The Income Tax Act (Canada) has long received bipartisan criticism for its overly punitive taxation on the transfer of small business corporations and farms to the next generation. The founders of such businesses were forced into choosing one of three options:
The three above options are clearly less than ideal.
It was reported that on Wednesday, May 12, 2021, Manitoba MP (Brandon-Souris) Larry Maguire’s private member’s bill C-208 to amend the Income Tax Act passed its third reading in Parliament (receiving bipartisan support) and now requires Senate approval.
Bill C-208, in short, amends various sections of the Income Tax Act which restrict a family member’s ability to sell their small businesses or farms on a tax-efficient basis. The bill amends Subsections 55(5)(e)(i) and 84.1(2), and adds Subsections 84.1(2)(e) and 84.1(2.3). The amendments apply to a “qualified small business corporation share” and a share of the capital stock of a “family farm or fishing corporation” as defined in Subsection 110.6(1).
The amended and added provisions require strict compliance and contain limitations (including an anti-flip limitation). It is recommended that you contact one of our TDS Tax Lawyers to advise how this potential change may impact the succession plan and exit strategies for your business.