Earlier this year, on June 29, Bill C-208 was made law, allowing tax relief for the intergenerational transfer of small businesses and family farms.
Prior to Bill C-208, parents could not claim the capital gains exemption if they sold shares of the small business, farm or fishing corporation to their children or grandchildren. They could, however, claim the deduction if those shares were sold to an arm’s length corporation.
Bill C-208 changed this by providing tax relief to parents who transfer their business or farm to children and grandchildren.
But just one day later, on June 30, the Department of Finance announced that they would be clarifying this new legislation. This included amendments covering issues such as:
- The need for legal and factual control of the corporation to transfer from the parent to child/grandchild
- The level of ownership the parent can maintain for a time after transfer
- The need for the parent to transition their involvement to the child/grandchild
- The level of involvement of the child/grandchild following the transfer
They also stated that the changes would not be made until the new year, creating some confusion about Bill C-208 and whether it really was law.
Bill C-208 is law
On July 19, however, the Department of Finance sent out a new press release, replacing their June 30, 2021 statements. It settled some of the confusion and let business owners know that Bill C-208 is law and can be applied to current transfers.
The Department of Finance also explained that changes would still be made to ensure that the transfers are genuine, and that the legislation is not being used as a loophole to gain tax advantages.
This is good news for small business owners as it allows transfers under the existing Bill C-208 rules to begin. That means families looking to make genuine transfers to children and grandchildren can now do so without the unfairness that previous laws put into place.
For more information on Bill C-208 and how it can help provide tax relief for your intergenerational business transfer, please contact Koroll & Company today.
