Industry & International Trade

Background

The Globe & Mail (2016) published an investigative report illustrating the means by which investors and speculators are purchasing agriculture land and removing those acres from production. In their research, they found that 60% of the purchases of agriculture properties the Lower Mainland during the period studied were by speculators.[I] The article described how the tax benefits designed for farmers, were instead, encouraging land speculation.

Metro Vancouver produced a White Paper in 2016[ii] outlining the challenges of protecting agricultural land in the region – despite the best intentions of municipal governments. Strikingly, in 2011, the Ministry of Agriculture found that only half of the 60,893 hectares in the ALR was actively farmed[iii]. The remaining half of the ALR in the Lower Mainland was not actively farmed including parcels that remain fallow. The remaining farmland under production generated 26% of BC’s gross annual farm receipts, on only 1.5% of the province’s agricultural land in 2016[iv]. In 2016, Farm Cash Receipts (FCR) for all of BC was $3 billion, down 2.5% from 2015. This 0.6% share of the provincial GDP was produced on less than 3% of provincial land.[v]

The Agricultural Land Reserve is valuable for its designated purpose and it does need to be protected for farm use. However, as demonstrated by Metro Vancouver’s White Paper and the Globe & Mail report, the measures originally designed to encourage farming, have become incentives for non-farmer owners to own land and live in the ALR. This situation we believe, although prominent in the Lower Mainland, may also make the ALR vulnerable to non-farm ownership and speculation across the province.

Tax breaks for ALR properties were originally developed to offset the strict land-use limitations that owners must abide by – such as not being able to sub-divide or develop the land into residential or industrial units. These restrictions when originally applied decreased the land value substantially when compared with land now encompassed by the Urban Containment Boundary in Metro Vancouver (Metro Vancouver 2040: Shaping our Future) for the Lower Mainland.

As described in Metro’s White Paper, there are four property taxes that could be reformed to ensure that tax policy meets the originally intent of the agricultural land protection measures.

1.  School Tax Exemption
All land in the ALR, regardless of classification, receives a 50% exemption on School taxes. The 50% exemption also includes other taxes in Metro Vancouver such as Translink, Hospitals, etc. An analysis completed by Metro Vancouver found that properties not used for farming accounted for 84% of the total amount of school tax exemptions for the region, despite accounting for only 59% of parcels. In particular, small properties (under 2 acres), not necessarily subject to ALR restrictions received school tax exemptions. Metro’s conclusion is that, “The school tax exemption is an inequitable property tax policy as the main beneficiaries of the policy are residential landowners in the ALR who are not farming.”[vi]

Metro Vancouver Recommendation 1 We report recommend that the residential classification be removed from the School Act (Section 30), and only land classified as farm receive the tax exemption benefit.

2.  Land Classification
Land classed as farm for assessment purposes, commonly referred to as ‘farm class,’ is defined by the type of primary agriculture and gross income for production on that land. The three farm sizes and the minimum gross farm receipts are:
·      Less than 2 acres – $10,000
·      2 to 10 acres – $2,500
·      Greater than 10 acres – $2,500 plus 5% of the actual value of the area in excess of 4 hectares

Owners can farm or lease portions of their land to farmers to meet the minimum requirements for farm class and qualify for a significant reduction in property tax, while paying residential tax rates on a substantially smaller portion of the property. However, these leases are sometimes as short as 1 year, which does not encourage investment in long term agricultural production or the necessary equipment and infrastructure to build a profitable business. As of 2016, 24% of the parcels in Metro Vancouver just meet the bare minimum income requirements for farm class.

Metro Vancouver Recommendation 2 The minimum threshold for farm class should be changed across all parcel sizes to $3,500, to accommodate for small, active hobby farms currently required to earn over $10,000 in gross receipts. In addition, there should be a two-tier system where farms that meet a higher threshold of gross farm receipts (i.e., $10,000) receive greater benefits, thereby encouraging the small farms to expand.

3.  Assessed Value of Agricultural Land
Properties with farm class (Class 9 properties) are assessed based on the quality of the soil: the better the soil, the higher the value. If not actively farmed, the land is assessed by the market value by its “highest and best use” in comparison with other rural properties, those with poorer soils or other non-farm usage, for example, within the ALR. The non-farmed properties are subsequently valued by the “market comparison” at a lower rate than a producing farm with good soil, which results in lower tax assessments, and therefore lower property taxes than comparable residential and commercial uses in urban areas. Subsequently, it is a strong financial incentive to locate non-farm activities on agricultural land.

Metro Vancouver Recommendation 3 We recommend reconsidering how non-farm activities located in the ALR are assessed. The purpose of changing the assessment method is to discourage non-farm land uses not part of a farm operation from locating on the cheaper farmland.

4.  Assessment of Farm Buildings
There are numerous acceptable uses for buildings on farms: packing houses, processing facilities, market buildings, and related uses. These are assessed as per their use for the farm operation as per definitions in the legislation used by BC Assessment staff. The challenge arises with a change of ownership, which may lead to a change of building function. Assessors may not be aware of changes in function and the assessments become “misaligned.”

Metro Vancouver Recommendation 4 We recommend that provincial agencies involved in the assessment process have adequate process and resources to ensure the correct assessment of buildings in the ALR.

Opportunity for Change

In the recent Budget 2018, the Province increased funding for the agrifood sector, supporting a variety of initiatives such as Grow BC, Feed BC, and Buy BC. Further, the provincial government has put into place an advisory committee of 9 members.[vii]The Discussion Paper: Revitalizing the Agricultural Land Reserve and the Agricultural Land Commission, outlines the committee’s objectives and the themes they anticipate reviewing. Of those ten themes, none specifically considers property tax reform, though several discuss residential and non-permitted activities.

The suggestions (which are by no means prescriptive in the discussion paper) indicate a priority on “clearer regulations and consistency in interpretation” – laudable, but may not be as effective as reforming property taxes.

One additional issue requires consideration – that is encouraging investment in farmland and the use of bare land trusts to avoid the foreign buyer tax. The Globe & Mail article investigating mega-mansions and speculators, found that property would be purchased by a numbered company, then a buyer would purchase shares and ownership was transferred without transfer taxes or foreign buyer tax levy – all the more attractive now that the foreign buyers tax has increased to 20% from 15% and applies more broadly across urban regions. Auditing and/or ensuring that bare land trust ownership is public information may catch those using the cheaper farmland as an investment rather than for agricultural production.

The Provincial Government has struck an Agriculture Advisory Committee to review the Agriculture Land Reserve.[viii]Portions of the Metro Vancouver recommendations are included in the government’s discussion paper for the review committee. Although there is opportunity to provide comment, there is need to ensure that tax reform is focused and effective. Further, given the impacts on farms and the ability of farmers to access quality farm land, the government needs to
·    Reconsider how non-farm activities are assessed on agriculture land;
·    Ensure that provincial agencies involved in the assessment process have adequate process and resources to correctly assess buildings in the ALR; and

As previously mentioned, BC’s Farm Cash Receipts dropped 2.5% between 2015 and 2016. While there are numerous factors that could contribute to this, not farming over 50% of the Metro Vancouver’s ALT would be impactful. Those who are not using farmland for its intended purposes currently are doing so because it is easy and cheap to own land in the ALR for non-farm uses or land speculation. Encouraging production and discouraging undesirable land use in the ALR, can be done simply and effectively by reforming tax policy and using other policy tools to ensure farmers benefit and speculators don’t.

The Surrey Board of Trade recommends that the Provincial Government:
1.    Reform the school tax exemption to apply strictly to land classified as farm, and to remove residential classification from the School Act (Section 30);
2.    Change the minimum farm receipt threshold across all parcels, regardless of size, to $3,500; and create a tier system where farms that meet a higher threshold of gross farm receipts receive greater tax benefits, and
3.    Audit and/or make public the ownership of Bare Land Trust ownership of ALR properties.

[I] Globe and Mail. On BC’s farmland, mega-mansions and speculators reap the rewards of lucrative tax breaks, www.theglobeandmail.com/news/investigations/farmland-and-real-estate-in-british-columbia/article32923810/, November 18, 2016, updated November 12, 2017.
[ii] Encouraging Agricultural Production through Farm Property Tax Reform in Metro Vancouver, 2016 http://www.metrovancouver.org/services/regional-planning/agriculture/resources/Pages/default.aspx
[iii] The Ministry of Agriculture will be releasing updated figures shortly.
[iv] Agriculture in Metro Vancouver: Results from the 2016 Census of Agriculture http://www.metrovancouver.org/services/regional-planning/agriculture/Pages/default.aspx
[v] Sector Snapshot for 2016 https://www2.gov.bc.ca/gov/content/industry/agriculture-seafood/statistics/industry-and-sector-profiles
[vi] Encouraging Agricultural Production through Farm Property Tax Reform in Metro Vancouver, 2016, p.6. http://www.metrovancouver.org/services/regional-planning/agriculture/resources/Pages/default.aspx
[vii] Ministry of Agriculture, consultation https://engage.gov.bc.ca/agriculturallandreserve/
[viii] https://engage.gov.bc.ca/govtogetherbc/consultation/agricultural-land-reserve/

Background
For each product that is created, the manufacturer or producer purchases many items:  raw materials, machinery and tools, small and large or heavy equipment, the technology to produce the item, and more. A business invests in new machinery, equipment and technology to improve its productivity, which, in turn attracts further investment. This cycle of improvement and growth creates employment and supports the local and provincial economy.

However, BC’s Provincial Sales Tax, according to a Canadian Manufacturers and Exporters (CME October 2017) report,[I] comprises BC manufacturers competitiveness and is a major factor for the underinvestment in machinery, equipment and technology.

In BC, with some exceptions,[ii]the PST is imposed on machines, equipment, materials, and other inputs – on average 81% of these purchases are taxable compared to only 7% under the Goods & Services Tax (GST) (CME, p.3). This adds approximately 5.5% to the costs of new equipment.

According to the CME, BC is one of only three provinces that levy a PST. All other provinces have HST, except Alberta does not have a provincial sales tax and Quebec’s sales tax is a VAT. For VATs, the value added at each stage of production is what is taxed; meaning tax is only paid on the gross margin of each transaction “since sellers are able to deduct the previous paid tax if the buyer is not the end consumer” (CME, p.8). The HST exempts capital inputs. In BC, all but a few exceptions are taxed and cannot be rebated.

The BC Commission on Tax Competitiveness[iii] likewise finds PST to be inhibiting investment. As the Commission concluded, “Because of the PST, an investment in machinery and equipment in BC has to earn a rate of return that is 1.1 percentage points higher than in Alberta in order to provide an investor with the same after-tax rate of return” (BC Commission, p.3). According to the Commission, the PST on machinery and equipment is about $640 million in provincial revenue, but is a serious disincentive to grow a producer through continued investment in machinery and technology.

Until such a time as a fulsome conversion of the PST to a VAT, it would be in the best interests of the BC government to consider how the PST is inhibiting economic competitiveness and at minimum, develop a rebate for machinery, equipment and technology.

The Surrey Board of Trade recommends that the Provincial Government, until there is a VAT, exempt production machinery, equipment and technology from the Provincial Sales Tax.

[i]CME: The Impact of the Provincial Sales Tax (PST) on BC’s Business Competitiveness, October 2017 bc.cme-mec.ca/download.php?file=j9hgx5lx.pdf
[ii]https://www2.gov.bc.ca/assets/gov/taxes/sales-taxes/publications/pst-110-production-machinery-equipment-exemption.pdf
[iii]Commission on Tax Competitiveness Report, November 2016 https://engage.gov.bc.ca/govtogetherbc/impact/commission-on-tax-competitiveness-results/

are attracted to American stores by:

a) a significant difference in the price of gas, groceries, clothing and many consumer products;

b) a much larger product selection to choose from;

c) a relative parity of the currency.

When approached on the Canadian Chamber of Commerce advocacy position of 2012 to enforce limits on purchases, one local Conservative MP and a senior cabinet minister indicated they held a greater concern over potential backlash from those involved in cross border shopping in the trade-off between enforcing the laws and expediting border lineups.

The government, in its last budget, announced a trial of removing the tariffs on baby clothes and sporting goods (except bicycles).  Unfortunately, tariffs on other products will increase when 1,290 product classes from 72 countries lose their preferential tariff status, and it seems that the problem is getting worse. It is critical that the government do what it can to create an environment, which will allow Canadian suppliers and merchants to become more competitive with their American counterparts. Currently there appears to be little significant action being taken to stem the tide of shoppers heading to American stores.  In 2009, there were 21 million same-day trips to the US.  The latest figures for 2012 show the numbers have increased to 33 million, with Canadian spending totaling $12.6 billion.

In 2012, in keeping with the Beyond the Borders Accord between the United States and Canada, the government increased the dollar amounts of purchases allowable for persons returning to Canada. In light of this, Douglas Porter, Deputy Chief Economist with BMO said that the increased purchase allowances, combined with lagging American tourist figures would account for a $20 billion drain on the Canadian economy.
An information campaign (including government mail inserts, internet and website messaging, radio and television public service announcements) conducted by the Canadian Government is called for. There should be one message in all parts of the country, explaining how shopping locally benefits businesses, creates jobs and generates taxes and other economic means, which are necessary to build and maintain healthy communities.

The cost of the campaign could be recovered through increased economic activity resulting from increased local shopping. It’s certainly not going to eliminate cross border shopping, however it is critical that Canadians be made aware of the economic gains which will benefit them directly through even a small modification of their cross border shopping habits.

What the Surrey Board of Trade did: The Surrey Board of Trade created a resolution for the Canadian Chamber of Commerce to ask the Canadian Government to create and implement a multi-media campaign to educate Canadians on how dollars spent in their communities support their community, region, province and country.

The result Ongoing advocacy.

participating) countries and, where the process is both consultative and available for public review. While it is generally understood that FTAs offer a competitive advantage or at the very least a level economic playing field, Canada should not enter them uncritically. Entering into such agreements requires significant due diligence and a rigorous process that can and should include increased consultation with Canada’s business community.

Free trade agreements are meant to decrease or remove costly and time-consuming trade barriers in order to accelerate the trading of goods and services thereby generating more profits for those engaged in the agreement. In other words by opening up to new foreign markets, you allow for increases to sales and profits for domestic companies. It has been argued that this, in turn, creates a domestic middle class with higher wage jobs over the longer term. Developing countries on the other hand gain access to cheaper goods and services which provides for a wider market for Canada’s own domestically produced goods and services. The Canadian government has increased its focus on expanding Canada’s trade agenda. In the past number of years FTAs have been launched with key markets such as India, the European Union and the Trans-Pacific-Partnership. While Canadian businesses are generally in favour of market liberalization, some are concerned about the transparency and potential benefits of these FTAs.

Furthermore, there is growing concern that Canada’s international trade agenda lacks sufficient strategy and that time is being spent on securing agreements with jurisdictions that will bring only minimal gains to the Canadian economy.

The Surrey Board of Trade supports free trade and the following recommendations are designed to keep us focused on more strategic free trade agreements with specific countries such as the European Union and India.

They are also designed to improve FTA utilization through increased FTA information and to create better links between existing FTAs. We acknowledge that the primary purpose of any FTA is for the betterment of the Canadian economy and its peoples. However, FTAs should not be entered into solely for special interest and not for political bi-lateral relationships.

What the Surrey Board of Trade did: The Surrey Board of Trade developed a position paper on the variable aspects of the Free Trade Agreements
asking that the Federal Government work with the private sector, to improve the development of FTA’s by:

1. Undertaking continued/expanded consultation with business that will help to establish the goals and objectives of any Free Trade Agreement.
2. Creating a clearly designed and defined repository of tangible benefits that will accrue to Canada’s domestic suppliers of goods and services with an overall benefit to Canada’s economy (new jobs, export capacity, lower cost imported inputs, stability and transparency of trade environments).
3. Seeking to improve the availability of access and information on current Canadian FTAs. This includes those already in force, which ones are predicted to come on line in the future, and the rationale that was or will be used for the development of these FTAs.
4. Ensuring greater transparency in the process and the inclusion of a full cost-benefit analysis prior to drafting and conclusion of FTAs. These findings should be developed and shared in consultation with relevant stakeholders.

The result: Ongoing advocacy.

The Surrey Board of Trade will pilot a 12-month employer-focused program to assist small and medium-sized businesses to integrate immigrants into their labour pool. The project involves workshops, resources navigation, and immigrant human resources support for members, with a one-on-one, hands-on approach by a roving human resources specialist.

Other EIF projects that received funding include the creation of resources to assist employers in assessing foreign qualifications, a program that helps employers integrate skilled immigrants into the workplace and outreach campaigns to recruit and retain skilled new immigrants to a community and an industry.

shortages.

The Surrey Board of Trade was the only Board of Trade/Chamber of Commerce in the Lower Mainland to have received funding from the Employer Innovation Fund managed by the Immigrant Employment Council of BC and the Province of BC. This is funding for a 12-month program that we’ve established designed to help businesses address skills shortages/immigrant integration. Skills Shortages – as our Canadian Chamber of Commerce also indicates – is the number one economic impediment to Canada – and we need to focus now at the grassroots level help our businesses find the skills they need to make their products.

The Applied Science Technologists and Technicians of BC – also known as ASTTBC, formed in 1958. ASTTBC are technologists, technicians and technical specialists that achieve professional recognition through this association. Their members work in applied science technology fields such as architecture, bio-medical engineering, building, civil, electrical, electronics, environmental, fire protection, house inspection, information, mechanical, onsite wastewater and other related disciplines tied to the built and natural environment. These Technology Professionals design, construct, inspect, test, maintain and manage most of the world around us including buildings, computers, electrical power, all manner of equipment, roads, environment, and water and wastewater systems. They work in private enterprise, for consulting engineering and technology companies, in all levels of government, and as private consultants.

pioneering of innovative practices.  In 2009, the retail sector invested:

Retailers anticipated a continuation of slow demand growth over the course of 2012.  The Retail Council of Canada reports that a substantial majority of their members (61%) expected sales growth in 2012 between one and five per cent.  Most expected growth in the two to three per cent range.  Inflation was anticipated to be in the two per cent range making the growth in actual volume of sales minimal.

Parity with the US currency has encouraged consumers to compare prices across the border and to shop in the US.  The number of Canadian’s crossing the border to shop in the US continues to increase.  Jurisdictions across the United States have benefited from Canadian shoppers heading south of the border.  Same-day car trips are a commonly used metric to gauge cross-border shopping. In December, Canadians took 2.5 million same-day car trips to the US, according to Statistics Canada, a 4.2 per cent increase from November and the highest monthly total since May 1998.  By comparison, 599,000 Americans made same-day trips into Canada in December, according to Statistics Canada.

Canadian shoppers are being credited for helping boost tax revenues in popular cross-border destinations across the United States.  In Erie County, New York sales tax revenues reached $400 million in 2011 for the first time.  New York State has a sales tax of four per cent, and Erie County levies an additional tax of 4.75 per cent on all retail purchases, which Canadian shoppers are also required to pay.

Two other large cross-border shopping destinations are Bellingham, Washington which is a popular area for cross-border shoppers coming from Vancouver and Grand Forks, North Dakota which draws shoppers from Winnipeg.

Canadian shoppers cross into the United States in large part because of price discrepancies.  This was acknowledged by the Government of Canada when at the request of Minister Flaherty, the Senate Committee on National Finance commenced a study into the reasons for price discrepancies between Canada and the United States.

Comparison of Pricing: Some examples of every-day consumer items are shown below with their average cost in Canada and the United States.

In Canada, often it is retailers who are blamed for charging higher prices than their American counterparts.  Many multinational vendors and suppliers who sell to Canadian retailers do so by way of contracts negotiated specifically for the Canadian market.  Retailers who have stores in both the U.S. and Canada have indicated they are charged anywhere between 10% and 50% more for identical products by some suppliers.  Making it impossible for them to compete.  On most items imported to Canada, retailers pay significantly more by way of import taxes to bring goods to market.

Duty Remission on Imported Consumer Goods

As recently as this year, the Federal Government has taken steps to eliminate the duties on manufacturing inputs.  They have stopped short of reducing or eliminating duties on finished good entering into Canada.  Retailers cannot compete when they have to pay considerably greater import duties than their American counterparts for products imported from around the world.

Duty relief on certain or most finished goods would not be detrimental to Canadian production as the proposed elimination of duty on finished goods would only relate to those goods that are not available or are in short supply from domestic manufacturers.

In the 2012 Federal Budget, the government moved to increase personal exemption limits.  This will increase pressure on retailers across Canada to match US prices.  Something they cannot do under the current tariff structure.

Supply Management

There is a large difference in pricing between Canada and the United States for Canada’s supply managed products.  The complex system of marketing boards in Canada was put in place at a time when our understanding of markets was much less sophisticated.  Price fixing and quotas produce negative consequences.  Production quotas have left Canadian industry with a large number of smaller high-cost producers.  In order to control prices, marketing boards restrict imports.  In retaliation, foreign governments often restrict exports from Canada.  Abandoning these failed methods through an equitable transition program is the best way to ensure a vibrant and sustainable farm economy.

What the Surrey Board of Trade did Submitted a resolution to Federal Government receiving significant media exposure on this issue:

That The Government of Canada:

1. Call on suppliers to explain pricing practices which result in an over inflation of prices for Canadians.
2. Reduce import duties on finished goods that retailers must source outside Canada because they are unavailable from domestic productions.  The Government must expedite its review of the tariff system in Canada in order to minimize the impact of the June 1st, 2012 limit changes.
3. Thoroughly review of Canada’s supply management system and its down-stream impacts with measures put in place to protect retailers should the government choose not to change the existing system.  Exempting or limiting supply managed products from personal exemption limits at the border and more strict enforcement of those limits at the border.

The result: Ongoing advocacy

They may take remedial training to meet our standards.

What the Surrey Board of Trade did: We met with the Federal Ministers of Immigration.

The result: Some improvement but more needs to be done. Ongoing observation and advocacy.

and the Surrey Board of Trade can become involved. Foreign students are an important part of our economy. Other items to be considered are: marketing in foreign markets, and Canadian credibility. We continue to lobby for an upgrade to the current VISA system.

What the Surrey Board of Trade did: Working towards a federal resolution which argues that the Federal Government should give more power to Provincial Governments and then in turn to educational institutions when participating in educational fairs to give international students VISA’s – similar to the Australian educational model.

The result: Ongoing observation and advocacy.