Capital gains exemption

Capital gains exemption

The Capital Gains Exemption (CGE) is available to Canadian residents who have disposed of qualifying property.

  • Qualifying property is identified as Qualified Small Business Corporation (QSBC) shares, qualifying farm property, and qualifying fishing property. The CGE allows for the reduction in the gain reported in taxable income.

A total net capital gain on the disposition of qualifying property is $50,000, and 50% of this is brought into net income. Provided all eligibility criteria are met, the individual could have enough CGE to offset the entire taxable capital gain. This results in none of the original gain being brought into taxable income.

In 2014, the lifetime limit was $800,000. Going forward, this limit will be indexed for inflation.

What is a Qualifying Small Business Corporation Share?

The shares of a private corporation would qualify as a QSBC share if the following criteria have been

  1. At the date of disposition, the shares must be those of a Small Business Corporation (SBC), a Canadian Controlled Private Corporation (CCPC) in which 90% or more of its assets (measured at fair market value) are:
    1. Used in business, actively and primarily carried out in Canada (50% or more); or
    2. Invested in either the shares or debt of a connected SBC.
  2. During the last 24 months immediately prior to the disposition:
    1. The shares are CCPC shares;
    2. More than 50% of the company’s assets (measured at fair market value) are used in carrying on active business primarily in Canada; or
    3. The shares were owned by either the taxpayer or a related person.

Your business may qualify as a QSBC. If you are considering selling your business, consult with your accountant immediately to ensure that proper structure is be maintained.

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