A bill introduced by a Manitoba Conservative MP to standardise the tax treatment of farm and other small business transactions has passed the House of Commons and is on its way to the Senate. Bill C-208, introduced by Brandon-Souris MP Larry Maguire for first reading in February of last year, recently passed third reading in the House of Commons.
According to the Canadian Federation of Independent Business (CFIB), Bill C-208 aims to change the laws surrounding the transfer of small businesses, farms, and fishing companies to family members. Business owners are now taxed more heavily if they sell their company to a family member than to a third party. C-208 proposes amending the Income Tax Act to exclude sales of farms and other small businesses to adult children or grandchildren from the existing anti-avoidance laws.
The transition of companies to the next generation of entrepreneurs has significant consequences for the Canadian economy: nearly a quarter of business owners (72%) said they would close their doors by 2028, implying a $1.5 trillion transfer. Nearly half (46%) of parents want their children to take over the business. The selling of property to family members is currently treated as a dividend, while the sale to a third party is treated as a capital gain, and therefore qualifies for the Lifetime Capital Gains Exemption (LCGE). Owners of businesses that sell to their children are not eligible for the LCGE, which means they must pay a higher tax bill.
MPs from the Bloc Quebecois and the New Democratic Party have backed the bill. In November, British Columbia MP Peter Julian spoke out in support of the bill, saying that to end “a very perverse aspect of our tax system and facilitating, in a sense, small businesses under $1 million to be passed from one generation to the next without penalties being incurred, makes a big difference for family-owned business.”
The Keystone Agricultural Producers, the Insurance Brokers Association of Canada, the Canadian Federation of Agriculture, the Grain Growers of Canada, the Canadian Canola Growers Association, and the Canadian Federation of Independent Business have all endorsed C-208, according to Maguire.