Thank you, Mr. Chair and committee members, for the opportunity to speak to you today.
My name is Scott Ross. I'm the assistant executive director of the Canadian Federation of Agriculture, Canada's largest general farm organization, representing nearly 200,000 Canadian farm families from coast to coast to coast.
I would like to start by thanking the committee for inviting farm organizations to speak to Bill C-208, as the continued facilitation of farm family transfers is an issue of critical importance to the CFA and its members.
Agriculture is a capital-intensive business, and effective succession planning is critically important, particularly for a sector that will transfer tens of billions of dollars in assets to the next generation in this decade alone. It’s undeniable that COVID-19 has fundamentally affected Canada's and the world’s economic outlook, and while Canadian agriculture is certainly not immune to those effects, the sector is uniquely well positioned to drive Canada’s economic recovery.
However, the average age of Canadian farmers now exceeds 55 years of age, and the opportunities these businesses face will carry into the next generation. As a sector where the vast majority of businesses remain family owned, maintaining the financial health of these businesses across generations is critical. This is in the interests of all Canadians, as studies show that family farming encourages sustainable growth, environmental stewardship and increased spending within one’s local community, not to mention its contributions to the social fabric of rural Canada.
With respect to Bill C-208, I would begin by noting that I’m not a tax expert. However, in 2012, I convened and supported a taxation committee at CFA, comprising tax practitioners and farm leaders from across Canada, with a mandate to identify and review the most critical tax-related issues facing Canadian farmers.
Section 84.1 of the Income Tax Act and the disincentive it presents to family farm transfers—a primary focus of the proposed amendments under Bill C-208—was promptly identified as a priority by this committee and has been a focus of the CFA ever since. This was reiterated just two weeks ago when farm leaders from across Canada passed a resolution at the CFA’s annual general meeting, imploring the federal government and members of Parliament to support and actively contribute to the passage of Bill C-208 before the next federal election, as a priority for Canadian farmers.
Simply put, the current wording of the Income Tax Act penalizes a farmer if they choose to transfer the farm business to a family member as opposed to an anonymous third party. As a result, when a retiring farmer sells their business to their children, they face the prospect of paying a lot more in taxes than if they were to sell to a stranger. This difference in treatment can amount to hundreds of thousands of dollars. This amounts to reduced productivity, increased financial risk and lost opportunities at a time when the sector holds such immense growth potential.
There are over 43,000 family farm corporations across Canada, operating on more than 50 million acres of land. The transfer of each one of these businesses, were they to stay in the family, would be disadvantaged and face this undue tax burden. The CFA supports Bill C-208 because it essentially ensures that real family farm transfers can access the same capital gains treatment as businesses selling to an unrelated party, rather than treating the difference as a dividend that's taxed at a higher rate and cannot access the lifetime capital gains exemption.
The CFA also supports the safeguards in Bill C-208 to prevent surplus stripping by assuring that a real transaction has taken place. For example, if the shares are sold by the child within five years of acquiring them, the transaction is deemed to have involved dividends and taxes will be charged retroactively. We are not seeking an exemption or preferential treatment for family farms, but instead are looking to ensure the Income Tax Act recognizes real intergenerational farm transfers and treats them accordingly.
In conclusion, I'd like to thank the committee for its time and reiterate that the CFA seeks your support for Bill C-208, as it addresses an undue tax disincentive to the continued vibrancy of family farming in Canada.
Thank you. I look forward to your questions.