Hon. Jane Cordy: Honourable senators, I begin my remarks by acknowledging that I’m speaking to you from Mi’kma’ki, the ancestral territory of the Mi’kmaq people.
Colleagues, I will speak today at third reading of Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation).
I support the intentions of Bill C-208, and I acknowledge that unfairness exists in the current Income Tax Act where owners of small businesses or family farms or fishing corporations are financially penalized for transferring ownership of their business to their children, rather than transferring ownership to an outside third party.
Honourable senators, I do not question the motives of this bill. I believe the intentions of MP Larry Maguire who brought the bill forward are to be lauded.
Many small businesses, family farms and family fishing operation owners hope to transfer their business to their children. This is their family legacy and they should not be penalized for doing so. The Prime Minister himself has acknowledged that there are concerns, which is why he instructed the finance minister to, “Work with the Minister of Agriculture and Agri-Food on tax measures to facilitate the intergenerational transfer of farms.”
While I certainly agree with the premise behind Bill C-208, I have concerns that the bill lacks the proper safeguards to ensure that the business transfer is actually real and not just on paper. There is no guarantee that the business would not be sold in name only in order to take advantage of the tax breaks in Bill C-208. This would be in complete contradiction to the intention of the bill.
While examining Bill C-208, one of my main concerns is that it will be more beneficial to wealthy Canadians. Bills such as this should be considered very carefully. We have heard that this bill will open up tax advantages not only to small businesses, family farms and family fishing operations but to over 1.6 million businesses of all kinds, of which only a very small fraction are family businesses and fishing operations. Senator Woo did an excellent job of explaining this in his speech on Bill C-208 when he spoke of the Parliamentary Budget Officer’s cost estimate report on an identical bill from a previous Parliament.
The data comes from the report by the PBO, Cost Estimate for Bill C-274, March 30, 2017. As a reminder, I will quote part of Senator Woo’s speech:
This bill covers all qualified businesses, not just farming and fishing operations. The PBO has estimated that there were 1,674,310 qualified businesses in 2014, of which 50,000 were farming corporations and 4,000 were fishing corporations. . . .
When you look at the numbers, colleagues, farming and fishing corporations only make up 3% of eligible qualifying businesses. I also agree with Senator Woo’s comments that this 3% figure is likely overstated.
Honourable senators, as I have said, this bill, while well intended, raises concerns because it lacks safeguards to ensure that true intergenerational transfer takes place. The child may “buy” the business or the farm but does not have to have any involvement in the business. The parents do not have to give up their control in the business that has been sold to the child, and taxes are avoided. As Senator Gold succinctly stated:
. . . it would allow the parent to sell shares to a child’s holding corporation and then purchase the child’s holding corporation, leaving the child with no interest in the business.
Colleagues, Bill C-208 will create too many loopholes in the Income Tax Act if it passes without amendment. There is also the real potential of eroding federal tax revenues, which will hinder the ability of our government to deliver on the programs and supports needed as we transition out of the pandemic and kick-start our economy. In their report, the Parliamentary Budget Officer costed the provisions in this bill at $457 million for the year 2018. Honourable senators, I’m hesitant, but would be remiss if I did not mention before I conclude my comments on Bill C-208 that I believe we have set a new precedent in how we conduct our business. I found it very unusual that the sponsor of the bill was chairing the committee that studied the bill. I cannot recall this happening in any committee that I have served on during my time in the Senate. This might be something that our Rules Committee should examine in the fall.
I also question why a bill amending the Income Tax Act was sent to the Agriculture and Forestry Committee and not to either the Finance Committee or the Banking Committee. These committees are more experienced in dealing with the financial repercussions related to the Income Tax Act.
Honourable senators, the government has stated its support for tax fairness the transfer of family farms. This isn’t a case of different ideologies. We agree that something must be done, but this is a matter of getting it right.
I fully support the efforts of MP Larry Maguire to right a wrong in Canada’s income tax framework, but the bill, as written, has the potential to do too much harm. Unfortunately, I cannot support it without amendment.
Thank you, colleagues.