Strengthening the Inshore Regulations – Engagement Video Series: Intergenerational transfers

Slide 1 - Strengthening the Inshore Regulations

Intergenerational transfers

Slide 2 - Context

The Inshore sector is aging.

Many licence holders are nearing retirement.

New entrants are needed but it takes time to become a full owner operator.

Intergenerational transfers are necessary to keep knowledge and skills within the fishery and to renew the fleet.

DFO’s objective is to identify options to facilitate the transition of licences from one generation to the next, including for families.

Slide 3

“Intergenerational transfer” refers to passing on the business from a current licence holder to a new entrant.

Transferring the business is important for the fishery to remain a source of employment and opportunity for new entrants

For families, intergenerational transfers can be even more important as they represent more than just a business. A fishing enterprise can represent a long history and culture that spans many generations.

Several challenges have been identified that currently affect the smooth transition from one generation to the next.

And so, DFO is looking for ways to help make these transfers smoother so that there is a hand off not only of the business but that also includes the years of knowledge that current licence holders have; sharing it with the next generation.

Slide 4

One of the key challenges with intergenerational transfers is access to capital.

When it comes to accessing capital (understood in this sense as money) there are a few barriers that have been raised.

• Costs are high: Inshore licences, vessels, and gear are expensive, with costs rising across different sectors. When necessities like bait, fuel, and maintenance needs increase in price, this can put pressure on licence holders and impact the economic viability of an enterprise.
• Loan options are limited: Traditional lenders may be more cautious when it comes to lending, particularly for large amounts, because fishing income can be variable or unstable (meaning it can change from season to season).
• Credit history may not be enough:
  • Younger or prospective licence holders may lack the assets or borrowing history needed to secure financing on reasonable terms.
  • As we discussed in the previous presentation, when guarantors or co-signers are needed, there can be other risks to licence holder independence, such as when commercial interests impede the lender-borrower relationship.
• There is a reliance on non‑traditional financing: The interplay of these issues means that new harvesters may depend on buyer or processor loans, which can raise compliance risks related to third‑party control.

Slide 5

Another concern relates to the Owner Operator single enterprise model

While Owner Operator relies on the single enterprise model of one owner per licence, there are limitations to what is possible under the current regime.

Since the licence transfer is a one-time transaction, the person taking over assumes the enterprise at one point in time. This can be abrupt, with limited opportunities to allow for knowledge sharing.

While pay-as-you-go or rent-to-own structures may help with transitioning over time, they are not currently supported.

The upfront costs can be especially hard for new entrants to collect and all risk is placed on one individual.

For families, the effects can feel even more impactful:

• The current model allows for only one child to receive an enterprise.
• This can force current licence holders who are parents to choose one successor. When more than one child wants to continue fishing, it is not possible for them to be equal partners.
• And not every licence holder who is a parent is ready to hand over the enterprise and exit, they may want to take time and do it more slowly.
• However, the current approach means children may have limited hands-on learning opportunities before the business is fully transferred.

It is important to ensure that licence holders are able to remain independent. Any options that could shift from the single enterprise model cannot increase third party control or influence.

Slide 6

Another challenge that has been raised is the standard definition of family that is currently used.

Only those members who meet the formal definition can be included in the inshore family fishing corporation (IFFC). The current definition stems from and was chosen to align with the Income Tax Act definition of related persons. It refers to an individual and their or their spouse’s immediate family (parents, siblings, and children).

In reality, fishing skills and responsibility are often passed between aunts, uncles, cousins, nieces, nephews, or other close relatives, who are do not meet the current definition.

When these members are excluded, families may be unable to share the benefits with others in their family, which can interrupt intergenerational continuity of family enterprises.

At the same time, it’s important that some limit be placed on the definition to maintain the objectives of an IFFC (sharing the benefits amongst families).

DFO wants to reflect the true nature of fishing families while ensuring that the inshore family fishing company is serving its intended purpose.

Slide 7 - Discussion question

Are there other barriers you see for intergenerational transfers?

Slide 8 - Discussion question

What could help remove the challenges people face when trying to get financing to become a licence holder?

Slide 9

There are several different ways that DFO could address the concerns from the previous slides.

The ideas presented here are for discussion and do not necessarily reflect the final options that will be put forward.

Instead, we want to get a sense from you about which of these areas you think DFO could pursue to address the identified concerns:

Specifically, Should DFO:

• Focus on identifying supports to attract and retain new entrants
• Allow shared ownership or partnerships to support transition planning.
• Or, expand the scope of who can be included as family

Slide 10 - Discussion question

What actions could DFO take to help new licence holders follow the Owner Operator rule and stay independent throughout their fishing career?

Slide 11 - Discussion question:

What actions could DFO take to help people join the fishery (from starting as crew and moving up to an Owner-Operator) such as training with and learning from current licence holders?

Slide 12 - Thank you