Tax Relief for Intergenerational Transfers in Limbo

Bennett Jones LLP

Bennett Jones LLPBill C-208, a private member's bill aimed at facilitating intergenerational transfers of small businesses and farms, received Royal Assent and became law on June 29, 2021. Just one day later, on June 30, 2021, the Federal Government issued a news release announcing its intention to introduce legislation that will delay application of the Bill until the start of next year, January 1, 2022.

The Bill amends sections 84.1 and 55 of the Income Tax Act to alleviate the tax disadvantage to owners of small businesses and farms when selling to a family member relative to an arm’s length buyer. Despite receiving support from all of the major political parties, officials from the Department of Finance expressed concern that the Bill could allow for unintended and aggressive tax avoidance in some situations, and did not support it. In its news release, the Government confirmed that it is "committed to facilitating genuine intergenerational share transfers, while preventing tax avoidance that undermines the equity of Canada's tax system." It is expected that the Government will use the intended period of delay to introduce additional or revised legislation on this issue. 

As the Bill does not include an express application date, the federal Interpretation Act deemed the Bill to apply as of the date of Royal Assent on June 29, 2021. The Government’s decision to defer the application date of the Bill to next year would thus require a retroactive amendment, effectively overriding the current law.

The enactment of Bill C-208 is a welcomed development in the law, but owners of small businesses and farms are currently in limbo as they await the Government’s plans. While the Government may be planning only minor amendments to ensure that the beneficial policy aims of the Bill are achieved, a significant curtailing or full repeal of the Bill remain possibilities. As a result, while the tax provisions contained in the Bill are in force, any reorganization carried out in the face of the Government’s announcement carries significant risk.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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