Posted on July 7th, 2021 by A.J. Whitehead in Agribusiness, Business Transition & Family Enterprise Advisory, Domestic Tax

UPDATE: Bill C-208, Inter-generational Business Transfers, Receives Royal Assent

farm landscape

UPDATE: The June 30 announcement caused much confusion due to concerns that the amendments would retroactively change the legislation, leaving taxpayers in a state of uncertainty until any changes become effective. In response to this stakeholder feedback, on July 19, 2021, Finance Minister Chrystia Freeland issued a news release confirming that the Bill was in fact law as of the date of Royal Assent. 

 On June 29, 2021, Bill C-208 received Royal Assent thereby amending the Income Tax Act (“ITA”). The Bill attempts to ease the tax burden for families transferring small business corporations or family farms and fishing corporations to the next generation. 

The intention of the Bill is to facilitate intergenerational transfers of qualified small business corporation shares (QSBC) and shares of the capital stock of a family farm or fishing corporation.  The Bill limits the application of Section 84.1 for certain transfers of shares to family members.  Section 84.1 may deem an individual, who transfers shares of a corporation to a family member’s corporation, to receive a dividend as opposed to a more favourable capital gain.  This treatment due to Section 84.1 would also prevent the use of the lifetime capital gains exemption (“LCGE”).  The new rules may alleviate this problem ensuring capital gain treatment and the potential to claim the LCGE.

Additionally, the Bill will reduce the limitations on the transfer of business assets between corporations owned by siblings.  Under Section 55 of the ITA, siblings may be prevented from certain corporate reorganizations that are intended to transition business or family farm, or fishing assets.  Under the new rules, certain reorganizations involving shareholders who are siblings may be available allowing for the transition of the business, family farm, or fishing assets. 

On June 30, 2021, the Department of Finance issued a news release indicating that the amendments will apply starting January 1, 2022.  Additionally, the news release gave the indication that the Department of Finance will adjust the legislation prior to its effective date. 

This is a follow-up article from the previous, Reduced Taxes for Inter-generational Business Transfers. For more information on Bill C-208, contact your DJB Tax Professional.

About the Author

A.J. WhiteheadPartner | CPA, CA

As a Tax Partner, A.J. works with clients providing personal, corporate, and estate taxation advice specializing in owner-managed businesses.
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