Finance Committee on March 2nd, 2021

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

I would respond the way I did in the House: that these are family operations. In most cases, they're not extremely wealthy operations. They're using the funds that the next generation would be able to generate for the value for the business to be able to fund their own retirement. It's not like they're going to be going out and starting another completely...like building a mansion or something like that, after the retirement takes place. It's to fund their retirement.

Anything we can do to put people on a level playing field, I think, regardless of their income in those areas, is something that would benefit those families, to be able to do it.... When complete strangers can do it, there's very little.... Well, there's unanimity, practically, across the country, to make sure they're treated in the same manner.

I know that section 84.1 is set up to make sure that there is not a stripping of funds from the tax system or that there are not loopholes there. As I said in reply to Mr. Julian's questions, there are safeguards built into this bill that would allow it to take care of any situations that may arise in being able to just fund these off and then sell them outright and benefit those individuals.

I think it's a legitimate question and I thank you for it, but this bill is all about putting people back on a level playing field.

[Julie Dzerowicz, Liberal, Davenport, ON]

Since you mentioned the surplus stripping, I'll ask my next question on that. My understanding is that your private member's bill would facilitate surplus stripping, using an individual's lifetime capital gains exemption without ensuring that a genuine intergenerational share transfer has occurred.

With Bill C-208 as proposed, after selling shares of the transferred corporation to a purchaser corporation owned by their child, could a parent immediately purchase the shares of the purchaser corporation from their child?

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

Not that I know of, because of the clause we have in there that if they tried to do something like that, they do have to go back to pay the percentage of tax that was deemed to be there in the first place, the benefit, if you will.

Once you've run a business for five years, that is seen to be a very relevant amount of time, by the research we did, to be able to say that the transaction is obviously legitimate at that time. If it were sold back before that period of time and there were, as you say, a false benefit there or a deemed benefit, then there would be a penalty in place.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay. I appreciate that.

I have one more question. I know there's always a concern around artificial tax planning. My question to you is, what guardrails have you proposed in this bill to ensure the differentiation between genuine transfers and artificial planning?

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

I think I just answered that in regard to the five-year clause that's been put in there and that sort of thing as well. It's more to be able to make sure that people are on a level playing field. I just have to keep reiterating that. The playing field needs to be level for these people to be able to keep the type of business they've built in the same family.

Now, that isn't to say that the next generation won't take that business and do something completely different with it, or add to it or expand it, but most times they will keep it going in their own local area as well. That's one of the big benefits to this. Whether that small business is in your hometown or my hometown or a rural area or a coastal fishing village, the benefits stay in those communities. Those businesses will continue to operate on the same turf they've been on for a generation already and for generations down the road, hopefully, if this is to continue in that regard.

As I say, for the benefit that would be attained from these small businesses being put on a level playing field and having these funds.... It's not like they're all going to go and put them into a huge savings account. They're going to continue to purchase items in their communities. Those dollars will stay there. They'll stay in those local communities as well.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

We'll begin the two-and-a-half-minute round with Mr. Ste-Marie, followed by Mr. Julian, and we'll go back to Mr. Falk, if he wants in.

Mr. Ste-Marie.

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

Thank you, Mr. Chair.

Mr. Maguire, can you go back over the statistics you have? You may have already mentioned them, but I would like to hear them. How many family businesses could be positively affected by this bill?

Finally, you mentioned that a business that stays in its community spends in its community. We know that one company that stays active in its community makes a big difference to that community.

I'm listening.

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

Not every small business has a succession plan. They work really hard to be able to move it forward. I talked earlier about how 75% of small business owners intend to exit their businesses between 2018 and 2028. Some have exited already. We have only seven of those years left. Of those business owners, 50% wish for the succession of their businesses to a family member on the sale or transfer of it. Finding a suitable buyer is a main issue for a lot of families.

I think there's another issue here as well. I've seen it in agriculture. Traditionally, when I was growing up, it was always the males who came back into the farming operation. That has changed dynamically today. A lot more young women are coming back with university degrees and taking over the family farm businesses, in fisheries and many other small businesses, I might add. One advantage here is that we would be helping female entrepreneurship stay in the family by doing this and making it more accessible. A few years ago, only 16% of small businesses and 29% of farms were majority-owned by women. I think anything we can do to enhance both genders to stay in those operations certainly puts everyone on a level playing field. That's just another part of the equalization that this bill brings to the table for succession planning.

[The Chair, Liberal, Wayne Easter]

Go ahead, Gabriel.

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

Thank you.

In my riding, there are a few cases of farms being taken over by daughters. I am thinking of Ms. Parent and Ms. Perreault. These are great stories. Let us hope that the bill will be put forward to encourage family succession.

I will end my talk with an anecdote that I will ask you to comment on. Quebec's Minister of Finance, Mr. Girard, made a presentation to the Chambre de Commerce du Grand Joliette before the pandemic. It was precisely on the importance of family succession, and the minister could not understand at all why Ottawa had not adopted the measures proposed in this bill, since Quebec had.

And allow me to remind you that one can easily put an end to all doubts about tax evasion. Why doesn't Ottawa do it now?

I would like to hear your comments on this topic.

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

Well, I think there have been a couple of comments.

In reply to my own presentation in the House at second reading—and Ms. Dzerowicz brought this up a little bit—there seems to be a worry here that some wealthy person is going to find a loophole to avoid paying some kind of taxes, but that's not what this is set up for. It is set up as an equalization to support small businesses.

I guess I would just say that someone who brings that to the table from your community of Joliette probably should go and talk to the Board of Trade of Metropolitan Montreal, because they are in support of this bill, and so are chambers of commerce across this country in regard to the types of business entrepreneurship that they see in their communities.

I know that right here in Brandon, Manitoba, there are so many businesses run by families and family operations that it would be quite significant. I look around to the smaller communities that I have lived in throughout my life, and it is the same thing there. While many family members will go away and get an education in agriculture, commerce, engineering, human resources and many fields, they will end up coming back to those small businesses with that education and training, and they will be able to enhance them even more.

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

Thank you, Mr. Maguire.

[The Chair, Liberal, Wayne Easter]

Go ahead, Peter.

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

Thank you, Mr. Chair.

Thank you, Mr. Maguire, for being here. We're having a good discussion.

I'd like to take it a little bit away from the subject of the bill itself, Mr. Maguire, given your agricultural background, to talk about the importance of food security and food sovereignty and how, essentially, having family farms often is really the foundation for local community economies and regional economies. The family farm responds to the needs of the community in a way that a farm that is purchased by an offshore corporation can't fulfill. Often, we see offshore corporations looking exclusively for export crops, rather than providing the essentials for the community or the region.

I guess I wanted to ask you, given your experience, whether you think this bill contributes to having the family farm as that foundation for food security and food sovereignty. How important is that when you look at other pillars of agriculture, such as supply management? How important is it for Canada's future to have a secure basis and foundation for family farms?

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

I think the continuity is tremendously important, Mr. Julian.

I see the little flag over your right shoulder. It's the same with Mr. Easter and the many others in the gallery screen who we have here today. Coming to this as a farm leader from across Canada, I know how respected Canadian food products are in the world. It's known that we produce some of the best-quality food in the world, if not the best, and the safest food in the world. You don't get that by not having your heart and soul in the operation.

There are many things that can take place for contamination and for a number of other things. The generational transfer of being able to keep this continuity that I spoke of at the forefront really is what the rest of the world is watching, to make sure that we are producing food that can be exported as top-quality food in the world, to be able to compete with anybody in the world. That's why our export markets are so important and why the transportation of our goods is so important.

That is a very important question that you raise, and I thank you for that. It's the continuity of being able to make sure that the generation coming up knows why they're doing the things they're doing on those operations, particularly in agriculture and probably in our fishing industry as well. I would even say that it doesn't matter if you're making shoes, you want the quality of what you're making replicated in the next generation so that the people who are buying your product will have confidence in that purchase.

[The Chair, Liberal, Wayne Easter]

Okay. We will have to move on.

Larry, just before I go to Mr. Falk, this relates to the discussion you just had. We tend to talk about money and the difference in taxation when selling out of the family. But there is another aspect to this in a community, and that is, I guess, coming from the heart: the pride of ownership. We're seeing, especially in the west, I think, more and more absentee landowners, if I can call them that.

With your bill, what could you argue in the case of community? If the bill's intended purpose is met, will it do anything in terms of, number one, instilling pride in your operation that you're fourth-, fifth- or sixth-generation, and holding people in the community? It especially relates to the farm sector. What would you have to say along those lines? What would be the benefits beyond the saved dollars?

Second to that, how much pressure is there—I've seen this—when a son or daughter wants to buy the operation but they don't think they can because they can't give their parents a good enough retirement if they get it at the price they would have to get it at in order to survive? That's another aspect. How much pressure is there on both generations, in terms of the transfer, to not purchase because of the disadvantage of the taxation system?

I have those two questions, and then we'll go to Ted.

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

In answer to your last one, there's a huge pressure there not to be able to give it to the next generation. There's a huge tax disincentive there, to go back to the dollars. Your first point is tremendous. You live in a part of the country where you have six and seven generations. Out here on the prairies, we might be getting close to that, but we're not quite there yet. You've had many more generations on the east coast than we have here, or in Ontario or other parts of Canada.

That continuity is so tremendous. To answer your question, it's the heart of many communities. It's what keeps them going. We have had many successful foreign purchases of farms or small businesses in Canada. Those people become part of those communities. But if there's an offshore purchase through a type of multi-corporation that just rents the land out to people who don't have the same investiture in the success of it, many times we've seen that fail.

I think it is so important to make sure that we still allow that sort of foreign land purchase. You don't want to restrict the families when they're selling these businesses, the same as any small business. However, whether it's a farm, as in your example, or a shoe store, I think it's very important that we provide them with every opportunity to be able to have the continuity that I spoke of in reply to Mr. Julian's question. It's not just important for the small community or for the exports, but tremendously important for the local region.

[The Chair, Liberal, Wayne Easter]

Thank you.

Turning to the five-minute round again, we have Mr. Falk.

Ted.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair, and those were great questions.

There are lots of dynamics involved when there's a family farm sale, or a family fishing corporation sale or a small business share sale, especially when an intergenerational transfer of a farm, corporation or small businesses is involved. I think those are things that need to be considered within this bill as well.

This bill is seeking to take away the inequities that currently exist in our tax structure when a sale is made to a family member. Those inequities shouldn't exist. There should be a level playing field when a business, farm or fishing corporation is transferred intergenerationally to a family member.

Mr. Maguire, you've talked a little bit about the safeguards you've built into this bill. You've also acknowledged and credited some of our previous parliamentarians for initially bringing a similar bill to Parliament. I think the recognition is there that we need this bill to create a level playing field for folks who are considering selling their small businesses or farms.

For the most part, a lot of families have socked away their equity, their retirement savings plans, inside of their businesses. They've kept those corporations running efficiently and effectively. They've actually been very prudent with their own expenditures and personal finances to make sure the corporations are well funded to succeed. Then when it's time to sell the business, they're looking at whether to sell it to a family member or whether they're going to sell it to an outside individual or entity. They're looking at the tax consequences and they're seeing that their retirement fund could now be in question depending on their decision. A question of a retirement fund or taxes should never inform a decision regarding whether a business is going to be sold to a family member or to an outside party.

Another dynamic is that it's also much easier to keep a family unified by providing fairness in the transition. If parents have to make an allowance for having to pay additional taxes to sell it to their children, do you think that creates stress inside families, Mr. Maguire?

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

I definitely know it does. I know of cases in which the family actually had to make the decision not to sell it to their own family, and it was probably one of the hardest decisions they ever had to make in their lives, just because they didn't think the next generation could carry the taxation burden. They couldn't afford to lose the benefit of the lifetime capital gains exemption, which, by the way, was put in place years ago and has been expanded. Successive governments have known that it is a very good tool to help small businesses—there's no doubt about that—but having it there to support, as you say, the communities, and never mind just the next generation, would be a big benefit of making these transfers to the next generation.

I think it's important to look at the mix of those who are coming back and taking them over now, with gender equality and diversification taking place in all of our industries today. We need to continue to put bills like this in place to make sure that those entities are able to succeed and be parts of their communities, and raise their families in the same way they were raised. I know it puts a lot of stress on those families if they can't do these intergenerational transfers because of the taxation.

[Ted Falk, Conservative, Provencher, MB]

You know, Mr. Maguire, often in times of these intergenerational transfers, one child ends up with the farm or the family business and the parents are seized with the decision of how they can equitably treat the other family members, the other siblings. If their taxes are going to be such that the residual they're left with after the sale to a family member causes them to not be able to be fair to the other children, what do you think that does to the family and the community? How would those ripple effects be realized?

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

That's a good question, Ted. Thanks.

Not every one of the siblings is going to want to be involved in that operation. There has to be an equitable arrangement made. Most families look at it this way anyway. They want to make an equitable arrangement with the sale of their business, to maybe have something to provide for those who are not parts of their direct sale of the business as well. I think that's what you were looking at.

I feel it's very important that the transition that takes place in those businesses not lead to further family misunderstandings, I guess, if you could put it that way.

[Ted Falk, Conservative, Provencher, MB]

That's correct, yes, that was the dynamic—

Oh, I'm sorry, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

If you have another question, Ted, go ahead.