Transfer business ownership to family member Canada

Transferring business ownership to a family member can be a complex process, but it can also be a rewarding one. By passing on your business...

Transferring business ownership to a family member can be a complex process, but it can also be a rewarding one. By passing on your business to a loved one, you can ensure that your legacy continues and that your family benefits from your hard work.

However, there are a number of things to consider when transferring business ownership to a family member, including tax implications, legal requirements, and the future of the business itself. This article will provide a comprehensive overview of the process of transferring business ownership to a family member in Canada.

Step 1: Choose a transfer method

There are a number of different ways to transfer business ownership to a family member. The best method for you will depend on your individual circumstances and the type of business you own. Some common transfer methods include:

Sale of shares: If your business is incorporated, you can sell your shares to the family member. This is the most common method of transferring business ownership, as it is relatively straightforward and can be done relatively quickly. However, it is important to note that selling your shares will trigger a capital gain, which may be taxable.

Gift of shares: You can also gift your shares to the family member. This can be a good option if you want to avoid paying capital gains tax. However, there are some restrictions on gifting shares, such as the fact that you must have owned the shares for at least a year before gifting them.

Family trust: A family trust can be a good way to transfer business ownership to multiple family members or to stagger the transfer over time. Family trusts can also be used to protect the business from creditors and to ensure that it is passed on to the intended beneficiaries.

Step 2: Consider the tax implications

As mentioned above, selling your shares to a family member will trigger a capital gain, which may be taxable. However, there are a number of tax credits and exemptions that you may be able to claim to reduce your tax liability.

For example, you may be eligible for the lifetime capital gains exemption, which allows you to claim an exemption of up to $900,000 in capital gains. You may also be eligible for the small business capital gains deduction, which allows you to claim a deduction of up to 50% of your capital gains from the sale of qualified small business shares.

It is important to consult with a tax advisor to discuss your individual circumstances and to determine the best way to structure the transfer of your business to minimize your tax liability.

Step 3: Meet the legal requirements

In addition to the tax implications, there are also a number of legal requirements that you must meet when transferring business ownership to a family member. These requirements vary depending on the type of business you own and the province or territory in which you operate.

For example, if your business is incorporated, you will need to file a change of directors and officers form with the provincial or territorial corporate registry. You may also need to update your business licenses and permits.

If you are transferring ownership of a sole proprietorship, you will need to cancel your business number and notify the Canada Revenue Agency (CRA) of the change in ownership. You may also need to transfer ownership of any business assets, such as real estate or vehicles.

It is important to consult with a lawyer to ensure that you meet all of the legal requirements associated with transferring your business to a family member.

Step 4: Plan for the future of the business

Once you have chosen a transfer method and met the legal requirements, it is important to plan for the future of the business. This includes discussing the following with your family member:

Vision for the business: What are your goals for the business? What do you see for its future?

Roles and responsibilities: Who will be responsible for managing the business after you transfer ownership? What roles and responsibilities will each family member have?

Dispute resolution: What will happen if there is a dispute between family members about the business?

It is also important to create a transition plan that outlines how the business will be transferred and how the family member will be prepared to take over the business. This plan should include a timeline for the transfer, as well as training and support for the family member.

By taking the time to plan for the future of the business, you can help to ensure that the transfer of ownership is successful and that the business continues to thrive for many years to come.