Intergenerational business transfer
An intergenerational business transfer is a sale of qualifying shares by an individual to a corporation controlled by their children aged 18 or older that meets the conditions of subsection 84.1(2.31) or (2.32) of the Income Tax Act, including a joint election. The parties are then deemed to deal at arm’s length for section 84.1.
A parent selling the family business to a child’s company meets this rule. Section 84.1 can otherwise treat a non-arm’s length share sale as a deemed dividend. Finance Canada’s explanatory notes say paragraph 84.1(2)(e) is intended to accommodate certain intergenerational business transfers by deeming them to occur at arm’s length for purposes of section 84.1.
How it works
- The Act offers two routes: an immediate transfer under subsection (2.31) and a gradual one under subsection (2.32)
- One condition of each route is that the parent and the child, or each child, jointly elect in prescribed form for paragraph 84.1(2)(e) to apply, filed by the parent’s filing-due date
- Each route has its own conditions, so the sections themselves must be read for the facts
- Finance’s notes say a child who joins the election is jointly and severally liable under section 160(1.5) for any amount payable by the parent above what it would have been had the conditions been met
The related answer is how to sell to a child’s company without a deemed dividend.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
- 02Department of Finance CanadaGovernmentExplanatory Notes to Legislative Proposals Relating to the Income Tax Act and Regulations
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