15 December 2021 External T.I. 2021-0907881E5 - Bill C-208 - Entry into Force

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether the amendments to section 84.1 contained in Bill C-208 apply to dispositions of shares that occur before the day of Royal Assent.

Position: No.

Reasons: See below.

XXXXXXXXXX								2021-090788
T. Ng
(519) 200-8908

December 15, 2021

Dear XXXXXXXXXX:

Re: Request for Technical Interpretation – Bill C-208

We are writing further to your question regarding the application of Bill C-208, which received Royal Assent on June 29, 2021.

Background

Bill C-208, as enacted by Parliament (S.C. 2021, c. 21), contained amendments to paragraph 55(5)(e) and section 84.1 of the Income Tax Act (Canada) (the “Act”).

Section 84.1 of the Act is an anti-surplus stripping rule. It may apply where an individual resident in Canada disposes of shares (the “subject shares”) of the capital stock of a Canadian resident corporation (the “subject corporation”) to another corporation (the “purchaser corporation”) with which the individual does not deal at arm’s length and, immediately after the disposition, the subject corporation is connected (within the meaning of subsection 186(4)) with the purchaser corporation. Where section 84.1 applies, there could be a reduction of the paid-up capital of any shares of the capital stock of the purchaser corporation the individual receives as consideration for the subject shares (paragraph 84.1(1)(a)) and/or the individual disposing of the subject shares could be deemed to have received a dividend (paragraph 84.1(1)(b)).

It is our understanding that the purpose of the amendments to section 84.1 is to facilitate intergenerational transfers of certain businesses by ensuring that such transfers are not subject to section 84.1. The amendments to section 84.1 contained in Bill C-208 further this purpose by deeming the individual disposing of the subject shares and the purchaser corporation to be dealing at arm’s length if, among other things, the purchaser corporation is controlled by one or more children or grandchildren of the individual who are 18 years of age or older and the subject shares are “qualified small business corporation shares” or “shares of the capital stock of a family farm or fishing corporation” (each as defined in subsection 110.6(1) of the Act).

Bill C-208 does not contain a coming into force provision or an application provision which specifies the transactions to which Bill C-208 applies.

Your Question

You have asked us whether the amendments to section 84.1 of the Act in Bill C-208 apply to dispositions of shares that occur in the 2021 tax year but prior to the day of Royal Assent.

Our Comments

This technical interpretation provides some general comments about the provisions of the Act. It is not intended to confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R11, Advance Income Tax Rulings and Technical Interpretations.

In cases where an enactment is silent with respect to the particular day it comes into force, subsection 6(2) of the Interpretation Act (R.S.C., 1985, c. I-21) provides that it is construed as coming into force at the end of the day before the day the enactment received Royal Assent. Thus, the amendments to section 84.1 apply to dispositions that occur on or after the day Bill C-208 received Royal Assent (June 29, 2021). Your question, however, is whether such amendments may also apply to dispositions occurring before the day of Royal Assent but within the same tax year. In other words, do the amendments in Bill C-208 apply retrospectively to the beginning of the 2021 tax year?

The retrospective operation of statutes was addressed by the Supreme Court of Canada in Gustavson Drilling (1964) Ltd. v. M.N.R. [1977] 1 S.C.R. 271. In that case, Dickson, J., writing for the majority of the Court, made the following comments at page 279:

The general rule is that statutes are not to be construed as having retrospective operation unless such a construction is expressly or by necessary implication required by the language of the Act. An amending enactment may provide that it shall be deemed to have come into force on a date prior to its enactment or it may provide that it is to be operative with respect to transactions occurring prior to its enactment. In those instances the statute operates retrospectively.

Bill C-208 does not contain express language that would require its application to a disposition of shares occurring before the day of Royal Assent and, in our view, the language in Bill C-208 does not require such application by necessary implication. In this latter respect, we are not aware of any reason why the tax consequences relating to a disposition of subject shares that occurs prior to the coming into force of Bill C-208 and within the 2021 tax year should not be determined with respect to the statutory provisions in force at the time of the disposition. Accordingly, we are of the view that the amendments to section 84.1 contained in Bill C-208 apply only to dispositions that occur on or after the day of Royal Assent (June 29, 2021).

We trust that these comments will be of assistance.

Yours truly,

Daryl Boychuk
Manager
Corporate Reorganizations Section II
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch