A prairie politician’s quest to make it easier to pass the farm on to the next generation could help fishing families on the east coast.
Larry Maguire, Conservative MP for Manitoba Riding for Brandon-Souris, has proposed changes to the Income Tax Act to reduce the tax burden when a farmer, fisherman, or small business owner sell to a family member.
Currently, the tax rate is much lower when a business is sold to a stranger as a relative.
Maguire thinks this is unfair and last February submitted a motion from a private member – Bill C-208 – to the House of Commons to change it. The bill was reintroduced in the House of Commons for second reading on February 3, where it was passed to committee by 178-146 votes. If it is supported there, it will come back to the third reading and the final vote.
The Conservatives, the Quebecois Bloc, the NPD and the Greens fully supported the bill in second reading. Only two members of the Liberal Government – Francis Drouin from the Ontario riding of Glengarry-Prescott-Russell; and Scott Simms of Newfoundland and Labrador on the coast of Bays-Central-Notre Dame – voted in favor.
Selling a family business such as a fishing business to a family member is currently charged under Canadian tax law as a dividend to the seller and a tax rate of nearly 50 percent on the profit on the sale. – File photo
The Standing Finance Committee, chaired by PEI Rep. Wayne Easter, began discussions on the proposal this week when the committee met on March 2.
Maguire testified before the committee that if one family member sells a business to another family member, the difference between the sale price and the original price will be considered a dividend.
However, if they sell the business to a stranger, the selling price is considered a capital gain.
A capital gain is taxed at a lower tax rate and the tax law allows the seller to apply the tax exemption for lifelong capital gains.
Taxes on a dividend are much higher, Maguire said using the example of the sale of a $ 1 million farm.
Selling it to a stranger would be viewed as a capital gain, and the farmer would pay a 13.39 percent tax on any increase in the value of the farm since he first bought it. If the farmer sold it to a child or grandchild, the increase in value would be considered a dividend and taxed at a rate of 47.4 percent, Maguire said.
This makes it difficult to keep family-owned companies.
“It is more financially beneficial for a family to sell their farm, fishing or small business to a total stranger than to their own family, children or grandchildren,” said Maguire.
The idea of changing income tax laws in favor of family businesses is not new.
The new MP for the Democratic Party, Guy Carron, made a request to this effect in 2017.
Maguire noted that Carron’s bill had the full support of opposition parties, but although 10 Liberals voted in favor, it was defeated by the majority Liberal government.
Wayne Easter, chairman of the finance committee, noted that Carron has done extensive research into the original bill.
Maguire used much of Carron’s research to re-submit the bill to parliament, noting that the NDP politician’s research was thorough and continues to exist.
During the committee meeting this week, Peter Fragiskatos, Liberal MP for Riding the London North Center in Ontario asked Maguire how the proposed changes would affect state revenues.
Maguire said there are about 1.1 million small businesses in Canada and the change he proposed would not put a huge financial burden on Canada’s tax system.
“The Parliamentary Budget Commissioner’s recommendations ranged from $ 179 million to $ 300 million. . . depending on the number of cases carried over in a given year, ”he told the committee.
He said the cost depends on how many family businesses are sold to family members in a given year.
According to Maguire, many organizations across Canada support the proposed changes. He noted that Quebec’s milk producers, Chicken Farmers of Canada, the Canadian Federation of Independent Business, the Canadian Federation of Agriculture, and the Taxpayers Federation of Canada, to name a few, endorsed the bill.
The Finance Committee will continue to call witnesses.
Committee chair Easter said other witnesses – including the Life Underwriters of Canada and the Canadian Federation of Agriculture – would testify before the committee on March 9.
You can watch the full March 2nd meeting of the Standing Finance Committee here: