Keeping your small business in the family just got a lot more attractive after the passage of recent tax law amendments.
Bill C-208, one of the rare private member’s bills to make it onto the statute books, changes the treatment of intergenerational share transfers for small businesses, family farms or fishing corporations under the Income Tax Act.
Several similar attempts have been made by backbench MPs in Ottawa over the year, but C-208 finally made it over the line with the help of cross-party support in Parliament, receiving Royal Assent at the end of June.
Transfers within the family used to be subject to an effective tax penalty because they were caught by provisions characterizing them as dividends.
However, C-208 could result in potentially big tax savings for parents selling on their business interests to children or grandchildren, by allowing them to access the lifetime capital gains exemption that was always available when selling up to an unrelated third party.
Succession planning for business founders can, and should be, a long process – finding or training up the right team to take over an enterprise built from scratch is no easy task, especially if there are complicated family or sibling dynamics at play.
Owners often make assumptions about both the willingness and ability of their children or other family members to take over, which may or may not turn out to be correct.
When owners are ready to start putting a succession plan together, it’s also a great time to think about getting a broader estate plan in place, so that they can be fully integrated.
In either case, those who address the tough questions before their death will reduce the chance of a messy fight over their estate or the family business after they’re gone.
The more complex your assets, the more work it will take to maximize the tax efficiency of your estate. But with the assistance of a good lawyer and accountant, you can put together an estate plan perfectly tailored to your individual situation.
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