Capital Gains Exemption Planning

The $750 000 Lifetime Capital Gains Exemption (LCGE) is a tax minimizing strategy that would be applicable to anyone disposing of a small business.

The purpose of this exemption is to make it easier for entrepreneurs who intend on retiring and living off of the sale of their business.

Any share that is held on any stock exchange will not qualify. In fact, most Canadians don't qualify for this exemption. Sole proprietorships or partnerships are not eligible, nor are larger businesses. In order to qualify for this exemption, the following criteria must be met:

  • The shares must be shares of a Canadian-controlled small business corporation which, at the time of the disposition of the shares, uses 90% of its assets either directly or indirectly in an active business carried on in Canada or as a holding company for such a corporation.
  • The shares must be owned by the taxpayer or their spouse.
  • The shares must not have been owned by anyone else other than the taxpayer in the 24 months prior to the disposition.
  • Throughout the 24 month period, at least 50% of the assets of the corporation must have been used principally in an active business or to finance a connected active business.

The government runs stringent requirements to ensure that no one abuses this exemption, so it is critical to make sure you take the proper steps in order to fully take advantage of this deduction.

For more information as to the requirements, have a look at the following:

CFIB: The Importance of Capital Gains Exemption for Owners/Managers

Taxtips.ca: Capital Gains Deduction

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