Bill C-208: Intergenerational Business Transfers

On June 29, 2021, Bill C-208 was granted Royal Assent and became law in Canada.  Bill C-208 amended the Income Tax Act (Canada) (the "Act") to provide tax relief to families wishing to transfer shares of small business corporations, family farms, or fishing corporations to the next generation: their children and grandchildren.

Ordinarily, the Act provides that sales of small business corporation shares result in a capital gain, of which 50% is a taxable capital gain and included in the income of the seller and taxed at ordinary marginal rates.  Accordingly, a corporate business owner may seek to sell his or her shares of a corporation and realize a capital gain. But, before the introduction of Bill C-208, when a parent wished to sell his or her shares of a business to a family member's corporation (i.e., a non-arm's length child or grandchild's holding company) what would normally be a capital gain was recharacterized as a dividend, and taxed at higher dividend tax