Finance Committee on March 9th, 2021

[Brian Janzen]

That's correct. It's partly because of the guardrails you have in this bill, but also because for the larger companies.... I've just gone through a couple here, and section 84.1 and the capital gains exemption didn't even come into play. The numbers are big enough that this is just a.... It's not material to the larger private businesses. This is really helping the small private business.

[Ted Falk, Conservative, Provencher, MB]

This is for a situation where mom and pop—who have been community builders their whole lives and have been the ones who have sponsored the health foundations, the food banks, the sports clubs and the community centres, and contributed all year long—have their nest egg for retirement stuck in their business, and now they are looking at a choice of whether to sell it to their kids and allow them to continue this rich legacy but give a lot of it away by tax, or sell it to Joe Blow down the street and end up with more cash in their pocket.

This bill seeks to address exactly that inequity.

[Brian Janzen]

Exactly.

Sorry, I have one last comment. Keep in mind that, again, these people don't have tons of pensions or RRSPs. This is their retirement.

[Ted Falk, Conservative, Provencher, MB]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you, both.

We go now to Mr. Fragiskatos for five minutes, followed by Mr. Lemire.

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

Thank you, Chair.

Thank you to the witnesses. I will begin with the CFIB, if I could.

Mr. Kelly, thanks for being here again this week. It's great to get your insights. I'm pointing to you because I'm wondering if you have data. Is there any clear data that indicates the percentage of small business owners who would want to sell their business to their family but cannot? Has CFIB accumulated any data along those lines?

[Daniel Kelly]

I don't know that we've asked that specific nuance to the question, but in the deck I shared with the clerk, which I believe was sent to you, on how business owners intend to exit their business.... It's on page 5 of the deck if you have it.

The top answer in terms of to whom they might leave their business is that 48% of businesses say they plan to sell to buyers unrelated to their family; 25% say they plan to sell to employees, which is another topic for another day at finance committee; 25% of businesses say they are looking to sell to family members; 21% to transfer to family members through an inheritance; and 15% wind down.

This data was pre-pandemic. What it doesn't tell you, which is I think the nature of your question, is what would happen if the rules were different. Would some of those who are looking to sell outside of their family choose to sell to the family, and would that cause some form of shift?

Our suspicion from the discussions we've had with business owners is that it would. We've talked to many business owners and in fact some of the kids, who say it makes no financial sense to pass the business down from one generation to the next. That would be perhaps a smart decision for the future of the company, but not a good decision for mom and dad who are looking to retire.

I want to underscore the other point: 80% of our members look to the value of their business to fund their retirement. They don't have huge numbers of RRSPs, or defined benefit pension plans. They are relying on the value of their business, and especially as we come out of COVID, that value is way lower for many of these business owners and something we should all keep in mind as we look at this.

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

Thank you very much for that.

Mr. Wark, I think it was Ms. Dzerowicz who talked about this initially. When she asked you the question, you pointed to the possibility of an entity reverting back to the original owner. I wrote down your comment specifically. You said that, in cases like that, hypotheticals like that, that possibility could be “easily fixed”. These are your words. Could you expand on that?

[Kevin Wark]

I think the guardrail you've put in place is that the purchasing corporation acquires de facto and de jure control of the purchased corporation, so that the value and the control is in the purchasing corporation.

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

I want to ask you, if I could, and I'd also like the thoughts of Mr. Janzen and Mr. Mansfield on this.... There's been a criticism of Bill C-208 that I agree with in spirit, in principle. Of course we would want to, as a finance committee, address unfairness—I say that especially as the son of a small business owner—but there has been a criticism along the lines of the lack of a requirement in the bill for a child to be involved in the transferred corporation's business or for the parent to cease to be involved after the transfer.

Do you have any thoughts on how to address that gap in the legislation?

I'll begin with you, Mr. Wark. Then I'll go to Mr. Janzen and wrap up with Mr. Mansfield.

[Kevin Wark]

In the submission we've made to the finance committee, we talked about the consultation process that Finance undertook in 2017. They commented on whether the business owner, after selling, should continue to be part of the business or not.

We engaged an outside consultant who was involved in consulting primarily on arm's-length transactions of private businesses. He indicated that, in the majority of those situations, the selling owner was obligated to continue in the business because of the transfer of information and relationships. To differentiate that from a family transfer doesn't seem to make sense. It would make more sense for the business owner to have some role to play longer-term to ensure that the business continues to be successful.

Our argument is that they should not necessarily control the business after the transfer, but they should continue to be able to play a significant role.

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

Mr. Janzen and Mr. Mansfield, please go ahead.

[Brian Janzen]

I would echo those comments, because in many cases the second generation wants the previous generation to stay involved in some form or another, sometimes not at all, but often. I think it was Kevin who was saying that in many cases.... I've just gone through a few sales here in the last year, and in all cases they wanted the arm's-length previous COO, the president, to stay involved, at least for a year or two, just on a consulting basis for his expertise, etc.

I don't think that should be a restriction.

Second—

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

I don't mean to cut you off, Mr. Janzen, but there ought to be, of course, a requirement for the child, the purchaser, to be involved in the corporation's business, which is, from my reading of the bill, lacking right now.

[Brian Janzen]

As for the first part, yes. The second part, yes, I agree with that, but there's no requirement when you're selling to a third party that the third party.... That third party has every right to have managers run the business. If dad is selling to son, and son wants to stay involved, obviously he has to stay involved at some point or in some manner, but maybe not day to day, and he hires a COO to run it.

That happens, and that should not be penalized, either. The son is still going to be ultimately involved in the business, but maybe not day to day.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Do you have anything you want to add to that, Mr. Mansfield? We're a little over time.

[Dustin Mansfield]

If we're over time, by all means, you can certainly move on.

I can add a couple of things, I guess.

[The Chair, Liberal, Wayne Easter]

You might as well. Go ahead.

[Dustin Mansfield]

Sure. For the first one, I would agree that in the non-arm's-length and arm's-length environments, thinking of that with regard to a third party, there's no requirement that the individual be active.

Thinking down your line, if a parent was still active in the business and the child was not active in the business, then they would fall afoul of certain rules such as tax on split income, etc., so there are various other provisions that would come into play in situations like that as well.

[The Chair, Liberal, Wayne Easter]

Thank you all.

Next we have Mr. Lemire, followed by Mr. Julian.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you very much, Mr. Chair.

Can you hear me well?

[The Chair, Liberal, Wayne Easter]

Yes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you.

I would like to talk about an article published in the March 30, 2017 edition of the Journal de Montréal, during a debate on Bill C-274 introduced by New Democrat Guy Caron. The article mentions this bill introduced by the NDP and rejected by the Liberals, but I want to point out that my colleague Xavier Barsalou-Duval introduced in 2016 Bill C-275, which had the same objectives.

The Journal de Montréal article I am talking about says that the Liberals opposed the bill under the pretext that its implementation would cost between $800 million and $1.2 billion. They were then rebuffed by the Parliamentary Budget Officer who, as the taxpayers' watchdog, estimated that the annual cost would rather be between $163 million and $273 million. Those amounts are much lower than those the Trudeau government used to oppose the bill.

Mr. Kelly, do you think the numbers put forward are still realistic? How much do you think that kind of a measure would cost? In addition, what businesses would benefit most from it?

[Daniel Kelly]

I don't have data on the exact cost of this particular bill, but what I can tell you, just to echo the concerns that were shared earlier about the estimates the department put forward, is that some of the assumptions they made seemed crazy. They made assumptions that this would be used by virtually everyone.

We've seen this, of course, during pandemic programming where government departments federally and provincially have estimated that, well, if every single business owner ever in the history of mankind used this provision, here's what it would cost. Of course that never happens, but it's meant to scare legislators away from considering these kinds of measures.

Again, I know they have a job to do and I know they take it seriously, but sometimes the results of that cannot be taken seriously when you poke a few holes in them.