Principal Issues: Whether simultaneous transfers to two purchaser corporations would cause either of them to fail to meet the requirements of paragraphs 84.1(2.31)(a) and 84.1(2.32)(a).
Position: Each of the simultaneous transfers, as the ones contemplated in the proposed scenario, would satisfy the condition in 84.1(2.31)(a) and 84.1(2.32)(a).
Reasons: The law.
2024 CTF Annual Tax Conference
CRA Round Table
Question 10 - Intergenerational Business Transfers
Subsections 84.1(2.3), (2.31) and (2.32) provide for “intergenerational transfer” rules permitting the transfer of a business to children or grandchildren without triggering section 84.1. One of the requirements, in paragraph 84.1(2.31)(a), is that a previous inter-generational exception to section 84.1 has not been sought out – i.e., that “the taxpayer has not previously, at any time after 2023, sought an exception to the application of subsection 84.1(1) under paragraph 84.1(2)(e) in respect of a disposition of shares …”.
It may be the case that a parent, who has not previously sought out such an exception, simultaneously disposes of subject shares to two separate purchaser corporations, one of which is wholly-owned by one of their adult children and the other of which is wholly-owned by another one of their adult children. In such a scenario, can the CRA confirm that the fact that the shares are simultaneously being sold to two separate purchaser corporations would not cause either sale to fail to meet the requirements of paragraph 84.1(2.31)(a)?
CRA Response
The Department of Finance’s Explanatory Notes describe the purpose of the condition set forth in paragraphs 84.1(2.31)(a) and 84.1(2.32)(a) (the “Condition”):
“New paragraph 84.1(2.31)(a) is intended to ensure that a taxpayer’s interest in a business is effectively transferred only once from a taxpayer to their child pursuant to the exception in paragraph 84.1(2)(e). This condition precludes the use of paragraph 84.1(2)(e) by a taxpayer to receive successive distributions of corporate surplus in the form of capital gains in respect of the same business.” [emphasis added]
Such purpose is reflected in the Condition in the following words:
“(a) the taxpayer has not previously, at any time after 2023, sought an exception to the application of subsection (1) under paragraph (2)(e) in respect of a disposition of shares that, at that time, derived their value from an active business that is relevant to the determination of whether the subject shares satisfy the condition set out in subparagraph (b)(iii);” [emphasis added]
Provided multiple dispositions occur simultaneously as part of the same genuine intergenerational transfer at the same disposition time, and that no exception has been sought before the transfer in respect of the same business, we would consider the Condition to be satisfied for each disposition.
Simon Lemieux
2024-103823
December 3, 2024