Federal gov’t vows to close tax-avoidance loopholes
OTTAWA — To the applause of farm and business organizations, a private member’s bill that eases farm transfer within the family is indeed the law of the land as Finance Minister Chrystia Freeland overruled a last-minute obstacle thrown up by federal tax bureaucrats who sought to delay implementation.
“Bill C-208 was voted on by Parliament and received Royal Assent. The law is the law,” Freeland confirmed July 19, reversing her own department’s earlier stated intent to put off carrying out the Bill’s provisions until next year.
The attempted bureaucratic delay surprised even the Liberal Chair of the Finance Committee, Wayne Easter, who went public with his displeasure and scheduled a July 20 meeting to grill finance officials. “I believe strongly in the supremacy of Parliament. Cabinet can do nothing without the will of Parliament, nor can departments, so we’ll discuss that … with the law clerk and a few others,” Easter told Farmers Forum at the time.
The finance minister preempted the showdown by making her announcement a day before the scheduled session.
The new law allows a farmer or small business owner to sell their enterprise to family members and have it treated as a capital gain instead of a more highly taxed dividend. The prior law allowed only sales to unrelated third parties to qualify for the lower-taxed option.
However, the government still says it has concerns about “tax avoidance” and intends to introduce amendments in a separate bill that will still “honour the law passed by Parliament,” according to Freeland.
C-208 might create a loophole for “surplus stripping” — converting dividends capital gains — according to the government. It says planned amendments, which won’t apply any earlier than Nov. 1, will include:
• The requirement to transfer legal and factual control of the corporation carrying on the business from the parent to their child or grandchild;
• The level of ownership in the corporation carrying on the business that the parent can maintain for a reasonable time after the transfer;
• The requirements and timeline for the parent to transition their involvement in the business to the next generation; and the level of involvement of the child or grandchild in the business after the transfer.
