There is no bump on the amalgamation following an intergenerational business transfer

In an intergenerational business transfer (“IBT”), there generally is no acquisition of control of the target company (“Targetco”) for tax purposes because its shares are sold to a corporation controlled by the seller's children (“Childco”), who are related to the sellers.

Accordingly, when there is a vertical amalgamation of Targetco and Childco, the cost of the target corporation's eligible assets cannot be bumped by virtue of the s. 88(1)(d.2) rule – which provides that if control of the target corporation was transferred between related persons, the relevant acquisition of control date for purposes of the bump calculation is the date of the last transfer between arm's length parties (generally establishing the historical cost), rather than the most recent transfer between non-arm's length parties.

S. 88(1)(d.3), which deems control to have been acquired by an unrelated person at the time of death, has no application to an IBT.

The absence of a bump is significant, for example, for agricultural corporations, where a substantial portion of the share value is often attributable to farmland.

Neal Armstrong. Summary of Julien Théberge, “The Interaction Between Corporate-Owned Life Insurance and Bump Transactions,” Tax for the Owner-Manager, Vol. 20, No. 2, April 2020, p. 3 under s. 88(1)(d.2).