2 December 2025 CTF Roundtable Q. 5, 2025-1080691C6 - Intergenerational Business Transfer – control requirement in subparagraphs 84.1(2.31)(f)(i) and (2.32)(g)(i)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Implications of divorce or termination of a common-law partnership on the control requirement in subparagraphs 84.1(2.31)(f)(i) and 84.1(2.32)(g)(i).

Position: See below.

Reasons: See below.

2025 CTF Annual Tax Conference

CRA Round Table

Question 5: Intergenerational Business Transfer – control requirement in subparagraphs 84.1(2.31)(f)(i) and (2.32)(g)(i)

Paragraph 84.1(2)(e) applies, for the purposes of section 84.1, to deem a taxpayer who disposes of shares of the capital stock of one corporation to another corporation (purchaser corporation), to be dealing at arm’s length with the purchaser corporation at the time of the disposition if the conditions in either subsection 84.1(2.31) or (2.32) are met. Those conditions include the requirement that one or more children of the taxpayer control the purchaser corporation at the time of the disposition and that during a specified time period following the disposition, the child or child group controls the purchaser corporation.

In a situation where the purchaser corporation was originally owned 50/50 by a natural child of the taxpayer and their spouse, would the control requirement in subparagraphs 84.1(2.31)(f)(i) or 84.1(2.32)(g)(i) cease to be met where the natural child and their spouse divorce before the expiration of the specified time period, with the result that paragraph 84.1(2)(e) would not apply to deem the taxpayer to be dealing at arm’s length with the purchaser corporation?

CRA Response

Subsections 84.1(2.31) (immediate business transfer) and 84.1(2.32) (gradual business transfer) require, among other things, that, at the disposition time, the purchaser corporation is controlled by one or more children of the taxpayer, each of whom is 18 years of age or older (see, in this respect, subparagraphs 84.1(2.31)(b)(ii) and 84.1(2.32)(b)(ii)). In addition, subject to certain exceptions, the child or child group must control the purchaser corporation during a specified time period from the disposition time (36 months in the case of an immediate transfer and up to 10 years in the case of a gradual transfer).

Paragraph 84.1(2.3)(a) provides that, for the purposes of subsections 84.1(2.31) and 84.1(2.32), a child of a taxpayer has the same meaning as in subsection 70(10) and further expands the class of persons who are considered to be a child of the taxpayer. The meaning of child of a taxpayer in subsection 70(10) includes the extended meaning of child in subsection 252(1) which provides, among other things, that a child of a taxpayer includes a spouse or common-law partner of a child of the taxpayer.

We agree that a person may cease to be a child of the taxpayer within the meaning of paragraph 84.1(2.3)(a) on the termination of a marriage or common-law partnership. However, subparagraphs 84.1(2.31)(f)(i) and 84.1(2.32)(g)(i) refer to the control of the purchaser corporation during the specified time period by the child or group of children. In our view, the child or group of children referred to in those provisions is the child or the group of children who controlled the purchaser corporation at the time of the disposition.

Therefore, if the same person or group of persons who controlled the purchaser corporation at the time of the disposition, controls the purchaser corporation throughout the specified time period, it is our view that the control requirement in subparagraphs 84.1(2.31)(f)(i) and 84.1(2.32)(g)(i) will be met. This would be the case even if a person or a member of a group of persons that controlled the purchaser corporation at the time of the disposition ceases to be a child of the taxpayer within the specified time period by reason of divorce or the termination of a common-law partnership.

Daryl Boychuk
2025-108069
December 2, 2025