Finance Committee on March 2nd, 2021

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

We've looked at direct sales between family members, and most of those—there has to actually be a transaction. It's not a situation of the older generation being able to afford to fund it for their children; there has to be a transaction that takes place. There are safeguards built into this bill that would allow for those transactions to be not just deemed transactions but actual transactions, in which dollars would have to flow from one generation to the other.

As I said in my presentation, most of the families involved in these operations have built them up with their own blood, sweat and tears, I guess you could say, into successful businesses and are quite proud to be able to put them into the hands of their children through a financial transaction that will allow the parents, the older generation, to fund their retirement. As I said, they can fund their home, move homes or get into whatever they want to do in their retirement. Then it's a transition that both sides of the family are proud of.

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

I certainly recognize, Mr. Maguire, as I know you do and I think all members of this committee do, the hard work that a family-owned business involves. It's not an easy thing. I come from a family that was able to put food on the table only because of our work in running a small business, in my case a restaurant. Whether it's a farm or a restaurant, it's a real thing.

The final question is this. With respect to the private member's bill that's been put forward, one might say it provides relief only for transfers from one corporation to another, multi-tier corporate structures, for example. Perhaps this won't directly assist with transfers from parents to their kids. Are you mindful of that? Do you have a view on that?

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

Yes. I have spoken to people who have dealt extensively in farm and intergenerational transfers. They believe this tax burden placed on the next generation, as opposed to what it would be if a business was sold to a complete stranger, is just unacceptable. With your small business background that you just mentioned, I think you can see that if it were 2% or 3% it might be negotiable, but paying 34% or more on the dividend is quite different from being able to utilize the capital gains exemption.

[The Chair, Liberal, Wayne Easter]

Thank you both.

I will turn now to Mr. Ste-Marie.

Gabriel.

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

Thank you, Mr. Chair.

Good afternoon, Mr. Maguire.

First of all, I want to say that I am deeply pleased that you have brought your bill before the House, that it passed second reading and is now before the committee. It is a bill that is very close to my heart, as it is for my colleagues in the Bloc Québécois.

I'm going to ask you a few questions in order to highlight the concrete purpose of your bill, but before, I'll make a few remarks.

First, a majority of committee members agree with your bill as it seeks to accomplish what was requested in the pre-budget consultation report. In recommendation 116, we asked the government to put this in place. So the committee is overwhelmingly in favour of your bill, and that's very good.

This is also a good case in point because, a few years ago, Quebec introduced a means to encourage the transfer of businesses or farms to the family. It's already in place. As for all the questions that one can legitimately ask, such as the one raised by Mr. Fragiskatos, one realizes that certain measures are easy to put in place to pay less tax. It works well and that is very important.

I remember Mr. Caron introducing the bill and I take my hat off to him. Also, my colleague Xavier Barsalou-Duval had tabled it. If you remember correctly, a few years ago, it was a Liberal MP for whom I have the greatest respect, Mr. Emmanuel Dubourg, who proposed a bill similar to yours. So it's a bill that has support from all sides.

I'd like you to tell me what your bill actually changes for someone who has a farm and wants to sell it to their children.

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

Thank you.

I want to thank the member from Joliette for his presentation in the House at second reading when we did this and for his support for the bill.

It demonstrably changes the opportunity for the next generation to be able to continue in the same business as their parents, one that for 99% of the time the younger generation has probably worked in themselves as they grew up, and for less than minimum wage. They became trained in the business by doing that, and they take pride in being able to continue with something that their parents have put their blood, sweat and tears into, as I said earlier.

This bill definitely changes the playing field to make it completely level to be able to sell to your own family, as opposed to a complete stranger, by allowing the family to use the capital gains exemption as opposed to a dividend on those shares.

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

That's right.

This is especially important for agricultural enterprises because we know that the capitalization needed for farms is very high, so it takes a lot of money to make even one dollar of profit.

This is also the case for SMEs in general, as I said in the speech you referred to. Nearby, at the end of the street, there is a company called Québec Son Énergie, a sound company that is having a lot of problems because all shows were cancelled during the pandemic. It's a nice family business. Currently, the father is wondering whether it would be better to sell his business to a stranger and ensure a comfortable retirement, or sell it to his son so that what he has built stays in the family; but in doing so he would be giving up what would have been a comfortable retirement.

Can you comment on this?

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

Yes. As I say, on the pride that I spoke of earlier, it doesn't matter whether it's a farm, a fishing operation or the business down the street that you're talking about, I think the parents have put a lot of energy into it and a lot back into their communities. I think that's something we have to take into consideration here as well.

Those small businesses always contribute to their communities, wherever they can. To be able to continue with that, to have that continuity, whether it's in a large city or a small community, is very important. In regard to the scale, they contribute to volunteerism and with their own finances to support other events in those communities as well.

Whether it's in the arts, sporting events or through their churches and other areas as well, there's a great deal of pride taken in those businesses, and in their retirement, the parents want to be able to continue to contribute. They may even have more time to do it, but they still need to have the resources to do it. Throughout their lifetimes, they've probably tied up their resources in the business, whereas in perhaps other circumstances those dollars would have gone into RRSPs or other saving venues.

I think it's very important.

[The Chair, Liberal, Wayne Easter]

We will have to move on.

We'll come back for two and a half minutes a little later, Gabriel.

Mr. Julian is next.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks very much, Mr. Chair.

Thanks, Mr. Maguire, for being here at the finance committee today, and thank you for presenting the bill that Guy Caron worked on so assiduously. I'm sure Mr. Caron is listening in. He continues to be very interested in parliamentary work, and I'm sure he would be very proud of your presentation on behalf of the bill today.

Of course, we supported it to get to committee. This is an important discussion that needs to be held. I think you've put forward very eloquently the fact that it's a penalty right now—a huge penalty—for intergenerational transfers, whether we're talking about small business or farms. It doesn't make sense. It's not logical.

Are you aware of any other country on earth that penalizes a small business transfer within the same family and penalizes the transfer of farms within the same family? My experience with public policy is that virtually every country I'm familiar with actually tries to provide incentives to ensure that they can be transferred, and that family farms can be maintained and family community businesses can be maintained.

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

To answer your question, Peter, no, I don't know of any other country that does this. I'm not a tax expert in those areas, but through my farm leadership, as I pointed out with the chair of your committee earlier—I'm sure he had this experience as well—from the mid-1980s on, we've been able to deal with some of our counterparts across the line to the south. If you want to talk about the penalties that families would face in this versus the incentives you spoke of with regard to the U.S. Farm Bill from 1986, which came in just when I happened to be in Kansas, there is no comparison.

I want to put on the record as well that, as you have pointed out, we need to bring justice back to these small businesses that do provide so much employment across this country. You know, 80% of our small businesses create something like nine million people working for them in this country. It's a huge undertaking at times. There have been other stressful times throughout our history, but these COVID times have really put an extra stress on those businesses. The timing for bringing this in and having it enacted now would be a big benefit to family businesses across this whole country. As I said, there are 1.1 million small businesses in the country. They're not all family-run, but a great many of them are.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you for that.

Do you have any estimates on what the percentage could be if we eliminated the penalties and basically put it on a level playing field? I know you've spoken about the estimates in terms of the actual cost to the taxpayer, but over the period of half a decade or a decade, how many more family businesses and family farms would be maintained in the same family than if the bill were rejected and we continued to have the status quo? Have you seen any figures that would show what the difference eliminating these penalties would actually mean for community businesses and for family farms?

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

I know from some of the work we have seen that 75% of small business owners have already indicated that they would transfer their businesses to the next generation over the next 10 years. It is estimated that 50% of those owners wish for the succession of those businesses to their own family members. Those are the numbers that I think are most important in terms of encouragement to getting this bill put forward, so that they will not be penalized, as you pointed out in your first question, Mr. Julian, and to be able to make sure they can continue with those businesses in those communities.

We're seeing businesses close their doors right now in some parts of Canada. It's more because of COVID than markets or those sorts of things right now, other than markets have been taken away because of COVID, but those are pretty significant numbers. Trillions of dollars' worth of businesses there would be transferred in assets. That's still very small compared with the large business sector that we have in our country, but it's very important. If we can keep 50% of those transfers into family businesses, it would be an exceptional bit of success for Canada to be able to do that.

[The Chair, Liberal, Wayne Easter]

You have time for a last quick one, Peter.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Mr. Fragiskatos raised I think a legitimate question about whether or not this bill could be used as basically a tax dodge. Do you have any concerns about that, Mr. Maguire? Do you feel there are any weak points within the bill that may lead to that?

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

Part of the reason I was proud to be able to bring this bill forward was that one of your former colleagues, Mr. Caron, built some safeguards into this bill. Those shares that are being transferred to the next generation, outside of a death occurring, have to stay in that next generation's hands for five years or else the taxation is completely reversed and those taxes have to go back and be paid.

When you have a 34% difference in tax, that is a substantial amount of funding. I don't know if either side of that equation would be able to just dip into whatever they might think they had for funds and be able to come up with that, so there are safeguards built into this. While there may never be a tax program that comes forward that is 100% without some new generation of accountants trying to find a way to get around it, I would say this is pretty much a safeguard for these particular kinds of transactions.

[The Chair, Liberal, Wayne Easter]

Thank you both.

We go now to a five-minute round. Mr. Falk is first.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

I think the bill Mr. Maguire is presenting is excellent, but Mrs. Jansen is going to be speaking to it.

Thank you.

[The Chair, Liberal, Wayne Easter]

Okay. Go ahead, Ms. Jansen, and then we'll come back to Ted.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Thank you.

This bill appears to be very timely from the perspective of a COVID recovery plan, since we know that our small businesses will be paramount in helping us get our economy back on track when we finally reopen. We all know that family businesses are the lifeblood of our economy and our communities, so honestly, I can't wrap my mind around why the government continues to punish parents and children for being willing to put their blood, sweat and tears into a small business, only to be considered tax cheats by the Liberals simply for wanting to pass it on to the next generation.

You mentioned the hypothetical story of a couple who own a business in a small town. They want to retire and they are relying on the funds from the sale for their retirement fund. This sort of thing happens all the time.

In your example, the couple is hoping to retire and sell the business to one of their daughters. She has been working with them for years. She is all excited to take over from her parents and to continue building on their legacy. In the meantime they are approached by a larger, non-related company that has no local ties.

This larger corporation will want to produce the goods in a bigger urban centre where it is based, possibly even overseas. Ultimately this means completely shifting jobs out of the local community.

As you mentioned, when you do the math with your accountant, it will cost up to 67% more in taxes for your child to buy it than it would for a stranger to buy it, simply because they're your son or daughter. It makes no sense that we don't have a level playing field here, especially considering how much communities gain from family farms and businesses that are run by successive generations.

Since it's clear that a robust COVID-19 recovery will need healthy small businesses that are owned and operated by passionate local entrepreneurs, it's clear that your bill will make a huge difference for local family-run businesses that want to keep that work in their family.

I am wondering, since this bill is so critical for small family-owned businesses, how many people have actually opposed the bill.

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

I haven't heard of any who have opposed it. Some Liberal members didn't vote for it on second reading, the majority of the governing party, but a few members of the Liberal Party did vote for it. There were others who had indicated to me that they liked the bill and just, because of party affiliations, didn't vote for it.

I think there is a great deal of recognition that this is something that's needed to support our small businesses in Canada.

I want to make sure it's not just farmers and fishers who are involved here. It could be the local grocery store, the corner store, a shoe store, a hardware store in a small community, or one in a major city. I think those are the types of businesses that will be put on a level playing field here. It's not that they're getting any great incentive; it's just that they're being put on a level playing field and that the penalty that Mr. Julian referred to in his question is being taken away.

I think there may be a misconception here that someone is getting a huge benefit out of this. It is just putting people back on a level playing field.

With the plethora of organizations I read off to you that are supporting this bill, there is very little argument from anyone against moving forward with this.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Thank you.

You mentioned CFIB. I know that prior to the pandemic, CFIB data indicated that almost three-quarters of business owners are planning to exit their business within the next 10 years—you mentioned that—and that represents $1.5-trillion worth of assets that are going to be transferred to a new generation of entrepreneurs. Of small business owners planning to exit their business, apparently almost half want to have their children take over.

How will your bill encourage the sale of family businesses to family members?

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

Well, it's the difference between being taxed on the dividend from the surplus from the sale price over the original purchase versus being allowed to use the capital gains exemption. It's that difference of 34% that I talked about. That's such a significant amount that it penalizes family members.

I think I failed to mention the Chicken Farmers of Canada in the organizations I was talking about before. I was on farm organizations for years, dealing with changes in Canadian agricultural situations, including with people from Quebec in the Union des producteurs agricoles. I made some great friends while working on those things.

It doesn't matter what sector of Canada you live in today, whether you're running greenhouse operations in your local area in southern British Columbia or down along Lake Erie here in Ontario, or any other types of small businesses in the communities that are supported by a lot of these businesses. It's the taxation rate that is the significant issue here. We just want to make sure those businesses are on a level playing field with their competitors.

[The Chair, Liberal, Wayne Easter]

You are out of time, Tamara. Have you completed your questions or do you have another one? Okay.

Ms. Dzerowicz.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank you, Mr. Maguire, for being here today, and I want to say congratulations on your success in bringing forward your private member's bill to this committee.

I agree that if there's an issue, if there are things we can improve in terms of facilitating transfers of small businesses to the next generation, then we should be looking at it. I don't agree with my colleague Mr. Kelly, though. I don't think that we have heard from experts. I do think that we want to be hearing from experts, because as we move forward we want to make sure that the decisions we make are the best decisions, based on the best information we have.

The questions I have for you, Mr. Maguire, are just around some of the concerns that might have been raised. I'd love to get your thoughts on a number of things.

The first thing I'd love to get your thoughts on is around your proposed amendment to section 84.1. One of the key concerns that has been raised is that your proposed change would unfairly benefit wealthy individuals instead of other people, whether it's middle-class farmers or fishermen. That is one of the concerns that has been raised. How would you respond to that?