Many family-owned businesses have faced higher tax burdens when transitioning their business within their family. This is because the Income Tax Act (“ITA”) contains anti-avoidance provisions intended to prevent tax-free or tax-deferred removal of corporate retained earnings.
On June 29, 2021, private members Bill C-208 received Royal Assent, amending these anti-avoidance provisions for legitimate transfers of family-owned businesses. These amendments only apply to the shares of the capital stock of qualified small business corporations and family farm and fishing corporations.
The Department of Finance did not support the amendments in Bill C-208 due to their inability to distinguish properly between legitimate and illegitimate transitions. Accordingly, the government intends to bring forward draft legislative amendments to the ITA that honour the spirit of Bill C-208 while safeguarding against unintended tax avoidance loopholes. These safeguarding legislative amendments will only apply after November 1, 2021.
This provides a small window of opportunity to complete intergenerational transfers with minimal overarching criteria. If you are considering transferring your family-owned business and would like to do it with less strings attached in a tax efficient manner, you may wish to act sooner than later.
If you have any questions or concerns regarding the transition of your family-owned business, contact your Baker Tilly Victoria advisor.