Government of Canada clarifies taxation for intergenerational transfers of small business shares  

News release

July 19, 2021 - Ottawa, Ontario - Department of Finance Canada

Today, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, affirmed that Bill C-208 has been passed by Parliament, received Royal Assent, and has become a part of Canada’s Income Tax Act. The changes contained in this legislation now apply in law. This news release seeks to bring clarity to the government’s intentions going forward and replaces the June 30th news release on this subject.

The Government of Canada is committed to facilitating genuine intergenerational share transfers. Family businesses provide good jobs and are the backbone of strong communities across the country. The government has made significant investments to ensure small businesses can thrive, grow, and create jobs. Canadian small businesses have the lowest combined tax rate in the G7 and the recent federal budget is the most small-business friendly budget in Canadian history.

The Government of Canada is also committed to protecting the integrity of the tax system. As such, the government is clarifying that it does intend to bring forward amendments to the Income Tax Act that honour the spirit of Bill C-208 while safeguarding against any unintended tax avoidance loopholes that may have been created by Bill C-208. 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 an illustrative 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.

Bill C-208 is law; 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.

The government is doing this to support family-run Canadian small business, protect the tax system, and ensure everyone pays their fair share. 


“The dream of building a successful small business and passing on the fruits of that labour to the next generation is of great importance to so many Canadians. Our government shares and supports this aspiration. We fully support genuine intergenerational share transfers and regret recent uncertainty that we have caused. Bill C-208 was voted on by Parliament and received Royal Assent. The law is the law. Our concern is with technical elements of the bill that could unintentionally present opportunities for tax avoidance. The amendments we intend to bring will honour the law passed by Parliament, make sure everyone pays their fair share, and support the families and small businesses that keep our economy, and our communities, strong.”

The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance

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Media may contact:

Katherine Cuplinskas
Press Secretary
Deputy Prime Minister's Office

Media Relations
Department of Finance Canada

General enquiries

Phone: 1-833-712-2292
TTY: 613-369-3230

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