The Canadian Finance Department has clarified its position on Bill C-208, stating that it is part of Canada’s Income Tax Act and are planning to propose amendments in order to close potential tax loopholes on or after November 1, 2021.
Bill C-208 removes the tax burden when taxpayers are transferring their qualifying small businesses and farms to a corporation controlled by their children or grandchildren. Prior to Bill C-208, there was a much larger tax burden facing incorporated operations who were looking to pass their qualifying small business or farm to their children or grandchildren, compared to those who transferred them to an unrelated third party.
“The amendments will level the playing field by giving families the same tax treatment when transferring their qualifying small businesses or operations to their children or grandchildren as if they were to transfer it to a stranger,” said Anita Huberman, CEO of the Surrey Board of Trade. “We want our business community to know that they can rely on Bill C-208 as it is part of Canada’s Income Tax Act, which will remain unchanged until November 1, 2021.”
Prior to Bill C-208, when a business owner had a qualifying small business corporation worth $800,000 for example, which is then sold to a third-party buyer at arm’s length, they would realize a capital gain of $800,000 resulting in a tax rate of 26.75% on any portion of the capital gain not sheltered by the business owner’s lifetime capital gains exemption.
If that same business owner sold the business to their adult children or grandchildren, they would be deemed to have received dividends on the $800,000. For business owners residing in BC at the highest marginal tax rate, the dividend would either be ineligible with a tax rate at 48.89%, or eligible with a tax rate at 36.54%.
The Department of Finance’s July 19, 2021, press release provides clarity that business owners will be able to rely on Bill C-208 for intergenerational transfers until November 1, 2021.
Anita Huberman, 604-634-0342, firstname.lastname@example.org