Bill C208 with Kim Moody | E067

How one flawed bill is (temporarily) effecting intergeneration business transfers.

In today's episode Jason and Kim are going to talk on a topic that has been in the news recently the Bill C-208. It is a private member's bill that amends the Income Tax Act (Canada) (ITA) in an attempt to alleviate the financial disadvantage that typically arises for taxpayers who sell their business, family farm or fishing corporation to their children or grandchildren, as compared to selling to an arm's length third party. This disadvantage is caused by certain tax rules, specifically an anti-avoidance rule in section 84.1 of the ITA. Despite Bill C-208's best efforts to "fix" this problem, the language used in the legislation does not appear to work as intended. It raises many concerns that will likely need to be addressed by the government through further amendments to the legislation. Kim is here to talk about what the heck this thing is and how it affects business owners in general.

Episode Highlights:

  • 01.14 Kim talks about Bill C-208 that has been in the news recently. He explains what it is, what it is trying to fix, and how this has gotten so twisted? 

  • 01.40 Kim: In 1985, the Government of Canada introduced the capital gains deduction, and most business owners know the capital gains deduction. It started off with $500,000 if you own shares of a qualified small business corporation, which generally means active business, not a lot of passive assets, or qualified farm property, and you disposed of that, then you would be able to claim the 1st $500,000 of gains tax-free so, that first came in 1985. Back then government was smart enough and introduced some anti surplus tripping rules around capital gain deductions.

  • 02.25 Kim says that to understand surplus tripping, you first need to understand the only way you can remove after-tax corporate retained earnings or what we call surplus? So, it's after-tax surplus in a corporation and remove it to its shareholders. What is the only way by definition?

  • 03.31 Jason says he is a big believer in Charlie Munger's saying – "Show me the incentive, and I'll show you the outcome." He says, "If I could find a way to be creative and find a way to have money recharacterized as a capital gain instead of a dividend, and then by nature, I am going to find a way to do it." 

  • 05.50 Kim affirms the government who has been concerned about surplus stripping they have always been concerned about that because capital gains were not taxable in Canada until 1972. So, prior to that, capital gains were without tax. 

  • 06.30: Kim asks in 1985 when they introduced the capital gains deduction. They introduced the anti-surplus stripping rule to prevent the withdrawal of surplus in conjunction with the capital gains deduction, and how did they do that? 

  • 09.00 Kim says in 2017, during the private corporation tax battle, the government introduced these anti surplus stripping rules. Do they finally had enough? The courts have been sympathetic to surplus tripping over the year because there's no provision that outright prohibited. There are anti-avoidance abuse rules like 84 sub two and the journal entry orders rule that the government can invoke, but they've never been really that successful in recharacterizing a capital gain as surplus as a dividend. 

  • 09.52 Jason reiterates it wasn't such a scattered piece of legislation across the city in this country's history, at least when it comes to tax that's refer. 

  • 10.38 Kim says fast forward to August, September and there the government was just getting beaten up hard and finally the press somewhat understood the issues and so they're becoming a little more sympathetic rather than just saying, "Hey, this is great and buying into the government line, and so they abandoned in October of 2017 these crazy circle stripping proposals." 

  • 12.30 Kim recalls somewhere around 2013 a private member's bill was introduced to try and solve the above-mentioned issue, but it was quickly shut down and killed like most private members' bill.

  • 14.40 Kim explains the governing for 18 or 19 liberals that studied this issue and voted against party lines finally have enough because this issue has been around for a long time and so knowing full well that it got passed or that it's imperfectly. They thought we are going to squeeze the department of finance into a corner here and force them to deal with this issue. So, today we have the legislation in place.

  • 16.10: Jason agrees that they have now set a new precedent that a bill can reach low assent. If it does not specifically state the date at which it starts, the President can kick it down the road as smart as far as they want. 

  • 16.30: Kim clarifies that the interpretation Act specifically deals with this, and it's quite clear that if there's no effective date or coming into force provision, it is effective law on the date that it receives oral assent. 

  • 17.52: Kim says in an unprecedented news release that came out on 19th July from the Department of Finance, they clarified that it is actually Krista Freeland, so the Minister of Finance, who confirmed that Bill C208 is effective law. 

  • 19.40: Kim points out that if it is any government that comes out and recognizes that this piece of legislation that has passed is imperfect and allows for abuse; because let's be serious, should surplus that is removed from a corporation be taxed as a capital gain? In my opinion, generally, No.

  • 20.03: Should surplus remove from a corporation be taxed as a capital gain? Kim generally thinks the answers should be consistent with accounting 101, which is No. It should be taxed as a dividend. There are exceptions to that general rule, and so he blames the government for being concerned about abuse and surplus surfing. 

  • 22.40: Kim is not sympathetic to the government. He says that the Department of Finance has other priorities, and COVID certainly shifted a lot of those priorities. They have had 36 years to deal with this issue. Instead, they decided to play politics with it and go on a listening tour instead of actually having the bureaucrats, you know, roll their sleeves up and come up with some solutions.

  • 24.00: Kim inquires How many clients do you deal with on a year-to-year basis that are transferring their business to the next generation? He further says, "Certainly some, but as a great is it one month, two months, three months, 10 months? I would say it's probably on average for me, and I have been doing this a long time, maybe once a year."

3 Key Points:

  1. Bill C-208 was granted Royal Assent on Tuesday, 29th June. It amended the Income Tax Act (ITA) to provide tax relief to families who wish to transfer shares of small businesses or family farms and fishing corporations to their children.

  2. Kim explains how the private member's bill, which is now passed into law as Bill C208, is imperfect and is very poorly drafted. There is no legitimate or illegitimate test for intergenerational transfer. 

  3. Jason says Canadians like to believe and assume that their government does not purposely pass crappy legislation. This is something he has encountered multiple times.

Tweetable Quotes:

  • "If a non-arms link corporation decides to buy your shares using money that is within their holding companies, the same kind of surplus, same kind of tax rate and then buys your shares it does qualify for the capital gains exemption." - Jason 

  • In the abandonment, they promised to fix the intergenerational transfer issue, and that was good. – Kim

  • "You are indifferent to how you take money." – Jason

  • "We have a flat piece of legislation, there are opportunists, who will try to take advantage of it. We know that this is going to get corrected because they've been eyeing this thing for a while and now, they have created a created a demon they got to slay." - Jason

Resources Mentioned

Transcript:

Producer: Welcome to the Financial Planning for Canadian Business Owners Podcast. You will hear about industry insights with award-winning financial planner and entrepreneur, Jason Pereira. Through the interviews with different experts, with their stories and advice, you will learn how you can navigate the challenges of being an entrepreneur, plan for success, and make the most of your business and life. And now, your host, Jason Pereira.

Jason Pereira: Hello and welcome, thank you for joining. Today on the show, I brought back Kim Moody, who was one of my original guests to talk about taxation. But, I brought him on specifically to talk about something that's been in the news a lot, which is Bill C-208. And this has been a bill that has had quite the saga, and that saga continues and is unsolved yet. So, I brought him on to talk about what the heck this thing is, and how that affects business owners in general. And with that, here's my interview with Kim.

Jason Pereira: Kim, thanks for taking time today.

Kim Moody: Hey Jason, nice to be here. Thanks for bringing me back on.

Jason Pereira: Oh, my pleasure. Always a pleasure and for those who don't ... Unfortunately, we don't use video, because no one needs to see me. But, Kim is probably the snappiest dresser in all of accounting. So, you're being deprived.

Jason Pereira: So, Kim, talk to me about this thing that's been in the news called Bill C-208 and what it is, what it's trying to fix, and how this has gotten so twisted.

Kim Moody: Sure. So, it's a bit of a long story. So, you want me to give you a context of history?

Jason Pereira: Yeah, sure.

Kim Moody: Okay. So, back in 1985, Jason, I don't know if you were born then, were you born in 1985?

Jason Pereira: I was born. I wasn't doing much, but I was born then.

Kim Moody: Well, in 1985, I was just finishing high school, but in 1985, the government of Canada introduced the capital gains deduction and most business owners know the capital gains deduction. It's started off with $500,000, and if you own shares of a qualified small business corporation, which generally means active business, not a lot of passive assets, or if you own farm property, qualified farm property, and you disposed of that, then you would be able to claim the first $500,000 of gains tax-free.

Kim Moody: So, that first came in in 1985. And back then, the government was smart enough to introduce some anti-surplus stripping rules around the capital gains deduction. And what do I mean by that? Well, I'm going to test your knowledge here, Jason, and maybe your listeners can follow along just to see if they do as well as you do.

Jason Pereira: Okay, here we go.

Kim Moody: So, in order to understand what surplus stripping is, you first need to understand what is the only way, by definition, and this is from an accounting perspective, this is what they teach you in accounting 101. What is the only way that you can remove after-tax corporate retained earnings, or what we call surplus? So, it's after tax surplus in a corporation and remove it to its shareholders. What is the only way by definition?

Jason Pereira: A dividend.

Kim Moody: Oh, you got it. [crosstalk 00:02:55].

Jason Pereira: [crosstalk 00:02:55].

Kim Moody: By definition, that is the only way from an accounting perspective, that you can remove after tax corporate earnings to the shareholders. And you'll learn that in Accounting 101, Finance 101, whatever. But, from an income tax act perspective, there's many other ways and they define that. So, do you think if the government introduced the capital gains deduction in 1985, that clever people like tax practitioners could think of ways to remove surplus and have it taxed as a capital gain instead of a dividend?

Jason Pereira:Well, I'm a big believer in Charlie Munger's saying of, "Show me the incentive and I'll show you the outcome." So, if I can be creative and find a way to have money recharacterized as a capital gain instead of a dividend, and then by nature not have it taxed, you better believe I'm going to find a way to do it.

Kim Moody:Yeah. And actually it's quite simple, here's a way. So, let's say, I own shares of a company and those shares qualify as qualified small business corporation shares. So, let's say I transfer those shares to a holding company that I own, or let's say my kid owns, let's say it's my kid. Just because it's more relevant for what I'm about to say. So, let's say my kid, and let's say he's 18 years old, owns a holding company, and I transfer the shares to that holding company. And let's say as consideration, I receive a promissory note and let's say those shares are worth $1 million. Or, actually back in 1985, let's say it was worth a half a million dollars. So, I transfer those shares to my son's holding company and I trigger a $500,000 capital gain. And I receive a promissory note from my son's holding company as consideration.

Kim Moody:So, now my son's holding company owns the shares and there's $500,000 of surplus somewhere in that holding company. So, I transfer that surplus to the holding company, by way of a?

Jason Pereira:Dividend in a corporate-

Kim Moody:Dividend. And as most practitioners know, that's an inter-corporate dividend, because it was going from OpCo to HoldCo. And in most cases, not always, that would be without tax. So, now the $500,000 is sitting in the holding company. What does the holding company do?

Jason Pereira:Pays off the note.

Kim Moody:Pays off the note. And so, all of a sudden, I have a capital gain in my hands, because I transferred the shares to the son's holding company, and I triggered a capital gain, but what am I going to do? [crosstalk 00:05:12].

Jason Pereira:You're going to use your deduction and pay zero tax on it.

Kim Moody:Exactly. So, I'm going to use the capital gains deduction, pay zero tax. And then, the surplus came all the way out from OpCo to HoldCo to repay my promissory note that I hold. That's classic surplus stripping 101.

Jason Pereira:Paying and dividend on top of the whatever tax rate it was corporately and therefore paying a fully integrated rate, which would equal income. You've now have only effectively paid the corporate tax on this.

Kim Moody: You've only effectively paid the corporate tax. And as a matter of fact, you've used the capital gains deduction to facilitate a tax-free withdrawal.

Jason Pereira: Yeah.

Kim Moody: And certainly the government who's been concerned about surplus stripping for ... I've seen comments from government, going back to 1963. They've always been concerned about that, because capital gains were not taxable in Canada, until when? Let's test your knowledge Jason, when did they ...

Jason Pereira: In 1973?

Kim Moody: Oh, damn, you're close, 1972. So prior to that, capital gains were without tax. So, do you think there was even more incentive to trigger capital gains as opposed to dividends?

Jason Pereira: Yeah. Totally.

Kim Moody: So, the government got really concerned about that. Introduced some anti-surplus stripping rules. And so, fast forward back to our story in 1985, when they introduced the capital gains deduction, we introduced an anti-surplus stripping rule to prevent the withdrawal of surplus in conjunction with the capital gains deduction.

Kim Moody: And how did they do that? Well, what they said is this, and it still says it. It's section 84.1 of the Income Tax Act. They said, "All right, if you transfer shares to a non-arms length corporation and you've claimed your capital gains deduction on that transfer, then that gain is deemed to be a dividend." And if it's deemed to be a dividend, then no capital gains deduction. And that rule, if you understand that basic rule, the problem is that the rule relies on a transfer to a non-arms length corporation. So if you go back to my original example, which illustrates what surplus stripping is, if I actually do that in real life today or even from 1985 forward, if I transfer that to my son's holding company, I can't claim the capital gains deduction. And so the government has been aware of this issue since 1985, but they thought, "You know what..."

Jason Pereira: Let's clarify the issue. So let's look at the difference here. So if there's money in the corporation and this transfer could be used to pass on the corporation to the next generation, that is considered offside. However, if a non-arm's length corporation decides to buy your shares using money that is within their holding company, the same kind of surplus, same kind of tax rate, and then buys your shares, it does qualify for the capital gains exemption.

Kim Moody: Well, I think you've mixed up there a little bit. If it's an arm's length corporation, that applies.

Jason Pereira: Yes, correct. Sorry.

Kim Moody: Then you're good.

Jason Pereira: So, an arm's length, third-party, non-family, then you're good. Right? So it's actually, in theory, cheaper for someone who's not your family to buy your family business than it is for someone who is your family. Right? And that issue has been around since 1985. So the government kind of was aware of it, wasn't committed to solving the issue because they were more concerned about surplus stripping in non-legitimate intergenerational transfers.

Jason Pereira: In other words, they thought that more non-legitimate intergenerational transfers, or try that again, more non-legitimate surplus stripping would occur as opposed to legitimate intergenerational transfers. That would be collateral damage, in other words in favor of this rule. Well, fast forward 30 years, and it was becoming a real problem because it was turning around generation businesses were transferring to the next generation, especially farmers and any business for that matter, doesn't need to be farmers. And so in 2017, which during the private corporation tax battle, which I'm sure you're well aware of and.

Kim Moody: I was involved just like you were, [crosstalk 00:09:11] oh man, that was a lot of work.

Jason Pereira: Yeah. I know you were greatly involved in that as you know, so as I, and I think one of the ways that we met. But in any event, the government introduced these anti-surplus stripping rules because they finally had enough. The courts have been pretty sympathetic to surplus stripping over the year because there's no provision that outright prohibits it.

Jason Pereira: There's anti-avoidance abuse rules like 84 sub two and the general anti-avoidance rule that the government can invoke, but they've never been really that successful in re-characterizing a capital gain as surplus, as a dividend. And so they introduced these proposals in the summer of 2017 and they were just ridiculous.

Kim Moody: It was the most misguided piece of legislation possibly in this country's history, at least when it comes to tax, that's for sure.

Jason Pereira: I would totally agree with that. And just the way they did it, too, was so ridiculous.

Kim Moody: Oh, so arrogant. Like they basically said, "This is it. And we're ramming it down your throat and [inaudible 00:10:06] for commentary, but we're ramming it down your throat." It was utterly disrespectful.

Jason Pereira: It was, and to do it in the middle of the summer too was ridiculous. And I still have pangs of anger every time I think about it.

Kim Moody: They got up there and called every business owner, every small business, let's be clear, every small business owner and farmer in the country a tax cheat.

Jason Pereira: Yep.

Kim Moody: Wow.

Jason Pereira: Yep.

Kim Moody: Coming from the lips of our illustrious prime minister, but don't get me going on Baltics, Jason. [crosstalk 00:10:33]

Kim Moody: Yeah. Good point. So fast forward to August, September, and there, the government was just getting beaten up hard. And finally, the press somewhat understood the issues. And so they're becoming a little more sympathetic rather than just saying, "Hey, this was great." and buying into the government line. And so they abandoned in October of 2017, these crazy surplus stripping proposals. But in the abandonment, they promised to fix the intergenerational transfer issue. And so that was good. And they invited commentary, they wanted some proposals because Quebec had introduced some proposals to deal with this issue. It wasn't perfect, but it was certainly a hell of a lot better than what the federal legislation dealt us, which was nothing.

Kim Moody: And so they invited proposals, so groups like CALU (Conference for Advanced Life Underwriting), which, I know you know very well, wrote a really good piece and suggestion. Again, it wasn't perfect because it's a tough issue to try to legitimize what's a legitimate intergenerational transfer versus what's not. And that's really the drafting issue that the government struggles with is how do you solve this issue and how do you identify what's legitimate versus non legitimate. And so CALU, to their credit, wrote a pretty good piece. Some other organizations wrote a piece. Fast forward to the spring of 2018. The government started to pay some lip service to this. They went on a so-called listening tour with Minister Minnow, my favorite buddy. He loved his so-called listening tours. But it was all politics, right? It was not a legitimate list. All it was was, "Hey, we're paying lip service to come out and listen to you." Fast forward to 2020 April, 2021, when we finally had a federal budget after two years. And in that budget, they said, "Yes, we're committed to solving this issue, but we had a later date."

Kim Moody: Well, so that's kind of the bit of the context. So now back the train up a little bit. Prior to 2016, I can't remember the exact date. I think it's somewhere around 2013, if I recall. There was a private member's bill introduced to try and solve this issue, but it was quickly shut down and killed like most private member's bill. In 2016, I think it was an NDP member, D Koran, introduced a private member's bill, which tried to solve this issue as well. And that got killed. Fast forward to May, 2020 and a conservative member, Larry McGuire, I think the fellow's name is, took private member's bill from 2016 and reintroduced it as a private member's bill. Not even any changes, just cut and paste, introduced it.

Kim Moody: And fast forward to this spring. And lo and behold, it passed the house of commons with 18 or 19 members of the liberals, the governing party supporting it, including the finance committee chair, Mr. Wayne, Easter. And lo and behold, it passed the Senate. And then on June the 29th, the [inaudible 00:13:24]. And so it was like, whoa.

Jason Pereira: Even though there was inklings that they were going to... They had said publicly that we're not going to let this happen.

Kim Moody: Yeah. And to a certain extent, rightly so, because the private members bill, which ultimately now is passed into law as Bill C-208, is very imperfect. It's very poorly drafted. And let me give you an example, all you need to do in order to allow the capital gains deduction now - so I sell my shares to my son's company - all I need is my son to control for 60 months. And that's it. And so worst case scenario... There's no legitimate or illegitimate test for intergenerational transfer. So I could transfer shares to- I have four sons- I could transfer- let's say my wife owns a company and I own a company- she could transfer to one of my sons, claim her capital gains deduction. I could transfer to the other son's company and claim capital gains deduction.

Kim Moody: So it's ripe for abuse. And that's where it's gotten criticized by the department of finance and by the governing party. And so I think frankly, the liberal... And it wasn't lost on the liberals. Anybody who studies this issue would know that, yeah, this legislation is not perfect, and it was right for abuse. But I think the governing liberal, or the 18 or 19 liberals, I can't remember the exact number that studied this issue and voted against party lines, just finally had enough because this issue has been around a long, long time. And so, knowing full well that it got passed or that it's imperfect, they thought, "We're going to squeeze the department finance into a corner here and force them to deal with this issue."

Kim Moody: And that's, in my view, exactly what happened. And so today we have the legislation in place. But where it got a little bit crazy, Jason, is on June the 30th, so the day after it received royal assent, the department of finance released a news release saying that, and it was a three paragraph news release in one of the most misleading news releases I have ever seen. And I thought I'd seen it.

Jason Pereira: That's saying a lot for a lot of the tax policies come out in recent years, but continue.

Kim Moody: Yeah. I was just going to say that, you took the words right out of my mouth. But basically what they said is "Because Bill C-208 does not have an effective date within the bill, the department of finance will release clarifying legislation later this year to clarify that it has application on January 1st, 2022." Well, when I read that, I was stunned, and I grabbed a good chunk of our lawyers and accountants who practice in tax or on the firm and said, "What? What are they saying here?"

Kim Moody:We quickly pull up the legislation, the interpretation act. And sure enough, Bill C-208 did not have an effective date, but this is not the first time a bill has passed.

Jason Pereira:They've now set a new precedent. They've now set a new precedent that a bill can reach royal assent, and if it does not specifically state the date at which it starts, the precedent is they can kick it down the road as much as far as they want. Right?

Kim Moody:Frankly, our parliamentarians thought about this a long, long time ago. And so the interpretation act specifically deals with this. And it's quite clear that if there's no effective date or coming into force provision, that it is effective law on the date that it receives royal assent. And there's really no debate about that. None. And so quickly some constitutional lawyers [crosstalk 00:16:47] we'll get this resolved as soon as...it's the old challenge for us, but we're going to have that clarifying legislation out before it gets resolved.

Jason Pereira: Classic games of parlor politics. Continue.

Kim Moody:I think it was designed to try to see how, test how dumb Canadians are, right? Because the average accountant or lawyer who doesn't practice in tax might just accept that statement. And frankly, you don't even need to practice tax. You just need to understand how a bill is passed into law, which is pretty foundational for any lawyer. But you know, if you don't have that base knowledge, then you would just accept that that's probably correct. But that is so misleading. And so Wayne Easter, Chair of the House Commons Finance Committee, to his credit, came up publicly and said, "What? No, this is- you can't have the will of cabinet because obviously cabinet was upset with this bill being passed. You can't have the will of cabinet forcing the will of parliament." And so he called an emergency meeting of the House of Commons Finance Committee back to ask questions of the Department of Finance officials.

Kim Moody:And that was scheduled for, I believe, July the 20th. But in an unprecedented news release that came out on July the 19th from the Department of Finance, [crosstalk 00:18:01] they clarified that in, as actually Chrystia Freeland, so the Minister of Finance, who confirmed that Bill C-208 is effective law. Which again, I find offensive, right? You don't need a minister confirming that a piece of legislation that's received royal assent is effective law. You don't need that. But in this case, I think she backed herself into a corner because of that June 30th press release. And so very offensive confirmation, if you want to call it that. But in that release, they came out and basically said, yeah, there's some problems with this legislation and they're going to look to amend it. And they're going to look to basically, and there's four principles that they came out with and you can take a look if you'd like, but basically they want to try and draft legislation that prohibits a non-legitimate intergenerational transfer. That's probably the simplest I could say it, Jason.

Kim Moody:And so now you've got the tax community and people like yourselves that are kind of left, scratching your head saying, okay, we've got effective law, now it's imperfect. Should we drive a truck through this legislation and strip money?

Jason Pereira:Funny you should mention that because, just today, I posted on LinkedIn. Cause I saw the ad at the top of my page, there was a Bill C-O2 is now law. Here's how to...something about taking advantage of it and then clicked on it, just to see where it took me. And people have already started standing up independent websites on this. And, I think you'll agree with me, given this government's propensity for what I'll call almost retroactive taxation. That is a very dangerous stance to take.

Kim Moody:I think anytime you have a government that recognizes that, and partisan politics aside here, I don't care if it's any government that comes out and recognizes that this piece of legislation that has passed is imperfect and allows for abuse. Because let's be serious, should surplus that is removed from a corporation will be taxed as a capital gain? In my opinion, generally, no.

Jason Pereira:So I would say no, that violates the principles of integration, which are there to make sure that you are indifferent to how you take money, right? So that makes sense. Otherwise, everybody would just take dividends and pay less tax. I think, again, this big asterisk of, should it be fair that a third party company can come in and buy your family business for less after tax, pay less tax to be able to raise the money to buy the family business. The answer is no, there's a kind of family social justice aspect of that.

Kim Moody:Totally. Yeah. I totally agree with that. But going back to my original question, should surplus removed from a corporation be taxed as a capital gain? I think generally the answer should be consistent with Accounting 101, which is no, it should be taxed as a dividend. There's exceptions to that general rule.

Kim Moody:And so do I blame the government for being concerned about abuse and surplus stripping? No, I don't. So to go back to this question, should we drive a truck through this legislation? I think anytime you have a government that's come out with statements saying, "Hey, we're going to amend the legislation under these four principles." I think you'd better be concerned. And not withstanding there's tax practitioners out there that are certainly going to counsel their clients to take advantage of existing law, which enables you to drive a truck through, in my opinion, that's dangerous.

Jason Pereira:And who's going to have sympathy for them whatsoever should the government turn around and in January 1st, say, "Here's the test that we alluded to, and that now is part of this law, and guess what? It is effective the date of the implementation of Bill C-208."

Kim Moody:Yeah. I don't think there'll be a lot of people that would be offended by that.

Jason Pereira:No, I think it's caveat emptor on this and, frankly, you are playing with fire and we all know that. And it's, the one thing I will say, is that I think the surplus stripping activity has picked up in the last couple of years since they took that ridiculous bill off the table. And my understanding was that took GAR off the table as a provision for attacking it. But this is a problem that needs to be fixed.

Kim Moody:That's debatable by the way, but sure.

Jason Pereira:That is debatable, yeah. This is a problem needs to be fixed. Canadians like to believe and assume that their government does not purposely pass crappy legislation. This is something I've encountered multiple times, most recently with the personal real estate corporations in Ontario, which that legislation is terrible. And now another example on the federal level. I think frankly, we demand more from our politicians that they actually get it right the first time, and not leave gaping loopholes that might be exploited and that they might clean up later.

Kim Moody:Yeah. I think if you were to back the truck up on this, and yes, the Department of Finance has other priorities and COVID certainly shifted a lot of those priorities. I'm not that sympathetic. They've had 36 years to deal with this issue. They committed since 2017 to deal with this issue and they didn't. Instead, they decided to play politics with it and go on a listening tour instead of actually having the bureaucrats roll their sleeves up and come up with some solutions. I'm not that sympathetic. Now, is it going to force the government's hand and force them to deal with this? Yes, it is. Mission accomplished, in my view. We'll see what the legislation looks like, but this saga is not over, so.

Jason Pereira:It is most certainly not because we know we're waiting for something. The question is, what comes out the other end? So I think for listeners who maybe have heard about this opportunity, "opportunity," who have maybe been approached by some of the tax people out there who may not be as cautious, or diligent, or client-protecting as Kim or others that I associate with, this is caveat emptor to the extreme. This is something that, you may do something that you think is going to benefit you, only to have it completely taken apart a couple months later. And I'm sure people are going to charge a pretty penny for making it happen. So I think you're of the same mind that this is not something we're going to try touching anytime soon, right?

Kim Moody:No, not unless it's a legitimate transfer, which in our office, we're dealing with two of them at the moment, which is just on a whole separate point. How many clients do you deal with on a year-to-year basis that are transferring their business to the next generation? I mean, certainly some, but is there one a month, two a month, three a month, 10 a month? I would say it's probably on average for me, and I've been doing this a long time, maybe one a year.

Jason Pereira:Yeah. I mean, you're probably more than I am. I mean, we do a bunch of structuring in advance, but the actual execution of it? Yeah. I mean, I do [inaudible 00:24:04]. So I mean, anyone who's basically using the tax motivation as the reason to make a transfer, that's not the reason. The number of things that can go wrong in the transfer of a family business, just from family dynamic, of the family dynamic standpoint alone, if you're using tax savings as the primary driver for why you want to do this, you could be blinding yourself to all kinds of other risks in addition to [crosstalk 00:24:25]

Kim Moody:Totally, totally agree.

Jason Pereira:Yep.

Kim Moody:Totally agree.

Jason Pereira:So overall, end of the day, we have a flawed piece of legislation. There are opportunists out there who will try to take advantage of it. We know that this is going to get corrected because they've been eyeing this thing for a while. And now they've created a demon they got to slay, and they're going to get to it. And they're going to get to it, regardless of the outcome of whatever unannounced election is. Someone's going to get to it. And you're taking a lot of risk for potentially a negative return. And you're better off just dealing with this the way it should be dealt with as opposed to anything else.

Kim Moody:I agree, Jason.

Jason Pereira:Good. So Kim, that was informative. It's also very frustrating to hear that these problems persist in Canadian tax law for the better part of 40 plus years, but at least, once this is hopefully, once this is all said and done, knock on wood, come January, we have a fair framework for intergenerational transfers utilizing capital within a corp.

Kim Moody:Yep. I agree. At least this will force something and hopefully that something is something reasonable.

Jason Pereira:And that's all we're really looking for. Right?

Kim Moody:Yeah.

Jason Pereira:Fair is fair. And one last thing, where can people find you, as always?

Kim Moody:You can reach me at www.moodysprivateclient.com. M-O-O-D-Y-S privateclient.com.

Jason Pereira:Kim, as always, I appreciate the time you've taken. You're a virtuoso at explaining this stuff and very understandable always. So very much appreciated. Thank you.

Kim Moody:Oh, my pleasure, and thank you.

Jason Pereira:So that was today's episode of Financial Planning for Canadian Business Owners. I hope you enjoyed that. And I hope if you're being approached for someone to take advantage of Bill C-208, you really, really stop and listen to this podcast and listen to all the words of caution we've thrown your way. Do what's right in the long run for your intergenerational transfer. Don't try to take advantage of a loophole that can slam around your neck, quite honestly, or get tightened around your neck, that is. As always, if you enjoyed this podcast, please leave a review on iTunes, Stitcher, or wherever your podcast. Until next time, take care.

Producer:This podcast was brought to you by Woodgate Financial, an award-winning financial planning firm, catering to high net worth individuals, business owners, and their families. To learn more, go to woodgate.com. You can subscribe to this podcast on Apple Podcasts, Stitcher, Google Play, and Spotify, or find more episodes at jasonpereira.ca. You can even ask Siri, Alexa, or Google Home to subscribe for you.

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