By Joan Janzen
Homer Simpson once said, “Son, if you really want something in this life, you have to work for it. Now quiet! They’re about to announce the lottery numbers.”
It’s been said that getting a private member’s bill passed is comparable to winning the lottery, but it also takes a lot of work. Which is why Canadians should be happy to hear that Bill C-208 recently received royal assent. Bill C-208 addresses unfair tax penalties for business owners looking to sell to family members when they retire.
Member of Parliament Larry Maguire introduced the bill last year, and the House of Commons passed the bill in Mid-May supported by the opposition parties and 19 Liberal MPs. The government and all the cabinet members opposed the bill. This was the third attempt to solve the problem of inter generational transfers of family-owned small businesses, farms and fishing operations.
“I’ve had some senators say there was more controversy around this bill passing in the senate than any opposition bill they’ve ever seen,” Maguire said. There was an amendment that tried to kill the bill, which wouldn’t allow third reading of C208. The amendment was to take out all small businesses from the bill except farmers and fisheries, which, according to Maguire, account for only about 3 or 4 percent of the bill. “That amendment told a lot about what the Liberals think of small business,” Maguire said, even though 82 percent of private jobs in Canada are created by small businesses. However, this bill will have a profound benefit for small businesses, fisheries and farms, resulting in less of a tax impact.
Maguire said he brought the bill forward a year ago in February and it’s been worked on for a couple of decades to help companies selling directly to a child or grandchild. “It will make a $300,000 or $400,000 difference,” he said. “Most small businesses put everything they have into their business and it provides a retirement package. The bill doesn’t provide loopholes for the wealthy as the Liberals claimed. Previously, it was a real penalty to sell to your own children.
“When I talk about a tax saving, this is money in the family pocket as opposed to going to Revenue Canada. But what the Liberals failed to realize is this money stays with the parents; it’s part of their retirement package. Children don’t have to use double taxed money to pay for the corporation they’re buying. And the safeguard is that they have to hold the shares of that company they’re buying for at least five years. This levels the playing field to be able to sell to your own children.”
Two Liberals voted for it in second reading compared to 19 Liberals who voted for it in third reading. “They were starting to see they all had small businesses in their constituencies that could be affected,” Maguire observed.
Currently the proceeds of the sale of a business to a child would be taxed as a dividend, but the proceeds of a sale to a third party would be taxed at the lower capital gains rate and allow the seller to access the lifetime capital gains exemption. Bill C-208 amends the Income Tax Act to provide transfers of qualified small business corporation shares and shares of the capital stock of a family farm or fishing corporation to the taxpayer’s adult child or grandchild to be excluded from the anti-avoidance rule.
“It’s a real feeling of pride and accomplishment for getting this bill through the Senate,” Maguire said. “We want more young people in agriculture, so it has a major impact on a local level and it’s a great community builder.”
“There’s a plethora of organizations who have fought all their lives to be able to get this kind of bill passed,” he said. “We had the support from the Canadian Taxpayers Federation, Canadian Chamber of Commerce, Canadian Federation of Independent Business, every farm organization in Canada, the Insurance Brokers Organization of Canada, and on and on.”
“I’ve had a chartered accountant firm phone me and say that this bill will do more for small businesses in Canada than has been done in the past 20 years.” And that’s good news!
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