All About Estates

Bill C-208 the race to the finish line

Bill C-208 (Bill), “an Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation)” is a private member’s bill introduced by Conservative MP, Larry Maguire[1] on February 19, 2020.  The purpose of this Bill is to allow share capital restructurings and inter-generational transfers within a family unit, which are sometimes caught by two prominent anti-avoidance provisions in the Income Tax Act (ITA), Sections 55 and 84.1.

Inter-generational transfers and tax

These two anti-avoidance provisions are designed to prevent corporate surplus stripping, which in certain non-arm’s length situations can be viewed as unapproved abusive transactions by Department of Finance.  Section 55 prevents unapproved tax-deferred surplus stripping and section 84.1 prevents unapproved tax-free surplus stripping. In a complete oversimplification of the two complex anti-avoidance provisions of the ITA, both recharacterize what should be a tax-free transaction into a taxable transaction.  The specific provisions have caused havoc for the restructuring of family businesses that involve siblings as well as preventing tax-efficient inter-generational transfers of family owned businesses.

The purpose of this blog is not to dive into the details of these complex anti-avoidance provisions, but instead to discuss the House of Commons’ desire to pass legislation to ease this burden faced by family owned businesses.

Bill C-208 to provide exceptions

The Bill aims to provide exceptions to both Section 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. More specifically the exceptions being proposed are as follows:

  • Subparagraph 55(5)(e)(i), which currently deems siblings not related for purposes of section 55 will not apply; and
  • Paragraph 84.1(2)(e) will be added to deem the taxpayer and the purchaser corporation to be dealing at arm’s length in order prevent the application of subsection 84.1(1). In order for paragraph 84.1(2)(e) to apply, the purchaser corporation must be controlled by one or more children or grandchildren of the taxpayer (who are 18 years of age or older) and the purchaser corporation cannot dispose of the subject shares within 60-months of their purchase.

The Bill does contain an exception to the 60-month rule for paragraph 84.1(2)(e) dealing with a premature sale by reason of death, although the legislation does not define whose death would invoke this exception.  The Bill also reduces the capital gains exemption (CGE) available for any taxpayer relying on paragraph 84.1(2)(e) if the taxable capital employed in Canada exceeds $10 million.  Complete elimination of the CGE occurs at $15 million of taxable capital.

Third reading of a private member’s bill

Normally, I don’t pay much attention to a private member’s bill as historically private member’s bills do not get enacted into law.  However, Bill C-208 appears to be different because this is not the first time this proposed legislation has been introduced in the House of Commons.  Bill C-661 was introduced by NDP MP, Francine Raynault on March 26, 2015 containing the revision to subparagraph 55(5)(e)(i).  This Bill was shortly followed by Bill C-691, introduced by Liberal MP, Emmanuel Dubourg on June 11, 2015 containing the addition of paragraph 84.1(2)(e). Both of these Bills became casualties of the 2015 Federal election. Then in 2016, Bill C-274 was introduced by NDP MP, Guy Caron containing both the revision to subparagraph 55(5)(e)(i) and the addition of 84.1(2)(e).  Surprisingly, this Bill was defeated by the Liberals on February 8, 2017, with the former Finance Minister, Honorable Bill Morneau stating:

We recognize the importance of ensuring that they have an opportunity to pass their businesses to their next family member. The bill in question unfortunately would have the unintended consequence of opening up a tax loophole of up to $1.2 billion for the richest of Canadians, so it is for that reason we believe this is not something that we can move forward on.

Here we are in 2021, where Bill C-208 currently sits in third reading, which is the farthest that this legislation has gone.  The initial third reading took place on April 21, 2021 after being passed by the House of Commons Standing Committee on Finance.  In this reading, the tone from all parties was very positive. In fact, the Liberal MP, Honorable Wayne Easter, made this comment:

The finance committee held a very intensive hearing into this. We passed it back to Parliament. We looked at the tax implications. The bottom line is what this bill means for the community. The backbone of the community is small businesses, farmers and fishermen, and especially those who can pass a business down from generation to generation. This is an issue of tax fairness and should be supported fully. If officials have a problem with this, then they should put their corrections forward in a ways and means bill in the future, but they should pass this necessary bill now and support farmers, fishermen and small business.

Even though there appears to be non-partisan support for Bill C-208, there is one major hurtle – time! Private member’s bills receive limited attention in the House of Commons, and the sponsor of Bill C-208 had to rely on the help of other MP’s  to prioritize the bill allowing it to get to a third reading. With a Federal budget that looked more like an election campaign and with the speculation of a premature election looming, this could once again be the demise of this legislation.

[1] Larry Maguire represents the riding of Brandon-Souris, Manitoba

About John Oakey
National Tax Director for Baker Tilly Canada. John has extensive experience with Canadian corporate and personal income taxes with specialization in the areas of corporate reorganizations, estate planning, succession planning and tax compliance. He also has significant experience dealing with GST/HST issues and U.S. citizen cross-border tax reporting issues.


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