Transferring Business Ownership to Your Children - Clearline (2024)

15 Feb Transferring Business Ownership to Your Children

In 2021, the Canadian government passed Bill C-208, which made significant changes to the Income Tax Act. One of the most notable changes is the ability for families to transfer shares of their small businesses to their children or grandchildren and be treated equally to those who were passing on their businesses to an unrelated (arm’s length) corporation.

Previously, there were significant tax disadvantages for families who wanted to transfer ownership of their small businesses to their loved ones. If a family transferred ownership to an arm’s length corporation, they would be subject to the capital gains tax rates and be eligible for a lifetime capital gains exemption, which provides significant tax savings. However, if a family transferred ownership to a non-arm’s length party, such as a child or grandchild, they would not be eligible for this exemption and would be subject to the higher dividend tax rates on the value of the company.

The passing of Bill C-208 has eliminated this disadvantage and now allows families to transfer shares of their small businesses to their children or grandchildren and be eligible for the same lifetime capital gains exemption. This lifetime capital gains exemption could shelter approximately $970,000 of proceeds, saving approximately $260,000 in taxes.

This change will also likely have a positive impact on the Canadian economy, as it will make it easier for small businesses to stay in the hands of families and continue to grow and contribute to the economy.

Overall, the changes made to the income tax act through Bill C-208 will provide a much-needed boost to small business owners and their families. By eliminating the tax disadvantages of transferring ownership to non-arm’s length parties, it will make it easier for families to pass on their businesses to the next generation.

If you have plans to transfer some, or all, of your ownership of a corporation to a family member, there may be additional steps that we can take to obtain additional tax savings for you and your family. Some of these steps need to be planned as much as two years in advance. If you have not discussed these matters with your Clearline contacts before, we strongly recommend reaching out and setting up a time to do so.