Advocating for Fair Treatment for Family Businesses


(From the April 2021 Edition of eFORUM)

By Guy Legault and Kevin Wark

Spirits were lifted in the tax advisory and small business communities this March when progress was made to address current inequities in the tax treatment of family business transfers. The Conference for Advanced Life Underwriting (CALU) has been actively advocating on this issue on behalf of members of CALU and Advocis starting in 2016 with its 2017 pre-budget submission to the House of Commons’ Standing Committee on Finance (FINA).

CALU’s efforts reflect the strategic partnership that exists between CALU and Advocis. CALU represents the needs of Advocis members in the areas of advanced tax and estate planning. Under the partnership, Advocis is primarily responsible for advocacy on provincial regulatory issues and CALU takes the lead on federal taxation and advanced planning issues, allowing it to speak on behalf of more than 13,000 financial advisors when making representations and submissions to government officials.

The partnership gave added weight to CALU’s support for changes to section 84.1 of the Income Tax Act. This tax provision can create significant issues for small business owners who are contemplating the transfer of their shares in a private business to children. Take the example of Mr. and Mrs. Smith, who own all the shares in an incorporated landscaping business. They have a daughter, Joanne, who wishes to take over the business. They agree on a price of $500,000, which will be payable over five years. The Smiths plan to use their capital gains exemption to shelter the capital gain that will arise on the sale, resulting in no taxes being payable. In turn, Joanne will incorporate a new company that will buy her parent’s shares and be responsible for repaying the purchase loan.

All looks good until Mr. and Mrs. Smith meet with their accountant to discuss the terms of the sale. The accountant delivers the unexpected news that the proposed sale to the Joanne’s corporation will trigger section 84.1, converting what would otherwise be a tax-free capital gain into a $500,000 taxable dividend. The resulting tax bill of about $180,000 would have a very negative impact on their retirement plans. The accountant further advises the Smiths that they should consider selling the business to an arm’s length purchaser, as this would allow them access to their capital gains exemption. This puts the parents in the untenable position of having to choose between a tax-free sale to a stranger or a taxable sale to Joanne.

CALU has long recognized the unfairness of this result to business owners and their families, and over the last five years has made representations to both the Department of Finance and FINA recommending changes that would facilitate intergenerational transfers of private corporations. CALU has also reached out to Members of Parliament and other government officials to educate them on the urgent need for modifications to section 84.1.

More recently, Conservative MP Larry McGuire introduced a private members’ bill (Bill C-208) that will make the desired changes to section 84.1. This bill has the support of the Conservative, NDP, and Bloc Québécois parties, and despite government opposition, recently passed second reading in the House of Commons and was referred to FINA. CALU was invited by FINA to speak on the bill and CALU chair Cindy David took this opportunity to urge the Committee to approve the bill and return it to the House of Commons for passage. We were very pleased when FINA supported our position and approved Bill C-208 without modification. The bill has since been reported back to the House of Commons for the third-reading debate.

The ultimate enactment of Bill C-208 is still uncertain due to ongoing opposition by the government. However, it is clear that CALU’s strong and reasoned voice on this issue has had a positive impact on the government debate. We are now closer than ever to seeing much-needed legislative changes that will facilitate the successful transfer of businesses to the next generation of family owners.


Guy Legault, MBA, FCPA, FCGA, CAE is CALU President & CEO and may be reached at Kevin Wark, LLB, CLU, TEP is a CALU Tax Advisor and may be reached at