Rules that permit a tax-deferred or capital-gains-eligible sale of the shares of a family business — including a professional corporation — to a corporation controlled by the owner's child or grandchild, subject to conditions designed to ensure a genuine transfer of control. The relief originated with Bill C-208 and was subsequently tightened with additional technical requirements.
In general, the child's corporation must acquire and control the business, the shares must be held for a minimum period, and the parent must meaningfully reduce or cease involvement after the transfer. The rules can preserve capital-gains and Lifetime Capital Gains Exemption treatment on a genuine transfer to a child's corporation that would otherwise be recharacterized as a dividend under the surplus-stripping rules. The specific conditions must be satisfied carefully, and independent valuation and annual reporting are advisable.