Bill C-208 (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.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Okay.

Mr. Chair, I will stop now so that we can move on to the study of Bill C-208 a little more quickly.

Thanks to everyone.

[The Chair, Liberal, Wayne Easter]

I think if we give a half-hour to this discussion on Bill C-14, that will put us at about 5:40 Ottawa time. That will give us about 50 minutes for Bill C-208.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

I'd like to thank all the officials, senior officials and employees here with us today.

Personally, I have a lot of questions about Bill C-208 and only a few about Bill C-14.

I would suggest that we continue with our questions about Bill C-14 until 5:30 and then move on to our questions about Bill C-208 from 5:30 to 6:30 with the other representatives, as scheduled.

[The Chair, Liberal, Wayne Easter]

We can take an hour with officials and still have a half an hour left for Bill C-208, or we could go 45 minutes with officials and take 45 minutes or thereabout on Bill C-208.

There is one official who is the same. Trevor McGowan from the Department of Finance is on both panels. Shawn Porter, who will be here for Bill C-208, is a different witness.

I think we'll have to deal with Bill C-14 first. We'll take 45 minutes to see where we're at, and then we'll go from there.

Does anyone have any remarks to start? I wasn't told there was. Do we just go directly to questions?

Gabriel Ste-Marie, you had your hand up. Do you have a question?

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

With regard to the next generation of farmers and the transfer of family businesses, please quickly tell us about Bill C-208, which is quite important, I believe. Young people especially are asking us to pass it. Now you seem to have some misgivings about it, but I hope I am wrong.

I would like to hear your thoughts on it.

[The Chair, Liberal, Wayne Easter]

I call the meeting to order.

Welcome to meeting number 26 of the House of Commons Standing Committee on Finance.

Pursuant to the order of reference of March 8, 2021, the committee is meeting to study Bill C-14, an act to implement certain provisions of the economic statement tabled in Parliament on November 30, 2020, and other measures, for the first two hours. For the third hour, pursuant to the order of reference of February 3, 2021, the committee is meeting to study Bill C-208, an act to amend the Income Tax Act regarding the transfer of a small business or family farm or fishing corporation.

Today's meeting is taking place in a hybrid format pursuant to the House order of January 25, 2021. Therefore, members are attending in person in the room and remotely using the Zoom application. The proceedings will be made available via the House of Commons website. So that you are aware, the website will always show the person speaking rather than the entirety of the committee. I would remind folks that they're not supposed to take photos or screenshots of the proceedings.

I will leave out a lot of the rest of the preliminaries, but I will remind you that members and witnesses should be addressed through the chair.

I'd now like to welcome our witnesses.

I will not at this time go through the departmental witnesses, but will welcome Minister Freeland and officials from the Department of Finance and others. They as well will be here for the presentation with Minister Freeland

Before you start, Minister, we are going to be interrupted by votes. Your ears might have been burning before you sat in your chair, because we were having a discussion about how we could ensure that you're here for an hour. I just don't know how this is going to complicate things, but maybe you could respond to that and then go to your remarks.

[The Chair, Liberal, Wayne Easter]

It will not solve all the problems, but it will help.

Does anybody else want to add a final comment before we release the witnesses?

I want to sincerely thank all the witnesses. We had a very informative discussion. Your personal experience in terms of dealing with individuals on intergenerational transfers, whether it's farms or small business or fishers, certainly showed through in your knowledge during this discussion. I want to thank each and every one of you for that on behalf of the committee.

To the committee, I suggested earlier that we probably have an option on Thursday if we want to continue on with this bill. We could move the in camera meeting on COVID expenses to March 30, so we have the full slate of witnesses. I'm not sure which department we're short, but we're short one.

If you prefer, we can have Minister Freeland on for the first hour, and then we'll have officials. That's on Bill C-14. We could take the third hour and deal with Bill C-208—have officials there and the legislative clerk, and see if we could finish up with Bill C-208. Then we could move the other in camera session to the 30th.

Are we okay with doing that? I see people's heads moving.

Okay then. We'll move the in camera meeting to the 30th, and we'll go with Bill C-208 on Thursday during the third hour.

The meeting is adjourned.

[Peter Braid]

I can perhaps jump in on that one as well.

Historically, private members' bills will fail or succeed for a whole range of reasons, but parliamentarians have a unique opportunity to seize the moment today. I think there is a greater element of political will around this particular bill, Bill C-208.

The backdrop of our circumstances is different. As you all well know and can appreciate, we've been through a year of a global pandemic and the demographics of the small business community have also changed. The time is now.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair. I'll be quick.

Bill C-208 was brought in by Larry Maguire, who is a Conservative member. He made a lot of good arguments in his presentation. We hear a lot of people supporting this. It seems like a logical thing to have families being able to transfer their businesses to their children.

The last time it was raised, in 2017, lots of issues hadn't been resolved. I hear from a lot of people who have been working on this for quite some time. It looks like it's been a thorn in the side of many people on this panel.

Why didn't it happen when the Conservatives were in power? They're now bringing it forward. What stopped it before?

Maybe that's for Dan or Brian.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I want to ask you, if I could, and I'd also like the thoughts of Mr. Janzen and Mr. Mansfield on this.... There's been a criticism of Bill C-208 that I agree with in spirit, in principle. Of course we would want to, as a finance committee, address unfairness—I say that especially as the son of a small business owner—but there has been a criticism along the lines of the lack of a requirement in the bill for a child to be involved in the transferred corporation's business or for the parent to cease to be involved after the transfer.

Do you have any thoughts on how to address that gap in the legislation?

I'll begin with you, Mr. Wark. Then I'll go to Mr. Janzen and wrap up with Mr. Mansfield.

[Ted Falk, Conservative, Provencher, MB]

I was going to ask you about that. Do you think section 84.1 as addressed in Bill C-208 adequately addresses some of those issues that you're struggling with on a day-to-day basis?

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

I want to thank all of our witnesses for coming to committee today. You have brought a lot of clarity in your presentations and in your responses to the questions as to what the bill is, what it will do and your perspective on it.

In my opinion, Bill C-208 is a bill that seeks to do one thing, and that is to address the inequity for small business owners, farmers and fishers who wish to sell their business or their enterprise to their family or their children. What it does is that it allows them to use the capital gains exemption, which they wouldn't be able to use currently for that but are able to use if they sell to a third party.

Mr. Janzen, you're from my home province of Manitoba. I'd like to ask you a few questions. You've indicated that this has been a thorn in your side for 34 years and that it is something you wish had been addressed sooner. How frequently do you encounter a situation where this would apply?

[Cindy David]

Yes. I'll chime in here.

A lot has been said on concerns about the unintended consequences of this legislation with regard to loopholes and large private corporations perhaps taking advantage of something that we hadn't intended. I would point out that if we do nothing, we're riddled with unintended consequences. Since this legislation was put in place.... It has been in place for a number of decades. One may wonder why we continue to push this forward: It's because the way we've taxed small businesses has actually changed within the framework of this legislation. The dividend tax has gone way up compared to what it was back in 1986, when this first affected small businesses.

Again, I'll just point out—if you could write this down on a piece of paper—that in our brief, which you will get on Friday, on page 5 we provide specific examples so that you can see how the tax has changed from 1986 to the current day. It has become very punitive. It actually highlights the fact that family businesses have a clear disadvantage today that they didn't have several decades ago under the exact same legislation that we have in place.

I'll leave you with this. Bill C-208 actually phases in a provision that disallows the exemption for the capital gains for larger companies. It already takes care of any potential leniency for large businesses and really is in favour of smaller businesses, which care more about using the capital gains exemption.

[Brian Janzen]

Thanks for the question.

Yes, I do think Bill C-208 does have enough guardrails, at least initially. As someone who has practised for 34 years, I'm going to preface this by saying that someone will always find something. Even if you think you have the proper guardrails now, you may have to tweak them later. We're all in favour of that.

Getting back to this particular thing, I really think the five-year time frame—if it's sold in the meantime and mom and dad pay their taxes as they would have without this bill—is a great provision. There definitely are some guardrails there.

Second, it just doesn't work to do an internal strip, the way Bill C-208 is set up. The internal strip, where you're taking out surplus without having a real sale, is where all the abuse happened in the early nineties. That is why section 84.1 was introduced. This bill really also helps for that.

Also, as I said with respect to the threshold for the value, these are the smaller businesses. This is not going to be, all of a sudden, undertaken by rich, rich, rich families to try to take advantage of it. With the guardrails, between the value and the time frame, I think this is perfect for the beginning of the bill. If it does need to be tweaked later, so be it. For now, though, this is a great limitation for any abuse, in my mind.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

The last question is for Mr. Kelly.

Mr. Kelly, you have recommended simplifying the LCGE and expanding it to include at least some of the assets and increase the LCGE amount to $1 million. Are you proposing that as additional changes to strengthen Bill C-208, or are you indicating that's something we should be considering moving forward?