MONEY MATTERS | GEOFF MCINTYRE
Good News for Family Farm Transition are in play, the LCGE can represent up to $250,000 in tax savings per taxpayer.
Previously, a long-standing anti-avoidance rule in the Income Tax Act (ITA) treated intergenerational transfers of a business as a dividend rather than a capital gain.
O
n June 29, 2021, the Private Member’s Bill C-208 (the Bill), regarding the intergenerational transfer of small businesses and family farm or fishing corporations, received Royal Assent. If you are the owner of a family business like a farm, the Bill is worth your attention as it represents a significant positive change in favour of family business succession in Canada.
For example, consider a husband and wife that own the shares of a company that operates a winery, and the shares are worth $3 million. If they sell the shares of the company to an unrelated party, they can shelter up to $1.78 million with their LCGE if certain conditions are met.
This meant that if you were planning on selling your business, you would be better off from a tax standpoint selling it to an unrelated party rather than within your family. The Bill changes that rule to allow owners access to the lifetime capital gains exemption (LCGE) when selling to family members if certain conditions are met. The result aims to support intergenerational business transitions.
However, under the old rules, if they were to sell their shares to their children instead – and the selling price was to be funded from the company’s cashflow – the entire $3 million would be taxed as a dividend. Dividends are taxed at a higher tax rate than capital gains and the parents would
Access to the LCGE When qualified farm property like orchards and vineyards
not be able to use their LCGE on the sale. The new legislation corrects this inequity, allowing the proceeds to be treated as a capital gain and the LCGE to be used. Status of Bill C-208 Legislation There has been significant activity surrounding the use of the Bill as currently written. The Government announced their intention to bring forward legislative amendments to the ITA that honour the spirit of Bill C-208 while safeguarding against any unintended tax avoidance loopholes that may have been created by the Bill. One loophole that the Bill
Grow your opportunities With MNP’s help.
Whether you are seeking to grow your operation, enhance its performance, or minimize your tax exposure, MNP’s Tori Keiffer, AJ Gill, and Geoff McIntyre help you capitalize on every opportunity. Geoff McIntyre, Leader, Food and Beverage Processing and Agriculture, Okanagan 250.979.2574 | geoff.mcintyre@mnp.ca MNP.ca
Year End 2021
31
