Tax planning for intergenerational transfers: Small business, family farm and fishing corporations

Courtney Pope, Josh Bokhaut and Graham Fuga, Pitblado Law.

Prior to the enactment of Bill C-208 (the “Bill”), an individual could access the Lifetime Capital Gains Exemption (“LCGE”) on a sale of their shares in a small business, family farm and/or fishing corporation (collectively, a “corporation”) to a corporation owned by an arm’s length party (provided the shares qualified for the LCGE). The unrelated purchaser could use corporate dollars to fund the purchase of the shares. Parents selling or transferring shares to a corporation owned by their children or grandchildren, however, would have their resulting capital gain converted into a dividend and access to the LCGE would be denied. As a result, intergenerational transfers of businesses were penalized under the Income Tax Act (the “Act”).

The Bill amended several provisions of the Act to assist in intergenerational transfers by parents selling or transferring shares of a corporation to a child or grandchild.

Effect of Bill C-208 and Amendments

The Bill addressed the inequity in tax treatment and provided parents with the ability to classify the income received from selling or transferring their shares to a corporation owned by their children or grandchildren as capital gains and to claim the LCGE if certain conditions are met.

Requirements for qualifying for the tax advantages created by Bill C-208

In addition to the normal requirements for qualifying for the LCGE (which is outside the scope of this article), for an intergenerational transfer of shares to qualify under the new amendments, the following additional requirements must be met:
1. The purchasing corporation must be controlled by the children or grandchildren of the seller; the children or grandchildren must be at least 18 years old;
2. The purchasing corporation must hold the purchased shares for at least five years from the date of the purchase;
3. The shares must be sold at fair market value, which requires an independent assessment of the share value;
4. The corporation being sold:
• must be a Canadian corporation;
• cannot have taxable capital employed in Canada exceeding $10 million; and
• cannot be listed on the stock exchange; and
5. The seller must swear an affidavit attesting to the disposal of the shares.

The Future Landscape

It is anticipated that the Government may make further amendments to ensure that the sales or transfers described in this article are made for the purpose of transferring control and ownership of the parent’s corporation to their children or grandchildren, and that such sales or transfers are not just done “on paper” to allow the parent to strip money out of their corporation on a tax-free basis. Future amendments may:
1. Require proof of the transfer of legal and factual control of the corporation from the parent to their children or grandchildren;
2. Restrict the level of ownership in the corporation that the parent can maintain for a reasonable time after the transfer;
3. Impose requirements and timelines for the parent to transition their involvement in the corporation to their children or grandchildren; and
4. Impose requirements related to the involvement of the children or grandchildren in the corporation after the transfer.


The tax treatment of intergenerational transfers of Canadian businesses is presently more favourable than it has been in the past. While the current rules allow for a broader application of these favourable outcomes, commentary by the Government suggests that future amendments may make the legislation more restrictive and would prevent certain taxpayers from realizing the benefits of these amendments.

Please contact our Tax Team if you are considering passing on your business to your family.

Pitblado Law is a full-service law firm and for 140 years we have helped our clients navigate complex legal matters with skill and professionalism. We build successful Relationships; treat people with Respect; and achieve exceptional Results.

Pitblado Law
2500 – 360 Main Street, Winnipeg, MB


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