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View Wayne Easter Profile
Lib. (PE)
I call the meeting officially to order.
Welcome to meeting number 23 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference of January 27, 2021, the committee is meeting to study Bill C-224, an act to amend an act to authorize the making of certain fiscal payments to provinces, and to authorize the entry into tax collection agreements with provinces. We will be meeting on Bill C-208 in this committee meeting as well. Larry Maguire will present his bill.
Today's meeting is taking place in a hybrid format, which we've all become used to, pursuant to the House order of January 25, 2021. Therefore, members are attending in person in the room and remotely using the Zoom application. The proceedings will be made available via the House of Commons website.
We will not go through the rest of the formalities.
We will start with Mr. Gabriel Ste-Marie's bill, Bill C-224. We will go through clause-by-clause consideration. I hope people have the bill before them. It's not like we're in Parliament, where we can hand around fairly short bills.
Pursuant to Standing Order 75(1), consideration of the preamble will be postponed.
(On clause 1)
The Chair: I will call for the vote on clause 1, which has four proposed subsections.
I expect you want a recorded division on this, Mr. Ste-Marie.
View Gabriel Ste-Marie Profile
BQ (QC)
Unless carried on division, yes, I will call for recorded divisions.
View Wayne Easter Profile
Lib. (PE)
Shall clause 1 carry?
(Clause 1 negatived; nays 5; yeas 2)
(On clause 2)
The Chair: Shall clause 2 carry? It's one clause relating to the Government of Quebec.
(Clause 2 negatived; nays 5; yeas 2)
(On the preamble)
The Chair: Shall the preamble carry?
(Preamble negatived; nays 5; yeas 2)
(On the title)
The Chair: I have to ask you at some point, Mr. Clerk, because I've never had a bill defeated at committee and I'm not certain what we report to the House, but I think we still ought to go through the title.
Shall the title carry?
View Gabriel Ste-Marie Profile
BQ (QC)
Mr. Chair, to my knowledge, the title cannot be changed in committee. That is all that is being reported to the House at this time, given the constructive work of the Liberal and Conservative parties.
View Wayne Easter Profile
Lib. (PE)
Thanks for that advice, Gabriel. That's wise advice.
Jacques Maziade
View Jacques Maziade Profile
Jacques Maziade
2021-03-02 14:42
Mr. Chair, the committee can vote on the title.
View Wayne Easter Profile
Lib. (PE)
Okay. Regardless of whether the title carries or not, how do we handle reporting to the House if it's defeated? Does the chair just report to the House that the bill has been defeated? I've never gone through this process before. Imagine that.
Jacques Maziade
View Jacques Maziade Profile
Jacques Maziade
2021-03-02 14:42
Yes, there will be a report handed to you, and you will table the report saying that all the clauses were defeated.
View Wayne Easter Profile
Lib. (PE)
You are saying that we can vote on the title, against or for, contrary to what Mr. Ste-Marie says?
Jacques Maziade
View Jacques Maziade Profile
Jacques Maziade
2021-03-02 14:43
Yes, you can vote on the title.
View Julie Dzerowicz Profile
Lib. (ON)
Can I ask for a point of information?
View Wayne Easter Profile
Lib. (PE)
You can.
View Julie Dzerowicz Profile
Lib. (ON)
Can you vote in favour of a title if the whole bill is defeated? This might be for the clerk.
Jacques Maziade
View Jacques Maziade Profile
Jacques Maziade
2021-03-02 14:43
Yes, you can.
View Wayne Easter Profile
Lib. (PE)
Shall the title carry?
View Peter Julian Profile
NDP (BC)
Mr. Chair, on a point of order, I may disagree with how the voting is going, but I think if the Liberals and Conservatives have decided that this bill will not go forward, it would be bizarre to have a truncated portion of the bill go forward. The report will have to go to the House and there will be a debate on the report from this committee, but it seems to me that having a chunk of a bill that has just been gutted go forward doesn't make a lot of sense.
View Wayne Easter Profile
Lib. (PE)
Okay. Thank you for that, Peter.
(Title negatived: nays 5; yeas 3)
The Chair: Shall the bill carry? We do have to vote on it in total.
Jacques Maziade
View Jacques Maziade Profile
Jacques Maziade
2021-03-02 14:45
As amended, Mr. Chair.
View Wayne Easter Profile
Lib. (PE)
Shall the bill, as amended, carry?
(Bill C-224 as amended negatived: nays 5; yeas 3)
The Chair: Shall the chair report the bill, as amended, to the House?
On division?
Some hon. members: On division.
The Chair: Shall the chair report the bill, as amended, to the House?
View Peter Julian Profile
NDP (BC)
Mr. Chair, on a point of order, I don't believe the bill has been amended. The bill has been killed—
View Julie Dzerowicz Profile
Lib. (ON)
You're right.
View Peter Julian Profile
NDP (BC)
—but you are reporting the committee's decision to the House, and there will be a debate on that decision.
View Pat Kelly Profile
CPC (AB)
I think that can go on division, that he report it to the House. I don't need a recorded vote on that.
View Wayne Easter Profile
Lib. (PE)
We're okay on division?
Some hon. members: On division.
The Chair: We don't need to order a reprint of the bill, so—
Jacques Maziade
View Jacques Maziade Profile
Jacques Maziade
2021-03-02 14:48
Yes, you do need a reprint, Mr. Chair.
View Wayne Easter Profile
Lib. (PE)
Okay. It's a good job you're here. I'm learning some lessons today.
Shall the committee order a reprint of the bill as amended for the use of the House at report stage?
Some hon. members: On division.
The Chair: Okay, we'll order a reprint.
That will end the discussion on clause-by-clause on Bill C-224.
Thank you for your efforts, Mr. Ste-Marie. You wanted to make a point.
Thank you, Mr. Legislative Clerk, as well.
Go ahead, Gabriel.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
First of all, I'm sorry I misled you a few moments ago regarding the vote on the title.
If we have time before we consider Mr. Maguire's bill, we could look at the three motions related to committee business that I introduced on February 24.
I see that Mr. Maguire has arrived; we can also do this at another time. I'll leave the decision to you, Mr. Chair.
View Wayne Easter Profile
Lib. (PE)
I believe Mr. Maguire is here, and we probably should have a subcommittee meeting as soon as possible to try to sort out where we go. We have quite a few motions, and then Peter issued another one. It doesn't have the 48-hour notice but I think people have a copy of it. He must have watched W5 or The Fifth Estate this week.
Pursuant to the order of reference of Wednesday, February 3, 2021, the committee will now start its study on Bill C-208, an act to amend the Income Tax Act, transfer of small business or family farm or fishing corporation. We welcome as a witness here the sponsor of the bill, Larry Maguire, MP for Brandon-Souris.
Welcome, Mr. Maguire. We'll go to you first, and then we'll go to a round of questions.
Larry, the floor is yours. Welcome.
View Larry Maguire Profile
CPC (MB)
Thank you very much. It's a pleasure to be here today to appear before the committee on Bill C-208.
This is a bill to help small businesses, but before I get into that, I just want to thank you as the chair and the committee for meeting today during a constituency week and for allowing us to bring this important bill forward, which many in several industries are supporting across the country. All parties, from what I understand, support this as well. The opposition and some of the members of the governing party voted for this at second reading. I'm very pleased to be able to present it today. I have some others to thank later on as well.
To start off today, this bill gives us an opportunity to work together to champion the causes of those whose time has come, I guess you could say. I want to thank as well Mr. Guy Caron from the NDP. He was formerly the interim leader of the NDP, and this was his bill when it was presented to the House previously. I was able to pick it up because of the draw that comes out of parliamentary procedure, and to bring it forward word for word, basically, to make sure there is support to help small businesses, farming businesses and the fishing industry with qualifying shares. I want to thank Mr. Caron particularly in regard to this.
The essence of the bill is pretty straightforward. Bill C-208 will allow small businesses, farm families and fishing corporations to have the same tax rate when selling their operation to a family member as they would have when selling to a third party. Currently, when a person sells their small business to a family member, the difference between the sale price and the original price is considered a dividend. If it is sold to a non-family member, that is considered a capital gain. That's a pretty straightforward fact. That capital gain is taxed at a lower rate and allows the seller to use the lifetime capital gains exemption. Therefore, it's completely unacceptable that it's more financially advantageous for a parent to sell their farm or small business to an absolute stranger than it is to sell it to their own family, to their own children, son, daughter or grandchildren.
I want to give two specific examples of how this legislation will help families transfer their operations when they decide to make that transition.
I can imagine a bakery that a couple has operated for 30 years. They're now ready to retire, and another company has reached out to indicate that it would like to purchase it from them. However, their daughter has indicated that she wants to take over the family business. In many cases, family members have worked in these businesses and helped them survive and flourish and continue as family businesses.
As is the case for a lot of small business owners and farmers, they couldn't afford to put large sums of money into their RRSPs or savings vehicles as any extra money was reinvested back into the business. This couple, then, will rely on the sale of the bakery to fund their retirement. They call up their accountant to start the conversation about different planning scenarios. The accountant tells them that if they sold their bakery to the other company rather than to their daughter, they would have an effective tax rate of 10%, using their lifetime capital gains exemption. However, the accountant also tells them that if they sold the bakery to their daughter, they would be obliged to repay their loan with personally taxed dollars.
This represents a significant penalty compared to what they would pay if they sold their bakery to the other company, as the effective tax rate would be quite a bit higher, significantly higher. With this information in hand, they have a family huddle and discuss the options. The couple is now seriously considering selling the business outside of the family as they do not want to burden their daughter with a tax obligation that will inhibit her ability to make a living and grow the business successfully as they've done over the years they have run it.
With regard to the shares of the sale of the bakery, in a perfect world this couple should be indifferent to whether they are sold to their daughter or to the other company. Their daughter would not be penalized for purchasing shares from her parents and should be able to fund the purchase with corporate funds as she would if she were to purchase the business from an unrelated party.
If this change were made, it would allow the next generation to become business owners and to keep the ownership of the business local or in the family.
With Bill C-208, we can fix this injustice once and for all. Right now, many of our entrepreneurs are struggling, particularly in this pandemic. It has been one of the most disruptive forces in our lifetimes. Across the country, no community is immune from its impact.
Those entrepreneurs who are listening from where they are run their own businesses. They understand the massive responsibility and stress that come from being the risk-takers, but the legislation we have before us today sends the message to those family-run businesses out there that no longer will it be more financially advantageous to transfer your business or your farm to a stranger rather than to your own child because of tax purposes.
The other example I want to give is that of a farmer who is set to retire in the next couple of years and is reviewing various succession options. The farmer wants his son to take over; however, he wants fair market value for his farm in order to fund his retirement. If a third party were to ask the farmer to purchase the shares of his farming company, the purchaser would have the ability to purchase the shares through the corporation.
Selling the farm to this third party would allow the farmer to use his farm capital gain exemption of $1 million on the sale, resulting in a 13.39% effective tax rate, but if a farmer sold his farm to his son, the sale would be recorded as a dividend, rather than a capital gain, on which the farmer would pay 47.4% in tax. That's 34% more tax, Mr. Chair. I think we can all agree that it is completely unfair for the tax rate to be significantly higher when the farmer sells his operation to his son rather than a third party—in many cases, a complete stranger, as I pointed out before.
Bill C-208 sends a message of hope to young farmers out there who want to carry on what their parents started. There's something special about being connected to the land and to reap what you sow, as there is any small business an attachment, not just in farming and fishing, Mr. Chair.
In Manitoba and other provinces, there are century farms, which celebrate farm families who maintain continuous production for over 100 years, with many of them now over 125 years old. I've attended many of those century farm celebrations, as I'm sure many of my rural colleagues have who are on the committee and in Parliament. You can tell in the faces of the family members how important that milestone is to them.
Farm families face unique pressures in succeeding their operations, including the increasing cost of land, the average age of farm operators and the capital requirements for those entering the industry. The passage of this bill will eliminate the unfair tax rates that make it difficult to keep the farm under family ownership.
Mr. Chair, in closing, I want to also say that I am asking the members of the committee today to consider the importance of making sure that we are able to help small businesses across the country, all those who have eligible shares, and to make sure that they can transfer these operations into the next family. It's not every business that will choose to do that, but it is quite a significant opportunity for families to invest in their own futures and to make sure, with pride, that their families can continue to build on what they have put so much of their heart and soul into over their lifetimes.
In closing, I want to say as well that I thank Mr. Caron and you for allowing this to go forward today, and also Mr. Waugh, from Saskatoon—Grasswood, who allowed me to do my second hour on second reading in early February so that we could get to this point with this bill in today's committee meeting. With that, I would urge my colleagues on the committee to look at allowing this bill to move forward and back into the House for third reading.
Thank you, Mr. Chair.
View Wayne Easter Profile
Lib. (PE)
Thank you, Mr. Maguire.
I might say that Larry and I actually go back probably about 35 years in the farm movement. I would also say that Guy Caron, for those who don't know, was a member of the finance committee for a number of years.
I had and still have the farm and I managed to get a century farm and a quarter, so I know all about that.
We'll start the rounds of questioning.
We will start with Mr. Kelly for six minutes, and then go on to Mr. Fragiskatos.
View Pat Kelly Profile
CPC (AB)
Thank you, Mr. Chair.
Thank you, Mr. Maguire. It's delightful to have you here as a witness.
Could you comment on the urgency of this bill, the timeliness of it and the imperative to get it brought into law?
View Larry Maguire Profile
CPC (MB)
We have 1.1 million small businesses in Canada, and they employ about eight million or nine million people. I think this is a tremendously important opportunity for us as parliamentarians to show support for those small businesses in this country. There's a plethora of organizations that support the bill, and I could get into that later. Having this brought forward would not represent a great burden on the taxation system of the government, as far as the revenue goes, but would be an extremely large help to those industries and businesses out there that are family-owned to be able to compete with and stay on the same level as any other business that would purchase the parents' business, if I could put it that way.
That's a very important reason to move this forward, because those dollars do stay in those local economies.
View Pat Kelly Profile
CPC (AB)
You mentioned that Guy Caron had essentially the same bill in the last Parliament, so this is not a new idea. This has been around for many past parliaments. Could you comment on just the sheer volume of past study and conversation that have led us to this moment?
View Larry Maguire Profile
CPC (MB)
It's important. Mr. Caron did bring this bill forward subsequent to the tax changes that came up in 2017 from the government, and it was very well documented at that time. He had done a lot of research on this. We went back to the Parliamentary Budget Officer as well as the Library of Parliament, and they both indicated that there was no need to really change the bill at all from its previous format. That was the advice we received when we researched this. We have even spoken to Mr. Caron a number of times through my office, to find out if there was anything else that he thought we should put into this, and there wasn't. He was very pleased that we were bringing it forward to the House again, because unfortunately he wasn't able to do it given that he didn't return to Parliament and also because of the draw. I mentioned that earlier. There's a significant order in which these things come forward, and I was fortunate enough to be in the first tranche of those chosen to put forward a private member's bill and to be able to do it at this time.
View Pat Kelly Profile
CPC (AB)
That's great. You mentioned that a number of stakeholder-type organizations, as we'll call them, support your bill. Could you name a few of them and talk about the testimony they have already given at committee on the subject of this bill?
View Larry Maguire Profile
CPC (MB)
There are a whole host, as I said, of people who are backing this bill. Many are from farm organizations. In Montreal, for example, there is the Board of Trade of Metropolitan Montreal, the Fédération des chambres de commerce du Québec, the Producteurs du lait de Québec—the milk producers of Quebec—as well as the Union des producteurs agricoles in Quebec. The Chicken Farmers of Canada, Grain Growers of Canada, Canadian Taxpayers Federation, Canadian Federation of Independent Business and the Chamber of Commerce have spoken to me, as have the Canadian Federation of Agriculture, the Ontario Federation of Agriculture, the Agricultural Alliance of New Brunswick and the Agricultural Producers Association of Saskatchewan.
The list goes on to include the Keystone Agricultural Producers of Manitoba and the Conference for Advanced Life Underwriting as well as the Insurance Brokers Association of Canada. There are others, Mr. Kelly, but I think you get the message that there are a great many people supporting this who have put forward a lot of work themselves. Many of them have made pre-budget consultation recommendations to the government, those like the Life Underwriters Association, and that is pretty important, I think, because that information is in the government's hands now and has been for three or four years.
View Pat Kelly Profile
CPC (AB)
Right. So in other words, this committee has actually heard this recommendation before from public stakeholders and has incorporated and, in fact, recommended to Parliament that it adopt a bill that will do these things. I think it's important to note that we have heard all of this—and I'll give you another minute to finish this, Mr. Maguire—and maybe I'd just make a note to the chair that if nothing serious arises from questions today we might proceed to clause-by-clause today.
We've heard the testimony from the expert witnesses already, and I'd really like to see this go forward.
We have about half a minute left, Mr. Maguire, so if you have anything else you want to add, just about the support that this bill clearly has from the various organizations, please do so.
View Larry Maguire Profile
CPC (MB)
Thank you.
I've just read off the names of a huge number of organizations across the country that are in support of this right now, from one coast to the other.
The chair mentioned that our association as farm leaders goes back 30 or 35 years. I know how important he would feel this is in his own operations, in dairy, potatoes and those sorts of things that are important to P.E.I. I have no problem going to clause-by-clause today, if that's the case. I think it's a bill that is deserving of attention across the country.
We've heard from many witnesses. Many briefs have been sent in from these organizations before, which would be on record. I would leave it at that for now.
I would be quite prepared to do that today.
View Wayne Easter Profile
Lib. (PE)
Just to mention some of the witnesses you've outlined, Mr. Maguire, we do have a meeting scheduled for March 9—hopefully, a three-hour meeting—at which we will have the Life Underwriters, the CFA and quite a number of other witnesses. We will hear directly from them, which I think is appropriate before we get to clause-by-clause.
Mr. Fragiskatos.
View Peter Fragiskatos Profile
Lib. (ON)
Thank you very much, Chair.
Thank you, Mr. Maguire.
I will say right at the beginning, Mr. Chair, that I quite like Mr. Kelly. I enjoy working with him as a colleague, but I think he's in a bit of a hurry. I for one want to understand the bill more, and I have some questions that stand out. If there are indeed issues of unfairness facing small businesses and family farms in particular—fishers as well—certainly I want to know more about them, specifically on this issue of intergenerational transfer.
Mr. Maguire, again, thank you for your work on this. It's not an easy thing to put forward a private member's bill. It sounds like—although you have been inspired, if I can put it that way, by Mr. Caron—you've done your work in this regard. I don't discount that.
I do have some questions. First of all, on the estimated forgone tax revenue if Bill C-208 passes, do you have that figure?
View Larry Maguire Profile
CPC (MB)
Yes. The recommendations of the Parliamentary Budget Officer were from $179 million to $300 million. It depends on the number of cases that are businesses that are transferred in any given year, Peter, as well. Those are the numbers.
I know that there were numbers projected by the government in the past which were 10 times that, but they're certainly not relevant to any of the groups that are making presentations here or to the Parliamentary Budget Officer as well.
Those are the numbers they came up with. Certainly, those have been backed up by many of the organizations.
View Peter Fragiskatos Profile
Lib. (ON)
Which figure do you think is more dependable in terms of the number of transfers that would take place in a year? It's quite a range that's suggested.
View Larry Maguire Profile
CPC (MB)
Well, in regard to the scope of $2.2 billion that was talked about once, it's a fraction of that. It's 10%, as I've just finished mentioning. It's been estimated at about a third. Not even every farm, fishers' organization or small business with qualifying shares would be sold in this manner. Many of them are sold at arm's length to third parties, but there is a fraction. In the agriculture industry, it's probably a little higher. They're talking about a third that would probably be sold in that area. Those are some of the estimates that would come forward.
The dollar values depend, as I said, on how few or how many there would be in that particular year. Maybe because of COVID there might be extra numbers being sold at a time like this, or in better times many of them would want to sell to their families as well. That is a range. It's fairly narrow in the budget of the federal government.
View Peter Fragiskatos Profile
Lib. (ON)
Thank you, Mr. Maguire.
I think the intent, the spirit, behind the bill is a good one. That's why I'm genuinely interested in learning more about consequences, but unintended consequences are something that I worry about here too.
In your view, does Bill C-208 perhaps open the door to tax avoidance practices? I'm thinking, for example, of it allowing an individual to avoid tax on the sale of shares to a sibling by selling those shares through a holding corporation. That's just one example that perhaps stands out here as a consequence if the bill went ahead.
View Larry Maguire Profile
CPC (MB)
We've looked at direct sales between family members, and most of those—there has to actually be a transaction. It's not a situation of the older generation being able to afford to fund it for their children; there has to be a transaction that takes place. There are safeguards built into this bill that would allow for those transactions to be not just deemed transactions but actual transactions, in which dollars would have to flow from one generation to the other.
As I said in my presentation, most of the families involved in these operations have built them up with their own blood, sweat and tears, I guess you could say, into successful businesses and are quite proud to be able to put them into the hands of their children through a financial transaction that will allow the parents, the older generation, to fund their retirement. As I said, they can fund their home, move homes or get into whatever they want to do in their retirement. Then it's a transition that both sides of the family are proud of.
View Peter Fragiskatos Profile
Lib. (ON)
I certainly recognize, Mr. Maguire, as I know you do and I think all members of this committee do, the hard work that a family-owned business involves. It's not an easy thing. I come from a family that was able to put food on the table only because of our work in running a small business, in my case a restaurant. Whether it's a farm or a restaurant, it's a real thing.
The final question is this. With respect to the private member's bill that's been put forward, one might say it provides relief only for transfers from one corporation to another, multi-tier corporate structures, for example. Perhaps this won't directly assist with transfers from parents to their kids. Are you mindful of that? Do you have a view on that?
View Larry Maguire Profile
CPC (MB)
Yes. I have spoken to people who have dealt extensively in farm and intergenerational transfers. They believe this tax burden placed on the next generation, as opposed to what it would be if a business was sold to a complete stranger, is just unacceptable. With your small business background that you just mentioned, I think you can see that if it were 2% or 3% it might be negotiable, but paying 34% or more on the dividend is quite different from being able to utilize the capital gains exemption.
View Wayne Easter Profile
Lib. (PE)
Thank you both.
I will turn now to Mr. Ste-Marie.
Gabriel.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
Good afternoon, Mr. Maguire.
First of all, I want to say that I am deeply pleased that you have brought your bill before the House, that it passed second reading and is now before the committee. It is a bill that is very close to my heart, as it is for my colleagues in the Bloc Québécois.
I'm going to ask you a few questions in order to highlight the concrete purpose of your bill, but before, I'll make a few remarks.
First, a majority of committee members agree with your bill as it seeks to accomplish what was requested in the pre-budget consultation report. In recommendation 116, we asked the government to put this in place. So the committee is overwhelmingly in favour of your bill, and that's very good.
This is also a good case in point because, a few years ago, Quebec introduced a means to encourage the transfer of businesses or farms to the family. It's already in place. As for all the questions that one can legitimately ask, such as the one raised by Mr. Fragiskatos, one realizes that certain measures are easy to put in place to pay less tax. It works well and that is very important.
I remember Mr. Caron introducing the bill and I take my hat off to him. Also, my colleague Xavier Barsalou-Duval had tabled it. If you remember correctly, a few years ago, it was a Liberal MP for whom I have the greatest respect, Mr. Emmanuel Dubourg, who proposed a bill similar to yours. So it's a bill that has support from all sides.
I'd like you to tell me what your bill actually changes for someone who has a farm and wants to sell it to their children.
View Larry Maguire Profile
CPC (MB)
Thank you.
I want to thank the member from Joliette for his presentation in the House at second reading when we did this and for his support for the bill.
It demonstrably changes the opportunity for the next generation to be able to continue in the same business as their parents, one that for 99% of the time the younger generation has probably worked in themselves as they grew up, and for less than minimum wage. They became trained in the business by doing that, and they take pride in being able to continue with something that their parents have put their blood, sweat and tears into, as I said earlier.
This bill definitely changes the playing field to make it completely level to be able to sell to your own family, as opposed to a complete stranger, by allowing the family to use the capital gains exemption as opposed to a dividend on those shares.
View Gabriel Ste-Marie Profile
BQ (QC)
That's right.
This is especially important for agricultural enterprises because we know that the capitalization needed for farms is very high, so it takes a lot of money to make even one dollar of profit.
This is also the case for SMEs in general, as I said in the speech you referred to. Nearby, at the end of the street, there is a company called Québec Son Énergie, a sound company that is having a lot of problems because all shows were cancelled during the pandemic. It's a nice family business. Currently, the father is wondering whether it would be better to sell his business to a stranger and ensure a comfortable retirement, or sell it to his son so that what he has built stays in the family; but in doing so he would be giving up what would have been a comfortable retirement.
Can you comment on this?
View Larry Maguire Profile
CPC (MB)
Yes. As I say, on the pride that I spoke of earlier, it doesn't matter whether it's a farm, a fishing operation or the business down the street that you're talking about, I think the parents have put a lot of energy into it and a lot back into their communities. I think that's something we have to take into consideration here as well.
Those small businesses always contribute to their communities, wherever they can. To be able to continue with that, to have that continuity, whether it's in a large city or a small community, is very important. In regard to the scale, they contribute to volunteerism and with their own finances to support other events in those communities as well.
Whether it's in the arts, sporting events or through their churches and other areas as well, there's a great deal of pride taken in those businesses, and in their retirement, the parents want to be able to continue to contribute. They may even have more time to do it, but they still need to have the resources to do it. Throughout their lifetimes, they've probably tied up their resources in the business, whereas in perhaps other circumstances those dollars would have gone into RRSPs or other saving venues.
I think it's very important.
View Wayne Easter Profile
Lib. (PE)
We will have to move on.
We'll come back for two and a half minutes a little later, Gabriel.
Mr. Julian is next.
View Peter Julian Profile
NDP (BC)
Thanks very much, Mr. Chair.
Thanks, Mr. Maguire, for being here at the finance committee today, and thank you for presenting the bill that Guy Caron worked on so assiduously. I'm sure Mr. Caron is listening in. He continues to be very interested in parliamentary work, and I'm sure he would be very proud of your presentation on behalf of the bill today.
Of course, we supported it to get to committee. This is an important discussion that needs to be held. I think you've put forward very eloquently the fact that it's a penalty right now—a huge penalty—for intergenerational transfers, whether we're talking about small business or farms. It doesn't make sense. It's not logical.
Are you aware of any other country on earth that penalizes a small business transfer within the same family and penalizes the transfer of farms within the same family? My experience with public policy is that virtually every country I'm familiar with actually tries to provide incentives to ensure that they can be transferred, and that family farms can be maintained and family community businesses can be maintained.
View Larry Maguire Profile
CPC (MB)
To answer your question, Peter, no, I don't know of any other country that does this. I'm not a tax expert in those areas, but through my farm leadership, as I pointed out with the chair of your committee earlier—I'm sure he had this experience as well—from the mid-1980s on, we've been able to deal with some of our counterparts across the line to the south. If you want to talk about the penalties that families would face in this versus the incentives you spoke of with regard to the U.S. Farm Bill from 1986, which came in just when I happened to be in Kansas, there is no comparison.
I want to put on the record as well that, as you have pointed out, we need to bring justice back to these small businesses that do provide so much employment across this country. You know, 80% of our small businesses create something like nine million people working for them in this country. It's a huge undertaking at times. There have been other stressful times throughout our history, but these COVID times have really put an extra stress on those businesses. The timing for bringing this in and having it enacted now would be a big benefit to family businesses across this whole country. As I said, there are 1.1 million small businesses in the country. They're not all family-run, but a great many of them are.
View Peter Julian Profile
NDP (BC)
Thank you for that.
Do you have any estimates on what the percentage could be if we eliminated the penalties and basically put it on a level playing field? I know you've spoken about the estimates in terms of the actual cost to the taxpayer, but over the period of half a decade or a decade, how many more family businesses and family farms would be maintained in the same family than if the bill were rejected and we continued to have the status quo? Have you seen any figures that would show what the difference eliminating these penalties would actually mean for community businesses and for family farms?
View Larry Maguire Profile
CPC (MB)
I know from some of the work we have seen that 75% of small business owners have already indicated that they would transfer their businesses to the next generation over the next 10 years. It is estimated that 50% of those owners wish for the succession of those businesses to their own family members. Those are the numbers that I think are most important in terms of encouragement to getting this bill put forward, so that they will not be penalized, as you pointed out in your first question, Mr. Julian, and to be able to make sure they can continue with those businesses in those communities.
We're seeing businesses close their doors right now in some parts of Canada. It's more because of COVID than markets or those sorts of things right now, other than markets have been taken away because of COVID, but those are pretty significant numbers. Trillions of dollars' worth of businesses there would be transferred in assets. That's still very small compared with the large business sector that we have in our country, but it's very important. If we can keep 50% of those transfers into family businesses, it would be an exceptional bit of success for Canada to be able to do that.
View Wayne Easter Profile
Lib. (PE)
You have time for a last quick one, Peter.
View Peter Julian Profile
NDP (BC)
Mr. Fragiskatos raised I think a legitimate question about whether or not this bill could be used as basically a tax dodge. Do you have any concerns about that, Mr. Maguire? Do you feel there are any weak points within the bill that may lead to that?
View Larry Maguire Profile
CPC (MB)
Part of the reason I was proud to be able to bring this bill forward was that one of your former colleagues, Mr. Caron, built some safeguards into this bill. Those shares that are being transferred to the next generation, outside of a death occurring, have to stay in that next generation's hands for five years or else the taxation is completely reversed and those taxes have to go back and be paid.
When you have a 34% difference in tax, that is a substantial amount of funding. I don't know if either side of that equation would be able to just dip into whatever they might think they had for funds and be able to come up with that, so there are safeguards built into this. While there may never be a tax program that comes forward that is 100% without some new generation of accountants trying to find a way to get around it, I would say this is pretty much a safeguard for these particular kinds of transactions.
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