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Michael Ronse

Tax Partner at Manning Elliott LLP Surrey
by Michael Ronse
July 27, 2021

Bill C-208 Is Now Law in Canada

What Is Bill C-208?

Bill C-208 allows for intergenerational transfers of shares of qualified small business corporations or family farm and fishing corporations. The bill was confirmed to be law by a Department of Finance news release on July 19, 2021.

Bill C-208 provides new rules that deem the sale of qualifying small business corporations and family farm or fishing corporations to occur at arm’s length if the shares are sold to a corporation controlled by a taxpayer’s children or grandchildren and certain conditions are met.

This means that in certain circumstances, parents can use their capital gains exemptions on an intergenerational transfer of business to their adult children or grandchildren.

Bill C-208 Background

Bill C-208 was introduced as a private member’s bill to amend the Income Tax Act (the “Act”) with respect to the transfer of qualifying small businesses and family farms or fishing corporations.

  • Bill C-208 was passed by the House of Commons on May 12, 2021
  • Passed by the Senate without amendment on June 22, 2021
  • Received Royal Assent on June 29, 2021
  • And was passed into law on July 19, 2021

In a June 30th, 2021 news release, the Department of Finance intended to delay Bill C-208’s effective date until January 1, 2022, because there were concerns about tax planning loopholes in the bill.

The release created confusion, as a government department, by way of a news release, could be construed as overriding legislation that was passed into law.

On July 19, 2021, the Department of Finance issued a news release that replaced the June 30, 2021 news release on Bill C-208.

In the July 19, 2021 news release the Department of Finance indicated their intention to introduce legislative amendments but have stated that the amendments would apply as of the later of November 1, 2021, or the publication date of when the final draft legislation occurs.

Changes for Sales to Non-Arm’s Length People

Parents selling shares to an arm’s length purchaser would be able to realize a capital gain and use their capital gains exemptions to reduce the income tax payable on the sale.

Prior to the introduction of Bill C-208, if parents instead sold their shares to a corporation controlled by their children and received cash or a promissory note; the parents would be deemed to have received a dividend (pursuant to section 84.1 of the Act) instead of a capital gain and would not be able to use their capital gains exemption.

With the lifetime capital gains exemption indexed at $892,218 for 2021, under Bill C-208, each capital gains exemption claimed represents a potential tax savings (in BC) of approximately $239k at capital gains rate. It would represent approximately $326k if the gain was to instead be taxed as an eligible dividend, or approximately $436k if the gain was to be taxed as an ineligible dividend.

As such, the historical application of section 84.1 used to result in significant negative income tax consequences on an intergenerational sale from parent to child.

When the conditions for application are met, Bill C-208 allows the transfer from a taxpayer to their adult children or grandchildren to be treated in the same manner as if they sold those shares to an arm’s length purchaser.

The new rules introduced by Bill C-208 Canada have the following conditions for application:

  • Shares being sold are shares of a qualified small business corporation or a family farm or fishing corporation;
  • The purchaser is a corporation that is controlled by one or more adult children or grandchildren of the vendor;
  • The corporation that is purchasing does not dispose of the shares acquired within 60 months (5-years) of the date of purchase; and
  • The vendor must provide to CRA an independent fair market value assessment and a signed affidavit (by the vendor and a third party) attesting to the disposal of the shares sold.

The vendor’s ability to claim their lifetime capital gains exemption on the sale of shares will be reduced if the corporation being sold has taxable capital employed in Canada exceeding $10 million (calculated on an associated group basis). It is completely eliminated once taxable capital of the associated group exceeds $15 million.

Changes for Related Party Reorganizations

There is a rule in Section 55 of the Income Tax Act preventing the conversion of what would be a taxable capital gain into a tax-free intercorporate dividend.

Relief from re-characterization from tax-free intercorporate dividends into capital gains is available where: 

  1.  The reorganization involves “related persons”; 
  2.  No “unrelated persons” are acquiring shares of the corporations involved; and 
  3.  No other “triggering conditions” are met.

Siblings were not considered to be related for section 55 purposes as they were deemed not to be related for the purposes of section 55. 

Bill C-208 does allow for siblings to be related for purposes of section 55 provided that the corporations involved are qualified small business corporations or family farm or fishing corporations.

Bill C-208 should allow certain corporate reorganizations involving shareholders who are siblings to be accomplished more easily.


Bill C-208 is now law and is a positive change for small business owners looking to undertake intergenerational transfers or restructuring of current business operations.

The Bill C-208 law also highlights how important it is to have a structure that allows for corporations to meet the test to be a qualified small business corporation (or family farm or fishing corporation).

We remain hopeful that the amendments to Bill C-208 when introduced will not be too restrictive.

We acknowledge that it will be very difficult for the Department of Finance to account for all types of business structures as each small business is unique.

If you are considering implementing a corporate reorganization or succession plan, you may want to act now before the Department of Finance’s planned amendments to the legislation introduced in Bill C-208.

Our Tax Advisors Are Here to Help

Manning Elliott is here to help. If you still have questions about the Bill C-208 law, succession planning, or if your current structure could be improved considering the opportunities in Bill C-208, please contact your Manning Elliott advisor or a member of the Manning Elliott Tax Team.

This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.