As the story of Bill C-208 (intergenerational transfers) continues to evolve, I can’t help but make analogies to my favorite childhood trilogy. The Star Wars trilogy was a dominating force in my childhood. I lived and breathed the interesting stories produced by this vast universe created by George Lucas.
In comparison to Star Wars, our vast tax universe also produces interesting stories. The latest story involves the private member’s bill, C-208. This bill was previously introduced in the House of Commons on several occasions only to be defeated each time. Finally, on its fourth attempt, facing time constraints and opposition from the Department of Finance, Bill C-208 became law on June 29, 2021, with the assistance of non-partisan support. There were celebrations from taxpayer’s and professional organizations coast to coast recognizing the importance of this victory.
This is a huge win for taxpayers as Bill C-208 creates neutrality in the Income Tax Act (Canada) relating to intergenerational transfers of certain shares; but this win does not come without consequences. The legislation was poorly drafted lacking sufficient protection to prevent possible illegitimate transactions from taking advantage of the new rules.
Now it would be inappropriate to compare the Department of Finance (Finance) to the Star Wars Empire as Finance serves a very important role within our elected government to manage our tax dollars, but their quick reaction to the passing of Bill C-208 is akin to setting the stage for the sequel to this story, “The Finance Strikes Back”.
On June 30th, Finance released the following statement:
Private Member’s Bill C-208 has passed in both Houses of Parliament and received Royal Assent. Bill C-208 makes amendments to the Income Tax Act but does not include an application date.
The federal government is committed to facilitating genuine intergenerational share transfers, while preventing tax avoidance that undermines the equity of Canada’s tax system.
The government proposes to introduce legislation to clarify that these amendments would apply at the beginning of the next taxation year, starting on January 1, 2022.
It is interesting that Finance feels the need to clarify the coming into force date given that we already have legislation that clearly defines the enactment date. Paragraph 6(2)(a) of the Interpretations Act states “that every enactment that is not expressed to come into force on a particular day shall be construed as coming into force…on the expiration of the day immediately before the day the Act was assented to in her Majesty’s name”.
If you were to read between the lines of Finance’s announcement, it becomes somewhat apparent that Finance is looking to delay the implementation of this legislation to January 1, 2022, in order to make technical corrections and to impose additional criteria to try and eliminate possible illegitimate transactions.
Wait and see for amendments
In the meantime, as taxpayers are waiting to restructure their family business under the new rules in Bill C-208, it would be prudent to take a wait and see approach given the high probability of Finance making significant amendments to Bill C-208 and whether they will be retroactive, one of which could be the enactment date.
As this sequel plays out, it will be interesting to see if the Finance strikes back with a unilateral response or will Finance collaborate with stakeholders to come up with a more acceptable multilateral response. Finance’s response could be the difference between a sequel and a trilogy.
 Income Tax Act Sections 55 and 84.1 when dealing with shares that are qualified small business corporation shares or shares of the capital stock of a family farm or fishing corporation within the meaning of subsection 110.6(1) of the ITA.
 For details on the technical issues with Bill C-208, read PWC’s June 23rd Tax Insight https://www.pwc.com/ca/en/services/tax/publications/tax-insights/tax-relief-intergenerational-transfers-small-businesses-family-farms-2021.html