CRA indicates that the activity test in s. s. 84.1(2.31)(f)(ii) or 84.1(2.32)(g)(ii) can be met by successive children and regarding only one out of multiple businesses

One of the requirements under the inter-generational transfer rules in proposed s. 84.1(2.31) (dealing with an immediate intergenerational business transfer) or proposed s. 84.1(2.32) (dealing with gradual intergenerational business transfers) is that the child, or at least one member of the group of children, be actively engaged on a regular, continuous and substantial basis within the meaning of s. 120.4(1.1)(a) in the relevant business of a subject corporation or in relevant group entities. This condition (the “activity threshold”) must be satisfied from the time of the disposition of the subject shares by the parent until 36 months later in the case of an immediate intergenerational business transfer, or until 60 months later in the case of a gradual intergenerational business transfer.

CRA indicated regarding this activity threshold test (in s. 84.1(2.31)(f)(ii) or 84.1(2.32)(g)(ii)):

• Assuming that a group of children are the indirect purchasers of the subject shares, it need not be the same individual amongst them who meets the activity threshold throughout the 36 or 60 month period (i.e., in a sense, they can take turns).
• Consistent with the stated purpose of ensuring the continued involvement of the taxpayer’s children in the acquired business, any previous engagement or involvement by a child prior to the disposition of the subject shares by the parent to the purchaser corporation would not count for purposes of satisfying the test.
• Where there are multiple businesses being carried on by several different corporations, a child need only meet the activity threshold in any relevant business of a subject corporation or relevant group entity in relation to that subject corporation.

Neal Armstrong. Summary of 4 June 2024 STEP Roundtable, Q.6 under s. 84.1(2.31)(f)(ii).