This bill was last introduced in the 43rd Parliament, 2nd Session, which ended in August 2021.
This bill was previously introduced in the 43rd Parliament, 1st Session.
Larry Maguire Conservative
Introduced as a private member’s bill.
This bill has received Royal Assent and is now law.
This is from the published bill.
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.
All sorts of information on this bill is available at LEGISinfo, an excellent resource from the Library of Parliament. You can also read the full text of the bill.
The House proceeded to the consideration of Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation), as reported (without amendment) from the committee.
The Speaker Anthony Rota
There being no motions at report stage, the House will now proceed, without debate, to the putting of the question on the motion to concur in the bill at report stage.
The Speaker Anthony Rota
The question is on the motion. If a member of a recognized party present in the House wishes to request a recorded division or the motion be adopted on division, I would invite them to rise and indicate to the Chair.
Mark Gerretsen Liberal Kingston and the Islands, ON
Mr. Speaker, I believe, if you seek it, you will find unanimous consent to carry this at report stage.
Some hon. members
Agreed.
The Speaker Anthony Rota
(Motion agreed to)
When shall the bill be read the third time? By leave, now?
Some hon. members
Agreed.
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.
Yves Perron Bloc Berthier—Maskinongé, QC
Madam Speaker, I want to congratulate my colleague on his excellent speech and, most importantly, on his excellent bill. I also thank him for approaching me right after this bill was introduced and for giving me the opportunity to endorse this bill on behalf of the Bloc Québécois.
I would like to know whether my colleague has spoken with Liberal members.
I also want to know what reasons he has been given for the lack of support for Bill C-208, when this is something that everyone wants.
Larry Maguire Conservative Brandon—Souris, MB
Madam Speaker, I cannot answer for the government in regard to those areas. There was some discussion of tax cheats earlier in some of the discussions that were going on, and I heard things such as we cannot allow wealthy people to get loopholes in the Income Tax Act, but that is clearly not the issue here.
Small business is the backbone. As the person from the Conference for Advanced Life Underwriting indicated, 70% of small businesses provide 70% of the employment in that area. There are, as I mentioned, clauses built into this particular legislation that would prevent things like fraud. There is nothing to stop the Canada Revenue Agency from auditing anyone, as they would normally in any other time, and so we feel strongly about a lot of those questions, and that is why I congratulated the finance committee. It is because its members gave very good questions at the committee, and the answers were very clearly in support of the bill.
Daniel Blaikie NDP Elmwood—Transcona, MB
Madam Speaker, I want to congratulate my colleague on the progress of his bill. One of the first conversations I had with another member of Parliament upon my arrival in Ottawa after the last election, before the pandemic, was with the sponsor of this bill in a cab, if members can imagine sharing a taxicab now. There were no masks or anything.
Our conversation was about his interest in former member Guy Caron's bill. He was letting me know he was going to be taking that on and bringing it forward, so I am glad to see the progress made in Parliament on this bill.
I am just wondering if he could expand a bit more on some of those measures that would help make sure that this is not about tax evasion, but is really about facilitating the transfer of family businesses between generations.
Larry Maguire Conservative Brandon—Souris, MB
Madam Speaker, I want to congratulate my colleague from the NDP. He is very correct on that. It was very gracious of Mr. Caron to come to my office to discuss this particular bill with me, my colleague and my chief of staff. It is a very good bill, and it is exactly the same bill that he brought forward. I have mentioned that in previous debates in the House, and I want to thank him for doing that. Unfortunately, that bill was defeated at the time. I felt, being drawn early in the program this time, I would move it forward.
It is very self-explanatory. There is a huge difference in the tax rules that create a huge disincentive to sell someone's small business to their own family, as opposed to a complete stranger. Most small business owners I know of use those funds for retirement because they have invested their earnings back into the business throughout those 10, 20, 30 or sometimes 40 years to build it to the point—
The Assistant Deputy Speaker (Mrs. Alexandra Mendès) Alexandra Mendes
I did not want to have to interrupt the member, but we have one last question.
The hon. member for Edmonton Manning,