Bill C-275: An Act to amend the Income Tax Act (business transfer)

Cover Summary BILL C-275 First Session, Forty-second Parliament, 64-65 Elizabeth II, 2015-2016 HOUSE OF COMMONS OF CANADA BILL C-275 An Act to amend the Income Tax Act (business transfer) FIRST READING, MAY 19, 2016 Mr. Barsalou-Duval 421229 SUMMARY This enactment amends the Income Tax Act in order to exclude, under certain conditions, the transfer of qualified small business corporation shares by a taxpayer to the taxpayer’s child or grandchild who is 18 years of age or older from the anti-avoidance rule of section 84.‍1. Available on the Parliament of Canada Web Site at the following address: http://www.parl.gc.ca 1st Session, 42nd Parliament, 64-65 Elizabeth II, 2015-2016 HOUSE OF COMMONS OF CANADA BILL C-275 An Act to amend the Income Tax Act (business transfer) Preamble Whereas the aging of the population will lead to an increased volume of business transfers; Whereas the majority of small businesses do not survive the first transfer; Whereas the continuity of small businesses is essential to the employment market; Whereas young entrepreneurs find it difficult to procure the capital necessary to take over a business; Whereas many entrepreneurs want their children or grandchildren to take over their business and transferring a business to a family member offers the best chance of success; Whereas horizontal equity of taxation is a fundamental element of a fair and competitive business environment; And whereas the Income Tax Act penalizes business transfers to children or grandchildren; R.‍S.‍, c. 1 (5th Supp.‍) Now, therefore, Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows: 1 (1) Subsection 84.‍1(2) of the Income Tax Act is amended by striking out “and” at the end of paragraph (b), by adding “and” at the end of paragraph (d), and by adding the following after paragraph (d): (e) where the subject shares are qualified small business corporation shares within the meaning of subsection 110.‍6(1), the taxpayer and the purchaser are deemed to be dealing at arm’s length if the purchaser is controlled by a child or grandchild of the taxpayer who is 18 years of age or older and if the purchaser does not dispose of the subject shares within 24 months of their purchase. (2) Section 84.‍1 of the Act is amended by adding the following after subsection (2.‍2): Application of paragraph 84.‍1(2)‍(e) (2.‍3) For the purposes of paragraph (2)‍(e), (a) if the purchaser disposes of the subject shares within 24 months of their purchase: (i) paragraph (2)‍(e) is deemed never to have applied, (ii) the taxpayer is deemed, for the purposes of this section, to have disposed of the subject shares to the person who acquired them from the purchaser, and (iii) the period of 24 months applicable to the operation that is deemed to have taken place under subparagraph (ii) is deemed to have begun when the taxpayer disposed of the subject shares to the purchaser; (b) the deduction referred to in subsection 110.‍6(2) or (2.‍1) is, for a particular taxation year, the amount determined by the formula:  A × B / $11,250 where A is the amount that would, but for this subsection, be the capital gains deduction referred to in subsection 110.‍6(2) or (2.‍1) for the particular taxation year; and B is the amount determined by the formula   0.‍00225 × (D - $10 million) where D is (a) if, in both the particular taxation year and the preceding taxation year, the corporation is not associated with any corporation, the taxable capital employed in Canada (within the meaning assigned by subsection 181.‍2(1) or 181.‍3(1) or section 181.‍4, as the case may be) of the corporation for the preceding taxation year, (b) if, in the particular taxation year, the corporation is not associated with any corporation but was associated with one or more corporations in the preceding taxation year, the taxable capital employed in Canada (within the meaning assigned by subsection 181.‍2(1) or 181.‍3(1) or section 181.‍4, as the case may be) of the corporation for the particular taxation year, or (c) if, in the particular taxation year, the corporation is associated with one or more particular corporations, the total of all amounts each of which is the taxable capital employed in Canada (within the meaning assigned by subsection 181.‍2(1) or 181.‍3(1) or section 181.‍4, as the case may be) of the corporation or of any of the particular corporations for its last taxation year that ended in the preceding calendar year; and (c) the taxpayer must provide the Minister with an independent assessment of the fair market value of the subject shares and an affidavit signed by the taxpayer and by a third party attesting to the disposal of the shares. Published under authority of the Speaker of the House of Commons