Transaction tax

Tax changes for the benefit of certain companies considering intergenerational transfers of shares


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The blog post explained that s. 55 (2) of the Income Tax Act (Canada) treats transactions, which would ordinarily be considered dividends, as taxable capital gains in certain situations, but corporations can avail themselves of an exception and avoid this requalification if they comply with the rules of the art. 55 (3) (a).

Although by law no “unrelated person” can be involved in the transaction or series of reorganization transactions for the rules to apply, a problem can arise any time siblings are involved. involved, given that art. 55 (5) (e) treats siblings as unrelated for the purposes of s. 55, added the blog post.

The bill will amend s. 55 (5) (e) so that the siblings not related rule would not apply if it is a qualifying small business corporation or a family farm or fishing corporation that is carrying out the reorganization , and so that dividends paid or received by companies, in which brothers and sisters have a stake, will be covered by the exception provided for in art. 55 (3) (a), the blog post said.

The blog post went on to discuss the art. 84.1, which prohibits individual shareholders from accessing the corporation’s surplus, which may otherwise be paid out as a tax-free return of capital, on a sale of shares to a corporation in a situation where the transferor has not at arm’s length.

The blog post said changing this provision would add a narrow exception to s. 84.1 (2) (e), so that the transferor and the purchasing company will be treated as dealing at arm’s length, if the following conditions are met: if the transferred shares are qualifying shares, if a child of full age or a grandchild of the transferor controls the buying company and if the buying company does not have the transferred shares within 60 months of the date of the transaction.

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