House of Commons Hansard #134 of the 42nd Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was ceta.

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The House resumed from November 24, 2016, consideration of the motion that Bill C-274, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation), be read the second time and referred to a committee.

Income Tax ActPrivate Members' Business

11:05 a.m.

Conservative

Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, I am proud to rise in the House today as the MP for a rural riding with an abundance of small and medium-sized businesses and plenty of family farms that go back more than 10 generations.

The work they do contributes to Montmagny—L'Islet—Kamouraska—Rivière-du-Loup's prosperity and entrepreneurial culture. I want to inform my colleagues that the Canadian Federation of Independent Business recently named Rivière-du-Loup the top entrepreneurial city in Canada in its fall 2016 ranking, this just a year after it was recognized as the most entrepreneurial city in Quebec.

There is no doubt that my riding and Rivière-du-Loup in particular are going full entrepreneurial speed ahead.

As a Conservative, I am proud of the previous government's record with respect to job creators. Our government reduced the corporate tax rate from 22% to 15% and the small business rate to 11%. It also increased the maximum revenue threshold for small business tax rate eligibility from $300,000 to $500,000.

As an entrepreneur myself who has created 20 or so jobs over the past 25 years in the printing industry in my region, I understand the importance of maintaining a tax system that favours entrepreneurship. Small businesses are the backbone of our economy. They created over 77% of all new jobs from 2002 to 2012.

People go into business for a variety of reasons. Some people are motivated by their passion, while others see a service gap that needs to be filled in their respective communities. For the most part, people go into business in order to meet their needs and those of their family. That is what I did myself in 1993 when I started my business.

We do so with the fervent hope that, one day, our children will take over our businesses, and we are eager to see them make our businesses flourish and build an even better future for our regions.

In my case, I fully intend to transfer some or all of my family business to my daughter at some point. I am extremely proud of my daughter, who has been working with me in my business for the past three years now.

I was very surprised to learn that, under Canada's current tax laws, it would be better for me to sell my business to an outside third party rather than to a member of my own family.

Essentially, when a business is sold to a family member, the difference between the sale price and the original price of the business is considered a dividend and is taxable as regular income at 100%. However, if the sale is between two strangers, the difference is considered a capital gain, only half of which is taxed.

What is more, in Canada, the lifetime capital gains exemption that normally applies to small and medium-sized businesses does not apply in this case.

What type of message does that send? Does this not discourage people from starting a business?

What we want is to ensure that our country's economic growth continues to expand. For that we need to encourage people to get into business. When people who have been in business for 25, 30, or 40 years are ready to hand over their shares to their children, it is not right to put them at a disadvantage. The same advantages should apply whether the business is sold to a third party or a family member.

An estimated 550,000 business owners are going to want to sell or transfer ownership of their business over the next decade.

According to the Canadian Federation of Agriculture, over $500 billion in farm assets are set to change hands over the next 10 years. That is not to mention the over 8,000 family farms that ceased operations in the past decade. The population is aging, yet only 50% of these farm owners have a succession plan.

I would like to remind members that the Lower St. Lawrence region has one of the largest aging populations in Canada, which means that there are fewer opportunities to sell our businesses to future generations.

Given the aging population, three out of four farmers intend to retire in the next 10 years. It is therefore urgent that we correct the discrepancy in the Income Tax Act so that we are prepared for the upcoming demographic reality. That is why I support Bill C-274, which was introduced by my riding neighbour, the hon. member for Rimouski-Neigette—Témiscouata—Les Basques.

This bill caught the attention of the Rivière-du-Loup RCM in the Lower St. Lawrence region, which wrote a letter in the fall indicating its support for Bill C-274. The Rivière-du-Loup RCM's chamber of commerce did the same. Support is growing across Quebec. The Association des marchands dépanneurs et épiciers du Québec has spoken out against the existing situation, and the Union des producteurs agricoles and the Board of Trade of Metropolitan Montreal have both indicated that they are in favour of this bill. All of the major opposition parties support this bill. It remains to be seen whether the Liberal government will also support it.

I think this is a good opportunity for the Liberals to redeem themselves after breaking their election promise to cut corporate taxes from 11% to 9%, voting for an increase in CPP contributions, and imposing a carbon tax on a still fragile economy.

Bill C-274 is an opportunity for the NDP, the Conservatives, and the Liberals to join forces and quickly pass a bill that would recognize that small businesses and family farms are important to Canadian society. I encourage each one of my colleagues to say yes to Bill C-274.

In closing, I would like to add that there is widespread support for this bill across Canada and especially in rural areas, where families create small businesses and support them from one generation to the next. I sincerely believe that these families must have this opportunity. Just imagine that I were to sell my business to my daughter. I would have to pay 100% of the tax instead of 50%. If I only had to pay 50% of the tax, I could continue to help my daughter grow her business. That money would certainly go back into the economy.

Once again, I invite all my colleagues to support Bill C-274.

Income Tax ActPrivate Members' Business

11:10 a.m.

NDP

Karine Trudel NDP Jonquière, QC

Madam Speaker, today I am so very pleased to add my voice to the chorus of those across Canada who support Bill C-274, an act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation). I would like to thank my colleague from Rimouski-Neigette—Témiscouata—Les Basques for introducing this bill. I know he worked long and hard to make sure this bill is written in such a way as to protect everything that matters to our small businesses.

As we all know, our small and medium-sized businesses are the bedrock of our economy. Whole families make a living thanks to them.

I am from Saguenay—Lac-Saint-Jean, where life can be very different from that in big cities. Many of my colleagues, such as those from Abitibi and the Lower St. Lawrence, as well as some of the other provinces, are familiar with those differences.

The reality in our regions, in places like Saguenay—Lac-Saint-Jean, is that there are often only two, three, or four large businesses that contribute to their economies. Most of the time, small and medium-sized businesses are the main contributors. Many of our small businesses have only three or four employees, but they are what are sustaining our regions. We are seeing this more and more. The men and women of our regions are developing projects and new ideas and are doing their part every day to keep our regional economies going.

At the same time, our small and medium-sized businesses are facing many problems that make it harder for people back home to succeed. For example, the customer base is much smaller in our region.

Another problem is the shortage of young people willing to take over these businesses. It is really hard for SMEs to find people to take over, so when an entrepreneur is lucky enough to have someone in their family they can count on to take over the family business, that creates wealth for our communities. When people are lucky enough to have a family member to carry on a family business, it means they can pass down traditions, and for some, even memories. It means they can pass on what they have learned through experience and hard work.

Unfortunately, there is a great injustice. Federal legislation penalizes business owners and dissuades from passing on their life's work to members of their family. The reason is quite simple: when a business is sold to the owner's children or another relative, the profit from the sale is considered a dividend and is taxed as such under the Income Tax Act. On average in Canada, a dividend is taxed at roughly 35%.

If the business is sold to someone who is not part of the family, who is not a relative but a stranger, then the profit is considered a capital gain. In that case, there is a lifetime exemption of roughly $825,000 for a business and about $1 million for a farm or a fishing vessel. The remaining capital gain is taxed at about 25%, on average. That explains the difference between the sale to a stranger and the sale to a child or another family member.

We have to do something about this unfair situation. I have met with business owners in my region. They all agree on this. That is why various stakeholders in the Saguenay—Lac-Saint-Jean region support Bill C-274.

I will quote Carl Côté of the Saguenay-Le Fjord chamber of commerce and industry.

Business succession is a major economic issue, especially in remote areas. Family businesses play an important role in economic development and they must have support. At present, they are subject to very unfair tax treatment. Family business succession is an issue that we are following closely...

The former president of the Union des producteurs agricoles du Saguenay—Lac-Saint-Jean, Yvon Simard, believes that it is appalling that, in 2016, the dismantling and sale of companies to a stranger is subject to less tax than the sale or transfer to a family member, someone who could pursue their parents' dream and continue farming in the Saguenay—Lac-Saint-Jean region.

When we contacted businesses in my riding, dozens responded and supported the NDP's efforts. Many deplore the current situation and hope that this injustice will be addressed.

I would like to read a few comments I received about this. They paint a clear picture of the reality facing small businesses and what the people of Saguenay—Lac-Saint-Jean are going through.

A motel owner said that this is a major problem and that his father thought about selling the business to a stranger because it was more beneficial for him than to sell it to a family member.

Another business owner said the following: “I co-own a business with my son, so who do you think I will sell my shares to? However, by selling to my son, I am going to lose a lot of money. It is not fair.”

Finally, the owner of a small business said, “Two years ago, I sold my business to my son. It is unacceptable that I was penalized because of this unfair provision. It is a double standard.”

It is completely unacceptable for these business owners to be penalized for selling their company to a family member. We are not talking about opening the door to tax avoidance. We are talking about correcting the inequity that exists in the Income Tax Act, which considers the sale of a family business or farm to be a capital gain. Things should work the same whether the business is sold to a family member or a stranger. Bill C-274 simply seeks to correct the inequity, so that the process is the same regardless of whether the company is sold to a family member or a stranger.

In my opinion, my colleague's bill is well written and prevents tax avoidance. The bill is very clear about that. Our SMEs should not be penalized because of this inequity.

It is high time we abolished the unfair tax on the transfer of family businesses. When a business is transferred, potential buyers who are related to the owner should have the same rights and privileges as those who are not.

In closing, I would like to emphasize that all regions will benefit from this. This bill is good for everyone. It is good for our small and medium-sized businesses. In my region, Saguenay—Lac-Saint-Jean, this is the kind of positive change we really need to help revitalize our local economy.

I invite my colleagues in government and in opposition to consider the economic and social benefits of the bill. Facilitating the transfer of family businesses will help make our regions stronger. Something we talk about a lot in the regions is the retention of young people. My riding, Jonquière, is home to many farms and small businesses. We talk about the exodus of young people, who leave to work in big cities. Bill C-274 will boost local economies. Family farms are usually passed down from generation to generation. I visited a farm last winter, and the owners told me that it had been in their family for four generations.

I invite all my colleagues to vote in favour of Bill C-274, introduced by my colleague.

Income Tax ActPrivate Members' Business

11:20 a.m.

Liberal

Emmanuel Dubourg Liberal Bourassa, QC

Madam Speaker, I am pleased to speak to Bill C-274, which has to do with the transfer of family businesses, a subject I have been interested in for quite some time.

The first document I consulted was the December 2010 report by Suzanne Landry for Raymond Chabot Grant Thornton, a chartered professional accountants firm. Ms. Landry, who is now a professor at the École des hautes études commerciales de Montréal, identified a number of possible solutions in her report.

This bill targets one of the most complex parts of the Income Tax Act: the sections about transfers and the capital gains deduction, among others. We are talking about butterfly transactions. This has all kinds of implications.

Subsection 84.1, which this bill would amend, was included in the Act under tax avoidance to prevent fraudulent transactions involving the transfer of businesses among family members. Caution is vital here.

I wanted to bring in legislation on this when I was a member of another Parliament, the Quebec National Assembly. The finance minister and I had several meetings on the matter. I decided not to go forward because he told me that it would cost a lot of money and that this was the type of measure that needed to be passed by the Parliament of Canada in Ottawa.

Fast forward to November 2013 when I arrived in Parliament. I was still working on ways to rectify this injustice. That is why I introduced Bill C-691, but unfortunately, the session ended in June 2015 and we did not have the chance to debate it.

Let us talk about the impetus for this bill. Let us look at the statistics. We were told that 45% of jobs and 80% of new jobs in the private sector were created by small businesses. The Canadian Federation of Independent Business, the CFIB, said that 66% of small businesses would change owners over the coming decade and that a third of small and medium-sized business owners wanted to sell to family members. That is to say nothing of the youth unemployment rate.

Then there are the reasons why this bill is essential. I can also say that business succession is at the heart of this bill. Business succession represents an economic challenge because it requires a succession plan and choosing the successor. We must encourage the sale of businesses to family members because selling a business to a stranger could result in its relocation, benefiting the strangers.

The safeguards in this bill will ensure that the ones to benefit will be the middle-class families. Ensuring the sustainability of small businesses is also essential to the job market.

This bill has an end goal. The concept of transferring a business to a family member is simple, but the solution is complex. When a parent sells his or her business to a person who is not related by blood, marriage, or adoption, the parent can choose to not pay tax on the first $824,000 of taxable capital gains. However, if the business is sold to the son, the parent cannot use the capital gains deduction. This bill will address an unfair element of the law.

When I introduced Bill C-691, measures also had to be taken to prevent abuse.

First, I included a gradual cap so that, if a company's taxable capital was less than $15 million, the company would be eligible for the deduction. If the company made between $10 million and $15 million in taxable capital, then the deduction would be reduced because we do not want large companies to benefit from this type of deduction.

Second, after placing this cap on taxable capital, I introduced a measure that required that an affidavit of the transaction, issued by an independent assessor and indicating the fair market value of the business, be presented to meet the conditions of the transaction. The buyer also had to be over the age of 18. What is more, if the buyer had to resell the shares after less than two years, the initial transaction would be deemed to have never occurred.

When I introduced the bill, it received the support of my NDP colleague and the the Canadian Federation of Independent Business, which was very important. When I held a press conference about the bill, representatives from the Canadian Association of Family Enterprise or CAFE were there with me to show their support. The Canadian Federation of Agriculture, which is made up of all the main farming associations in the country, and the Regroupement des cabinets de courtage d’assurance du Québec also supported the bill. It is important to mention that, in recent years, the Quebec CPA Order has raised this issue every time it has participated in pre-budget consultations.

In conclusion, I am certain this bill is the solution. I am glad that both the NDP and the Bloc Québécois decided to reintroduce it. However, there are a number of things to consider when we vote on this bill, cost being one of them.

I consulted the people at the Library of Parliament, and they told me that, in 2012, transactions involving eligible shares of small and medium-sized businesses amounted to more than $5 billion. In their tax returns, people cannot specify which transactions occurred at arm's length, so the Library of Parliament's findings are based on estimates.

They told me that, in 2012, transactions totalling $5 billion were carried out by more than 20,000 people. Supposing one-third of the transactions occurred between related individuals, such as 6,000 parents selling their businesses, giving them favourable tax treatment would cost the public purse no less than $300 million.

The Liberal government stated that it absolutely wants to help the middle class. Bourassa, the riding I represent, is struggling economically. Every month there, 19,000 children collect more than $8 million in Canada child benefit payments. By comparison, the cost of this program is exorbitant because it would cost $300 million to help 6,000 people.

In conclusion, yes, it is not fair, but present circumstances dictate that we take all of the factors into account to make the right decision. That is what we will do on Wednesday when we vote on Bill C-274.

Income Tax ActPrivate Members' Business

11:30 a.m.

Conservative

Jacques Gourde Conservative Lévis—Lotbinière, QC

Madam Speaker, I am very pleased to rise here this morning to take part in the debate on Bill C-274.

I want to thank my colleague from the New Democratic Party for introducing this bill, an act to amend the Income Tax Act regarding the transfer of small business or family farm or fishing corporation. The member for Rimouski-Neigette—Témiscouata—Les Basques, from the province of Quebec, is the finance critic for the second opposition party.

I feel compelled to speak to this issue because many people in my riding, Lévis—Lotbinière, have expressed their concerns about this matter and what the Canada Revenue Agency is supposed to do.

Furthermore, my colleague from Portneuf—Jacques-Cartier had intended to move a motion or introduce a bill to change this situation after a number of his constituents expressed their serious concerns and fears. As everyone here knows, all parliamentarians have to wait their turn in order to introduce a bill or motion in the House. Unfortunately, my colleague was 214th in line to be able to introduce his bill, which meant he was very unlikely to introduce it before the end of the 42nd Parliament, which will end in October 2019.

This bill should go through second reading so that we can study all the tax implications and, most importantly, determine how it will contribute to the economic development of the regions of Quebec and Canada.

We believe that this government has not done what is necessary to support the economic development of our regions, and here is why. It appointed just one minister to look after Canada's six economic development agencies, when that minister is not familiar with the realities of all the regions of Canada, particularly those of Quebec, and likely never will be.

The Liberals have been in office for over a year, yet they still have not managed to sign a softwood lumber agreement. They also have not managed to create any jobs in Canada, except perhaps at the Office of the Conflict of Interest and Ethics Commissioner. They are setting up an infrastructure bank for projects of $100 million or more. They are even saying that investors would prefer projects of $500 million or more. However, if projects of $100 million or more or $500 million or more are required, the Lotbinière RCM, whose municipalities have an average population of 2,200, will not see a penny of that money for many years to come.

What is more, the government set up only a modest compensation program for farmers and cheese producers. However, these days, our dairy producers are very concerned, particularly with regard to the new and upcoming NAFTA negotiations. I can see why they are concerned, given the government across the way.

Let us not forget the most important thing: the government did all of this while completely losing control of the deficit. It announced a $10-billion deficit, which is huge, but now it seems the deficit is going to be closer to $30 billion. What is worse, the budget will not be balanced until 2055. There are many people here in the House who will not even live to see that happen.

This bill has to pass second reading stage so that we can provide a tool to help protect our seasoned Canadian entrepreneurs. This will also help ensure the prosperity of a business supervised by a parent who is committed to the success of the business. Parents are excellent mentors for the business, especially if they have been working at the business for 40 years. They have weathered a few storms and are certainly able to give the best advice to the future generation, often their own children or grandchildren. These entrepreneurs worked hard on developing their businesses. The least we can do is take the time to address this issue in the House.

Let us build on what Quebec did when faced with the same problem involving the sale of businesses between members of the same family. In 2015, the finance minister included measures in his budget to ensure that this type of transaction is taxed fairly and equitably for family members of small-business owners.

We must also encourage family solidarity and in doing so, protect our small and medium-sized businesses to ensure their survival and allow children and grandchildren to take over the operations and maintenance of their family business, both in Canada's cities and its vast rural regions.

Many business people are not motivated to transfer their cherished business to a family member. Imagine that you had to pay between $250,000 and $1 million more in taxes on a small business. This is quite different than selling the business to a non-family member. That is the lesser evil. What is scandalous is the demise of these businesses, which results in the loss of 15, 20, or 30 jobs in small communities of 1,000 people.

Future generations work in the family business. However, when the owners want to retire and enjoy a well-deserved lifestyle after having worked to build a good business, they do not want to give their money to the different levels of government. We all know that the best place to invest money in order for it to grow is in the pockets of Canadians and not in those of a Liberal government.

Anyone who can count and who is an entrepreneur at heart will perhaps prefer, unfortunately, to sell their business to someone else rather than to a family member, because today's tax system is not accountable to anyone and does not respect the contributions of those who have developed these businesses for the past 40 years.

We believe that the aging of our population will result in increased business transfers, and that most small businesses will sadly not make it out in one piece. The survival of small businesses is vital to job markets all across Canada, especially in the regions. Young entrepreneurs are having a hard time coming up with the capital needed to take over the business, especially since they have to borrow 30% more to ensure that their parents can have a decent retirement. Many entrepreneurs want their children or grandchildren to take over their business, which is only natural. When people invest 40 years of their life in a business, they usually want it to continue after they are gone.

We believe that horizontal equity, when it comes to taxation, is a fundamental part of ensuring a fair and competitive business environment. It is only fair that all Canadians should be treated equally when it comes to taxation, and not two different ways. It is unfair that there are two separate tax structures depending on whether business owners sell to their children or grandchildren, or to a stranger. We believe that the Income Tax Act penalizes families who want to keep the business in the family.

In closing, for all these reasons, and more importantly, because this government has not taken the necessary steps to support and develop our regions, which is very important, this bill needs to pass second reading. This tool will help protect Canada's experienced business owners and help guarantee millions of jobs for future generations. This is a good initiative and we will support it.

Income Tax ActPrivate Members' Business

11:40 a.m.

NDP

Robert Aubin NDP Trois-Rivières, QC

Madam Speaker, this magnificent Monday morning, we have the good fortune to be talking about the bill introduced by my colleague from Rimouski-Neigette—Témiscouata—Les Basques. I gather from members' remarks that there is broad consensus around this bill. The only concerns I have heard people express from the start have to do with the cost of the bill. Barring petty partisanship, I see no reason why we should not send this bill to committee after the second reading vote for a closer look at its real costs. This bill is very important to the economy and to the development of both Quebec and Canada.

Everyone knows our society is aging. We are facing major changes to which we will have to adapt quickly and as best we can. We are used to analyzing health and education issues and changing our policies on the basis of demographic trends, but there is just as much urgency in other sectors that tend to be ignored. That is why I think my colleague's bill, which tackles one of the most significant generational shifts, is so important.

By 2020, as many as 350,000 business owners will be 50 or more and will be considering selling or transferring ownership of their business to a family member or selling it to a stranger. With the population ageing, it is reassuring to see that the next generation of entrepreneurs is available, skilled, competitive, and ready to face the challenges that come with taking over the reins from the previous generation.

Why are so many businesspeople raising their concerns with me over entrepreneurial succession? Well, they have done the math and they recognize how unfair the difference can be in the sale of a business to a family member or to a third party. Although my colleague's bill is not the first to address this issue, it is by far the most comprehensive and deserves the support of all parliamentarians in the House.

However, for the uninitiated who are following the debate and who are not aware of the problem, let us try to sum up what it means to transfer a business. If business owners want to get out of the business world, then they have two choices. They can sell their business to one of their children, thereby ensuring that the business remains family-run and deriving satisfaction from the act of passing down the business from one generation to the next. The owner gets to see his or her efforts carry on. The second choice in principle is just as commendable. The owner can sell to a stranger. It is easy to say that this is a personal choice and that everyone is free to make their own decision. However, that is less true when we know that both avenues do not produce the same profits from a sale at the same price.

At this point in time, if the business person sells their business to a stranger, the difference between the sale price and the original price is considered a capital gain taxed at between 23% and 29% by the provinces and also benefits from a tax exemption of about $824,000. However, if the owner sells his business to one of his children, the same difference between the sale price and the original price is considered a dividend, which is taxed at between 35% and 51%, depending on the province, and does not benefit from a tax exemption.

To put it simply, the owner who sells his business for $1 million and reports a capital gain, compared to the owner who reports a dividend on the same amount, would come out ahead by about $306,000. We have to admit that makes selling to a family member somewhat less appealing.

This is what Bill C-274 would do. It would allow the owner and buyers from the same family to enjoy the same rights and privileges resulting from a transaction between two people without any family ties. Consequently, Bill C-274 would help keep businesses in the hands of local people, foster entrepreneurship, and contribute to the creation of local jobs.

What is more, in order to prevent any type of tax avoidance, an argument that members have been raising since this morning, my colleague had the foresight to include an obligation in the bill under which the family member who purchases the business must remain the owner for five years following the transaction. We are not the only ones who are saying that it is high time to eliminate this unfair business transfer tax.

Since I am running out of time, I will not read the incredibly long list of people who support my colleague's bill. I must admit that I do not see what reason any member would have to vote against a bill that has garnered so much support. I therefore hope that Bill C-274 will be sent to committee, because we are always open to making necessary improvements. I also look forward to the day when the House will send a clear message to entrepreneurs across the country telling them that they can sell their company to whomever they choose and still pay the same rate.

Need I mention that I strongly urge all members of the House to vote in favour of the bill introduced by the member for Rimouski-Neigette—Témiscouata—Les Basques?

Income Tax ActPrivate Members' Business

11:45 a.m.

Moncton—Riverview—Dieppe New Brunswick

Liberal

Ginette Petitpas Taylor LiberalParliamentary Secretary to the Minister of Finance

Madam Speaker, today I am speaking on behalf of the government about Bill C-274.

We all agree that small businesses are key to our prosperous communities. They provide important goods and services, create jobs, and weave themselves into the fabric of our communities, in which they have a genuine interest.

The Government of Canada wants the small business sector to remain stable and dynamic. Is Bill C-274 in the best interest of small businesses? The government's position, which I support, is this: the bill is well-intentioned, but the government is very concerned about its unintended consequences and whether it will really work.

The main problem is that it will open the door to tax avoidance. The Government of Canada cannot allow that possibility. The stated purpose of this bill is to amend the Income Tax Act to facilitate the transfer of small businesses and family farm and fishing corporations among family members.

To that end, the bill would dilute two longstanding anti-avoidance rules found in the Income Tax Act. First, we must answer the following important question: why are these anti-avoidance rules in place? Their objective is certainly not to discourage the transfer of small businesses to family members. These rules exist because without them certain individuals would have greater opportunities to engage in inappropriate tax avoidance.

Measures that would introduce tax loopholes would not be consistent with the principles of fairness, economic efficiency, and responsible fiscal management.

As I mentioned, the bill would dilute two longstanding anti-avoidance rules found in the Income Tax Act; specifically, it would amend sections 55 and 84.1 of the act.

I would now like to focus on section 84.1. This anti-avoidance rule may apply when an individual sells shares of one corporation to another corporation that is linked to the individual. When an individual sells shares of a Canadian corporation to a linked corporation, section 84.1 of the Income Tax Act deems that the individual has received a taxable dividend from the linked corporation rather than a capital gain, which is taxed at a lower rate in certain circumstances. Why? It is because the linked corporation could use the proceeds of the dividend paid by the Canadian corporation and give it to the individual in exchange for shares.

In other words, the individual is taxed based on the principle whereby dividends can be extracted from the Canadian corporation in order to be paid to the individual and should be taxable in his or her hands as dividends. Without this rule, such sales between related parties could be used to convert dividends for an individual into capital gains that are taxed at a lower rate, including gains eligible for a lifetime capital gains exemption.

Bill C-274 proposes narrowing the scope of section 84.1 by removing the sale of shares of certain companies from its application. These companies include eligible small businesses and family farm or fishing corporations sold by an individual to another firm owned by an adult child or grandchild of that individual.

This change will allow the owner-operator of a family business to convert the dividends of the corporation into taxable capital gains at a lower tax rate. Such conversions of corporate dividends into capital gains taxed at a lower rate could be done as often as the owner-operator wants to extract the corporation's surpluses and receive a fiscal benefit.

While the main purpose of section 84.1 is to limit the application of the lifetime capital gains exemption, there are similar concerns regarding cases where no exemption is requested because of different personal income tax rates that apply to taxable dividends and capital gains.

In 2017, the highest combined federal-provincial personal income tax rate on capital gains is roughly 17.8 percentage points lower than the rate applicable to dividends.

This difference in personal income tax rates means that for every extra $100,000 that is converted into a taxable capital gain, the federal-provincial savings can be as high as $17,800.

It is important to note that there is nothing stopping a parent from selling their shares of the family business directly to their child or grandchild and claiming the lifetime capital gains exemption on the capital gains, and then claiming as taxable capital gains any other gains from the sale of the shares that are not eligible for the lifetime capital gains exemption.

The anti-avoidance rule set out in section 84.1 applies when the shares are sold to a company owned by the child or grandchild of that taxpayer. The tax rules already allow for the intergenerational transfer of a business directly to a child or a grandchild.

Adopting the proposed changes to section 84.1 would open the door to new avoidance possibilities. This would unfairly benefit wealthy individuals instead of members of the broader middle class.

Based on a series of reasonable assumptions on how Canadians would react to this measure, the Minister of Finance believes that the proposed amendment would cost the federal government between $350 million and $1.2 billion a year. This clearly goes against the government's overall objective to strengthen support for the middle class and those working hard to join it.

It is also important to point out that, according to analyses conducted by third parties, Canada has a good tax system and is an excellent place to do business. According to a KPMG study, total business tax costs in Canada are the lowest in the G7 and 48% lower than those in the United States.

The government is currently making unprecedented investments in infrastructure and innovation that will expand opportunities in the country and result in stronger and more inclusive growth. What is more, the government has lowered taxes for nearly nine million Canadians, and 9 out of 10 families with children now receive higher benefits through our new Canada child benefit program.

That means more disposable income for middle-class Canadians and a stronger economy, which will benefit small businesses.

In closing, I understand the reasons behind Bill C-274. We all want the tax rules to be simple, fair, and conducive to small business growth. However, ultimately, the opportunities for tax avoidance that would arise from the passing of Bill C-274 far outweigh any possible benefit.

Bill C-274 would not make the tax system any fairer. On the contrary, it would give wealthy individuals the opportunity to use private corporations for tax planning purposes. It would result in pressure to weaken other anti-avoidance rules.

For these reasons, I urge the members of this House to vote against Bill C-274.

Income Tax ActPrivate Members' Business

February 6th, 2017 / 11:55 a.m.

NDP

Gord Johns NDP Courtenay—Alberni, BC

Madam Speaker, it is an honour to rise in support of Bill C-274, an act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation).

As the small-business critic for the progressive opposition, as a former business owner and executive director of a chamber of commerce, and as the co-chair of the all-party entrepreneur caucus, I am proud to stand today in support of Bill C-274 and speak to its many strengths. I am grateful for the work of my colleague, the member for Rimouski-Neigette—Témiscouata—Les Basques, for putting forward an excellent piece of legislation on tax fairness for Canadian small-business owners.

In debates, committee meetings, and in legislation, small business is an important focus for parliamentarians. We understand that small-business owners are the real job creators in Canada, as 80% of all jobs are created by small business. Some 30% of our GDP comes from small business. Small businesses are an economic driver of our local economies.

The bill is about keeping jobs in Canada, keeping our wealth in our local communities, supporting family-owned businesses, and supporting community economic development by plugging economic leakages. It is about fair tax laws for Canadians. It is about correcting an unreasonable provision in the Income Tax Act. It makes no sense that our current laws make it easier to sell a business to a stranger than to a family member. Why would we do that? Let us make it easier to enable Canadian businesses to be passed from generation to generation, not harder. Let us not penalize the very people who have put their heart and soul and a lifetime into developing their local businesses. Let us support Canadians who support their communities.

I know I do not have time to do a full speech, so in closing, the government has an opportunity to show Canadians it is fighting for working-class Canadians by supporting the bill. The working class is family business. It is hard-working entrepreneurs who are the foundation of our economy and the real job creators. Nobody has a deeper connection to community or understands the importance of keeping the wealth in their community better than family business owners.

Canadians deserve fair succession tax laws on their family-owned small businesses. We need to make it easier to sell a business to a family member. We need to keep jobs local, and our money in our local economies. We need to give our business owners the tools to thrive in our communities. Right now, the Income Tax Act makes it easier to sell a business, like I said, to a stranger than to a family member. Bill C-274 would correct that mistake. I urge all parliamentarians to support small-business owners across Canada by supporting the bill.

Income Tax ActPrivate Members' Business

Noon

NDP

Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC

Madam Speaker, I am very pleased to speak to conclude this debate on my private member’s bill, Bill C-274.

In each of our ridings, there are small and medium-sized business owners, farmers and fishers. At present, these people do not belong to the wealthiest class, in spite of what the government is trying to say. They are the very definition of middle-class, and people who start up a small business are often people who aspire to join the middle class.

I am extremely disappointed that the government is opposing this bill. I believe they are opposing it for reasons I think are absurd, and I will explain why.

First, the Minister of Finance and his parliamentary secretary believe the bill will cost between $300 million and $1.2 billion. I worked with tax experts on this bill to make sure it will not be too costly for the government. We estimated that, in terms of lost revenue, it will cost between $75 million and $100 million. Is that excessive? The goal is to level the playing field.

In Montreal, the owner of a small window and door business who wanted to transfer his business to his child had to pay over $110,000 more in taxes than if he sold it to a stranger, a person who was not family.

Obviously, there will be costs in terms of lost revenue, but the goal is to level the playing field and allow these businesses to stay within the family for a second or third generation. The figures the government is suggesting can and must therefore be disputed. They should be examined in committee.

That is why I am asking the government and all members of the House to adopt the bill at second reading, so that we can analyze these figures and compare the analyses I have done with various tax experts and the figures from the Library of Parliament, the Union des producteurs agricole, and Raymond Chabot Grant Thornton and other accounting firms, with the government’s figures.

Another argument that the government has made against the bill is the fact that at present, parents may transfer their business to their children and receive a capital gain. That is true, if the child is not incorporated. However, children increasingly are incorporated, since incorporation carries several advantages, including lower interest rates when they borrow and less tax on the amount to be paid to the parents.

I know there are extremely complex issues and tax policy is complex. Nonetheless, Bill C-274, which I have brought forward, is an appropriate response to the injustice that is an incentive for owners of small businesses, family farms and fishing boats to sell their businesses to strangers rather than to their children. They do not do that because they will get rich; they sell their business so they can retire.

I would like to reassure the government that my intention is not for the bill to be too costly. The intent is to bring the bill to committee so it can actually be studied and if needed, if it is really too costly, to be amended. I can guarantee every member in this House that with the numbers the government is putting forth, if the bill will be as costly as it is saying, I will volunteer to actually withdraw it from consideration. I am saying that because I am sure it will not be.

In conclusion, I encourage all members of the House to consider how this bill will affect their constituents. I have the support of more than 150 organizations across the country in Quebec, Ontario, the west and the Maritimes, organizations such as chambers of commerce, municipalities, and organizations that represent farmers and fishers.

If this bill dies before going to committee for an in-depth study of the costs and impacts, those people will be extremely disappointed. They are not likely to have forgotten this by the time the next election rolls around.

I therefore urge all members of the House to vote for this bill at second reading so we can study it in committee.

Income Tax ActPrivate Members' Business

12:05 p.m.

NDP

The Assistant Deputy Speaker NDP Carol Hughes

The question is on the motion. Is it the pleasure of the House to adopt the motion?

Income Tax ActPrivate Members' Business

12:05 p.m.

Some hon. members

Agreed.

No.

Income Tax ActPrivate Members' Business

12:05 p.m.

NDP

The Assistant Deputy Speaker NDP Carol Hughes

All those in favour of the motion will please say yea.

Income Tax ActPrivate Members' Business

12:05 p.m.

Some hon. members

Yea.

Income Tax ActPrivate Members' Business

12:05 p.m.

NDP

The Assistant Deputy Speaker NDP Carol Hughes

All those opposed will please say nay.

Income Tax ActPrivate Members' Business

12:05 p.m.

Some hon. members

Nay.

Income Tax ActPrivate Members' Business

12:05 p.m.

NDP

The Assistant Deputy Speaker NDP Carol Hughes

In my opinion the nays have it.

And five or more members having risen:

Pursuant to Standing Order 93, the division stands deferred until Wednesday, February 8, immediately before the time provided for private members' business.

The House resumed from February 3 consideration of Bill C-30, An Act to implement the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States and to provide for certain other measures, as reported (with amendments) from the committee, and of the motions in Group No. 1.

Canada-European Union Comprehensive Economic and Trade Agreement Implementation ActGovernment Orders

12:05 p.m.

NDP

The Assistant Deputy Speaker NDP Carol Hughes

Order.

The Parliamentary Secretary to the Leader of the Government in the House of Commons had time left and we were at questions and comments.

Canada-European Union Comprehensive Economic and Trade Agreement Implementation ActGovernment Orders

12:05 p.m.

Liberal

David Graham Liberal Laurentides—Labelle, QC

Madam Speaker, in my riding of Laurentides—Labelle, many people often tell me about their concerns with free trade. They believe free trade helps the rich and not those who work the hardest in our society.

I would like my colleague from Winnipeg North to tell us how free trade helps everyone.

Canada-European Union Comprehensive Economic and Trade Agreement Implementation ActGovernment Orders

12:05 p.m.

Winnipeg North Manitoba

Liberal

Kevin Lamoureux LiberalParliamentary Secretary to the Leader of the Government in the House of Commons

Madam Speaker, my colleague is quite passionate in wanting to make sure that his constituents are well represented in the House on important issues and raises a valid concern.

It is important that we recognize that Canada, over the years, has been well established around the world as a trading nation. It is because of trade that we are able to have the type of lifestyle we have, whether it is in urban Canada or rural Canada.

I would assure my colleague that the best thing to do is to appreciate the jobs we have today. For many of those middle-class, hard-working jobs, whether it is providing a product or a widget, or whether it is a service, Canada is well equipped through our post-secondary institutions and many other training facilities to provide some of the very best products and services in the world.

The more we are able to reach out into the world, the better we are as a society, in terms of our lifestyle and beyond that.

Canada-European Union Comprehensive Economic and Trade Agreement Implementation ActGovernment Orders

12:05 p.m.

Liberal

Anju Dhillon Liberal Dorval—Lachine—LaSalle, QC

Madam Speaker, how would my colleague best describe the importance of trade for Canada?

Canada-European Union Comprehensive Economic and Trade Agreement Implementation ActGovernment Orders

12:05 p.m.

Liberal

Kevin Lamoureux Liberal Winnipeg North, MB

Madam Speaker, I am sure my colleague would acknowledge that one of the highest priorities we put in place, when we took on the role of government just over a year ago, was the importance of creating jobs.

One of the things we need to remind ourselves of when we think of trade, as I pointed out in an earlier question, is that Canada is very much dependent on trade. When I talk about some of the best products, I could talk about my home province or even the member's province of Quebec. She would be very familiar with one of the things that Manitoba and Quebec share in common, and that is our aerospace industry. Some of the very best parts and aircraft that are manufactured today come from Canada.

When we look at ways that we could take down trade barriers and allow for a more free flow of goods, we are allowing opportunities for small and medium-sized businesses to be able to explore other opportunities that go beyond Canada's border.

When we think about trade and how Canada really benefits, the more Canada can trade, in particular on that export side but trade in general, the more it contributes to our GDP, the more it provides opportunities for those small and medium-sized business. That is really what this is all about.

We recognize that if we can build on trade, we can build Canada's middle class and those who aspire to become a part of it. The healthier Canada's middle class is, the healthier our economy is. Our economy needs to have a healthy middle class. One of the ways we can reinforce that healthy middle class, and have that middle class grow, is to look at ways we can increase trade throughout the world.

That is why we have seen such a high priority, whether it is CETA we are debating today, or the agreement between Canada and Ukraine which was signed, or even the World Trade Organization legislation that we brought in that allows for a more free flow of services and widgets that, ultimately, all Canadians will benefit from, in particular Canada's working middle class and those who are aspiring to become a part of it.

Canada-European Union Comprehensive Economic and Trade Agreement Implementation ActGovernment Orders

12:10 p.m.

NDP

Erin Weir NDP Regina—Lewvan, SK

Madam Speaker, the House has heard a great deal of debate on CETA. Throughout these discussions, the NDP has pointed out some critical problems with the agreement. It is likely to worsen Canada's trade deficit. It is likely to harm key sectors of our economy. It is likely to make it easier for temporary foreign workers to come into our country. It is going to extend pharmaceutical patents, driving up the cost of prescription drugs for our provincial health care systems as well as for individual Canadians. It will expose our democratic laws, regulations, and public policies to more challenges under the investor-state provisions.

I do not want to repeat all of those points. What I would like to do in today's speech is look at CETA from a different perspective. I want to look at it from the perspective of its implications for future Canadian negotiations. In particular, I want to look at our likely negotiations with a post-Brexit United Kingdom. I want to look at our potential renegotiation of NAFTA with the United States. Finally, I want to look at the negotiations we have, within our country, with corporate Canada.

In terms of the United Kingdom leaving the European Union, a big question is what that means for CETA. It is a question the NDP has been asking throughout this debate, because of course, the United Kingdom is the one major economy in the EU with which Canada currently enjoys a trade surplus.

I was interested to note on Friday that a Conservative colleague, the member for Sarnia—Lambton, actually asked that question during question period and did not get much of a response from the government. What the parliamentary secretary to the minister of international trade said was:

If CETA is passed by the EU, we will have a deal with the U.K. until things unfold in that country. Canada, of course, has an interest in maintaining access to the significant U.K. marketplace, and we believe very strongly that CETA provides an excellent baseline for future negotiations.

Here we have the government actually acknowledging that CETA is not a done deal, that it is unclear whether or how it might apply to the United Kingdom, and that in all likelihood, Canada would have to enter into new negotiations with the U.K. after the Brexit process plays out. Why, then, would we want to establish that baseline now? Will this be a baseline from which we make further concessions in negotiations with the United Kingdom?

It seems to me that after Brexit, the United Kingdom will actually be under pressure to formulate new trade agreements. It will no longer be part of free trade deals through the EU, and the British will be the ones who really need to make concessions to get trade deals. Why would Canada set the baseline now? Would it not be more prudent to see what happens with Brexit and then negotiate with Britain from a position of strength? Agreeing to CETA before Brexit has played out actually puts Canada in a much weaker position for prospective negotiations with the United Kingdom.

The second thing I want to consider is negotiations with the United States about the North American Free Trade Agreement. It is really important to recognize that under NAFTA currently, there is a concept of most favoured nation treatment, so when we make concessions to Europe through CETA, we are automatically making those same concessions to the United States. Indeed, in Bill C-30, we find that it does exactly that. It provides concessions not just to the EU but to all trade agreement investors. For example, when CETA extends patent protections, it does not just do it for European pharmaceutical companies; it does it for American pharmaceutical companies as well. Of course, we do not get anything in exchange from the United States for that concession. It just happens automatically.

Another thing Bill C-30 does is raise the threshold for foreign investment reviews of proposed foreign takeovers to $1.5 billion. It does this not just for proposed takeovers by European investors but also for proposed takeovers by American investors. This is a concession we are making to the United States without getting anything back in return on softwood lumber, on steel, on buy American, or on any of the other trade issues we might have with our neighbours to the south. It strikes me that rather than making these concessions to the United States preemptively through Bill C-30, it would be far more prudent to see what happens with Trump and with our potential renegotiation of NAFTA so that if we need to make concessions, we can get something for them. We can bargain rather than just give the U.S. these concessions as part of a deal with Europe. That is another reason to defeat this legislation.

The third type of negotiation I would like to speak to are the negotiations that are constantly going on between the Canadian state and corporate Canada, because one aspect of extending investor-state provisions through these different international agreements is that Canadian companies want to have access to the same special commercial tribunals so that they are able to directly challenge and sue over laws, regulations, and public policies they may not like. The more we extend these investor-state provisions, the more we invite Canadian companies to demand a similar basis on which to challenge our own democratic domestic policies.

We are starting to see this kind of thinking bubble up in the Conservative leadership race. Just last week, we had two candidates for the Conservative leadership, the member for Regina—Qu'Appelle and the member for Beauce, tripping over each other to try to adopt radical libertarian positions. The member for Regina—Qu'Appelle said that we should entrench private property rights in the Charter of Rights and Freedoms. The member for Beauce was very quick to agree with this concept. We can see the linkage of this with trade deals by looking at the way another Conservative MP reacted to this proposal. The member for Lanark—Frontenac—Kingston stated:

The lack of constitutional protection for the private property rights of Canadians means that the rights of Canadians can be treated as second-class under NAFTA. Canadians deserve the same property rights that foreign companies enjoy in Canada, and shouldn’t be second-class in their own country.

We have this argument that because there are investor-state provisions in trade deals, they should be extended to all Canadian companies and property owners. What would that mean in practice? We can forget about any kind of land use planning for starters, but we can also forget about building any type of major public infrastructure that would traverse lots of different property. Imagine trying to build or even twin an existing highway if every landowner along the route essentially could veto it because their private property rights were entrenched in the Constitution. The power of expropriation is an extremely important thing if we want to get infrastructure built.

We have heard a lot of rhetoric in favour of pipelines from the Conservatives. Good luck building any pipelines after private property rights are entrenched in the Constitution. That is something the Conservative leadership candidates need to think about.

Bill C-30 would weaken Canada's negotiating position with a post-Brexit Britain. It would weaken Canada's negotiating position on NAFTA with the United States. It would also lead us down this goofy path of entrenching private property rights in the Constitution. For all those reasons, I urge my fellow MPs to defeat this bill.

Canada-European Union Comprehensive Economic and Trade Agreement Implementation ActGovernment Orders

12:20 p.m.

Liberal

Scott Simms Liberal Coast of Bays—Central—Notre Dame, NL

Madam Speaker, I appreciate many of the concerns the member has, certainly about the private property issue he brought up from the Conservative debate. I thought that was well done, and I thank him for that. However, from the logic of one stronger dominant partner over the other in any particular trade deal, I do not quite follow the logic about the Brexit situation.

Now that section 50 has been triggered and will, no doubt, come to pass, when it comes into force following a vote in Europe on February 14, I believe, following Bill C-30, if it passes, we will have entrenched quite a bit in a very substantial trade agreement, along with a strategic partnership agreement that is more political in nature but certainly very important. To me, that puts Great Britain on the other side of his logic, where it has to negotiate something with us as it leaves the European Union.

Perhaps he could explain to me further where his logic prevails over mine.

Canada-European Union Comprehensive Economic and Trade Agreement Implementation ActGovernment Orders

12:20 p.m.

NDP

Erin Weir NDP Regina—Lewvan, SK

Madam Speaker, the member across the way points out that with this legislation, we will already have entrenched many aspects of CETA, and that is precisely my concern. We would be in a much stronger bargaining position dealing with Britain after it is out of the EU and after it is desperate to get into some trade deals than we are in negotiating with the entire European Union, as is currently the case.

The Parliamentary Secretary to the Minister of International Trade said in the House on Friday that CETA would provide a baseline for negotiations with a post-Brexit U.K. I am submitting that it is a bad baseline and that we could do better in negotiating with the U.K. after Brexit.