Brokers Expect Big Tax Gains for Family Succession Plans Canadian Underwriter



Canadian P&C insurance brokers are anxiously awaiting the next Royal Assent from the Canadian government of Bill C-208, which will ease the tax burden on brokerage executives who wish to sell their business to family members.

“The changes proposed in Bill C-208 would have a direct benefit for brokerage house owners who wish to keep the business in the family,” said Peter Braid, CEO of the Insurance Brokers Association of Canada. Canada (ACAC), in a press release emailed to Canadian Underwriter Monday. “Bill C-208 will not only support the succession of family brokerage firms and ensure the stability of clients, it will also help maintain the social and economic contributions that insurance brokers make to their communities …

“We must do everything possible to support and encourage the intergenerational transfer of these [brokerage] companies. “

Bill C-208 applies to the sale of qualifying small businesses (such as brokerage houses) to siblings. It will also make it easier to sell a family business to children and grandchildren 18 or older, as Braid points out. “This should be the main advantage. “

As it stands, just before the bill received Royal Assent, Canada’s small business tax legislation favors prime brokers who sell their brokerages to foreigners rather than members of their own. family.

Essentially, this is because a business sold to a family member is considered a dividend, which is subject to a higher tax rate. If the same brokerage were to be sold to a foreigner, on the other hand, it would be considered a capital gain and eligible for a capital gain exemption, resulting in a lower tax rate for the seller.

Under Bill C-208, certain intergenerational transfers would no longer be considered as dividends, but rather as capital gains, thus leveling the rules of the tax game between family buyers and foreigners.

“It’s a matter of fairness and fairness,” Braid commented. “Business owners should not be penalized for selling their business to a family member. Tax implications should never be taken into account when deciding to sell a business to a family member.

In a fact sheet explaining the impact of tax inequity, Manitoba MP Larry Maguire cites the example of a couple who own a bakery valued at $ 2.75 million. If they sold the business to a corporation owned by their children, the tax on the transaction would be $ 736,000. If sold to a foreigner, however, the tax would be $ 272,000.

Maguire first introduced Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farming or fishing corporation), to Parliament in February 2020. The bill covers qualifying Canadian small businesses, farms and fishing companies.

The IBAC lobbied Canadian MPs for the changes. Braid says insurance brokers are mostly small businesses, with 95% of them having annual revenues of less than $ 15 million.

“In provinces like Ontario, Quebec and British Columbia, up to 25% of [IBAC] member brokerage firms are family owned, ”said Braid. “In smaller provinces and more rural areas of Canada, that number is much higher. In Nova Scotia and Newfoundland and Labrador, for example, the number of family brokerage firms is 40% and 50%, respectively.

Bill C-208 passed third reading in the Senate without amendment last week. It is now awaiting royal assent, which is intended to be a formality, before becoming law. At the time of going to press, the Parliament of Canada website has not specified a date for Royal Assent.

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