Historically, many small business owners have long been frustrated that it is often more advantageous tax-wise to sell the business to a third party than to transfer it down a generation. A private members bill was passed by the Federal Government last week that effectively allows for parents to transition the family business to the next generation in a more favorable tax setting. In general terms, shares of certain qualifying corporations can be sold to a corporation controlled by their children and the parents can access their lifetime capital gains exemption. Some rules to be aware of are: the corporation controlled by the children must continue to own the shares of the qualifying corporation for a minimum period of 60 months and an independent valuation must be done on the shares of the qualifying corporation and be submitted to CRA at the time of sale along with a third party attestation form. A word of caution – the Department of Finance has announced that these changes will only be effective as of January 1, 2022, and that further changes could be considered.
These rules are new and complex, and we recommend you seek advice from your Thiel Greene advisor to see how this could benefit your situation.