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Great News on Family Farm Succession

Tax & Estate Finances with Kirk Newsletter

We have great relationships with many Agriculture Accountants and collaborate with them to create synergies that will benefit you, our clients. In a recent meeting with Debbie Loiselle from Allied Associates LLP, she shared with us this important piece of legislation that will be a huge benefit to Family Farm Succession. Below is Debbie’s notes and the attachment with further details.  

Thought I would share the new private member’s Bill C-208 that received Royal Assent on June 30, 2021. This is a Bill that amends the Income Tax Act in an attempt to alleviate the financial disadvantage that typically arises for taxpayers who sell their family farm (or small business) corporation to their children as opposed to an arm’s length person.  The Bill is welcome news for many of our clients, however, the language in the legislation raises many concerns that will likely need to be addressed by the government through further amendments.  In fact, soon after the Bill was passed, Finance Canada issued a news release indicating the government would be introducing an amendment to establish the effective date as January 1, 2022. Normally, we would expect an effective date on the day it receives Royal Assent if it is silent on that. 

For clarity, the Bill allows children or grandchildren to purchase shares of a family farm corporation using a holding company (with cheaper after-tax corporate dollars) while allowing the parent to claim their farm capital gains exemption.  (Previously, this gain would have been turned into a dividend).  The Bill indicates this is now possible as long as:

1.    The purchaser corporation does not dispose of the shares within 60 months of the purchase.  If it does, other than as a result of death, then the new provision is deemed never to have applied (which we assume would mean the capital gain would revert to a deemed dividend).

2.    The taxable capital of the corporation does not exceed $10M.  (If it does, it will reduce the amount of capital gains exemption that may be claimed and eliminate it when the taxable capital of the corporation is $15M)

3.    The taxpayer must provide CRA with an independent assessment of the fair market value of the subject shares and an affidavit signed by the taxpayer and by a third party attesting to the disposal of the shares.

The concerns we (and others in the tax community) have raised is that it is not clear what would constitute an “independent assessment” of value.  In addition, it is not clear who’s death would allow the shares to be held for less than 60 months (the parent, the child)?  

We are not likely to get any further clarity on this new legislation until Parliament resumes in September but for now we are excited about the new possibilities.

Thanks Debbie!

Here is the latest info we found on Bill C-208 on the TDS law website and a link to Bill C-208:

 "On June 30, 2021, the Minister of Finance took the original position that they may not consider Bill C-208 to be “good law”, and that there would potentially be retroactive changes to close loopholes on January 1, 2022. This position was walked back by the news release on July 19, 2021, where the Department of Finance stated that, “Bill C-208 has been passed by Parliament, received Royal Assent, and has become part of Canada’s Income Tax Act. The changes contained in this legislation now apply in law”. The Department of Finance is now planning on introducing new legislation on November 1, 2021 to close the “loopholes” that may be in place, as explained further below. In particular, the loophole that they will be targeting to close will be “surplus stripping” (the act of converting capital gains to dividends)."

Attachment: Bill C-208

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