Thank you.
Section 84.1 has been a thorn in my side for 25 to 30 years. I was pleased when I saw the Liberal bill in 2015—which did not get passed—and I'm just ecstatic to see what's transpiring so far. There was a brief example given in the earlier session, but I want to quickly highlight what would happen in Manitoba with and without section 84.1 on a sale to your kids versus a sale to arm's-length parties.
Right now, if you have a $1-million business and you sell your shares—in a restaurant, let's say—to your neighbour, you will walk away with after-tax proceeds from a $1-million sale of about $971,000. That's only $29,000 of leakage.
If you turn around and.... There are various ways to sell your shares to your kids under the current regime of section 84.1, but I'll just use the worst-case scenario. The worst-case scenario is that your kid sets up a holding company, or holdco, and buys your shares from you. In Manitoba, that will cost you $466,000 because of the deemed dividend. That's a difference, between the two scenarios, of $437,000. That's just crazy.
There are various other ways to reduce that difference, but there is always a difference when you sell the shares of a small business corporation. I'll just concentrate on the small business corporation during my discussion, because we've talked a lot about farms.
I understand why section 84.1 was introduced. It was introduced to stop internal surplus stripping when there wasn't a real third party sale or any kind of sale. That's totally understandable, but section 84.1 went too far, and Bill C-208 really goes a way to correcting that.
There are a couple of other things. As I said, it really encourages you to sell to a third party and not your kids. I've seen so many cases of that. I have current clients now, and even family members, who are looking at sales. They're pursuing the third party because it's too expensive to sell to their kids. An American company or a multinational is more attractive than their kids. As we've heard from CALU and from everybody, that is not the way to build a great economy.
On the first example I mentioned, where the person retains $970,000 on a $1-million sale, there's been a lot of commentary that it's a loophole and that it shouldn't be: Why should they pay that little? Well, small business people and farmers should be treated differently, because this person who sold their business for $1 million probably had little or no RRSP. First of all, they probably took little salary out. That's their retirement. If they lose half of it to the government.... I don't lose half of my pension when I retire. This is their RRSP. This is why it's so important to retain as much as they can.
I have a couple of other quick comments. In the earlier session, there was commentary that corporations and holding companies are loopholes. Those are not loopholes. A corporation, as somebody was saying, is mostly required by the bank. Even in Manitoba, if you're a small business manufacturer, you need a corporation to take advantage of Manitoba's investment tax credits. A corporation is not a loophole.
The other thing I want to reiterate is that after the sale—let's say a dad sells to his kid and they paid more tax because of section 84.1—that kid is also left in a worse position on an ongoing basis. Depending on how they structured it, he now has to use his after-tax corporate profits to pay personal tax, or pay his dad off, as opposed to reinvesting. The third party who bought from your neighbour gets to reinvest his 90¢ on the dollar. The guy who bought from his dad does not. That puts him at a disadvantage on an ongoing basis as well.
This bill is a great start. It has some caps on value, which is great. This bill is helping the lower end of the small business community. It is not helping the huge, rich companies, even if they're family owned. The impact of section 84.1on them is a drop in the bucket. This is helping the smaller families.
I didn't think I needed to get technical, because Dustin did a great job on that. These are my comments. As I said, I've worked with small businesses for 34 years, so this is a great help.
Thank you.