The Income Tax Act (Canada) (the
"Act") was recently amended by private
member's Bill C-208 (the "Bill") to
address an inequity disadvantaging intergenerational transfers of
businesses to family members. It is common for business owners to
sell shares of their qualifying small business corporation to
corporate purchasers. A transaction structured in this manner
allows the business owner vendor to shield up to $892,218 of
capital gains from tax using the lifetime capital gains exemption,
and the corporate purchaser can fund the purchase using cash that
has been taxed at the corporate level but not at the personal
level.
Prior to the amendments introduced by the Bill, business owners
could not sell their business to family members in this
manner, as the anti-surplus stripping rule in section 84.1 would
apply to reduce the paid-up capital of any shares acquired as
consideration, and/or trigger a deemed dividend to the extent of
any non-share consideration received,
