A relevant group entity (RGE) of a corporation (per subaparagraphs 84.1(2.31)(c)(iii) and 84.1(2.32)(c)(iii) in the intergenerational transfer (IGT) rules) is any entity carrying on an active business that is relevant to whether the corporation’s shares are qualified small business corporation shares (QSBCSs). A vendor wishing to take advantage of the IGT safe harbour must dispose of the shares of the target and, ultimately, any interest in an RGE.
Suppose the only asset of Realco is a building that Opco uses in its entirety to carry on Opco’s active business. Suppose also there are no shares or debt owing between Opco and Realco. The CRA has stated that, given the foregoing facts, Realco is not an RGE on a sale of the Opco shares, but Opco would be an RGE on a sale of the Realco shares. The status of Opco’s shares as QSBCSs does not depend on the active business carried on by Realco, but the status of the Realco shares does depend on Opco carrying on an active business.
What if the assets of Opco include debt or shares of Realco? If Opco can satisfy the QSBCS asset tests without reference to the Realco securities, then it would appear Realco would not be an RGE. Otherwise, arguably, Realco would not be an RGE because Realco does not carry on an active business (assuming it is a specified investment business because it has five or fewer employees).
What if an RGE exists that the parties do not wish to transfer? They can consider undertaking a reorganization to ensure the entity ceases to be an RGE, freeze the shares the desired target and then sell the freeze shares in two years. Freeze shares can be transferred under an IGT per CRA technical interpretation 2024-1028371C6 (October 10, 2024).
Balaji Katlai and Hugh Neilson “Intergenerational Business Transfers: Which Group Entities Are Relevant?” 25:4 Tax for the Owner-Manager (October 2025) commenting on CRA technical interpretations (2024-1036641E5, April 29, 2025; and 2024-1010641E5, May 6, 2025)
