Finance Committee on July 20th, 2021

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

Thank you, Mr. Chair.

I'd like to welcome the witnesses and thank them for being with us today.

Before I get to my questions, I want to recognize the important work that senior officials and all employees at the Department of Finance have done during the pandemic. This committee met often, and we regularly heard from department officials. They have done incredible work to save the economy. I want to commend them and thank them again for all their hard work.

My questions are for Mr. McGowan.

After yesterday's news release and Ms. Bendayan's earlier comments, everything was clear in my mind, but the answers, details and clarifications you gave Ms. Dzerowicz confused me. Therefore, I'm going to ask you the same question.

Since Bill C‑208 received royal assent in June, the provisions in Bill C‑208 have applied in the case of parents who sell their farm or family business to their son or daughter. Is that correct?

[Trevor McGowan]

Right now that is absolutely correct. What I was saying with respect to the government's July 19 announcement was that while the government has announced its intention to provide additional conditions that may need to be met at the end of a consultation process, those new conditions would not apply before November 2021. Right now the rules in the Income Tax Act that were amended by Bill C-208 are the law and can be relied upon.

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

Thank you.

Julie Bissonnette of the Fédération de la relève agricole du Québec wanted us to ask you that question. Both my fellow member Ms. Dzerowicz and I have asked it now. You gave a clear answer, which I appreciate.

Nevertheless, something you said in response to my fellow member's question worried me, and you said it again when you answered my question. You said that it has been that way since yesterday's news release. This morning, however, the law clerk for the House of Commons and former members of the House told the committee that it has actually been that way since the bill received royal assent, regardless of what the news release said. Yesterday's news release reiterated that fact. However, since Bill C‑208 received royal assent, it has been possible to sell a business for the purposes of an intergenerational transfer of a family farm with the usual rights and benefits. Is that correct?

[Trevor McGowan]

If I understand the question correctly, right now the rules as enacted by Bill C-208 apply and can be relied upon. It is the law of the land.

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

Very good. Thank you.

Now I'm going to move on to another topic; it has to do with the amendments. As you said, in yesterday's news release, the government announced its intentions to make changes to the amendments set out in Bill C‑208. It is our understanding that a new bill will be introduced to amend the changes contained in Bill C‑208, without altering the bill's intent.

Something about this whole process surprises me. As we heard this morning, the first reading of the bill took place on February 19, 2020. That means the period between when the bill was given first reading and when it received royal assent was 527 days. As Mr. Dufresne, the law clerk, pointed out this morning, at almost every stage of the legislative process, the government could have brought forward the amendments it is now saying it will introduce in a future bill.

I gather from the answers you gave Mr. Fast that, when Bill C‑208 was at committee stage, the government had not asked the Department of Finance to draft amendments to the bill that would close the potential tax loopholes. Is that correct?

[Trevor McGowan]

As part of our committee appearance this spring to discuss Bill C-208, the departmental officials were present to help explain the technical aspects of the bill, and I would need to defer to the honourable chair of the committee in terms of the rules. I'm not even aware of whether departmental officials could table amendments to a bill at a committee hearing, or whether that would have to be done by another—

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

Pardon me, Mr. McGowan. I don't think I made myself clear. I meant that it was up to members of the government, not public servants or senior officials, to bring forward amendments that would have addressed the concerns you raised with the government regarding this bill.

My question is this. Did the government ask you to draft amendments to rectify the potential problems resulting from Bill C‑208, amendments that could have been proposed when the bill was being studied by the committee? Did the government ask you to draft such amendments?

[Trevor McGowan]

In connection with my last statement, I want to answer the questions as fully as possible, but that starts to get pretty close to describing our advice and internal instructions from the government. I would defer to my colleague Jenifer as to whether that's something that can be appropriately answered.

[The Chair, Liberal, Wayne Easter]

Ms. Aitken, would you like to come in? I think it's pretty clear that the officials would advise government on what amendments should be made, and those would have to come forward at that stage as either government amendments or those by a member of the committee. I think that's the procedure.

Ms. Aitken, do you want to come in?

[Jenifer Aitken, Executive Director and Senior General Counsel, Legal Services, Law Branch, Department of Finance]

Mr. Chair, I think you've expressed it very well in terms of what we are or are not at liberty to say. I agree with Mr. McGowan that we want to say everything we possibly can to be helpful—that's what we're here for—but we're not at liberty to talk specifically about questions of advice. I think, Mr. Chair, you explained the process.

[The Chair, Liberal, Wayne Easter]

That's fine. We understand that there's the political side and there's your side. I thank you all for that round.

We'll go to Ms. Mathyssen for six minutes, and she will be followed by Mr. Kelly for five.

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

Thank you, Mr. Chair.

I want to back things up a little and go back into the history of this bill. As Ms. Dzerowicz mentioned, there were several iterations of it. Of course I refer to the NDP version of this, Bill C-274, which was actually voted against by this government, and which we were told would not pass.

However, after the election, in budget 2019, it was indicated that a similar piece of legislation would come forward to help farmers, small businesses and fishing businesses, and in fact it was also in the minister's mandate letter from the Prime Minister.

Can you indicate to this committee what plans and what directions were received from government, from the minister as directed by the PMO, to put forward this legislation? I think, to build upon what my colleague Mr. Ste-Marie was discussing, with all of that time and with those plans in place, why were a lot of the amendments that came forward under Bill C-208 not prepared for legislation?

[The Chair, Liberal, Wayne Easter]

Mr. McGowan or Ms. Aitken, we may be—

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

That's for whoever is allowed to answer.

[Miodrag Jovanovic, Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Maybe I can take this one.

Mr. Chair, I think the question goes somewhat in the same direction as the previous one. It seems to be related to the nature of the advice provided to the government. I don't think it would be appropriate for us to go into any detail as to the advice that was provided or what the advice would cover. I would just say our role as tax policy officials in the department is to make sure that on an ongoing basis the department and the government have all they need to make decisions. Our role is to try to provide advice to the extent possible and—

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

I appreciate and understand that, and I understand the response that was given previously. However, I would argue that this is actually the other way, right? This is direction from the government—coming through the minister, coming through a mandate later and coming through budget 2019—and you were told to put it forward in terms of ongoing or upcoming legislation that the government had in its plans. It would be going the other way.

[Miodrag Jovanovic]

I would maintain my answer, that effectively it would not be for me to say, for instance, what measure has been considered by cabinet, which would potentially become a cabinet confidence. I don't think I'm at liberty to say whether following the commitment made in 2019 or in the mandate letter a specific proposal had indeed been put forward and discussed with the government. I'm not sure I'm at liberty.

[The Chair, Liberal, Wayne Easter]

It's just the other way around, Ms. Mathyssen. I think Mr. Jovanovic is correct on that.

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

Okay. That's fair enough.

Could we then discuss those specific amendments that are being brought forward and that were in the newly released press release in which clarification was provided? It's my understanding that the government said that parents could already sell to their children on a tax-free basis, using a lifetime capital gains exemption, before this Bill C-208 was brought forward. Is that true or is that false? I believe it was in a speech from Mr. Gerretsen, actually, when he was discussing Bill C-208.

[Trevor McGowan]

That's correct. The amendments relating to Bill C-208 apply only where an individual sells shares to a corporation owned by their child or grandchild. On a direct sale of shares from a parent to their child, the anti-avoidance rule in section 84.1 would not apply, to cause there to be a dividend. In fact, assuming all the conditions are met, the lifetime capital gains exemption can apply to eliminate tax—or up to the lifetime capital gains exemption limit anyway—on any gains.

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

One of the requirements or the amendments being made was that enough time and a specific timeline be put forward for that transition to ensure that it was a legitimate.... It's the idea of a legitimate sale to a child. Within that Bill C-208 legislation, it also says, though, that the person receiving the gift of this farmer or small business would have to own it for five years. Why is that not good enough within the Bill C-208 legislation?

[Trevor McGowan]

There are a few technical issues with that. First of all, the amendments enacted by Bill C-208 place the five-year, or 60-month, holding period on the corporation that purchases the shares from the parent, and not the child. There's actually no requirement in Bill C-208 that the child maintain any sort of share ownership in the business. It's the corporation that purchased it. The child could, in fact, sell the shares of the [Technical difficulty—Editor] within the five-year window.

[The Chair, Liberal, Wayne Easter]

This is your last question, Ms. Mathyssen.

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

Well, it's just confusing. Where these amendments don't.... They seem to do what's already being done, and if not.... It's that there's a belief that ultimately these families and these children are trying to undermine the government, to take advantage of tax loopholes. I find it interesting that the government now is so interested in closing tax loopholes where it wasn't before. However, it seems that a lot of this was already done and that these amendments may be redundant.

[The Chair, Liberal, Wayne Easter]

Do you have any thoughts on that, Mr. McGowan?