Senate Passes Significant Tax Bill Aimed at Facilitating Intergenerational Business Transfers

On June 22, 2021, the Senate passed Bill C-208 (following its previous passage in the House of Commons). A Private Members’ Bill, Bill C-208 is aimed at facilitating intergenerational business transfers and follows similar Bills introduced by various political parties in previous Parliamentary sessions. The Bill now awaits Royal Assent to become law.

The Bill proposes to amend sections 55 and 84.1 of the Income Tax Act (Canada) by, in general:

a.       providing that siblings continue to be related for purposes of section 55 if a share of the corporation paying the subject dividend is a qualified small business corporation share (QSBCS) or share of the capital stock of a family farm or fishing corporation (SFFC), each as defined in s.110.6(1) of the ITA; and

b.       deeming, for purposes of section 84.1, a vendor to deal at arm’s length with a purchaser corporation if the transferred shares are QSBCS or SFFC, the purchaser corporation is controlled by one or more children or grandchildren of the vendor who are 18 years of age or older, and the purchaser corporation does not dispose of the subject shares within 60 months after their purchase.

In essence, the amendments facilitate the transfer of small business corporations between family members. They also permit, in certain circumstances, individual transferors to claim the “lifetime capital gains exemption” in respect of such a sale. Various benefits and perceived concerns with the statutory amendments were raised in recent hearings by the Standing Senate Finance Committee on Agriculture and Forestry, and close regard should be had to the specific wording of the draft legislation by those seeking to fall within its purview.

Prepared by: Alexander Demner, TEP

Alexander is a partner practicing in the firm’s Vancouver office. Alexander’s practice covers several areas of taxation, including estate planning, pre-sale and divestiture structuring, owner-manager remuneration, taxpayer representation, and tax litigation. Alexander routinely advises on and implements reorganizations for individuals,… more »