Finance Committee on June 18th, 2024

[Günter Jochum]

That is correct.

My farm is my retirement, and transferring the family farm to satisfy everyone's needs within the family is a very difficult job to do.

My parents moved from Germany to Canada in 1980. We had a very small farm in Germany. We bought a smaller than average size farm here in Manitoba back in 1980. I came back from university to the farm in 1984. On the advice of my accountant, I did pay a little bit into RRSPs, but he said, “You're better off investing in your farm, because you want to grow it to the point where the farm is financially viable to support your family.”

We have grown it over the last 44 years into a larger than average sized farm, which supports three households at the moment. When I was married, we lived for 12 years in a house, had very little furniture and made lots of sacrifices to grow the farm. We grew the farm not in order to sell it at the end of my farming career and to live in luxury with the millions but rather so that we could pass it on—

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you, sir. I'm running out of time.

I would like to seek unanimous consent for this committee to agree that farmers and plumbers should be exempted from capital gains legislation.

[The Chair, Liberal, Peter Fonseca]

I'm not seeing unanimous consent.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

No one said no.

I'm looking for unanimous consent that farmers, union members and plumbers be exempt from the capital gains inclusion increase and that this committee make such a motion.

[Don Davies, NDP, Vancouver Kingsway, BC]

I have a point of order, Mr. Chair.

Is that a motion we would need notice for?

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I'm asking for unanimous consent.

[Don Davies, NDP, Vancouver Kingsway, BC]

It's still a motion.

[The Chair, Liberal, Peter Fonseca]

I'll suspend for a second.

Yes, you can ask for unanimous consent.

[Ryan Turnbull]

No.

[The Chair, Liberal, Peter Fonseca]

Okay. We'll continue.

We go now to MP Thompson, please.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you.

Thank you to all of the witnesses.

Mr. Stanford, are there any inaccuracies that you've heard in the previous couple of rounds that you'd like to speak to or correct?

[Dr. Jim Stanford]

I guess one thing I might try to elaborate on a little bit is the question of the impact of capital gains inclusion on capital investment by businesses. Machinery and equipment decisions by companies are based on their judgment that the business will be profitable going forward. The relevance of the capital gains inclusion rate to that decision is not at all clear. The capital gains will result at the end from perhaps selling the business or selling shares in the business, but growing a profitable business that you think can meet a need and generate a return on investment in itself isn't subject to capital gains, so when you buy a new piece of machinery, you're adding to the asset value of the company, and you're hopefully generating new revenue and profit from that. As long as that company continues, this change will have no impact on you.

In that regard, capital gains is not an incentive for starting and running a business. It's an issue related to selling the business.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you. I appreciate the clarification.

I'm just going to switch to the Canadian Labour Congress and Ms. Bruske. Before I ask the question, I do want to note that in my riding of St. John's East, the average salary is $50,000. In Carleton, Ontario, it's $58,000. In Calgary Forest Lawn, it's $32,000. In Northumberland—Peterborough, it's $41,000, and in Simcoe North, it's $38,000. How many of your workers see capital gains increases of $250,000?

[Bea Bruske]

Virtually none of those workers would be impacted by this, that we can tell.

We know that at least a quarter, almost a third, of Canadian workers do not have a private or a public pension, other than their CPP, that they might be eligible for. I understand, and I empathize with those individuals who have built a business and are using this as a retirement vehicle. There are ways to navigate that through the lifetime exemption that's going to be indexed, and all those kinds of things, but what I'm thinking about is the worker in a service sector industry for 65 years, who can't afford to retire, who has not had the opportunity to put any money aside whatsoever. We need a fair taxation system so that we can fund the very programs that workers are going to be relying on—the school nutrition program, dental care, pharmacare, workplace safety and health issues—things like making sure our health care system works so those workers actually have the ability to put some additional money in their pockets to maybe put towards an RRSP.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you.

Very quickly, how many of your unionized workers would have a secondary residence growing in value of about a quarter of a million dollars?

[Bea Bruske]

Unless they've inherited some wealth, I don't see any of them falling into that category.

[Joanne Thompson, Liberal, St. John's East, NL]

Both the employers and the C-suite executives hold a large part of the capital gains. Do you believe this will trickle down to your unionized members across the country—in other words, a top-down approach? If we make changes and alter what I believe is a fair program in terms of the capital gains, the changes that exist, does that trickle down to workers?

[Bea Bruske]

As we heard from some of the other witnesses, we don't anticipate seeing any change in the terms of investments or productivity based on a change to the capital gains exclusions, so I don't see any of this trickling down to the average worker going to work every single day of their life.

[Joanne Thompson, Liberal, St. John's East, NL]

Very quickly, Mr. Stanford, apart from what I think are very positive changes for Canadians in budget 2024, what income group do you feel will be disproportionately impacted by these changes to capital gains inclusion?

[Dr. Jim Stanford]

The evidence is clear, both from a snapshot in time of who pays taxes on capital gains in any given year and then from the limited longitudinal data that has been compiled, that the main impact of this change will be on the highest 1% to 2% of Canadian taxpayers. In any given year, only 0.13% of them individually will claim capital gains over $250,000 and therefore have any capital gains at all subject to the higher inclusion rate.

Even over time, given that there are irregularities in how capital gains are staged in someone's life, the vast majority of those gains are concentrated at the top. In fact, over time, they're more concentrated at the top than in a given year, for the fact that it's very well-off people who tend to claim capital gains year after year, rather than as a one-time event.

It's not only those people. There are obviously circumstances where an individual of generally modest means will face some additional taxation because of this, but the vast majority of the impact will be felt by the highest-income Canadians only.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we go to MP Ste-Marie, please.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

To begin, I have a point of order. I would like to remind my colleagues that it is customary when introducing a motion at committee to provide it in writing with an official translation. In fact, the interpreters have told us that they don't like having to translate motions and would rather read the official version that our vote is based on. So I would appreciate it if my colleagues would bear that in mind in the future.

Turning back to you, Mr. Godbout, our constituency offices are receiving a lot of letters from all kinds of professionals, including physicians. Those individuals are in partnerships, so they are businesses that do not make a profit and instead pay the revenues they generate directly to the individuals. Those individuals are apparently excluded from the initial $250,000 capital gains exemption, and apparently do not benefit from the cumulative $1.25 million capital gains exemption. Is that correct?

If I have understood correctly, why are these kinds of businesses, partnerships, treated differently?

[Prof. Luc Godbout]

If I understand correctly, you are referring to partnerships that are not incorporated. In that case, what you said is correct. Technically, though, those individuals should qualify for the initial $250,000 capital gains exemption if those gains are realized by the individual.

As to the $1.25 million cumulative capital gains exemption, that applies to the shares of small businesses. If a business chooses not to incorporate, it would therefore not qualify for the exemption for the sale of shares in a small business. This is not something new resulting from the change in legislation; it goes back to when the exemption was created, which was initially $500,000, and is for shares in small businesses only. For farmers, the $1.25 million in cumulative capital gains exemption applies equally to the shares and to the farm assets. For a business that is not a farm, however, it applies to the shares only.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much for explaining that. Since I am not a tax specialist, I am sometimes confused by all the cases that come up. So if a partnership is not incorporated, the individuals would qualify for the $250,000 exemption. That is very clear. Thank you.

[Prof. Luc Godbout]

Thank you.