Finance Committee on March 2nd, 2021

[Ted Falk, Conservative, Provencher, MB]

I was just going to say that was my observation as well. Often, the disparity that would be caused by increased taxation due to selling to a family member just ripples on to the distribution to other siblings as well in a transaction like that. I think that with your bill, the first principle is tax fairness, no matter who it's sold to, but the other thing is that it's actually a real benefit to families to be able to equitably distribute the residual sale of either a farm or a small business.

[The Chair, Liberal, Wayne Easter]

I see Mr. Maguire shaking his head yes on that point—

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

I think I answered that question previously, Mr. Chair, but I thank Mr. Falk for bringing that forward. It is an important point.

[The Chair, Liberal, Wayne Easter]

Okay. We have Mr. Fraser, who will be followed by Mr. Fast and then Ms. Koutrakis.

Sean.

[Sean Fraser, Liberal, Central Nova, NS]

Thanks very much, Mr. Chair.

Thanks, Mr. Maguire. I don't think we've had a chance to get to know each other as well I'd like, but I will say that from your comments in the House and what I've seen, you seem like a very genuine person who has come to politics for all the right reasons.

I appreciate what the bill is trying to do. I think there is certainly some good that could come from it. I do have a couple of reservations about things that the bill doesn't do or perhaps unintended consequences that could stem from the bill. I'll focus my comments on those issues.

The first sort of bucket of objections comes from the fact that it's tied to the intergenerational transfer of companies. Not all small businesses.... I know that for fishing operations and farms in particular our attention is drawn to them, but of course it's not limited to those industries. I have a huge inshore lobster fishery in my own community. Some of the businesses are owned by corporations, but a significant number are owned personally. I may be mistaken, but I'm wondering whether your bill does anything to assist the intergenerational sale of personally owned businesses in the fishery or in agriculture.

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

Thank you for that question, Mr. Fraser. I've been called a lot of things, but I take it as a compliment that “genuine“ would be one of them, so thank you.

This bill does nothing to stop the direct sale from family members who aren't in corporations. The benefits are still there that they can use in those direct sales, so it's probably even simpler for them to be able to do it. This is a circumstance for those small business qualifying shares, to be able to put them back on a level playing field.

[Sean Fraser, Liberal, Central Nova, NS]

Look, I guess there are two inequities that I observe. One that your bill is trying to tackle is the fact that you really should be able to sell to family members the same way you can sell to the general public and, for what it's worth, I'll point out that the mandate letters for the Ministers of Finance and Agriculture included that commitment as well, and I certainly have hope and will be cheering for our government to make good on those commitments.

The other inequity I see stems from the difference between creating favourable tax circumstances for someone to transfer a company to their kids when, if that same business is owned personally, like the inshore fishing operations I referred to, they won't necessarily benefit from those same advantages. One of the things the proposed bill does in the amendments to section 84.1 of the Income Tax Act, which is essentially trying to restrict access in certain ways to the lifetime capital gains exemption, is that if you actually sell your shares in a company to your child—you sell to them personally, not to a company they own—they have access to a lifetime capital gains exemption.

I'm curious if your view is that there would somehow be an opportunity through the measures included in your proposed bill that would actually give better access to the lifetime capital gains exemption than somebody might have if they sell it to their kid, who might not own a company but would rather take the assets or shares personally.

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

In terms of what we looked at with this bill, there are the safeguards that I talked about earlier in terms of the resale down the road. I think it's equitable to be able to make sure that the generation we're selling it to....

In the act, and in the bill that we've put forward as well, “qualified” shares is right in there. For individuals to be able to sell to their own families outside of those corporations, it's a choice that they've made, one that I had to make back in the seventies. The structure of a corporation was very new in those days. It was new legislation. In fact, it was legislation brought in by the present Prime Minister's father in those areas for agriculture to be corporations in those days. There were benefits to being incorporated. When you get to a certain size, that still is the case today. That's why many...just because of the tax rules that are already put in place.

This has taken a look at all of the tax rules there today that are still relevant to whether you're selling to an individual who is not a corporation and evening out the playing field for those who are. They have already made the decision to remove themselves, I guess, as an individual and put themselves into a corporation. A corporation sometimes has that annotation to it that there's a huge amount of wealth involved when actually what's being done here is just managing the tax processes and the day-to-day cash flow of these operations so that they can stay afloat.

[Sean Fraser, Liberal, Central Nova, NS]

I have no reservations about what type of business association a person may choose for their structure. In very large businesses, you'll often have a corporate structure, but that's certainly not always the case. There are a lot of small family businesses that choose that structure.

One of the themes that came up earlier—I think maybe Mr. Fragiskatos and subsequently Peter Julian raised the issue—was around potential tax-avoidance issues. I have a concern that may or may not play out. That is, would anything in the bill prevent a circumstance where there's effectively an artificial transfer for tax reasons and not a genuine intergenerational transfer? I'm thinking of a circumstance where person X has a child and that child sets up a holding company just for the purpose of holding shares in the farming operation, when in fact that kid has no interest in taking over the family farm. The person knows this 20 years before they decide to retire from farming, so they say, “To reduce the tax burden, let's put it in the holding company. I'm going to keep working on this. Eventually, we'll sell the shares.”

Do you think there's the potential for abuse with someone transferring a small business, a farming operation or a fishing corporation, to a holding company purely to avoid the tax burden rather than to genuinely effect a transfer to their children?

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

I think that's the safeguard that was built into it, Mr. Fraser. In regard to that, it's not just a deemed transfer. There needs to be a legitimate transfer of the funds taking place in this, and not just the shares in regard to that for a holding company that you're talking about. I think when Mr. Caron brought this bill forward in the first place, it was his intention, and it's certainly mine too, to be able to make sure that these are legitimate transactions that stay in place for x number of years down the road, in this case five. If they're not, then the reverse taxation has to be paid.

I get that you're considering more years than that down the road, but we just put five in the bill. I think when regulations are put in place around these types of bills, those things can be dealt with.

[Sean Fraser, Liberal, Central Nova, NS]

Yes. I guess—

[The Chair, Liberal, Wayne Easter]

On this subject, you can follow it up, Mr. Fraser. Go ahead.

[Sean Fraser, Liberal, Central Nova, NS]

Sure.

Look, I don't mean to be too picky here. I used to work with a lot of tax lawyers. I sense what they're going to advise everybody who owns one of these businesses, farming or whatever it may be, which is, “Put this in your kid's name, five years plus a day, whether they intend to own it or not. Transfer the assets there and you keep running your business.” I'm just not convinced that the safeguard will actually achieve what it hopes to. I have some reservations about whether it will really have that effect.

In any event, I'm now just rambling with the thoughts that are on my mind. I appreciate your testimony, Mr. Maguire.

Thank you for the indulgence, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you both.

I think Mr. Maguire answered that question previously.

We turn to Mr. Fast now.

[Ed Fast, Conservative, Abbotsford, BC]

Thanks, Mr. Chair.

I want to clarify that Canadian small businesses are not tax cheats. The large majority of our small businesses are law-abiding businesses that try to do their very best to generate prosperity not only for their families but also to generate a public good.

I seldom find myself agreeing with Mr. Julian, but I am totally on board with his suggestion that for too many years Canadian family-owned businesses have been penalized for being family owned. They are trying to transfer the accumulated value of those businesses to the next generation, and they can't do that on a level playing field.

Mr. Maguire, thanks for bringing this bill forward. This bill has been analyzed up, down and sideways. There's very little left to be investigated here. You suggested that you would like to see this bill expedited. I can give you one reason why I think you're right on that.

The CFIB estimates that somewhere in the order of 240,000 small businesses are going to go under by the time COVID is done. These are businesses that will not be severely diminished but gone forever. We're talking about 1.2 million small businesses in Canada. That means 20% of them won't be around anymore. For the remaining ones, the very least we as a country and as legislators can do is to remove an unfair tax burden they carry vis-à-vis transferring these businesses to non-family members.

Mr. Maguire, could you comment on the urgency of understanding what COVID-19 has done to small businesses in Canada, and the opportunity we have to do something that will allow these small businesses not only to survive but also to be able to be transferred to the next generation that can bring new energy and vigour to making these businesses a success?

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

I see no irony in your question coming from a person by the name of Fast—the faster you can get this type of legislation into place, if I could put it that way without any pun intended, the more of those small businesses will stay in existence.

That was the case before COVID hit, but the comment from the Canadian Federation of Independent Business now is that if a quarter of a million of these businesses, 240-some thousand of these businesses, may not make it because of COVID, it could be a big help.

All sides of the House are looking for ways to be able to help small businesses stay in place, the 1.1 million I talked about earlier. You're right. Twenty per cent of them could disappear if those numbers were right.

I think our job as politicians is to make sure we keep as many of them viable as we can, and if legislation like this will help do that, I think it's a benefit not just for the small businesses but also for the eight or nine million people who they employ.

[Ed Fast, Conservative, Abbotsford, BC]

Do you see any merit in calling more witnesses to speak to this bill, or would you like to see this go to clause-by-clause?

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

I would like to see it go to clause-by-clause. I get that there are many people. If you wanted to have everybody come and speak to this bill who wants to, we wouldn't get it through until next Christmas, because there are that many people who want to be on the record as supporting it.

I have done this through farm transfer counselling organizations and those sorts of things as well. Intergenerational coaches on this sort of thing agree with this as well.

I think there's a real need to be able to move it forward. If you could do clause-by-clause on it, there wouldn't be a need to have.... I understand that normally witnesses do come before committees for one or two meetings on private members' bills, but I wouldn't say there's a need to do much more than that because this bill is anxiously being awaited not only by those 1.1 million businesses but also by the eight or nine million employees they employ.

[Ed Fast, Conservative, Abbotsford, BC]

Earlier, Ms. Dzerowicz mentioned that she had a concern that this legislation might mostly benefit wealthy small business owners. I'd be interested to hear your response to that. Have you done any analysis as to who would actually benefit from this levelling of a playing field?

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

The 1.1 million businesses that are out there today would. As I said in second reading, these are not wealthy, multi.... They're not huge businesses. I'll put it that way. It's not the large businesses that this affects. They've already got a tax structure in Canada for businesses of a certain size.

As I say, when you're looking at these small businesses in particular, I guess the goal of every small business is to be wealthy, but I think there's a definition involved in that which involves some of the things that Mr. Julian asked me about and that I was asked by others—by Ted, as well—in regard to how success is not always measured in the dollars that small businesses makes. It's measured in the community activities and the success of being able to bring their family members into that business.

I get that Mr. Fraser is concerned about that. So am I, but I think we need to do everything we can to facilitate the legitimate businesses—which I would say is 99% of these small businesses—and would want to make sure that they are actually helping the next generation get into the business, keep it in business and provide continuity in their local communities, right from the sporting events and the arts to whatever denomination they choose for their religious freedom in this country. I think we have an opportunity here to be able to help everyone through a bill like this.

[The Chair, Liberal, Wayne Easter]

Thank you, both of you. We were a little over there.

I'm not sure, Ms. Koutrakis, if you still want in. Go ahead.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair. I cede my time to Mr. McLeod.

[The Chair, Liberal, Wayne Easter]

Mr. Michael McLeod, the floor is yours.

We will have time for one more after that.

Before I go to you, Michael, I would say that if on the off chance we can get to clause-by-clause on March 9.... We have two panels of witnesses that day. I don't think we have heard from officials yet, but if on the off chance we could get to clause-by-clause on that day, the legislative clerk tells me that if there are any amendments, we would need to get them to the clerk's office by Thursday, March 4 at 4 p.m. That's this week. If anybody is thinking of amendments, keep that in mind.

Go ahead, Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair.

I want to thank our witness for appearing in front of us today on this bill.

I come from the north. We don't have a whole lot of farms. We have people who are interested in farming and we have some small hobby-type farms, but this applies to more than just farms. We've talked about the fishing industry and small businesses.

I think some people have raised the issue about the concern and the rationale as to why the legislation is the way it is. I hear that the largest concern in adopting the proposed changes to section 84.1 is that it could open the door to new tax avoidance opportunities. Would the witness like to comment on that? Is this something that he sees as realistic or is it something that is not quite correct?

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

I will use the terminology that I've used before. I believe that 99% of these businesses are legitimate businesses that want to continue to work in their community, such as yours in the north and those in the territories as well. They're not tax cheats, as Mr. Fast referred to, the way they have been referred to by some in the House before—I think by the Prime Minister—in regard to that.

As I said, the goal of some of these businesses is to make sure that they are successful. There are different definitions of “wealthy”. I'm assuming that they're referring to financially wealthy. Most of these small business owners will use the funds, which the next generation will probably have to borrow to make the purchase of that business, for their retirement.

Personally, I have no problem being involved in small business, having been a farmer throughout most of my life and having watched those around me operate businesses. Is there ever a tax position in the country that someone isn't trying to find a way to get around? There are accountants and tax lawyers who spend a great deal of time and effort trying to make sure they're putting as many dollars as they can into their local people's pockets, by looking at such things as whether or not their businesses are incorporated.

It is important to have a structure in Canada that helps to provide the quality products that we are known for exporting around the world, to have the freedom to continue to have community development by leaving these dollars in these communities, to be able to have the pride of ownership that many families really feel, and to convince the next generation that the business they're in is a great one for them to take over. It is also important to have them educated to be able to do that. I think that's a circumstance that we need to be quite proud of in this country, and we always need to be cognizant of those who might try to skirt the types of structures that are set up. I would say that, from an efficiency point of view, this is being set up to make sure that we help small businesses and put them on an equitable field.