In the coming years, many farms and small businesses will be seeking to transfer their operation to a family member.
Currently in Canada it is more expensive to sell a small business or farm to a family member than it is to a stranger.
Last week, Brandon-Souris MP Larry Maguire introduced Bill C-208 - An Act to Amend the Income Tax Act (transfer of small businesses or family farm or fishing corporation).
On Wednesday, November 25, 2020, Maguire had his first hour of debate on his legislation.
“It is completely unacceptable that it’s more financially advantageous for a parent to sell their farm or small business to an absolute stranger than it is to their children,” said Maguire. “This legislation will ensure that farms and businesses can be transferred to the next generation without having to worry about unfair taxes.”
Currently, when a person sells their small business to a family member, the difference between the sale price and the original purchase price is considered a dividend. However, if the business is sold to a non-family member, the sale is considered as a capital gain, which is taxed at a lower rate and allows the seller to use their lifetime capital gains exemption.
Bill C-208 will allow small businesses, farm families, and family fishing corporations the same tax rate when selling their operation to a family member as they would when selling to a third party.
"Currently, operators have to choose between a larger retirement fund by selling to a stranger and a smaller one by selling to a family member – this is not a choice they should have to make,” added Maguire.
Maguire welcomed endorsements from the Canadian Federation of Agriculture (CFA) and the Canadian Federation of Independent Business (CFIB).
The CFA estimates that $500 billion in farm assets are set to change hands within the next 10 years. At the same time, the CFIB projects that 50% of small business owners wish to transfer their operation to a family member, while 75% of small business owners intend to exit their business by 2028.Click here to see more...