Finance Committee on March 2nd, 2021

[The Chair, Liberal, Wayne Easter]

We're okay on division?

[Some hon. members]

On division.

[The Chair, Liberal, Wayne Easter]

We don't need to order a reprint of the bill, so—

[Jacques Maziade]

Yes, you do need a reprint, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Okay. It's a good job you're here. I'm learning some lessons today.

Shall the committee order a reprint of the bill as amended for the use of the House at report stage?

[Some hon. members]

On division.

[The Chair, Liberal, Wayne Easter]

Okay, we'll order a reprint.

That will end the discussion on clause-by-clause on Bill C-224.

Thank you for your efforts, Mr. Ste-Marie. You wanted to make a point.

Thank you, Mr. Legislative Clerk, as well.

Go ahead, Gabriel.

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

Thank you, Mr. Chair.

First of all, I'm sorry I misled you a few moments ago regarding the vote on the title.

If we have time before we consider Mr. Maguire's bill, we could look at the three motions related to committee business that I introduced on February 24.

I see that Mr. Maguire has arrived; we can also do this at another time. I'll leave the decision to 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.

[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]

Thank you, Mr. Maguire.

I might say that Larry and I actually go back probably about 35 years in the farm movement. I would also say that Guy Caron, for those who don't know, was a member of the finance committee for a number of years.

I had and still have the farm and I managed to get a century farm and a quarter, so I know all about that.

We'll start the rounds of questioning.

We will start with Mr. Kelly for six minutes, and then go on to Mr. Fragiskatos.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you, Mr. Chair.

Thank you, Mr. Maguire. It's delightful to have you here as a witness.

Could you comment on the urgency of this bill, the timeliness of it and the imperative to get it brought into law?

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

We have 1.1 million small businesses in Canada, and they employ about eight million or nine million people. I think this is a tremendously important opportunity for us as parliamentarians to show support for those small businesses in this country. There's a plethora of organizations that support the bill, and I could get into that later. Having this brought forward would not represent a great burden on the taxation system of the government, as far as the revenue goes, but would be an extremely large help to those industries and businesses out there that are family-owned to be able to compete with and stay on the same level as any other business that would purchase the parents' business, if I could put it that way.

That's a very important reason to move this forward, because those dollars do stay in those local economies.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

You mentioned that Guy Caron had essentially the same bill in the last Parliament, so this is not a new idea. This has been around for many past parliaments. Could you comment on just the sheer volume of past study and conversation that have led us to this moment?

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

It's important. Mr. Caron did bring this bill forward subsequent to the tax changes that came up in 2017 from the government, and it was very well documented at that time. He had done a lot of research on this. We went back to the Parliamentary Budget Officer as well as the Library of Parliament, and they both indicated that there was no need to really change the bill at all from its previous format. That was the advice we received when we researched this. We have even spoken to Mr. Caron a number of times through my office, to find out if there was anything else that he thought we should put into this, and there wasn't. He was very pleased that we were bringing it forward to the House again, because unfortunately he wasn't able to do it given that he didn't return to Parliament and also because of the draw. I mentioned that earlier. There's a significant order in which these things come forward, and I was fortunate enough to be in the first tranche of those chosen to put forward a private member's bill and to be able to do it at this time.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

That's great. You mentioned that a number of stakeholder-type organizations, as we'll call them, support your bill. Could you name a few of them and talk about the testimony they have already given at committee on the subject of this bill?

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

There are a whole host, as I said, of people who are backing this bill. Many are from farm organizations. In Montreal, for example, there is the Board of Trade of Metropolitan Montreal, the Fédération des chambres de commerce du Québec, the Producteurs du lait de Québec—the milk producers of Quebec—as well as the Union des producteurs agricoles in Quebec. The Chicken Farmers of Canada, Grain Growers of Canada, Canadian Taxpayers Federation, Canadian Federation of Independent Business and the Chamber of Commerce have spoken to me, as have the Canadian Federation of Agriculture, the Ontario Federation of Agriculture, the Agricultural Alliance of New Brunswick and the Agricultural Producers Association of Saskatchewan.

The list goes on to include the Keystone Agricultural Producers of Manitoba and the Conference for Advanced Life Underwriting as well as the Insurance Brokers Association of Canada. There are others, Mr. Kelly, but I think you get the message that there are a great many people supporting this who have put forward a lot of work themselves. Many of them have made pre-budget consultation recommendations to the government, those like the Life Underwriters Association, and that is pretty important, I think, because that information is in the government's hands now and has been for three or four years.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Right. So in other words, this committee has actually heard this recommendation before from public stakeholders and has incorporated and, in fact, recommended to Parliament that it adopt a bill that will do these things. I think it's important to note that we have heard all of this—and I'll give you another minute to finish this, Mr. Maguire—and maybe I'd just make a note to the chair that if nothing serious arises from questions today we might proceed to clause-by-clause today.

We've heard the testimony from the expert witnesses already, and I'd really like to see this go forward.

We have about half a minute left, Mr. Maguire, so if you have anything else you want to add, just about the support that this bill clearly has from the various organizations, please do so.

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

Thank you.

I've just read off the names of a huge number of organizations across the country that are in support of this right now, from one coast to the other.

The chair mentioned that our association as farm leaders goes back 30 or 35 years. I know how important he would feel this is in his own operations, in dairy, potatoes and those sorts of things that are important to P.E.I. I have no problem going to clause-by-clause today, if that's the case. I think it's a bill that is deserving of attention across the country.

We've heard from many witnesses. Many briefs have been sent in from these organizations before, which would be on record. I would leave it at that for now.

I would be quite prepared to do that today.

[The Chair, Liberal, Wayne Easter]

Just to mention some of the witnesses you've outlined, Mr. Maguire, we do have a meeting scheduled for March 9—hopefully, a three-hour meeting—at which we will have the Life Underwriters, the CFA and quite a number of other witnesses. We will hear directly from them, which I think is appropriate before we get to clause-by-clause.

Mr. Fragiskatos.

[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]

Yes. The recommendations of the Parliamentary Budget Officer were from $179 million to $300 million. It depends on the number of cases that are businesses that are transferred in any given year, Peter, as well. Those are the numbers.

I know that there were numbers projected by the government in the past which were 10 times that, but they're certainly not relevant to any of the groups that are making presentations here or to the Parliamentary Budget Officer as well.

Those are the numbers they came up with. Certainly, those have been backed up by many of the organizations.

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

Which figure do you think is more dependable in terms of the number of transfers that would take place in a year? It's quite a range that's suggested.

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

Well, in regard to the scope of $2.2 billion that was talked about once, it's a fraction of that. It's 10%, as I've just finished mentioning. It's been estimated at about a third. Not even every farm, fishers' organization or small business with qualifying shares would be sold in this manner. Many of them are sold at arm's length to third parties, but there is a fraction. In the agriculture industry, it's probably a little higher. They're talking about a third that would probably be sold in that area. Those are some of the estimates that would come forward.

The dollar values depend, as I said, on how few or how many there would be in that particular year. Maybe because of COVID there might be extra numbers being sold at a time like this, or in better times many of them would want to sell to their families as well. That is a range. It's fairly narrow in the budget of the federal government.

[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.