Wealth Strategies: Family Farms & Fisheries Tax Treatment - Bill C208 Passed

Tax treatment of intergenerational transfers of family farms and fisheries has been a long-standing issue facing many Canadians, after several prior failed attempts to amend this, Bill C-208 has thankfully and finally addressed this concern and offers far more flexibility in these sectors.

Receiving royal assent as of June 29th, 2021, owners of family farms and fisheries will now be able to pass their businesses on to their children without triggering tax consequences that in the past would have resulted in a more dire manner than if they had sold their business to an unrelated third party. Prior anti-avoidance rules in the Income Tax Act would have been initiated upon transfers of farm and fishery businesses to the owner’s children or grandchildren.

This new Bill will also provide greater flexibility for the restructuring of family businesses that involve siblings of the owner of the business.

With the new rules, the proceeds of disposition on a sale of a business to a child would be taxed as a dividend, while the proceeds of a sale to a third party would be taxed at the more advantageous capital gains rate and hence, will also allow the business owner to access the lifetime capital gains exemption.

The Bill therefore amends the Income Tax Act to allow qualified transfers of small business corporation shares and shares of a family farm or fishing corporation by a taxpayer to the taxpayer’s adult child or grandchild to be excluded from the anti-avoidance rule. The bill will also amend the Income Tax Act such that siblings are not considered to be dealing at arm’s length as they were under the prior rules.

Advocates of the Bill feel it will help ensure the next generation of family farms is in strong financial health to capitalize on future opportunities, assist in driving Canada’s economic recovery, facilitate greater business continuity, and avoid adding to the disruption farmers are already facing post-pandemic.

It is important to consult with applicable legal and tax professionals in advance before entering into a sale with family members to ensure firstly that the sale qualifies under the amended rules, and fully understand the financial consequences of implementing it.