Increasing The Cost Of Intergenerational Business Transfers

The Canadian Federal Government introduced draft legislation on July 18, 2017 that will profoundly change the taxation of private corporations and their shareholders. The Government claims the changes are necessary to instil fairness into the tax system as it believes the current rules are being used for personal benefit and do not contribute to the economy as a whole.

The proposed legislation targets four strategies believed to be unfair:

1. Income splitting;
2. Multiplication of lifetime capital gains exemption;
3. Holding passive investments in a private corporation; and
4. Converting a corporation's after-tax income into capital gains.

The new rules will increase the overall tax cost to private corporations, shareholders and their family members if enacted as proposed.