Bill C-274 (Historical)

An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation)

This enactment amends the Income Tax Act in order to provide that, in the case of qualified small business corporation shares and shares of the capital stock of a family farm or fishing corporation, siblings are deemed not to be dealing at arm’s length and to be related, and that, under certain conditions, the transfer of those shares by a taxpayer to the taxpayer’s child or grandchild who is 18 years of age or older is to be excluded from the anti-avoidance rule of section 84.‍1.

Income Tax Act

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

moved that Bill C-274, an Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation), be read the second time and referred to a committee.

Mr. Speaker, I have to admit that I am very pleased to debate this bill. It is the first time that I have had the opportunity to introduce and debate a private member's bill in the House as I was unable to do so in the last Parliament.

Bill C-274 would correct and eliminate a gross injustice concerning the transfer of our farms and SMEs. This issue is more important than ever. Demographically speaking, 76% of small business owners plan to transfer ownership of their companies so that they can retire within the next 10 years, and 50% of farm owners want to do the same thing, also within the next 10 years.

The injustice that this bill is intended to remedy is that, if someone has a small business, a farm, or even a fishing boat and wants to sell it to his or her children, in a corporate structure, the seller, who is the owner of the small business or family farm in question, will pay much more income tax than if he or she decided to sell to a stranger.

In a very large number of cases, that means choosing between having a larger pension fund by selling to a stranger—since a pension fund is what business owners get when they sell their business—and having a smaller pension fund by selling to one’s children. The difference can be extremely large. If we ignore the tax planning that such a transaction can entail, for the sale of a farm worth $10 million, which, with all the assets, is quite often a reasonable price, selling to a child can cost up to $1.2 million more in income tax than if the farm is sold to a stranger. In the case of the sale of a business worth $1 million, the difference can be more than $300,000 in income tax.

The reason is very simple: if people want to sell to their children, to someone related to them, the difference between the sale price and the original price at the time of purchase is considered a dividend under the Income Tax Act. Consequently, it is treated like a dividend for tax purposes. Across the country, dividends are taxed at about 35% on average.

If business owners sell to someone who is not a family member, in other words, an unrelated person, a stranger, the difference between the sale price and the original price at the time of purchase is considered a capital gain. In that case, there is a lifetime exemption of about $825,000 for a business and about $1 million for a farm or a fishing boat. The remaining capital gain is taxed at about 25% on average. This explains the difference between selling to a stranger and selling to a child.

Obviously, it is unfair. In every constituency, we have business owners. People who want to sell their small business, their family farm, or their fishing boat in the Atlantic provinces, for example, are faced with an extremely heart-rending choice. Will they agree to sell their business to a family member and have $100,000, $125,000, or $150,000 less in their pension fund because they want their child to succeed them, because they want someone in the family to take over a business that they built with their own hands? They may not have the opportunity to do so if their pension fund is not large enough. Unfortunately, instead of selling to their child, who would be willing to take over, they have to consider selling to a stranger.

My bill seeks to correct this injustice. I admit that the bill is somewhat self-serving because this has been an ongoing problem in my constituency. In fact, the bill was prepared in co-operation with the farmers and SMEs in my riding. Rimouski-Neigette—Témiscouata—Les Basques is in the Lower St. Lawrence region, and 12% of the region’s economy is dependent on agriculture.

We have many family farms, especially dairy farms, as well as some maple sugar operations. In my constituency, it is not big companies that drive the economy. It is small businesses.

People, particularly those in the farming community, have been telling me about this situation since I first took office in 2011. They are being forced to choose between selling to a child at a tax loss and selling to a stranger.

The situation has become even more worrisome since there has been talk of land speculation. Certain people want to buy farmland to speculate on its value.

Such people have an advantage right from the start, since their offer means that the person selling the company or farm will have a lot less income tax to pay. The current situation is unfair.

My bill is designed to resolve the situation so that the sale of a family business or farm to a child will be treated as a capital gain, the same as if it were sold to a stranger.

There is no real reason to oppose such a measure. There are three reasons why such a measure may have been opposed in the past. First, this type of measure could open the door to aggressive tax avoidance, which is why things are the way they are now. However, my bill eliminates that possibility by requiring the buyer to retain his shares for a minimum of five years, except in case of death. People who retain their shares for five years do so because the family transfer was genuine and not because they were trying to work the system to avoid paying income tax.

The second reason why such a measure may have been opposed in the past is the argument that only the richest farmers or entrepreneurs would benefit from the measure. Once again, that is not the case with my bill because it deals only with transactions of $15 million or less. All transactions over $15 million, like those involving big farms or companies, are excluded from the terms of Bill C-274.

The third reason why such a measure could have been opposed, the last one I can think of, is the cost of the bill. Obviously, there will be a cost in lost revenue for the government. However, that cost is estimated not in the hundreds of millions of dollars, but between $75 million and $90 million. I know that different figures are being advanced, particularly by the finance department, but mine have been corroborated by many tax experts. The reason why we are talking about $75 million to $90 million is that, at present, all of this potential income tax paid by people who are selling small businesses or family farms is reduced through tax planning.

I can back up these figures with the following facts. Quebec, which has its own income taxation system, identified the same problem. It corrected it in its 2015 budget, and the correction has been implemented since March 2016. Its approach to fixing this problem is somewhat different than mine, but ultimately, Quebec estimates that eliminating this injustice will cost it some $15 million in lost revenue.

If Quebec loses $15 million, I think it is quite plausible that the lost revenue at the federal level would be around $75 million to $90 million.

This flagrant injustice has to be corrected. Speaking of injustice, imagine for a moment if the situation were reversed. Imagine if, currently, the rules for selling to a stranger and selling to one's child were the same, and then imagine if a member tabled a bill seeking to make selling to a stranger more appealing, would the House find that acceptable? Would it pass such a bill? Of course not; the question answers itself.

I would like to point out that I am not the only person in the House to note the problem. From what I understand, I should have the support of a great many, if not all, of the opposition members. I am eager to hear the speeches.

Let us not forget that, in June 2015, before the last election, the Liberal member for Bourassa tabled Bill C-691, which sought to correct this injustice regarding SMEs. My bill, at least so far as the SME component is concerned, was modelled on his bill as well as on that of my colleague from Berthier—Maskinongé, who drafted a number of clauses for farms and for fishing companies. My colleague from Joliette at the time also drafted a section on transactions between siblings.

My Liberal colleague at the time acknowledged the problem, and so did the government of Quebec, which then corrected it. I expect the hon. members to consider all of the small businesses and family farms in their ridings. I would also like members representing coastal constituencies to consider the impact this might have on fishing companies.

We are talking about small businesses and people who have worked all their lives to try and earn a living, people who, often, found themselves having to get their family business up and running again, as well as those who created it from scratch and now want it to stay in the family.

What this government has always been telling these Canadians is that they have to suffer this injustice when they sell their business to their children. In my opinion, that is totally unfair. Allow me to explain.

My colleague from Pierre-Boucher—Les Patriotes—Verchères had tried to table a bill in the wake of a situation that occurred in his riding and that made the headlines in May. Christian Tremblay, of Armoires Tremblay, in Saint-Mathieu-de-Beloeil, wanted to sell his company to his son Patrick, a company worth $1.7 million.

Imagine his surprise when he found out that, if he sold it to his son rather than to a stranger, he would have to pay $100,000 more in income tax. He considers the situation quite unfair. Will he sell to his son and make $100,000 less on a $1.7-million sale, or will he sell to a stranger so that he can keep that money in his account? The issue is receiving media attention, and thousands of new cases are bound to come up, at a growing rate, because of the demographic shift we will be going through over the next 10 years.

I would also like to talk about a problem that my bill will remedy, particularly in the regions. I would say that my bill may have greater importance in regions such as mine than it might have in major urban centres, because we are facing an exodus of young people.

In my constituency, young people are leaving the region for lack of employment opportunities; they go to school in urban centres, never to return again.

My bill will not fully remedy this situation. However, it will give our young people one more reason to stay in the region by giving them a better chance of acquiring the family business. It is something I hear about all the time in Rimouski-Neigette, Témiscouata and Les Basques, and I know that MPs from the regions have observed and heard the same thing.

I have covered a lot of kilometres in Canada promoting my bill. For two weeks last summer, I toured the Atlantic provinces talking to chambers of commerce, farming organizations and fishing organizations, to tell them about my bill, obviously, and find out if they would like to support it. In large part, they said yes.

I did the same thing in some parts of Quebec and Saskatchewan not long ago, and I will continue doing so until we vote on the bill at second reading. I think it is working, because I have enjoyed extraordinary support.

I organized a news conference when I introduced my bill last May. At my side was Dan Kelly, president of the Canadian Federation of Independent Business, who supports this bill.

I also have the support of the major chambers of commerce, including the Fédération des chambres de commerce du Québec, the metropolitan Montreal chamber of commerce, and different regional chambers in my riding and my region, as well as all over Quebec. Furthermore I have the support of the Canadian Federation of Agriculture, the Union des producteurs agricoles, the UPA, and other agricultural organizations all over the country. Finally, I have the support of fishers’ organizations, including the Nova Scotia Fish Packers Association, and I will have others as well. I will not abandon this fight.

I hope to have the support of the members of the House, who will see that this is not a partisan issue, but one that affects each of their ridings all over the country. In my view, it is a victory for common sense to vote in favour of this bill and so bring about tax fairness.

My bill rules out any possibility of fiscal abuse. It rules out the possibility that it will be disproportionately costly for the government, and it ensures that the richest owners or farmers are not going to be the ones to benefit.

Hence there is no reason to vote against this bill. I am eager to hear my colleagues on debate, and I hope to have their support so that this bill can be referred to the Standing Committee on Finance for second reading.

[François-Philippe Champagne, Liberal, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, first of all I thank my hon. colleague for his initiative. I have huge respect for him. He knows that, because he sits with us on the Standing Committee on Finance, and he always makes interesting arguments in the House.

However, I have to disagree with him on this occasion, because the greatest injustice that could be done today would be to promote tax avoidance in any way.

Given the figures he has just put forward, I would like my colleague on the other side of the House to explain how he arrived at an amount of $10 million or $15 million, when Finance Canada has estimated the opportunities for tax evasion in the first and subsequent years at over $800 million.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Speaker, I too have great respect for my hon. colleague.

I am not talking about $10 million to $15 million, but rather about $75 million to $90 million. It is Quebec that will have to pay $15 million because of the changes it has made.

My bill eliminates the possibility of tax avoidance thanks to two measures. The first requires the buyer to retain the shares for five years. The Canada Revenue Agency was afraid that, without such a clause, shares would pass from one family member to another. This clause of my bill will make that impossible.

The second clause requires the seller and the buyer to provide an affidavit approved by the Canada Revenue Agency, to ensure that this is in fact a family transfer.

With regard to the estimate from the finance department, honestly, I have never heard of an estimate so high. It makes absolutely no sense. My estimate comes from various tax experts including, for one, Éric Dufour from Grant Thornton.

I recommend that my colleague go and speak to him, since he does not live too far away. He is a great specialist on the family transfer of businesses in Quebec. He estimates that total lost revenue will be between $75 million and $90 million. There will be no tax avoidance.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Mr. Speaker, I support my colleague’s bill.

As I am myself a small business owner who has also gone through a family transfer, I know that it is a very complex matter. It makes no sense to favour a stranger ahead of one’s own family.

As a small business owner, I would like to know what will happen at the time of my death. I have had to take out insurance to pay the taxes that will be applied to my estate. Since my children will have to pay a huge amount of income tax when they inherit the business, I am obliged to take out insurance.

Will this bill cover this aspect as well?

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Speaker, I am pleased that my colleague recognizes the complexity, because the tax law is complex indeed.

Being an economist and not a tax expert, I do not have a specific answer to this question. I do not believe that will be the case, but all the same I have included in my bill a clause to exempt the estate from this rule in the event of death of a buyer who still holds his shares so as to not allow for tax avoidance. If he sells his shares before five years are up, he will be obliged to retroactively pay the income tax that should have been paid. If he dies, however, the estate will not have to do this, for reasons that are very obvious.

With this clause I have attempted to reassure people who might want to make a family transfer by telling them that they would not get hit, by pure accident, with a tax bill that is too high because of an early death.

[François Choquette, NDP, Drummond, QC]

Mr. Speaker, I thank and congratulate my hon. colleague from Rimouski-Neigette—Témiscouata—Les Basques for his excellent work.

He has done a tour through my constituency of Drummond. He met there with representatives of the chamber of commerce and numerous farmers concerned by this issue. There is indeed a problem of unfairness. It does not make sense to get more money by selling one’s business to a stranger than by selling to a family member.

Could my colleague talk about this injustice and explain how this bill will correct it?

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Speaker, of course it remedies this injustice. Indeed, it is for that reason that I wonder why the Parliamentary Secretary opposes it.

I have no idea where he got $800 million. It exceeds all the estimates made by various tax experts. In fact, the experts themselves feel that the figures they heard before, $200 million or $250 million, have been greatly exaggerated. Now, we are hearing one that is four times higher.

Instead of relying solely on figures from the Department of Finance, the Parliamentary Secretary should speak to the experts at Mallette and Raymond Chabot Grant Thornton, and to tax experts in the rest of the country, because they are not hearing the same thing. They have been studying the issue and sounding the alarm for a long time.

Eventually, the House will have to make an extremely important decision. Are we going to rely on what our own farmers and businesspeople are telling us or on hypothetical scenarios that are presented by the government and whose source is unknown?

[François-Philippe Champagne, Liberal, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, before I begin, I would like to thank my colleague once again for raising this important issue.

I can assure him that we are listening to Canadians. I meet with people every day. I have met with accounting firms and tax firms. We understand this issue, but the most important thing we have to do, as a government, is to understand that the greatest injustice we could do would be to introduce new tax loopholes in Canada. The $800 million figure is the figure provided by the Department of Finance, which has studied this issue at least as thoroughly as my colleague on the other side of the House. The $800 million figure is just the beginning; we expect it to be higher in subsequent years.

I am rising in the House to speak to my colleague’s bill, Bill C-274. The stated objective of this bill, to facilitate the transfer of family businesses to future generations in a family, seems commendable. It is the statement of principle by my colleague across the aisle. His proposed approach is to amend two long-standing anti-avoidance rules in the Income Tax Act. Those two measures have been in the Canadian tax code for a long time.

I am so pleased to be here this evening to discuss the repercussions that these fiscal changes may have. We often talk about unexpected consequences. My colleague's principle is worthy, but we have to take a close look at the measures themselves and really understand the fiscal consequences this could have for the country. I am sure all members of the House will agree that the intention behind this bill is good, and I want to go on the record as saying that my colleague's intention is very good. There is no doubt about that. Many of us are from rural parts of Quebec and Canada. We understand how things are for our farmers and entrepreneurs. I represent Shawinigan, which is, in a way, the beating heart of entrepreneurship in Quebec. We know all about entrepreneurship. We all come from places where small businesses can prosper, and we all want a fair tax system for all Canadians.

However, when weighing the merits of this bill, it is important to consider all the potential consequences of passing it. We must not lose sight of the fact that the tax rules that Bill C-274 proposes to amend exist for a reason, and that is to prevent people from engaging in inappropriate tax avoidance in Canada. Let us be clear about what Bill C-274 is proposing, and that is to soften the rules designed to prevent tax avoidance in Canada.

Let me explain. The proposed changes would dilute the anti-avoidance rules in sections 55 and 84.1 of the Income Tax Act. To help my colleagues fully understand what that means, let us first look at section 55 of the Income Tax Act. As currently worded, section 55 of the act applies to corporations that seek to inappropriately reduce capital gains by paying tax-free dividends between corporations. In short, the anti-avoidance rules consider such dividends to be a capital gain.

Two exemptions to the anti-avoidance rule authorize business restructuring by allowing company shareholders to split company shares between them, while deferring taxes. When those exemptions apply, any dividend paid between companies in the context of restructuring is not considered a capital gain.

The first exemption applies to the restructuring of related corporations, and the second applies to all corporate restructurings. Bill C-274 would broaden that first exemption, which we can call the related corporations exemption, so that it applies to brothers and sisters.

Spouses, as well as parents and their children, are eligible for this exemption because it is presumed that they have shared economic interests. However, brothers and sisters are considered to have separate and independent economic interests and are therefore not eligible for the related corporations exemption. That is consistent with other tax rules. For example, a family farm or fishing corporation cannot be transferred among brothers and sisters on a tax-deferred basis.

That being said, although brothers and sisters cannot restructure their participation in a corporation on a tax-deferred basis under the related corporations exemption, they can do it under the second exemption I mentioned earlier, which applies to all corporate restructuring. It is called the “butterfly exemption”.

Now the question is why siblings and their companies would want to have access to the first exemption if they can already achieve the same thing through the second exemption. The answer is that the conditions are less rigorous under the first exemption. The conditions are less rigorous because the companies are linked and are considered part of the same economic group at the time of restructuring. As a result, assets can be transferred on a tax deferred basis within a group of related companies regardless of the composition of assets.

Under the second exemption, known as the “butterfly exemption”, one condition requires a proportional distribution of the various types of assets transferred. The goal of this condition is to prevent tax avoidance.

By way of illustration, I would return to the example my colleague used of three siblings who each own one-third of a family farm corporation. Those siblings could reorganize the company's assets by transferring, on a tax deferred basis, those assets to their individual farm corporations by transferring their proportionate share of each type of asset from the family farm corporation.

There are fewer tax avoidance opportunities under the butterfly exemption because of the requirement that each of the brothers’ and sisters’ corporations must receive its proportional share of the assets of the corporation being restructured. If the proposed amendment to section 55 were passed, as my colleague suggests, the siblings could undertake a business restructuring in which the dividends paid between their corporations would not be treated as capital gains. The consequence of that would be to create new opportunities for tax avoidance in Canada.

I would also like to point out that Bill C-15, which received royal assent in June 2016, included an amendment that tightened the anti-avoidance rule set out in section 55, a rule that Bill C-274 would loosen. Consequently, if Bill C-274 were passed into law, we would be sending a message that conflicts with what Parliament recently decided concerning this particular provision.

I would now like to say a few words about the other anti-avoidance rule that Bill C-274 would loosen, the rule set out in section 84.1 of the Income Tax Act. This anti-avoidance rule may apply when an individual sells shares of one corporation to another corporation that is related to the individual.

For example, an individual might sell shares to a corporation owned by his child or grandchild. In such a case, the proceeds of the sale received by the seller may be considered, in certain circumstances, to be a taxable dividend instead of a capital gain, which is taxed at a lower rate or even exempt from tax if the lifetime capital gains exemption is available to the individual.

Bill C-274 would limit the application of the anti-avoidance rule by excluding the sale of shares of a corporation owned by an individual to corporations controlled by his children and grandchildren. However, that would facilitate the conversion of dividends into capital gains that are taxed at a lower rate or tax exempt. Such conversions of corporate dividends into capital gains taxed at a lower rate could be made as often as the managing owner wants to extract the corporation’s surpluses with tax deferral.

Significant tax planning would occur if Bill C-274 were passed. For example, a high-income shareholder could reduce his income tax by $17,500 for each $100,000 in business profits.

Another important point to consider is the fact that nothing is stopping a parent from selling shares of his family corporation directly to his child or grandchild and claiming the lifetime capital gains exemption on the capital gains arising from the transaction.

In closing, I think that the most important thing to say today is that nothing in Canada’s Income Tax Act prevents corporate transfers. My colleague’s proposal would create opportunities for tax avoidance.

The government listened to Canadians, and then it pledged to do everything in its power to make tax fairness a reality in Canada.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Mr. Speaker, I am not an economist, a tax expert, or a member of the Standing Committee on Finance. I am, however, a regionalist, and I have to say that this bill was good news for people in the regions and those in my riding who want to benefit from everything they have created over the years and see it last. That is the focus of my remarks this evening.

People who have spent 40 years building a business by the sweat of their brow want someone to pass the torch to when they take their well-deserved retirement. Everyone knows that farming is very hard work. Having a family member take over the business is tremendously satisfying because that makes it highly likely that the business will retain the same values and philosophy. Plus, the young people who take over can inject fresh ideas.

At this time, someone who owns a small business, a family farm or family fishing business, who wants to retire and hand over his or her business to a sibling or family member must pay more tax than if he or she sells it to someone with no family ties. I want to repeat this. Right now, someone who wants to retire and hand over his or her business to a sibling pays more tax than if he or she sells it to a buyer with no family ties whatsoever.

Despite the finance minister's fine speeches, when you live in the regions, this matters. These rules have been identified as one of the big problems associated with family succession in these kinds of businesses. Business owners might be less inclined to sell their business to family members, understandably, and this makes them more likely to sell to strangers.

The bill before us is meant to solve part of the problem. We need to make sure that businesses are sold to local people because that is what ensures the development of our local communities. Although this bill meets most of those objectives, there are a few points that I have to wonder about. I will address those throughout my intervention.

Let us talk about the problems that the next generation of farmers is facing. The statistics on the transfer of farms are worrisome and significant. Half of all farm transfers fail. The failure rate is so high because young people who want to take over a family farm sadly face many obstacles.

In Quebec, for example, the farming population is ageing quickly. An estimated 40% of farmers will have left farming between 2014 and 2024. If the number of farms decreases, the number of transferors increases, and the farms continue to grow, then the viability of business transfers decreases and young people will have less access to farm capital.

The president of the Canadian Federation of Agriculture says he believes that everyone realizes that a large number of farm assets are going to be transferred over the next 15 to 20 years and that we must do everything we can to recognize that farms today are different than they were 30 years ago. He also believes that we must reduce tax liabilities so that the money is used to ensure that the farms that are transferred remain as viable as possible.

A farmer in my riding, Michel Couture from Ferme Coupar in Thetford Mines, said last week in the Courrier Frontenac newspaper that many farmers are the last generation that are going to operate the farm and that, considering the current situation in farming, many will abandon production. He added that Quebec is losing at least 2% of its farmers every year.

Farms cost a lot of money, buying one is extremely expensive. Thus, young farmers seeking to acquire a farm have to take on a partner. Let us imagine a young farmer who is an only child and who would like to buy the family farm upon his parents' retirement. What can he do but find a partner? Who will he go into business with if he does not want to pay more taxes?

The size of farms and the family model have changed a lot. It is no longer the 1980s or the 1990s. Today, family farms are full-fledged businesses. It is not unusual for two, three or even four people to be in charge. For example, the owner of Ferme Coupar, which I spoke about earlier, has made many investments over the past few years. Three or four people work on the farm. In 2014, the owner modernized the operation and streamlined his work methods, which were about 50 years old.

How much did it cost him? It cost $1.4 million. On the national scale, it is a small regional business. However, for a small farm in Thetford Mines, $1.4 million is a major investment, especially when one has to pay out of pocket. Then there are the concerns about the agricultural sector.

I would like to remind members that the issue of diafiltered milk has not yet been resolved. We do not really know kind of compensation will be offered for the European trade deal. We had come up with a good plan. Unfortunately, this plan will now help farms modernize their equipment and maybe give them $5,000 a year even though the real cost of modernization is $1.4 million. We are not going to help dairy producers with just $5,000. But that is another issue. Sometimes we take the opportunities that present themselves to send a message. That is what I just did.

The family model has changed. There are not many traditional families left consisting of a father, a mother, and their children. Times have changed and there are not many families with 14 or 15 people. We have to adapt.

Bearing all of that in mind, I think that the bill needs clarification, especially on the definition of family members. Ron Bonnett, president of the Canadian Federation of Agriculture, said that the law should be amended to broaden the definition of family members to reflect very large farming operations that involve more family members.

Is that useful? I do not know. I said at the beginning that I am neither a tax expert nor an economist, but a regionalist. If these changes can help the farms in our regions, why not consider them?

What is a family member? One's child? The child of one's spouse? A spouse? A brother, sister, niece or nephew? We need to dig into these questions because the definition of the family is changing. Our tax rules have to keep pace.

This is an issue that affects businesses in other sectors too. Earlier, one of my colleagues, a business owner himself, talked about problems with transferring businesses. The Association des marchands dépanneurs et épiciers du Québec has also expressed frustration with the situation, particularly because it can be hard to find new owners, it says. The association's director, Yves Servais, said:

We have many business owners who have reached an age where they would like to pass down their business to their children, who are interested in taking over. They should not be fiscally disadvantaged. I find the current rules unfair. They do not in any way encourage people to hold on to their family business.

Dan Kelly from the Canadian Federation of Independent Business says that many small business members report that current tax rules often discourage them from passing on their firm to their children and encourage selling to a stranger.

It is important to make it easier to transfer businesses to the next generation in our regions. In our regions, a farm is a small business that ensures the survival of villages, the corner store, the tractor dealer, the grocery store, and the restaurant. That is how important farming and farmers truly are.

If we allow young people to leave by not helping them take over the family business, it will all disappear. We need to look at the bigger picture. It is not just the farm that disappears, but the entire village and community. If all the small villages in Thetford Mines or Plessisville disappear, then the main town will suffer.

The principle of the bill speaks to us because we believe that the government must not increase the tax burden on families and business owners. On the contrary, it must put in place measures to encourage entrepreneurship. We also believe in entrepreneurship. The economic development of the regions is important to us.

I have a few questions left for the hon. member about the notion of family member. However, I am sure that he will be prepared to answer those questions if the House allows the bill to get to committee stage.

So many questions that we would be pleased to ask our colleague, questions that we will ask in the interest of our small businesses, family farms, and fishing corporations.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Mr. Speaker, today, I have the great pleasure of taking part in the debate on the bill introduced by my colleague from Rimouski-Neigette—Témiscouata—Les Basques. First of all, I want to thank my colleague for his work on this bill, his commitment, his consultations, and for listening. This is truly a bill that will improve Canadians' quality of life.

I have to admit that I was truly disappointed with the speech by my colleague from Saint-Maurice—Champlain. I represent the riding of Berthier—Maskinongé and part of the regional municipality of Maskinongé is located in Mauricie.

My colleague from Shawinigan represents a very rural area that has hundreds of SMEs, and I know that this bill will improve the economic situation of the regions. It is really frustrating when members pull figures out of thin air, maybe out of their own pockets. I believe that everyone agrees with the principle of this bill. I hope that it will be referred to committee so we can better understand where these figures come from.

I would like to point out that this bill has widespread support from all across the country. I believe it is also important to talk about this bill in my role as agriculture and agri-food critic. I am a member of the standing committee, and we are currently studying the next policy framework. Earlier today, in fact, officials were explaining to us once again how hard it is to find people to take over. It is not easy. The price of land is going up, and access to capital is difficult, so a bill like this one is a step in the right direction.

I should explain a little about the situation facing family farms in Canada. Over the past 10 years, we have lost 8,000 family farms. It is clear that this phenomenon is far from over, and it is important that we tackle the problem head on. There are a number of things we could do, and one of them is to make it easier to transfer farms between family members.

We also know that we have an aging population, especially in the regions. The demand for people to take over these businesses is only going to increase over the next few years. Overall, we are talking about $50 billion in farm assets that will be transferred between 2016 and 2026. Therefore, this bill is very important to the farming community.

At present, farmers look at their farms as their pension fund, and as much as they would love to transfer them to a family member, it is much more advantageous to sell to a stranger than someone who is part of the family. It is really sad, and we need to correct this injustice.

Let us imagine a farm worth $10 million. That farm would be worth $1.25 million more to the farmer after tax if he sells it to a stranger rather than a member of his own family. Unfortunately, sometimes that is the choice that has to be made. Farmers have to sell to strangers instead of passing the business down from one generation to the next, because the tax rules are unfair and completely unfavourable.

The problem with high land prices is that unrelated investors often have more interest in the land itself rather than farming it. Many farmers have to face really tough choices because of this. They have to choose between their hard-earned retirement and keeping production in the family.

Let us not forget that other factors also contribute to the challenges facing our family farms. My Conservative colleague mentioned this. We can talk about the government's role in border control, the government's failure to act on the diafiltered milk issue, and the completely unfair compensation for dairy farmers and processors under CETA. That is the situation facing our farmers and artisanal cheese producers in the regions. Things are really tough.

On top of that, in other agricultural sectors, farmers are really worried about the labour shortage. As we know, in the last budget, the government allocated very little money to agriculture.

All of the measures I listed that are designed to support supply management are really in the government's hands, but it seems disinclined to act or to protect it.

As the member for Berthier—Maskinongé, a rural riding, I understand how important this bill is to the people I represent.

I would like to briefly discuss the importance of small businesses to the regions. As I said earlier, small businesses are responsible for 80% of job creation in Canada. In Quebec, and in Canada as a whole, 98% of all businesses are small and medium-sized businesses.

The NDP believes we must do everything we can to ensure that businesses operate under the best possible conditions to stay competitive in a constantly changing market. The NDP will fight to protect our jobs and our family businesses.

Small businesses are the economic heart of our regions. We all have a favourite restaurant or corner store or a salon where we like to get our hair cut, and we have to support these businesses and encourage them. This is a step in the right direction. We are proud of it. We were all elected to try to introduce good legislative change.

I believe the situation in Berthier—Maskinongé is like that in my colleagues' ridings.

Bill C-274 will improve things. It is a step in the right direction. However, let us not forget that there are other areas we must improve in order to protect the regions. For example, the government promised to lower taxes from 11% to 9%. That is a broken promise. Let us not forget how important it is to develop high speed internet in the regions. We must support our family businesses and the government has to ensure that we have all the tools we need in the next strategic plan.

Our bill is widely supported. I know that my colleague already mentioned it, but there is a list of supporters two or three pages long.

I would like to read a quote by the president of the Canadian Federation of Agriculture:

Simply put, if taxation barriers are not addressed, we will see fewer and fewer family farms in Canada. We support [the commitment by the hon. member for Rimouski-Neigette—Témiscouata—Les Basques and his colleague] to addressing these tax burdens that could cause a significant administrative burden [and] cost...

The bill also has the support of the Association des marchands dépanneurs et épiciers du Québec.

It is unfair. Everyone knows there is work to be done. I think that we have had a good debate so far. However, it is important to ensure that this bill gets to committee. We must have the figures and know where they come from and we must be sure to present something that is going to improve the quality of life for the people living in rural areas who support our SMEs. This bill will really change things.

We hope to have the support of the House and to at least be able to refer this bill to committee. This bill will really change things for Canadians across the country.

[The Deputy Speaker, Conservative, Bruce Stanton]

Before we go to resuming debate and the hon. parliamentary secretary to the government House leader, I will just let him know that there are only about eight and a half minutes remaining in the time provided for private members' business. If he needs his full 10 minutes, of course he will have the remaining time when the House next takes up debate on the question.

The hon. parliamentary secretary to the government House leader.

[Kevin Lamoureux, Liberal, Parliamentary Secretary to the Leader of the Government in the House of Commons]

Mr. Speaker, it is with pleasure I rise today to address the private member's bill, Bill C-274.

In looking at the bill it is important that we recognize that what we are talking about is the transfer of money among family. When we talk about our farmers, small farms, and entrepreneurs, this is something that we are very sympathetic to. I do not necessarily agree with the manner in which the New Democratic member has chosen to try to implement something that most if not all members are very sympathetic to, that being the plight of our small farms and rural communities. There is very much a concerned attitude.

I know within our caucus we have a rural caucus that spends a great deal of time trying to address the many different issues that our rural communities, in particular farmers, are having to deal with. It is a wide spectrum of issues. It is important that we recognize that there is the lifetime capital gains exemption on resulting capital when, let us say, a parent transfers property over to a child. There are already today things in place that at least in part deal with what the member is hoping to achieve.

It is important that we recognize that Bill C-274 would weaken two long-standing anti-avoidance rules, something that the Parliamentary Secretary to the Minister of Finance spent a great deal of time going over. It is very technical. I will avoid that because I believe that he covered it exceptionally well. I would also point out additionally that the bill would provide new opportunities for significant tax avoidance that would benefit high-net-worth individuals and result in the erosion of the tax base. We should all be somewhat concerned about that.

At times, we hear from members of this House, whether within our caucus or even from the New Democratic benches, more often than from the Conservative benches, about the issue of tax avoidance. We have a very proactive Minister of National Revenue who is constantly looking at ways to ensure that Canadians are indeed paying their fair share and looking at ways to close loopholes. Tax avoidance in Canada is a very serious issue. It is an issue that this government takes very seriously. If we can deal with that issue, it allows us to reshuffle that money in a more positive way, ensuring that there is a fairer sense of the way in which taxes are applied.

This weakening undermines the government's expressed intent to ensure that all Canadians pay their fair share of taxes, which ensures that middle-class Canadians have access to the government services that they truly deserve.

It is also important for us to recognize that this bill would send conflicting policy messages, given that we tightened one of the anti-avoidance rules that Bill C-274 proposes to relax, through the first budget implementation act. There is a contradiction there and we would suggest that the budget implementation is the best way to go because it is about tax fairness.

Again, I want to be clear that nothing currently prevents parents from selling the family company directly to their child and claiming the lifetime capital gains exemption on the resulting capital gain. That is a very important point to emphasize.

The proposal brought forward by the New Democratic member could easily be misused by corporations looking for tax-planning opportunities. It would cost the Treasury Board an estimated $800 million a year, a number that would significantly increase in later years. Tax fairness, once again, is one of our core beliefs. Here as a government today, we have had member after member stand in this chamber and talk about the issue of tax fairness. I, for one, have mentioned it on numerous occasions and, no doubt, in the months and years ahead, we will continue to raise the issue of tax fairness, because it is indeed a part of our core beliefs.

No doubt, in the months and years ahead, we will continue to raise the issue of tax fairness, because it is part of our core belief. In that vein, we are currently undergoing a review of all tax expenditures to ensure that they are fair, efficient, and fiscally responsible.

I can assure members that we are currently engaged in pre-budget consultations. We will carefully examine the issue of family transfers in the context of fairness.

I would suggest that we would find it very challenging to find a minister of finance who has gone so far out of his way to ensure that there is consultation in every region of our country, both rural and urban. When we think of the family farm, I can assure the member that when we talk about pre-budget consultations, these are issues that have been raised with the Minister of Finance. For this particular budget that is coming out for 2017-18, things of this nature will have been taken into consideration in terms of how we can help small rural farms and entrepreneurs, which are the backbone of the economy in many ways.

I, for one, am very sensitive to our farming community. As a teenager, I can remember riding on tractors in the fields of family friends. I had the opportunity to get first-hand experience at a very young age of what takes place on farms and the important role they play.

In recent years I have had the opportunity, as all members have, to visit rural communities. One thing that come to mind is the size of the farms. We talk about the cost of land, but when we look at the size, the infrastructure for farmers today is so much more than it was in previous years.

I think it was on highway 2, late at night, I could see a long line of lights coming at me. They were combines in the field in a long row taking the crops off the field. It was most impressive. It gives one a better appreciation of the role we play in providing food for the world. When I think of that, it goes back to, in many ways, the beginnings of the family farm and recognizing how important that community is to our country.

I can tell members that this is a government that is very sensitive to the needs of our farms. We see that virtually every day when the Minister of Agriculture and Agri-Food talks about the importance of supply management and the importance of taxation.

I understand that my time has run out. I look forward to being able to continue on another day.

[The Deputy Speaker, Conservative, Bruce Stanton]

The hon. member for Winnipeg North will have a minute and a half remaining for his remarks when the House next takes up consideration of the motion.

The time provided for the consideration of private members' business has now expired, and the order is dropped to the bottom of the order of precedence on the Order Paper.

The House resumed from November 24, 2016, consideration of the motion that Bill C-274, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation), be read the second time and referred to a committee.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Speaker, I am proud to rise in the House today as the MP for a rural riding with an abundance of small and medium-sized businesses and plenty of family farms that go back more than 10 generations.

The work they do contributes to Montmagny—L'Islet—Kamouraska—Rivière-du-Loup's prosperity and entrepreneurial culture. I want to inform my colleagues that the Canadian Federation of Independent Business recently named Rivière-du-Loup the top entrepreneurial city in Canada in its fall 2016 ranking, this just a year after it was recognized as the most entrepreneurial city in Quebec.

There is no doubt that my riding and Rivière-du-Loup in particular are going full entrepreneurial speed ahead.

As a Conservative, I am proud of the previous government's record with respect to job creators. Our government reduced the corporate tax rate from 22% to 15% and the small business rate to 11%. It also increased the maximum revenue threshold for small business tax rate eligibility from $300,000 to $500,000.

As an entrepreneur myself who has created 20 or so jobs over the past 25 years in the printing industry in my region, I understand the importance of maintaining a tax system that favours entrepreneurship. Small businesses are the backbone of our economy. They created over 77% of all new jobs from 2002 to 2012.

People go into business for a variety of reasons. Some people are motivated by their passion, while others see a service gap that needs to be filled in their respective communities. For the most part, people go into business in order to meet their needs and those of their family. That is what I did myself in 1993 when I started my business.

We do so with the fervent hope that, one day, our children will take over our businesses, and we are eager to see them make our businesses flourish and build an even better future for our regions.

In my case, I fully intend to transfer some or all of my family business to my daughter at some point. I am extremely proud of my daughter, who has been working with me in my business for the past three years now.

I was very surprised to learn that, under Canada's current tax laws, it would be better for me to sell my business to an outside third party rather than to a member of my own family.

Essentially, when a business is sold to a family member, the difference between the sale price and the original price of the business is considered a dividend and is taxable as regular income at 100%. However, if the sale is between two strangers, the difference is considered a capital gain, only half of which is taxed.

What is more, in Canada, the lifetime capital gains exemption that normally applies to small and medium-sized businesses does not apply in this case.

What type of message does that send? Does this not discourage people from starting a business?

What we want is to ensure that our country's economic growth continues to expand. For that we need to encourage people to get into business. When people who have been in business for 25, 30, or 40 years are ready to hand over their shares to their children, it is not right to put them at a disadvantage. The same advantages should apply whether the business is sold to a third party or a family member.

An estimated 550,000 business owners are going to want to sell or transfer ownership of their business over the next decade.

According to the Canadian Federation of Agriculture, over $500 billion in farm assets are set to change hands over the next 10 years. That is not to mention the over 8,000 family farms that ceased operations in the past decade. The population is aging, yet only 50% of these farm owners have a succession plan.

I would like to remind members that the Lower St. Lawrence region has one of the largest aging populations in Canada, which means that there are fewer opportunities to sell our businesses to future generations.

Given the aging population, three out of four farmers intend to retire in the next 10 years. It is therefore urgent that we correct the discrepancy in the Income Tax Act so that we are prepared for the upcoming demographic reality. That is why I support Bill C-274, which was introduced by my riding neighbour, the hon. member for Rimouski-Neigette—Témiscouata—Les Basques.

This bill caught the attention of the Rivière-du-Loup RCM in the Lower St. Lawrence region, which wrote a letter in the fall indicating its support for Bill C-274. The Rivière-du-Loup RCM's chamber of commerce did the same. Support is growing across Quebec. The Association des marchands dépanneurs et épiciers du Québec has spoken out against the existing situation, and the Union des producteurs agricoles and the Board of Trade of Metropolitan Montreal have both indicated that they are in favour of this bill. All of the major opposition parties support this bill. It remains to be seen whether the Liberal government will also support it.

I think this is a good opportunity for the Liberals to redeem themselves after breaking their election promise to cut corporate taxes from 11% to 9%, voting for an increase in CPP contributions, and imposing a carbon tax on a still fragile economy.

Bill C-274 is an opportunity for the NDP, the Conservatives, and the Liberals to join forces and quickly pass a bill that would recognize that small businesses and family farms are important to Canadian society. I encourage each one of my colleagues to say yes to Bill C-274.

In closing, I would like to add that there is widespread support for this bill across Canada and especially in rural areas, where families create small businesses and support them from one generation to the next. I sincerely believe that these families must have this opportunity. Just imagine that I were to sell my business to my daughter. I would have to pay 100% of the tax instead of 50%. If I only had to pay 50% of the tax, I could continue to help my daughter grow her business. That money would certainly go back into the economy.

Once again, I invite all my colleagues to support Bill C-274.