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.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you very much, Mr. Chair.

Let me begin by thanking you as well, both as chair and as a member of our government's caucus, for your leadership on all things related to finance, and in that vein, also for calling this meeting of the finance committee at the end of July, when the House isn't sitting, in order to clarify matters in relation to the coming into force of Bill C-208. As others have said, I believe you are a giant in the House of Commons, sir, and a mentor to so many of us. I would like to thank you.

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

Thank you, Mr. Chair.

Good morning everyone, members of Parliament and Mr. Chair.

Thank you for inviting us to share our observations with your committee on the issue of business transfers.

My name is Julie Bissonnette, and I'm a dairy farmer in L'Avenir and the president of the Fédération de la relève agricole du Québec, or FRAQ. With me today is our public affairs coordinator, Véronique Simard Brochu.

We already introduced ourselves at our last appearance, but here is a reminder. The FRAQ is an organization that brings together 16‑ to 39‑year‑olds who share an interest in farming. We represent more than 1,700 members from across Quebec. We are here today to talk about the implementation of the tax measures contained in Bill C‑208.

Let me begin by quoting what I said during our previous appearance before the Standing Committee on Finance, which certainly sets the stage for today's discussion:

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.

As we have mentioned before, with the average age of farmers now over 55, there was indeed an urgency for the farming community to act. In fact, 70% of these future transferors would prefer to keep their businesses in the family. It is therefore the preferred method of transfer, especially since it is six times more likely to succeed than an external transfer.

With the bill passing in both Houses and receiving royal assent on June 29, 2021, we were finally able to celebrate this major victory. However, there was a lot of confusion following the Department of Finance's announcement on June 30, suggesting that implementing the legislation would be delayed.

We are very pleased to see that, last night, the department put an end to almost a month of confusion by finally clarifying farmers' questions. As the department states, “the changes contained in this legislation now apply in law.” This answers our biggest question, namely whether related farm transfers are now entitled to the same exemption as third‑party transfers.

However, we would like the department to make it clear that, if a genuine family transfer occurs between now and the passage of this potential bill, it will include those exemptions and will not be penalized by any measures to come. The government should clarify this issue so that tax experts and accountants can feel free to advise their clients on the transfer of their business without fear of misleading them. Members of Parliament may actually want to ask them this question this afternoon.

It is important to clarify this for the agricultural community. Given the importance of such legislation, the department did the right thing yesterday by providing answers to clear up the confusion that was rife. At the FRAQ, we believe that changing our tax system is a serious job that should not be done with a news release. That is why the right way of going about this is to let the current legislation do its job and then propose changes in a future bill, as was explained yesterday.

In terms of the next steps, it is clear that the government's intention is to facilitate farm transfers while protecting the integrity of the tax system. According to the news release, “forthcoming amendments are intended to make sure that it facilitates genuine intergenerational transfers and is not used for artificial tax planning purposes.”

We have no problem with that, as long as it does not interfere with genuine family farm transfers between family members. We therefore encourage the Department of Finance and members of Parliament to follow the example of the Quebec legislation, which has put in place several criteria to ensure the authenticity of family transfers. However, it is essential that the intentions of Bill C‑208 be maintained so that no parents are dissuaded from selling the family business to their children because of the tax system.

We must not forget that transferring a business is a very big step. Many factors need to be considered, and it is not simple. At the end of the day, all transfers are different and unique. Therefore, there cannot be a one‑size‑fits‑all definition for farm transfers. This must be kept in mind when setting future conditions. The inequity that has just been addressed should not be replaced by another barrier.

In conclusion, we wish to reiterate that we are grateful for the department's clarifications and look forward to future proposals. In the meantime, after the confusion over the past few weeks, it is good to know that the legislation is actually in force.

Our thanks to the members of the committee for seeking answers and for inviting us to share our first‑hand experiences.

Thank you for listening.

[Mary Robinson, President, Canadian Federation of Agriculture]

Thank you, Mr. Easter. It's wonderful to be here.

Thank you, Mr. Chair and committee members, for the opportunity to speak to you today. As Wayne said, my name is Mary Robinson. I farm on a sixth-generation family potato, soybean, barley and hay farm in Prince Edward Island. I'm also president of the Canadian Federation of Agriculture, which is Canada's largest general farm organization, representing nearly 200,000 Canadian farm families from coast to coast to coast.

I will start by thanking the committee for convening so quickly and by expressing my appreciation for yesterday's announcement from Minister Freeland, ensuring that the uncertainty around the coming into force of Bill C-208 has, for the time being, been put to rest.

Modern agriculture is capital intensive, with millions of dollars in capital assets involved in the transfer of most farm businesses these days. The passage of Bill C-208 ensures that each family that owns one of the 50,000 incorporated family farms in Canada can finally access the lifetime capital gains and capital gains treatment, avoiding what would potentially cost hundreds of thousands of dollars were this inequity to persist.

While it's commonplace for a farm transfer to involve millions of dollars in capital, nearly all of this is tied up in productive assets that are essential to the maintenance of the farming operation into the next generation. Meanwhile, the retiring farmer needs to fund their retirement from the proceeds of a sale, and the next generation almost assuredly lacks the capital to buy the assets outright. Every dollar matters, and a smooth intergenerational transfer is critical to the financial health of both parties.

For a sector that is almost wholly family owned, the impending transfer of tens of billions of dollars in assets across thousands of family farm transfers has a bearing on the outlook for an entire industry that is key to Canada's short-term economic recovery as well as Canada's long-term growth. Family farming is recognized internationally for sustainable growth, environmental stewardship and a connection to one's community, seen through increased spending in one's local community. It also contributes directly to the vibrancy and social fabric of rural communities across this country.

The long-standing unfairness that Bill C-208 has addressed had been a disincentive to passing these operations on to the next generation and maintaining this way of life for thousands of incorporated family farms across Canada. Those who still wish to do so face undue additional tax liabilities that could very well be in the hundreds of thousands of dollars. Following the bill's royal assent, we were disappointed to hear that farmers and financial advisers were left uncertain as to the status of the bill's implementation, and we were pleased to see yesterday's announcement provide some additional clarity, both for the immediate future and for the government's longer-term plans in this regard.

I would like to take this opportunity to applaud Parliament for passing Bill C-208 and resolving this long-standing inequity facing Canadian farms. I welcome this committee's efforts to ensure there is clarity moving forward. If further measures are needed to address undue tax avoidance, as outlined in yesterday's announcement, we would implore Parliament to ensure that the intent of this bill is maintained, grandfathering family farms' access to capital gains treatment for the transfer of incorporated family farms. Such access can easily be limited if undue administrative burden or significant costs are reintroduced into the system. Given the extensive consultations with farm advisers since 2012, when CFA first called for a resolution of this inequity, we believe the targets for future amendments can be addressed while this access for Canadian farm families is maintained. However, we believe this can be assured only through dialogue with farmers and farm advisers.

The potential for unintended barriers is significant unless there is consultation with those who have direct experience in managing farm succession and financial planning. In 2018, CFA actually convened round tables of farmers and farm advisers across Canada to discuss this subject with Finance Canada officials and to inform their work on this very topic. We would be pleased to facilitate similar engagements again to ensure that any future legislative amendments respect the realities of modern family farm transfers.

In conclusion, we call on the government and Parliament to ensure that the inequity that Bill C-208 resolves is not reintroduced and that Canadian family farmers are never again disincentivized from selling to the next generation by the Canadian tax system.

I thank the committee for its time, expediency and commitment in seeking to provide clarity around the coming into force of Bill C-208.

Thank you.

[The Chair, Liberal, Wayne Easter]

Okay, folks, we'll reconvene.

Welcome, panellists.

I'll just quickly go through this. Pursuant to Standing Order 108(2), we're dealing with panel two. The committee is meeting to study the coming into force of Bill C-208, an act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation), and in this panel, the supremacy of Parliament as well.

With us this morning we have, as individuals, the Honourable Peter Milliken, former Speaker of the House of Commons, and the Honourable Don Boudria, a former House leader. From the Canadian Federation of Agriculture we have Mary Robinson, president, and Scott Ross, assistant executive director. From the Fédération de la relève agricole du Québec we have Julie Bissonnette, president, and Véronique Simard Brochu, public affairs coordinator.

We'll ask all of you to keep your opening remarks fairly short so that we get time for questions.

We'll start with Mr. Milliken. Peter, you're on.

[Ed Fast, Conservative, Abbotsford, BC]

There's absolutely no guarantee from this government that it won't totally gut Bill C-208 when it gets around to amending it.

[Ed Fast, Conservative, Abbotsford, BC]

Did any finance officials or the Prime Minister's Office seek your legal opinion before announcing that they did not intend to implement C-208 before amending it?

[Philippe Dufresne]

Bill C‑208, which was passed by Parliament after three readings in the House and royal assent, is in force. So we are discussing introducing amendments. The news release does not propose to amend the bill in its entirety.

A bill that would essentially undo what has been done and say exactly the opposite would certainly raise a procedural question of whether it is possible to ask the same question in the House when it has already been answered.

However, that is not what is being proposed at all. We are making amendments to uphold the spirit of the legislation to correct what the government perceives as certain shortcomings.

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

Okay.

Could the government introduce a bill in the House to repeal Bill C‑208?

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

Thank you, Mr. Chair.

I will wait until Mr. Gerretsen is listening.

After what I just heard, let me remind you of the basic factors. We are here because something very serious happened. Parliament passed Bill C‑208, which is extremely important. When I first ran for office, it was the first issue people talked to me about. Farmers were saying that they had to choose between their retirement and their children, who wanted to take over the farm. The farmers would lose their pensions if they sold it to them, so they were wondering what to do.

Members from every political party brought this bill forward to the House. As I said earlier, after 527 days, it was passed and it came into force. The government issued a news release saying that it would come into force later. The Liberals are therefore saying that they will not honour the will of the House, which is very serious. That is why members from each party have asked for this emergency committee meeting today, to emphasize the seriousness of what is happening.

Much reference is being made to the news release issued yesterday afternoon, just prior to the committee meeting. I am sure that this correction made through the news release is directly related to the fact that the Standing Committee on Finance did its job and announced an emergency meeting. It is very important to remember that what is voted on in Parliament must be respected and that the government cannot act like a tinpot dictator by not implementing what it does not like. We live in a democracy, and that is not how it works.

Let me come back to you, Mr. Dufresne.

Yesterday, in the press release, the government announced its intention to make amendments in keeping with the spirit of the bill. The Liberals gave us their word. As they have said and as you have reiterated, this must be done through a whole new legislative process. In short, Parliament will have to pass a new piece of legislation.

Is that the case?

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

Now that they've recused the statement from June 30 by yesterday's press release, let's say in a hypothetical situation they hadn't gone forward with yesterday's case, and they stuck to their original press release and unfairly delayed the implementation of Bill C-208 until January 1 coming up. What recourse could Parliament take against the department?

I mean, this is contempt of Parliament, similar to what the government has done by suing the Speaker. What if it were to happen again? What are Parliament's options here in regard to taking action against the department? The department put out the press release.

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

Thank you, Mr. Chair. I want to thank you for the calling of this meeting and our witnesses for being here today.

Mr. Dufresne, in the case of June 30, 2021, when Finance announced the suspension of Bill C-208, what legal authority did the department use to announce this tax policy change?

[Philippe Dufresne]

Bill C‑208 has been in force since June 29. This does not change and the news releases do not affect it.

The June 30 news release indicated the government's intention to change the date of coming into force by means of a future bill. The July 19 news release confirms that this is not the case and that the legislation is in effect now.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

So the current government could announce what it wants, such as making tax changes. Afterwards, aggrieved people would have to go to court.

That possibility creates a lot of uncertainty for all small business owners who want to transfer their business now. The news release creates even more ambiguity because we don't have the details of a possible bill and what the government intends to do.

I have one final question for you.

The news release issued yesterday mentions that the measures are in effect now. But there was another one on June 30. In your opinion, will the people who would have benefited from the good news that Bill C‑208 was enacted between those two dates be adversely affected?

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

What would happen if the government actually decided not to implement Bill C‑208 today and did not get parliamentary approval later?

Who would be held accountable, given that there could be a change of government or an election? What would happen to all the victims, farms and small businesses that could not make the transfer according to the details of Bill C‑208?

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

In your view, would Parliament be breaking the law if it announced now that it intended to make amendments to Bill C‑208 and put the new measures in place immediately?