty.
"Liability of crown
"(2) Subsection (1) does not by reason of subsections 5(2) and (4) of the Proceedings Against the Crown Act relieve the crown of liability in respect of a tort committed by a person mentioned in subsection (1) to which it would otherwise by subject, and the crown is liable under the act for any such tort in a like manner as if subsection (1) had not been enacted.
"Immunity re compliance
"35.2 No person has any right or remedy and no proceeding lies or shall be brought against another person for an act or omission of such other person done or omitted in compliance with this act, the regulations or a direction, decision, order, ruling or other requirement made or given under this act or the regulations."
Mr Christopherson: Explanatory note: Section 35.1 extends the immunity provisions already in the bill to the OSC, the director of the OSC and other persons designated by the minister to perform regulatory functions under the bill. Under section 35.2, no person can be held liable for complying with the act or directions, decisions, order etc, given under the act. Sections 35.1 and 35.2 parallel the existing immunity provisions in the Securities Act.
The Chair: Any comments or debate? All those in favour of the amendment? Those against?
Motion agreed to.
Section 35, as amended, agreed to.
Section 36 agreed to.
Section 37:
The Chair: Mr Johnson moves that section 37 of the bill be amended by adding the following subsection:
"(2.1) The Lieutenant Governor in Council, on the recommendation of the Minister of Financial Institutions, may make regulations governing specified employee ownership corporations and the trading of securities of specified employee ownership corporations and, without limiting the generality of the foregoing,
"(a) designating any of the commission, the director or other persons as a person or persons responsible for the administration and enforcement of regulations made under this subsection; prescribing and governing the duties and responsibilities of them or any of them in respect of such designation; and prescribing and governing the discretion that the commission shall exercise in carrying out its duties and responsibilities upon being so designated;
"(b) prescribing rules and procedures that shall govern the preparation, filing, receipt, distribution and delivery of disclosure documents in respect of such corporations;
"(c) prescribing the form and content of disclosure documents or of any type or types of disclosure documents in respect of such corporations;
"(d) prescribing and governing the ongoing disclosure and proxy obligations of such corporations and rules and procedures that shall govern such corporations in relation to such obligations;
"(e) governing or prohibiting transfers of or trading in shares or any class of shares of such corporations;
"(f) governing the timing of distributions of shares or any class of shares of such corporations;
"(g) prohibiting representations or solicitations or both in respect of shares or any class of shares of such corporations;
"(h) governing takeover bids, issuer bids and insider reporting in respect of shares of any class of shares of such corporations;
"(i) prescribing the nature of the advice to be given and the qualifications that must be held by independent advisers who provide advice to employees in respect of proposed applications for registration under this act;
"(j) exempting or permitting the commission or the director to exempt any person or class of persons, or any class of shares, in whole or in part, with or without conditions, from this act, the Business Corporations Act, the Securities Act or a regulation made under any of them, in respect of such corporations, if the Minister of Revenue determines that the person, class of persons or class of shares complies with the intent of this act;
"(k) varying or permitting the commission or the director to vary the application of this act in respect of any person or class of persons, or class of shares, if the Minister of Revenue determines that the person, class of persons or class of shares complies with the intent of this act."
Mr Johnson: Explanatory note: The amendment will authorize the making of regulations to implement the investor protection provisions applicable to employee ownership labour-sponsored venture capital corporations which will apply instead of the Securities Act.
The Chair: Comments or debate? All those in favour of the amendments? All those against?
Motion agreed to.
Section 37, as amended, agreed to.
Sections 38 to 41, inclusive, agreed to.
Section 42:
The Chair: We'll go on to clause 42(1)(a).
Mr Johnson moves that clause 42(1)(a) of the bill be struck out and the following substituted:
"(a) whether a proposal submitted under this act is equitable and reasonably commercially viable over the period covered by the proposal."
Mr Johnson: Explanatory note: The amendment clarifies that the Employee Ownership Advisory Board will review proposals submitted by employee ownership labour-sponsored venture capital corporations to determine if the proposals are equitable and reasonably commercially viable over the contemplated time periods.
The Chair: Comments or questions? All those in favour of the amendment? Against?
Motion agreed to.
Section 42, as amended, agreed to.
Sections 43 to 46, inclusive, agreed to.
Section 47:
The Chair: Mr Johnson moves that subclause 8(8.1)(b)(ii) of the Income Tax Act, set out in subsection 47(3) of the bill, be struck out and the following substituted:
"(ii) $700, if the deduction is made in determining the amount of tax payable under this act for the 1991 taxation year, or $1,000 if the deduction is made in determining the amount of tax payable under this act for the 1992 or a subsequent taxation year."
Mr Johnson: Explanatory note: The amendment would implement the Treasurer's 1992 budget proposal to increase the annual tax credit for investments in labour-sponsored investment fund corporations from $700 to $1,000 for 1992 and subsequent taxation years.
The Chair: Comments or debate? All those in favour of the amendment? Against?
Motion agreed to.
Section 47, as amended, agreed to.
Section 48:
The Chair: Mr Johnson moves that section 48 of the bill be struck out and the following substituted:
"48. Section 143 of the Securities Act is amended by adding the following paragraph:
"38. Regulating labour sponsored investment fund corporations registered under part III of the Labour Sponsored Venture Capital Corporations Act, 1992, and the distribution and trading of the securities of such corporations and varying the application of the Act in respect of such corporations and, without limiting the generality of the foregoing,
"(a) prescribing proficiency requirements or additional proficiency requirements that shall apply in respect of registrants or any class of registrants in respect of such corporations;
"(b) prescribing or prohibiting the use of particular forms or types of offering documents for or in respect of the securities of such corporations;
"(c) prescribing disclosure requirements or additional disclosure requirements for or in respect of the securities of such corporations;
"(d) exempting such corporations from specified requirements or restrictions that ordinarily apply to or in respect of mutual funds;
"(e) prescribing insider reporting requirements for or in respect of such corporations."
Mr Johnson: Explanatory note: The current wording of section 48 of the bill is no longer required as the Securities Act will not apply to employee ownership labour-sponsored venture capital corporations. New proposed section 48 will amend section 143 of the Securities Act to authorize the making of regulations under the Securities Act to implement the proposed investor protection provisions under that act applicable to labour-sponsored investment fund corporations."
The Chair: Comments or debate? All those in favour of the amendment? Against?
Motion agreed to.
Section 48, as amended, agreed to.
Section 49:
The Chair: Mr Johnson moves that section 49 of the bill be amended by adding the following subsection:
"Application, Income Tax Act
"(2) The amendments to the Income Tax Act set out in section 47 apply in respect of 1991 and subsequent taxation years of individuals.
Mr Johnson: Explanatory note: The amendment ensures that for personal income tax purposes, 1991 is the first taxation year for which tax credits may be claimed for investments in labour-sponsored venture capital corporations even though the act is not deemed to have come into force until October 15, 1991.
The Chair: Comments or debate? All those in favour of the amendments? Those against?
Motion agreed to.
Section 49, as amended, agreed to.
Sections 50 and 51 agreed to.
Bill, as amended, ordered to be reported to the House.
Mr Owens: Mr Chairman, just before we adjourn for the day, I would like to, on behalf of the Minister of Financial Institutions, Brian Charlton, and myself as his parliamentary assistant, take the opportunity to thank the other staff from the ministries involved: Revenue, Treasury and of course our Ministry of Financial Institutions.
I would also like to give a special thank you to Julie-Luce Farrell who assisted me on my arrival on this committee. As you are aware, I was a late addition to the committee, and without her assistance the good work we've been able to accomplish here today would not have been possible. Thank you again.
Mr Sutherland: In terms of other business, there had been a request for the Treasurer to come before this committee to talk about the budget. That request has gone in. The Treasurer has indicated that he is willing to attend. We've not got any confirmation as to when his schedule will allow. Given the fact that we don't have anything else on the agenda right now, I believe efforts will be made to have the Treasurer try to attend next week, but I don't make any guarantees because the Treasurer this week is overseas, I believe in Europe, and with his being away for a week he may not be available to make it here for this committee next week. But efforts will be made to get the Treasurer here, if not next week then probably the week after.
The Chair: Thank you, Mr Sutherland. I would like as Chair to thank all the ministry staff for all the help they have given to all committee members on this bill. If it weren't for some of the information meetings that were carried on, I think we would have been stumbling a little bit more through this committee, and I have to say thank you.
Mr Johnson: I too want to thank all the Revenue staff who assisted me and other members of the committee with this particularly difficult legislation. Through all aspects of it, from its inception to all the amendments, your assistance was certainly very much appreciated, especially by myself; and I thank you for crossing all the t's and dotting all the i's.
The committee adjourned at 1715.