I mentioned in my last blog that the government is proposing measures to limit the application of the lifetime capital gains exemption (“LCGE”) to owners of eligible small business corporations, based on age and “reasonableness”. Subject to certain exceptions, the proposals ensure that property held by a trust will no longer be eligible for the LCGE.
Under the current proposals, there are transition rules which will permit a one-time multiplication of the LCGE to designated beneficiaries in 2018 for gains accrued in a family trust. Many of these trusts will not want to miss this opportunity. That valuations of the underlying business interests completed for this exercise will be carefully scrutinized is almost guaranteed. Therefore, valuations will have to be carefully applied and supported, not only for the date chosen in 2018 but also for the date when the trust was formed.
The Canada Revenue Agency (“CRA”) or a Court may accept that there may be a significant difference in the determination of value as long as the valuations at the time the trust was formed and at the chosen date in 2018 took in all facts and circumstances into consideration. In other words, a real effort to value the property or properties in question was made and the valuations were performed in good faith.
Some time ago, I wrote that engaging a valuation expert is not an absolute requirement of the CRA but the use of an independent professional valuator may show the good faith referred to above and provide the necessary support in the event of a dispute or disagreement.
Most of all, maintaining a file with the supporting documentation for the valuations is highly recommended. Valuations performed at the time the trust was formed and at the chosen date in 2018 with proper support are less likely to be viewed by the CRA or the Court as self-serving that supporting valuations performed after a re-assessment has been issued.
Notwithstanding the fact that the nature and extent of these proposals may change, it is not too early to start planning for might be the inevitable, including finding and retaining a good valuator.