Income Tax Act — I-3.3 110.61
Capital gains deduction for qualifying business transfer – conditions 110.61 (1) Subsection (2) applies to an individual (other than a trust) if, at the time of a disposition (referred to in this section as the “disposition time”) of shares of the capital stock (referred to in this section as the “subject shares”) of a corporation (referred to in this section as the “subject corporation”) to a trust (or to a purchaser corporation wholly owned by the trust) that occurred after 2023 and before 2027 under a qualifying business transfer, the following conditions are met: (a) no individual has prior to the disposition time sought a deduction under this section or section 110.62 in respect of a disposition of shares that, at the time of that disposition, derived their value directly or indirectly, from an active business that is also relevant to the determination of whether the disposition of the subject shares satisfies the condition set out in paragraph (a) of the definition qualifying business transfer in subsection 248(1); (b) throughout the 24 months immediately preceding the disposition time, (i) the subject shares were not owned by anyone other than the individual or a person or partnership related to the individual, except that if, at any time in the 24-month period immediately preceding the disposition time, the subject shares were substituted for other shares (in this paragraph referred to as the “substituted shares”), the subject shares shall be considered to have met the requirements of this subparagraph only where the substituted shares were not owned by any person or partnership other than a person or partnership described in this subparagraph throughout the period beginning 24 months before the disposition time and ending at the time of substitution, and (ii) more than 50% of the fair market value of the subject shares and the substituted shares, if any, was derived, directly or indirectly, from assets which were used principally in an active business; (c) immediately before the disposition time, (i) the subject corporation and each corporation affiliated with the subject corporation in which the subject corporation owns (directly or indirectly) shares is not a professional corporation, and (ii) the trust does not control a corporation whose employees are beneficiaries of the trust; (d) at the disposition time, (i) the individual is at least 18 years of age, (ii) throughout any 24-month period ending before the disposition time, the individual, or a spouse or common-law partner of the individual, was actively engaged on a regular, continuous and substantial basis (including within the meaning of paragraph 120.4(1.1)(a)) in the activities of the business that is relevant to the determination of whether the subject shares satisfy the condition set out in paragraph (a) of the definition qualifying business transfer in subsection 248(1), and (iii) at least 75% of the beneficiaries of the trust are resident in Canada; and (e) the trust, any purchaser corporation owned by the trust, the individual and any other individual entitled to a deduction under subsection (2) in respect of the qualifying business transfer (i) jointly elect, in prescribed form, for the deduction provided under subsection (2) to apply in respect of the disposition of the subject shares, (ii) include the following information in the election: (A) an amount (in this paragraph referred to as the “elected amount”) equal to the total amount of capital gains that the parties agree may be eligible for a deduction under subsection (2) with respect to the qualifying business transfer, not exceeding $10,000,000, and (B) if more than one individual is eligible for a deduction in respect of the qualifying business transfer, the percentage of the elected amount that is assigned to each eligible individual (provided that the total percentages assigned to all individuals cannot exceed 100%), and (iii) file the election with the Minister on or before the trust’s filin