Original author: Cindy David
Published: April 1, 2021
CALU chair Cindy David and tax advisor Kevin Wark appeared before the Standing Committee on Finance (FINA) on March 9th to comment on Bill C-208. The bill proposes to amend item 84.1 of the Income Tax Act, which addresses the transfer of ownership of a small business or family farm, or fishing corporation. CALU was invited to appear before the committee as a result of our advocacy on this critical issue on behalf of our members and their clients.
You can view the full appearance here.
Cindy David’s remarks to the Standing Committee on Finance (Transcript)
Thank you, Mr. Chair and Committee members, for the opportunity to appear before you today. My name is Cindy David and in addition to being an independent financial advisor located in Vancouver, I am Chair of the Board for the Conference for Advanced Life Underwriting or “CALU” for short.
CALU, and our partner organization Advocis, represent approximately 13,000 insurance and financial advisors, who in turn provide financial advice to millions of Canadians and small business owners across the country.
We appreciate this opportunity to comment on the Bill C-208 and the positive impact it will have for small business owners looking to transition their business to the next generation of family entrepreneurs.
We have provided a written brief to the Committee that outlines the reasons why CALU believes it is critical to amend section 84.1. Our brief highlights how recent tax changes have made the application of these rules to family business transfers even more punitive since the provision was first introduced. Our brief also outlines various methods the government can use to limit any potential tax abuses that might arise from relaxing the rules in section 84.1.
We believe there is an urgent need for the government to act in amending 84.1. I know that all Committee members are aware of the importance of small businesses to the Canadian economy. These businesses engage almost 70% of private sector employees and have been major contributors to employment growth in the past decade. In turn, the vast majority of these small businesses have less than 20 employees and play a significant role in supporting the economies of smaller communities across Canada.
We believe recovery from the current economic crisis will once again be led by the growth of small businesses. But it is perhaps not surprising that a number of owners, now at or nearing retirement age, have been worn down by the stresses of the past year and are accelerating their plans to retire. Fortunately, many owners have children working in their businesses, who have been groomed and are ready to assume control of the operations.
However, section 84.1 remains a major impediment to a successful transition of these businesses within a family. This provision either denies the business owner access to the capital gains treatment, including the capital gains exemption or alternatively forces the new family owners to assume potentially high levels of debt to pay off the purchase price.
Accordingly, business owners are often faced with a difficult decision: to sell their business outside of the family in order to preserve more after-tax proceeds to fund their retirement, or to receive less money in order to pass on their business on to their children. We don’t think this is fair.
I have seen some of these impacts from personal experience with my clients.
To address these issues, CALU urges this Committee to support moving forward with the intent of Bill C-208. We ask you to recommend that section 84.1 be amended to permit the transfer of incorporated small businesses to the next generation of family owners on a more tax-neutral basis. This clearly fits with the recommendation made as part of your pre-budget report to the Department of Finance released in February. We strongly believe this action will facilitate the successful transfer of family businesses, and in turn, protect local jobs and local economies.
I thank you for your time and attention. I’m pleased to respond to any questions you might have and our subject-matter expert, CALU Tax Advisor Kevin Wark, is here with me today to answer any technical questions Committee members may have.