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It’s time for a change: “Grandfathered share”

November 17, 2022

Authored by RSM Canada LLP

Gracie Tetzlaff CPA, CA shared this article

ARTICLE | November 17, 2022

Canada’s laws, including the ITA, are constantly changing to reflect the current social and economic environment. Yet one phrase in the Act seems to have escaped this review for almost 35 years.

Since 1988, subsection 248(1) has provided a definition of “grandfathered share,” which is relevant for provisions including the stop-loss rules in subsections 112(3) to (3.32). This term (or its plural) appears 22 times in the Act and is further referenced in subsequent CRA guidance. But the terms “grandfathered” and “grandfathering” are not exclusive to the Act. They are widely used terms among policy makers and are mentioned in our national defence policy, the Elections Canada website, and federal government employment rules, to name a few.

The term “grandfathered,” where used in a legal context, essentially means someone or something that is exempt from a new law or regulation. A grandfather clause (with variants such as “grandfather policy,” “grandfathering,” and “grandfathered in”) is a provision in which an old rule continues to apply to certain existing situations, while a new rule is introduced to apply to all future cases. The term may date back to King Henry II of England, but it is best known today for its roots in America’s racial history—specifically, a set of 19th-century laws regulating voting rights in the United States.

The passing of the 15th amendment to the US constitution in 1870 prohibited racial discrimination in voting but allowed restrictions that were non-racial. As a result, various states created requirements—such as literacy tests, poll taxes, and constitutional quizzes—designed to prevent African-Americans from exercising their newly acquired voting rights. In order for these requirements to not prevent other US citizens from voting, states passed laws to provide an exemption from these requirements for those who could vote (or whose ancestors could vote) prior to the time when African-Americans became eligible to vote. Such rules, most of which were enacted in the early 1890s, became known as “grandfather clauses.” These clauses were struck down by the US Supreme Court in Guinn v. United States (238 US 347 (1915)) in 1915.

Flash forward 130 years and the term continues to be used in various contexts—including tax—despite its segregationist roots.

But there is an additional argument to phase out its use: since 1989, legislative amendments have been drafted in gender-neutral language; words such as “he” and “his” are being replaced with “the taxpayer” and “the taxpayer’s.” Changes are being made despite the fact that they are not legally necessary: section 33(1) of the Interpretation Act provides that “words importing male persons include female persons.” However, the Department of Justice recommends that “gender-specific language should not be used in legislation.”

This latter problem with the term did not escape notice even at the time it was introduced into the Act: tax luminaries Robert Couzin and Robert Dart noted in the 1987 Conference Report that the term was “perhaps inelegant and even sexist.”

Where do we go from here? Although most legislation or policy changes require significant consideration to avoid adverse outcomes, shifting away from the term “grandfathered share” would be a rather simple fix. The term “legacy share” or “exempt share” would still accurately represent the definition in subsection 248(1), while signifying that the legislature is no longer tolerant of the view the original term represents.

A related term is used in the context of life insurance: “Loss of grandfathering” appears in the title to subsection 148(11). Similarly, this could be changed to “Loss of legacy status.”

This content was originally published in the Canadian Tax Foundations newsletter: Canadian Tax Focus. Republished with permission.

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This article was written by Sigita Bersenas, Lingzi Layman and originally appeared on 2022-11-17 RSM Canada, and is available online at

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