Lifetime Capital Gains Exemption

Lifetime Capital Gains Exemption

Experience the power of strategic tax planning with ProBusiness Tax and Accounting. Leverage the benefits of the Lifetime Capital Gains Exemption (LCGE), making your first $824,000 to $1,000,000 in capital gains tax-free.

This is a complex area of tax law, and we recommend consulting with a proficient CPA. ProBusiness Tax and Accounting, backed by years of experience in navigating the intricacies of the LCGE, is here to help. Call us today at (647)236-8400 or schedule a consultation through our contact form.

Comprehending Capital Gains

Capital gains can be advantageous, especially if they qualify for the LCGE, making the first $824,000 to $1,000,000 of gains tax-free. This can come into play when disposing of shares as part of your business sale. The exemption can also be used for family planning or inter-generational business transfer. We can assist.

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Eligibility Criteria For LCGE: Three Key Categories

Three categories of gains can qualify for the LCGE, each associated with specific property types. The qualifying property types include:

  1. Qualified Small Business Corporation Shares (QSBC),
  2. Qualified farm properties, and
  3. Qualified fishing properties.

These categories reflect the sectors at the heart of Canada's economy, which the government aims to incentivize through tax exemptions on capital gains.

This exemption does NOT apply to other property types, such as publicly traded shares, and it's not accessible to non-Canadian tax residents (distinct from immigration status). Corporations are also not eligible for the LCGE (though it can be passed on to individuals via partnerships or trusts) and trusts where the gain is not passed on to individual Canadian residents.

Lifetime Capital Gains Exemption | Pro Business Tax
Prerequisites for a share to be considered QSBC

This section focuses on the prerequisites for a share to be considered a QSBC. If you have a farming or fishing business, the criteria will differ. To qualify as a QSBC, all relevant criteria must be met.

The initial criterion requires the sale to involve a share of a Small Business Corporation's (SBC) capital stock. An SBC must be Canadian-controlled, privately owned (not publicly traded or owned by a publicly traded company), and the majority (90% or more) of its assets, assessed by fair market value, are primarily used (over 50%) in an active business mainly carried out in Canada. This is one of the "asset tests" that can be challenging to meet if the corporation holds investments, has surplus cash, or owns inactive assets. In addition, meeting this 90% test requires the corporation to be "purified" before the sale.

A secondary condition stipulates that for two years (24 months) before the share's disposition, it must have been owned exclusively by you or a related person. Furthermore, during these 24 months, over 50% of the assets should have been utilized in an active business run by a Canadian-controlled private corporation or related corporation. This is the second asset test with a lower threshold (50%) than the first one (90%).

Consult A Certified CPA

These conditions represent just a tiny part of the requirements. In addition, the terms “related,” “connected,” or “resident” have intricate legal definitions that need expert interpretation. Moreover, the exemption amount may be reduced due to certain "Cumulative Net Investment Losses." Considering these complexities, we strongly advise consulting a tax professional to ensure your share sale qualifies for this valuable tax exemption. ProBusiness Tax and Accounting is here to assist you in securing these benefits.