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.

[The Chair, Liberal, Wayne Easter]

I think if we give a half-hour to this discussion on Bill C-14, that will put us at about 5:40 Ottawa time. That will give us about 50 minutes for Bill C-208.

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

Thank you, Mr. Chair.

I'd like to thank all the officials, senior officials and employees here with us today.

Personally, I have a lot of questions about Bill C-208 and only a few about Bill C-14.

I would suggest that we continue with our questions about Bill C-14 until 5:30 and then move on to our questions about Bill C-208 from 5:30 to 6:30 with the other representatives, as scheduled.

[The Chair, Liberal, Wayne Easter]

We can take an hour with officials and still have a half an hour left for Bill C-208, or we could go 45 minutes with officials and take 45 minutes or thereabout on Bill C-208.

There is one official who is the same. Trevor McGowan from the Department of Finance is on both panels. Shawn Porter, who will be here for Bill C-208, is a different witness.

I think we'll have to deal with Bill C-14 first. We'll take 45 minutes to see where we're at, and then we'll go from there.

Does anyone have any remarks to start? I wasn't told there was. Do we just go directly to questions?

Gabriel Ste-Marie, you had your hand up. Do you have a question?

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

With regard to the next generation of farmers and the transfer of family businesses, please quickly tell us about Bill C-208, which is quite important, I believe. Young people especially are asking us to pass it. Now you seem to have some misgivings about it, but I hope I am wrong.

I would like to hear your thoughts on it.

[The Chair, Liberal, Wayne Easter]

I call the meeting to order.

Welcome to meeting number 26 of the House of Commons Standing Committee on Finance.

Pursuant to the order of reference of March 8, 2021, the committee is meeting to study Bill C-14, an act to implement certain provisions of the economic statement tabled in Parliament on November 30, 2020, and other measures, for the first two hours. For the third hour, 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 regarding the transfer of a 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. So that you are aware, the website will always show the person speaking rather than the entirety of the committee. I would remind folks that they're not supposed to take photos or screenshots of the proceedings.

I will leave out a lot of the rest of the preliminaries, but I will remind you that members and witnesses should be addressed through the chair.

I'd now like to welcome our witnesses.

I will not at this time go through the departmental witnesses, but will welcome Minister Freeland and officials from the Department of Finance and others. They as well will be here for the presentation with Minister Freeland

Before you start, Minister, we are going to be interrupted by votes. Your ears might have been burning before you sat in your chair, because we were having a discussion about how we could ensure that you're here for an hour. I just don't know how this is going to complicate things, but maybe you could respond to that and then go to your remarks.

[The Chair, Liberal, Wayne Easter]

It will not solve all the problems, but it will help.

Does anybody else want to add a final comment before we release the witnesses?

I want to sincerely thank all the witnesses. We had a very informative discussion. Your personal experience in terms of dealing with individuals on intergenerational transfers, whether it's farms or small business or fishers, certainly showed through in your knowledge during this discussion. I want to thank each and every one of you for that on behalf of the committee.

To the committee, I suggested earlier that we probably have an option on Thursday if we want to continue on with this bill. We could move the in camera meeting on COVID expenses to March 30, so we have the full slate of witnesses. I'm not sure which department we're short, but we're short one.

If you prefer, we can have Minister Freeland on for the first hour, and then we'll have officials. That's on Bill C-14. We could take the third hour and deal with Bill C-208—have officials there and the legislative clerk, and see if we could finish up with Bill C-208. Then we could move the other in camera session to the 30th.

Are we okay with doing that? I see people's heads moving.

Okay then. We'll move the in camera meeting to the 30th, and we'll go with Bill C-208 on Thursday during the third hour.

The meeting is adjourned.

[Peter Braid]

I can perhaps jump in on that one as well.

Historically, private members' bills will fail or succeed for a whole range of reasons, but parliamentarians have a unique opportunity to seize the moment today. I think there is a greater element of political will around this particular bill, Bill C-208.

The backdrop of our circumstances is different. As you all well know and can appreciate, we've been through a year of a global pandemic and the demographics of the small business community have also changed. The time is now.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair. I'll be quick.

Bill C-208 was brought in by Larry Maguire, who is a Conservative member. He made a lot of good arguments in his presentation. We hear a lot of people supporting this. It seems like a logical thing to have families being able to transfer their businesses to their children.

The last time it was raised, in 2017, lots of issues hadn't been resolved. I hear from a lot of people who have been working on this for quite some time. It looks like it's been a thorn in the side of many people on this panel.

Why didn't it happen when the Conservatives were in power? They're now bringing it forward. What stopped it before?

Maybe that's for Dan or Brian.

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

I want to ask you, if I could, and I'd also like the thoughts of Mr. Janzen and Mr. Mansfield on this.... There's been a criticism of Bill C-208 that I agree with in spirit, in principle. Of course we would want to, as a finance committee, address unfairness—I say that especially as the son of a small business owner—but there has been a criticism along the lines of the lack of a requirement in the bill for a child to be involved in the transferred corporation's business or for the parent to cease to be involved after the transfer.

Do you have any thoughts on how to address that gap in the legislation?

I'll begin with you, Mr. Wark. Then I'll go to Mr. Janzen and wrap up with Mr. Mansfield.

[Ted Falk, Conservative, Provencher, MB]

I was going to ask you about that. Do you think section 84.1 as addressed in Bill C-208 adequately addresses some of those issues that you're struggling with on a day-to-day basis?

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

I want to thank all of our witnesses for coming to committee today. You have brought a lot of clarity in your presentations and in your responses to the questions as to what the bill is, what it will do and your perspective on it.

In my opinion, Bill C-208 is a bill that seeks to do one thing, and that is to address the inequity for small business owners, farmers and fishers who wish to sell their business or their enterprise to their family or their children. What it does is that it allows them to use the capital gains exemption, which they wouldn't be able to use currently for that but are able to use if they sell to a third party.

Mr. Janzen, you're from my home province of Manitoba. I'd like to ask you a few questions. You've indicated that this has been a thorn in your side for 34 years and that it is something you wish had been addressed sooner. How frequently do you encounter a situation where this would apply?

[Cindy David]

Yes. I'll chime in here.

A lot has been said on concerns about the unintended consequences of this legislation with regard to loopholes and large private corporations perhaps taking advantage of something that we hadn't intended. I would point out that if we do nothing, we're riddled with unintended consequences. Since this legislation was put in place.... It has been in place for a number of decades. One may wonder why we continue to push this forward: It's because the way we've taxed small businesses has actually changed within the framework of this legislation. The dividend tax has gone way up compared to what it was back in 1986, when this first affected small businesses.

Again, I'll just point out—if you could write this down on a piece of paper—that in our brief, which you will get on Friday, on page 5 we provide specific examples so that you can see how the tax has changed from 1986 to the current day. It has become very punitive. It actually highlights the fact that family businesses have a clear disadvantage today that they didn't have several decades ago under the exact same legislation that we have in place.

I'll leave you with this. Bill C-208 actually phases in a provision that disallows the exemption for the capital gains for larger companies. It already takes care of any potential leniency for large businesses and really is in favour of smaller businesses, which care more about using the capital gains exemption.

[Brian Janzen]

Thanks for the question.

Yes, I do think Bill C-208 does have enough guardrails, at least initially. As someone who has practised for 34 years, I'm going to preface this by saying that someone will always find something. Even if you think you have the proper guardrails now, you may have to tweak them later. We're all in favour of that.

Getting back to this particular thing, I really think the five-year time frame—if it's sold in the meantime and mom and dad pay their taxes as they would have without this bill—is a great provision. There definitely are some guardrails there.

Second, it just doesn't work to do an internal strip, the way Bill C-208 is set up. The internal strip, where you're taking out surplus without having a real sale, is where all the abuse happened in the early nineties. That is why section 84.1 was introduced. This bill really also helps for that.

Also, as I said with respect to the threshold for the value, these are the smaller businesses. This is not going to be, all of a sudden, undertaken by rich, rich, rich families to try to take advantage of it. With the guardrails, between the value and the time frame, I think this is perfect for the beginning of the bill. If it does need to be tweaked later, so be it. For now, though, this is a great limitation for any abuse, in my mind.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

The last question is for Mr. Kelly.

Mr. Kelly, you have recommended simplifying the LCGE and expanding it to include at least some of the assets and increase the LCGE amount to $1 million. Are you proposing that as additional changes to strengthen Bill C-208, or are you indicating that's something we should be considering moving forward?

Department of Foreign Affairs, Trade and Development Act

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Mr. Speaker, I am pleased to speak today on Bill C-216.

We are debating this legislation because the Liberal government has not treated supply-managed sectors fairly. They have not supported farmers or producers, and not followed through on their commitments. However, this legislation does not address the issues of farmers and producers.

Conservatives have been strong and vocal supporters of our supply-managed sectors and will continue to be. In fact, Conservatives have a policy declaration that says the following:

...it is in the best interest of Canada and Canadian agriculture that the industries under the protection of supply management remain viable. A Conservative Government will support supply management and its goal to deliver a high quality product to consumers for a fair price with a reasonable return to the producer.

Our leader, our party, and our policy have been clear on this. The Conservative party is an ally, supporter and defender of supply management in Canada. I will talk about these important supply-managed sectors.

When I met with the Chicken Farmers of Canada, they were clear about their priorities. Through correspondence and an appearance at committee, we know that their priorities are new investment programs to support producers as they improve their operations, a market development fund to promote Canadian-raised chicken, a tariff rate quota allocation methodology designed to ensure minimal market distortions, the enforcement of Canadian production standards on imports and the resolution of import control loopholes undermining this sector. One of these is the fraudulent importation of mislabelled broiler meat being declared as spent fowl. There are reports of chicken meat imports being mislabelled in order to bypass import control measures.

When this situation first became apparent in 2012, Canada was importing the equivalent of 101% of the United States’ entire spent fowl production. According to the Chicken Farmers of Canada, these illegal imports have resulted in an estimated annual loss of 1,400 jobs in Canada, $105 million in contributions to the national economy, $35 million in tax revenue and the loss of at least $66 million in government revenues due to tariff evasion.

These illegal imports also raise important food safety concerns relating to traceability for recalls. This issue not only affects our economy and hard-working chicken farmers, but the lives of Canadians are on the line in the case of a food-borne illness.

Where is the action plan to deal with this?

When I spoke to the Egg Farmers of Canada, an industry association that represents over 1,000 family farms across the country that support over 18,000 jobs and $1.3 billion in GDP, they were clear that they wanted the government to stop claiming to support the industry and actually start defending it. I learned of the innovation occurring in this industry.

The egg industry is tired of being strung along by the government. They had to fight tooth and nail for clarity on promised compensation. They expressed their desire for investment in their industry, which is the backbone of rural communities, and for market development support when it comes to the Canadian egg brand.

Where is the desire or action plan to defend our egg industry?

When I spoke to the Dairy Farmers of Canada, they told me how hard it was for the industry to plan for the future due to the government’s lack of transparency, not the least in regard to the disbursement of promised compensation.

Where is the desire and action plan to defend the dairy industry?

These same concerns were raised by the Turkey Farmers of Canada. When I first spoke with them, they were going into year four without any payments of promised compensation by the government.

The Conservatives are the only party who can and will be able to ensure that our world-class producers of dairy, chicken, turkey, and eggs have a partner in government. The Bloc Québécois will never have to negotiate a trade agreement for Canada and be the partner in government that the supply management businesses in Quebec and across the country can rely on. The Conservative Party is the only party that can and will put an end to the failures of the Liberal government when it comes to trade agreements and compensation.

Conservatives will faithfully defend supply management. We were in the House of Commons pressing the government over and over again to fulfill its compensation promises to the supply-managed sectors. We have also raised in the House the meaningful actions that we can take now to protect and support farmers and producers, including in supply-managed sectors. These actions would include modernizing and improving agricultural risk management programs, asking the Competition Bureau to investigate the impacts of abusive trade practices in the grocery industry by the grocery giants, or providing flexibility and clarity on how compensation for supply-managed sectors is allocated.

Why have we seen no plans on these important topics?

I have spent a lot of time talking with businesses and industry representatives. They want consultation, understanding and transparency from the government. They want support from the government, which has been sorely lacking. After all, our agricultural sectors do not compete fairly with other countries that subsidize, both directly and indirectly, their own products.

Creating legislation such as we are debating today, which could target farmers and producers right from the onset as bargaining chips in future trade negotiations, is not a wise strategy. Canada could be outnegotiated and forced to agree to concessions and pay compensation. This would mean more workers losing jobs, and it would do nothing to drive investment, spearhead innovation or protect jobs.

In my home province of British Columbia, supply management is an important part of our economy. B.C. has over three million egg-laying hens across over 140 farms in the province. Chicken farmers in B.C. produce 87 million dozen eggs annually and account for 14,000 jobs, contributing $1.1 billion to Canada's GDP.

B.C. is also the third-largest dairy-producing province in Canada, with 500 farms.

It is the Conservatives who are putting forth private members' bills that are meaningful to the agriculture sector. Conservative private member's bill, Bill C-206, would exempt farmers from paying the carbon tax on gasoline, propane and natural gas. From heating barns to running farm equipment, farmers face steep energy costs, and these have skyrocketed in many parts of the country due to the increasing federal carbon tax. It is a practical measure to help alleviate the financial strain on the agriculture sector. Supporting our food security is more important than ever.

Conservative private member's bill, Bill C-208, would allow the transfer of a small business, family farm or fishing operation at the same tax rate when selling to a family member as when selling to a third party. I was happy to jointly second this bill in the first session of this Parliament. This was a poor tax policy change brought in by the government. This policy bothered me so much when it first came out. It was one of the factors that prompted me to run to become a member of Parliament.

Succession planning is a challenge at the best of times for small businesses, in particular farmers, and it is unfair that it is more financially advantageous to sell to a stranger than to one's own children, who have often grown up around the family business and contributed over time. I have many communications regarding this bill from my constituents in Kelowna—Lake Country on how positively it will affect their businesses and future planning.

Conservative Bill C-205 would amend the animal health act to address trespassing onto farms, into barns or other enclosed areas where the health of animals and safety of Canada’s food supply is potentially at risk. Entering a farm without lawful authority or excuse would become an offence under the act.

We will always support the hard-working farmers and producers in our supply managed sectors who ensure quality foods for Canadians. Dairy products, chicken, turkey and eggs are core staples on our dinner tables, and the pandemic showed us how important it is to protect our supply chains, supply management and food security.

The legislation we are debating today does nothing to address any of the concerns I have outlined. There are more meaningful, productive and long-lasting ways we can stand up for supply management without supporting Bill C-216.

Canada’s Conservatives will continue to support our supply managed sectors and ensure that dairy- and poultry-farming families and producers are consulted and engaged in any trade negotiations in the future.

We will continue to support all farmers and producers in meaningful ways.