Below are Tax Tips in respect of the capital gains exemption, one of the most valuable tax incentives provided to shareholders of private corporations in Canada. This allows a private company shareholder to sell shares and eliminate income tax on over $800,000 of lifetime capital gains triggered by the sale. Remember that each family member might qualify for their own exemption! Of course, the availability of the exemption is subject to a number of conditions.
TAX TIP Planning should be done to enable as many family members as possible to use the exemption, which may also be crystallized through a corporate reorganization, used to buy-out retiring shareholders or utilized on death. Please contact us for professional advice about your lifetime capital gains exemption and the complex rules regarding CNIL cumulative net investment loss balances or if you have claimed an ABIL Allowable Business Investment Loss in the past.
Who May Claim
The capital gains exemption may only be claimed by individuals resident in Canada throughout the year. A trust may not claim the capital gains exemption but it can allocate gains eligible for the exemption to beneficiaries.
Criteria to Qualify
The corporation being sold must be a QSBC Qualified Small Business Corporation at the time of sale. To meet this definition, you must meet these criteria:
- Corporation must be a Canadian-controlled private corporation
- You, or a related shareholder, must have held the shares for the preceding 24 months
- At the time of sale, at least 90% of the assets of the corporation must be used in an active business
- For the preceding 24 months, at least 50% of the assets of the corporation must be used in an active business
TAX TIP If a corporation does not qualify as a QSBC, it could possibly be “purified” in order to qualify at the time of sale. The rules for eligible property and the calculation of the capital gains exemption are complex. For strictly confidential advice on your personal situation, please contact us now.
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