Intergenerational Business Transfers: Bill C-208 Developments

Prior to 2021, section 84.1 of the Income Tax Act ("Act") created a real impediment to a tax-efficient succession of a family business from one generation to the next, effectively penalizing a sale to a family member compared to an arm's length third party from a tax perspective. However, as previously discussed in our article¹ on June 30, 2021, in our article³ on July 15, 2021, and as part of our March 28, 2023 budget update ³, Bill C-208 introduced amendments to the Act designed to allow for an intergenerational transfer of certain family businesses with comparable tax advantages to an arm's length sale to a third party.

To summarize, Bill C-208 amended section 84.1 to deem a non-arm's length transaction to be an arm's length transaction where a taxpayer sells shares of a qualified small business corporation or shares in the capital stock of a family farming and fishing corporation to a purchaser that is a corporation owned by a child or grandchild of the