As I mentioned earlier, owners have often invested all of their savings in their business. Therefore, when they want to transfer the farm to their children, they usually expect to get some capital back to cover their needs. I've seen many of these situations in my career, and I can tell you that the parents are not asking for the market value of the business; they want a reasonable amount of money to ensure their retirement. Often the amount of the transaction is chosen based on the ability to pay off the farm. Thus, sometimes a transaction is only 30% of the net asset value of the business, since that is the only reasonable amount the parents can get and their children can afford.
What we are talking about today is the situation where farms are incorporated. When parents want to transfer the farm to their children, it's hard enough to come up with an amount that will meet their needs, so imagine the situation when on top of that the parents have to pay tax because of section 84.1 of the Income Tax Act. In the end, it is the children who, by making larger drains on the company's cash flow, are left to pay the infamous taxes that the parents do not want to pay.
As Mr. Groleau said, this hurts the cash flow of businesses and weakens their financial position. They have to take on a little more debt or stretch the payments made to parents, in order to cover both the taxes and the needs of the parents who are retiring. This doubles the financial costs. On the other hand, if the children weren't buying the farm, we wouldn't have this problem.