THE STANDING SENATE COMMITTEE ON AGRICULTURE AND FORESTRY
EVIDENCE
OTTAWA, Thursday, June 10, 2021
The Standing Senate Committee on Agriculture and Forestry met by videoconference this day at 9 a.m. [ET] to study Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation).
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: Honourable senators, I am Diane Griffin, senator from Prince Edward Island, and I have the honour of chairing this committee.
Today, we are conducting a public meeting of the Standing Senate Committee on Agriculture and Forestry via video conference. Before we begin, I would like to remind senators and witnesses to keep their microphones muted at all times, unless recognized by name by the chair, and before speaking, please wait until you are recognized. I will ask senators to use the raise hand feature.
Should any technical challenges occur, particularly in relation to interpretation, please signal this to the chair or the clerk. If you experience other technical challenges, please contact the ISD service desk.
With that, good morning and welcome to today’s meeting. I would now like to introduce the members of the committee who are participating in this meeting: Senator Colin Deacon, Deputy Chair of the Committee; Senator Victor Oh, Deputy Chair of the Committee; Senator Terry Mercer; Senator Robert Black; Senator Éric Forest, who is also critic of Bill C-208; Senator Nancy Hartling, Senator Tony Loffreda, Senator Chantal Petitclerc; Senator Larry Smith; and Senator Carolyn Stewart Olsen. Also with us today are Senator Mark Gold, the Government Representative in the Senate, and Senator Don Plett, who is the Leader of the Opposition. Thank you, folks.
Today, we are continuing our consideration of Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation).
For the first hour, we will hear from the Department of Finance Canada. With us today are Shawn Porter, Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance Canada; and Trevor McGowan, Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance Canada.
Mr. McGowan was given five minutes for his opening remarks, and senators will be given four minutes each for questions. If time permits, we can proceed with round two of questions.
Mr. McGowan, on behalf of the committee, I would like to thank you for appearing and the floor is now yours.
Trevor McGowan, Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance Canada: Thank you very much. I would be happy to provide opening remarks on Bill C-208.
The bill is primarily intended to facilitate intergenerational transfers of businesses that would otherwise be caught by an anti-avoidance rule. In section 84.1 of the Income Tax Act, this anti-avoidance rule is intended to address what is known in tax planning circles as surplus stripping, a technique that is intended to essentially move shares around within a non‑arm’s length group in order to convert what would be a taxable dividend [Technical difficulties] to a capital gain. The benefit of that is that capital gains are taxed at lower rates than taxable dividends — in these cases, generally around 20% difference — and capital gains can be fully exempt from tax where the lifetime capital gains exemption is available.
The anti-surplus stripping rule is intended to prevent the removal of corporate surplus that would normally happen as a dividend as a capital gain and subject to capital gains rates.
I noted that the planning looks to non-arm’s length transactions, and that is what ends up causing some of the problems for intergenerational business transfers because when shares are transferred to a corporation owned by your child that transfer occurs at non-arm’s length, so these sorts of transactions can fall within the anti-avoidance rule currently.
I noted that the transfer happens between a parent and a non-arm’s length corporation. That’s important. Many intergenerational business transfers are not actually subject to this anti-surplus stripping rule. For example, a sale of a business directly to a child would be exempt or not caught by it. Depending on the type of property transfer, direct business transfers to a child may also benefit from a lifetime capital gains exemption, a tax-deferred rollover or a 10-year capital gains reserve. These are really just transfers of shares to a corporation owned by a child or grandchild.
Important also to note is that this bill, while it does deal with farming and fishing corporations, it is not limited to that so it could apply to any small business corporation, which really extends it to any act of business carried on in Canada and not just the farming and fishing sector.
This bill raises a fundamental concern in that it is intended to apply to intergenerational transfers of shares, but it lacks any safeguard to ensure that it is only used for genuine intergenerational transfers, so while the failing of the current rules might be that it contains an anti-avoidance rule that lacks an exception for genuine intergenerational transfers, you’ll see Bill C-208 essentially creates a loophole that lacks appropriate safeguards to ensure it is only used for genuine intergenerational transfers.
As a result, the loophole introduced by this bill could be used by wealthy individuals to avoid taxes without any intergenerational transfer of the business actually taking place. The real challenge in preparing legislation dealing with this is how to draw a line between genuine intergenerational transfers and tax avoidance schemes. This bill doesn’t do that; instead, it simply applies regardless of which side of that line a transaction falls on.
To be more specific, regarding the lack of safeguards, there is nothing requiring the parent to cease or wind down their involvement in the business. The child is not required to play any role in running the business after the share transfer. In fact, there is no requirement for the child to maintain any interest in the business after the surplus stripping transaction is done or no effect of requirement.
It might help clarify the situation to go through an example to illustrate exactly how these amendments would be used to avoid taxes. So, in this example, assume a wealthy couple runs a securities trading business through a corporation. Both pay tax at the highest marginal rate in Ontario. They have $1.6 million of after-tax profits in their corporation. If they pay that out as a dividend, they pay around $764,000 of tax. So instead, they undertake a series of transactions to take advantage of the new rules proposed by this bill. First, their 18-year-old child incorporates a holding company. Now the child has no interest in the business and let’s say wants to be a chef or something, but is willing to help out their parents. The parents then do a reorganization of their shares of the business, splitting it into the common shares that they are going to keep and $1.6 million worth of non-voting preferred shares. They do this on a tax‑deferred share-for-share exchange. So the preferred shares would be redeemable on demand for $1.6 million less the amount of any dividends paid, so when they are transferred they are worth $1.6 million. But once a dividend gets paid out, they are essentially worthless.
The parents then sell the preferred shares to the child’s holding company for a $1.6 million promissory note. Now, at this point, we still have to get the $1.6 million in cash to the parents, so the securities trading company would pay a $1.6 million tax-free intercorporate dividend to the child’s holding company, which would then use that money to repay the promissory note owing to the parents.
At this point, the $1.6 million have gone out of the company and is now in the parent’s hand. The current anti-avoidance rules would deem it to be a dividend; however, the amendments proposed in Bill C-208 would deem the parents to be dealing at arm’s length with the holding company, allowing them to use a portion of their lifetime capital gains exemption to receive the $1.6 million tax-free, avoiding around $764,000 of cash.
Returning to the example just to close out the story, the preferred shares held by the child’s holding company would now essentially be worthless after the payment of the dividend, so the shares of the holding company could be sold to the parents for a nominal amount. While the bill would require the holding company to hold on to the preferred shares for a period of time, that doesn’t really have to matter because the child no longer owns the holding company; it’s gone back to the parents.
It’s important to note as well that the parents could then repeat this planning in the future. After using up the rest of their remaining lifetime capital gains exemption room, they would be taxed at capital gains rates, which, as we discussed, still produces significant tax savings relative to dividends.
Also, at no point in this would the parent be required to give up control of the business, and the child would never need to be involved in the business or, as was demonstrated by the example, have any continuing economic interest in the business.
That’s the discussion relating to the 84.1 amendment, but there are a number of other concerns with Bill C-208 that should be mentioned.
The Chair: Mr. McGowan, we will let the other concerns come up during questions. Thank you for your presentation.
At this point, I will open up the floor to questions by the senators. The deputy chairs will go first.
Senator Oh: My question for the panel is this: In your expert opinion, does Bill C-208 create physical concerns or loopholes? If so, how can these concerns or loopholes be effectively addressed in the bill?
Mr. McGowan: Thank you for your question. Yes, as was demonstrated by my example, the bill presents planning opportunities that would allow it to be used outside of the intergenerational transfer of a business.
Therefore, a significant improvement would be to introduce conditions that would need to be met in order to test whether there has been a transfer of a business. For a precedent to those, one could look to Quebec’s rules, which have a similar intergenerational transfer rule except that they require involvement of the parent in the business before the transfer — significant involvement — a relinquishment of control of the business as part of the transfer and some involvement with the child in the business.
I’m not an expert in Quebec law, but I would note that there are precedents out there that could help establish what it really means to have an intergenerational transfer to make the bill more targeted.
Senator Oh: How can we fix the intergenerational issues that you brought up on this bill? Is there any way we could fix it?
Mr. McGowan: As I said, the introduction of conditions to help ensure that there is a real intergenerational transfer of a business would be a significant improvement.
There are some technical issues, but I will focus on the big picture policy concerns.
The specific mechanics of making that change are broad. The conditions could be added to the bill, or they could be added through a regulatory power that could be added to the bill a bit later by the government. So there are different ways to add those conditions. But it’s really the lack of conditions that causes the issue for the 84.1 amendment.
Senator Oh: Thank you.
The Chair: It’s very important to note that regulations, of course, play a role in anything related to government business, as long as they are allowed under the auspices of the statute.
Senator C. Deacon: Thank you, Mr. McGowan, for being with us.
You noted there are some unintended consequences of the status quo, and you’re suggesting that there may be unintended consequences of the update to the legislation proposed in this bill.
This issue has been around for quite some time. This legislation, in many forms, has been discussed for quite a bit of time. Have you put forward any alternatives prior to this moment in time?
I feel there is an injustice that is certainly being felt. I grew up on a farm in a farming community. I worked with my 70- and 80-year-old uncle in the 1970s and 1980s on that farm as he passed it down to his son. This is something that is very natural and very much needed to pass that intergenerational knowledge.
It has been around for a long time. Why have you not addressed it in some way prior to now, according to what you just suggested?
Mr. McGowan: I can’t speak to why the government has or has not taken particular actions. I would note that the issue certainly did arise as part of the 2017 private corporations consultation in which the government announced that it would engage with stakeholders on the issue.
The provision of intergenerational transfer rules through the tax system is something that was part of the Minister of Finance’s mandate letter, as it was for the Minister of Agriculture and Agri-Food, so it is something that the government is focusing on. It’s something we’re working on, but the government has not announced any specific proposals to date.
As I noted, it’s a complicated matter to draw a line between what is a genuine transfer of a business and what is simply tax planning.
But, as was noted, the government has not made specific proposals public at this time.
Senator C. Deacon: Thank you for that context.
Shawn Porter, Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance Canada: I would like to jump in and add a little additional colour.
Senator, you might not find this very satisfying in terms of a response to your question around how long it takes, but it is a very complicated area. I just want to draw that out a little bit because it speaks to one of the concerns that we have about an intergenerational transfer rule. It is essentially surplus stripping — the situation that Mr. McGowan described. At the same time, however, one can just justify on neutrality grounds, from a policy standpoint, that this situation warrants an exception to the application of surplus stripping rules. That’s really the essence of this particular bill.
But we’re just looking at a little piece of legislation here in the bill that gets grafted onto a number of provisions in the existing statute. Directionally, we would be signalling some ambivalence in the Income Tax Act overall — some further ambivalence, perhaps — toward tolerating surplus stripping.
That’s generally why we’re very concerned about the need to narrow and target any intergenerational transfer rule.
There is, and they exist today — and Mr. McGowan alluded to the 2017 consultation — surplus stripping going on in practice outside of a context involving a genuine intergenerational transfer. There is mainstream literature in the tax community that speaks to that kind of surplus stripping planning that I’m referring to as being permissible. In some circles, to think there is permissible surplus stripping is almost an oxymoron. But in tax planning circles — and we would suggest mainstream tax planning circles — because of certain pronouncements by the courts, taxpayers and their advisors have interpreted those decisions as permitting and allowing some meaningful level of surplus stripping.
Some out there would already believe they don’t need this rule because they can surplus strip outside of the context of a transfer. Part of an additional reaction to your question — just in terms of trying to establish and level set as to why this is such a complicated area — is because of what a change like intergenerational transfer restrictions or exceptions to surplus stripping would signal with respect to the broader surplus stripping area, which is, I think it’s fair to say, under a continual review and monitoring by us and the government.
Senator C. Deacon: Thank you, Mr. Porter and Mr. McGowan.
Senator Stewart Olsen: I have to confess, this is the first time in many years I have heard officials that come to the Senate hearing of a bill that has already passed the House tear a bill apart quite so publicly. I don’t understand why this wasn’t addressed in the House of Commons. Did the House of Commons, perhaps, decide that this could be dealt with by regulations? The bill passed by quite a majority and was broadly supported. Rights are a wrong for many of our farmers, and I am actually very surprised by your response.
Could you respond to that, please? Did you not address this to the House of Commons? Why didn’t they listen?
Mr. McGowan: Thank you for the question. I can say that our comments made today are consistent with our comments made before the House of Commons Finance Committee. As was noted, the bill did pass through the House of Commons. One other comment, because it was raised, relates to the regulation-making authority. Currently, the bill does not have an authority to create regulations — to impose additional restrictions — and so that’s not something that, without an amendment, could be done.
Senator Stewart Olsen: I’m still questioning this. The bill hasn’t changed from when it was passed by our elected representatives. We’re coming here now, and you are wanting the Senate to correct something that our elected officials have approved. I’m really questioning that, Mr. McGowan.
Mr. McGowan: Thank you. As was noted, our technical comments on the breadth and scope of the bill have not changed since we appeared before the House of Commons Finance Committee. The government’s view of the bill has not changed since then either. We’re providing technical comments on how the scope of the actual provisions in the bill would allow for tax planning well beyond its stated objective, and those comments were also made earlier.
As to the reaction to those comments, I, of course, can’t say. However, certainly our technical comments on the bill have remained unchanged.
Senator Stewart Olsen: It’s my understanding the bill received support from the government members as well.
The Chair: I don’t know if that’s a question or not.
Senator Stewart Olsen: That’s fine. Thank you.
The Chair: It’s true nonetheless. It’s just that it is an observation, I would say.
Senator Smith: I’m new to this committee, and I appreciate having the opportunity to listen to such an important issue. I would like to go back to the idea of the regulations. Is there any other opportunity in terms of creating or straightening regulations that could give the proper opportunity for the intergenerational transfer? Socially, this is such an important issue, especially for the farming community — and I don’t want to say anything negative, but especially for the farming community in Western Canada, where you have larger investments and larger obligations for families who are farmers. One of the critical things to understand is that the families who have these farms have to assume the obligations, which are very large in terms of the reality of the business itself. It’s not just the transfer and the benefits that the younger folks can have in getting these properties, but it’s also the obligations and debt that they take — the risk factor.
There is a huge risk factor for the families that do this, so I just wondered if you could comment on that in terms of regulation. What type of regulations could be really put into force so this could work for everyone — the government, the individuals, the families and the Western Canadian folks — involved in these type of activities? Mr. Porter or whoever wants to take a stab at the concept?
Mr. Porter: I’m happy to start, Mr. McGowan. A little bit of this will be repeating what we have touched on earlier, because the context is important here.
It’s conceivable that, whether in the bill or in regulations, the intergenerational transfer conditions could be tightened to get to a point where we’re satisfied they don’t create, in and of themselves, a particularly large vulnerability.
The contextual challenge — and I appreciate that you may find this more technical than you’re after — is the broader context of surplus stripping and the mere idea of dealing with intergenerational transfers alone. As deserving and meritorious as that situation may be of targeted relief — in the absence of, first, targeting it properly, which is tricky but doable, and second, the broader context in terms of the signalling it sends generally to a wide range of tax planning that goes on in this area, and not just among the farming community but business writ large — this group will appreciate that we’re dealing with the entire population of private companies in Canada when we talk about this subject matter of surplus stripping.
We’re talking about a 20 percentage point tax rate differential between extracting funds from a private company at dividend rates versus capital gains rates. So it’s the impact and the implications of dealing in a narrow relieving way, in an area that already has a fairly — and not surprisingly given the amounts involved — active tax planning community engaged in surplus stripping more generally than outside of this particular context. I think context is key to the response to that question.
Senator Smith: Well context is important. However, the fact of the matter is, what you’re saying is that because you’re worried about what will happen in the general population, you’ll end up penalizing the people in this particular situation. The farming community is a major part of our history. It’s a major part of our country. The population wants to be treated equitably. I guess the question is: As opposed to asking us about what we could do to make it fall into a tighter framework, what have you folks come up with as recommendations so it’s not a reverse job where we’re doing your work for you?
The Chair: Senator Smith, we have reached the time.
Senator Smith: Thank you, Madam Chair.
The Chair: Big question. Maybe someone else will pick it up.
Senator Plett: Chair, I do not want to impose myself on the way you’re conducting this meeting, but I was the last person with my hand up. I don’t think it’s fair for you to take me before you take some of the others. I will wait till the end, in all fairness.
[Translation]
Senator Petitclerc: You will understand that a lot of questions are along the same lines, because we are now dealing with this bill which, as Senator Stewart Olsen mentioned, obtained solid support in the House of Commons. The witnesses we have heard, the documents we have read, and the communications we have received, supported this bill unanimously.
As a Quebecer, I am very concerned by the situation, especially in terms of the intergenerational transfer of farms.
My question is fairly broad. On the one hand, we have seen that support. Some of the witnesses who have appeared before our committee have told us that more study must be done and there may well be loopholes. But we have received confirmation that the issue had been studied and that everything was ready. On the other hand, you have given us some examples, which seem to me to be quite exceptional, but we have no studies or reasons to believe that they will be so —
Do you understand the situation in which we find ourselves? On the one hand, we have something very powerful and, on the other hand, we have a potential danger.
I am not really sure how to ask my question but, basically, what is your position on the issue?
[English]
Mr. McGowan: Thank you for the comments. I could perhaps start by picking up on the earlier discussion. There was a question about regulations. Regulations cannot be promulgated to overturn the explicit words of a statute without explicit regulation-making authority. This bill does not provide the authority to provide additional regulations that might better target the bill to genuine intergenerational share transfers. That would need to be added to the bill in order to provide the authority to create regulations.
In terms of what those regulations may look like, the government has not announced anything. Although I would simply again note that, for example, Quebec has their own intergenerational share rules. They have a set of conditions that must be met to qualify. So this is not an insurmountable problem. It is one that has been considered before. At least one solution to the problem is that one could look at Quebec’s rules.
I think the comment gets to the heart of the issue. As reflected in the Minister of Finance’s mandate letter, providing genuine support for intergenerational transfers of businesses is important. The concern, and what we have raised, is that the provisions of this bill go well beyond that.
In terms of the expected behavioural response and in terms of businesses taking advantage of the new or more explicit planning opportunity, that is, of course, always difficult to predict. But given the value of the opportunity, the ability to use lifetime capital gains exemption through a transaction like the one I have described, which is not terribly complex and is using fairly well‑known planning techniques, it is quite a significant tax savings. Although it is difficult to quantify precisely the expected cost of it, it seems reasonable to expect that that type of planning would occur.
I had mentioned the expected value. As was noted, each individual has $900,000 of lifetime capital gains exemption. Dividends are taxed at 47.74% at the highest marginal rate in Ontario — continuing on with my examples — so that 47% multiplied by the $900,000 capital gains exemption would represent a savings of around $430,000 of tax to the extent the lifetime capital gains exemption can be used in the surplus strip. So it is quite a valuable tax benefit that could be obtained. It seems reasonable to expect it would be obtained.
The Chair: If anybody has a chartered accountant worth their salt, I’m sure it would be.
I have a point of clarification because Senator Petitclerc has run out of her time. This is an amendment to the Income Tax Act. Elsewhere in the Income Tax Act itself, I’m sure there’s provision for the enablement of regulations and tax interpretation bulletins. Correct? Yes or no?
Mr. McGowan: There is nothing specific about interpretation bulletins. The Canada Revenue Agency, or CRA, provides its interpretation of the tax rules, though those do not have the force of law. There is a general regulation-making authority and many provisions have their own specific regulation-making authority, but this amendment does not provide for an explicit regulation-making authority that would allow it to be overturned through regulations.
Senator Mercer: Witnesses, thank you for being here. We do appreciate it.
I think you have answered our questions completely here. There are no provisions for regulations in the bill. The bill may expose us Canadians to being taken advantage of because we haven’t specifically thought this thing through. I’m a big supporter of the concept of providing for better interfamily transfer.
By the way, Senator Smith talked about it being perhaps a western problem. It is not a western problem. It is a problem in any farming community in this country, whether it be in Nova Scotia or Alberta. That doesn’t matter. It’s a very important thing. Not far from my house where I sit today, I can find a farm in Masstown that used to be a larger farm but the intergenerational transfer has created two farms. In one of those two farms, there is a young fellow who just graduated this year from Dalhousie University’s agricultural program who wants to be the next to take over his father’s very profitable egg business. This is an important issue for all of us.
To the officials, would it be best if we sat down and said, “Okay, there is nothing in the bill that talks about regulation and that we add an amendment to provide for that and make it cleaner?” I’m very concerned that this bill, which was intended to help farmers and fishers — and it’s a big issue in the inshore fishery as well. It seems to me we are missing an opportunity and rushing to get this through without listening to the officials who are telling us there is a problem here.
The Parliamentary Budget Officer gave numbers as to how much was going to be lost from the treasury. One of his estimates ranged almost up to $300 million. To the officials, do you think the Parliamentary Budget Officer is right that the numbers are that large or could they be larger?
Mr. McGowan: Thank you for the question. As you know, the Parliamentary Budget Office has provided estimates. The Department of Finance does not have its own costing of the amendments to the bill. As was noted, that can be extremely complex when you are looking at the behavioural responses to a bill, in particular, the creation of a new tax planning opportunity, or loophole, to use the more common terminology.
When you are looking at behavioural response and trying to anticipate how much planning would be done, it’s often very difficult to come to a specific number. You could have an estimate of how much a genuine intergenerational transfer of a business would cost, or the cost of a measure that provides for that. But once you get into the behavioural response of people using the planning, that becomes a lot more difficult to ascertain.
The Department of Finance doesn’t have a specific number as to how much of an impact Bill C-208 would have on the fisc, although we have gone through some of the numbers, including my example of the impacts and how much tax savings could be provided for the bill, to give some sense of its scope.
Senator Gold: Welcome, officials. I would like to follow up on the question to ask if you could elaborate a bit more on what you do know or what you can tell us about the possible impact of this bill on the fiscal framework.
You mentioned that some estimates have been done — at least in the past — on a previous bill. Since time ran out, if you could complete the comments to Senator Mercer’s question, that would be helpful to the committee.
Mr. Porter: As Mr. McGowan mentioned, we don’t have any estimates. Let me try to provide additional colour on how difficult that is.
There is not only the question of the design of the intergenerational transfer rule and what a properly targeted rule would cost — because that would cost the treasury; that would be an explicit policy choice. There is the question of what it would cost the treasury if it was, I’ll say, a leakier rule that enabled and provided more relief than perhaps was intended from a policy standpoint. That’s an additional layer of complexity in any effort to cost.
The last one I would add runs back to a point that Mr. McGowan and I have made in response to earlier questions, namely, the broader impact in terms of the signalling and the behavioural response that we might reasonably expect in a broader context outside of just intergenerational transfers. So it’s a very difficult number to put a fix on.
Senator Loffreda: Thank you to our panel of witnesses for being here.
Looking forward, how concerning would it be if we expanded eligibility to all family-owned businesses, regardless of their size and revenues? Has the CRA conducted any work or studies on this possibility? Perhaps a historical snapshot would be helpful for us to better understand the raison d’être, application and enforcement of section 84.1 of the act, although you did discuss the difficulty in coming up with numbers.
If I can add to that, what concern would there be, or is there, in extending the eligibility to partial sales of the business, of ownership — for example, in situations where the owners want to remain implicated to ascertain that proper training is done for their children, for their succession?
In terms of concern about the loopholes, I think that if there’s proper planning, there are always ways to close the loopholes. You did mention Quebec in terms of relinquishing control and children involved in the operations of the business. I think there are ways of closing those loopholes, but my question is regarding extending it to all businesses and partial sales of the business.
Mr. McGowan: Thank you for the question. I would note that the bill itself applies where you have a sale of shares of a family farm or fishing business or a qualified small business corporation. So it’s not limited to the farming and fishing segments; it can apply to any qualified small business.
Senator Loffreda: I would say extending it beyond the small business and not limited to small business.
Mr. McGowan: That might be best addressed after the second point. One of the difficulties in coming up with rules for determining whether there is a transfer is the fact that it is not always a clean break from the parents to the children. Often, as was noted, there is a transitional period where there is training or a gradual transfer of ownership and responsibilities in the corporation. Sometimes the parents remain involved in the business to provide guidance and assistance to the next generation.
These, of course, are all things we have been thinking about in our work on the bill that would need to be taken into consideration in providing meaningful and appropriate conditions that would need to be met in order for there to be a genuine transfer of a business. This goes back to the complexity we have been talking about in terms of why it’s not so simple to put it in right away; it needs to be thought out.
In terms of the transfer of a non-small business — or a large business, I suppose — then you are looking at transfers of passive investments. The idea of an intergenerational transfer conceptually involves transfer of control of a business to the next generation.
Senator Loffreda: But not all large businesses are passive investments.
Mr. McGowan: No. If it is simply a transfer of shares of a corporation that you hold of a large business where you don’t have any control or management of it, then that would be, I think, just a transfer of passive investment assets and not a normal intergenerational transfer. If it is big enough that the parents don’t have any control in the business, then you go outside of the scope of the intended relief.
I would say that qualifying small business corporations don’t necessarily need to be what might generally be thought of as small.
Senator Loffreda: That’s exactly my point. Where there are family-owned businesses that are large corporations and that have revenues exceeding the scope of this bill, looking forward, that’s what I would like to address. Why not make it available to all family-owned businesses? There are ways to close the loopholes going forward.
The Chair: Senator Loffreda, you have run out of time. Do you want to be on second round?
Senator Loffreda: Yes, thank you.
[Translation]
Senator Forest: My thanks to the witnesses. I listened carefully to your remarks and to your introduction. Section 84.1 is basically unfair, if we compare the transfer of a business to a stranger to a genuine transfer to a relative. The complexity is in one single aspect, which is being able to distinguish a genuine transfer to a relative from a tax avoidance manœuvre. That’s the only difficulty.
Anyway, Quebec has already handled the issue. The impact that concerns me a lot, across the country, is when it comes to agricultural and fishery businesses. Because of section 84.1, the encouragement is to dismantle our businesses. We then see not only a loss of economic activity, but also a loss of income. That is not accounted for in your thinking.
It weakens everything because many farms, in Quebec for example, sell their quotas, their livestock, their equipment, and activity ceases. It takes the life out of our villages. It has a major impact on our rural society and that seems very important to me.
Here is the question I wanted to ask you. The problem has existed for many years. Bills have been introduced by a number of people before us, particularly by Guy Caron, who was an NDP member of Parliament for the constituency of Rimouski. It ended up in the mandate letter for the Minister of Finance in December 2019. What have you in the Department of Finance done to solve this problem and to ensure that the transfer of businesses can occur in conditions and in an environment where the taxation is fair? As you said, it is possible to make the distinction… However, it might be said that you are reacting after the fact instead of being proactive. What have you in the Department of Finance done to create this fair environment and to encourage the transfer of our businesses in a fair manner, whether to a stranger or to a close relative?
[English]
Mr. McGowan: Thank you for the question. As has been noted, it is a complicated question, but an important one, and it is something that the government and we as government officials are working on. It is not something that has been announced in the parameters of an intergenerational transfer.
[Translation]
Senator Forest: What solution are you bringing? I see nothing. I see reactions to a bill that is trying to remedy this inequity, but specifically, what have you done to resolve the situation? The complexity lies in how to distinguish a genuine transfer from a tax avoidance manœuvre. That’s the only difficulty.
[English]
Mr. McGowan: That can probably be broken down into two areas. One is the efforts to move the intergenerational file forward. With government secrecy rules and cabinet confidences, I can’t go into detail on everything we are working on and all of that in the background.
On the other hand, there are the efforts to try to ensure that the tax rules work as intended from an integrity perspective and that is something that the government and we as officials are working on, trying to ensure that while the proper assistance is given where appropriate, that the tax rules are not used inappropriately to obtain benefits in inappropriate circumstances as well. Those are two different aspects of the issues and, unfortunately, I can’t provide information beyond what the government has announced.
The Chair: Thank you.
[Translation]
Senator Forest: I would like to sign up for the second round of questions. We are not on the sidelines, we are in a public committee.
[English]
Senator Hartling: Thank you to the witnesses. Last week, our witnesses were very favourable on the bill, including excited tax accountants, which you don’t usually hear.
I find your concerns interesting and very valuable. I come from New Brunswick where fishing and farming are major industries and livelihoods for people, especially during the pandemic with food security being an issue. How can we balance not just the fiscal concerns, but also the value of food security and long-term stability of the industry?
I know you are looking at all kinds of issues and how this can be fixed. Have you looked outside Canada at other jurisdictions to see if they have bills similar to this and how they deal with them? I think it’s interesting for us to weigh and look at what we can do about this. Thank you.
Mr. McGowan: Thank you for the question. The answer is yes, we have looked internationally for precedents and examples.
As I mentioned earlier, we have a great example made in Canada from Quebec, but also the American tax rules provide for intergenerational business transfers in specific circumstances. International precedents and other sets of rules where the same issues have arisen is something the department has taken a look at in our work.
I would say, as I mentioned in my opening remarks as well, that the measures we are talking about in this bill only apply in the context of a sale of shares to a corporation controlled by a child or grandchild. There are other means to transfer a business to the next generation that could allow the use of the lifetime capital gains tax exemption or tax-deferred rollovers or a 10-year capital gains reserve where there is a direct transfer of the business. We are focused on a small segment of the tax rules related to intergenerational transfers.
The Chair: Senator Hartling, do you have another question?
Senator Hartling: No. Thank you very much.
Senator R. Black: I want to say thank you to Senator Stewart Olsen for your initial comments. I think I’m going to nominate you for an honorary agrologist — good stuff.
Thank you to our witnesses. I come from an agricultural background and have seen just how difficult it is to transfer farm property between farm family members. In my experience and opinion, it is extremely detrimental to our rural and agricultural communities. It is going to kill our rural communities if we can’t help our younger generation take over family farms and businesses. I want to point out it’s not just farmers and fishers. So, Mr. McGowan, thank you for your example, which didn’t include farming. It could have. It didn’t. And I, for one, appreciate that because this isn’t just an agricultural issue.
I still support the bill. If it is passed, do you believe there will be more intergenerational transfers? Do you expect more surplus stripping, which is a term which is relatively new to me? Do you anticipate further bills to correct any further loopholes? Those are my questions.
Mr. Porter: I think the answers to those are perhaps surprisingly short. Yes, there will be more intergenerational transfers with this bill. And yes, there will be more surplus stripping — when I say “will,” it’s in the context of I think that’s a reasonable expectation.
In terms of where to from here, in terms of other legislative proposals, we’d defer to the government, their agenda and priorities on that front. But I think it’s a pretty short yes to the first couple of questions.
Senator R. Black: I’ll carry on. Somebody else has mentioned it, and I’ll ask it again: Why haven’t you done more before now? We heard from an accountant at a previous meeting that this has been an issue for 30 years. You are saying yes, there will be. Why hasn’t there already been something done? Thank you.
Mr. Porter: I don’t think we have much new to add to the responses to the earlier questions. You will appreciate we are not entirely in control of the answer to that question.
What you hear from us is more along the technical lines to try to provide some greater sensitivity to the complexity of it. Just to take 15 seconds, the senators should be aware that surplus stripping is an area that is heavily litigated in Canada.
A large number of cases involve this general area of tax practice and tax planning. A significant proportion of cases under the general anti-avoidance rule involves surplus stripping. It comes in many forms, domestically and cross-border.
Again, I don’t expect this to allay the concerns of many of you in terms of the timing and the urgency, but it really is a complicated and delicate balance to open up these provisions we’re talking about with 84.1. You have become familiar with that provision. There are others that form part of a broader scheme in the tax law that inform and embolden taxpayers and tax advisors to engage in transactions that involve surplus stripping.
You should be aware — I think it was the chair’s earlier question or observation — that it isn’t the Department of Finance that interprets the law; that’s the job of the Canada Revenue Agency. They have a number of published interpretations in areas in transactions involving surplus stripping that would be at odds with what taxpayers and tax planners actually do. Sometimes their interpretations are at odds with what the courts decide the law is as it stands today.
So it’s a very difficult area to open up. I think there is some merit for opening it up in a slightly more holistic way as opposed to just a narrow form of targeted relief.
Senator R. Black: Thank you.
Senator Plett: I won’t prolong this so you can get to the second round.
First of all, let me just second Senator Black’s nomination of Senator Stewart Olsen. I wanted to echo much of what Senator Stewart Olsen actually said at the start as well as other senators, including Senators Deacon, Black and others.
As Senator Stewart Olsen raised some serious suspicions, some of mine have been answered. I now understand why the government wanted this meeting to be a week later than what you had originally wanted it, chair. It was so everybody could get their ducks in a row here on the testimony.
I’m from Manitoba, which is where the architect of this private member’s bill, Larry Maguire, is from. As with others, it’s very agriculturally based and I think this is a great bill to help family farms and so on.
All members in the committee in the other place, from what I hear — from all parties at least — voted in favour of this bill, so it certainly wasn’t just the opposition parties; it was all members including government members. I’m not typically supportive of minority governments, but here we see the positive of a minority government, where we have all parties supporting a bill.
Most of what I have here are comments, chair, and the witnesses can pick up on that if they choose to at the end; they don’t need to if they don’t want.
All governments can do things by regulations. All governments can change bills if they aren’t acceptable to them. All governments can repeal bills. But there have been suggestions made that possibly we should amend this bill. Let me just remind all my colleagues here that we are, I’m sure, going to hear from the government over the next week and a half that we shouldn’t amend any bills because they will then fail; they will die if we amend them at this late stage in the parliamentary calendar. So for anybody thinking that we can amend this bill, send it over and it would receive support, let’s not believe that.
But to the witnesses, I just don’t buy the fact that a government cannot do things, first of all, by regulation, and second, that they can’t find ways of correcting something if something is done wrong here. If you want to make a comment to that, please. If you don’t want to, I think you have put your comments on the record. I have put mine on the record.
I do not believe that anything is cast in stone forever and a day. What has been going on here for the last — I don’t know how many dozens of years — isn’t working. And so here is something to try to improve on what we have now, and if this doesn’t work, it can certainly be changed again down the road.
Chair, those are just simply some comments and observations. I don’t know if I have any questions. I want to thank the witnesses for being here this morning. Thank you.
The Chair: Thank you, Senator Plett. We’ll take those as comments. Some of them were answered in earlier questions.
As far as I can tell, we have four people looking for a second round question. Please keep your questions to two minutes. We are over the time for our first panel, but I don’t mind doing that. We’re discussing some very important material.
Senator Mercer: I appreciate that we are pressed for time. My simple question to the witnesses is this: We have had very positive references to the regulations in Quebec. Would it be of some help to have this bill use similar legislation as they have in Quebec to fix our concerns about it being too broad?
The Chair: A quick answer to a quick question, please.
Mr. McGowan: Thank you for the question.
As I noted, Quebec has a similar set of rules. Quebec has a different set of tax legislation. So while they might be a useful precedent, there are issues in simply incorporating the Quebec rules into the federal Income Tax Act because they are set out a little bit differently.
In terms of providing a useful precedent and guide from some very smart people who have turned their minds to the issue, it is certainly helpful in that respect.
Senator Mercer: We’re all adults here. I wish the government could come up with a plan.
Senator Loffreda: If we do close the loopholes that exist, such as we have done in Quebec, which has been a large success, you do agree that extending the eligibility to a partial sale of ownership is a positive; you did mention that. You agreed with me on the transfer skills required at times, so that could happen. I would like a quick “yes” or “no” answer on that.
Maybe in the future, you can provide some numbers with respect to extending the eligibility to all family-owned businesses — as many family-owned businesses that are larger than what the objective is in this bill. So maybe we can take a look at that in the future.
I do agree that amending the bill at this point is not ideal, so let’s look forward and see how we can improve this going forward when we have the time and opportunity to do so. Thank you.
The Chair: Thank you, Senator Loffreda. We’ll take that as a suggestion.
Senator Loffreda: Maybe I could get a quick response. Does the witness agree that extending the eligibility to partial sales of business would be a positive? He had made that comment previously.
Mr. McGowan: Thank you for the opportunity for clarification. The question, unfortunately, isn’t terribly simple and would depend on the circumstances. With the example I mentioned earlier, I could distinguish, on the one hand, a series of partial transfers of business staged as part of an ultimate transfer of a business; so the whole transfer of a business does not happen all at once but is done gradually from one generation to the next.
So that is one example of a partial sale of a business, where it ultimately does get transferred to the next generation. But I would contrast that with the example I provided in my opening remarks, which could arguably involve a transfer, though ephemeral, of a part of a business to a holding corporation owned by an adult child as part of a tax planning arrangement.
I don’t know that a blanket or a general statement can be made on partial transfers of shares or businesses, but that is an important question.
Senator C. Deacon: Thank you, witnesses, for your forthright and direct answers to the questions.
I just observe that this has been an issue for, let’s say, 30 years. Lots of different governments have been in place during that period, and it’s received all-party support. So we’re finally getting this issue addressed. It has been on parliamentary agendas, just not acted on. My quick question is how long have the Quebec regulations been in place to the best of your knowledge?
Mr. McGowan: I’m sorry, I don’t know the answer to that off the top of my head. I see Mr. Porter shaking his head as well. That’s something that I’m sure we could discover and get back to the committee on. But I don’t know off the top of my head.
Senator C. Deacon: In your group within the department, how long have you been aware of them then?
Mr. McGowan: I don’t recall. I recall hearing about them in 2017 in the context of the private corporations paper. I’ve not been primarily the person responsible for intergenerational transfers in the file before it came to the legislative stage, so my knowledge may be limited compared to some of my colleagues in that regard.
Mr. Porter: I would add that it’s safe to say it has been several years and obviously it’s a simple fact that we could come back with.
I want to react to the 30-year observation. In this area, there are other factors that changed the nature and the vulnerabilities of the tax systems, the surplus stripping. The biggest one I wanted to draw the attention of people to is increasing personal income tax rates — and we have seen that of late — combined with significant reductions in corporate income tax rates. Over the last 20 years, corporate tax rates have gone from mid-40s down to mid-20s. That’s for general business rate companies including provincial tax. These aren’t small business companies. I’m simply trying to highlight that corporate rates have dropped significantly in 20 years, personal tax rates have risen and the capital gains inclusion rate, at least over the last 20 years, has remained at 50%. Those are the main factors that drive the difference between a tax on dividends and a tax on capital gains.
One of the reasons why we’re belabouring the complexity points and the revenue risk points is because we’re at a bit of a high-water mark in terms of the extent of the difference between the dividend tax rate and the capital gains rate, that 20 percentage points of difference. That’s why you see a lot of activity, not surprisingly, in this area.
I did want to point out that while the structure of the legislation around the surplus stripping rule may or may not change over a period of several years, but these exogenous factors can change and they have a fundamental impact on the kind of activity undertaken in this particular planning area. So nothing is static.
Senator C. Deacon: Thank you, Mr. Porter.
[Translation]
Senator Forest: My thanks to the witnesses.
Quickly, I believe that this bill is pretty well defined as it is. We are talking about $15 million in capital value and about family ties that are very close to the definition of the term “relative.” In my opinion, we should pass this bill, imperfect though it may be.
In your opinion, given the possibility to use the Canada Revenue Agency’s interpretation bulletins, and given the Income Tax Act, could we potentially plug any loopholes and make any improvements to this bill in the future, after it is passed?
[English]
Mr. McGowan: Thank you for the question.
While, of course, it is always possible for Parliament to enact changes to any law or bill that is passed in the future, that is something that would require parliamentary change. As we discussed earlier, while regulations can be made, while regulation-making authority is provided, it’s not specifically provided in this bill. As a general rule, the government can’t override the will of Parliament expressed through an act just by passing regulations.
Finally, with respect to the Canada Revenue Agency, their function is to apply the law and not what they would like the law to be. So they deal with the hand that they are dealt, and they would be charged with applying the law as passed in the bill. That would include the limits imposed by the bill on the type of planning. So the Canada Revenue Agency would be constrained in what they can do based upon the laws passed in the bill.
It would be difficult to see them challenging planning that is undertaken that is on four squares with what is provided under a bill. Ultimately, their task is to apply the law and they would need to do so.
The Chair: Honourable senators, we have reached the end of our panel time. I want to thank Mr. Porter and Mr. McGowan once again for appearing before the committee today.
We will proceed with clause-by-clause consideration of the bill.
Senator Mercer: Madam Chair, before we do that, I would like us to see other witnesses about possible abuses that could result by passing this bill too quickly. I’m not saying I don’t support the bill, but I want to make sure we’re clear what is possible.
I’m a little leery about passing a bill when we still have some concerns and questions. Therefore, I would suggest that we do not proceed with clause by clause today in order to hear from further witnesses regarding possible unintended tax avoidance and to expand on possible ways to provide better safeguards against such avoidance.
The Chair: What I would like to do is excuse our two witnesses. We’re finished with the panel. So thank you, folks.
Mr. Porter: Thank you.
Senator C. Deacon: Thank you.
The Chair: Do we want to vote on that, senators, whether you want to hear from more witnesses? We heard six last week, I believe, and the department today. Do you want to vote on that? Senator Plett, you have your hand up and Senator Stewart Olsen. Do you have comments on that or is it on something else?
Senator Plett: I’m at a little loss for words here. That we would have clause by clause today was not decided today, Madam Chair. We can always have more witnesses. We can continue to have witnesses until the cows come home. There will always be people in favour, and there will always be people against. This bill has received such widespread support.
The Chair of the Finance Committee, Wayne Easter, explained how this was first introduced by a Liberal, next introduced by a NDP and was now introduced by a Conservative. This has broad support. As Mr. Easter clearly stated in his comments, chair:
I would even agree with those who might say that private members’ bills are not the best vehicle to change tax policy. They are not. However, we simply cannot allow this inequity disadvantaging intergenerational transfers to family members to continue. It is time to accept the only change —
— the only change, and this is a Liberal member, Chair of the Finance Committee —
— that is on the table to fix the problem, and that happens to be Bill C-208.
Chair, it was decided that we would have clause by clause today. Most certainly, to throw a monkey wrench into this, when we are at best here for another week and a half, Senator Mercer knows very well that if we don’t do clause by clause, this bill will fall off or not be dealt with before the end of session. This is a private member’s bill. There is limited time in the chamber to deal with private members’ issues. We are going to have other government bills coming before us that will take all of the time that we have, so he is not correct when he says we have lots of time.
I’ll leave it at that, chair. However, this was a decision that was made prior to this meeting. Quite frankly, I don’t think there should be a vote, because this had been decided earlier.
The Chair: Okay. Thank you. Three other hands are up. Is it pertinent to what Senator Plett is saying? Okay.
Senator Stewart Olsen: I’m just thinking about what the officials have brought up today. They assured me they had brought up the same things in the House of Commons at their deliberation. That did not delay the bill or cause great consternation there. I’m really not sure why it would delay the bill today.
I agree with Senator Plett’s comments that the decision was made by your committee to go ahead with clause by clause today. It seems that you have already delayed it for a week, so I don’t know why we can’t just go ahead with the bill. You know yourselves that if there need to be changes made to any bill, any government can do that in a heartbeat.
I don’t want to crush the hundreds of farmers and fishermen who are counting on us to approve the decision of the House of Commons.
The Chair: Colleagues, what I would like to do now is suspend the meeting for a brief period. We’re going to go into clause by clause and you can address the issues then. I might add that, in terms of balance, we waited a week — as already noted — for the officials, plus we carefully scoured possible lists for other witnesses who might be against the bill with a view to being balanced. We could not find any.
Colleagues, in terms of the mechanics of the process, I wish to remind you of the following. When there is more than one amendment proposed to be moved in a clause, amendments should be proposed in the order of the lines of a clause. If a senator is opposed to an entire clause, I would remind you that in committee, the proper process is not to move a motion to delete the entire clause, but, rather, to vote against the clause as standing as part of the bill.
If committee members ever have any questions about the process or about the propriety of anything occurring, they can certainly raise a point of order. As chair, I will listen to the argument, decide when there has been sufficient discussion of a matter or order and make a ruling.
The committee is the ultimate master of its business within the bounds established by the Senate, and a ruling can be appealed to the full committee by asking whether the ruling shall be sustained.
Finally, I wish to remind senators that if there is ever any uncertainty, the most effective route is to request a roll call vote, which, obviously, provides unambiguous results. Senators are aware that any tied vote negates the motion in question.
Are there any questions on any of the above? Okay. Let’s get started. Is it agreed, honourable senators, that the committee proceed to clause-by-clause consideration of Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation)?
Hon. Senators: Agreed.
The Chair: Shall the title stand postponed?
Hon. Senators: Agreed.
The Chair: Shall clause 1 carry?
Some Hon. Senators: Agreed.
Senator Gold: On division please, chair.
The Chair: On division. Thank you, Senator Gold.
Shall clause 2 carry?
Some Hon. Senators: Agreed.
Senator Gold: On division, thank you.
The Chair: Clause 2 carries on division.
Shall the title carry?
Hon. Senators: Agreed.
The Chair: Shall the bill carry?
Some Hon. Senators: Agreed.
Senator Gold: On division, please.
The Chair: On division. Thank you, Senator Gold.
Does the committee wish to consider appending observations to the report?
Senator Mercer: Yes, chair. I would like to do that. I have a draft copy of regulations that has been sent to the clerk, as we speak.
The Chair: Senator Mercer, do you have it in two official languages?
Senator Mercer: Yes, I do.
Senator Stewart Olsen: That’s amazing that it was as fast as that.
Senator Mercer: You know what Senator Stewart Olsen? I know you’re amazed with me all the time.
Senator Stewart Olsen: I am totally amazed.
The Chair: We were supposed to have our amendments or observations in yesterday. Is this an exceptional circumstance, senators?
Senator Mercer: Yes. The clerk will have it, and I’ll ask her to forward it to all of you. It is in both official languages. I will read the observation. I will only read the English. The French is there as well.
Your committee notes that there are some concerns about possible unintended financial consequences because of the passage of this bill. As such, within one year of this bill receiving Royal Assent, your committee recommends a comprehensive review to be undertaken by a committee of the Senate, of the House of Commons or of both houses of Parliament that may be designated or established by the Senate, the House of Commons or both houses of Parliament as the case may be for that purpose.
Your committee also recommends within one year or so such further time as authorized by the Senate, the House of Commons or both houses of Parliament, as the case may be, after the review is undertaken, the committee referred to previously must submit a report on their review to the Senate, House of Commons or both houses of Parliament, as the case may be, including a statement of any changes recommended by the committee.
The Chair: Thank you, Senator Mercer. I don’t think people have the document as yet, so we need to see the document in both official languages.
Senator Mercer: Check your email. Clerk, have you got it?
Evelyne Côté, Clerk of the Committee: Yes. I’m trying to send them to everyone. Just a few moments.
The Chair: Okay. We need to receive the documents.
Three senators have their hands up. I assume they’ll be comments related to the observation. Normally, we would have gone into in camera for this discussion. I’m not sure we need to do that in this case, because the observation, if passed, would be in the chamber this afternoon anyway.
My option here is to wait until everybody has the written document in hand or to hear comments thus far based on what you have heard when Senator Mercer read the observation. We certainly won’t vote on it until everybody has it in hand or is prepared to say they are satisfied having heard the observation to their satisfaction.
Those are the options.
In the interests of saving time, I will go through the senators with their hands raised.
Senator Loffreda: I do support the bill. I want to answer Senator Deacon’s question. I didn’t answer when the officials were here. I don’t have the exact date — I didn’t Google it or do any research; the question was for our panel. Carlos Leitão was the one, I think, who was a proponent of that bill in Quebec and who put it forward. He also had discussions with the government.
I’m disappointed they didn’t know that. They should have been doing their homework, especially given the fact that, in Quebec, the bill has been a success.
There is inequality in this bill. It must be passed, and it’s better than nothing.
It could be improved, and I mentioned how. First of all, it should be extended to all businesses. He was talking about passive investments. They are not passive investments. But I would like to have some research as to what that would entail and what would be the loss in revenues. But it should not only be small businesses. It should be extended, and he agreed with that, although he was trying to tell us what a partial sale is. I spent 35 years as a CPA. We all know what partial sales are.
But we should extend that eligibility to partial sales of businesses. Succession is an issue in Canada. Owners are getting older. Corporations’ CEOs are getting older. At times, they sell a portion of the business to the family and stay with it.
That has to be addressed in the future while looking at how we can close those loopholes with proper tax planning.
We can’t do that in two minutes or in a short meeting. I support the bill. I think it must go forward because there has to be some equality for family-owned businesses. But I’d like to take a look at that in the future. It’s not the number of witnesses that will change anything. We know at this point, regardless of how many witnesses we question, that this bill could be improved. Let’s do it going forward. Pass it now.
Those are my comments. Thank you.
Senator Mercer: Chair, by way of clarification, the version sent to you is a more simplified version of what I read. You should have it in front of you.
Senator Plett: We have it, Senator Mercer.
Senator Mercer: Thank you.
The Chair: It just arrived.
[Translation]
Senator Forest: I have not received the observation yet, but, as general information, I feel that we need to be concerned about the way in which the loopholes are plugged. I wanted to tell managers and lawmakers that, under the Income Tax Act, the general anti-avoidance rule in sections 245 and 246 will allow us to plug the loopholes after the bill is passed.
They tell us that it is very difficult and the bill would have to be amended. I feel that we should pass it as is because we have the legislative tools we need to plug the loopholes later.
Those are the comments I wanted to make, Madam Chair.
[English]
The Chair: Senator Forest, are you saying that you are speaking in favour of the observation?
Senator Forest: No. I just received the observation now.
The Chair: I shouldn’t have asked you that until I made sure you received it.
Senator Loffreda: I didn’t receive it. Maybe I’m not on the list, but if you could send it over, I would appreciate that.
Senator Mercer: The clerk is nodding her head that she is sending it to you.
The Chair: I will read it again, and then we’ll go to Senator Plett. I know you are all in the process of receiving it.
Senator Forest, have you gotten a copy of the observation yet?
Senator Mercer: He said he did.
Senator Forest: Yes.
The Chair: Okay. This is the observation:
Your committee notes that there are some concerns about possible unintended financial consequences because of the passage of this bill. As such, within one year of this bill receiving Royal Assent, your committee recommends that a parliamentary committee undertake a comprehensive review of the proposed framework. Your committee also recommends that, within one year after the review is undertaken, the committee referred to previously must table a report on that review, including a statement of any changes recommended by the committee.
Does everybody have the document, or are they satisfied that they know what it says?
Some Hon. Senators: Yes.
The Chair: Is there anybody who is not satisfied that they know what it says?
Senator Plett: I think Senator Forest said it very well. You asked him whether he was speaking in favour or against the observation. I clearly understood he was opposed to the observations, as am I. I think it’s time this bill proceeds. As Senator Loffreda said, there will never be a perfect bill. This is a huge step in the right direction. This is long overdue. For us to muddy the waters — with all due respect to Senator Mercer — this really almost goes beyond an observation. This is right on the border of an amendment, and it’s not called an amendment.
But I am certainly opposed to that observation. The government has the right — all governments have the right — to deal with legislation either through regulations or by changing the laws and introducing something if it doesn’t work.
It’s not something that we have to tell the government to do. This has gotten all-party support in the other place. Clearly, it is getting whatever we want to call it in the Senate — all-party support, all caucus, all group. I think there is overwhelming support for this bill, and I suggest we pass the bill the way it is and certainly not with this observation. I would certainly be opposed to that observation. Thank you very much, chair.
Senator C. Deacon: Thank you, chair. I’m delighted by Senator Plett speeding up the legislative process. I hope that’s a new trend we can count on. I think the finance officials are highly motivated to do this review on their own and put forward any changes that may or may not be required into legislation in a budget implementation act or budget. I don’t think this is something we need to do. It’s been well noted they have concerns in this regard, and there is a regulatory framework they can be modelling after. I think they are motivated to do it, and I would leave it in their hands.
Senator Mercer: Everyone has commented on the all-party support in the House of Commons. No one has commented on the fact there were a large number who did not vote for it, and those were all members of the executive council. Nobody in cabinet supported it. The Minister of Fisheries and Minister of Agriculture didn’t support this. To say that yes, it did have all‑party support because some members did vote for it, but let’s not fool ourselves, the people currently in charge of implementing this, none of them supported it. That’s why the observation becomes important. It lays out the fact that we want to get this reviewed and maybe expand or narrow it once we have the data. The officials told us there was no data.
Senator Stewart Olsen: That’s good to know that the Minister of Agriculture and the Minister of Fisheries did not support this bill — interesting.
Senator Plett: Chair, some of us have a CIBA meeting to go to in a few minutes.
The Chair: Senator Forest, as critic of the bill, you have one minute.
[Translation]
Senator Forest: I would just like to provide some clarifications about the information and perhaps even set some facts straight.
First, the request to remedy this situation is in the Prime Minister’s mandate letter to the Minister of Finance. Our bill is also an excellent step in the right direction, that of remedying the situation. Second, the Minister of Agriculture and Agri-Food has stated that she wants to end this unfairness. I feel that two heavyweights in cabinet have come out in favour of the bill, though it has not yet come to a vote.
[English]
The Chair: First of all, I should ask if you are in favour of the observation or not. If I can’t tell whether you are or not, we will then poll. All those in favour of the observation put forth by Senator Mercer, say “yea.”
Some Hon. Senators: Yea.
The Chair: All those opposed, say “nay.”
Some Hon. Senators: Nay.
Senator Mercer: My broken heart.
The Chair: I think the “nays” have it.
Is it agreed that I report this bill to the Senate?
Hon. Senators: Agreed.
The Chair: Is there any other business, honourable senators? If not, we will adjourn the meeting.
(The committee adjourned.)