Capital Gains Tax Treatment Changes for Farmers and Fishers

Beth Graddon

On June 29, an important private member’s bill received Royal Assent. It addresses the thorny issue of intergenerational transfers of family farms and fisheries. These changes will provide more surety for those in the farming and fishing industries to enable capital gains treatment on intergenerational transfers; tax treatment aligned with sales to unrelated parties.

Bill C-208, brought forward by Manitoba MP Larry Maguire, amends the Income Tax Act to exclude transfers of qualified small business corporation shares and shares of capital stock of a family farm or fishing corporation to an adult child or grandchild from the anti-avoidance rule of section 84. It also amends section 55 to enable intergenerational transfers under a related party exception.

What this means, is that an individual who sells shares to a corporation controlled by children or grandchildren over the age of 19 will benefit from capital gains treatment, including the lifetime capital gains exemption. However, it is required the shares are kept by the purchasing corporation for at least 60 months and the family member must truly have control of the company.

In short, siblings are deemed not to be dealing at arm’s length and to be related, and that, under certain conditions, the transfer of those shares by a taxpayer to the taxpayer’s child or grandchild who is 18 years of age or older is to be excluded from the anti-avoidance rule of section 84.‍1.

Those rules can prevent the claiming of the Lifetime Capital Gains Exemption (LCGE) on the sale of a qualifying business to a corporation controlled by family members, or Increase the after-tax cost when the LCGE is claimed. 

It’s not the first-time amendments to this bill have been requested, with a history that dates back to 2015 and in particular the contentious rules contained in the July 18, 2017 corporate tax reforms to family income and asset splitting.

The government proposes to introduce legislation to clarify that these amendments would apply at the beginning of the next taxation year, starting on January 1, 2022. As of now, the bill does not include an application date.  These amendments will be discussed in greater detail at the November CE Summits. 

Additional educational resources: Stay up to speed on the tax changes affecting Canadian business owners as an MFA™-Business Services Specialist.