Bill C-208 changes the Income Tax Act regarding the transfer of small business or family farm/fishing corporation shares. It ensures that siblings are considered not to be dealing at arm's length (i.e., they are related) when these shares are involved. The bill also modifies the anti-avoidance rule in section 84.1 of the Income Tax Act.
Specifically, it allows a taxpayer to transfer shares of a qualified small business corporation or a family farm/fishing corporation to their child or grandchild (18 years or older) without triggering the anti-avoidance rule under certain conditions. These conditions include the purchasing corporation being controlled by the taxpayer's children or grandchildren and the purchasing corporation not disposing of the shares within 60 months of the purchase.
The bill includes provisions to address situations where the purchaser corporation does dispose of the shares within the 60-month period. In such cases, paragraph (2)(e) is deemed to have never applied, and the taxpayer is considered to have disposed of the shares to the person who acquired them from the purchaser corporation. This aims to prevent tax avoidance through quick resales.
It also specifies a formula to determine the capital gains deduction referred to in subsection 110.6(2) or (2.1) for a particular taxation year. The taxpayer must also provide an independent assessment of the fair market value of the shares and an affidavit attesting to the disposal of the shares.
Taxation
This bill amends the Income Tax Act to change how small business or family farm/fishing corporation shares are transferred. It affects capital gains deductions and aims to prevent tax avoidance when transferring these shares to family members.