Now that Bill C-208 has passed into law, it should make it easier and more tax-efficient for business owners to transfer their business to the next generation. WHAT DO THESE CHANGES MEAN FOR BUSINESS OWNERS? Furthermore, the rules also require the business owner to obtain an independent assessment of the value of the company. As an example, Bill C-208 includes a provision that intends to grind the LCGE if the taxable capital employed in Canada exceeds $10 million. The holding company does not dispose of the shares within 60 months of acquiring them (for any reason other than death).Īdditional rules are included in the Bill that add a bit of complexity and require careful consideration by the business owner who might be considering selling their business and taking advantage of these changes.The holding company that purchases operating corporation shares is controlled by either Parent’s children or grandchildren, who are at least 18 years of age and.The operating corporation shares are shares of a Qualified Small Business Corporations (QSBC), a family farm or a fishing corporation.THE DETAILSīill C-208 attempts to exempt certain intergenerational transfers from Section 84.1 of the ITA if the following conditions are met: Ultimately, these seemingly small adjustments to the ITA have the potential to result in ground-breaking changes in how entrepreneurs and farmers transition their business to the next generation.
This is similar to legislative changes announced by Quebec in Budget 2021. This Bill will allow the sale of QSBC shares (including farming and fishing corporations) to be eligible for the capital gains exemption when sold to a related party, or relative, by the purchaser for a minimum of 60 months. The Bill, which received Royal Assent on June 29, 2021, limits the application of these anti-avoidance provisions with respect to the inter-generational sale of a business. This is why accountants, family business advisors and industry organizations are so excited about Bill C-208. This can make a sale to children or grandchildren less tax advantageous than one to an unrelated third party. However, the anti-avoidance provisions contained in the Income Tax Act (“ITA”) may prevent the use of the LCGE when the sale is made to a related party, typically the next generation. When your business meets the definition of a ‘Qualified Small Business Corporation’ (QSBC), whether it is a small business or a farm the sale of the shares is generally eligible for up to $1M of lifetime capital gains exemption (LCGE). As if you don’t have enough on your plate already! As your business grows, so too does your legacy and you are left wondering, “who can I entrust my lifes’ work with?” Normally, your business grows into a legacy for future generations, but existing practices and rules for private companies can make the taxation and succession of your business difficult to navigate. Family businesses are always faced with the most unique challenges – one of the main being transition and succession planning.
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