The Canadian Cooperatives Act needs to be brought in line with more progressive provincial co-op acts to open up national investment opportunities.
Canada’s recovery from what is anticipated to be the deepest global recession since the Second World War is at the forefront of public policy discussion and decision-makers’ minds. As the federal government embarks on an important path to figuring out the best way to support a post-pandemic economy and “building back better,” it must look closely at how the co-operative model can contribute to an inclusive, prosperous and sustainable future. There is no better sector to meet Canada’s needs in innovation, diversity, youth, climate change, standard of living and rural and Indigenous economic development.
Co-operatives are one of the most exciting and powerful vehicles through which societies can contribute to economic recovery in a post-pandemic world. In a recent study by Abacus Data, nearly half of Canadians said the country would be better off if more co-operatives were in operation.
This is because the co-operative sector is based on a simple model: a need is identified, and a given community comes together to create a solution leading to increased opportunities, innovation and growth. However, there are obstacles that are preventing Canadian co-operatives from realizing their potential as drivers of economic growth.
A key recovery role
In Canada, co-operatives provide key services and products in agriculture, food and farms, tourism, art and culture, child care, affordable housing, retail goods, education, renewable energy, transportation, social services, natural resources, financial and insurance services, even funeral services.
Canadian co-operatives provide goods and services to more than 31.8 million member-owners (membership shareholders who have the right to vote and participate in the governance of the co-operative) while supporting over 666,146 direct and spinoff jobs across the country. With $503.2 billion in assets and $85.9 billion in business volume, co-ops contribute more than 3.4 percent annually to Canada’s GDP.
Often, co-operatives embody what “building back better” means – essentially, a different and effective way of doing business:
- Business decisions are guided by principles that keep the need for profitability balanced with the well-being of communities and needs of members.
- Member-owners are empowered to lead, invest and direct the business.
- Profits are distributed to members, keeping dollars circulating within the local economy and helping to revitalize, build and sustain healthy communities.
Co-operatives can play a valuable role in ensuring Canadians and businesses remain successful and help lead us toward a sustainable, green, and people-centred economic recovery – but only if the government prioritizes this innovative business model and quickly addresses the barriers to growth.
Opportunities for growth
While Canadian co-ops are global leaders, there are several areas in which the federal government can help unleash the potential to be even more competitive, including modernizing data about the sector, building awareness of co-ops, helping improve business development, management and skills, and improving access to federal programs and services.
One barrier to growth, for example, is the disparity between provincial co-operative acts and their federal counterpart. Many of the provincial co-operative acts are more progressive than the Canadian Cooperatives Act, which results in inequities among co-ops depending on their location. Incorporation under the federal act, as an alternative, mandates specific and dated requirements for the co-operative’s governance structure, ruling out that option for many co-operative businesses. The Canadian Cooperatives Act should be optimized to eliminate this disparity and support the ability of co-operatives to raise capital, scale up and create jobs nationally.
Additionally, because the Canada Cooperatives Act is based on the Canada Business Corporations Act – which fails to consider the structure of a co-operative business – member-owners and investor-shareholders (those who have purchased investment shares or “preferred shares” in a co-operative but who do not have voting rights or participate in governance) do not have access to the same tax benefits as those for other types of businesses.
This means both types of co-operative shareholders are limited in how they can invest and re-invest their shares, which significantly discourages investment in local co-operative initiatives and local economies, as well as discouraging investment in broader social interests by co-operatives both domestically and globally. Co-operative shareholders are more likely to be long-term investors, investing not only for financial return but to support community needs and community initiatives in housing, transportation and more. This is critical for economic recovery. Changes to the Income Tax Act and other tax policies need to be addressed quickly to maximize the co-op sector’s contribution to Canada’s post-pandemic economy.
For agricultural co-ops like Gay Lea Foods, COVID-19 has had a measurable impact, disrupting the sector and its focus on achieving targets of $85 billion in agri-food and seafood exports and $140 billion in domestic sales of agriculture and processed food products by 2025. That said, with the right tools, Canada’s 100,000 agribusiness co-operatives would be well placed to help keep Canada on track to meet its targets to export $75 billion of agricultural goods by 2025.
The continuation of the successful tax-deferred co-operative share program (due to expire in 2020) is critical, for example. This program sees that members of agricultural co-operatives are not taxed on patronage dividends received in the form of shares or equity in the co-op until the co-op buys the shares back or the member otherwise disposes of them. This enables co-operatives to keep more cash in their coffers and has been a crucial capitalization and resilience mechanism for Canadian agricultural co-operatives.
To those of us who live it every day, it is abundantly clear that the co-operative business model holds a key to ensuring our country remains competitive and prosperous in this challenging economic and public health environment. From trusted co-op stores that dot the Prairies to credit unions like Libro in London, Ont., which make banking accessible to everyone, to the leadership of the Arctic Co-operatives Limited in the North, the co-op movement in Atlantic Canada and the strength of agricultural co-operatives in Quebec, the co-operative model spans coast to coast to coast. It varies by region and sector, but the ability to adapt to and identify with regional traits to solve the local need is quintessentially Canadian and co-operative.
There have been many achievements and success within the sector, but there remain barriers that need to be addressed for our country to truly tap into the economic and innovation potential of Canadian co-operatives. We must make the co-operative business model a priority and engage in a shared co-operative-government agenda to support the overall vitality and local development of co-operative businesses in communities across Canada. Our post-pandemic recovery depends on it.