July 3 2015   Hugues Boisvert Founder&CEO, Business Lawyer

The concept is simple—if you sell shares of a qualifying corporation for a profit, the first $800,000 of your gain on a lifetime basis can be received on a tax-free basis ($813,600 for 2015 tax year). As usual, under the Income Tax Act, the rules are complicated and it is possible that your shares do not qualify. While shares of some corporations may never qualify for the exemption (for example, shares of many investment companies will not qualify), other share investments that are currently offside can be put back on track with advance planning and carefully thought out process. Since the conditions are detailed, very simple steps can often make the difference between qualifying and not qualifying for the exemption when you dispose of your shares.

How do I qualify for the Capital Gains Exemption?

If you sell shares of a small business corporation (SBC), the gain from the sale will qualify for the capital gains exemption if all the following conditions are met:

  1. At the time of sale, the share of the capital stock must be part of a small business corporation, and was owned by you, your spouse, or common-law partner, or a partnership of which you were a member. Additionally, during the 24 months immediately before the sale of the shares, more than 50% of the fair market value of the assets must have been used in an active business carried on primarily in Canada.
  2. The shares must be a share of a Canadian-Controlled Private Corporation (CCPC), meaning 90% or more of the business` assets must be used for carrying on an active business in Canada.

Taking advantage of the capital gains exemption can save you significant amount in taxes. For more information on the above, call/email our Founder & CEO + Business Lawyer, Hugues Boisvert at hboisvert@hazlolaw.com or +1.613.747.2459 x 304

This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Hugues today.  613-747-2459 ext.304, hboisvert@hazlolaw.com.