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Tax regulations making it easier to sell the family farm to your children

Reference: MNP Agriculture

Succession has been a long-standing issue for family businesses. The passing of Bill C-208 provides relief for family business owners.

Many farming business owners want to keep the business in the family after they retire. However, the tax implications of selling farm shares to the next generation were punitive until June 2021, when the government introduced new tax rules that provide relief to farmers.

Private Member’s Bill C-208 resolves many of the tax complications that discourage the sale of your family corporation to a child’s corporation. Most notably, it resolves an anti-avoidance rule in the Income Tax Act (ITA) that penalized the legitimate transfer of your family farming corporation to the next generation. Under the old provisions, the proceeds were taxed as dividends when you sold shares to a child’s corporation — which come at a higher rate — rather than capital gains. This treatment would have prevented you from claiming the lifetime capital gains exemption, which significantly reduces tax rate on the sale — and made selling to an unrelated purchaser the far more favourable option.

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