The short answer
Since 2024 you can sell shares to a company your adult child controls and keep capital gains treatment, through an immediate transfer tested over three years or a gradual one tested over five to ten. You must hand over control and management. A gift, or a sale below market value, is taxed as a sale at market value.
Not sure the family route is right? A free sale plan shows what an outside sale could look like. A Senior Deal Advisor comes back to you right away.
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Can I sell my business to my son or daughter?
Yes. A sale to a child works like any sale: a price, a way of paying and a set of papers. What changes is the tax. When you sell shares to a company your child controls, a rule in the Income Tax Act meant to stop owners turning dividends into capital gains can treat your gain as a dividend instead. Finance Canada calls capital gains the lower taxed result. Since 2024 an exception keeps capital gains treatment when the sale is a real handover.
The rules cover children, grandchildren and a child's spouse, and for this purpose also nieces and nephews. Each child who controls the buying company must be 18 or older. Family is one route among several. Our guide on selling your business to your employees covers another.
Can I just give the business to my child, or sell it for $1?
Not for tax purposes: the CRA treats a gift as a sale at market value. If you give capital property as a gift, the CRA says you are considered to have sold it at its fair market value at the time of the gift. If you sell to someone you do not deal with at arm's length for less than fair market value, your selling price is considered to be the fair market value. BDC says the same: whether you sell or give, the business is treated as disposed of at fair market value.
Why does the price still have to be fair?
Finance Canada says the immediate option is based on arm's length sale terms. Relatives are not at arm's length. The CRA says related persons, including people connected by blood relationship, marriage, common law partnership or adoption, are not considered to deal with each other at arm's length. So the sale has to look like one between strangers.
The CRA describes fair market value as usually the highest dollar value you can get for your property in an open market, between a willing buyer and a willing seller acting independently. That is close to what an outside buyer would pay. BDC says your price should reflect fair market value even when you sell to your children, and that discounting is discouraged because you will generally need the money for your retirement. A valuation report can help in family discussions and in later dealings with tax authorities. Our guide on how many times profit a small business is worth shows how buyers count.
Want a number to compare against? Tell us about the business, and a Senior Deal Advisor comes back to you right away with what it could sell for.
Get my free sale planWhat are the 2024 rules?
For sales on or after 1 January 2024, Finance Canada says a transfer has to show the hallmarks of a genuine handover:
- You give up control of the business.
- The economic interest in the business passes from you to your children.
- Management passes from you to your children.
- Your children keep control of the buying company for a minimum time.
- At least one child works in the business for a minimum time.
Bill C-208, a private member's bill that took effect in 2021, first created an exception for sales to a child's company. Finance Canada said it had insufficient safeguards, and the 2024 rules add the hallmarks above.
Your shares must be qualified small business corporation shares, or shares of a family farm or fishing corporation.
Immediate or gradual: which fits?
| Topic | Immediate | Gradual |
|---|---|---|
| How Finance Canada describes it | A three year test, based on arm's length sale terms. | A five to ten year test, based on estate freeze features. |
| Your child controls the buying company | For 36 months after the sale. | For the later of 60 months and your final sale. |
| A child works in the business | For 36 months. | For that same period. |
| You hand over management | Take reasonable steps within 36 months, or longer if reasonable, then stop managing. | The same, within 60 months. |
Finance Canada says the immediate option gives finality earlier, with more stringent conditions, and the gradual option gives more flexibility but takes more time. In the gradual option the Act also sets a limit within ten years: what you still own, counting shares and debt, can be worth no more than 30 percent of what you owned before, or 50 percent for farm and fishing shares.
What do I have to give up?
Control. After the sale you and your spouse must not control the company, the buying company or a related business, and you must not own 50 percent or more of any class of shares, apart from certain preferred shares with no vote. Within 36 months of the sale, you and your spouse must also hold no shares in the company or the buying company other than those preferred shares, and no other equity in a related business. You can keep working while you hand over. But you must take reasonable steps to pass management to your child, within 36 months for an immediate transfer or 60 for a gradual one, or longer if that is reasonable, and then stop managing.
Does the lifetime capital gains exemption still apply?
If your shares are qualified small business corporation shares, you may be able to claim the lifetime capital gains exemption on the gain. The 2024 rules apply to the same type of shares. In plain terms, the company is a Canadian controlled private corporation with 90 percent or more of its assets used mainly in an active business in Canada, and for the 24 months before the sale no one but you or a person related to you owned the shares. Your accountant tests your own shares.
The Canada Revenue Agency's 2026 table puts the limit at $1.275 million. Your accountant tells you the figure for the year you sell. Only half of a capital gain is taxed, and Finance Canada has cancelled the proposed increase to that share.
How do I get paid, and how is the tax spread?
BDC says financing is key, especially when the successor does not have a lot of capital, and names a mix of the buyer's investment, vendor financing, a term loan and mezzanine financing. If you are paid over time, a reserve lets you spread the gain: at least one tenth of it is counted each year, over up to ten years, instead of one fifth over five, when the sale meets the 2024 conditions. Our guide on how to pay for a business you buy shows how vendor financing and the other sources work from the buyer's side.
What if I run the business as a sole proprietor?
Both the 2024 rules and the lifetime capital gains exemption work on shares of a corporation, apart from farm and fishing property. A sole proprietorship has no shares. BDC says owners of an unincorporated business do not qualify for the lifetime capital gains exemption. Ask your accountant what incorporating before a sale would mean for you. Our guide on selling shares or assets covers the sole proprietor's case.
How long does it take, and where do I start?
BDC says succession can take up to five years, and as many as ten for a family business. Start with your child. BDC says to make sure your son or daughter wants the job, because you are asking them to give the rest of their careers to the company. Then ask your accountant whether your shares qualify, and choose immediate or gradual. You and your child complete and sign Form T2066 together, on or before your filing due date for the year of the sale. The CRA's current form says to keep it in your records and not send it in unless the CRA asks for it. Your lawyer papers the deal and your accountant advises on tax. Both are yours to choose.
Questions owners ask
Does my child have to be 18?
What form do I need for a family business transfer?
Can I keep working after I sell to my child?
Can I sell to my child over several years?
Does a sole proprietorship qualify?
Family, staff or an outside buyer, you decide. A free sale plan shows the outside route, with nothing public and nobody else contacted.
Get my free sale planSources
- Bill C-59, Intergenerational Business Transfers (briefing), Finance Canada, page dated 26 September 2024, read 21 October 2026.
- Income Tax Act, section 84.1, Justice Laws, Government of Canada, current to 30 September 2026, read 21 October 2026.
- Income Tax Act, section 40 (reserves), Justice Laws, Government of Canada, current to 30 September 2026, read 21 October 2026.
- T2066 Election for Immediate or Gradual Intergenerational Business Transfer, Canada Revenue Agency, page dated 4 May 2026, read 21 October 2026.
- Capital Gains 2025 (guide T4037), Canada Revenue Agency, page dated 11 February 2026, read 21 October 2026.
- Transfers of capital property, Canada Revenue Agency, page dated 5 February 2026, read 21 October 2026.
- Line 25400 Capital gains deduction, Canada Revenue Agency, page dated 5 February 2026, read 21 October 2026.
- Definitions for capital gains, Canada Revenue Agency, page dated 5 February 2026, read 21 October 2026.
- Productivity Mega Deduction backgrounder, Finance Canada, page dated 15 September 2026, read 21 October 2026.
- Planning out your family business's succession, BDC, updated 28 July 2025, read 21 October 2026.
- Family successions: How to minimize the tax hit, BDC, updated 4 October 2022, read 21 October 2026.
- How to sell your business, BDC, updated 4 October 2022, read 21 October 2026.
- How the free sale plan works, Succession Market, sell page, read 21 October 2026.
- Adjustment of personal income tax and benefit amounts, Canada Revenue Agency, page dated 12 March 2026, read 21 October 2026.
Who publishes this
Succession Market publishes this guide from Kelowna, British Columbia. We help owners navigate the sale of their business.
This guide is general information, not tax or legal advice for a particular sale. Your lawyer papers the deal and your accountant advises on tax. Both are yours to choose.