What form do I file to elect an intergenerational business transfer?

This page covers the federal paperwork for the election, not whether a transfer qualifies. Form T2066 is titled “Election for Immediate or Gradual Intergenerational Business Transfer”.

Who joins the election

Under s. 84.1(2.31)(h) and (2.32)(i), for an immediate or gradual intergenerational business transfer, the parties to the joint election in prescribed form are the taxpayer and the child, or the taxpayer and each member of the group of children. The joint election is among the listed conditions for paragraph (2)(e) to apply. Under s. 84.1(2.31), which covers an immediate transfer, paragraph (2)(e) applies to a taxpayer’s disposition of subject shares to a purchaser corporation if the listed conditions are met, and s. 84.1(2.32), for a gradual transfer, opens the same way. Those conditions include that, at the disposition time, the taxpayer is an individual (other than a trust).

Control and the type of shares

Under s. 84.1(2.31)(b)(ii) and (iii), and the matching subparagraphs of s. 84.1(2.32), at the disposition time the purchaser corporation is controlled by one or more children of the taxpayer, each 18 or older. Also at the disposition time, the subject shares are qualified small business corporation shares or shares of a family farm or fishing corporation, as those terms are defined in subsection 110.6(1). Under s. 84.1(2)(e), when that paragraph applies because of s. 84.1(2.31) or (2.32), the taxpayer and the purchaser corporation are deemed to deal at arm’s length at the time of the disposition.

When to file

Under s. 84.1(2.31)(h)(ii) and (2.32)(i)(ii), the election is filed with the Minister on or before the taxpayer’s filing-due date for the taxation year that includes the disposition time, and filing is among the listed conditions for paragraph (2)(e) to apply.

Who counts as a child

For s. 84.1(2.3), (2.31) and (2.32), a child of a taxpayer has the meaning in subsection 70(10) and also includes a niece or nephew of the taxpayer or of the taxpayer’s spouse or common-law partner, a spouse or common-law partner of such a niece or nephew, and a child of such a niece or nephew. CRA’s guide says that, only for purposes of IBTs, a child includes a niece or nephew of the taxpayer or the taxpayer’s spouse, a spouse of such a niece or nephew, or a child of such a niece or nephew.

Reporting a reserve

If you are reporting a new capital gains reserve on a disposition related to an IBT, CRA’s guide says to fill out the appropriate area on Form T2017. CRA’s reserve page says that to deduct a reserve in any year, you have to complete Form T2017.

For how the payments work over time, see how a child’s company can pay a parent over time.