| Prior to the sale | Immediately prior to the sale, parents must control Opco |
|---|---|
| At the time of the sale | At the time of the sale, Purchaseco must be controlled by one or more children of the parents. |
| Immediately after the sale | After the sale, the parents must not control Opco or Purchaseco and must own less than 50% of any class of shares in Opco or Purchaseco (excluding specified shares). |
| Within 36 months of the sale | Within 36 months of the sale and thereafter, the parents cannot own any shares in Opco or Purchaseco (excluding specified shares). |
| Joint election | To obtain capital gains treatment on the disposition of Opco shares, both the parents and the child or group of children who control Purchaseco must sign a joint election for the tax year of the sale. This election makes all parties to the election liable for taxes resulting from the election when the share transfer does not meet future conditions. |
| Subsequent sale of Opco or Purchaseco | Where all the shares of Opco or Purchaseco held by the child or group of children who control Opco and Purchaseco have been disposed of by such child or children, the holding periods of 36 months or 60 months are deemed to be met at the time of such subsequent disposition. |
| Death or disability of active child(ren) | Where the child, or each of the children, who are the active children in the business, have died or have suffered physical or mental impairment, the holding period is deemed to be met at the time of such death or impairment. |
| Capital gains reserve | Where some of the proceeds of the disposition are to be received over time, a capital gains reserve can be claimed. It is possible to spread the gain over up to 10 years, provided the proceeds are received over at least 10 years. |
| Immediate Transfer This is an immediate transfer of voting and economic control. | Gradual Transfer This is an immediate transfer of voting control, and a gradual transfer of economic control. | |
|---|---|---|
| Transfer of control | >After the sale, the parents must not have voting or factual economic control of Opco or Purchaseco. | After the sale, the parents must not have voting control of Opco or Purchaseco. |
| Transfer of economic interest | Within 36 months years of sale, parents cannot own any shares other than specified shares in Opco or Purchaseco. | Within 36 months years of sale, the parents cannot own any shares other than specified shares in Opco or Purchaseco. Within 10 years of sale, in the case of a sale of shares of a QSBC, the fair market value of all interests of the parents in Opco or Purchaseco must be 30% less than such interests at the time of sale. Within 10 years of sale, in the case of a sale of shares of a FFFC, the fair market value of all interests of parents in Opco or Purchaseco must be 50% less than such interest at the time of sale. |
| Transfer of management control to active children | Within 36 months, or such greater time as is reasonable in the circumstances. As yet, no guidance has been provided as to what would be a reasonable time. | Within 60 months, or such greater time as is reasonable in the circumstances. As yet, no guidance has been provided as to what would be a reasonable time. |
| Control retained by purchasing children/group of children | Child or group of children that controlled Purchaseco at the time of sale continue to have voting control over Purchaseco and Opco for at least 36 months after the sale. | Child or group of children that controlled Purchaseco at the time of sale continue to have voting control over Purchaseco and Opco for at least 60 months after the sale. |
| Continuation as an active business | Business(es) of Opco must be carried on for at least 36 months. | Business(es) of Opco must be carried on for at least 60 months. |
| Purchasing children/group of children work in the business | At least one child must be actively engaged on a regular, continuous, and substantial basis for at least 36 months. | At least one child must be actively engaged on a regular, continuous, and substantial basis for at least 60 months. |
How BDO Can Help
For ease of illustration and comprehension, the rules have been presented in a simplified manner in this article. If you are contemplating transferring your business to your children or grandchildren, your BDO advisor can help you understand if these rules could help you and provide tax savings. They can also help to determine whether it is better to have a transaction in 2023 (if possible) to be under the current rules or wait until the new rules are in effect in 2024.