Multi-generational family going for a hike by a lake

What do tax changes on intergenerational business transfers mean for you?

What do tax changes on intergenerational business transfers mean for you?

Synopsis
3 Minute Read

Proposed amendments announced in the 2023 Federal Budget will impact the ability to preserve the equitable tax treatment on intergenerational business transfers afforded by Bill C-208 in 2021. Stricter eligibility requirements will come into effect beginning in 2024. Business owners considering passing on their business to a family member should plan ahead to ensure there is enough time to address transition goals before the new rules take effect.

For many years, an anti-avoidance rule in the Income Tax Act (ITA) taxed intergenerational transfers of a business as a dividend rather than a capital gain. This resulted in a higher tax cost to sell a business to a family member than to a third party.

Bill C-208

On June 29, 2021, the Private Member’s Bill C-208 received royal assent. This allowed certain family businesses to access the lifetime capital gains exemption on intergenerational transfers, thereby receiving the same tax treatment as for businesses sold to a third party. The resulting savings are approximately $230,000 to $265,000 per taxpayer based on 2023 rates.

The bill also included rules to allow sibling shareholders to reorganize a family business under the more favourable related party butterfly rules in the ITA. Overall, it represented a significant positive change to support family business succession in Canada.

2023 Federal Budget

The Federal Government had previously announced it would bring forward legislative amendments to the ITA that honour the spirit of Bill C-208 while safeguarding against unintended tax avoidance loopholes. Proposed amendments were announced in the 2023 Federal Budget.

Coming into effect in 2024, these changes will generally be more restrictive and include additional requirements that must be met for intergenerational share transfers to be eligible for the rules introduced through Bill C-208.

What does this mean for Canadian business owners?

Read MNP’s breakdown on the 2023 Federal Budget changes to the rules introduced through Bill C-208, including our takeaways for what this means for businesses considering an intergenerational transfer.

What this means for you and your business

If you’re contemplating passing on your business to a child or grandchild, consider putting a plan in place to complete the transfer before 2024. Transitioning a family business will take time to plan out properly — reach out to your MNP business advisor today to ensure there’s enough time to discuss and address your transition goals.

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