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C-208 now in force: federal government scraps delay in implementing tax changes for intergenerational transfers

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The federal finance division has scrapped its plan to delay implementation of laws handed by Parliament that would cut back the tax burden for intergenerational transfers of small companies, comparable to household farms.

Invoice C-208, the non-public member’s invoice that was sponsored by Manitoba Conservative MP Larry Maguire, obtained Royal Assent earlier than Parliament rose for the summer season on June 29.

The next day, the division of finance issued an announcement saying it could delay implementation of the invoice till January 1, 2022, probably with amendments, regardless of Canadian regulation and legislative consultants saying the invoice took impact instantly after receiving Royal Assent.

Farm teams and politicians, together with some Liberal MPs, raised considerations concerning the finance division’s unprecedented delay in following the desire and authority of Parliament.

A type of MPs, finance committee chair Wayne Easter, referred to as again the Home of Commons finance committee to carry some readability to the difficulty in a gathering on July 20, with witness testimony from finance officers, legislative consultants, and representatives from the Canadian Federation of Agriculture and Quebec Federation of Younger Farmers.

The course reversal from the Liberal government was introduced simply previous to the finance assembly on Tuesday, July 19.

“Bill C-208 was voted on by Parliament and received Royal Assent. The law is the law,” stated Finance Minister and Deputy Prime Minister Chrystia Freeland, in an announcement launched late Tuesday.

The invoice was designed to handle a long-standing situation of it being extra pricey from a tax perspective to switch an integrated enterprise to a baby or grand-child’s company than to a 3rd get together, as a result of proceeds being categorized as dividends moderately than a capital achieve.

“Our concern is with technical elements of the bill that could unintentionally present opportunities for tax avoidance,” stated Freeland, noting the government plans to carry ahead amendments to Maguire’s invoice. “The amendments we intend to bring will honour the law passed by Parliament, make sure everyone pays their fair share, and support the families and small businesses that keep our economy, and our communities, strong.”

The finance division says it’s involved C-208 might create a loophole for “surplus stripping,” the place firms owned throughout the identical household might convert dividends to capital features to learn from a decrease tax fee with out a authentic enterprise switch going down.

The government says its amendments can be aimed toward addressing the next points:

  • The requirement to switch authorized and factual management of the company carrying on the enterprise from the mum or dad to their little one or grandchild;
  • The extent of possession in the company carrying on the enterprise that the mum or dad can keep for an affordable time after the switch;
  • The necessities and timeline for the mum or dad to transition their involvement in the enterprise to the subsequent technology; and
  • The extent of involvement of the kid or grandchild in the enterprise after the switch.

It’s not clear why such amendments, in the event that they have been a priority, weren’t tabled in the course of the legislative approval course of, which prolonged over 16 months in the Home of Commons and Senate.

Talking to the finance committee on Tuesday, Canadian Federation of Agriculture president Mary Robinson stated CFA is “pleased to see yesterday’s announcement provide some additional clarity, both for the immediate future and for the government’s longer term plans in this regard.”

She additionally referred to as for dialogue with farmers and farm advisors in arising with the government’s deliberate amendments to C-208.

“The potential for unintended barriers is significant, unless informed by those with direct experience managing farm succession and financial planning…” she famous. “We call on the government and Parliament to ensure the inequity Bill c-208 resolves is not reintroduced, and that Canadian family farms are never again disincentivized for selling to the next generation by the Canadian the tax system.”

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