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.
4:05 p.m.
NDP
4:05 p.m.
General President, Union des producteurs agricoles
As noted in the presentation, 40% of small family businesses will be transferred in the next few years, based on the average age of the owners. These businesses represent $50 billion in assets.
Usually, when a farm business is transferred to the next generation, the tax savings realized by the transferors are shared between the transferors and the acquirers. This gives the family business an advantage by allowing it to reinvest in equipment and labour, for example. So better tax fairness would make these kinds of transactions easier and give the buyers a better foundation to grow the business and the sellers a better opportunity to retire. That's really important.
It is difficult to predict how many businesses, in absolute terms, will not be transferred. It is the role of parliamentarians to facilitate intergenerational transfers through Canadian tax laws. We also want to develop a generation of entrepreneurs in Canada. The Canadian economy functions thanks to small and medium-sized businesses. They create the most jobs in Canada, especially in rural areas. So we need to encourage those types of businesses.
At the same time, the value of agricultural assets is getting higher and higher. Think of the value of land and equipment, among other things. To facilitate the operation of farm businesses, tax law favours incorporation because it allows for better business planning and management. However, when it comes to business transfers, the law penalizes those that are incorporated.
So there is currently a form of incongruity between the tools that the law provides and the supports that are available afterwards, when it comes to transferring businesses. Most small and medium-sized businesses, often built by family, are transferred to other family members first, when possible. To me, that's really important.
It's the role of parliamentarians to correct the situation.
4:10 p.m.
Liberal
The Chair Liberal Wayne Easter
Peter, you have 30 seconds. We can leave your time until your next two and a half minutes and give you three.
We'll go to Mrs. Jansen for a five-minute round, followed by Ms. Koutrakis.
4:10 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Thank you.
As a former farmer—although you never stop being a farmer—I do believe that family farm succession is one of the most pressing issues in the agriculture industry today. There are real people behind these things.
My husband and I had five kids, and they literally grow from the ground up learning the farm and how it works. My son was four years old when a sales guy came to the greenhouse, and he said to the sales guy, “What's all that junk in the back of your truck?” The sales guy was like, “Oh, man, I know this is going to be tough sale.” These kids learn this; this is part of who they are.
My son has now taken over the business, which is phenomenal, and he's very involved in the community. Recently, our local firemen did a big gala fundraiser for the hospital. I know even Elections Canada has talked to him about using one of the greenhouses for a polling station, so we must be coming to an election pretty soon.
My concern is that there is no level playing field for parents like ourselves to pass this on to our kids. I'm wondering if you could perhaps speak, Mr. Branden Leslie, about the impact that selling to foreigners has on our communities. What happens in a community when the farm leaves the family?
4:10 p.m.
Manager, Policy and Government Relations, Grain Growers of Canada
Thank you for the question. I think it's obviously a very good concern, and our chair, Andre, outlined it.
I should say that, according to the last census, that number is still relatively low, but I think it's kind of the point of this legislation to get ahead of that potential curve. As farms, by necessity, often have to become larger, we don't want to have any further impediments at play when it comes to the ability to pass down the family farm.
Anybody who lives in a rural community knows the value of any small business, whether it be farming or otherwise, when it comes to the contributions to local stores, the donations to local events, the volunteers and the local hockey tournaments. It really is part of the fabric of that way of life. I think such a simple change as this, which could help continue that vital aspect of rural economies across the country, seems like a simple solution, and the risk of potential problems with it is certainly outweighed by the clear benefits.
4:10 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Yes, and what we found really saddening for us was that we were basically looked at as tax cheats, and that's why these rules were in place. They didn't want us taking assets and making them into a tax loophole. The idea that a tractor or a pickup truck was a tax loophole I found absolutely outrageous.
How do we make sure that farms do stay in the family without calling them tax cheats? Is this bill going to solve all of our problems?
That's for Mr. Leslie or....
4:10 p.m.
Manager, Policy and Government Relations, Grain Growers of Canada
Maybe I'll start and then hand it over to our chair, Andre.
No, this isn't a be-all and end-all. This impacts about a quarter of farms, and a growing number of them are incorporated, so it doesn't impact every aspect. There are a number of underlying issues as to why both the economics and the social aspects behind farms are changing.
I'll pass it over to Andre to see if he has any comments on how important that is and how it might be best addressed.
4:15 p.m.
Chair, Grain Growers of Canada
Thank you, Branden.
I think the big thing—and I've talked about it—is that this isn't a cure. This is not going to solve all our problems.
Number one, not every child wants to go farming or wants to continue with a greenhouse, so it's not going to stop all our issues. I think the biggest thing it's going to do is that it's going to make it equal, but the thing is, as I talked about before.... It's the old saying that we're cash-poor and asset-rich. At the same time, not everybody is going to be able to afford to pass it on to their kids, depending on what their debt load is and everything, because at some point, they actually may need all the cash they can get from what they've been growing with their farm.
4:15 p.m.
Chair, Grain Growers of Canada
That's where the issue is. I've seen examples where you may get $250,000 more, say, on a $2-million farm. You might get up to $250,000 more by selling it to your neighbour rather than your kid. Or you might actually owe that money. It's not so much about “Do I make the choice of who I want to sell it to?” Unfortunately, your silent partner—the bank—might not give you the choice.
4:15 p.m.
Conservative
4:15 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Thank you.
When a farmer has a child who is actually willing to take on the legacy of the family farm, you would think that we would be given a level playing field. Will this achieve that? Like you say, it's not easy to get them, but when you do, will this achieve what we're looking for?
4:15 p.m.
Chair, Grain Growers of Canada
From what I've read of this bill, I think this will do it. This will work. It will make life a lot easier. It gets back to.... The unfortunate thing is that any time we make a move financially, when it comes to federal government, one of the first people we phone is our accountant, to see what the tax laws are.
From what I've read of this bill, I think this will do it.
4:15 p.m.
Liberal
The Chair Liberal Wayne Easter
Okay. Thanks, both of you.
We're turning to Ms. Koutrakis, who will be followed by Mr. Ste-Marie.
4:15 p.m.
Liberal
Annie Koutrakis Liberal Vimy, QC
Thank you, Mr. Chair.
I thank all the witnesses for their testimony this afternoon on this important issue.
My questions will be directed to all the witnesses.
Are there currently ways in which a business owner can transfer the business to his or her child without having to pay tax on the dividends?
4:15 p.m.
Accounting and Taxation Coordinator, Research and Agricultural Policy Directorate, Union des producteurs agricoles
In fact, the Income Tax Act allows a parent to give their shares to their children. When it comes to incorporated businesses, it is possible to give one's shares to one's child without a tax being applied to the transfer. In fact, the child gets the shares back as if he or she had always owned them. Of course, in a situation like this, there is no consideration for the parent; it is more like a gift. Regardless, it can be done tax-free in that context.
4:15 p.m.
Liberal
Annie Koutrakis Liberal Vimy, QC
Mr. St-Roch, how many business owners do you think choose this option when selling?
How can we encourage more business owners to sell their businesses directly to family members and support them in doing so?
4:15 p.m.
Accounting and Taxation Coordinator, Research and Agricultural Policy Directorate, Union des producteurs agricoles
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.
4:20 p.m.
Liberal
Annie Koutrakis Liberal Vimy, QC
Thank you, Mr. Chair.
I will ask one last question.
Would a parent be able to retain de jure and de facto control of a corporation whose shares are transferred under Bill C-208?
4:20 p.m.
Accounting and Taxation Coordinator, Research and Agricultural Policy Directorate, Union des producteurs agricoles
At this time, yes, it is...
4:20 p.m.
General Director, Fédération de la relève agricole du Québec
Let me add something, Mr. St-Roch.
The Quebec government has criteria in place to avoid the situation you describe. It would be easy to apply such criteria.
4:20 p.m.
Accounting and Taxation Coordinator, Research and Agricultural Policy Directorate, Union des producteurs agricoles
That's exactly what I was going to say. The Quebec government has formulated a series of criteria...
