Bill C-208 (Historical)

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

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

[Marc St-Roch, Accounting and Taxation Coordinator, Research and Agricultural Policy Directorate, Union des producteurs agricoles]

The problem actually has more to do with the financing of transactions than with the capital gains deduction in cases where businesses are owned by individuals.

For example, if the child wants to acquire the assets that are personally held by the parent, the child can finance the transaction and pay the debt using revenue from the business. The interest on the debt can be deducted for tax purposes.

Ultimately, the business's ability to repay is the bigger problem. If the parent decided to sell off all their assets one after the other, they would get a lot more than if they were to transfer the business to their child. As I believe Mr. Harpe pointed out, the farm's value during its operation is less than the value of the assets that can be sold. Parents tend to sell their farm to their children for a fraction of the price so they can afford a bit in the way of capital and live off of it. That's the dilemma.

Bill C-208 applies solely to the sale of incorporated operations. That's the problem. A stranger who wants to purchase the seller's shares will create their own company, and that company will then purchase the seller's shares. The company—or the buyer, in other words—will obtain their own financing and use the money to pay the seller. The company that was created becomes the owner of the shares of the just-purchased operation. Afterwards, the two companies are combined so the revenues from the just-purchased farm operation can be used to pay the debt. In short, a stranger can create a company, purchase the seller's shares, combine the new company and the just-purchased company, and finance the repayment of the purchase price through the operation of the just-purchased company.

If the seller's child wants to do the same thing, that is, create a company, purchase the parent's shares and combine the two companies in order to repay the debt using the revenues of the purchased company, the transaction is no longer deemed a sale subject to the capital gains tax exemption. Instead of a capital gain, the proceeds of the sale are treated as a taxable dividend where the parent is concerned.

For example, if the child wants to purchase their parent's $500,000 in shares and finance the purchase through their company, the parent will have to pay $225,000 in taxes because of the taxable dividend. Conversely, had the parent sold the company to a stranger, the capital gain would have been tax-free and allowed the parent to access a tax deduction. That's the problem with section 84.1 of the Income Tax Act.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you very much to our guests for joining us today. I really appreciate your insights on this.

Let me just start by saying that I do hope to find a fix to ensure that we can fairly pass on farming operations, and frankly certain other kinds of businesses, to the next generation.

I have a couple of concerns about Bill C-208. I'm interested in learning more about some of the things it doesn't do and some of the things it might do that we don't want. I will acknowledge that it could accomplish the facilitation of intergenerational transfers, which I think is a good thing.

My primary concern right now really dovetails with the conversation about corporate farms versus family farms. Although I deal with it at home, even though I do have a strong agricultural presence for Nova Scotia in my riding, it comes up more often in terms of the commercial fishery. I can't tell you how important this issue is. The rural communities that sort of dot the coastline that I represent are driven, really, by the lobster fishery. One of the troubling issues we have been trying to deal with over the past number of years deals with controlling agreements. In order to protect the inshore fishery, what usually happens is that the owner of the licence will fish under that licence. It becomes a problem when certain larger corporate interests become the legal owner of a fishing vessel and associated licences, because they sometimes would be tempted to lease out the ability to fish on that licence. That has the risk of pulling the economic benefit from the rural communities, like the ones I represent, to the headquarters of the corporate entity that owns those licences.

One of the fears I have is that it could be an unintended consequence of Bill C-208 that it would encourage the adoption of corporate entities to own fishing vessels and licences, which would exacerbate this trend toward pulling the economic benefits out of communities. It's the same fear that you have expressed. I know right now that if you sell a business to a child personally rather than to a corporation owned by that child, you could benefit from, for example, the lifetime capital gains exemption.

For those unincorporated farms or fishing businesses, or frankly other businesses, do you think there are things we could do that would facilitate the transfer without putting at risk the controlling agreement circumstance? In a farming context, it would be like if a major grocer perhaps became the legal owner of the farm, rather than the person who has farmed it for generations.

If you have insight on unincorporated businesses and how we could make that simpler, I'd be very interested in hearing it.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

Thank you, witnesses, for presenting today and for helping Canadians better understand the bill that's before us here. I think it's an important bill, and it's something that I certainly support.

I'd like to ask the Grain Growers of Canada a few questions. I understand from Mr. Harpe's intervention that 97% of Canadian farms are family-owned and operated. That's a remarkable figure, and I think that's something worth celebrating.

Farm families face a variety of challenges when it comes to succeeding in their operations. Can you explain to the committee some of these challenges and describe how Bill C-208 can help keep businesses under family ownership?

[Marcel Groleau, General President, Union des producteurs agricoles]

Thank you, Mr. Chair.

Good afternoon, members of the committee.

My name is Marcel Groleau, and I am the general president of the Union des producteurs agricoles, or UPA. With me is Marc St-Roch, a specialist in agricultural taxation. He has the expertise to answer more technical questions.

The agriculture and agri-food sector is responsible for one in eight jobs, generating more than $112 billion in annual revenues and exporting more than $60 billion worth of products every year. The backbone of many rural areas, the sector is also vital to the food security of Canadians.

Some 98% of the country's farms are family owned and operated. That business model is a source of pride for Canadians. Family farming promotes sustainable growth, environmental stewardship and reinvestment in local economies.

The legal structure of farm operations has changed in recent years. According to the 2016 Census of Agriculture, the percentage of incorporated farms more than doubled in 20 years, going from 12% to 25%. As the number of farms dropped by approximately 83,000, the number of incorporated farm operations continued to grow in Canada, increasing from 32,700 to 48,600.

As has been pointed out, farmers are getting older: the average age of farm operators is now 55, seven and a half years older than the average age in 1991.

With rising asset values and, by extension, debt, farm operators have turned to incorporation to help finance investments, since corporate tax rates allow operators to pay back borrowed capital more quickly.

According to a 2017 study by the Business Development Bank of Canada, nearly 40% of small businesses will be transferred or sold by the end of 2022 as owners near retirement. More than $50 billion in agricultural assets is expected to change hands in the next decade.

Unfortunately, Canada's tax system treats the transfer of family businesses unfairly. Under the current rules, it is usually much more expensive for a farm owner to sell their business to a family member than to an unrelated buyer. By penalizing retiring farmers and young farmers hoping to take over the business, the tax rules put the country's family farms in financial jeopardy.

Pursuant to section 84.1 of the Income Tax Act, if, in order to finance the sale of a business, a person sells the shares of their corporation to a related party, the capital gain triggered by the sale is deemed a taxable dividend. That means the seller cannot claim the capital gains deduction in relation to a qualified farm property. Conversely, if the owner sells the corporation to a corporation controlled by an unrelated third party, the capital gain realized can be tax-exempt. That is unfair. Consequently, on a $500,000 gain, the taxable portion can vary by $225,000 when it should be tax-free in both cases.

In order to facilitate financing in relation to the sale of a family corporation between related persons and to allow sellers to take advantage of the capital gains deduction, the Quebec government amended its Taxation Act to include an exception to the application of the provincial provision corresponding to section 84.1 of the federal legislation. The Canadian government should follow Quebec's lead.

Canada's Income Tax Act is out of step with the realities and demographic pressures facing family farms. The UPA believes that Bill C-208 would help level the playing field by eliminating the significant costs that put farm and small business owners at a disadvantage when they wish to sell the business to a family member.

In addition, disputes arise from time to time, and as a result, owners of multi-family farms prefer to operate their businesses separately. Section 55 of the Income Tax Act sets out a mechanism whereby the assets of an incorporated business can be shared among the shareholders tax-free as long as the assets are distributed in a proportional manner.

However, the proportional distribution of assets may not be possible. Assets like farmland cannot be separated. In order for the value of the assets to be distributed equally, a shareholder exiting the business may receive more money instead of a corporation asset. In that case, if the assets of the corporation are not distributed equally, they may become taxable in the form of a non-tax-exempt capital gain.

When the business is transferred between related parties, the requirement for proportional distribution does not apply and the cash payment may not be taxable. However, under section 55 of the Income Tax Act, siblings are deemed to be unrelated for the purposes of the section. As everyone knows, these types of businesses are usually divided among siblings, meaning that section 55 penalizes parties when assets cannot be split proportionally, because it triggers taxes. As a result, the viability of each owner's business is undermined.

The UPA is of the view that the amendment in Bill C-208 to exclude transactions between siblings from the application of section 55 would also be appropriate in cases where the cash and other assets transferred to a shareholder exiting the business are invested in another farm operation. That way, the assets would still be invested in farming despite being split among separate businesses.

In conclusion, farm operations could continue to grow. They often support more than one household and are increasingly being incorporated for tax reasons and estate planning. In this new landscape, good tax planning is crucial for family farmers if family farms are to remain viable for future generations.

Thank you.

[Andre Harpe, Chair, Grain Growers of Canada]

Thank you very much, Mr. Chair and honourable members, for the opportunity to be here with you today.

My name is Andre Harpe and I am the chair of the Grain Growers of Canada. Grain Growers is the national voice for Canada's 65,000 grain, pulse and oil seed farmers across all of Canada. I farm in the Peace region of northern Alberta. When we finish harvest this fall, we will become a century farm, which represents one hundred years of our family farming this land. We grow malt barley, and canola is our mainstay. We also rotate other crops year to year.

My father incorporated this farm in 1972, before I took over the farm from him in the 1980s. Like many other farmers my age across the country, I'm beginning to look at the future of my farm. Succession planning is a challenge; it's expensive and must be done right.

I am also the proud father of three girls, and they all love the farm. I can't say for certain just yet, but I believe they are all interested in possibly taking over this farm one day. That decision will ultimately be up to them, but I would love to keep this farm in my family for another hundred years. Beyond that, I would be happy to see our sector benefit from fresh, new ideas for farming from young women like them.

There is an old saying that many farmers are cash poor and asset rich. Although the debt owed on my assets may not jive with the word “rich”, the reality is that my farm is my retirement. The equity I've built through the years of hard work is my RRSP—it's my pension.

The structure of cash flow for a farm necessitates that you're turning profit back into the operations to pay down debt, purchase inputs and prepare for the following growing season. When I sell my farm to my daughters or somebody else, that's when I finally see the results of the years of hard work. Most business owners, farmers or otherwise, are in the same position, and we knew that going in.

I scratch my head to understand why, for even one second, I would have to consider whether or not I should sacrifice any part of my retirement in order to pass my farm on to my children. I should not have to weigh the decision between a lower quality of life in retirement due to significantly higher taxes to keep the farm in my family, and maximizing my retirement by selling it to a third party buyer. This isn't about special treatment; it's about fairness.

I've heard it mentioned that because we are incorporated, it must mean we're not a family farm. This couldn't be further from the truth. My farm is actually part of 97% of farms in Canada that are family farms. In my view, Bill C-208 would help it stay that way.

If my daughters choose to take over the farm, hopefully start families and stay on the land, it is also good for our local communities, which makes it good for Canada. The sustainability of our rural communities is vital, and levelling the playing field so that it is advantageous to sell it to a family member would help keep people on the land. It'll also help keep our schools, sports teams and communities alive.

There have been questions surrounding whether this bill would create tax loopholes that could be taken advantage of. The next panel will include many tax experts, so I will defer to them on the safeguards built into this legislation. What I know is that farmers often have to make decisions based on a risk-benefit analysis every day, just as you do in your roles. I would suggest that the risk of that being prevalent among farms as part of their succession plan, compared to the benefits for family farms in rural communities, is clear.

In closing, the Grain Growers of Canada are strongly in favour of this legislation, and we encourage parliamentarians to pass it into law in an expedited manner to ensure tax fairness for those currently deliberating this issue today. Not all farms are going to be transferred to the next generation, but for those that have the chance, Bill C-208 will go a long way to ensuring that farmers don't have to choose between keeping the farm in the family and getting the most out of retirement.

Thank you, Mr. Chair. I look forward to any questions you may have.

[Julie Bissonnette, President, Fédération de la relève agricole du Québec]

Good afternoon.

Mr. Chair and members of the committee, thank you for inviting us to speak to the committee about the transfer of farms.

My name is Julie Bissonnette. I am a dairy farmer in L'Avenir and the president of the Fédération de la relève agricole du Québec, or FRAQ. With me today is executive director Philippe Pagé, who grew up on a hog farm in Saint-Camille.

Before I turn to the subject at hand, I would like to tell you a little bit about the group I represent.

The FRAQ is an organization that brings together 16- to 39-year-olds who care about farming. With over 1,700 volunteer members across Quebec, the FRAQ is affiliated with the Union des producteurs agricoles.

Our organization is dedicated to advocating for young farmers and achieving better conditions as they start out in farming, whether they are taking over an existing operation or starting a new one.

We are here today to stress the importance of immediately correcting the tax unfairness surrounding the transfer of a business, depending on whether the parties are related or unrelated.

The next generation of business owners has been speaking out about the problem for more than 15 years. Hopefully, this time, it will be fixed once and for all.

We realize the bill concerns all small businesses, but we would like to share the perspective of young farmers in Quebec. There's a problem that needs fixing: right now, it is harder for someone to sell their farm to their son or daughter than to a person outside the family. You should know that many young people in Canada are watching their dreams go up in smoke because of ill-conceived tax rules.

Under the current system, a person looking to sell their farm has two options: sell it to their son or daughter and agree to be taxed to the max or sell it to a stranger and receive better treatment under the Income Tax Act. Basically, a farmer will have to pay more tax if they sell their farm to their son or daughter, and as a result, fewer farms are being transferred to family members.

Naturally, the person looking to sell is going to choose the option that provides the most benefit. After all, the sale of a business is the culmination of a person's life's work. What is unfortunate is that the current provisions of the act force farmers to make the tough choice between keeping the farm in the family and having more money in retirement.

Bill C-208 would amend the Income Tax Act to allow a business owner selling the business to a related party to benefit from the same exemption they would receive when selling to a third party.

The FRAQ strongly supports the bill because it fixes the problem for good.

Bill C-208 is significant for young farmers because we believe it will encourage the transfer of farms to family members and go a long way towards correcting tax unfairness, while supporting a strong farming community.

The numbers speak for themselves. A business that is transferred to a family member is six times more likely to succeed than a business transferred to someone outside the family. What's more, 70% of all entrepreneurs in Quebec would prefer to keep their businesses in the family. Even today, selling a business to a related party is the preferred way to transfer a farm. Our tax system should support all young farmers, no matter their path to business ownership, something the system does not currently do.

With the average age of farmers increasingly nearing retirement age, a large number of farm businesses will be changing hands in the next few years. This is about more than just tax fairness. It's about support for farm growth and development across Canada and proper stewardship of our land. I hear from many young people that their parents are getting older and approaching retirement. Amending the Income Tax Act would change their lives. It is paramount that the government take action now because many farmers will be selling in the coming years.

Farmers are passionate and proud people. You can just imagine the pride and gratitude they feel when a family farm stays in the family. You can also imagine what it feels like when that doesn't happen. Losing a family farm is like giving up on a dream. All that hard work is for naught. That is the reality of the current system.

We urge government and opposition members to work together not only to correct this unfair tax treatment, but also to make the changes that good governance of the Income Tax Act calls for.

In conclusion, I want to reiterate our support for this bill, just as we have supported all of its previous iterations in recent years. Changing the law to treat family business transfers more fairly is a matter of consensus across all sectors.

Selling a business is riddled with challenges as it is; the process is long and complicated, and requires careful planning. Why make it even harder when it is a parent selling their farm to a son or daughter? Is the goal really to keep fewer farms in the family because of unfair tax rules?

Hopefully, young farmers and farm owners who wish to sell will finally be heard.

Thank you.

[Scott Ross, Assistant Executive Director, Canadian Federation of Agriculture]

Thank you, Mr. Chair and committee members, for the opportunity to speak to you today.

My name is Scott Ross. I'm the assistant executive director of the Canadian Federation of Agriculture, Canada's largest general farm organization, representing nearly 200,000 Canadian farm families from coast to coast to coast.

I would like to start by thanking the committee for inviting farm organizations to speak to Bill C-208, as the continued facilitation of farm family transfers is an issue of critical importance to the CFA and its members.

Agriculture is a capital-intensive business, and 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. It’s undeniable that COVID-19 has fundamentally affected Canada's and the world’s economic outlook, and while Canadian agriculture is certainly not immune to those effects, the sector is uniquely well positioned to drive Canada’s economic recovery.

However, the average age of Canadian farmers now exceeds 55 years of age, and the opportunities these businesses face will carry into the next generation. As a sector where the vast majority of businesses remain family owned, maintaining the financial health of these businesses across generations is critical. This is in the interests of all Canadians, as 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.

With respect to Bill C-208, I would begin by noting that I’m not a tax expert. However, in 2012, I convened and supported a taxation committee at CFA, comprising tax practitioners and farm leaders from across Canada, with a mandate to identify and review the most critical tax-related issues facing Canadian farmers.

Section 84.1 of the Income Tax Act and the disincentive it presents to family farm transfers—a primary focus of the proposed amendments under Bill C-208—was promptly identified as a priority by this committee and has been a focus of the CFA ever since. This was reiterated just two weeks ago when farm leaders from across Canada passed a resolution at the CFA’s annual general meeting, imploring the federal government and members of Parliament to support and actively contribute to the passage of Bill C-208 before the next federal election, as a priority for Canadian farmers.

Simply put, the current wording of the Income Tax Act penalizes a farmer if they choose to transfer the farm business to a family member as opposed to an anonymous third party. As a result, when a retiring farmer sells their business to their children, they face the prospect of paying a lot more in taxes than if they were to sell to a stranger. This difference in treatment can amount to hundreds of thousands of dollars. This amounts to reduced productivity, increased financial risk and lost opportunities at a time when the sector holds such immense growth potential.

There are over 43,000 family farm corporations across Canada, operating on more than 50 million acres of land. The transfer of each one of these businesses, were they to stay in the family, would be disadvantaged and face this undue tax burden. The CFA supports Bill C-208 because it essentially ensures that real family farm transfers can access the same capital gains treatment as businesses selling to an unrelated party, rather than treating the difference as a dividend that's taxed at a higher rate and cannot access the lifetime capital gains exemption.

The CFA also supports the safeguards in Bill C-208 to prevent surplus stripping by assuring that a real transaction has taken place. For example, if the shares are sold by the child within five years of acquiring them, the transaction is deemed to have involved dividends and taxes will be charged retroactively. We are not seeking an exemption or preferential treatment for family farms, but instead are looking to ensure the Income Tax Act recognizes real intergenerational farm transfers and treats them accordingly.

In conclusion, I'd like to thank the committee for its time and reiterate that the CFA seeks your support for Bill C-208, as it addresses an undue tax disincentive to the continued vibrancy of family farming in Canada.

Thank you. I look forward to your questions.

[The Chair, Liberal, Wayne Easter]

I call this meeting to order officially. Welcome to meeting number 25 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference of February 3, 2021, the committee is meeting to study Bill C-208, an act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation).

Today's meeting is taking place in a hybrid format, pursuant to the House order of January 25, 2021, therefore members are attending in person in the room, and remotely using the Zoom application. The proceedings will be made available via the House of Commons website. I would like to remind members to turn off their mikes when they're not speaking.

With that, before we go to witnesses, Mr. Kelly, you have a quick point of order.

Opposition Motion—Measures to Support Canadian Workers

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Madam Speaker, the pandemic has changed people's habits and left many workers and their families in uncertainty. In order to maintain many jobs and promote recovery for various sectors, such as tourism, the federal government should make workers the focus of the recovery.

The next federal budget should provide for better, more flexible support programs that will help maintain good-quality jobs. The federal government should implement sector-specific measures to support workers in highly impacted sectors, such as charities and businesses in the tourism, hospitality, accommodation, arts, entertainment and major events sectors, which experienced major financial losses as a result of the lockdown and public health measures.

For example, the lockdown took a major toll on the tourism industry. International tourists stayed at home, and domestic tourists chose to be cautious. Revenues for seasonal businesses and organizations in the tourism industry are at an all-time low.

With regard to the hotel industry, the lack of international tourists means that hotels throughout Quebec, including those in Quebec City and Montreal, are sitting practically vacant. This was a very challenging season for thousands of inns in welcoming villages across Quebec, such as those along the St. Lawrence River.

The socio-economic impacts on workers in Quebec's major economic sectors have been numerous, including job losses for many young people and students, jobs at small- and large-scale events, bars, restaurants and summer camps. Losing a job is tough. People and families sometimes have to relocate or change careers entirely. This causes stress, especially financial stress. It can even lead to depression. Companies can also lose expertise as a result, putting stress on managers and owners. The topic of bankruptcy is also unavoidable. The health crisis has not affected everyone equally. Some sectors have literally been wiped out, while others will take many months to recover. COVID-19 must not result in a bankruptcy pandemic. Individuals and small and medium-sized businesses that owe the government money because of the assistance they have received must be given time. They must be offered an interest-free deferral. It is also important to support all the local businesses being crushed by multinational e-commerce companies. Improved support programs are therefore needed.

For the past year, the government has been generous. However, its one-size-fits-all programs are costly and ill suited for those hit the hardest. Today, the programs are still plagued by problems with their design, accessibility and processing times.

Job losses and insecurity impact people and their families, our workers and business owners. To minimize job losses and eliminate inadequate programs as much as possible, we need support measures that are effective, targeted and flexible. They are essential for providing support to workers. We must act quickly, because many polls have shown a deterioration in quality of life since March 2020, which is cause for concern.

The future of our small businesses, which are increasingly burdened by debt and must face stiff competition from major chains and multinationals, is also cause for concern. We must support our businesses and organizations better, particularly by reviewing the terms of the assistance measures. For the sectors that have been hit hardest by the crisis and that will be among the last to reopen, the Bloc Québécois is demanding improved support programs, including lending supports for small and medium-sized businesses. The lending supports must be accessible within 30 days of the passage of the motion, to prevent a wave of bankruptcies and layoffs on the horizon.

We also have to consider subsidies and tax credits, without putting businesses further in debt. As they say, an elastic will only stretch so far. If we want to help companies hang onto their jobs and expertise, then subsidies and tax credits are essential. We need skilled employees for the recovery, and we will need intelligence, innovation and experience. Companies should not have to recruit new people, new talent. I am thinking of the tourism and cultural industries, which are currently losing talent, from managers to guides, because they are temporarily closed. The Canada emergency wage subsidy and the Canada emergency rent subsidy, especially for the sectors that will take some time to recover, are necessary to enable tourism and cultural businesses to recover. These programs must be extended until at least the next tourist season to give the industry time to recover. That is an example of the kind of flexibility I am talking about.

This ecosystem has been gutted over the past year, and we will have to invest in human resources to help it rebuild. Tourism companies, festivals and other large-scale events will have to reinvent themselves and rethink the services they provide in the regions of Quebec.

To help Quebec's tourism and cultural businesses get back on their feet, the federal government should gradually move away from its one-size-fits-all programs and focus on programs that are better targeted and more flexible. These types of programs are more effective and promote innovation. For example, for this year only, the federal government should allow for a special $200 tax credit, 80% of which would be refundable, to support cultural and community organizations with their recovery and help them get back on track as soon as possible. Another example would be implementing a generous tax credit to encourage experienced workers to keep working if they want to, instead of retiring.

Speaking of tourism, to go a bit further, what about the allure of the regions? Why not use tourism as a way to spur personal and regional development by and for young people who are looking to settle in the regions for the healthy lifestyle and great quality of life?

We need to ensure that young people, and those who are not so young, feel proud to live in the regions and contribute to the development of not only the land and its natural beauty, but also its expertise and innovative cultural and tourism projects. Let us allow the next generation to show us the regions of Quebec and Canada at their best.

In order for the next generation to be able to settle in the regions, we need to promote the development of certain sectors. I am thinking in particular of the next generation of farmers. Right now, farmers are better off selling their farms to strangers than passing them on to a family member. The Government of Quebec has once again led the way by changing its own tax rules to encourage the transfer of family farms. Let us put an immediate stop to this injustice. The federal government needs to amend the tax rules so that the intergenerational transfer of farms is at least as profitable as selling to strangers. Obviously, I am thinking about Bill C-208, which is currently being examined by the Standing Committee on Finance.

When it comes to agri-food, Quebec has known for a long time, since Confederation, that the federal government is hindering the development of Quebec's agricultural model, particularly today, when it is favouring other export sectors at the expense of Quebec agriculture.

In the agri-food sector, we have seen how fragile the globalized supply chains are. To ensure food security for our people, we must support our farmers and enable them to produce in a fair market that supports healthy products from local businesses that can again be handed down from one generation to the next.

Then there are processors and temporary foreign workers. The federal government must help farmers, processors and businesses continue to bring in temporary foreign workers. We must improve the temporary foreign worker programs to make them more flexible and more tailored to business conditions, without overlooking regional businesses. It takes over eight hours to drive to Abitibi—Témiscamingue, which makes things complicated for a farmer who wants to personally pick up the foreign worker from the airport.

I will conclude with a few words about support for land use and local development. Obviously, the major issue is access to high-speed Internet and the cell network. To support regional economic development, we want the federal government to transfer the necessary funds to Quebec immediately so all Quebeckers can connect to high-speed Internet. The delays are never-ending, and Canada has proven itself incapable of breaking down the biggest barriers to the competition that Quebec telecom companies large and small face to ensure accessible, affordable telecom service in Quebec. There are nine federal programs, each with its own idiosyncrasies. Doing business with the federal government is very complicated.

Quebec also needs the means to create a system that will help restore services to the regions. I am talking about airline service. However, Ottawa must not get in the way of financial support and regional connections Quebec has set up. I will come back to that. Air Canada cannot be subsidized forever. There are companies such as Propair in Abitibi—Témiscamingue that want to serve the regions.

In conclusion, the Bloc Québécois is in favour of the motion. The federal government has now gone nearly two years without presenting a proper budget. The last budget was presented in the spring of 2019, before the election and, of course, before the pandemic. We need action, and we need it now. A great many businesses, their workers and their families are watching. This has been a long wait. Support is needed quickly, so we must act quickly by adopting this motion.

[The Chair, Liberal, Wayne Easter]

I will call the meeting to order. We have quorum.

Welcome to meeting number 24 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2) and the committee's motion adopted on Thursday, November 19, 2020, the committee is meeting to study government spending, WE Charity and the Canada student service grant.

Today's meeting is taking place in a hybrid format, pursuant to the House order of January 25, 2021; therefore, members are attending in person in the room and remotely using the Zoom application.

Proceedings will be made available via the House of Commons website, and the webcast will always show the person speaking rather than the entirety of the committee.

Before I welcome our witnesses, we have two quick pieces of business. One is a request for a project budget for Bill C-208, an act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation). That request is in the amount of $1,275, and I believe people received a copy of that.

It is moved by Mr. Falk.

(Motion agreed to)

The second is a request for a project budget relating to the COVID-19 spending and programs, and the amount requested for that study at the moment is $3,025. Do I have any movers on that one?

That is moved by Ms. Koutrakis.

(Motion agreed to)

Mr. Clerk, there is authorization for those two budgets.

With that, I see Mr. Fraser is here.

Do you want to do the sound check? Then we'll go to Mr. Dufresne.

[Julie Dzerowicz, Liberal, Davenport, ON]

Since you mentioned the surplus stripping, I'll ask my next question on that. My understanding is that your private member's bill would facilitate surplus stripping, using an individual's lifetime capital gains exemption without ensuring that a genuine intergenerational share transfer has occurred.

With Bill C-208 as proposed, after selling shares of the transferred corporation to a purchaser corporation owned by their child, could a parent immediately purchase the shares of the purchaser corporation from their child?

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

Thank you, Mr. Maguire.

I think the intent, the spirit, behind the bill is a good one. That's why I'm genuinely interested in learning more about consequences, but unintended consequences are something that I worry about here too.

In your view, does Bill C-208 perhaps open the door to tax avoidance practices? I'm thinking, for example, of it allowing an individual to avoid tax on the sale of shares to a sibling by selling those shares through a holding corporation. That's just one example that perhaps stands out here as a consequence if the bill went ahead.

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

Thank you very much, Chair.

Thank you, Mr. Maguire.

I will say right at the beginning, Mr. Chair, that I quite like Mr. Kelly. I enjoy working with him as a colleague, but I think he's in a bit of a hurry. I for one want to understand the bill more, and I have some questions that stand out. If there are indeed issues of unfairness facing small businesses and family farms in particular—fishers as well—certainly I want to know more about them, specifically on this issue of intergenerational transfer.

Mr. Maguire, again, thank you for your work on this. It's not an easy thing to put forward a private member's bill. It sounds like—although you have been inspired, if I can put it that way, by Mr. Caron—you've done your work in this regard. I don't discount that.

I do have some questions. First of all, on the estimated forgone tax revenue if Bill C-208 passes, do you have that figure?

[Larry Maguire, Conservative, Brandon—Souris, MB]

Thank you very much. It's a pleasure to be here today to appear before the committee on Bill C-208.

This is a bill to help small businesses, but before I get into that, I just want to thank you as the chair and the committee for meeting today during a constituency week and for allowing us to bring this important bill forward, which many in several industries are supporting across the country. All parties, from what I understand, support this as well. The opposition and some of the members of the governing party voted for this at second reading. I'm very pleased to be able to present it today. I have some others to thank later on as well.

To start off today, this bill gives us an opportunity to work together to champion the causes of those whose time has come, I guess you could say. I want to thank as well Mr. Guy Caron from the NDP. He was formerly the interim leader of the NDP, and this was his bill when it was presented to the House previously. I was able to pick it up because of the draw that comes out of parliamentary procedure, and to bring it forward word for word, basically, to make sure there is support to help small businesses, farming businesses and the fishing industry with qualifying shares. I want to thank Mr. Caron particularly in regard to this.

The essence of the bill is pretty straightforward. Bill C-208 will allow small businesses, farm families and fishing corporations to have the same tax rate when selling their operation to a family member as they would have when selling to a third party. Currently, when a person sells their small business to a family member, the difference between the sale price and the original price is considered a dividend. If it is sold to a non-family member, that is considered a capital gain. That's a pretty straightforward fact. That capital gain is taxed at a lower rate and allows the seller to use the lifetime capital gains exemption. Therefore, it's completely unacceptable that it's more financially advantageous for a parent to sell their farm or small business to an absolute stranger than it is to sell it to their own family, to their own children, son, daughter or grandchildren.

I want to give two specific examples of how this legislation will help families transfer their operations when they decide to make that transition.

I can imagine a bakery that a couple has operated for 30 years. They're now ready to retire, and another company has reached out to indicate that it would like to purchase it from them. However, their daughter has indicated that she wants to take over the family business. In many cases, family members have worked in these businesses and helped them survive and flourish and continue as family businesses.

As is the case for a lot of small business owners and farmers, they couldn't afford to put large sums of money into their RRSPs or savings vehicles as any extra money was reinvested back into the business. This couple, then, will rely on the sale of the bakery to fund their retirement. They call up their accountant to start the conversation about different planning scenarios. The accountant tells them that if they sold their bakery to the other company rather than to their daughter, they would have an effective tax rate of 10%, using their lifetime capital gains exemption. However, the accountant also tells them that if they sold the bakery to their daughter, they would be obliged to repay their loan with personally taxed dollars.

This represents a significant penalty compared to what they would pay if they sold their bakery to the other company, as the effective tax rate would be quite a bit higher, significantly higher. With this information in hand, they have a family huddle and discuss the options. The couple is now seriously considering selling the business outside of the family as they do not want to burden their daughter with a tax obligation that will inhibit her ability to make a living and grow the business successfully as they've done over the years they have run it.

With regard to the shares of the sale of the bakery, in a perfect world this couple should be indifferent to whether they are sold to their daughter or to the other company. Their daughter would not be penalized for purchasing shares from her parents and should be able to fund the purchase with corporate funds as she would if she were to purchase the business from an unrelated party.

If this change were made, it would allow the next generation to become business owners and to keep the ownership of the business local or in the family.

With Bill C-208, we can fix this injustice once and for all. Right now, many of our entrepreneurs are struggling, particularly in this pandemic. It has been one of the most disruptive forces in our lifetimes. Across the country, no community is immune from its impact.

Those entrepreneurs who are listening from where they are run their own businesses. They understand the massive responsibility and stress that come from being the risk-takers, but the legislation we have before us today sends the message to those family-run businesses out there that no longer will it be more financially advantageous to transfer your business or your farm to a stranger rather than to your own child because of tax purposes.

The other example I want to give is that of a farmer who is set to retire in the next couple of years and is reviewing various succession options. The farmer wants his son to take over; however, he wants fair market value for his farm in order to fund his retirement. If a third party were to ask the farmer to purchase the shares of his farming company, the purchaser would have the ability to purchase the shares through the corporation.

Selling the farm to this third party would allow the farmer to use his farm capital gain exemption of $1 million on the sale, resulting in a 13.39% effective tax rate, but if a farmer sold his farm to his son, the sale would be recorded as a dividend, rather than a capital gain, on which the farmer would pay 47.4% in tax. That's 34% more tax, Mr. Chair. I think we can all agree that it is completely unfair for the tax rate to be significantly higher when the farmer sells his operation to his son rather than a third party—in many cases, a complete stranger, as I pointed out before.

Bill C-208 sends a message of hope to young farmers out there who want to carry on what their parents started. There's something special about being connected to the land and to reap what you sow, as there is any small business an attachment, not just in farming and fishing, Mr. Chair.

In Manitoba and other provinces, there are century farms, which celebrate farm families who maintain continuous production for over 100 years, with many of them now over 125 years old. I've attended many of those century farm celebrations, as I'm sure many of my rural colleagues have who are on the committee and in Parliament. You can tell in the faces of the family members how important that milestone is to them.

Farm families face unique pressures in succeeding their operations, including the increasing cost of land, the average age of farm operators and the capital requirements for those entering the industry. The passage of this bill will eliminate the unfair tax rates that make it difficult to keep the farm under family ownership.

Mr. Chair, in closing, I want to also say that I am asking the members of the committee today to consider the importance of making sure that we are able to help small businesses across the country, all those who have eligible shares, and to make sure that they can transfer these operations into the next family. It's not every business that will choose to do that, but it is quite a significant opportunity for families to invest in their own futures and to make sure, with pride, that their families can continue to build on what they have put so much of their heart and soul into over their lifetimes.

In closing, I want to say as well that I thank Mr. Caron and you for allowing this to go forward today, and also Mr. Waugh, from Saskatoon—Grasswood, who allowed me to do my second hour on second reading in early February so that we could get to this point with this bill in today's committee meeting. With that, I would urge my colleagues on the committee to look at allowing this bill to move forward and back into the House for third reading.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

I believe Mr. Maguire is here, and we probably should have a subcommittee meeting as soon as possible to try to sort out where we go. We have quite a few motions, and then Peter issued another one. It doesn't have the 48-hour notice but I think people have a copy of it. He must have watched W5 or The Fifth Estate this week.

Pursuant to the order of reference of Wednesday, February 3, 2021, the committee will now start its study on Bill C-208, an act to amend the Income Tax Act, transfer of small business or family farm or fishing corporation. We welcome as a witness here the sponsor of the bill, Larry Maguire, MP for Brandon-Souris.

Welcome, Mr. Maguire. We'll go to you first, and then we'll go to a round of questions.

Larry, the floor is yours. Welcome.