Industry Consultations on Issuing Licences to Companies, Cooperatives and Partnerships

PROCEEDINGS REPORT
NOVEMBER 17-18, 2008
HALIFAX, NOVA SCOTIA

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TABLE OF CONTENTS

1. Day One: Opening Remarks
2. Overview of the Agenda
3. Overview of Owner-Operator, Fleet Separation and PIIFCAF Policies
4. Basics of Companies
5. Presentation on Hypothetical Scenarios (Individual vs Company Structure)
6. Presentation of Risk and Benefit Analysis for Companies (Wholly-Owned and Two Fish Harvesters) in Relation to DFO Policies and Objectives
7. Panel Discussion with Atlantic Inshore Fish Harvesters on Companies
8. Basics of Cooperatives and Partnerships
9. Presentation of Hypothetical Scenarios (Cooperatives and Partnerships) – Julius Kiesekamp
10. Presentation of Risk and Benefit Analysis for More than Two Fish Harvesters (Company, Cooperative and Partnership)
11. Day Two: Opening Remarks
12. Plenary Discussion
13. Next Steps
14. Update from CRA - Saulnier decision and Impact on Income Tax Act
15. Closing Remarks
16. Annex A: List of Participants
17. Annex B: Opening Remarks
18. Annex C: Additional Documents

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Day 1 – Monday, November 17

1) Opening Remarks

Nadia Bouffard opened the meeting by welcoming the industry participants; thanking them for being present at the meeting to provide their input and then reviewed the objectives for meeting (the list of participants can be found under Annex A of this report).

She then alluded to the numerous discussions DFO has had over the years with regard to the subject of whether to issue fishing licences in the inshore sector of Atlantic Canada to companies and other types of business models such as cooperatives and partnerships:

• From the Atlantic Fisheries Policy Review (AFPR)
• To the John Hanlon process; and
• The announcement by former Minister Hearn in April 2007 on PIIFCAF and other measures

She mentioned the series of meetings focused on this subject, which took place in:

• Moncton, in December 2007, and then followed with;
• St. Johns in January 2008, and the Magdalen Islands in February 2008 (for those who could not make it to the Moncton meeting due to the snow storm);
• Halifax (meeting of experts) in January 2008; and
• Halifax in March 2008

Meeting participants were then provided with a summary of the concerns they have expressed over time with regard for the need for DFO to ensure that licence holders maintain control over any decisions that concern their fishing licenses; those that hold the licence and the fishing enterprise actually operate the business and the fishing vessel; and that measures be put in place to ensure that the inshore harvesting sector maintains an independence from the processing sector. She reminded them that in April 2007, DFO put in place measures with a view to eliminate trust agreements, and help restore and preserve the independence of the inshore fish harvesters, and that the meeting objectives did NOT include a review of these measures.

Nadia then provided meeting participants with an update on the Saulnier decision, which was rendered on October 24th, as follows:

• It confirmed that the Minister of Fisheries and Oceans continues to hold her absolute discretionary authority to issue fishing licenses under the Fisheries Act and that the licence holder enjoys some interests that flow from holding the licence.
• For the purpose of the 2 pieces of legislation before it, these interests that flow from holding the licence can be considered as property.
• As a result, the Court determined that the trustee and receivers – under these 2 pieces of legislation - held the fishing licences with the same advantages and conditions than the original license holder.
• DFO lawyers are currently reviewing the decision to determine the full impact of the decision – in particular as it may relate to DFO’s policies and programs.

Nadia then went over the meeting agenda and objectives to inform and then seek views of license holders on whether DFO policies should be revised to allow for the issuance of fishing licenses to companies, cooperatives and partnerships in the inshore sector of Atlantic Canada.

Nadia concluded her opening remarks by stating her commitment to meeting participants that she will reflect and present their views to the Minister when options are proposed to her on this matter and by informing them that she values what everyone will bring to the table for this meeting.

A full copy of these opening remarks can be found under Annex B of this report.

2) Overview of the Agenda

Karen Henley, meeting facilitator, provided an overview of the agenda for the next two days.

3) Overview of Owner-Operator, Fleet Separation and PIIFCAF Policies

Annette Rumbolt, Staff Officer, Licensing, DFO, Newfoundland & Labrador, Region, provided an overview of the Owner-Operator, Fleet Separation and PIIFCAF policies.

No questions were asked following the presentation.

4) Basics of Companies

Gina Sinclair, A/Director, Fisheries Renewal, DFO, presented an overview deck on the basics of companies, prepared by Michael Bartlett of the Department of Justice, Canada.

No questions were asked following the presentation.

5) Presentation on Hypothetical Scenarios (Individual vs Company Structure)

Julius Kiesekamp, CA, TEP, Price Waterhouse Coopers (Halifax Office) presented a deck on hypothetical scenarios involving tax and succession planning for individuals and company structures).

The following comments and questions were raised:

Comment

There is no advantage to losing money in your fishing enterprise to go work in Fort McMurray. This is one of the advantages that are always missed. While you have a debt load, the principal payment is not tax deductible but the interest is. You have more money in a corporate structure to make payments on your principal.

Questions and Answers

Question 1 – What is the advantage of having the licence part of the company instead of having your licence aside?

Answer 1: It is simpler to keep all assets in the company. If separated, it may be not as easy to do dividend sharing because the fish harvester would have to take a certain amount of income because he holds the licence. Licences tend to grow in value. If they are held in companies, it is easier to share the growth in value with family and potentially multiply use of capital gains exemption by sharing capital gains with family members. It also would appear to make sense from a marketability perspective, as it would likely be easier to sell a fishing business if all of the assets were held in a company as opposed to some being held in the company and some by the fish harvester.

Question 2 – One of the reasons we are looking at this is because of a CRA decision that it may not be legal to do this. Is there a disadvantage to transfer beneficial interest of a licence to the company?

Answer 2: CRA indicated a few years ago that it may not be legal due to DFO legislation that requires inshore fishing licenses in Atlantic Canada to be held by individuals. The key advantage of being able to transfer the beneficial ownership interest in a fishing license to a company is that it permits fish harvesters to conduct their business affairs and their tax planning like most other small business owners in Canada. There are potential advantages available from operating a fishing business through a corporation, including the ability to split income with family members, potential multiple access to the capital gains exemption and the ability to take advantage of the very low corporate tax rates on the first $400,000 of business income. I do not see any disadvantages to transferring the beneficial ownership of a license to a company.

Question 3 – Is there a disadvantage or advantage to have your licence in your own name to growing your business?

Answer 3 – Potentially a disadvantage to owning the license personally vs corporately as a corporation gives fish harvesters access to lower income tax rates than the rates they pay as individual business owners on their income. If the license is in a corporation, more income will be earned in the corporation where it will be subject to the lower corporate income tax rates. The lower corporate tax rates can result in more after-tax cash being available to grow the business and repay debt. The comment was made that banks may be more inclined to lend money to corporations than individuals.

Question 4 - What benefit would be for a company to transfer assets as opposed to an individual. How would the individual be affected?

Answer 4: The individual is out of the picture in a situation where a company holds the license and other fishing assets. If the company owns the assets, the income arising from the sale of the assets is taxed in the company. The individual in such a situation is affected in that the value of their shares in the company would be affected by the sale of the assets by the company. Where a company owns the fishing assets, the individual is only directly affected by a sale of the fishing business if he/she sells the shares of the company, as opposed to the company selling the assets of the business. The gain arising from the sale of a license by a company would be subject to tax at the low corporate income tax rates and normally, only 50% of the gain is taxed. A license sold by an individual would likely be eligible for the capital gains exemption. However, in most cases it would appear to be more beneficial to sell the license and other fishing assets by having them owned by a corporation and selling the shares of the company, as the shares can qualify for the capital gains exemption and ownership of a company can often be structured so that the capital gain arising from the sale of the shares can be shared with family members.

6) Presentation of Risk and Benefit Analysis for Companies (Wholly-Owned and Two Fish Harvesters) in Relation to DFO Policies and Objectives

Nancy MacNeil, Regional Manager-Licensing & Transition, DFO, Maritimes Region, presented a risk and benefit analysis (overview deck) on the issuance of licences to companies (wholly-owned and two fish harvesters) in relation to DFO policies and objectives.

The following comments and questions were raised:

Questions and Answers

Question 1 – Suppose the licence would be issued to ABC Company, in the issue of 2 fish harvesters who would be on the licence?

Answer 1: The license would be held by ABC Company and both fish harvesters would be identified as shareholders.

Question 2 – Could this be looked into so that a competitive and ITQ can buy each others licences?

Answer 2: This is a discussion that needs to be taken at the advisory table in the context of flexible measures to allow for restructuring and self-adjustment. Not a question for here today.

Question 3 – What will the Minister do if there are administrative measures where there are verifications and how do we know that they will be more efficient than what was done in the past? The Minister was aware that there were controlling agreements out there and took a long time to address them.

Answer 3: In 2007, the Minister did take measures to protect the Owner-Operator policy through PIIFCAF. Ten years ago, we did not have the technology to support what we outlined today. We are asking to give us verification to start with and we would need to enter into arrangements with other government departments to obtain the information that was not available to us ten years ago. PIIFCAF proves that we are prepared to support the Owner-Operator and Fleet Separation policies.

Question 4 – I have great fear there is not going to be enough enforcement. We need enforcement that will have teeth. I need assurance that CRA audits will be a mechanism that will police and enforce legal certification. How much assurance can we get from a legal certification? I do not have a comfort level at this point.

Answer 4: Let us not lose sight of the fact that what we are proposing to do is transposing the current eligibility into a company structure. The shareholders would hold decision in the company. There are three options for control mechanisms: legal certification, our data management tracking system – any transfers would be verified (the minister still has authority over transfers), and audits. We have not concluded arrangements with Audit Canada and CRA because we do not know what options will be picked if any.

Question 5 – There cannot be comfort level whatsoever. Loopholes will be found. With regard to a company that has 2 Owners-Operators, if 2 brothers want to form a company and both have a licence, can a company have 2 lobster licences?

Answer 5: We are going to open the floor tomorrow to what the industry thinks about the concept of two Owners-Operators. As for holding 2 same species licenses, this will depend on measures adopted at the fleet level for restructuring and self-adjustments.

Question 6 – Will DFO have a policy on who owns the company?

Answer 6: DFO could have a policy on who owns voting shares or controls the company in order to protect DFO’s policies on Owner-Operator and Fleet Separation.

Comment: I could have a processor as a preferred shares owner if they are non-voting and still have strong influence over the company decision. There could be a lot of loopholes found.

Question 7 – Preferred shares could have voting rights in certain circumstances, so how would you protect PIIFCAF and all other policies?

Answer 7: You could have to submit legal documentation. DFO cannot tell you how you structure your company, but we could ask you to provide a legal description.

Question 8 – Every region has a different policy. When I get too old to go fishing, I need some sort of control over my son when I hand over my enterprise because it is my retirement. Are we looking at who is going to operate?

Answer 8: We did not look at this as having more constraints than the current Substitute Operator Policy.

7. Panel Discussion with Atlantic Inshore Fish Harvesters on Companies

Panel members were asked to express their views on the following:

What are their views on fish harvesters having the choice to have their licences issued to their company entities, in the context of the following current and future challenges in the inshore fishing industry:

• Intergenerational transfers/Succession planning
• Access to Capital - Challenges facing industry
• Prosperity and viability

Panel members (in order of presenters) were as follows: Earle McCurdy, Fish Food and Allied Workers (FFAW-CAW); Mr. Hasse Lindblad, Maritime Fishermen's Union (MFU); Daniel Landry, Association des pêcheurs professionnels membres d'équipages (APPME); Doug Fraser, Prince Edward Island Fishermen's Association (PEIFA); O’Neil Cloutier, Alliance des pêcheurs professionnels du Québec (APPQ) and Gordon MacDonald, LFA 30 CFA 23.

Report - Panel Leader 1 - Earle McCurdy

• Important that things be consistent with DFO policies. Fears that the proposed options may jeopardize the policies.
• Strongly supports the Owner-Operator and Fleet Separation policies and feels that these policies must be enshrined in regulations.
• Believes that a lot of the problems with what we have now are related to ITQs.
• The Owner-Operator and Fleet Separation policies were implemented in the late 1970s. In 1994, the Fisheries Council of Canada came up with a so-called “vision statement” to deregulate the fishery. Round table in 1995 fought back the challenge. Fishers fought hard to keep the Owner-Operator and Fleet Separation policies. The PIIFCAF exercise was set up at the time. FFAW conducted 2 surveys which identified the protection of the Owner-Operator policy and the PIIFCAF policy (protect policies, benefits go to fish harvesters and better tax advantage).
• How do we improve the tax regimes? The wholly-owned corporation would offer tax benefits without jeopardizing core enterprises. Believes that beyond that, it would be a problem for DFO policies.
• Areas of concern identified were the protection of the Owner-Operator and Fleet Separation policies and benefits of rationalization (concerns about rent extraction).
• In the event of something more complex than wholly-owned corporations, does not believe that DFO can ensure compliance with DFO policies.

Report – Panel Leader 2 - Hasse Lindblad

• Strong support for the Owner-Operator policy.
• Dangerous part of a trust agreement is that people other than the license holder have so much control that they bring the prices down. Nova Scotia is seeing two prices, one for the Owner-Operator and one for those with trust agreements.
• People got into a trust agreement to become viable. Does not believe that DFO can tell people that they cannot have them.
• Strongly believes that something has to be done about industry viability.

Report – Panel Leader 3 - Daniel Landry

• Strong support for the protection of the Owner-Operator and Fleet Separation policies. Is hopeful that each option proposed protects these policies.
• Supports the initiative proposed by DFO. Believes that certain fleets could benefit from proposed options, while others may not.
• There is no succession planning as fleets are not viable and there is a lack of interest from the younger generation to become fish harvesters. Up until recently, his fleets have not been able to obtain a loan by using a licence as security. This is an issue particularly for crew members wanting to enter the fishery, with little capital to invest.
• As fleets are not viable, we need to find solutions other than Controlling Agreements. We need new mechanisms geared toward the future, such as being able to hold a company/fishing licence through co-ownership.

Report – Panel Leader 4 - Doug Fraser

• Mentioned that most fish harvesters around the table are getting older and that it is time that the industry in the Gulf started looking at how to move forward within the next five to ten years.
• Supportive of company-related businesses as long as tax implications are considered and policy requirements are met.

Report – Panel Leader 5 - O’Neil Cloutier

• Strongly supports the Owner-Operator and Fleet Separation policies as a means to maintain the heritage and culture in communities. Fearful that allowing inshore licence holders to incorporate may lead to corporate concentration.
• Does not believe that incorporation will have an impact on intergenerational transfers as fleets are not yet viable.
• Feels that the Capital Gains Exemption is a more useful tool for his fleets.
• Does not feel that companies (incorporation) will help his fleets. Rather feels that loans will help them. An inshore fish harvester who does not make much money will not have the opportunity to have access to capital in a company.
• Agrees that some fleets could benefit from incorporation, but only a very small percentage (only 5% of inshore fish harvesters in the Québec and Gulf Region would benefit).

Report – Panel Leader 6 - Gordon MacDonald

• Fairly clear that there is a real support for the Owner-Operator and Fleet Separation policies, but the problem is that it has removed the possibility for fishers to operate like all other enterprise in Canada under a corporation.
• Easier to do intergenerational transfers with a company. Access to capital has been done through intergenerational transfers historically. That is when the trust agreement is between families.
• We have to find a mechanism to allow us to operate as a business without having a controlling interest.
• Have to find a way to have trust agreement without throwing the other business model away.

Following the panel discussion, the following questions were asked and the following comments were made:

Questions and Answers

Question 1 - Why are you opposed to trust agreements?

Answer 1 - The nature of the trust agreements in place at the time was really undermining the Owner-Operator and Fleet Separation policies (stated during the 19 meetings across Atlantic Canada). The measures that came under PIIFCAF did a good job of getting rid of these agreements.

Comments

• What I understood from your region and the West Coast was not closing the loopholes where the trust agreements were allowed. So people are saying keep the trust agreements but build a frame around it.
• We need to protect viability and the concentration of licences in one hand. We could have a box at the bottom of the licence where it would say that the licence is held in a company’s name and accompanied by a legal paper that says it still meets the Owner-Operator and Fleet Separation policies.
• Agree with protecting Owner-Operator and Fleet Separation policies. In Newfoundland, there is no access to capital and fish harvesters have to go to fish processors. The government has to have a large amount of money to have available to fish harvesters so they do not have to go see fish processors.

Nadia reminded participants that the options that were put on the table this morning, were not proposed by DFO but rather recommended by industry for review and that industry had asked that DFO provide the facts regarding these options and provide some analysis in relation to DFO policies. They were further reminded that they would have the opportunity to express their views on these options during the next day.

8. Basics of Cooperatives and Partnerships

Gina Sinclair, A/Director, Fisheries Renewal, DFO, presented an overview deck on the basics of cooperatives and partnerships, prepared by Michael Bartlett of the Department of Justice, Canada.

No questions were asked following the presentation.

9. Presentation of Hypothetical Scenarios (Cooperatives and Partnerships) – Julius Kiesekamp

Julius Kiesekamp, CA, TEP, Price Waterhouse Coopers (Halifax Office) presented a deck on hypothetical scenarios (cooperatives and partnerships).

The following comments and questions were raised:

Questions and Answers

Question 1: If you form a partnership, does it contravene the PIIFCAF rules?

Answer 1: If your partnership arrangement defers the control of your licence to someone else, then it is a controlling agreement.

Question 2: If you form a partnership or cooperative, how are you not in conflict with the controlling agreement rules? Who is in control?

Answer 2: The idea is that a partnership or cooperative holds the licence. So from your point of view, partnerships and cooperatives are controlling agreements.

Question 3: What is the advantage of having a partnership? I do not see it.

Answer 3: I agree in general, but some fish harvesters in certain situations may see an advantage.

Question 4: How would being in a partnership make retirement easier?

Answer 4: It might be easier to sell an ownership interest in the partnership to other existing partners than it would be for an individual to sell his or her fishing business if they were not involved in a partnership.

10. Presentation of Risk and Benefit Analysis for More than Two Fish Harvesters (Company, Cooperative and Partnership) in Relation to DFO Policies and Objectives

Leroy MacEachern, Senior Regional Advisor - Fisheries Renewal, DFO, Gulf Region, presented a risk and benefit analysis for the issuance of licences to companies, cooperatives and partnerships involving more than two fish harvesters.

The following questions were raised following the presentation:

Question 1: Why do we have to change the policy as there are a number of crab cooperatives already in the Maritimes Region?

Answer 1: The way the snow crab companies are set up (they are not cooperatives), had ministerial approval, and it was very specific.

Question 2: If the company is dissolved, could the license go back to the original owner’s name?

Answer 2: There are questions and options that should be discussed tomorrow.

Day 2 – Tuesday, November 18

1. Opening Remarks

Nadia Bouffard opened the second day of the meeting by welcoming the industry participants and informing them that concerns had been expressed after day one of the meeting, with regard to the proposed format of the eight breakout sessions proposed for day two, and that there was a suggestion to hold a plenary discussion with the whole group instead. She reminded them that DFO was present to hear their views and was open to changing the format of the meeting if this met with the majority of the views of participants.

The majority of participants agreed to change the proposed format of the meeting and to hold a plenary discussion with the entire group of license holders and representatives present. It was also decided that Marc Allain, Independent Consultant, CCPFH, and Karen Henley would co-facilitate the session.

2. Plenary Discussion

Marc Allain began the plenary discussion by informing participants the session would first address the notion of issuing licences to companies in general and then the wholly-owned option, and then address the other options, in order to get an idea concerning support for identified options.

a. Discussion on Moving Beyond the Status Quo to Allow the Issuance of Licences to Companies

The following comments were made with regard to DFO allowing the issuance of licences to companies:

• In New Brunswick, the main objective is viability. There is support for the proposed idea of holding a licence in a company as long as the following questions are adequately addressed:

• What is the impact on EI?
• What is the impact on rationalisation programs?
• What is the impact on the Capital Gains Exemption?
• Need reassurance that with the wholly-owned (1 fish harvester) company structure, non-voting shares will not be held by anyone other than the 1 fish harvester.

• As far issuing licences to companies, is somewhat in favour.
• It is necessary that we move forward as long as we protect the Owner-Operator Policy.
• You have to look around to for the best price. It does not mean that because you form a company, it will affect the price you get for your fish.
• In our area, our fleets are not viable. If we ever get viable someday we may need to put our licences in corporation. If we do that by stacking, are we going to allow more than one licence per corporation? We need to answer those questions.
• The idea of incorporating an enterprise is an option and it is important to reiterate it again. It is certain that social programs are also a big asset. Because of CRA, we see that it is important that the licence be issued in the corporation’s name.
• We are here to protect the Owner-Operator policy and make avenues for moving forward with the 100% wholly-owned corporation. We should clarify that we are not talking about big corporations today with multiple shareholders, just about a fish harvester who could form a corporation if he so wishes.
• We are shaping the fishery for the future. We are committed to protecting the Owner-Operator policy. We often put policies in place that made sense by themselves but put them together and undermined the Owner-Operator policy. We are recognizing the need for change but we have to move cautiously.
• Not so supportive of the notion of the issuance of licences to companies as concerned fleets are currently in survival mode rather than in company mode. However, does see a benefit in this option for the future. Is supportive as long as the Owner-Operator policy is strengthened and put into regulation and that DFO provides assurance that its existing programs and policies will not be negatively affected by this initiative. Support is also dependent upon CRA’s and DFO’s interpretation of the Saulnier decision on their policies.
• Supportive of initiative, but needs reassurance from DFO that the Owner-Operator policy will not be eroded.
• This must be voluntary. It boils down to CRA interpretation of who owns the licence. Fishing is a family business but it can also mean more than that. DFO should not pigeon hole it into a wholly-owned option.
• Our focus should be on growing our industry. People are talking globally. We should look at the international level. We want to protect the Owner-Operator Policy. We have to make sure that DFO is a true partner in this and that there are no loose ends.
• Supportive of initiative. Some licences are so expensive that it makes more sense to put them in a company without jeopardizing the Owner-Operator policy.

Marc Allain proceeded with a vote for general support for issuing licences to companies and moving discussion on specific options in this regard. Vote resulted in 36 being in favour, 0 being against and 7 abstaining.

b. Discussion on DFO Allowing the Issuance of Licences to Wholly-Owned Companies

There was general agreement that the definition of wholly-owned company would be defined as one person operating and holding 100% of all the shares. Even though the prevailing view was that the wholly-owned company would be defined as one fish harvester holding 100% of the shares (voting and non-voting), Nadia indicated that on a technical level, a wholly-owned company could also mean that there could be other people with non-voting shares in the company. The issue from a DFO policy perspective was who controls the decisions of the company through voting shares.

The following comments were made with regard to DFO allowing the issuance of licences to wholly-owned companies:

• High level of discomfort with regard to the idea of more than one fish harvester holding shares in a company. Not support of discretionary trusts as is fearful that it could open the door to corporate (processor) control.
• Supportive of wholly-owned option as it is believed it would deal with the CRA issue, but is more supportive of options that go beyond the wholly-owned option. Does not feel that the wholly-owned option will be capable of dealing with the succession planning issue.
• Feels that the wholly- owned option is too restrictive.
• Need for confirmation from DFO that the Owner-Operator and PIIFCAF policies will be strengthened by being put in regulation.
• The definition of wholly-owned company should be expanded.
• We need to move forward and I feel we are going back to before we were in co-management. We have to be more visionary. I don’t think we should leave today with something entrenched. We have to come out with a draft that will work for everybody. It is going to take time and a lot of work but it can be done.
• Some people may agree with wholly-owned but would not vote on it because it is not what they want. It is not enough for them.
• I would like to have the option of being able to move my licence to a corporation. We should not be dictated on how we set up our business. If you hold the control of voting shares of the company therefore you own control of the transfer of the licence. He could have preferred shares with a processor. It is his right. If we borrow money from a processor, of course they will want security. This policy should not be prescriptive.
• We had a good fleet down home – the rest is owned by corporation. We don’t want the rest of the fishery to go the rest of the way and be owned by corporation. We want the young people to get into the fishery, but how?
• There are a lot of agendas at play in this room. I don’t think we have the right to put our agenda’s in a forum like this. We cannot make decision without talking to our memberships first. We cannot separate this from everything else that is going on in the fishing industry.
• What would be wrong with family having shares? It would be dealing with the viability of each fleet.
• If you meet the requirement of PIIFCAF and the Owner-Operator policy, your company should follow them. It would give the fish harvesters more options.

Marc Allain concluded the plenary discussion by reiterating that there was general consensus for moving forward with the companies initiative, but with conditions and provided the Owner-Operator Policy is given the strength of law. He mentioned that his sense from the plenary discussion was that there was general agreement on:

• the wholly-owned company option;
• the definition of a wholly-owned company; and
• the wholly-owned option being a starting point before moving on to other corporate structures

3. Next Steps

The following suggestions were made by participants:

• DFO needs to draft a policy review document, similar to the AFPR policy review document, so that interested parties can review it and address their concerns.
• The Owner-Operator policy needs to be strengthened before we can move forward. We have not heard from DFO to move in that direction.
• The importance of the regional discussions outweighs the cost as the impact will be felt for generations. We need to go forward with the discussion. There is so much information we need to make clear decisions.

4. Update from CRA – Saulnier Decision and Impact on Income Tax Act

Bill MacGregor, CRA, provided an update on the CRA position. He indicated that CRA maintains the position that the transfer of the fishing licence or privileges under section 85 of the Income Tax Act from an individual to a corporation is not accepted. On October 24^th the Supreme Court of Canada released its decision in the Saulnier case. The CRA recognizes the importance of this case to the fishing industry and that CRA was giving priority to analyzing the impact of the decision on the CRA position as explained above. After the analysis is complete the CRA position would be communicated to them through CRA public affairs.

5. Closing Remarks

In closing, Nadia reiterated DFO’s commitment the Owner-Operator and Fleet Separation policies. She also mentioned that there is no mandate to lock these policies in regulations. Participants were informed that the purpose of the meeting was to hear the views of the inshore fish harvesters and they were reassured that their views would be taken back to Ottawa.

She further summarized the views expressed during the meeting as follows:

• there was a general consensus on moving forward on issuing licences to companies, but that there were concerns with regard to maintaining the spirit of the PIIFCAF, Owner-Operator and Fleet Separation Policies;
• there was strong support for the wholly-owned (1 fish harvester), some support to go further with family situations and the 2 fish harvesters (company) option and very little support for the partnerships and cooperatives options;
• these options are not useful for everybody; and
• meeting participants want further dialogue on this initiative

In terms of next steps, meeting participants were informed that DFO would consider the request for regional consultations on this initiative. That the comments and points of view expressed at this meeting would be made available to them in the form of a summary of proceedings. Nadia also mentioned that her opening remarks would be distributed to them following the meeting.

Meeting participants were thanked for their input and frankness.

ANNEX A

List of Participants

Name	Organization	E-Mail
Professionals
1.   Adams, Craig	Fishermen’s Management Services Ltd.
2.   Comeau, Paul	Grant Thornton Associates	Pcomeau@grantthorton.ca
3.   Guignard, Marc	Godin Lizotte	marc.guignard@godinlizotte.ca
4.   Hood, Clifford	Hood and Associates	cliffhood@ns.sympatico.ca
5.   Mills, Corwin	MHP Lawfirm NL	cmills@mhplawfirm.com
6.   Richardson, Paul	Belliveau Veinotte Inc.	prichardson@bvca.ca
Industry
7.   Adams, Brian	President, Area 19 Snow Crab Fishermen’s Association	Area19.crab@ns.sympatico.ca
8.   Allain, Marc	CCPFH	marcallain@sympatico.ca
9.   Baker Stevens, Nellie	ESFPA	nellie@esfpa.ca
10. Banville, Yves	A.C.P.G.	yvesbanville.acpg@cgocable.ca
11. Barlow, Shelton	PCFA PEd
12. Berry, Bernie	FG<45 Yarmouth County	rambunkshus@yar.eastlink.ca
13. Blanchard, Serge	APPCA	pecheriesjpf@hotmail.com
14. Boudreau, Julien	APPME	capgridley@hotmail.com
15. Boucher, André	O.P.F.C.Q/R.P.P.N.G.	boucherand@cgocable.ca
16. Boudreau, Ginny	G.C.I.F.A.	gcifa@gcifa.ns.ca
17. Bourque, Bruno	RPPIM – Zone F (Pétroncliers)	bruno.lacadien2@hotmail.com
18. Bridger, Guy	FFAW/Fish Harvester	g.bridger@xplornet.com
19. Brophy, Bill	Area 18 Crab
20. Brun, Christian	Maritime Fisher’s Union (MFU)	christian@mfu-upm.com
21. Burke, Osborne	Trinav Marine Brokerage	oburke@trinav.com
22. Burton, Ivan	Fish harvester
23. Bussey, Nelson
24. Cloutier, O’Neil	Ref Pêcheurs Prof Gaspé-Sud	rppsg@globetrotter.net
25. Coffey, Edgar J.	Quinlan Brothers Ltd.	ejcoffey@quinlanbros.ca
26. Comeau, Réginald	Maritime Fisher’s Union (MFU)
27. Cottreau, Carl	The Coalition
28. Courtney, Robert	North of Smokey
29. Crawford, David	Gulf NS Bonafide Fishermen’s Association	kwallace.gulfnsbfa@ns.aliantzinc.ca
30. Decker, David	FFAW
31. Desbois, Daniel	Association des crabiers de la Baie – Association des crabiers Gaspésiens	danieldesbois@hotmail.com
32. Devine, Dane	President, Novi Boat Brokers	dane@noviboatbrokers.com
33. Dolomount, Mark	PFHCB, N&L	mdolomount@pfhcb.com
34. Duguay, Gilles	Ref Pêcheurs Prof Gaspé-Sud
35. Feltham, George	FFAW (N&L)	egfeltham@yahoo.com
36. Fraser, Doug	PEIFA
37. Frenette, Ed	PEIFA	managerpeifa@pei.eastlink.ca
38. Gionet, Joël	Association des crabiers acadiens Inc.	Aca.jano@nb.aibn.com
39. Haché, Robert F.	Crabiers du Nord-Est	crabesne@nbnet.nb.ca
40. Heighton, Ron	GNS Groundfish Fishermen’s Association	ronald.heighton@ns.sympatico.ca
41. Hennessey, Frank
42. Inniss, Ruth	Maritime Fisher’s Union (MFU)	ruth@mfu-upm.com
43. Kesick, Franz	CARDA
44. Kiesekamp, Julius	Price Waterhouse Coopers (Halifax Office)	julius.w.kiesekamp@ca.pwc.com
45. Landry, Daniel	APPME	appme@frapp.org
46. Lanteigne, Jean	FRAPP	jean.lanteigne@frapp.org
47. LeBlanc, Leonard	Gulf Nova Scotia Inshore Fishermen’s Association	leonard.leblanc2@ns.sympatico.ca
48. Leblanc, Roger	MFU
49. Lindblad, Hasse	MFU	slindblad@ns.sympatico.ca
50. MacDonald, Gordon	LFA 30 CFA 23	bnw@ns.sympatico.ca
51. MacDonald, Malcolm	Area 30 Lobster
52. MacIvor, Darryl	MFU
53. Martin, André	Maritime Fisher’s Union (MFU)	andre@mfu-upm.com
54. Masters, Wayne
55. McCurdy, Earle	FFAW/CAW	emccurdy@ffaw.nfld.net
56. Noël, Lévis	Association des pêcheurs professionnels Crabiers Acadiens (APPCA)
57. Noël, Martin	Association des pêcheurs professionnels Crabiers Acadiens (APPCA)
58. O’Leary, Eugene	Guysborough County Inshore Fishermen’s Association	eugeneol@ns.sympatico.ca
59. Redding, Bob	The Coalition
60. Richardson, Norma	ESFPA	normar@ns.sympatico.ca
61. Risser, Winfred		snowcrabby@yahoo.com
62. Small, Linden	Fish harvester
63. Spence, Dwight	FFAW	capeashley@hotmail.com
64. Spinney, Ashton	LFA 34	Ashton@ns.sympatico.ca
65. Sutcliffe, John	CCPFH	jsutcliffe@ccpfh-ccpp.org
66. Wallace, Kay	Guy NS Bonafide	kwallace.gulfnsbfa@ns.aliantzinc.ca
67. Watkins, Brad	Fish harvester
68. Zinck, Terry	The Coalition
Federal Government
NHQ
69. Bartlett, Michael	DFO
70. Bouffard, Nadia	DFO
71. Jennings, Valérie	DFO
72. Sinclair, Gina	DFO
RHQ
73. Burke, Les	DFO, Maritimes
74. Chiasson, Hilaire	DFO, Gulf
75. Corbett, Frank	DFO, N&L
76. Elliott, Isabelle	DFO, Gulf
77. Gosselin, Raynald	DFO, Québec
78. Knight, Morley	DFO, N&L
79. Lavoie, Cécile	DFO, Gulf
80. Leslie, Stefan	DFO, Maritimes
81. MacEachern, Leroy	DFO, Gulf
82. MacNeil, Nancy	DFO, Maritimes
83. Marshall, Ian	DFO, Maritimes
84. Nadeau, Jean-Marc	DFO, Québec
85. Perry, Jackie	DFO, N&L
86. Rumbolt, Annette	DFO, N&L
CRA
87. MacGregor, Bill	CRA	William.MacGregor@cra-arc.gc.ca
Provinces
88. Beaton, Patsy	Province of NS	beatonp@gov.ns.ca
89. Gaudet, Mario	Ministère des pêches - NB	mario.gaudet@gnb.ca
90. MacEwan, David	Province of PEI	dgmacewan@gov.pe.ca
91. Montminy-Munyan, François	MAPAQ	Francois.Montminy-Munyan@mapaq.gouv.qc.ca
92. Osborne, Pam	Fisheries and Aquaculture Loan Board - Province of NS	osbornpr@gov.ns.ca
93. Reardon, Clary	Government of Nova Scotia	reardonc@gov.ns.ca
94. Wiseman, Wanda	Government of N&L	wandaleewiseman@gov.nl.ca

ANNEX B

Opening Remarks

Nadia Bouffard
Director General, Fisheries Renewal, DFO

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November 17-18, 2008 Industry Meeting on the Issuance of Licences to Companies and other Entities

• Good morning and welcome – Bonjour et bienvenue à tous.
   
• Those of you who have not done so yet may want to pick up their gadget for interpretation at the back of the room before I start.
   
• First, I would like to thank you all for being here today for this meeting.
   
• I know some of you are in the midst of preparing to go fishing and I appreciate you taking the time to join us for these two days, to hear us and tell us your views.
   
• I’m also aware that not all fish harvesters were able to come today. While we had been trying to accommodate most by changing our original dates for this meeting, the timing didn’t work for everyone, and some could not travel the distance to join us.
   
• I’m hoping that these disadvantages will be outweighed by the benefits of being in the same room with most to hear each others’ views.
   
• Before we start, I thought we could do a little recap of where we’ve been and what we’ve heard, go over a bit of the current context, and then the objectives for this meeting.

Where we’ve been

• Most of you not new to the fishery will recall the numerous discussions we have had over the years on fishing license policy matters over the years.
   
• The subject of whether to issue fishing licenses in the inshore sector of Atlantic Canada to companies and other types of business models such as coops and partnerships has been on the table off and on for a number of years:

• From the Atlantic Fisheries Policy Review (AFPR)
• To the John Hanlon process; and
• The Announcement by former Minister Hearn in April 2007 on PIIFCAF and other measures

• Since then we have had a series of meetings focused on this subject, which started in:

• Moncton, in December 2007, and then followed with
• St. Johns in January 2008, and the Maggies in February 2008, for those who couldn’t make the Moncton meeting due to the snow storm;
• We had a meeting of experts in January 2008;
• And our last meeting was held last March here in Halifax.

What we Heard?

• Over the past 30 years, concerns were expressed on the need to preserve the independence of inshore fish harvesters in Atlantic Canada.
   
• Over time, these concerns were expressed more specifically by the need for DFO to ensure that:

• License Holders maintain control over any decisions that concern their licenses;
• Those that hold the license and the fishing enterprise actually operate the business and the fishing vessel; and
• That measures be put in place to ensure that the inshore harvesting sector maintains an independence from the processing sector.

• These issues are NOT new. In fact, the first measures DFO put in place to address them – owner/operator and fleet separation policies – were adopted in the 1970s. [I was going to say this was before I was born, but I probably can’t pass the red face test with that lie]
   
• Through changes in context and hardening of economic realities, steps were taken by some in the industry to facilitate access to capital by fish harvesters, including through the use of trust agreements.
   
• While not illegal, these arrangements did undermine the objectives of DFO’s Policies that had been put in place to preserve the independence of the inshore harvesters – by abdicating the control over decisions concerning fishing licenses to someone other than the license holder.
   
• In April 2007, DFO put in place measures with a view to eliminate these trust agreements, and help restore and preserve the independence of the inshore fish harvesters.
   
• These measures – which we call PIIFCAF – are part of DFO’s Policies since April 2007.
   
• We are NOT here, at this meeting, to open PIIFCAF up or change it.

Context

• So, why are we here?
   
• In the past number of years, we have seen a combination of external factors:

• Declining raw material prices;
• High fuel costs; and
• Rising Canadian dollar

• Which have made a serious dent in your profit margins and affected your ability to make a decent living out of the fishery.

*********

• In 2006-2007, a series of summits, forums, symposiums and workshops were held with people from all sectors of the industry, from harvesting through processing to sale, distribution and marketing, as well with those who regulate fishing.
   
• These events gave us a better understanding of the problems, their sources and their causes, and enabled us to identify avenues toward solutions.
   
• That was the beginning of what we call the Ocean to Plate approach.

*********

• When DFO announced PIIFCAF in 2007, we also announced our openness to review our Licensing Policies to provide more flexibilities.
   
• We opened the door for developing voluntary tools that harvesters may choose to use to restructure their fleets and businesses, to improve their competitiveness and have the ability to self-adjust to economic downturns.
   
• As many of you know, we amended our policies to allow for enterprise combining in Newfoundland and Labrador, and in the same vein, flexible options such as license combining, license stacking and trap combining are being adopted and considered in other regions, based on fleet specificity.
   
• It was also during this period that the Federal Government announced the Capital Gains Tax Exemption for fish harvesters.

*********

• In 2007, we also adopted a process called “Notice and Acknowledgement,” or, in French, “Avis et Attestation.” 
   
• Through the signing of certain forms provided by DFO, a loan issued by a financial institution to a licence holder is recognized in the DFO file, and this provides the financial institution with a little more assurance regarding the loan.
   
• Although this is not considered a loan guarantee, we hope that the procedure will facilitate access for fish harvesters to capital from financial institutions.
   
• I’m told that a number of fish harvesters have already benefited from this procedure.

*********

Saulnier Case

• The Saulnier court case for which we just recently received the decision from the Supreme Court of Canada, has provided some further clarifications in respect of the nature of fishing licenses and the rights of lenders, trustees and receivers in the context of the bankruptcy of a license holder.
   
• As some of you may know, Mr. Saulnier had been forced into receivership and bankruptcy, under 2 different pieces of legislation: the federal Bankruptcy and Insolvency Act, and the Nova Scotia Personal Property Security Act.
   
• When both the receiver and the trustee claimed his fishing license as an asset subject to their proceedings, Saulnier challenged this on the basis that a fishing license is not property and therefore cannot be seized by the receiver and trustee and sold to pay up the creditors in the proceedings.
   
• I will not get into what lower courts had determined in this case. Suffice it to say that the case was appealed to the Supreme Court of Canada – this is the highest court we have in Canada – there are not appeals after this stage.
   
• The Court rendered its decision a few weeks ago.
   
• It confirmed that the Minister of Fisheries and Oceans’ continues to hold her absolute discretionary authority to issue fishing licenses under the Fisheries Act.
   
• The Court also confirmed that the License Holder enjoys some interests that flow from holding the license.
   
• And for the purpose of the 2 pieces of legislation before it, these interests that flow from holding the license can be considered as property.
   
• As a result, the Court determined that the trustee and receivers – under these 2 pieces of legislation - held the fishing licenses with the same advantages and conditions than the original license holder.
   
• DFO lawyers are currently reviewing the decision to determine the full impact of the decision – in particular as it may relate to DFO’s policies and programs.
   
• So at this early stage, I cannot say more about the Saulnier case and its impacts.

Issuing Licenses to Entities

• In discussions over the past many years, a good number of you have asked DFO to consider an additional option to support the economic viability of fish harvesters.
   
• You asked us to consider the feasibility of issuing inshore fishing licenses to your own entities, such as companies, partnerships or coops.
   
• Currently, DFO policies only allow individual inshore harvesters to hold fishing licenses.
   
• By restoring the balance and preserving the independence of inshore fish harvesters, I believe that PIIFCAF has paved the way for a dialogue on whether to change DFO policies to provide for flexible options for harvesters to choose whether they wish DFO to issue their fishing licenses to their company, their partnership or coop.
   
• Meetings in Moncton and in Halifax last spring reached consensus for us to explore options that would provide fish harvesters with such voluntary options, while respecting PIIFCAF and the principles of owner-operator and fleet separation.
   
• We also heard throughout these meetings that harvesters want more information about the various business models available, so that they may have a better understanding of their benefits, and the risks they may pose to DFO’s policies.

Meeting’s Agenda

• Over the course of today, you will hear from experts who will provide information as to what a company, a partnership and a coop are, how they work, and what benefits these business models can offer.
   
• You will hear from an accountant on a few practical examples of how these can work in the real world.
   
• And you will hear the risks that these models may pose to DFO policies, should licenses be held within these entities, as well as how these risks may be reduced or eliminated.
   
• You will also hear from your peers – in a panel of harvesters representing different areas, fleets, and points of views on the subject at hand.
   
• I would ask those of you in the room who have a lot of knowledge in these subjects, to be indulgent and respect those who need to learn and understand before they can engage in a meaningful dialogue on the second day.
   
• Today’s main objective will be to listen and learn, so that we are all on the same level of playing field when we meet tomorrow to hear fish harvesters’ views.
   
• I want to stress that while the door is open to all today, access to tomorrow’s session when we will hear fish harvesters’ views, will be limited to license holders, harvesters associations and unions, and provinces, and DFO staff, as this matter involves DFO’s policies relating to license holders.
   
• Others may join us after the coffee break tomorrow to hear the summary of the discussions and next steps.

My commitment

• In exchange for what I have asked of you in the past 5-10 minutes, my commitment to you will be to reflect and present your views to the Minister when we propose options to her on this matter.
   
• I have come here today with NO agenda, and no direction, other than to hear your views on this subject.
   
• The Minister has absolute discretionary authority to issue fishing licenses.
   
• This authority includes the decision as to who gets the licenses.
   
• So, in the end, SHE will decide the future course on the matters we will discuss at this meeting, bearing in mind:

• The options DFO will present;
• Your views expressed here;
• The impacts of the Saulnier decision;
• The need to preserve the independence of inshore harvesters in Atlantic Canada through:

• PIIFCAF
• Owner/Operator; and
• Fleet Separation; and

• The need to support your economic prosperity.

• I appreciate what all of us will bring to the table today and tomorrow, and I firmly believe that this meeting will provide us with the opportunity for productive discussions.
   
• I will now let our meeting facilitator, Karen Henley, provide you with an overview of our agenda for the next two days.
   
• Thank you. Merci.

ANNEX C

Additional Documents

Should you wish to obtain a copy of any of the below-mentioned documents, please send an e-mail to the following address: famgpa_web@dfo-mpo.gc.ca

a) Meeting agenda

b) Overview Deck of the Owner-Operator, Fleet Separation and PIIFCAF Policies

c) Deck Presentation on the Basics of Companies

d) Presentation on Hypothetical Scenarios (Individual vs Company Structure)

e) Presentation of Risk and Benefit Analysis for Companies (Wholly-Owned and Two Fish Harvesters) in Relation to DFO Policies and Objectives

f) Deck Presentation on the Basics of Cooperatives and Partnerships

g) Presentation of Hypothetical Scenarios (Cooperatives and Partnerships)

h) Presentation of Risk and Benefit Analysis for More than Two Fish Harvesters (Company, Cooperative and Partnership) in Relation to DFO Policies and Objectives