Call to not change the tax exemption for small and medium-sized family businesses

The farmers are pleading with the government not to again make it difficult to hand over their family business to their children. (Photo: The Canadian Press)

Members of the House of Commons Standing Committee on Finance have heard a plea from agricultural producers begging the government not to again make it difficult to hand their family business to their children.

Like small business owners, farmers have for years been calling on the government to correct the injustices in federal law that forced families to pay hundreds of thousands of dollars in additional taxes simply because they wanted to hand their businesses over to the next generation.

A special bill introduced by a conservative member of parliament last month proposes amending the income tax law to allow entrepreneurs to pay the same tax rate on the sale of their business to a family member only if they sell to a third party.

However, the Liberals want changes to be made to the law in order to close potential loopholes that could open the door to tax evasion.

In a speech to the House of Commons committee on Tuesday, Mary Robinson, who owns a farm on Prince Edward Island and chairs the Canadian Federation of Agriculture, urged MPs to make sure the Liberals’ amendments do not reintroduce the tax inequality the bill seeks. to correct.

“We believe that the goals of future adjustments can be achieved while maintaining this satisfaction for Canadian family farms. However, we believe this will only be possible by maintaining a dialogue with farmers and their advisory groups,” Robinson said.

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She insisted, “The risk of inadvertently creating obstacles is significant unless you learn from those who have experience managing and financially planning family farm farms.”

law review

The government’s plan to rewrite the income tax law, first announced last month, has caused confusion and anger among conservatives. The controversy necessitated a rare summer meeting of the Finance Committee.

The day after Parliament approved the bill, the Finance Ministry announced that the government would introduce amendments and that the rules for the sale of family businesses would not come into effect until January 1, 2022.

Business associations have expressed concerns about the delay, which leaves entrepreneurs and their families in a regulatory bind for the time being.

Legal clerk and parliamentary advisor Philip Dufresne informed the commission that the revised law had formally entered into force upon receiving Royal Assent at the end of June although it did not include a clause setting an implementation date.

He added that the government’s announcement of a potential effective delay was astonishing and unprecedented in recent history. He said it was more common to see governments implement regulatory changes before a change in law was passed with Parliament’s approval.

Liberals and finance officials told the committee that there was nothing specific about the announcement, but it could just be a misunderstanding.

They pointed to a statement by Minister Chrystia Freeland Monday evening that C-208 is the law in force.

The Canadian Chamber of Commerce, the Canadian Federation of Independent Business and the Canadian Federation of Agriculture welcomed this clarification from the government and its willingness to support family estate regulation.

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Fill in the gaps

The statement by Chrystia Freeland, a few hours before the committee meeting, nonetheless confirmed the government’s intention to make amendments in order to close the loopholes that open the door to tax evasion.

In particular, you mentioned that dividends can be declared as capital gains and benefit from a lower tax rate without making a real business transfer within the family.

No new amendment can enter into force before 1 November.

Freeland responded to a question from the Canadian Press on the sidelines of an announcement at Longueuil on Tuesday “As Finance Minister, my job is to make sure everyone in Canada pays their fair share and to close loopholes that allow for tax evasion.” .

“What we will do is consult with all concerned parties and publish a new version of the law and certain amendments to C-208 with the aim of filling in the loopholes,” the minister continued.

Opposition parties to the government indicated at the committee meeting that they could have proposed amendments to the C-208 while it was being discussed in Parliament. They also argued that Ms. Freeland’s new position was taken only in response to a committee meeting on the matter.

In addition, the committee has summoned Chrystia Freeland to attend and testify at a future hearing on the matter over the next two weeks.

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