Flaw in Income Tax Act for business transfers unfair: CFIB
By Canadian Pizza
By Canadian Pizza
Toronto – The Canadian Federation of Independent Business wants to see a loophole corrected that makes selling a small business to a third party easier than selling to a family member.
The CFIB is encouraging Members of Parliament to support Bill C-274, a Private Member’s Bill put forward by MP Guy Caron to amend the Income Tax Act as it applies to the transfer of small businesses, family farms or fishing corporations. A vote on the bill is imminent.
“CFIB encourages all Members of Parliament to vote to pass this bill to the committee stage,” said CFIB president Dan Kelly in a news release. “The bill aims to address a significant and costly flaw in Canada’s succession planning rules that, incredibly, makes it easier to sell a family business to a third party than to a member of the family.”
In Canada, when an individual sells their business to a family member, the difference between the sale price and the price originally paid is considered a dividend. If the individual sells the business to an unrelated person, it is considered a capital gain. This nuance in the Income Tax Act discourages the transfer of a business to a family member because the transaction does not include the right to a lifetime exemption and is, therefore, more heavily taxed.
“Guy Caron’s bill proposes amendments to the Income Tax Act that will ease the tax burden on a large number business owners, who simply want to pass their business on to their children or grandchildren,” Kelly said. “CFIB supported a similar bill that was introduced by Liberal MP Emmanuel Dubourg during the previous government’s term in office. We think it has come time the government take action to level the playing field for family businesses.”