Business restructuring involving siblings
Bill C-208 also introduces measures to assist with the restructuring of family businesses involving siblings.
Under the existing law, tax-free inter-corporate dividends that would occur as part of a divisive corporate reorganization are recharacterized as capital gains in certain circumstances. There are exclusions to this rule with regards to certain related party transactions. However, siblings are not considered related under these rules, thus requiring the use of somewhat complex and costly transactions when they are involved in certain reorganizations of family-owned companies.
Bill C-208 allows siblings to be treated as related parties for the purposes of these rules where the corporation(s) involved in the reorganization are those whose shares would be qualified small business corporation shares or shares of a family farm or fishing corporation. As such, this change should result in less complex transactions being required when siblings are involved in family business reorganizations.
Next steps
Bill C-208 is a start in addressing the issues faced by farmers, fishermen, and business owners who would like to sell their family business to their children or grandchildren. However, it is expected that there will be revisions to the new legislation in the coming months. Once these revisions have been completed, the Government will publish final legislative proposals which would apply as of the later of November 1, 2021 or the date of publication of the final draft legislation.
Crowe MacKay will continue to monitor the legislation and provide updates as they become available. If you own a business and are considering a transition to your children or grandchildren, you should contact Crowe MacKay to see if these new rules might apply to you.
This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.
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