Finance Committee on March 9th, 2021

[Annie Koutrakis, Liberal, Vimy, QC]

Could you send these criteria to our committee, so that we can review them? We would be very grateful.

Thank you.

[The Chair, Liberal, Wayne Easter]

Yes, I was going to say the same thing. If you could send those criteria to us right away, it would be helpful.

We turn now to Mr. Ste-Marie, followed by Mr. Julian.

You have only two and a half minutes, Gabriel.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Let's hope that the bill is implemented as soon as possible, as the concerns raised are real.

I represent the riding of Joliette, where many municipalities make their living from agriculture. In many cases, businesses are transferred to children. As mentioned earlier, the parents then accept that they will have to pay more taxes and have smaller retirement incomes. In other cases, the businesses are simply sold to third parties.

I'd like to know how this is playing out on the ground and what is at stake. Without naming anyone, are you able to explain this reality to us in a more concrete way?

[Julie Bissonnette]

Thank you for the question.

The transfer of a farm is always an important step in the life of the transferor and the person taking over. A number of human aspects need to be considered. The training on farm transfers is all well and good, but each case is different. As the Grain Growers of Canada representative said, some businesses have more debt and others less. From the outset, the financial situation varies from one business to another.

We have been talking about retiring transferors. The weight of all the accumulated steps can be too heavy for them to carry and may end up discouraging them from going ahead with the transfer. The new generation can very well be extremely energetic and hard-working, but we are talking about the transferor in this case. Their business is their life, their passion, and their way of life. In the end, if all the steps accumulate and are added to the many other obstacles that already exist, the transferor could very well decide that they have simply had enough.

Canada cannot afford to lose farm businesses. As we know, farmers are important. The next generation is there, but it lacks means. Being a farmer is a whole way of life. Agriculture is part of the regional and economic vitality.

So the bill would remove a thorn from farmers' side. It would be a good step. It would remove a weight from the shoulders of transferors and successors, who could then focus on the human and administrative aspects of a farm transfer.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

Do I have time for another question, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

We're going a little longer, so we'll give you a very quick one, not a speech.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Very good, thank you.

Mr. Groleau, I was astounded earlier when I heard you say that the current provisions encouraged the purchase of farmland by people who do not farm it.

Could you come back to this briefly, paint a quick picture of the situation and explain how the bill can help mitigate this phenomenon?

[Marcel Groleau]

In Quebec, the Commission de protection du territoire agricole provides data on this issue. All that is documented in municipal registries. We are seeing that an increasing number of transactions involving farmland are carried out by investors rather than by producers. This means that more and more land is concentrated in the hands of certain large investors. I want to specify that those are Quebec investors, and not foreign investors. Their interest lies in renting out the land while they wait to potentially do something else with it.

This is a global phenomenon. It is not exclusive to Quebec. In Canada, Saskatchewan even adopted legislation to limit the sale of land to investment funds or insurance funds. Land acquisition by hedge funds is a global issue. The legislation currently favours this.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there. That is another issue, and it's a huge issue.

Mr. Julian, you have about three minutes.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks very much, Mr. Chair.

I'd like to come back to Mr. Ross and to the Grain Growers of Canada on the same question.

Looking into a crystal ball and seeing 15 years from now, if we have this legislation in place, which stops the penalties for transferring family farms, or if we don't have this legislation in place, what do you perceive to be the difference?

I'll start with Mr. Ross.

[Scott Ross]

Thank you for the question.

I think maybe other witnesses have touched on elements of this, but I think we continue to see a rise in incorporation in farms for a variety of reasons, involving everything from tax planning to succession planning and other elements of that.

While there is a small percentage of farms in Canada that are currently not family-owned, we certainly appreciate the fact that family farming brings with it a whole suite of benefits for all of Canada, including the fact that was alluded to earlier wherein the retiring generation tends to extract the value they need for retirement but tries to put the farm in the next generation's hands in the best financial health possible.

For us, that's a critical element of this discussion. How do we situate the sector, based on family farming as it is today, for success into the next generation? I think there are a whole host of environmental and economic reasons why that is beneficial for all of Canada.

With these measures in place as they currently stand, we will continue to see pressure on family farms as they look to transfer into the next generation in what is already a very complicated process, having one more variable to contend with and pulling financial equity out of a sector that desperately needs it, as it is a very capital-intensive industry.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you for this.

I'll go to the Grain Growers of Canada.

[Andre Harpe]

Thank you very much.

It's interesting that Mr. Ross alluded to it as one variable in a set of variables, and I'd have to very much agree with that. I think what this bill would do is take one of the variables out of it.

I think if I were to look forward 15 years from now, I would be very worried about putting the “corporate” into corporate farms. Unfortunately, the bigger the farm, the less you're part of the farm. I guess it gets back to climate change and the environment now. I think we need to keep as many family farms in play as possible, because we have a real connection to what we do to this earth.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

You would see a significant difference 15 years from now if this legislation is not adopted.

[Andre Harpe]

I'd be very worried. It's really tough, but what I would see is bigger farms. The fact is, getting back to what I've talked about before, when it gets to a certain point, when you go to sell the farm, unfortunately you do have bills and mortgages to pay off. It could become a real factor, and unfortunately some of the bigger farms are getting much bigger.

[The Chair, Liberal, Wayne Easter]

We will have to end it there.

We'll go to Mr. Kelly, followed by Mr. McLeod.

I'm sorry that I didn't give you a heads-up, Pat.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

No problem, Mr. Chair.

I'm going to begin with just an observation. I know our panel of witnesses are all from agricultural stakeholder groups, and my riding is 100% urban—it's a city riding—but the issues really are no different with so many other types of small businesses. Much of this just translates straight across the board to the family restaurant, the family small manufacturing operation and all kinds of family operations.

With that, I'll turn to Mr. Harpe, who spoke quite a bit about the nature of being in business as a family and the extent to which one's entire life's financial plan toward a comfortable, secure retirement is tied up in the fortune of the business and in the family's capital in the business. A farmer, a restauranteur, a manufacturing operation proprietor or a fishing boat operator isn't generally best advised to take money and profit from the business and invest it outside of the business. Sometimes it's just not a possibility and sometimes it's not prudent.

Mr. Harpe, coming from the point of view of a family business operator—the business being a farm—I'd like you to give us this perspective on the extent to which the capital is always tied up in the business asset.

[Andre Harpe]

Thank you very much.

You make a wonderful point. Farming is not much different from owning a restaurant or owning a small manufacturing business. We're very much the same. It gets back to.... A small business is made, generally, from blood, sweat and tears. We put our labour into it, whether you call it our child, or whatever, but we're always trying to make something grow, especially on a farm. That's exactly what we're trying to do.

This is a perfect year to maybe talk about it a little bit, but if we talk about COVID and supply chain issues for agriculture, the costs of our inputs—our fertilizer, which we need to grow an efficient crop—have doubled this year. The cost of equipment due to the cost of manufacturing—and I'll throw in carbon taxes—has skyrocketed this year.

Basically, it gets back to when you have plans. They always say plan A, because you need more than one plan. It seems like we're always having to put money back into the farm and very rarely is there a chance to have a few extra hundred dollars that you can maybe try to invest in something else. It's very capital-intensive. We're always putting back into the farm. It also gets back to what I said in my opening remarks. It's our RRSP. It's our TFSA, or however you want to say it. This is what we count on for when we decide to retire.

The thing about farming—whether it's a restaurant or not, it's very similar—is that you could decide to retire at 55 because of health issues, or some people decide to continue on the farm into their eighties, so it's all over the place. That depends, then, on how much money you actually need to retire. It's huge.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

There's one other point I also want to make or get into the record through witnesses.

There have been criticisms of the whole idea of a corporate entity. We know what's been said in the past and the accusations of tax cheating and that kind of thing. I'll leave this for whichever witness might be best able to answer this, but is it not correct that often the decision for a business to operate through a corporation is driven by pressures that are not really their choice? It could be their bank, for example. In any kind of commercial lending scenario, a bank will normally insist that the land or the building be held in a corporate entity, and often maybe even one separate from the operating entity, but they want both to be corporate structures.

This whole idea of small businesses, family businesses, forming corporations is often not the choice of the business owners themselves.

[Andre Harpe]

I'll speak quickly and maybe somebody else can add to it, but I do know that if you look at the business world right now and especially banks, they're very used to the corporate culture. They get very uncomfortable...or they operate a lot more easily when they're dealing with a corporation, whether it's a farmer—

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Yes. They actually won't lend to some—

[Andre Harpe]

Yes, that's exactly it. They won't—

[The Chair, Liberal, Wayne Easter]

I think Mr. Groleau wants in as well.

[Marcel Groleau]

I would like to answer Mr. Kelly's question.

First, the situation is a bit different in the agricultural sector because of the assets' value compared with the return on assets. In agriculture, the rule is that $6 to $7 must be invested to generate $1 of income, while in commerce in general, it is $1 of investment for $1 of income. That is why there are special tax rules for the agricultural sector, including bigger capital gains exemptions for people selling businesses when they transfer their agricultural assets.

Second, banks do not require us to be incorporated. Legislation favours that type of legal structure because tax costs are lower for corporations than for individuals. This leads us to become incorporated or to create companies to run our businesses. Banks don't require this. It is a matter of good management.

[The Chair, Liberal, Wayne Easter]

Okay, thank you.

Mr. McLeod, you get to wrap up this panel. The floor is yours.