Proposal would reduce cost when family buys business

The Canadian Federation of Agriculture is lauding a federal private member’s bill that would make farm transfers within families easier.

Quebec NDP MP Guy Caron introduced Bill C-274 May 19.

It proposes changes to the Income Tax Act that would ease the tax burden on sales of small businesses, family farms and fishing businesses.

“Mr. Speaker, my bill would end a blatantly unfair situation that puts businesspeople, farmers and fishing vessel operators at a disadvantage when they want to pass their business on to a child rather than a stranger,” Caron said in the House of Commons.

He said there is a disincentive to sell within families because of the tax implications.

“For a million-dollar business, the difference can be around $200,000 from a taxation perspective,” he said.

“For a $10 million farm, we are talking $2.2 million less if the owner sells it to a stranger rather than a family member. We have to do something about this.”

Using that example, Caron said an arm’s-length purchase allows the seller to use a lifetime capital gains exemption for farms of $1 million.

“So if you sell it for $10 million, you only have $9 million to pay tax on, and for capital gains you’re only taxed at 50 percent,” he said in an interview.

Depending on the province, that $4.5 million would be taxed at 35 to 40 percent, he said.

However, the sale is considered a dividend gain if a family member buys the business.

“There is no lifetime exemption of the dividend, and so you’re taxed on the full amount, and depending on the province it could be between 25 and 30 percent of the whole amount,” he said.

The CFA has identified this issue as a priority.

“Over $50 billion in farm assets are set to change hands over the next 10 years as farmers age and future plans are made,” said president Ron Bonnett.

“We are pleased to see this issue move forward in Parliament and are hopeful it receives the political profile and priority it deserves.”

Caron, who said agriculture represents 12 percent of the economy in his riding, said his bill also contains measures to deal with tax avoidance by requiring the new owner to own the farm for at least five years.

He said the bill should be debated later this fall under the federal process for private member’s bills. He has already been speaking to MPs from other parties and said he has had positive reaction from Conservative and Bloc Quebecois members.

The Canadian Federation of Independent Business, Union des Producteurs Agricoles du Quebec and Montreal Chamber of Commerce also support the bill, he said.

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