Before pausing for the summer, Parliament passed Bill C-59, the Fall Economic Statement Implementation Act, which included changes to how businesses, fisheries and farms are transferred within families.Legislative changes to how family businesses are passed to the next generation clear up some ambiguity in tax law, but may also complicate transfers and cost the parties involved more money, experts say.
Provisions within the Income Tax Act made it “tax punitive to transfer to the next generation,” she says, “in some provinces, upward of 20 per cent.” Surplus stripping is a tax strategy that allows a business owner to distribute cash from a corporation as a capital gain instead of as dividends – and to benefit from the lower tax rate afforded to capital gains – without a genuine transfer of the business.
These changes may prompt a much-needed conversation about succession, she says, which is particularly important to the farming industry. “The amendments that were introduced do not put family transfer at a fiscal disadvantage, so the spirit of Bill C-208 remained in the amendment,” says Jasmin Guénette, vice-president of national affairs at the CFIB. “But they do make it more complicated and burdensome.”
While Mr. Guénette says this level of complexity will not likely affect a business owner’s decision to pass down the family business, it may make it more expensive.