Explanatory Notes cast a pall on reliance on the intergenerational transfer rules

The Explanatory Notes on s. 84.1(2.31)(g) express a warning regarding the situation where the substantive transfer of business ownership and management to the children has already occurred before the share sale transaction to them, and state:

However, if other hallmarks of a genuine intergenerational business transfer under subsection (2.31) have already been fulfilled prior to the disposition time (such as a child who already controls the subject corporation prior to the disposition time), a question may arise under the general anti-avoidance rule regarding whether the disposition of the subject shares to the purchaser corporation was undertaken for the purpose of transferring a business to the next generation or merely to facilitate the payment of a corporate distribution in the form of a capital gain.

A similar comment is made on s. 84.1(2.32)(h).

These comments arise against the backdrop of sustained CRA and Finance warnings about surplus stripping, and the Deans Knight finding that the rationale of provisions can depart from their precise words, and create uncertainty as to when taxpayers can rely on having technically complied with the intergenerational business transfer rules.

Neal Armstrong. Summary of Simon Pereira, “Finance Signals Potential GAAR Scrutiny for Technically Compliant Intergenerational Business Transfers,” Canadian Tax Focus, Vol. 16, No. 3, August 2026, p. 2 under s. 84.1(2.31)(g).