Budget Ensures Genuine Intergenerational Business Transfers

Federal Budget 2023 includes measures to strengthen the intergenerational business transfer framework. It seeks to ensure that the framework applies only where a genuine intergenerational business transfer takes place. A genuine intergenerational share transfer would be a transfer of shares of a corporation by the owner to a purchaser. However, several existing conditions would have to be met. Each share of the transferred corporation must be a “qualified small business corporation share” or a “share of the capital stock of a family farm or fishing corporation.” The purchaser corporation must be controlled by one or more children, grandchildren, step-children, children-in-law, nieces and nephews, and grandnieces and grandnephews of the transferor. To provide flexibility, it is proposed that taxpayers who wish to undertake a genuine intergenerational share transfer may choose to rely on one of two transfer options. One is an immediate intergenerational business transfer where the parents immediately and permanently transfer both legal and factual control of business, including an immediate transfer of a majority of the voting shares and a transfer of the balance of voting shares within 36 months. Factual control means economic and other influence that allows for effective control of a corporation. A gradual intergenerational business transfer based on traditional estate freeze characteristics could also be used. An estate freeze typically involves a parent crystalizing the value of their economic interest in a corporation to allow future growth to accrue to their children while the parent’s fixed economic interest is then gradually diminished by the corporation repurchasing the parent’s interest.