All About Estates

Grandfathered Agreements

My most recent blogs have explored the possible use of life insurance to completely eliminate the capital gain on death (assuming that sufficient insurance was in place) provided certain stop-loss rules do not apply.

Where shares are disposed of today pursuant to a written agreement such as a shareholders agreement that was in place before April 27, 1995 then that agreement may be grandfathered and the capital loss, if any, would not be restricted by the stop-loss rules. This rule, known as the pre-existing agreement rule, may be difficult to satisfy because it is not unusual to see new or revised shareholder agreements as businesses and the business owners change.

The Canada Revenue Agency (CRA) has said that that where an agreement is altered to such an extent that it would constitute a new agreement, grandfathering relief will be lost. This would be a question of fact to be determined in each case. CRA also indicated that where a separate agreement is entered into by the parties to revise the terms of their relationship contained in a grandfathered agreement, the grandfathering will be lost. For these reasons it may be very difficult to maintain the grandfathering of shares pursuant to the pre-existing agreement rule.

All may not be lost after all if the pre-existing agreement rule is not satisfied because the pre-existing insurance rule may be satisfied. Speak to a pro before you go and give up on otherwise valuable capital losses.

About Derek de Gannes
Derek A. de Gannes: Senior Director, Private Client Services of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: