Bill C-208 (Historical)

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

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

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

Very good. Thank you.

Now I'm going to move on to another topic; it has to do with the amendments. As you said, in yesterday's news release, the government announced its intentions to make changes to the amendments set out in Bill C‑208. It is our understanding that a new bill will be introduced to amend the changes contained in Bill C‑208, without altering the bill's intent.

Something about this whole process surprises me. As we heard this morning, the first reading of the bill took place on February 19, 2020. That means the period between when the bill was given first reading and when it received royal assent was 527 days. As Mr. Dufresne, the law clerk, pointed out this morning, at almost every stage of the legislative process, the government could have brought forward the amendments it is now saying it will introduce in a future bill.

I gather from the answers you gave Mr. Fast that, when Bill C‑208 was at committee stage, the government had not asked the Department of Finance to draft amendments to the bill that would close the potential tax loopholes. Is that correct?

[Trevor McGowan]

If I understand the question correctly, right now the rules as enacted by Bill C-208 apply and can be relied upon. It is the law of the land.

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

Thank you.

Julie Bissonnette of the Fédération de la relève agricole du Québec wanted us to ask you that question. Both my fellow member Ms. Dzerowicz and I have asked it now. You gave a clear answer, which I appreciate.

Nevertheless, something you said in response to my fellow member's question worried me, and you said it again when you answered my question. You said that it has been that way since yesterday's news release. This morning, however, the law clerk for the House of Commons and former members of the House told the committee that it has actually been that way since the bill received royal assent, regardless of what the news release said. Yesterday's news release reiterated that fact. However, since Bill C‑208 received royal assent, it has been possible to sell a business for the purposes of an intergenerational transfer of a family farm with the usual rights and benefits. Is that correct?

[Trevor McGowan]

Right now that is absolutely correct. What I was saying with respect to the government's July 19 announcement was that while the government has announced its intention to provide additional conditions that may need to be met at the end of a consultation process, those new conditions would not apply before November 2021. Right now the rules in the Income Tax Act that were amended by Bill C-208 are the law and can be relied upon.

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

Thank you, Mr. Chair.

I'd like to welcome the witnesses and thank them for being with us today.

Before I get to my questions, I want to recognize the important work that senior officials and all employees at the Department of Finance have done during the pandemic. This committee met often, and we regularly heard from department officials. They have done incredible work to save the economy. I want to commend them and thank them again for all their hard work.

My questions are for Mr. McGowan.

After yesterday's news release and Ms. Bendayan's earlier comments, everything was clear in my mind, but the answers, details and clarifications you gave Ms. Dzerowicz confused me. Therefore, I'm going to ask you the same question.

Since Bill C‑208 received royal assent in June, the provisions in Bill C‑208 have applied in the case of parents who sell their farm or family business to their son or daughter. Is that correct?

[Trevor McGowan]

The relevant provisions of the Income Tax Act as amended by Bill C-208 would apply to a transaction undertaken today. That's based on yesterday's press release. The government announced that any new amendments would not apply before November 2021. For any transaction undertaken between now and the end of October, the government announced that whatever new conditions it might include in the bill, which, again, would need to be passed by Parliament, would not apply.

[Julie Dzerowicz, Liberal, Davenport, ON]

If I sold a farm to my daughter right now, would Bill C-208 apply, including whatever amendments we actually make for the income tax provisions that we introduce after November 1?

[Trevor McGowan]

The July 19 announcement provided that Bill C-208 amendments currently apply and that any new amendments put forward by the government, which as we discussed would need to be included in a bill and passed through Parliament, would not apply before November 1, 2021.

[Julie Dzerowicz, Liberal, Davenport, ON]

If I own a family farm right now and I decide I'm going to sell it to my daughter, and that transaction happens over the next month, what actually happens? Does Bill C-208 apply, or is whatever is passed or introduced as of November 1 retroactive to sales after June 29?

[Trevor McGowan]

I apologize. I'll try to be more brief.

As I said, the coming into force of Bill C-208 was a factual matter. It amended the Income Tax Act on June 29. That's just when it produced its effect.

The proposed amendment would.... Of course, it would have to be included in a bill, as stated. The government would have to propose it to introduce legislation, and that bill would need to receive royal assent. If passed, it would have the effect of providing that the amendments that had been made as a result of Bill C-208 would apply as of January 1, 2022.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you. I'm sorry, but it's past two minutes now, and I have to get to a few more questions. I appreciate your response.

I'll get to it very quickly. What was the intention behind the June 30 news release? Was it to change the coming-into-force date, the date on which Bill C-208 came into law?

[Trevor McGowan]

It is a somewhat arcane thing that doesn't come up much, but it is critically important in the preparation of tax amendments.

As I said initially, for example, the amendments in Bill C-208 came into force on the date they received royal assent; that is to say that the bill amended the Income Tax Act on that date.

That doesn't necessarily mean their application to any particular transaction is going to be clear. In particular, when we're putting together income tax amendments, we typically set out specific application dates. For example, one reading of a coming-into-force date in the middle of a taxation year is that it applies to transactions that occur on or after the date of royal assent. Another reading of the measure is that because a taxpayer's liability for tax crystalizes at the end of the taxation year when it is computed, it's the law at the end of the taxation year that is relevant for the purposes of computing tax.

A coming-into-force date that simply appears in the act on, let's say, June 29, is ambiguous in that it's not clear if it applies to transactions that occur on or after that particular date or for the 2021 taxation year. That's the reason we typically, in drafting income tax amendments, set out specifically when an amendment applies. It could apply, for example, in respect to transactions that occur on or after a particular date. It could apply as of a particular taxation year. There are a number of different formulations. We do that to address that and provide clarity—

[Ed Fast, Conservative, Abbotsford, BC]

On a point of order, Mr. Chair, my comment that “you guys are awful” was not addressed to our civil servants, and it certainly wasn't addressed to Mr. McGowan. It was addressed to my Liberal friends across the table from us, who were heckling and guffawing about our asking very significant questions of Mr. McGowan related to Bill C-208.

[Trevor McGowan]

As I said, it was an announcement of the government's proposal. As we start with the approval process, of course the Department of Finance officials provide advice to the minister, and then we implement the government's decisions. I was simply trying to highlight the fact that this was a government proposal to table a bill in Parliament that would affect the application date of the amendments included in Bill C-208.

[Ed Fast, Conservative, Abbotsford, BC]

Trevor, really, that is a re-characterization of what has happened. The June 30 press release made it very clear that the government was going to withhold implementation of Bill C-208 until it had a chance to amend it. In that, it was moving in a way that effectively defied the will of Parliament. My question, which you didn't answer, is who in Finance or who in government actually made the decision that was then reflected in the press release that was issued on June 30?