Evidence of meeting #25 for Finance in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was businesses.
A video is available from Parliament.
Chair, Grain Growers of Canada
No, having looked at the bill, I think the way it is written is good. Of course, the devil is always in the details, but right now it looks good, and we support it.
Liberal
The Chair Liberal Wayne Easter
Thank you, Mr. Falk.
Mr. Groleau, I might remind you they claim your mike is rubbing on your suit jacket. If you get some questions, hold it up so the interpreters don't have that problem.
Mr. Fraser.
Liberal
General President, Union des producteurs agricoles
It wasn't me. My mike was off.
Liberal
Liberal
Sean Fraser Liberal Central Nova, NS
Thank you very much to our guests for joining us today. I really appreciate your insights on this.
Let me just start by saying that I do hope to find a fix to ensure that we can fairly pass on farming operations, and frankly certain other kinds of businesses, to the next generation.
I have a couple of concerns about Bill C-208. I'm interested in learning more about some of the things it doesn't do and some of the things it might do that we don't want. I will acknowledge that it could accomplish the facilitation of intergenerational transfers, which I think is a good thing.
My primary concern right now really dovetails with the conversation about corporate farms versus family farms. Although I deal with it at home, even though I do have a strong agricultural presence for Nova Scotia in my riding, it comes up more often in terms of the commercial fishery. I can't tell you how important this issue is. The rural communities that sort of dot the coastline that I represent are driven, really, by the lobster fishery. One of the troubling issues we have been trying to deal with over the past number of years deals with controlling agreements. In order to protect the inshore fishery, what usually happens is that the owner of the licence will fish under that licence. It becomes a problem when certain larger corporate interests become the legal owner of a fishing vessel and associated licences, because they sometimes would be tempted to lease out the ability to fish on that licence. That has the risk of pulling the economic benefit from the rural communities, like the ones I represent, to the headquarters of the corporate entity that owns those licences.
One of the fears I have is that it could be an unintended consequence of Bill C-208 that it would encourage the adoption of corporate entities to own fishing vessels and licences, which would exacerbate this trend toward pulling the economic benefits out of communities. It's the same fear that you have expressed. I know right now that if you sell a business to a child personally rather than to a corporation owned by that child, you could benefit from, for example, the lifetime capital gains exemption.
For those unincorporated farms or fishing businesses, or frankly other businesses, do you think there are things we could do that would facilitate the transfer without putting at risk the controlling agreement circumstance? In a farming context, it would be like if a major grocer perhaps became the legal owner of the farm, rather than the person who has farmed it for generations.
If you have insight on unincorporated businesses and how we could make that simpler, I'd be very interested in hearing it.
Marc St-Roch Accounting and Taxation Coordinator, Research and Agricultural Policy Directorate, Union des producteurs agricoles
The problem actually has more to do with the financing of transactions than with the capital gains deduction in cases where businesses are owned by individuals.
For example, if the child wants to acquire the assets that are personally held by the parent, the child can finance the transaction and pay the debt using revenue from the business. The interest on the debt can be deducted for tax purposes.
Ultimately, the business's ability to repay is the bigger problem. If the parent decided to sell off all their assets one after the other, they would get a lot more than if they were to transfer the business to their child. As I believe Mr. Harpe pointed out, the farm's value during its operation is less than the value of the assets that can be sold. Parents tend to sell their farm to their children for a fraction of the price so they can afford a bit in the way of capital and live off of it. That's the dilemma.
Bill C-208 applies solely to the sale of incorporated operations. That's the problem. A stranger who wants to purchase the seller's shares will create their own company, and that company will then purchase the seller's shares. The company—or the buyer, in other words—will obtain their own financing and use the money to pay the seller. The company that was created becomes the owner of the shares of the just-purchased operation. Afterwards, the two companies are combined so the revenues from the just-purchased farm operation can be used to pay the debt. In short, a stranger can create a company, purchase the seller's shares, combine the new company and the just-purchased company, and finance the repayment of the purchase price through the operation of the just-purchased company.
If the seller's child wants to do the same thing, that is, create a company, purchase the parent's shares and combine the two companies in order to repay the debt using the revenues of the purchased company, the transaction is no longer deemed a sale subject to the capital gains tax exemption. Instead of a capital gain, the proceeds of the sale are treated as a taxable dividend where the parent is concerned.
For example, if the child wants to purchase their parent's $500,000 in shares and finance the purchase through their company, the parent will have to pay $225,000 in taxes because of the taxable dividend. Conversely, had the parent sold the company to a stranger, the capital gain would have been tax-free and allowed the parent to access a tax deduction. That's the problem with section 84.1 of the Income Tax Act.
Liberal
Liberal
Liberal
The Chair Liberal Wayne Easter
Okay, thank you.
We'll go to Mr. Ste-Marie.
We will extend this panel by about 15 minutes, because I know everybody is feeling rushed. We can go to 6:30 Ottawa time. We have that authority.
Mr. Ste-Marie, go ahead for six minutes.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
Good afternoon, everyone. Thank you for your very good presentations.
I am concerned about what will happen to this bill, given the current minority government environment. Mr. Maguire, a Conservative MP, originally introduced this bill in the last parliamentary session. Prior to the last general election, Mr. Guy Caron, an NDP MP, introduced a similar bill, as did my Bloc colleague M. Barsalou-Duval. A little before them, the Liberal MP M. Emmanuel Dubourg had done the same. Personally, I can't believe that the measures proposed in all these bills are not already in effect; they should have been implemented long ago. I now expect the bill to pass, but there seems to be a reluctance on the part of the Liberal Party, which forms the government.
As we know, the budget is scheduled for April, but there are rumours of a general election being held in the spring. If the government does not intend to implement this bill, it is possible that all of the committee's work will abort. So it would all start over, but it is unclear when.
Ms. Bissonnette, Mr. Groleau, or Mr. St-Roch, what are your arguments to convince the government, that is to say, the Liberal Party, to pass and implement this bill before the next election? Mr. Fraser has clearly indicated the kind of concern that his party has: it is afraid that the bill will be used by people for financial arrangements with the aim of lining their pockets.
If you are in agreement, I would like to hear Ms. Bissonnette's comments first and then Mr. Groleau's.
President, Fédération de la relève agricole du Québec
I will turn the floor over to Mr. Groleau or Mr. Pagé.
General President, Union des producteurs agricoles
The Quebec government has corrected the situation in its tax system without it becoming a loophole to financial arrangements to circumvent the tax law. So it is possible to do it, and it is advantageous. In fact, it does not confer an additional benefit on family farms; rather, it restores fairness to related party transactions as compared to unrelated party transactions.
While in opposition, all political parties took turns supporting similar legislation. So there is no reason not to pass the bill.
The devil is always in the details, but if we decide to apply the same conditions between related persons as between unrelated persons, there are mechanisms that can be introduced to prevent people from using schemes to circumvent the tax laws. This is entirely possible. In fact, that is what the Quebec government has done through its legislation. If in doubt, I invite you to look at the Quebec tax system for inspiration, to see how Quebec has corrected the situation.
I would even add that, by making inter-family transactions more difficult or more complicated, we end up favouring large corporations. This was the case in Quebec and it is the case everywhere else in Canada. It is important to understand that large investors have tax specialists who work exclusively for them and who develop financial packages. They go to farm families to explain how much more money they would have if they sold their farm to them, who would then go on to lease the farm to their children.
What we are doing is depriving the next generations of ownership of the land. When you don't own the land, you can't develop a long-term business on it or invest in ranching. You don't have the same interest, since it no longer belongs to you. We are turning the next generation of farmers into tenants rather than landowners. In my opinion, family transactions should be favoured.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you.
Does one of the representatives of the Fédération de la relève agricole du Québec want to add anything?
Philippe Pagé General Director, Fédération de la relève agricole du Québec
Yes, I would certainly like to add something.
As you were saying at the outset, Mr. Ste-Marie, every political party present today has already introduced a similar bill. In addition, it is possible to have criteria to ensure that there is no abuse, because Quebec has put some in place. Also, in 2017, the Parliamentary Budget Officer evaluated the costs of these measures when Mr. Caron and M. Barsalou-Duval introduced similar bills. As a result, costs have been determined and studies have already been conducted. After four drafts introduced by all parties, I think we are ready to pass this bill into law as soon as possible.
President, Fédération de la relève agricole du Québec
I would like to add that beyond all of this, young people get in touch with me every time a bill on this subject is introduced. There is always hope that it will pass. Some farm transfers are postponed in the hope that this issue will be resolved. We are so close to the goal this time, we really need to resolve the situation. Already, a farm transfer is not an easy thing, on a human level. This tax law, by putting obstacles in the way, does nothing to help the agricultural sector. If we could at least get it resolved this year, a lot of people would be very happy that we could move on.
Liberal
The Chair Liberal Wayne Easter
I'm sorry, Gabriel. We're going to have to leave you until the next two and a half minutes.
Mr. Julian, you're back. Go ahead, the floor is yours.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thank you very much, Mr. Chair.
Dear guests, thank you for being here today and for your testimony. We appreciate it. We hope that you and your family continue to be safe during this pandemic.
My first questions are for Ms. Bissonnette and Mr. Groleau.
We talk about the importance of getting this bill passed and ending the existing penalties for family farm transfers. As you so rightly said, it was Guy Caron, a former NDP MP, who introduced the first draft of this bill.
If you could see the next 15 years in a crystal ball, what would the situation look like in every community in Quebec and Canada, with respect to family farm transfers, if the bill were passed? Conversely, what would it look like if the bill were not passed?
Do you want to answer first, Ms. Bissonnette?
President, Fédération de la relève agricole du Québec
Mr. Pagé, do you want to answer?
General Director, Fédération de la relève agricole du Québec
I can certainly respond.
The passage of such a bill will have direct effects on farm transfers. As Ms. Bissonnette mentioned, a business transfer does not happen in a month. It is a complex process that takes place over several years. Pitfalls can occur. Sometimes families have to put water in their wine to reach a common result. When combined with tax measures that disadvantage family farm owners who want to sell the business to a family member, some find it easier to dismantle their business or sell it to a neighbour who can then expand their own farm business. The end result is a decrease in the absolute number of farms. For rural communities in Quebec and Canada, this means fewer families operating businesses, consuming locally, and contributing to the economy of their community.
I would suggest to you that 10 or 15 years from now, if this inequity is not corrected, incorporated farm businesses will continue to struggle.
