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Friday, June 12th, 2024 – Co-operatives and Mutuals Canada is pleased to present its submission for the 2025 Federal Budget.

Incentives to Capitalization and Supportive Tax Measures: 

Recommendation #1: Ratifying the Tax-Deferred Co-operative Share Program as a Permanent Fiscal Measure 

CMC recommends that the Tax-Deferred Co-operative Share Program (TDCS) program be made permanent, for the benefit of agricultural co-operatives throughout Canada, before it expires at the end of 2025. 

This Program was created in 2005 for a 10-year period. It has already been renewed twice due to the recognition of its importance: in 2015 for a period of five years, and again in the Fall of 2020, when it was extended to shares issued through the end of 2025. Its purpose is to help agricultural co-operatives meet their capitalization needs and was based on the December 2004 report of the House of Commons entitled “Study on Small Business Tax Measures: Canada’s Agricultural Co-operatives”. 

The Program allows agricultural co-operatives to pay a patronage dividend in the form of additional shares of the co-operative. For tax purposes, the inclusion of the dividend for the recipient is deferred to the year in which the shares are redeemed. Furthermore, the co-operative is not required to withhold tax when it pays the dividend in shares when conditions are met, such as a five-year hold on the ability to redeem the shares.  

The TDCS is a crucial capitalization and resilience mechanism for agricultural co-operatives, who form an integral part of Canada’s rural economy and supply Canada’s Food System. This small but impactful $3 to $5 million per year tax deferral program provides increased stability and helps the business model remain a viable option for agribusinesses, while allowing Canadian co-operatives to be stronger in the face of international competitors and economic challenges. 

The uncertainty around the renewal TDCS program beyond 2025 creates issues for agricultural co-operatives, who cannot wait until the last minute to consider it in their financial planning. For this reason, CMC is recommending, on their behalf, that this Program become a permanent fiscal measure. 

Recommendation #2: Establishing a Federal Co-operative Investment Plan 

CMC recommends that a Federal Co-operative Investment Plan be established to support the capitalization of qualifying co-operatives and federations of co-operatives. This Program is needed as co-operatives do not have the same framework or opportunities as companies making public offerings.  

The Program could grant a tax incentive for acquiring preferred shares from a qualifying co-operative or federation of co-operatives at the federal level.  

CMC would like to see the Government of Canada commit to exploring the creation of a Federal Co-operative Investment Plan and take inspiration from the Co-operative Investment Plan in Quebec, which has been active since 1985.  

The potential of a Canada-wide Co-operative Investment Program was explored in March 2009 report funded by Agriculture and Agri-Food Canada, before the responsibility for the co-operative sector moved to ISED.   

Recommendation #3: Ensuring Co-operative Entrepreneurs and All Canadian-Controlled Private Corporations Can Access the Small Business Deduction (SBD) 

CMC recommends that the Government of Canada ensure that entrepreneurs and businesses are not penalized when claiming the Small Business Deduction (SBD) simply because they are members of a co-operative operating in sectors other than agriculture and fisheries.  

In 2016, with the passage of Bill C-29, the federal government brought in measures aimed at preventing multiplication of benefits derived from the SBD. An unintended consequence was that the provisions penalized co-operatives and Canadian-controlled private corporations (CCPCs) that are members of co-operatives or whose shareholders are members of co-operatives, as they are now deemed to be a related party. Although co-operatives and their members were not specifically targeted by these measures, they were affected and continue to operate with these financial penalties. 

The amendments that were adopted in 2017 and 2019 were welcomed, but only resolved the issue for those in the farming and fishing sectors. However, this was not the case for those operating in other industries.    

Building on the prior amendments noted above, along with work by the Joint Committee on Taxation of the Canadian Bar Association and the Chartered Professional Accountants of Canada, CMC is advocating for further amendments to under Section 125 of the Income Tax Act, to address the concerns related to the statutory language that is at the root cause of the eligibility issue.    

Recommendation #4: Considering Indivisible Reserves as Non-Profit Capital for Taxation Purposes 

CMC recommends that the Government of Canada consider Indivisible Reserves as non-profit capital for taxation purposes, as it cannot be divided amongst members of a co-operative. Instead, at the co-operative’s dissolution or sale, they are allocated to another co-operative entity. It is permanent co-operative capital treated as a public good similar to all reserves in non-profit organizations (including non-profit co-operatives), whose members have no private claim to it.  

Indivisible reserves can be mandatory or adopted by irrevocable choice. They are derived from a portion of a co-operative’s annual surpluses and contribute to capitalization, longevity, and development, while acting as a disincentive to demutualization. 

Many countries support co-operatives with indivisible reserves by removing the burden of corporate taxation on the proportion of their income allocated to the indivisible reserve. 

Enabling growth, collective entrepreneurship and innovation: 

Recommendation #5: Creating a Canadian Co-operative Capacity Building Program 

CMC recommends the creation of a capacity building program that would help co-operatives to either start up, scale up, gain skills and expertise, or prepare for next steps, ensuring they are ready to solve community challenges and meet needs across Canada. 

A tailor-made Canadian Co-operative Capacity Building Program (CCBP), equipped with $30 million in non-repayable federal funding over five years, would support the Canadian co-operative movement as a critical partner to advance economic growth initiatives in all regions.  

The SME Profile: Co-operatives in Canada, published in 2023 by ISED, confirms that for-profit co-operatives were, on average, more resilient, more innovative and more locally oriented than traditional SMEs. These favorable attributes are assets for the Canadian economy, but dedicated funding is required to enable the set-up, growth and enhanced capacity of co-operative enterprises.  

Recommendation #6: Re-establishing and Resourcing a Co-operatives Secretariat or Dedicated Centre

CMC recommends that the Government of Canada re-establish and resource a Co-operatives Secretariat, or a dedicated Co-operative Centre, under ISED. The previous Secretariat was disbanded in 2013, after successfully operating for 26 years. 

This entity would advise the Government on, and coordinate the implementation of, policies, strategies and solutions that involve co-operatives, and act as a knowledge hub between the many federal departments and agencies that they engage with. The Centre for Rural Economic Development at ISED is a perfect example of what a Co-operative Centre could be, and is the successor of the former Rural Secretariat, which was also disbanded in 2013.

CMC recommends that the entity coordinate a Government of Canada-wide approach that: 

  • Works with other federal departments and agencies to help ensure that the needs and realities of co-operatives and mutuals are considered early in the development of policies as well as ensure that co-operatives are eligible for new and existing programs and supports;
  • Provides co-operative stakeholders with information, tools, and advice about federal supports that may be available to them; and  
  • Consults and engages with co-operative enterprises and sector leaders, academia, industry groups and other community stakeholders to improve the way that the Government of Canada delivers programs and services to create a more enabling environment across the country. 

Recommendation #7: Promoting Business Conversions to Co-operatives  

CMC is asking that the Government of Canada encourage and enable Business Conversions to Co-operatives (BCCs), through awareness and financing, to help maintain local businesses and offer retirement-aged owners another option for their succession plans.   

BCCs are a tried-and-true solution for business succession around the world and in Canada, hundreds of conversions have successfully taken, like grocery stores, coffee shops, a shortline railway, funeral homes and much more. Despite this, this option is still not broadly known among small- and medium-sized enterprises (SMEs) owners, employees, unions, and policymakers in Canada. This is a lost opportunity for keeping potentially thousands of businesses alive, all while meeting local needs.  

The recent commitment to have Employee-Ownership Trusts related incentives harmonized to make them available for sellers who are part of a worker-co-op buyout, was most welcomed. However, other types of co-operatives in Canada (consumer, producer and multi-stakeholder) represent 70% of documented conversions.

The need to raise awareness for business conversion to co-operative scenarios, as well as supporting the transitions through financing programs and tailored business advisory services, remains a high priority. 

Other considerations 

CMC is pleased to note that the Government of Canada, and many of its agencies and partners, have expressed a growing interest in better understanding and supporting underserved business models, especially co-operative enterprises. The ongoing discussions with Business Development Bank of Canada, the commitment to have incentives for worker-co-operatives conversions harmonized with Employee Ownership Trusts, and recent funding announcements by Regional Development Agencies, are all positive reflections of this shift.  

It should be noted that in addition to advocating for the above recommendations, CMC is also documenting and exploring:  

  • Concerns around delays for issuing business numbers,
  • Access to the National Research Council of Canada’s Industrial Research Assistance Program, and;  
  • The limitations of section 136 (2)(d) of the income tax act on financing received from outside investors, at a time when the government is encouraging more impact investing through its Social Innovation and Social Finance Strategy.

We look forward to participating in further consultations and initiatives related to creating a more enabling environment and ensuring access to the Government of Canada’s business infrastructure programs and financing streams, as well those related to specific industries and the social economy. 

CMC appreciates the Government commitments to affordable housing – in particular, the newly launched Co-operative Housing Development Program which recognizes appreciates that co-operative housing has been a community-driven housing solution for decades and will build thousands of new homes that will offer security, affordability and promote inclusion. In addition, the Canada Rental Protection Fund needs to be designed to enable housing co-operatives and non-profits to buy market rental buildings to protect renters. We encourage the Government to continue to work with the Co-operative Housing Federation of Canada to implement these programs to grow the next generation of co-operative housing.  

About CMC

Co-operatives and Mutuals Canada (CMC) is the national member-driven association for Canadian co-operatives and mutuals. We represent all sizes and types of co-operatives and mutuals from all sectors. We unite, engage, and lead the co-operative and mutualist movement by building bridges, breaking barriers, and advancing its priorities nationally through government advocacy and public promotion, as well as internationally through the International Cooperative Alliance and the International Cooperative and Mutual Insurance Federation. 

About the 2025 UN International Year of Co-operatives (IYC2025) 

On 19 June 2024, the UN General Assembly adopted a resolution proclaiming 2025 as the International Year of Co-operatives. We look forward to discussion how the Government of Canada, through its upcoming Fall Economic Statement, Budget 2025, and other instances, can work with CMC and other sector stakeholders to display a commitment to the co-operative sector. 

For more information

If you would like more information, contact Daniel P. Brunette, Senior Director – External Affairs.