3 December 2024 CTF Roundtable Q. 10, 2024-1038231C6 - Intergenerational Business Transfers

Unedited CRA Tags

84.1(2)(e) ; 84.1(2.3) ; 84.1(2.31) ; 84.1(2.32)

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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 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

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Summaries

Summary Under

Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(2.31) - Paragraph 84.1(2.31)(a)

the prohibition against multiple use of the intergenerational transfer rules does not apply to simultaneous transfers

One of the “intergenerational transfer” rule requirements, in s. 84.1(2.31)(a) or (2.32)(a), is that a previous inter-generational exception to s. 84.1 has not previously been sought. Where a parent, who has not previously sought out the exception, simultaneously disposes of subject shares to two separate purchaser corporations, each wholly-owned by an adult child, could the s. 84.1(2.31)(a) or (2.32)(a) exception be met?

CRA noted that the Explanatory Notes described Finance’s Technical Notes describe the purpose of the s. 84.1(2.31)(a) and (2.32)(a) condition as follows:

This new provision is intended to ensure that the taxpayer’s interest business is effectively transferred only once from a taxpayer to their child. This condition precludes the use of s. 84.1(2)(e) by a taxpayer which receives successive distributions of corporate surplus in the form of capital gains in respect of the same business.

On that basis, and considering the wording of these provisions, provided multiple dispositions occur at the same time as part of the same genuine intergenerational transfer (and of course as long as there is no exception that has been claimed before the transfer) CRA would consider the condition would be satisfied for each disposition.

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3 December 2024 CTF Roundtable Q. 10, 2024-1038231C6 - Intergenerational Business Transfers

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