skip to content

Bill C-208 Tax Changes For Intergenerational Transfers Now Law


The Department of Finance issued a press release on July 19, 2021 confirming that the provisions of Bill C-208 can be used immediately to facilitate intergenerational transfers of shares of small businesses or family farm and fishing corporations.

Bill C-208 was granted Royal Assent on Tuesday, June 29. It amended the Income Tax Act (ITA) to provide tax relief to families who wish to transfer shares of small businesses or family farm and fishing corporations to their children. However, the Department of Finance issued a news release on June 30 to announce its intention to delay the effective date of these amendments to Jan.1, 2022 due to concerns with the language of the bill.

In the July 19 press release, the Department of Finance acknowledged that Bill C-208 is law and clarified that the July 19 press release replaces the one released on June 30. However, the Department indicated that legislative amendments would be forthcoming to make sure that the provisions of the ITA facilitate genuine intergenerational transfers and are not used for artificial tax planning or “surplus stripping” purposes. Finance indicated that amendments would address the following issues:

  • The requirement to transfer legal and factual control of the corporation carrying on the business from the parent to their child or grandchild
  • The level of ownership in the corporation carrying on the business that the parent can maintain for a reasonable time after the transfer
  • The requirements and timeline for the parent to transition their involvement in the business to the next generation
  • The level of involvement of the child or grandchild in the business after the transfer

Finance will bring forward amendments for consultation. Once completed, the amendments would apply either November 1, 2021, or the date of the publication of the final draft legislation–whichever comes later.

The following is a summary of the two primary amendments made to the ITA that are now law.

Section 84.1 of the ITA made it difficult for children to use a corporation to buy shares of a small business, family farm, or fishing corporation from their parents, when their parents wanted to claim the lifetime capital gains exemption on the sale of shares. Parents selling the shares to an arm's length (unrelated) corporation were able to use the capital gains exemption to reduce the income tax on the resulting capital gain on the transaction. However, if the shares were sold to a non-arm's length (related) corporation, such as a corporation owned by the parent's children, for cash or a promissory note, the parents would not have a capital gain and could not use the capital gains exemption. This could result in significant income tax consequences.

The new rules attempt to level the playing field and to alleviate this problem by allowing a sale to non-arm's length purchasers of the shares to result in a capital gain and the ability to use the capital gains exemption to reduce the income tax.

The new rules will require that the purchaser corporation is controlled by one or more children or grandchildren, aged 18 or older, of the vendor and the purchaser corporation does not dispose of the purchased shares within 60 months of the purchase. An independent assessment of the fair market value of the shares must be provided to the Canada Revenue Agency, together with an affidavit signed by the vendor and a third party attesting to the disposal of the shares.

The changes also include a rule intended to reduce the vendor's ability to claim the lifetime capital gains exemption on the sale of shares if the company being sold has taxable capital employed in Canada exceeding $10 million, calculated on an associated group basis (with the ability to claim the capital gains exemption being completely eliminated once taxable capital exceeds $15 million). This is an attempt to ensure the relief only applies to small businesses. However, the reduction to the capital gains exemption may not be effective due to concerns with the language used in the legislation.

Section 55 is a rule in the ITA that prevents the conversion of what would be taxable capital gain into a tax-free intercorporate dividend. Relief is allowed for certain corporate reorganizations that assist in the transition of business or family farm or fishing assets between family members. This relief was not allowed for transactions that involved siblings as they were deemed not to be related for purpose of these rules.

Bill C-208 allows for siblings to be related for purposes of these rules. This should allow certain corporate reorganizations involving shareholders who are siblings to be accomplished more easily.


The passing of Bill C-208 as law provides an opportunity for genuine intergenerational transfers of shares of small businesses or family farm and fishing corporations until at least November1, 2021. However, it is unclear of the consequences of using these provisions for other tax planning purposes, as these types of transactions are not consistent with the intent of Bill C-208.

Want to learn more about Bill C-208? Our team shares their views in the media:

The information in this publication is current as of July 27, 2021.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our privacy statement for more information on the cookies we use and how to delete or block them.

Accept and close