On this page:

• Requirements for an independent assessment of fair market value
• Requirements for the affidavit
• How to submit the valuation report and affidavit
• Example of an affidavit

Changes to the Income Tax Act in 2021 altered the tax treatment of family transfers of:

• shares in a qualified small business corporation
• shares of the capital stock of a family farm or fishing corporation

If an individual transfers these shares to a corporation controlled by one or more of their children or grandchildren, under the new rules, the transfer is taxed the same as an arm’s length sale.

The individual who transfers the shares must provide the Canada Revenue Agency (CRA) with these documents:

• a valuation report that is an independent assessment of the fair market value of the transferred shares
• an affidavit signed by the individual and a commissioner of oaths or notary public, attesting to the disposal of the shares

These rules came into effect on June 29, 2021, as a result of Bill C-208.

Requirements for an independent assessment of fair market value

In order for the CRA to accept a valuation as an independent assessment of fair market value, the valuation must be completed by someone who meets these requirements:

• is unrelated to the corporation or vendor and does not have any financial interest in the transactions
• has sufficient knowledge and experience in valuation and the industry being dealt with (this will vary depending on the size and complexity of the business)

The specific contents of the valuation report will depend on the nature of the corporation, its location and its operations. A valuation report typically includes the following information:

• calculations of value
• analysis of the business, industry, location and economy to assess risk
• explanation of the calculations and the methodology rationale
• appraisals of farm equipment and livestock
• appraisals of real property, if the company’s value is based on assets
• analysis of the rights and restrictions of the corporation shares and other agreements (for example, shareholder agreements)
• description of the assumptions made when completing the analysis

A report that meets the Chartered Business Valuation Institute’s standards will meet the CRA’s expectations. However, you are not required to hire a Chartered Business Valuator to complete the valuation.

Requirements for the affidavit

The CRA does not provide a specific form for this affidavit. However, the affidavit must include the following information:

• name, complete address and social insurance number (SIN) of the individual who is disposing of the shares
• name and business number (BN) of the entity whose shares were disposed
• name and BN of the purchaser corporation
• date the shares were disposed (sold to the purchaser corporation)
• an attestation that the disposed shares are shares of a qualified small business corporation, a family farm or a fishing corporation
• an attestation that the individual’s children or grandchildren control the purchaser corporation and are at least 18 years of age
• the names and SINs of the children or grandchildren who control the purchaser corporation
• signature of a commissioner of oaths or notary public
• signature of the individual who is disposing of the shares

How to submit the valuation report and affidavit

If you are filing your income tax and benefit return by paper, include the affidavit and valuation report with your return. If you are filing your return electronically, keep the affidavit and valuation reporting your records. The CRA may ask for these documents if it reviews your return.

For more information on keeping records, go to Keeping records.

Example of an affidavit

Here is an example of an affidavit for an individual:

AFFIDAVIT FOR THE SOLE PURPOSE OF PARAGRAPH 84.1(2.3)(c) OF THE INCOME TAX ACT

Name of the shareholder: _______________________________________

Address: __________________________________________

I solemnly declare that:

1. I was a shareholder of ______________ (business number (BN):__________), which is either a qualified small business corporation, family farm or fishing corporation within the meaning of subsection 110.6(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp).
2. My social insurance number (SIN) is ___________________.
3. On [month] [day], [year], my shares in the above-mentioned entity (the subject shares) were acquired by a corporation, named ______________ (BN: _____________), which is controlled by one or more of my children or grandchildren, who are 18 years of age or older.
4. The above mentioned children or grandchildren that control said corporation are the following
   (list all children and/or grandchildren):
   
   1. Name : ____________ (SIN : _____________)
   2. Name : ____________ (SIN : _____________)
   3. …

And, I have signed :

____________________________________________________________________
(Signature of the shareholder)

Sworn before me at
____________________________________________________________________
(municipality)

In

(province, territory, state or country)

On ________________________________________________________________
(date)

____________________________________________________________________
(Signature of the Commissioner of oaths or notary public)