The Canadian Chamber of Commerce is calling on the federal Liberal government to reverse the decision to delay the implementation of tax breaks for small businesses until the new year, a move that legislative experts have said contravenes both parliamentary rules and federal law.
The Finance Department has said it is delaying the implementation of the bill until January, 2022, and will likely be making amendments in order to close potential tax loopholes.
The legislation, Bill C-208, reduces the tax burden on owners of small- and medium-sized businesses who want to pass their companies on to family members. It allows those business owners to claim proceeds from the sale of shares to an adult child or grandchild as capital gains, rather than as dividend payments. Capital gains are taxed at a lower rate, and, in some cases, a taxpayer can use a lifetime exemption to avoid paying any tax at all.
The bill received royal assent on June 29. But on June 30 the Finance Department issued a press release asserting that the implementation of a private member’s bill granting more generous tax treatment to the intergenerational transfer of small businesses would not take effect until Jan. 1, 2022. The department’s statement said that since no date was specified in the legislation, the government would bring forward legislation to make it clear when it came into force.
But several legislative experts have said that the department’s position contravenes a fundamental parliamentary principle – and the federal Interpretation Act – that laws come into effect when they receive royal assent, unless otherwise specified. Those experts contend that Finance is disregarding the will of Parliament.
The Chamber of Commerce has now added its voice to those criticizing Finance’s position that C-208 is not in effect, calling on the government to reverse the decision. “This is a highly unusual and concerning process,” said Patrick Gill, senior director of tax and financial policy for the chamber, adding that the department’s announcement has created “intolerable uncertainty” for entrepreneurs contemplating a transfer of their small business to their children or grandchildren.
The Canadian Federation of Agriculture voiced similar concerns, stating in a press release on Friday that the department’s actions have created uncertainty that will force farmers to delay their retirement plans. The agricultural group said it will talk with the department about enacting the law “as soon as possible.”
The Finance Department declined an interview request, but in a written statement reiterated the points of the June 30 press release. That statement did not directly address a question on how the department’s actions could be reconciled with the wording of the Interpretation Act, which says “if no date of commencement is provided for in an Act, the date of commencement of that Act is the date of assent to the Act.”
Meanwhile, the opposition Conservatives are decrying the delay of C-208, brought forward by one of their members, but supported by members of several parties, including a number of Liberals. In a statement, Tory Leader Erin O’Toole said Prime Minister Justin Trudeau was going “to extraordinary and unprecedented lengths to ignore Parliament and the law” in order to avoid implementing the tax changes for small businesses.
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Patrick Brethour