Income Tax Act
Bill to Amend--Third Reading--Debate Adjourned
June 17, 2021
Would Senator Woo take a question?
Of course.
Senator Woo, thank you for a very compelling speech as usual — very informative and insightful. Yes or no answers. I have three quick questions. You are aware that when it comes to non-arm’s-length transactions, the tax authorities could rule and determine a fair market value for that transaction? It happens all the time. I would like to keep it at a question, sorry. I don’t want to comment or debate here, but I want to properly give a preamble to that question.
There are many transactions that are non-arm’s length, and if they don’t occur at fair market value, the tax authorities come back, and for tax purposes you are guilty until proven innocent. That’s one.
Two — I’ve asked Senator Gold the same question — are you aware that the accounting firms, in large part, are in favour of this bill? Actually, some accounting firms here in the province of Quebec are behind having approached the provincial government, which has a similar framework in place, without getting into the details. Are you aware that the Quebec government has a similar framework in place and has approached the federal government? I could read what I have researched, but are you aware of that? They encourage that we support sales to families.
Nobody is saying to pass a flawed bill, but this is a necessary bill that could be monitored going forward. Tax authorities are looking at closing loopholes every single day. Those three quick questions for you. Thank you for your compelling speech. It was very insightful.
Thank you, Senator Loffreda. The answers are yes and yes.
On the first part, about related party transactions, the issue here, I believe, is that by opening up the definition or the treatment of children and grandchildren as eligible for the capital gains exemption, rather than dividends, provides, as I said in my speech, fodder for types of tax avoidance activities that will be litigated and will make it potentially more difficult for the CRA to defend. So you are right, there will be lots of litigation, and this will open up yet another front.
That the accounting community is supportive, to me, goes neither here nor there. They have their reasons for supporting the bill, and I have already characterized this bill as a popular, if not populist bill, and you can take it for what it’s worth.
With respect to Quebec, yes, that was mentioned a number of times in the AGFO testimony. In fact, there was some praise given to the Quebec approach. I believe Finance officials expressed a willingness or a desire to model any changes in federal law after what Quebec had done, but I didn’t see any of this in the report from AGFO. I didn’t see any observations of that sort, I have not studied it and I would not have the skill to understand it in detail.
In a sense, what you’re saying, Senator Loffreda, underscores my point. Apparently, there are better ways of doing this. Presumably they have to be studied, which means this bill as it stands is flawed, as I said before.
Senator Woo, are you aware that actually the Quebec legislation on this is even more aggressive than what is being proposed? In a sense, the accounting community has discussed with the Quebec government from the beginning, making this available to all enterprises, not just small business but making partial sales allowed. This was discussed in full detail in Quebec. I’m just asking the question. I don’t want to get into debate. Are you aware of that? Was that properly discussed within the government and within the discussions you undertook in committee?
I wasn’t aware of the more detailed nature of the Quebec law, but again, you are reinforcing exactly my point. There appears to be a different approach, which may or may not be better. I don’t know if the Quebec approach is better. We heard testimony that there are aspects of what Quebec has done to deal with the issue, for example, of a child or grandchild who owns the corporation but essentially does something else and lets the parent or grandparent run it. Quebec has found a way of getting around that or making sure it doesn’t happen. I don’t know what that is, but we didn’t hear any of that from the committee.
Therefore, surely to me that is a sign that we have not done our work or we haven’t finished our work yet to be able to certainly proceed to a vote at this stage. Or if we have to proceed to a vote, we should at least have a lot of questions remaining about whether this bill is the right one. Thank you.
Senator Woo, would you take one more question?
Sure.
Thank you very much. Very compelling speech. You always deliver great insights, and I’m appreciative of those today.
My concern, though, is that this came out of the House from a detailed study in the Finance Committee in the other place and with no recommended amendments, either from that committee or the House itself, from any member of the House of Commons. There are options available here.
Can you explain why Finance officials were not making recommendations and why there was no option taken there? That is what puzzles me. It seems people are happy to keep the current situation in place but not resolve it with any sense of urgency at all.
Thank you, Senator Deacon. I cannot answer that question. Senator Gold was not able to answer that question. I would be much less able to address it. I don’t know what goes on in the House of Commons.
I will say — and you know this well because you were on the committee — that when Finance officials were asked to offer some remedies, I believe they did come up with some suggestions of potential amendments, but again, none of that seemed to come out in the committee report.
Again, to me, all of these questions underscore my fundamental point that we know there are difficulties with this bill. We have been given hints of solutions, but the discussion seems to be that we should barrel ahead to get this done.
Reversing myself a little bit as to why the House passed it with support ostensibly from all parties and with little opposition, I think I explained in my speech, this is a very popular bill. It is a bill that will win you points in whatever riding you come from. If you are an elected parliamentarian, woe be unto you if you vote against it. That’s why we have a special role to play here today, because while we have to be sensitive to the needs of our regions and our constituencies, we have to take the broader view, look at the longer public interest, and all of the questions that I have been getting today suggest that we should either fix this bill or turn it back.
Thank you.
Honourable senators, I have risen on a number of occasions to highlight the important role that our farmers, producers and processors play in ensuring Canadians have access to safe, nutritious and affordable food. Many of these operations are small businesses operated by families across the country, and they, along with small, locally owned businesses in other sectors, have continually risen to the challenge of serving Canadians, especially and including over the past 15 difficult months. I have no doubt that it will be these same small businesses that will help us climb out of the pandemic whole going forward.
Today, I rise at third reading to speak to Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation). As you might expect, I will speak in support of the bill.
At this time, I would like to commend the member of Parliament for Brandon-Souris, Mr. Larry Maguire, for bringing this bill forward in the other place and my Canadian Senators Group colleague, Senator Griffin, for sponsoring this bill in the Red Chamber.
It is an honour to work alongside my colleague Senator Griffin both on the Agriculture Committee and as a member of the CSG leadership team. We are indeed a great group of non-partisan senators.
The issues that Bill C-208 address have been on the minds of Canadians from across the country for some time now. Whether you operate a small family farm in Red Deer County, Alberta, own an independent grocery store in Fergus, Ontario or a fishing corporation in Lower Bedeque, Prince Edward Island, small businesses are very familiar with the issues they currently face when selling their businesses to family members.
In fact, just last week, my sister-in-law Rita asked about the progress of this particular bill.
Colleagues, it is clear that Canadians are paying very close attention to what we are working on in this chamber. I am hopeful that, with this knowledge, we can work together to ensure that we do our utmost to continue serving and supporting this great country.
With that, I would like to return to the matter at hand, Bill C-208. This legislation, if passed, would allow small businesses, family farms and family fishing corporations the same tax rate when selling their operations to a family member as they would if they sold to a third party. As many of you may know, under the current regulations, when a person sells their small business to a family member, the difference between the sale price and the original price is considered to be a dividend. However, if the business is sold to a non-family member, the sale is considered a capital gain. A capital gain is taxed at a much lower rate and also allows the seller to use the lifetime capital gains exemption.
Honourable senators, I know we come from a wide variety of backgrounds. We are former public servants, journalists, doctors, lawyers, athletes and business owners, among many other things. However, regardless of where we come from, I believe we can all agree that it is completely unacceptable that it is more financially advantageous for a parent to sell their small business to an absolute stranger than it is to their own children, should they desire.
I was born in and still reside in Fergus, Ontario. Fergus is a small but expanding community within Wellington County. One of the best things about growing up in a small community is knowing the ins and outs of the area and the businesses that support it. As we have all learned during this pandemic, it is the small businesses that are the very backbone — the very backbone — of our communities.
Right now, I am thinking of Fraberts Fresh Food, a family-run market in Fergus that specializes in locally sourced gourmet food, and Ron Wilkin Jewellers, also in Fergus, where I spent many after-school and summer hours in one of my very first off-farm summer jobs. Likewise, I am sure many of you are imagining similar small, locally owned businesses that serve you in your communities. Businesses like Fraberts, Ron Wilkin Jewellers and countless others across Canada are what make our communities feel like home.
Unfortunately, under the current regulations, it is much more difficult to maintain a sustainably operated family business. We know that many small businesses are struggling at present. This pandemic has been one of the most disruptive periods in our lifetime. No sector and no community has been immune to its impact. In many cases, it’s the small businesses, local entrepreneurs and organizations that have borne the economic brunt of this crisis. However, Bill C-208 would allow the next generation to become owners and to keep those businesses locally owned.
Farms and small businesses from across the country have already issued their support of this bill, in addition to widespread support from organizations from around the country, including the Ontario Federation of Agriculture, the Canadian Federation of Agriculture, the Grain Growers of Canada, the Canadian Canola Growers Association, and the Canadian Federation of Independent Business. Further, tax managers from Deloitte also support this legislation. It is clear that the bill provides support to the businesses that need it most.
Honourable colleagues, you know that my focus lies in agriculture, so I will take this opportunity to speak very briefly and directly to the impacts Bill C-208 has on Canada’s agricultural sector.
Every year, more and more farmers approach retirement. In fact, the Canadian Federation of Agriculture, also known as CFA, estimates that $500 billion in farm assets — $500 billion — are set to change hands within the next 10 years.
Earlier today, all senators received an email letter from the Canadian Federation of Agriculture on Bill C-208. In it, they highlighted that more than 95% of Canadian farms are owned and operated by Canadian farm families. At this time, I would like to quote CFA President, Mary Robinson:
We need to ensure farm families don’t have to face an additional tax bill, potentially in the hundreds of thousands of dollars, just for keeping the business in the family!
Unfortunately, not many Canadian youth consider farming or agriculture in general to be a viable career path, especially given the economic red tape that ties up taking over the family farm. This means that we could be facing a shortage of producers in coming years. Given that this sector was the only one to experience growth over the course of the ongoing pandemic — and experts anticipate demand will continue growing — I believe that we have an obligation to support our youth in agriculture because the opportunities within this industry are as vast as our country’s fields.
Honourable colleagues, I don’t believe that farmers, fishers or local small-business owners should be penalized if they choose to keep their businesses within the family. We know that it is imperative to invest in our communities today so that we can work to enhance and strengthen our country for tomorrow.
I am hopeful that you can see Bill C-208 will do just that and that you will support your communities by supporting this bill alongside me.
I will leave you with a few questions posed to me recently by a local producer who farms just south of Ottawa. He asked me why Canadian regulations do not treat all businesses and individuals the same and avoid creating a disadvantage for family businesses, including farm families. He noted that his banking institution shared that the family would be in a better fiscal position to sell their half of the farm to a neighbour or an investment group than to a family member. At this time, I would like to echo his sentiments: Is this what we really want for our future farm families?
Honourable senators, Canadians are watching us and the work we are doing in the Red Chamber. We must act now to help small businesses, family farms and fishing corporations across this great country. Please join me in supporting the passage of this very important bill. Thank you. Meegwetch.
