Published | Category : Income tax - businesses

Conditions for Easing of the Tax Provisions Applicable to the Transfer of Family Businesses

As part of the budget speech of March 26, 2015, an easing of the tax provisions applicable to the disposition of qualified shares of corporations in the primary or manufacturing sectors carried out in conjunction with a transfer of a family business was announced. For the application of the easing, a transfer of a family business will be designated as qualifying, in respect of a taxpayer, where the following seven qualification criteria are met.

Criterion 1

The taxpayer disposing of the shares concerned is an individual other than a trust.

Criterion 2

The taxpayer (or the taxpayer's spouse), while he or she held the shares concerned, played an active role in a business carried on by the corporation in question, or by a corporation in which the corporation in question held a “substantial interest” according to the meaning given to this expression in the Income Tax Act, during the 24-month period immediately preceding the disposition of the shares concerned.

Criterion 3

The taxpayer (or the taxpayer's spouse) does not, after the disposition of the shares concerned, play an active role in a business actively carried on by the acquirer or by the corporation in question (or by a corporation in which the corporation in question holds a substantial interest), except for:

  • an active role aimed at fostering a harmonious transfer of the knowledge possessed by the taxpayer (or the taxpayer's spouse) of a business carried on by such a corporation to the other persons active in carrying on the business; or 
  • an active role in a business carried on by such a corporation, if substantially all of the income of the business is not derived from the sale, rental or development, as applicable, of property similar to, or the providing of services similar to, those of a business carried on by the corporation in question, the acquirer or any corporation in which the corporation in question or the acquirer held an interest, directly or indirectly.

Criterion 4

The taxpayer (or the taxpayer's spouse) does not, during the period beginning one month after the disposition of the shares concerned and ending at the end of a series of operations including the disposition of the shares concerned, have de jure control of the corporation in question or of a corporation in which the corporation in question had a substantial interest, and neither the taxpayer nor the taxpayer's spouse belong to a group of persons having the de jure control of such a corporation, except for:

  • a corporation carrying on a business, if substantially all of the income of the business is not derived from the sale, rental or development, as applicable, of property similar to, or the providing of services similar to, those of a business carried on by the corporation in question, the acquirer or any corporation in which the corporation in question or the acquirer held an interest, directly or indirectly;
  • a corporation that is not actively carrying on a business.

Criterion 5

The taxpayer (or the taxpayer's spouse) does not, during the period beginning one month after the disposition of the shares concerned and ending at the end of a series of operations including the disposition of the shares concerned, hold, directly or indirectly, common shares of the corporation in question or a corporation in which the corporation in question had a substantial interest, except for common shares in a corporation that is:

  • carrying on a business, if substantially all of the income of the business is not derived from the sale, rental or development, as applicable, of property similar to, or the providing of services similar to, those of a business carried on by the corporation in question, the acquirer or any corporation in which the corporation in question or the acquirer held an interest, directly or indirectly;
  • not actively carrying on a business.

Criterion 6

The total fair market value of all the residual financial interests (in any form whatsoever) held, during the period beginning one month after the disposition of the shares concerned and ending at the end of a series of operations (excluding payment of those residual financial interests) including the disposition of the shares concerned, directly or indirectly, by all of the taxpayers benefiting from the easing (as well as their spouse, even if that spouse does not benefit from the easing) in a particular corporation must not be greater than 60% (80% in the case of a farming or fishing business) of the fair market value of the aggregate of the issued shares of a particular corporation.

Criterion 7

For the period beginning immediately after the disposition of the shares concerned and ending at the end of a series of operations including the disposition of the shares concerned, at least one person participating in the body of shareholders of the acquirer (or the spouse of such a person) plays an active role in carrying on the business carried on by the corporation in question or a business carried on by a corporation in which the corporation in question had an interest.

Application date

The easing will apply to dispositions of shares occurring after March 17, 2016.

For more information, see pages A.38 to A.44 of the document entitled Additional Information 2016-2017 (PDF – 2.88 MB), published by the Ministère des Finances.

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