Until recently, there were significant barriers to selling a business to the next generation within a family – parents and children were heavily penalized when transacting on a sale of shares of the business versus the same transaction with an arm’s-length party.

Bill C-208 received Royal Assent on June 29, 2021. This bill generally removed these significant tax barriers to inter-generational business transfers. However, the language of the bill was broad and tax practitioners widely expected that revisions would follow.

Budget 2023 proposed amendments to Bill C-208 and included draft legislation to be effective for share sales occurring on or after January 1, 2024.

Under the proposed legislation amendments, a parent will be able to sell shares of a corporation to their children, nieces/nephews, or grandchildren with the same tax consequences that would exist in an arm’s length sale, provided that a number of criteria are met.

Broadly, the criteria for a qualifying transfer include:


Immediately prior to the share sale, the parent (alone or together with their spouse/common-law partner) must control the corporation in a legal sense, and no other party may control the corporation in a legal or factual manner.

Control and management of the corporation must transfer from the parents (the “transferor”) to the children, nieces/nephews, or grandchildren (the “transferee”) as part of the transaction. The transferee may acquire their control over time depending on the structure of the transaction.

Nature of seller

The transferor must be an individual aged 18 or older. Corporations that are owned by other corporations or by trusts do not qualify.

QSBC/ farm

The shares of the corporation being transferred must meet the definition of qualified small business corporation shares or shares of a family farm or fishing corporation.

Share ownership by transferor

The transferors can retain shares of the corporation, but their ownership must be less than 50% (other than shares of a specified class). Within 36 months of the transaction date, the transferor must dispose of their entire interest in shares of the corporation, other than shares of a specified class. Broadly, “shares of a specified class” may not be voting shares and may not be entitled to excessive dividends.

Potential concerns and other information


The transferor and transferee must jointly file an election by the due date of transferor’s personal tax return for the year. The transferee would be jointly and severally liable for any additional taxes payable by the transferor on any deemed dividends arising from a non-qualifying transfer. It is important to note there does not appear to be a mechanism for late-filing of the election, and a late election could result in a non-qualifying transfer which would result in a deemed dividend to the transferor.

Actively engaged

There is a requirement for the transferee to be “actively engaged” in the business on a regular, continuous and substantial basis after the transaction. Generally, the definition of actively engaged requires 20 hours per week or more. It is possible that some businesses would naturally not require this many hours and there is a risk that a transfer of that type of business may not qualify.


There are two distinct options for completing an effective inter-generational business transfer – one option is to immediately transfer ownership of the shares and the other is to gradually transfer ownership of the shares over time. The criteria for each option are slightly different and should be considered together with the objectives of the transferor and transferee.

The full set of criteria under each transfer option are more numerous and complex than the simplified explanations above. This type of transaction should be undertaken only with advice from a tax expert.

Feel free to reach out to one of our experts if you require assistance selling your business to the next generation.

Written by: Chris Brien, CPA, CA

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