Tax Court records are at odds with terms of confidential federal loans to corporations dubbed “contribution agreements,” Blacklock’s Reporter revealed..A federal judge ruled terms in one case were so generous — about a third the cost of a commercial loan — it amounted to an outright subsidy by taxpayers..“The court concludes the agreement does not constitute an ‘ordinary commercial agreement,’” wrote Justice Sylvain Ouimet..Terms of repayment were so generous they were “significantly lower than the market rate of return for a comparable loan.”.CAE Inc. of Montréal, formerly Canadian Aviation Electronics, divulged terms of a $250 million “contribution agreement” it received from the Department of Industry in a dispute with tax auditors..CAE received the unsecured loan in 2007 for work on flight simulators..CAE was granted a five-year holiday from repayments, then required to repay the sum over 15 years with costs offset by federal tax credits for scientific research. CAE calculated the effective rate of interest was 2.75% a year. The Department of Industry put it at 2.5 %..The court was told a similar quarter-billion loan on commercial terms “should have been higher than 7.15%” over 20 years..“The contribution of the lender under the agreement had been obtained at an interest rate lower than the interest rate in force in the market,” wrote Ouimet..One Department of Industry manager testified the loan was an “investment” by taxpayers..“This is not decisive,” wrote Justice Ouimet. “A ‘contribution’ to research and development can take many different forms, just like an investment in a business.”.Ouimet described the loan as “government assistance” under the Income Tax Act..The Department of Industry in pre-pandemic years budgeted $5.5 billion annually in corporate aid. Cabinet denied repeated requests to disclose terms of taxpayers’ loans..“What we do provide to all Canadians on a regular basis is we publish the total amount of investment in companies on an aggregate basis,” John Knubley, then-deputy minister of industry, said in 2018 testimony at the Commons industry committee. “The issue here is there’s confidentiality with respect to individual firms.”.The Commons in 2018 rejected a private Conservative bill C-396 An Act To Amend The Department Of Industry Act that would have required quarterly reporting of all loans, grants and guarantees including terms of repayment..“This is not corporate welfare or subsidies to big business,” Attorney General David Lametti said in debate on the bill. “This is smart investment in Canada’s businesses.”.Disclosure “could potentially be used by a competitor,” said Lametti. “There are matters of privacy and security.”.“My God, it’s the repayment of a loan,” replied then-MP Maxime Bernier (Beauce, Que.), sponsor of Bill C-396..“I do not think that is part of a corporation’s trade secrets,” he said..“I am very disappointed we do not want to give more transparency and let big corporations decide whether or not taxpayers should have information on loan repayments. It’s too bad.”
