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

This bill was previously introduced in the 43rd Parliament, 1st Session.

Sponsor

Larry Maguire  Conservative

Introduced as a private member’s bill.

Status

This bill has received Royal Assent and is, or will soon become, law.

Summary

This is from the published bill. The Library of Parliament often publishes better independent summaries.

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.

Elsewhere

All sorts of information on this bill is available at LEGISinfo, provided by the Library of Parliament. You can also read the full text of the bill.

Votes

May 12, 2021 Passed 3rd reading and adoption of Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation)
Feb. 3, 2021 Passed 2nd reading of Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation)

Income Tax ActStatements by Members

May 12th, 2021 / 2:05 p.m.
See context

Conservative

Larry Maguire Conservative Brandon—Souris, MB

Mr. Speaker, later this afternoon we will have the final vote on my private member's bill, Bill C-208. The purpose of this bill is straightforward. It will level the playing field by giving families the exact same tax treatment when they transfer their businesses or operations to their children as when they transfer it to a stranger. It would result in more locally owned and operated businesses, the type of businesses that are deeply involved in their communities and provide steady employment for countless individuals.

Bill C-208 sends a message of hope to young farmers who want to carry on what their families started. No longer will parents be given the false choice of having to choose between a larger retirement package after selling to a stranger, or a massive tax bill after selling to a family member, their own child or grandchild.

I urge all members to vote in favour of Bill C-208 and bring tax fairness to the Income Tax Act for all qualifying small businesses.

Income Tax ActPrivate Members' Business

May 5th, 2021 / 5:55 p.m.
See context

Liberal

Wayne Easter Liberal Malpeque, PE

Madam Speaker, I am very pleased to get the opportunity to speak a little further on Bill C-208, an act to amend the Income Tax Act regarding transfer of a small business, a family farm or a fishing corporation, which is sponsored by the member for Brandon—Souris.

As members know, Bill C-208 is now at third reading stage. How did it get here? Simply put, Bill C-208 has had considerable debate in the House and was referred to the finance committee, which I chair. I will make a few comments on what witnesses had to say before committee in a moment. The finance committee referred the bill back to the House without amendment.

Bill C-208 has a long history, and it criss-crosses the political landscape. It was first introduced by the current member of Parliament for Bourassa, a Liberal, two parliaments ago. In the last Parliament, the same bill was brought forward by Guy Caron, an NDP member. Now, in this current Parliament, it is sponsored by the member for Brandon—Souris, a Conservative member.

This long history, across all major political parties in the House, certainly shows that there is a need to bring fairness and equity from a taxation perspective to the transfer of family farm corporations, fisheries enterprises and small family businesses. Quite honestly, it is long past time that this problem was fixed.

During an earlier discussion at third reading, it was suggested by the government spokesman that just maybe the bill could provide opportunities for tax avoidance. I would agree that tax avoidance is a legitimate concern. However, I must point out that at the finance committee we heard from 17 witnesses, and every opportunity was given to address the concern of tax avoidance. We called on the public and Finance Canada to provide witnesses and propose amendments, to anybody who had those kinds of concerns.

I certainly appreciate that the assistant deputy minister of the tax policy branch and the senior director of the tax legislation division in the tax policy branch appeared and answered questions, and their comments appear in the transcript for the finance committee for anybody who wants to see it. To be fair, they did outline some concerns, especially as it relates to what is called “surplus stripping” for the purpose of tax avoidance.

Where does that leave us? On the one hand, we have concerns being expressed by officials, and I do take their concerns seriously. On the other hand, we have a broad section of witnesses who expressed a serious and immediate need for a way to transfer a small business, farming corporation or fishing enterprise without facing unfair taxation when transferring to a family member. We do not see amendments to the bill that would fix this alleged problem.

I would even agree with those who might say that private members' bills are not the best vehicle to change tax policy. They are not. However, we simply cannot allow this inequity disadvantaging intergenerational transfers to family members to continue. It is time to accept the only change that is on the table to fix the problem, and that happens to be Bill C-208.

The sponsor of the bill, the member for Brandon—Souris, gave about the most concise and clear example of this inequity in the tax system. He said:

The second example was a father wanting to sell his farm to his son to fund his retirement. If the father were to sell his farm to a stranger, he could use his capital gains exemption on the sale, resulting in an effective tax rate of 13.39%. However, if the farmer sold his farm to his son, that sale would be recorded as a dividend rather than a capital gain, and the farmer would pay 47.4% in tax. That is a huge difference, and I think we can all agree that it is completely unfair.

The second quote is from Ms. Robyn Young, president-elect of the Insurance Brokers Association of Canada.

She said this:

In closing, this is an issue of equity and fairness. Business owners should not be penalized for selling their business to a family member. Tax implications should never be a consideration when making the decision to sell a business to a family member.

There were many other good witnesses I could quote and make the point on this serious inequity, including the UPA, the Canadian Federation of Agriculture, other farming and fishing organizations, the tax manager at Deloitte, underwriting companies and more, but I think members get my point.

The backbone of many communities are small businesses, farmers and fishermen. Those who can pass a business down from generation to generation create the history and the character of many of our communities in the country. We need to give every opportunity for those families to make that transfer.

It is absolutely true that during this pandemic the federal government has been there in every way possible to support Canadians, businesses, farmers and fishermen. Tax policy, however, should not cause a disincentive to transfer to the next generation. Tax fairness should be the cornerstone on which to encourage intergenerational transfers. This bill would move tax policy in that direction.

Finance Canada, and the government for that matter, always have the option to put forward corrections in a ways and means motion if concerns expressed before committee do arise in reality. That, in itself, is a safeguard. They have the ability to do that fairly quickly through a ways and means motion. However, farmers, fishermen and small business owners, with respect to the unfairness of this taxation system, have been waiting for this change for years.

We have to put the shoe on the other foot. Instead of having those families that want intergenerational transfers sitting in the wings waiting for something to happen, we have to pass this bill and put the shoe on the other foot. If there is a problem, then government has the ability to fix that problem. I am encouraging others to recognize this problem.

I, for sure, will be supporting Bill C-208, and I hope others can do the same.

Income Tax ActPrivate Members' Business

May 5th, 2021 / 6:05 p.m.
See context

Bloc

Xavier Barsalou-Duval Bloc Pierre-Boucher—Les Patriotes—Verchères, QC

Madam Speaker, I want to congratulate my colleague on his speech, which was interesting. My speech will be along the same lines as his, as it was all very sensible.

In his speech, my colleague said that Bill C-208, an act to amend the Income Tax Act, is not partisan. The bill does not belong to the Liberal Party, the Conservative Party, the NDP or the Bloc Québécois.

In fact, since there were no questions and comments following the remarks by the previous speaker, I would like to point out an oversight. I believe it was an oversight. Perhaps not, but I hope it was.

He mentioned some of the previous versions of this bill intended to facilitate the transfer of family businesses. Yes, the hon. member for Bourassa did in fact introduce legislation to facilitate the transfer of family businesses when he was in opposition a few years ago. Yes, it is also true that the former member for Rimouski-Neigette—Témiscouata—Les Basques, Guy Caron, had also introduced legislation to facilitate the transfer of family businesses.

However, my colleague may have forgotten that the member speaking right now, in other words me, also had the opportunity to introduce Bill C-275, which sought to facilitate the transfer of family businesses. I introduced it at roughly the same time as my former colleague from Rimouski-Neigette—Témiscouata—Les Basques. In fact, as we were announcing the introduction of this bill, my former colleague from Rimouski-Neigette—Témiscouata—Les Basques thought it was such a good idea that he quickly introduced his bill as well.

There was a bit of a friendly competition about doing the right thing. We wanted parents who want to hand down their business to their children to stop being penalized. This only makes sense, because it is good to see a family's achievement carry on.

Now it is the Conservatives' turn to introduce a similar bill. At the time, when they were in government, the Conservatives were against it, but now they support the cause. Of course we are very pleased to see that, but we are still disappointed to see that the current Liberal government does not seem to want to support the bill. It is hard to understand. How is it that when the Liberal and Conservative parties are in the opposition they want to do the right thing, but when they are in power they do not? That is quite disappointing, to say the least.

When this type of bill is introduced, many people pay attention to the ongoing debates. When the bill was introduced, and then when we began debating it, I immediately alerted certain businesses in my riding as well as some people I went to school with who also wanted to take over their family businesses. After seeing so many bills fail, they were all excited and hoped that this one would come to fruition.

In the meantime, after so many bills failed to pass in previous parliaments, the Quebec government decided to act. Quebec changed its tax legislation to allow the transfer of family businesses. It would seem that the federal government is frozen and incapable of moving forward. When either the Liberals or the Conservatives come to power, everything suddenly stops and fails to move forward.

I am making a heartfelt plea, which I believe echoes the pleas of the people who have been contacting me. They want to know what progress has been made on this bill and whether it will pass. Sometimes I tell them that even if my bill does not pass, some measures might well be included in a budget. In several economic updates and even in some budgets, the government stated that it would work to facilitate the transfer of family businesses and that it would examine the legislation to make certain improvements.

Once again, the government is giving people hope. People are thinking that maybe the government is finally going to do something. It is disappointing, because year after year there is always a holdup. Is it an administrative problem or does the bill run counter to some kind of interest? I do not know who would have an interest in preventing families from passing their business from one family member to another.

Passing a business on to the next generation is not easy. It is rare. People often say that it is difficult to transfer a business and to encourage their children to take over the family business. When their children do want to take over, why are we stopping them from doing so? Why would we financially penalize those who pass their business on to family members but not penalize those who do not? Why is it more profitable to sell one's business to anyone other than one's own children?

For example, I could sell my business to a stranger and make more money. There are many parents who have to think about that option. Obviously, all parents want what is best for their children, but when they see that passing their business on to their children could, in some cases, cost them hundreds of thousands of dollars, many of them have to stop and think about whether doing so is financially viable for them. Not all business owners have millions of dollars put away. Often these business owners invested in their business thinking that they would use it for their retirement. They therefore want to be able to benefit from it.

This is creating quite the dilemma for people. If they pass their business on to their children, then they may have to forgo their retirement. It is really disappointing to see that this situation has not yet been resolved. That is why I wanted to speak today, to bring to light this issue, this problem.

We also have to look further ahead. What happens when there is no one in a family to take over the business? The owner has to seek out someone else, approaching businesses or people who are already well established, such as a competitor, a bigger company. That is what poses a problem.

Family farms can disappear when they are taken over by larger farms. I have nothing against large farms, by why not let small businesses exist and prosper, run by people who are working for themselves and being their own boss? I think that would be nice. However, we are faced with a bill that hinders that possibility.

If we let farms disappear, if we let small businesses disappear because there is nobody to take them over, we are making other people think it is not easy to start a business or start a farm. Ultimately, if we want to allow those transfers, if we want to avoid seeing mega-businesses and mega-farms that are held by shareholders and operated by absentee executives and managers who live who knows where or are very far away from the customer, the consumer, we have to be flexible and attentive to this concern.

I studied accounting. Business owners and I are not the only ones saying we are frustrated. We are also hearing that from accountants, accounting students and professors, who have been saying for ages that the government is not interested in listening or understanding. We were hearing it back in the early 2000s, when I was in university. Professors did not understand why the government was not doing something about this issue. All the students were appalled to learn that, by law, this kind of capital gain was considered a dividend, which meant at least twice as much tax had to be paid on that gain. Financially, that hurts. Like it or not, money influences these decisions and affects the young people who would like to take over.

As I see that my time is almost up and I do not want you to interrupt, Madam Speaker, I will conclude with a heartfelt plea. I implore the government to finally listen to the wishes of the business world, small businesses, members of the House and members of the Standing Committee on Finance and to do the right thing by supporting and passing this much-needed bill.

Income Tax ActPrivate Members' Business

May 5th, 2021 / 6:10 p.m.
See context

NDP

Alistair MacGregor NDP Cowichan—Malahat—Langford, BC

Madam Speaker, it is a great honour to be standing virtually in the House and speaking to Bill C-208. I would like to thank the member for Brandon—Souris for being the sponsor of this bill. He is the latest in a fairly long line of MPs who have been trying to achieve this legislative proposal.

I was present in the 42nd Parliament when my former colleague, Guy Caron, brought in Bill C-274, and I remember his passionate speech in the House of Commons during its second reading. He was trying to illustrate the reasons why that legislation was so important. It was great to witness that speech, but ultimately it was very disappointing to see the vote results when the Liberal government at the time used its majority to prevent the bill from going any further.

I am glad to see this time it has been different, by virtue of the fact that we are in a minority Parliament and the opposition used its combined numbers to send this bill to the Standing Committee on Finance where it had a good airing. We got to hear from many witnesses, and ultimately the committee decided to send the bill back to us for our final consideration. It is my sincere hope that this bill will be sent off to the other place and that we can look forward to royal assent, hopefully in the near future.

When Bill C-274 was being considered in the previous Parliament, I had a meeting with the Port Renfrew Chamber of Commerce. I was given a 10-minute speaking spot during their AGM, and when I talked about Bill C-274 at that time and about what we were hoping to do, I got unanimous positive feedback from the members of that chamber. For those who do not know, Port Renfrew is on the southwest coast of Vancouver Island. Many people there depend on fishing for their livelihoods. They are either commercial fishermen or are in sport fishing, so they have small fishing corporations. To have the ability put forward to transfer their businesses to family members really meant a lot to them. There was overwhelmingly positive feedback. I ultimately had to give them bad news, but here we are with a real opportunity to try to bring about some positive change.

This bill is pretty much tailor-made for the types of small businesses that exist in the riding I represent, Cowichan—Malahat—Langford. Like so many members before me, I want to acknowledge the pain and suffering that small businesses have gone through over the last year. I think it is incumbent upon us not only to have support programs to help them through the pandemic, but also to bring about long-term systemic change to important statutes such as the Income Tax Act, so that we can make their business operations and their succession planning that much easier.

My riding is dominated by farming as well. Here in the Cowichan Valley we have a beautiful climate. It is, I think, Canada's only Mediterranean climate and we have a very long and storied agricultural history. We have generational family farms here. Some have the fifth generation of a family farming the same plot of land. If we can bring about legislative change that makes succession easier and gives them peace of mind, I think we are doing a good thing.

I also want to give a shout-out to the five chambers of commerce in my riding: Chemainus, Cowichan Lake District, Duncan Cowichan, Port Renfrew and WestShore. They have all been incredible advocates for their members. I have been staying in touch with them quite consistently over the last year and their feedback during this pandemic has been invaluable in helping me, as a member, advocate on their behalf in Ottawa to make sure that the federal government's policies and programs are reflecting their needs.

I will concentrate mostly on family farms, given the nature of my riding and the fact that I am the NDP's critic for agriculture and agrifood. When we look at family farms, we are looking at $50 billion in farm assets that are set to change hands over the next 10 years. History has shown us that roughly 8,000 family farms have disappeared over the last decade.

The National Farmers Union has done an incredible report on the status of Canada's farms, called “Tackling the Farm Crisis and the Climate Crisis”. It not only looks at agriculture in the context of climate change, but also the financial footing that many farms are on and how shaky it is. According to the NFU, Canadian farm debt has doubled since the year 2000. That is in 21 short years. It was listed at $106 billion in 2019.

Many farms have to chase income from off-farm work, taxpayer support programs and other farm sources. That is just a reality for so many small farms. What is really concerning is that we have lost two-thirds of our young farmers since 1991. The family farm is pretty much being systematically destroyed in Canada, and we need to put measures in place that are going to help.

Why is Bill C-208 so important? The owners of small businesses, family farms and fishing operations who want to retire want to be able to sell to their children because it is often their children who have been brought up in the family business and on the family farm. From a young age they have learned the culture of the business and what it does, and they often have a lot invested in that business continuing to succeed. The next generation often has very important ideas about where to take that business.

When parents decide to sell their business to their children, the difference between the sale price and the price originally paid is currently considered a dividend, but if they sell their business to an unrelated individual or corporation it is considered a capital gain. Unlike capital gains, a divided does not include the right to a lifetime exemption and is taxed more heavily. We can make a measurable improvement in allowing families to pass on businesses that might have been part of a family for generations to their children, making it easier for that work to get done.

I want to recognize the work done at the Standing Committee on Finance. I appreciate the witnesses who appeared. Many of them also appeared at the agriculture committee. We heard important testimony from the CFIB, the Grain Growers of Canada, L'Union des producteurs agricoles and, of course, the Canadian Federation of Agriculture, which has been such an incredibly important voice for farmers from coast to coast to coast.

They noted at committee that the average age of Canadian farmers is now above 55, and the opportunities these businesses face will carry into the next generation. It is a sector in which the vast majority of businesses remain family owned, and maintaining the financial health of those businesses across generations is critical. At committee, the CFA very clearly said that it supported Bill C-208 because it would ensure that real family farm transfers could access the same capital gains treatment as businesses selling to unrelated parties, rather than treating the difference as a dividend that was taxed at a higher rate and not being able to access the lifetime capital gains exemption.

We have an important opportunity before us. During the vote at second reading, I was sad to see that 145 Liberal MPs voted against this bill. Two Liberal MPs supported it. It is my sincere hope that when this bill comes to a final vote to be sent to the Senate, Liberals can finally see this as an important opportunity and can represent the interests of small businesses, family farms and fishing corporations by making this much-needed change to the Income Tax Act and doing right by their constituents.

I, for one, will be proud to vote in favour of Bill C-208 and send it on its journey. I look forward to the day when we can finally see it receive royal assent.

Income Tax ActPrivate Members' Business

May 5th, 2021 / 6:20 p.m.
See context

Conservative

Ted Falk Conservative Provencher, MB

Madam Speaker, what a privilege and honour it is to speak to Bill C-208. Not often in the House do we find a private member's bill that has all-party support, and this is one of those unique situations.

For many small business owners, business succession is an important factor to consider when planning for the future. This is no surprise. When they spend so much of their time and energy pouring hour after hour into running their operation, what happens to the fruits of their labour when it is time for them to retire or move on matters to them.

However, surveys tell us that only about half of small businesses have a succession plan. I suspect that is because they are caught up in the day-to-day running of their businesses. However, whether they are thinking about succession early on or are confronting succession decisions near the time of transition, somewhere along the line these entrepreneurs face a frustrating reality: It is more expensive to sell an incorporated small business, or a family farm or fishing enterprise, to a family member than to a stranger.

What is behind this? When a business is sold to a family member, it is considered a dividend. When sold to a stranger, it is considered a capital gain and is eligible for capital gains exemption. In its simplest form, when selling to a family member the tax rate is higher for the seller than when selling to a stranger. That tax rate is significantly lower.

This is not right, and it is not fair. About half of small business owners are hoping to sell or transfer their operations to family members when it is time for them to move on. If members have spent even a little time around family-run businesses, the “why” becomes clear. Sometimes kids are raised in the business and learn the ropes at a young age. They come to know the ins and outs of the business better than anyone. They put in the time, they know the customers and they are established figures in their communities. When the time comes for succession, they are an obvious option for so many reasons.

This is where Bill C-208 comes in. It seeks to achieve tax fairness for business succession by amending the Income Tax Act to level the playing field. It would allow a small business owner the same tax rate when selling their operation to a family member as when selling to a third party. It would correct the injustice within the act that unfairly punishes individuals when they sell their qualifying small business, farm or fishing operation to their own family.

During the finance committee's study of the bill, Brian Janzen, a senior tax manager with Deloitte, gave an example to help members understand just how stark the financial difference currently is between selling to a family member and selling to a stranger. He said:

Right now, if you have a $1-million business and you sell your shares—in a restaurant, let's say—to your neighbour, you will walk away with after-tax proceeds from a $1-million sale of about $971,000. That's only $29,000 of leakage....

There are various ways to sell your shares to your kids under the current regime of section 84.1, but I'll just use the worst-case scenario. The worst-case scenario is that your kid sets up a holding company, or holdco, and buys your shares from you. In Manitoba, that will cost you $466,000 because of the deemed dividend. That's a difference, between the two scenarios, of $437,000. That's just crazy.

He is right. That is crazy, especially when we consider the value small business continuity can have in our communities. Small business owners have often built strong relationships with their customers over the long term. They have employees, whether a couple or a couple dozen, whom they care about and have invested in. They are plugged into their communities in multiple ways. Whether by supporting local food banks, sponsoring sports clubs or donating to construct a new community centre, small businesses are there.

Handing that over to a stranger, perhaps someone from out of town, may not be the best situation for the business owners or their communities. When they have built something and invested plenty of sweat equity in their operation, it is understandable to want to hand it off to someone who can carry on that legacy.

Robyn Young, president-elect of the Insurance Brokers Association of Canada, told the finance committee about her experience of purchasing the family business from her parents. She said:

When my parents decided to sell their business, they received an offer from a large direct writer. They ultimately chose to sell the business to me and my brother, because it was important to them to keep the business they had built within the family. They also wanted to ensure that their clients would continue to receive the same expert advice and personal touch they had come to expect.

She went on to say:

Family-run brokerages are the pillars of the community and the lifeblood of the economy. They serve and support their communities in good times and bad by creating employment and donating time, money and other resources.

These are the considerations for many small business owners looking at succession planning. There needs to be a level playing field that empowers owners to make the best choice for them and their communities.

The current inequity is a reality that impacts a variety of types of small businesses, but I want to take a moment to talk about farm families specifically.

Agriculture is incredibly capital intensive, and as Scott Ross of the Canadian Federation of Agriculture told the finance committee, “effective succession planning is critically important, particularly for a sector that will transfer tens of billions of dollars in assets to the next generation in this decade alone.” Uniquely, the agriculture sector continues to be one where the vast majority of farms, even though they are incorporated, still remain family owned. This has considerable advantages for all Canadians since, as Mr. Ross highlighted, “studies show that family farming encourages sustainable growth, environmental stewardship and increased spending within one’s local community, not to mention its contributions to the social fabric of rural Canada.”

I share several commonalities with the bill's sponsor, the member for Brandon—Souris. For one, we were both elected in the same 2012 by-election. More importantly for today's discussion, we both have “farmer” on our resumes. We are very familiar with the immense benefits that farming and agriculture provide to the communities we represent. By passing Bill C-208, the House can acknowledge the tremendous contributions that our farmers make and can help ensure tax fairness for farm succession.

Throughout debate on this bill, we have heard some members suggest that this change will just benefit the rich or create opportunities for tax avoidance. I want to address this head-on because that is a mischaracterization that finance committee testimony swiftly put to rest.

The bill includes tax-avoidance safeguards mandating that the family member who purchases the operation must maintain their shares for a minimum of five years to avoid penalization. As Deloitte senior tax manager Brian Janzen confirmed, “This bill is helping the lower end of the small business community. It is not helping the huge, rich companies, even if they're family owned.” He also told the finance committee that Bill C-208 has enough guardrails to prevent tax avoidance, even as he urged vigilance so that tweaks could be made if required.

Like all colleagues, I wanted to make sure that the bill did not providing an undue benefit to large corporations. I therefore asked Mr. Jansen very specifically about those concerns. He said it did not benefit large corporations, “partly because of the guardrails you have in this bill, but also because for the larger companies...section 84.1 and the capital gains exemption didn't even come into play. The numbers are big enough that this is just...not material to the larger private businesses. This is really helping the small private business.”

It is clear that this bill strikes the right balance between providing tax fairness and preventing abuse. I encourage any members who feel differently to review the testimony before the finance committee. They will see experts addressing these concerns and urging the bill's swift passage.

There were 145 Liberal members who voted against this common-sense bill at second reading. Meanwhile, members of all the opposition parties supported it, and so did two Liberal MPs. I sincerely appreciate the two Liberal members who voted in favour of this bill. They recognized the positive impact that it would have on their constituents. I hope that the testimony we have heard since that time will help other Liberal MPs better understand why they ought to lend their support to Bill C-208. Their constituents deserve tax fairness.

I want to wrap up by saying thanks to the member for Brandon—Souris for introducing this pertinent legislation. His efforts are going to make a real difference in the lives of many small business owners and farm families. We have seen iterations of this bill brought forward by multiple parties over the years, and this goes to show that there is cross-party support for this bill. It is time to get it over the finish line.

I invite all my colleagues to support small business and vote in favour of Bill C-208. Let us get it passed and get it to the Senate. Hopefully it will deal with it as expeditiously as the House has. I am thankful for the opportunity to speak to the bill.

Income Tax ActPrivate Members' Business

May 5th, 2021 / 6:40 p.m.
See context

Conservative

Dan Mazier Conservative Dauphin—Swan River—Neepawa, MB

Madam Speaker, I rise today to speak to a very important bill that would positively impact countless farmers and small business owners across Canada if passed.

I want to sincerely thank my colleague, the member for Brandon—Souris, for introducing the bill to Parliament and making so much progress on this issue. I am fortunate to work with my Manitoba colleague, who gained my profound respect for representing his constituents in an exceptional manner throughout his tenure as a member of Parliament.

Bill C-208, an act to amend the Income Tax Act, would provide tax fairness for farmers and small business owners across our nation.

This may surprise most Canadians, but selling a farm or a small business to an unknown third party receives better tax treatment than selling that same business to a family member. The current structure of the Income Tax Act penalizes farm and small business owners from transferring their operations to a member of their own family. This discrepancy in tax treatment can result in hundreds of thousands of dollars in more taxes if sold to family as opposed to a stranger.

For example, imagine a couple who has owned a local auto repair shop in Manitoba for decades and is ready to retire. These owners have worked hard to support their family and community and their business is now worth $1 million. The couple is approached by a multinational auto repair company that has no roots in the community but wants to buy the business. If owners were to sell their business to this unknown third party, they would incur $29,000 in taxes.

Their son is also interested in buying the local business as he looks to raise a family and make a living in the community in which he grew up. However, if their son were to purchase the same company at the same price, his parents could pay up to $466,000 in taxes, a tax difference of $437,000.

Now the couple who owns the auto repair shop must make a decision. Do the owners sell to the multinational company and maximize their retirement fund or do they sell to their son and keep the business in the family? Why should small business owners be placed in a position to choose between sacrificing their retirement fund or sacrificing the word family in their family business? The answer is obvious: they should not.

However, thousands of business owners spend their entire careers operating their businesses with the expectation of passing it to their children. They do not realize the staggering tax difference they will be indebted with until they part ways with their business. This puts retirement and business plans at risk.

The constituency of Dauphin—Swan River—Neepawa is built on the foundation of small business and agriculture. These sectors are the lifeblood to the vibrant rural communities of our region. I was raised and spent my entire life in rural Manitoba. I understand how these businesses support our communities and the families within.

Last year, I spent a year touring rural Manitoba to meet specifically with small businesses to hear their priorities and concerns. One of the most prominent things I heard was the concern of what the future would look like in rural populations as aging and younger generations moved to urban centres. Many rural communities rely on a single business to provide a good or service.

I think of the No. 5 Store in the rural town of Riding Mountain, located between the community of Neepawa and Ste. Rose. This family run business is the only supplier of essential goods and services to the Riding Mountain community. Locals rely on the No. 5 Store for their everyday essentials like groceries and mail.

Small businesses like these provide families with goods and services needed to successfully make a living in rural communities. If businesses like these close their doors, communities suffer.

Large multinational companies will never replace the locally owned family businesses that are the engines of rural Canada. Family owned small businesses are what give rural communities their identity. We must support them in transferring their businesses to future generations so they can endure. Without small businesses, rural Canada evaporates.

Agriculture is another pillar to our country and to the region I represent. Family farms contribute immensely to the social and cultural fabric of rural Canada. However, by 2025, one in four farmers will be 65 or older and over 110,000 farmers are expected to retire within the coming decade. This means thousands of farmers will be transferring their farm operations as they retire.

I should remind the members of the House that farmers are the people who have a strong connection to the land. They care deeply about keeping their farm in the family in the hopes of watching their children take the same care of the land in the manner they did.

There something to be said about the family farm. The family farm is not just a business, it is not just an operation; it is generational and sentimental. It is a way of life for hundreds of thousands of Canadians and their families. The family farm is an ideal and it is an ideal worth preserving. However, it is clear that agriculture is approaching a demographic revolution and as parliamentarians, it is our duty to support such a massive transition to ensure the future prosperity of Canadian agriculture.

Unfortunately, under the current tax regime, farmers are unable to transfer their family farm to the family without experiencing unfair tax treatment. As parliamentarians, we need to work creating more sustainable rural Canada through job creation and economic prosperity. Bill C-208 would do that.

Bill C-208 would keep the family in the family business. It would provide a future for the family farm. It would create fairness for countless Canadians as well as preserve the rural communities that are the bedrock to our nation.

Income Tax ActPrivate Members' Business

May 5th, 2021 / 6:50 p.m.
See context

Conservative

Larry Maguire Conservative Brandon—Souris, MB

Madam Speaker, my colleagues have outlined all the details at second reading, third reading and previous iterations of this bill, so I will not go into those right now.

Tonight, I want to begin by thanking all those who have helped get Bill C-208 to this point. Without my Conservative colleagues trading the speaking spots for their private members' bills, we would never have gotten to third reading before the summer recess. I am immensely thankful to them for that.

For my colleagues from Prince Albert, Saskatoon—Grasswood and Regina—Qu'Appelle, I am eternally grateful for their support and assistance. For that support, I want them to know we are on the cusp of passing the legislation and sending it to the Senate.

I have spoken to numerous MPs over the past year about the importance of correcting this massive injustice within the Income Tax Act. The purpose of this bill is straightforward. It will level the playing field by giving families the exact same tax treatment whether they transfer their businesses or operations to their children or to a stranger. It will result in more locally owned and operated businesses, as has been outlined by many of my colleagues who have spoken to the bill, the types of businesses that are involved in their communities and provide steady employment for countless individuals. It will help keep farms and fishing operations in the family as well as any other qualifying small business.

Bill C-208 would send a message of hope to young farmers who want to carry on what their families started. Most of all, it would bring tax fairness to the Income Tax Act. No longer will parents have given a false choice of having to choose between a larger retirement package by selling to a stranger or a massive tax bill because they have sold to a family member, their own son, daughter or grandchildren. Every single community in Canada will be positively impacted by the passage of the bill.

As I said in my speech two weeks ago, there is bipartisan support for the legislation. I want to recognize and thank not only my colleagues from Provencher and Dauphin—Swan River—Neepawa for their kind words and informational speeches, but also the members of other parties for their speeches and support at second reading, third reading and at committee as well as all the witnesses who gave testimony.

In particular, I want to thank my colleague from Malpeque, who also happens to be the chair of the finance committee, who announced he would be voting in favour of Bill C-208. I thank him for his kind presentation in the House today as well.

While I know my Liberal colleague from Winnipeg North, and I know him very well, is well-intentioned, I found that during his speech a on the legislation a couple of week, his comments were quite off base. I know, had he taken the time to read the evidence and testimony provided at the finance committee, he would have known his speaking points and the concerns given to him by the finance department were all truly addressed.

For my Liberal colleagues, who, for the most part, all voted against the bill at second reading, I know the process. I know the party whips and the powers that be have likely told them to vote against the bill. However, I implore them to listen to their constituents who want this legislation passed, review what the tax experts have said and reach out to their businesses, farms or organizations in their ridings and ask them if they support the bill. I can assure all my colleagues that if they do reach out, they will find almost universal support for Bill C-208.

Once and for all, we can finally resolve this long-standing problem that countless families have had to endure when selling their businesses or operations to their immediate children or grandchildren.

I look forward to the final vote next week and kindly ask all my colleagues to support the bill, thus allowing for the debate in the other place and passage of it into law.

Income Tax ActPrivate Members' Business

April 21st, 2021 / 6 p.m.
See context

Conservative

Larry Maguire Conservative Brandon—Souris, MB

moved that the bill be read the third time and passed.

Mr. Speaker, I want to thank my colleagues for bringing this to third reading because it is a privilege to speak in the House to Bill C-208, an act to amend the Income Tax Act, transfer of small business or family farm or a fishing corporation.

I want to begin my remarks by thanking a few of my colleagues who helped get my private member's bill to third reading much quicker than originally planned. Particularly, I want to thank my good friend, the hon. member for Saskatoon—Grasswood, who traded his private member's bill spot during the second reading, which allowed a vote to occur a few weeks earlier than scheduled. I also want to thank my colleague from Regina—Qu'Appelle, who traded his private member's bill spot. That is the reason we are debating Bill C-208 this evening.

The reason I am highlighting and thanking these two specific members is that time is of the essence. No one knows what the future holds or when an election is going to occur. These matters are outside of my control, so I want to focus on getting this legislation passed to support all small businesses. We must correct this massive injustice within the Income Tax Act that unfairly punishes individuals when they sell their qualifying small business, farm or fishing operation to their own family.

For those members who have not been closely following the debate, I will give a brief overview. As it stands, when a qualifying small business, farm or fishing operation is sold to a member of the owner's own family, the Income Tax Act treats the sale differently than if it were sold to an absolute stranger.

Yes, members heard that right. There are currently two sets of rules, and in some cases, it can result in the difference of hundreds of thousands of dollars. For some, that might not sound like a lot, but in many cases it could result in a parent making the tough decision to sell their business to a complete stranger rather than to their own children. That is wrong, and I intend on fixing it once and for all.

During my first hour of debate, I gave two examples of why Bill C-208 is needed.

The first involved a family wanting to sell their bakery to their daughter. If they sold the bakery to a stranger rather than their daughter, they would have an effective tax rate of 10%, after using their lifetime capital gains exemption. However, if they sold their bakery to their daughter, she would be obligated to repay their loan with personal tax dollars, which is a significant tax penalty.

The second example was a father wanting to sell his farm to his son to fund his retirement. If the father were to sell his farm to a stranger, he could use his capital gains exemption on the sale, resulting in an effective tax rate of 13.39%. However, if the farmer sold his farm to his son, that sale would be recorded as a dividend rather than a capital gain, and the farmer would pay 47.4% in tax. That is a huge difference, and I think we can all agree that it is completely unfair.

Since I introduced this legislation, I have been contacted by numerous agricultural and business organizations. People across the country have contacted my office to let me know how important this legislation is to their family. Every single constituency in Canada would be positively impacted by this legislation, and it would result in more locally owned and operated businesses, the type of businesses whose owners are deeply involved in their communities and provide steady employment for countless individuals, and it would help keep farms and fishing operations in the family.

Bill C-208 sends a strong message of hope to young farmers who want to carry on what their family started and to other young family entrepreneurs included with them. Most of all, it would bring tax fairness to the Income Tax Act. No longer would parents have to be given a false choice of having to choose between a larger retirement package by selling to a stranger, which has no charge, or a massive tax bill because they sold to a family member.

Other than Finance Canada officials, I received zero push-back from any of the expert witnesses who appeared in front of the finance committee. Witness after witness came to support the bill and to answer the questions put to them. All my colleagues who sit on the finance committee did their due diligence and asked insightful questions. I want to thank the chair of the finance committee, who helped shepherd this legislation, for scheduling ample time for witnesses.

I am pleased to report that the concerns put forward by the Liberal MPs were fully answered. While I do not know how they will vote at third reading, I would kindly ask for their support. Now that we have had hours of debate and a thorough committee study, there is sufficient evidence to justify the changes I am proposing.

The Income Tax Act is complex. It has been changed and amended over the years, and in many circumstances one needs a lawyer or accountant to decipher its intent. With that in mind, the finance committee prudently invited multiple tax experts. In many cases, they gave real-world examples, so members were able to better grasp the implications of the bill. Due to the member for Kingston and the Islands laying out Finance Canada's concerns during second reading, we knew exactly what questions the Liberal MPs were going to ask. Because the government outlined its argument during second reading, the tax experts and I had time to prepare in order to put its fears to rest.

We know what the bill will cost, due to the Parliamentary Budget Officer's analysis, as I have said in previous speeches. We know there are safeguards built into the legislation to ensure people do not skirt tax rules. We know the legislation is squarely focused on small and medium-sized qualifying businesses. We know the legislation, as drafted, will achieve its intended aim, which is to level the playing field in such transactions.

For those members who want further reasons to support the bill, I will highlight some specific comments and evidence provided to the finance committee.

Brian Janzen, who is a senior tax manager at Deloitte, appeared at the finance committee. As someone who has been handling business transfers for close to 30 years, he understands the Income Tax Act and the implications of section 84.1, which he said has been a thorn in the industry's side for many years.

In his opening remarks, he provided an example of what would happen with or without the current wording of section 84.1 regarding the sale of a business. He gave the example of a restaurant that is worth a million dollars. If the owner sells the restaurant to a stranger, he, according to Mr. Janzen, “will walk away with after-tax proceeds...of around $971,000.” He would pay roughly $29,000 in taxes, but if the restaurant were to sell to a family member, the taxes paid would be roughly “$466,000 because of the deemed dividend. That's a difference, between the two scenarios, of $437,000.”

I think Mr. Janzen summed it up quite nicely when he said, “That's just crazy.” I agree with him. It is crazy. This sort of scenario is playing out every single day, and it needs to stop.

Mr. Janzen also said in his opening remarks, “This bill is helping the lower end of the small business community; it is not helping the huge, rich companies even if they're family owned.”

Cindy David, who is the chair of the board for the Conference for Advanced Life Underwriting in Canada appeared at the finance committee and spoke about the necessity of getting this bill passed. She said:

...there's some urgency around the need for the government to act in amending 84.1.... [as] small businesses employ 70% of the private sector and have been major contributors to employment growth over the past decade. A vast majority of those businesses have fewer than 20 employees.

The last comment I want to highlight was made by Dustin Mansfield, who is a chartered professional accountant at BDO Canada. Mr. Mansfield knows first hand the challenges the current wording of section 84.1 causes for families and how it unfairly taxes them at a different rate.

Of Bill C-208, he said, “the legislation would put a successor child of a business in the same shoes as an unrelated party upon the transaction of the business. Why does a stranger receive better tax treatment than a child, when the purpose is to keep businesses within the family?” I do not think Dustin posed this as a rhetorical question.

The fact remains that there are some who do not want this legislation to pass. However, we were elected to lead, to improve the quality of life of those we represent and to make sure that we pass down a stronger nation than the one we inherited. We cannot take our prosperity for granted.

I urge my colleagues to carefully review the testimony provided at the finance committee; call their chambers of commerce, or local farmers and fishers; go make a few phone calls to local accountants or other tax experts; and speak to those who have been impacted to ask them if they think it is fair that they had to pay more taxes for the business to stay in the family. Members will find almost universal support for this bill. They will also find there is bipartisan support. We need to pass this bill and send it to the Senate.

Private Members' Business gives all of us an opportunity to set aside our political allegiances, and I would kindly ask my Liberal colleagues to allow this legislation to go to a vote. If the debate carries on, it will be even further pushed back. Once again, I thank all my colleagues who supported Bill C-208 and helped to get it this far. Out of all the attempts made to fix this unfair tax treatment, we have made it the furthest in Parliament.

By working together, we can support our entrepreneurs, small businesses, farmers and fishers who make up the backbone of our economy, so let us roll up our sleeves and get this job done.

Income Tax ActPrivate Members' Business

April 21st, 2021 / 6:20 p.m.
See context

Winnipeg North Manitoba

Liberal

Kevin Lamoureux LiberalParliamentary Secretary to the President of the Queen’s Privy Council for Canada and Minister of Intergovernmental Affairs and to the Leader of the Government in the House of Commons

Madam Speaker, it is a pleasure to speak to my colleague's bill. I can appreciate that he has put in a great deal of effort to get it to this particular point.

There are some very serious concerns in regard to the bill and the impact it will have. I am not 100% convinced that this is the best direction to go. I find it interesting that the member says, for example, that this is all about the family farm and that the family farm needs this particular break. My understanding is that parents can already sell a family business directly to their child, while claiming the lifetime capital gains exemption on the resulting capital gain. I would be interested in hearing my colleague's comments in regard to that aspect.

The issue at hand, in the eyes of many, is not about passing on the family business; rather, it is about corporations. There are all sorts of other issues that come to mind when we talk about corporations.

I am not as familiar with the farming community as the member would be, given his background versus mine. However, what I can say is that I have had the opportunity to visit many farms over the years. Growing up, I can remember being out in Saskatchewan and doing some cultivating on the big John Deere four-wheel tractors on a family farm. There was a belief that the farmers running the farms had them handed down and that they intended to hand them down to their children.

Even though I have some personal, first-hand experience, I do not want to say that I have a complete understanding of all aspects of farming. However, I do support family farms, and I would like to see us enhance them and give them strength.

A lot of family farms are like small businesses, and I think the Government of Canada has very clearly shown its support for small businesses. We have seen that in a variety of ways. A lot of them have been highlighted during the pandemic. We often talk about some of the benefits the government has brought forward, and I suspect that rural communities and even farmers would have been afforded the opportunity to participate in some of the programs. This highlighted the need that is there. It is very real.

Bill C-208 proposes amendments that could easily be misused by corporations, which could look for tax planning opportunities. I do not believe that the member has addressed that issue head on and provided the types of changes necessary to provide assurances.

My New Democratic friends in particular talk a lot about tax avoidance. I would be very interested in hearing them provide their thoughts on that specific issue. Have they looked into that aspect of the legislation? Are we creating opportunities, by passing this legislation, that could provide for tax avoidance?

This is a legitimate question, and it is an area of concern that was not addressed to the degree it could have and should have been addressed at the committee stage. It is a legitimate concern. I would be very interested in hearing what the New Democrats have to say about it.

The former small business minister, who I got to know well because she was the House leader of the government, often talked about the importance of small businesses. I have said in the past that they are the backbone of the economy. We can further add to that to show how important our farmers are. They are the ones putting food on our tables and contributing to Canada's overall GDP and exports. They feed the world. The crops we are able to provide around the world are very impressive. The growth in the Province of Manitoba of the canola industry has been very impressive. It has gone from virtually nowhere years ago to a major crop recognized around the world. We often hear about the importance of prairie wheat and that it is feeding people around the world. We can take a sense of pride in that and look at ways to support it.

In the budget, we heard about a number of initiatives. One that comes to mind right offhand is in the area of drying grains. The budget attempts to deal with that particular issue by supporting farmers.

We could talk about how we supported small businesses through the development of programs during the pandemic, such as the Canada emergency wage subsidy program, which has been very helpful to small businesses in general. We came up with the Canada emergency business account too. Another one I often reference for small businesses in particular is the Canada emergency rent subsidy program. These things are very real and tangible.

We know that many businesses continue to face stress and uncertainty as a direct result of COVID-19. That is why in many ways the government has stepped up to the plate to make sure there is support during these unprecedented times. I referenced the Canada emergency business account, which helped somewhere in the neighbourhood of three-quarters of a million small businesses. We are talking about tens of billions of dollars in loans. The Canada emergency wage subsidy program affected several million people, and, again, tens of billions of dollars were spent on it. There is the additional lockdown support. There was support for the agriculture and agri-food sector. The government recognized it as an essential service and provided support to it. We are committed to supporting producers and businesses so they can continue to provide for Canadians.

We have taken unprecedented action to support farmers, ranchers, food businesses and food processors across the value chain, and have provided support for vulnerable populations. For example, we quickly unlocked the $5 billion in additional Farm Credit Canada lending capacity and launched $100 million for a new agriculture and food business solutions fund to ensure that businesses in the sector have the support they need. We also increased the Canadian Dairy Commission's borrowing capacity by a couple of hundred million dollars. That was to allow us to support costs associated with the temporary storage of things like cheese and butter to avoid food waste.

A number of programs were put into place to support our producers. Programs provided dollars to foreign workers—

Income Tax ActPrivate Members' Business

April 21st, 2021 / 6:30 p.m.
See context

Bloc

Yves Perron Bloc Berthier—Maskinongé, QC

Madam Speaker, I am very pleased to speak to Bill C-208, which would significantly help businesses in Quebec and Canada with succession planning.

I once again want to congratulate my colleague from Brandon—Souris for introducing this bill. The Bloc Québécois considers succession planning to be essential to agriculture and all other sectors. We have supported this sector for a very long time. In fact, we started advocating for this idea back in 2005, after the Union des producteurs agricoles and the Fédération de la relève agricole du Québec issued a joint report that talked about the survival of our fishing businesses and farms.

We are talking about taxation, exemptions and various other topics, but what we are really talking about are small and medium-sized businesses, which are the backbone of our economy. We need to keep these businesses alive and make sure they survive. We need to make sure that these small businesses can keep going and that they are not put at a disadvantage where they will end up being bought out by big corporations. The survival of these small businesses is directly connected to the survival of our regions. This is why I am appealing to all of my colleagues.

I will never get used to it, but unfortunately, I once again sense that there is partisanship at play. It does not matter which party introduced the bill. What matters is that members look at the bill and ask themselves whether it is good for people. If it is good for people, then they should vote in favour of it. We need to correct this serious injustice. By protecting our small businesses, we are protecting our economic vitality. This is about sustainability, saving jobs and keeping knowledge in the community. As I just mentioned, it is about stopping the exodus of young people to urban centres. If they are able to take over the family business, then they will stay in the region.

Before I go on, I would like to give a nod to my colleague from Pierre-Boucher—Les Patriotes—Verchères, who introduced a similar bill in a previous Parliament. I commend him for that.

The Bloc Québécois defends the human-scale business model. I talk a lot about agriculture because I am very biased in favour of the farming community, but this is about all kinds of businesses. Human-scale businesses are the ones that keep regions vibrant and schools filled with children because there are families living in the community. We are not talking about a mega-farm that bought the land from eight of its neighbours, leaving only one family. Instead, there are eight families. That is the model we want to promote. In order to defend that model, we need to pass this bill. That is imperative. We have already been talking about it for too long.

Our SMEs are what keep us alive. It is a sector that has not received enough encouragement. I talk a lot about agriculture, but we want to protect innovative SMEs that could also sell their products abroad.

According to a 2018 estimate, between 30,000 and 60,000 Quebec businesses will not find new owners in the years to come. If they do not find new owners, they will die. If they die, 150,000 jobs and $8 billion to $10 billion in revenue will disappear.

In agriculture, it has long been said that every day, a farm disappears. That has not been the case this past year because there has been a slight increase in the number of businesses, which is great. We are happy about that, but it was no thanks to the government. It was because dynamic people started from scratch and created micro-farms. That is a good thing. We are happy about that, but we still see farms disappearing when they should be staying in business. We could do better. We can do better. Why are we not doing better?

I want us to take that step and move forward. Many of my colleagues have talked about numbers and statistics. I have lots of numbers too, but I am once again not sticking to my notes, which is just fine by me.

I want to talk about real people, real cases like the certified organic, 23,000-tap maple syrup operation owned by parents who are paying accountants a fortune to figure out how they can set up the transfer. Does another business have to buy the business? This is the parents' pension fund, and they want to pass it on to their children. They have to make a cruel choice. It makes no sense. That is the kind of example people keep sharing with me to this very day.

The dairy farm in Lac-Saint-Jean is another example. They keep postponing transferring the farm because they cannot come up with a solution, because there is no solution.

I would like to correct something my Liberal colleague said a moment ago. It is not true that the capital gains exemption can be used, otherwise we would not be voting on Bill C-208. I really hope my colleague will have a closer look at this file because in the cases brought to my attention, people are racking their brains for days, weeks and months, even paying a fortune to accountants.

On the other hand, the Liberal government likes to make people fill out complicated paperwork, to the point where they are forced to hire others to fill it out; that is how complicated it is. This seems to make the Liberals happy.

The Bloc Québécois does not think like that. We want to simplify people's lives and support the next generation, our youth and the people who want to live in our regions.

I want to share another example, and this is a true story.

A young person was nearing the end of negotiations to take over the family farm when he left on a trip. While he was away, his parents received an offer from someone outside the family that they could not refuse. The person offered ten times as much. The parents ended up selling the farm to the stranger. That type of situation destroys families and leaves permanent scars.

There are other examples of parents who hand over their business to their children out of a sense of obligation because they would lose sleep if they did not allow their son to take over the farm. As a result, they end up bitter and living in poverty. This also leaves scars. There are inn owners who resign themselves to paying a fortune in taxes. The father resigns himself to living on half of what he anticipated for his retirement. If that is not disgusting then what is?

Come on. We are the government. We have no right not to change this. Bill C-208 is very simple. It amends the Income Tax Act to give people who hand over their business to a relative the same privileges as someone who sells their business to a stranger. That is the right thing to do. Where is the problem? Where is the tax evasion?

Seriously, I sometimes find it difficult to remain calm when I hear the Liberals tell us that this could lead to tax evasion. We have been talking to them forever about tax havens and nothing has happened. Are they kidding me? Are they talking about tax evasion and SMEs? It does not happen often, but I am pretty much speechless. I could not even speak earlier. I told myself that it was not true, that my colleague did not say that, but he just did. We are talking about millions of dollars in tax havens. What about the web giants? How long have the Liberals been waffling to avoid taxing them? The idea is to ensure the survival of other smaller companies, such as our regional media, but they prefer it big and complicated. They favour their friends.

I am tired of a system that goes after and punishes the little guy. Small businesses are forced to fill out 28 forms, which stifles any economic momentum. Let us talk about the money. The Liberals have said that this will cost more than $1 billion, but that is not true. If I recall correctly, in 2017, the cost was estimated at $256 million. This really gets to me.

People thinking in terms of microeconomics see this issue only as a business that ceases to exist. Say the farm is sold to someone outside the family and is merged with a larger company. There is much more at stake here because the suppliers, the employees and the creditors are losing a business partner.

Family transfers are good because they allow for stability and familiarity. People know the business they have been dealing with for 25 or 35 years. When the son takes over the business, it is still the same business. He will keep it going.

Quebec changed its tax laws in 2016, yet another example of how Quebec is ahead. This week, the example was day care. This is good news, as long as we get the money.

I would like the House to come to that realization in this case too. Once again, the federal government is trying to catch up with Quebec laws. I am not saying that in a derogatory way. It is the truth.

Independent studies have shown that 47% of SME owners intend to exit their business within the next five years and 72% of them plan to exit within the next decade. In the fishing industry, a very high percentage of business owners are over the age of 50. Some might say that 50 is the prime of life. It is for me. However, that also means that the next generation needs to take over.

I am making a heartfelt plea and I want to send another message. To the government members who use doublespeak and make promises in private or during meetings by saying that this cause is important and that they are going to work on it, I want to say that now is the time to prove it. This is a good bill, and I am asking members to pass it.

Young people in Quebec and Canada are watching us. Business owners, those who support us and pay taxes are watching the government and waiting for results.

This is the first time that this bill has made it this far. Let us pass it.

Income Tax ActPrivate Members' Business

April 21st, 2021 / 6:40 p.m.
See context

NDP

Daniel Blaikie NDP Elmwood—Transcona, MB

Madam Speaker, I am pleased to rise to speak to Bill C-208 on the transfer of small businesses, family farms and fishing corporations between family members.

It is no secret to members in the House that the New Democrats definitely believe that the ultra-rich and wealthy ought to be paying their fair share, and we have done a very good job of making a case for that in this Parliament. We have proposed some concrete measures for how that might be done.

We have also been champions for small businesses in Canada. We know they are the backbone of the Canadian economy, with 80% of the jobs in our economy created by small business owners. We appreciate farmers and fishers and what they contribute to the Canadian economy and to the world, with all the food they export outside of Canada the world over.

These are important industries. The businesses within them, whether it is a farm or business, are developed by families and become part of the family. Those families are known in their communities. As the former member said, they have relations with suppliers and others within their communities. Being able to pass that family business on to their children is important. It is important for the family from an identity point of view and from the family's economic point of view. However, it can also be important to communities as well, that sense of stability and to ensure that the people who are employed at those businesses and people who do business with those businesses continue to enjoy those relationships and the economic benefits of them. This is why I am quite pleased to stand in support of the bill before us.

Earlier, the member for Winnipeg North talked about the NDP's concern for tax evasion, and he is absolutely right. We can talk about tax havens. New Democratic members have had private members' bills before the House, members who are serious about taking action on the biggest tax evaders. However, some of the small businesses in our communities, and I think of a small business I know, a sign company that a husband and wife developed over 30 or 40 years, want to pass the business to their children. They are not the people who are shunting money out to the Barbados, Cayman Islands and other such places.

The fact is that if business owners choose to sell to their children, under the current tax rules, they will pay considerably more than if they sell to a complete stranger, so there is a principle of fairness here. It just does not make sense that by selling a business that is the life's work of a family within the family that it would be penalized and have to pay more. That is what we are trying to address here.

I think the member for Winnipeg North misunderstands the bill, frankly, when he mentions the capital gains exemption. Of course, the very point of the bill is that if people are selling to immediate family members, they do not benefit from the capital gains exemption. That sale is not taxed as a capital gain; it is taxed as a dividend. The whole point of the legislation is to allow those family members to benefit from the very capital gain lifetime exemption to which the member for Winnipeg North was speaking.

I think some members do not necessarily expect that when the member for Winnipeg North gets up to speak, that he will have a very detailed knowledge of what he is speaking about, but that is no excuse for his government, or the ministry or other members of his party for that matter. They should hold themselves to a higher standard and really come to have an appreciation of what is in the legislation.

Why, when the New Democrats are so concerned about tax evasion, do we support the bill? There are a couple of things.

One of measures in the bill is that to get this different tax treatment under capital gains as opposed to dividends, the family member who receives or purchases the business has to continue to be the owner of that business for five years as opposed to the current two years. That is my understanding. It is meant to promote the idea that if the sale is happening, it is happening because someone within the family genuinely wants to take over the business, not just flip it for sale. Therefore, if within those five years, the business is sold again, then it is retroactively treated as a dividend sale and taxed appropriately, taxed as it is under the current legislation. At that point, it is not about successorship within a family, it has become something else.

One of the things that gives me comfort is that the bill is not the product of one political party that might have a particular agenda. A former NDP member of Parliament, Guy Caron, developed this private member's bill. He put a lot of work into it. As the NDP finance critic, he was someone who did excellent work on tax evasion and was very concerned about it. It was one of the things that motivated him to get into politics. He did that not just as an amateur within politics who was assigned the finance portfolio, but he did it as somebody who worked as an economist his whole life prior to getting into politics.

He understood very well not just the issue of tax evasion but also the particular dynamics of the bill. He sought to craft a bill that really would honour the idea of being able to pass a business down within generations of a family and to do that in the right way, so it did not just become a loophole or an excuse to evade taxes, something the New Democrats fiercely oppose.

Those are some of the elements, both concretely within the bill with respect to what the legislation would do but also where the legislation comes from, that give me confidence that this is not about introducing another means for tax evasion into the tax code. It really is about settling a fundamental unfairness, where people who spend their lives pouring their heart and soul into a business and make it a success, whose children have oftentimes been part of that success, and then want to ensure it gets passed on within the family and can do so without paying a large financial penalty. This also helps to ensure that these assets for our communities stay in local hands.

Sometimes the only people with the capital to buy a business are foreign investors, which sometimes happens, whether it is with small businesses or with farms. Either large corporations or foreign investors purchase these things. It makes more sense for the family, if the differential is $400,000 or $500,000 as we have heard in some cases, to come to the decision that it is in fact better off not doing what its heart wants to do, which is to keep that business or that farm within the family, but to make a more hard-nosed financial decision about the family's best interests. This would allow families to take off the table the factor that makes it far more profitable for them to sell to a stranger than to keep it within the family.

Those are some of the issues at play. As I said, this is something that New Democrats believe in, but it is also part of a package of advocacy that New Democrats have brought forward for a long time, and particularly within this Parliament. I have been really impressed with our small business critic, the member of Parliament for Courtenay—Alberni, a former small business owner himself, He was right out of the gate when the pandemic began, advocating for a 75% wage subsidy when the government said it would only be 10%. He knew how important it was to get beyond just covering payroll costs and providing wage replacement. He was the loudest voice out of the gate for the need for a commercial rent subsidy. He has been advocating for an extension of the Canada emergency business account loan program. We saw a small extension in the most recent budget. We are glad to see that, but there is more work to do.

The New Democrats believe in small business. We are advocating for small business. We see this as part of a package that is important for small business and farmers, so they can keep all the hard work of their families with in their families when the time comes to pass that business on.

Income Tax ActPrivate Members' Business

February 1st, 2021 / 11:05 a.m.
See context

Bloc

Gabriel Ste-Marie Bloc Joliette, QC

Mr. Speaker, for those who may not know, the city of Joliette, for which my riding is named, was established after Barthélemy Joliette built a mill on the bank of the L'Assomption River. At that time, the city was named L'industrie, which cleary shows the importance of entrepreneurship for our regional county municipality and for the northern Lanaudière region.

I already knew that before I was elected in 2015, when my riding was booming both socially and economically. However, I have heard from many entrepreneurs about how difficult it is to transfer their business to their children, since it is less profitable than selling it to a stranger. That is unbelievable. The Bloc Québécois and I are obviously in favour of Bill C-208. We have been working on this issue for many years. In fact, my colleague from Pierre-Boucher—Les Patriotes—Verchères introduced a similar bill in the previous Parliament.

If this bill were to pass, it would have a very significant impact on Quebec. Nearly one-third of Quebec's SMEs were buy-outs, whereas that number is one-quarter for Canadian businesses. According to Marc Duhamel, a professor at Université du Québec à Trois-Rivières, the rate of business buy-outs in rural areas is around 45%. Helping the next generation of business owners would be good for Quebec, and when something is good for Quebec, the Bloc Québécois votes in favour of it.

I also know that these changes will be good for my region. My riding has numerous farms in practically every one of its municipalities, including places like Saint-Thomas, Rawdon and Saint-Ambroise. We all know a farmer, and we are proud to support our local producers in our farmers' markets, grocery stores and even the little stands we see on pretty much every major roadway.

Right now, the crux of the issue is that a business transferred to a family member is treated as a dividend, not a capital gain, unlike a business sold to someone at arm's length. People who want to sell their small or medium-sized business or their farm or fishing operation to their children are not entitled to the lifetime capital gains exemption, but if they sell to a third party, they are.

I get that the government wants to prevent potential fraud and tax avoidance, but this situation complicates the lives of everyone who genuinely wants to take over the family business. This is like asking people to slow down to 80 kilometres per hour because some people are speeding along at over 130 kilometres per hour. The government should fix this situation by allowing transfers to family members. If a transaction is fraudulent, the government can investigate it, kind of like how a police officer would ticket someone speeding on Highway 50, but would let everyone who obeys the speed limit carry on.

Speaking of tax avoidance, there are other much more concerning cases. Here are three examples the government should tackle. First, the government should immediately start taxing web giants doing business in Quebec and Canada. Second, web giants' digital services should be subject to GST. Quebec already collects QST from them. These two measures have been announced, but they should be implemented right away. Third, the government should shut down the tax haven loophole. That was my goal in 2016 with Motion No. 42.

This is a serious problem, and many people in my riding are suffering as a result. Year after year, I meet entrepreneurs who are looking for someone, the next generation, a young person, to take over the family business. Rather than taking examples from my own family, among my uncles, aunts and cousins, let me give an example that illustrates how ridiculous this situation is. I will tell you about Charles, who went to high school with my assistant.

I have met Charles a number of times since my first election campaign in 2015. Ever since he was old enough to work, Charles has been toiling in his family business, a great sound, multimedia and lighting services company, the kind you often see at festivals, fundraisers and community events in the Lanaudière region and beyond. Not too long ago, Charles and his business partner bought the company. However, the family member who owned the business would have been better off selling it only to the partner, who was already working for the business, rather than including his own son in the transaction. How is that right?

Another incongruity has to do with selling to a competitor, which would actually be more profitable than selling to the next generation, the ones who know the distributors, the customers, the activities and the local reality. This would reduce competition in the sector, possibly increase the price of services and cause the loss of local expertise.

Unlike many other businesses that have no choice but to close up shop because of tax regulations, that SME was able to keep running back home in Joliette. If I open my curtains, I can see it from my window. I could talk at length about the problems facing this industry and even more so now because of the wide-scale cancellation of activities. However, that is not what this bill is about.

I would point out that the Canadian Federation of Independent Business, the CFIB, would like to see this bill pass, which is only natural.

There are many reasons we need to keep these SMEs in the hands of the next generation. First, this would allow several regions to develop their industry. We need to fix this problem for all SMEs, but even more so for businesses in the fisheries and agricultural sectors. In Quebec and in the regions, fisheries and agriculture are among our biggest industries.

Things are looking rather bleak when it comes to the next generation taking the reins of SMEs in the future. Statistics show that in 2016, fewer than 25% of farms had secured a successor and that rate has remained the same since 2011.

Between 500 and 800 young farmers are taking over a farm each year, when in fact 1,000 are required to maintain the number of farms in Quebec. Roughly one farm a day is disappearing back home.

In the fisheries sector, there are three major obstacles to the acquisition of a business. Léa Richard, of the Comité sectoriel de main-d'œuvre des pêches maritimes, said the following:

...what is truly difficult for this next generation is access to financing, the transfer of licences and the administrative complexity. These are the three elements that make it difficult for the next generation to acquire a fishing business.

We know that it is already difficult to take over a business. It is that much more difficult in sectors that require a sizeable capital investment. For these people who have poured their heart and soul into their business, which most of the time represents their retirement nest egg, it seems unfair that it costs them an arm and a leg to sell their business to their children.

It is difficult for people to go into business and later to let go of what they have spent most of their life building. If we could at least make it easier for them to sell their business to a family member, that would be a good thing.

The government will probably remind us that we need to make choices and that this measure comes at a significant cost. In fact, the Parliamentary Budget Officer reviewed a similar bill in 2017 and estimated the cost at about $376 million. To put that in terms the Liberals will understand, that is equivalent to a little more than one-third of a contribution agreement with WE Charity, or about 40% more than the sole-source contract awarded to Frank Baylis.

This measure may be costly, but it is nothing considering how much the next generation could help business owners. Losing a business is hard on the owners, but the impact of that loss ripples beyond the owner and their loved ones. Suppliers, creditors, employees and customers lose an important partner. We often think about how the closure of a large company can have repercussions on a region, as was the case with Electrolux a few years ago in Assomption, near my riding. However, we rarely consider that the loss of multiple small businesses can have a less immediate but equally serious impact on the socio-economic fabric.

Ensuring the succession and continuity of SMEs is not only good for our economy and governments' fiscal capacity, but it is necessary for efficient land occupancy. From the North Shore to Abitibi, from Gaspé to Nunavik, Quebec has chosen to have vibrant regions, each with its own strengths, growth sectors and educational institutions, such as CEGEPs. According to Maripier Tremblay, an associate professor in the department of management in Université Laval's faculty of business administration, “Quebec's economy depends on its SMEs, but also on its regions. It is very important for businesses in the regions to retain their pools of workers.”

I will close by saying that to have strong regions, we need to have people living there. For the period from 2014 to 2023, the Board of Trade of Metropolitan Montreal estimates that between 79,000 and 140,000 jobs in our SMEs could be lost due to the entrepreneurial deficit. That is a gigantic number.

That is like one or two whole ridings of workers disappearing in 10 years. When many families leave a region, it has significant consequences for the entire ecosystem.

Income Tax ActPrivate Members' Business

February 1st, 2021 / 11:15 a.m.
See context

NDP

Gord Johns NDP Courtenay—Alberni, BC

Mr. Speaker, many in this country are away from their loved ones, so before I get started, I note that today is my oldest daughter's 21st birthday. She is on the other side of the country, but I wish Maddie a happy 21st birthday and give her lots of love from everyone here at home.

It is always an honour to rise on behalf of the federal NDP to fight for small business. We know that small business owners are the job creators. Right now they are are creating 80% of all new jobs in our country. Bill C-208 is very important for supporting small businesses and local communities and for stopping the economic leakages from small communities in our country. These leakages often end up in the hands of large corporations because of flawed and broken tax rules that create a benefit for selling a business to those at arm's length versus a family member.

I want to thank the member for Brandon—Souris for reintroducing the bill, which shows that there is non-partisanship when it comes to supporting it. As members are well aware, the bill was first tabled as Bill C-274 by the former NDP finance critic and former member from Rimouski, Guy Caron. He fought hard, as the New Democrats continue to do, for small business.

I want to talk about what Bill C-208 would mean for small communities. We know that owners of small businesses, such as family farms and fishing businesses, as in the communities around where I live in coastal Canada, are often selling their businesses to family members. Specifically, the bill would give business owners the same rights they would normally get if they were selling to someone at arm's length. This is important, because nobody should be penalized for selling a family business to a family member, but it is happening now with the current taxation system. The bill is very important to us, and we are excited to be speaking in support of it given what it would mean to rural communities.

I cited the importance of small business for job creation. If people see a barrier to selling to someone at arm's length and will pay more tax, they will do everything they can to pay less tax. With the current structure, for example, if a person sold a family business worth $1 million to a family member, they would end up paying a dividend tax rate of about $350,000. However, if a person were to sell that same million-dollar business to a stranger, someone at arm's-length, they would end up saving $306,000 of the tax they would have paid otherwise. It makes absolutely no sense.

We want to encourage people to keep businesses in the hands of family members and encourage intergenerational business ownership, because we know that it keeps money and profits in our communities. For example, in fishing, if a person were to sell a family fishing operation to someone in their family, they would keep the quota and the jobs in the family. However, if a family member had to pay more tax, they would be more likely to sell to an international company or large conglomerate, which would hoard fishing licences and then lease them out to fishers. The same applies to farmers. Profits then leave the community at the end of the day, which is a huge economic leakage. The money is leaving the community and leaving our country in many cases, and this needs to stop.

Mr. Caron's bill tabled in the last Parliament would have supported small businesses, farmers and fishers, but it was defeated by a margin of only 12 votes. It was voted on after the government misled Parliament. The government cited that the fiscal losses would be up to $1.2 billion, but the PBO put the fiscal revenue shortfall between $126 million and $249 million. That is quite a gap. The Liberal government could have stated what it would have cost Canadians taxpayers to do the right thing to help support the sale of intergenerational businesses by not making them pay more, but instead it said the loss would be an astronomical amount of money. In fact, the PBO's numbers were somewhere between 10% and 18% of what the government had initially cited, which is a big gap.

The cost of the economic leakage and its impact on small communities across our country, and on family members, is worth the price of what we are going to lose in the long run, as we see those profits leave our communities.

We are heading into a huge period of succession in our country. A lot of small business owners belong to an aging demographic. People want to sell their businesses to their family members and keep the ownership in the community, which I assume we want to encourage. We expect over $50 billion in farm assets alone to change hands over the next 10 years, so we are heading into a huge period of succession. For farming alone it is critical that we fix this now, because we have lost 8,000 family farms in the last decade. We need to do everything we can to curb that trend because it is obviously not working for Canadians. Only half of those small business owners actually have a succession plan, while 76% of them are planning to retire over the next decade.

That is important for a lot of people who have developed and built businesses in their families. I had a business for many years. When I started it, I was not informed that if I were to sell my business to one of my three children I would be penalized with a heavy tax bill. If I sold it to someone at arm's length, I would not have incurred that same tax. It makes absolutely no sense, but most Canadians do not know that this is the current situation.

This is something we need to remedy. I hope that the government will talk about the real numbers that the PBO shared. We saw some Liberal members support the opposition in the last Parliament, so I am hoping those Liberals who decided to vote with their government's misleading information will actually support the PBO and do the right thing to support their communities and small business owners, especially those family businesses that want to maintain intergenerational ownership. In rural communities such as Courtenay—Alberni, where a large part of our main street is made up of local or small businesses, this is a really important piece to our long-term survival. We want to encourage local ownership.

Again, this bill did not pass based on misinformation in the last Parliament. The Liberals continue to make excuses on this bill. They say they will relax the rule for tax avoidance, but we want it to be done carefully to avoid these difficulties and challenges of people avoiding tax rules. If the purchaser or family member retains the shares for five years, the Canada Revenue Agency's concern is that, in the absence of a specific provision, the shares would pass from one family to another. If that five-year provision were in place, it would make that impossible. We want to make sure that we take all the excuses away from the government and alleviate the concerns of taxpayers, so that there are provisions and a system in place to protect against flipping these businesses to avoid paying taxes. This is to keep them in the hands of small business owners.

According to a 2012 CIBC study, close to 30%, or 310,000, business owners were planning to exit ownership or transfer control of their businesses by 2017, in one year alone. We do not have the recent figures. That means that a lot of businesses are changing hands right now.

I want to talk about economic leakages, because we are seeing more businesses being sold and ending up in the hands of large conglomerates. We constantly see local ownership being reduced. This kind of taxation creates a threat to local communities. We want to invest in small communities, and this is a very good way to invest in families and small communities.

Returning to closing economic leakages, we need to do everything we can. This legislation is important, but we also need to make sure that the big banks pay their share, that we cap merchant fees and that we continue to take a holistic approach to supporting small businesses. This is a good bill and I hope the government will support it as well.

Income Tax ActPrivate Members' Business

February 1st, 2021 / 11:25 a.m.
See context

Conservative

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

Mr. Speaker, I am honoured to rise today in support of Bill C-208 introduced by my hon. colleague, the member for Brandon—Souris, to amend the Income Tax Act to facilitate the transfer of small businesses or family farms or fishing corporations.

We already knew how important this issue was when this bill was introduced for first reading in February 2020. Who would have thought that, barely a month later, COVID-19 would come along and drastically change the landscape for Canada's SMEs?

As an entrepreneur and representative of a region that consistently ranks as one of the most entrepreneurial areas in the country, I was very sad to see the latest survey that the Canadian Federation of Independent Business, or CFIB, released last week, warning that 181,000 small business owners in Canada were considering closing their businesses. That means one in five businesses could close down, despite all the programs and billions of dollars spent by different levels of government and the support services we have provided in our respective ridings.

This is a frightening prospect, since 2.4 milion jobs are at risk if the pandemic continues, which is why I want to reiterate how important it is that the government do whatever it takes to fix the vaccine supply problem. We cannot sit back and wait until 2022. After all, we are barely into 2021.

Workers in the tourism and cultural sector are very much on my mind. Last year was devastating for them. The federal government really needs to get creative with its vaccine strategy, and it needs to do it fast so we can at least hope for some degree of recovery for the sector this summer.

September is too late, and 2022 is even worse. Until very recently, small and medium-sized businesses were the backbone of our economy. They created more than 77% of all new jobs between 2002 and 2012. As a Conservative, I am very proud of the Harper government for creating an environment that helped SMEs grow by reducing the corporate tax rate from 22% to 15%, lowering the small business tax rate to 11%, and increasing the income limit for applying this tax rate from $300,000 to $500,000.

As a business owner who created nearly 30 printing and communications jobs in my region, I understand the importance of ensuring our tax system encourages entrepreneurship.

It is important to understand what motivates entrepreneurs to risk all of their savings and their financial security to set up or buy a new business. People go into business for a variety of reasons. Some are motivated by their passion, while others see a service gap in their community that needs to be filled. However, most people go into business to provide for their family, with the hope that, one day, their children will be able to take over the business and build a better future.

In my case, I intend to one day transfer my family business to my daughter, of whom I am obviously very proud. However, I was very surprised to learn that, under the existing Income Tax Act of Canada, it would be better for me to sell my business to a stranger than to a member of my own family. 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 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 when the business is sold to a family member.

What message are we sending? Are we trying to discourage people from going to business? I am not the only one asking these questions. According to a 2012 CFIB study, approximately 310,000 business owners, or around 30%, planned to sell or transfer their business within five years. That figure jumped to around 550,000 within 10 years. The figure may have changed during the COVID-19 crisis, which makes passing Bill C-208 all the more urgent for the many family businesses whose future is at stake. It is already bad enough that so many businesses plan to hand their keys over to creditors during this economic crisis.

We must not allow the unfairness in the Income Tax Act to force so many small businesses to hand their keys over to the government. According to the Canadian Federation of Agriculture, “Over $50 billion in farm assets are set to change hands over the next 10 years”. That does not even include the more than 8,000 family farms that have already folded in the past 10 years. Just half of them had a succession plan. As the population ages, three in four farmers plan to retire in the next decade. We need to act quickly to fix this anomaly in the Income Tax Act to prepare for the demographic reality we are facing, in the agricultural sector especially.

That is why I support Bill C-208, introduced by my colleague from Brandon—Souris, and I urge the Liberals to do the same. I remind my colleagues that during the 42nd Parliament, we debated a similar bill that had been introduced by Guy Caron, the former member of Parliament for a riding next to mine. This is a unifying bill. This is not a left or right issue; it unites us all.

I would like to remind members that Bill C-274 received the support of the Conservative Party, the Bloc Québécois and the NDP, but was defeated by the Liberals, who had a majority at the time, because they heeded the advice of public servants rather than that of the people who elected them. Many organizations across Quebec support the bill. The Association des marchands dépanneurs et épiciers du Québec has spoken out against the current situation, and the Union des producteurs agricoles and the Board of Trade of Metropolitan Montreal both indicated that they supported the bill.

This issue was also brought to my attention during the last campaign, in 2019, when I met with UPA producers in Cap-Saint-Ignace, which is in my riding. Last Friday, I received an email from Andre Harpe of Grain Growers of Canada asking us to support Bill C-208.

I want to point out that the agriculture sector is following the debate very closely today. As the saying goes, better late than never. If the Liberal Party really wants to back SMEs, it must support this bill and pass it quickly because Bill C-208 will ensure that all these family businesses will continue to operate and remain intact by facilitating their intergenerational transfer. If this does not happen, a Conservative government will have no problem ensuring that it does.

I would add that with the speeches my colleagues made ahead of me, I think it is clear that the Liberals have no choice but to move forward and support this bill. In any event, they are in a minority. We will move forward with this bill. Whatever it may cost to implement it, not doing so would cost even more, because the value and pride that comes from handing down a family business is priceless. Considering that for the most part, all Canadian businesses started as family businesses, that they represent 90% of the Canadian economy, and that they are the backbone of Canadian entrepreneurship and businesses with fewer than 10 employees, it is essential that people be able to transfer these businesses to members of their own family without being penalized.

Income Tax ActPrivate Members' Business

February 1st, 2021 / 11:35 a.m.
See context

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

Mr. Speaker, I thank the member for Brandon—Souris for bringing forward this bill. I know that private members' business can generate some good bills from throughout the House. A lot of people do not fully appreciate the amount of work that goes into private members' business, which one only knows if one has gone down that road. Just for taking the time to go through the process to bring this piece of legislation forward, and all the work that went into it, the member deserve a lot of credit.

I am pleased to take part in the debate today over this private member's bill, Bill C-208, which aims to facilitate the transfer of family businesses between family members. This is an admirable goal. Indeed, our government recognizes this important issue, as evidenced by the mandate given by the Prime Minister to the Minister of Finance and the Minister of Agriculture and Agri-Food to work together on tax measures to facilitate the intergenerational transfer of farms.

Ensuring the sustainability of small businesses, family farms and fishing corporations is essential to our economy and to the communities these businesses serve. This has been underscored by their crucial role in supporting families and communities as we continue to fight against COVID-19.

Our government understands that this is a fact. From the onset of the pandemic, through Canada's COVID-19 economic response plan, we have introduced a range of supports for small business owners to help bridge them to the other side. Simply put, we have their backs, and this extends to helping family businesses thrive for generations to come.

Encouraging the sale of businesses to family members often means those businesses will remain in and continue to benefit their communities, as well as their families, who have fought hard, sacrificed and, through pure determination and entrepreneurial spirit, succeeded. It is with this spirit in mind that Bill C-208 is to bear full and careful consideration.

Bill C-208 seeks to amend two of the Income Tax Act's most important and complex anti-avoidance rules. These rules deal with intercorporate dividends, share sales and circumstances in which the lifetime capital gains exemption is claimed. Any relieving changes to these sections of the act must be done cautiously and follow rigorous study and debate to avoid the unintentional creation of loopholes that would disproportionately benefit the wealthy, instead of protecting the middle class and those who are struggling to join it.

Section 84.1 of the act, in particular, is in place to apply anti-avoidance rules when, as appropriate, an individual sells shares of one corporation to another corporation that is linked to the individual, such as one of a family member. When the individual sells shares of a Canadian corporation to a linked corporation, section 84.1 of the act deems, in certain circumstances, that the individual has received a taxable dividend from the linked corporation rather than the capital gain.

This prevents the individual from realizing the proceeds from the sale on the tax-free basis using the lifetime capital gains exemption. This rule is meant to ensure that taxpayers cannot use linked corporations to, in effect, remove earnings from their corporations using a contract sale. Without this rule, such sales between related parties could be used to convert what should be dividends of an individual shareholder into capital gains that are tax-free under the lifetime capital gains exemption.

Bill C-208 proposes narrowing the scope of section 84.1 by removing the sale of certain shares of small businesses, family farms or fishing corporations from its application when being sold by an individual to another corporation that is owned by their adult child or grandchild. This change would allow the owner-operator of a family business to convert the dividends of the corporation into tax-free capital gains.

In order to better illustrate how this would work, I will use an example. Let us say Darryl and Emily own a potato farm in P.E.I., which has grown to be a major regional supplier. After decades of hard work, they are now planning their retirement and want to pass down their business to their two adult children, both of whom already own successful small businesses in the community.

By applying the proposed amendments in Bill C-208, Darryl and Emily would sell non-voting preferred shares from their farm corporation to the two corporations controlled by their children. In doing this, they could claim tax-free treatment of the resulting capital gain from the sale under the lifetime capital gains exemption in a manner that allows the sale to be financed by the sold corporation's own assets without relinquishing control of the farm corporation.

Darryl and Emily could then use this planning to convert their annual dividend income into tax-free capital gains as often as they want, up to an amount equal to their lifetime capital gains limit. In this case, each parent could reduce his or her income tax by up to about $45,000 for each $100,000 of business profits distributed.

It is important to note that there is currently nothing in the act to stop a parent from selling their shares of their family business directly to their child or grandchild on a tax-free basis by using the lifetime capital gains exemption, which currently shelters up to $1 million in capital gains on qualified farm and fishing properties.

The issues sought to be addressed by Bill C-208 arise only in multi-tier corporate structures in which one corporation owns a second corporation. Adopting the proposed changes to section 84.1 could open the door to new tax avoidance opportunities. This would unfairly benefit wealthy individuals instead of the middle class.

Bill C-208 also proposes amendments to section 55 of the act, which generally applies to corporations that are seeking to inappropriately reduce their capital gains by paying excessive tax-free dividends between corporations, which the act considers to be a capital gain.