Farm transfer tax treatment bill now in effect, says feds

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Despite a previous statement from her department, Canada’s finance minister says a bill standardizing the tax treatment of farm transfers is now officially on the books.

However, while Bill C-208 is now part of federal tax law, further amendments are underway to fill any loopholes the bill may have opened up.

Finance Minister Chrystia Freeland released a statement on Monday that ‘seeks to provide clarity’ following a June 30 Finance Ministry statement, which in turn had followed the passage through Parliament – and, June 29, Royal Assent – ​​for C-208.

C-208, a private member’s bill spearheaded by Western Manitoba Conservative MP Larry Maguire, sought to change the income tax law to exclude sales of farms and other small businesses to adult children or grandchildren from current federal anti-avoidance rules.

In its June 30 statement, the Department of Finance said the government would “introduce legislation to clarify that these changes will apply at the start of the next tax year, from January 1, 2022.”

But Freeland, in his new statement Monday, said instead that the changes contained in C-208 “now apply as a matter of law” within the income tax law.

“We fully support genuine intergenerational stock transfers and regret the recent uncertainties we have caused,” she said Monday. “Bill C-208 has passed Parliament and received Royal Assent. The law is the law. »

That said, she added that the minority Liberal government is considering drafting further amendments and submitting them for consultation. The additional amendments to the income tax law would “honor the spirit” of C-208, while “protecting against any unintended tax avoidance loopholes that may have been created”.

Other changes, she said, will be “to ensure that (C-208) facilitates genuine intergenerational transfers and is not used for artificial tax planning purposes.”

After consultations, the government’s changes would be presented in a separate bill and would apply either on the date of publication of the final version of this bill or on November 1 of this year, whichever is later.

“Excess pickling”

Maguire had proposed C-208 as a remedy in cases where a person sold a small business or farm to a child or grandchild and the difference between the sale price and the original purchase price was considered a dividend in under pre-C-208 tax law. .

If a business was instead sold to a non-family member, he said, the sale under pre-C-208 tax law was considered a capital gain — and taxed at a lower rate.

Excluding intergenerational farm and small business sales, Freeland said Monday that C-208 could “inadvertently” allow business owners the option of “surplus stripping.”

This term refers to cases in which dividends are converted into capital gains to take advantage of a lower tax rate “without any real transfer of business taking place”.

The pre-C-208 anti-avoidance rule was intended to prevent business owners from simply withdrawing income from their corporations using a sale to a “related” corporation – such as that of a close family member – as the basis to do it.

The government’s other amendments, when passed, would establish the requirement to transfer “legal and factual control of the corporation operating the business” from parent to child or grandchild.

The other changes would also establish the level of ownership in the company operating the business that a parent can retain for a “reasonable” time after the transfer.

They would also clarify the requirements and timeline for a parent to transfer their involvement in the business to the next generation, as well as the level of involvement of the child or grandchild in the business after the transfer, a said Freeland. — Glacier FarmMedia Network

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