Thank you, Mr. Chair and committee members, for the opportunity to appear today.
In addition to being an independent financial advisor located in Vancouver, I'm chair of the board for the Conference for Advanced Life Underwriting, or CALU. CALU and our partner organization, Advocis, represent approximately 13,000 insurance and financial advisors who, in turn, provide advice to millions of Canadians and small businesses across the country.
We are of the opinion that Bill C-208 will have a positive impact for small business owners looking to transition their business to the next generation of family entrepreneurs. We have provided a brief to the committee that outlines the reasons CALU believes it's critical to amend section 84.1 of the Income Tax Act. I understand it's still in translation; you should be getting that by Friday.
Our brief highlights how recent tax changes have made the application of these rules to family business transfers even more punitive since the provision was first introduced. Once you get the brief, I draw your attention to pages 4 and 5 in particular, which provide examples. Our brief also outlines various methods the government could use to limit any potential tax abuses that might arise from relaxing the rules to section 84.1.
We believe there's some urgency around the need for the government to act in amending 84.1. I know all committee members are aware of the importance of small businesses to the Canadian economy, but I will highlight that small businesses employ 70% of the private sector and have been major contributors to employment growth over the past decade. A vast majority of those businesses have fewer than 20 employees. They play a significant role in supporting the economies of smaller communities across Canada.
We believe a recovery from the current economic crisis will once again be led by the growth of small businesses. It's not surprising that a number of owners who are at or nearing retirement age have been worn down by the stresses of the past year and are accelerating their plans to retire. Fortunately, many owners have children working in their businesses who have been groomed and are ready to assume control of the operations.
However, we're finding that section 84.1 remains the major impediment to a successful transition of these businesses within the family. This provision can deny the capital gains exemption that has been spoken about quite a lot. Alternatively, it can force new family owners to assume potentially high levels of debt to pay off the purchase price above and beyond what a third party would have to assume.
Accordingly, business owners are often faced with a difficult decision. They can sell their businesses outside of the family to preserve more after-tax proceeds to fund their own retirement, or they can receive less money from their children in order to pass on their businesses, so they can afford to pay the additional taxes that are currently required of them. We don't think it's fair. I've seen several examples of these impacts from my own personal experience with my clients.
To address these issues, CALU is urging the committee to support moving forward with the intent of Bill C-208, but we ask that you recommend that section 84.1 be amended to permit the transfer of incorporated small businesses to the next generation of family owners on a more tax-neutral basis.
This clearly fits within the recommendation made as a part of your pre-budget report to the Department of Finance, which was released in February. We strongly believe this action will facilitate the successful transfer of family businesses and, in turn, protect local jobs and local economies.
Thank you for your time and attention. I will be pleased to respond to any questions you have on this subject matter along with our CALU tax advisor, Kevin Wark, who is here with me today.