The news release states that one loophole that Bill C-208 may inadvertently permit is the opportunity for “surplus stripping,” in which dividends are converted to capital gains to take advantage of the lower tax rate, without any genuine transfer of the business actually taking place, thereby compromising the integrity of the tax system.
Below is a list of the issues the amendments to Bill C-208 would address.
- The requirement to transfer legal and factual control of the corporation carrying on the business from the parent to their child or grandchild;
- The level of ownership in the corporation carrying on the business that the parent can maintain for a reasonable time after the transfer;
- The requirements and timeline for the parent to transition their involvement in the business to the next generation; and
- The level of involvement of the child or grandchild in the business after the transfer.
Forthcoming amendments are intended to make sure that it facilitates genuine intergenerational transfers and is not used for artificial tax planning purposes.
The government intends to bring forward draft legislative amendments for consultation. Once completed, the government will publish final legislative proposals which would then be introduced in a bill and apply as of the later of either November 1, 2021, or the date of publication of the final draft legislation.
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