A broker-owner who sells the brokerage’s shares to a corporation owned by an adult child can, if the shares qualify, claim the lifetime capital gains exemption ($1.275 million for 2026) on a sale that stays inside the family. Until 2021, the Income Tax Act treated the same sale as a dividend.

The current rules are in section 84.1, rewritten by Bill C-59 in June 2024 and adjusted by Bill C-15 this March. They give the parent two routes. On the immediate route, the parent gives up legal and factual control at closing, then has 36 months to hand over management and get down to non-voting preferred shares. On the gradual route, the parent may keep some influence but not legal control, the conditions run for 60 months, and within 10 years the parent’s remaining interest — any vendor note included — has to fall below 30 per cent of what the shares were worth on closing day.

Both routes need a joint election on Form T2066, signed by the parent and by each child.

 

The broker of record is a manager by definition

 

RECO describes the job in one sentence: “Brokers of record are responsible for the management and supervision of the brokerage.” In its June 2025 newsletter to brokerage leadership, it went further. The broker of record has “ultimate responsibility for overseeing all trading activities,” keeps that responsibility “regardless of any delegation,” and is “solely responsible for authorizing and monitoring withdrawals from the brokerage’s trust accounts.”

The Canada Revenue Agency was asked in 2024 what it actually takes to transfer management. It answered that a parent who has not completely and permanently stopped being a director by the end of the 36- or 60-month window has not transferred it. The agency defines management as the direction or supervision of the business’s activities. Giving advice does not count.

In many owner-run brokerages, the founder is the broker of record. A founder who still holds that designation in month 37 is, in the regulator’s own words, managing and supervising the brokerage. I have not seen the CRA rule on a broker of record specifically, and I would not want to be the test case. The safer reading is that the designation has to move to the child inside the window, along with the seat on the board.

That takes planning, because a salesperson cannot be designated. The broker of record has to be registered as a broker, with the additional education and experience that registration requires. If your successor is a strong salesperson who never upgraded, 36 months may already be tight.

 

What RECO has to be told, and when

 

RECO’s Bulletin 1.3 sets out the notices a brokerage owes under the Trust in Real Estate Services Act, 2002. Three of them matter here:

• a change in the corporation’s officers or directors, within five days;
• a change of broker of record, within five days;
• an issue or transfer of equity shares that leaves any person, or group of associated persons, with 10 per cent or more of the equity shares, or that increases a holding already at that level, in writing, within 30 days.

A sale to a child’s holding company trips the third on closing day and, usually, the first two sometime in the three years that follow. As I read them, these are notices, not applications for approval.

 

The child has to be in the business, and on the hook

 

At least one child must be actively engaged in the business on a regular, continuous and substantial basis for the full 36 or 60 months. The statute points to the 20-hours-a-week test from the tax-on-split-income rules. The Department of Finance has said fewer hours may qualify on the right facts. A child who holds the shares while a hired manager runs the office is a risk to the parent’s exemption.

The children should also know what they are signing. Under subsection 160(1.5), each child who joins the election is jointly and severally liable for the parent’s additional tax if a condition later fails, and the condition most likely to fail is the parent not leaving. The CRA’s reassessment window is extended by three years on the immediate route and by 10 on the gradual one. For an individual, that is six and 13 years in total.

 

Two things the tax plan does not cover

 

The franchise agreement. If the brokerage operates under a national banner, read the transfer clause before the tax plan is final. Franchise agreements commonly require the franchisor’s consent to a change of control, and some require approval of the new operator.

The agents. In February’s Ask Kate column, columnist Kate Teves wrote that what changes hands in a brokerage deal is “less about physical assets and more about people, brand equity, data and contractual relationships.” A share sale to a child leaves the brokerage’s registration and its agent agreements where they are. It does not oblige anyone to stay. Agents who joined because of the founder will probably notice the day the founder stops being broker of record. Put the successor in front of them as a manager well before closing.

 

Why not sell to the staff instead?

 

The $10-million capital gains exemption for a sale to an employee ownership trust became permanent in June 2026, when Bill C-30 received royal assent. I think it fits most brokerages poorly. An employee ownership trust holds the shares for the benefit of the company’s employees, and at least one-third of its trustees must be beneficiaries. In most brokerages, the people who produce the revenue are independent contractors. The administrative staff could be beneficiaries; the agents, as I read the definition, could not. A brokerage with salaried agents is a different conversation.

 

What to do this year

 

1. Decide who becomes broker of record, and get that person’s broker registration under way now.
2. Choose the immediate or the gradual route, and write the resignation dates (director, officer, broker of record) into the share purchase agreement as dates.
3. Send the children to their own lawyer on subsection 160(1.5) before they sign the election.
4. Calendar the RECO notices against the closing date and each resignation date.
5. Get the franchisor’s position in writing before the price is settled.

In 2023, the Canadian Federation of Independent Business reported that 76 per cent of small business owners planned to exit within a decade and that nine per cent had a formal succession plan. The 36 months start on closing day.