Capital Gains ExemptionAs with all things pertaining to your business, planning for your succession or exit strategy needs to happen well before you execute your strategy.  And one of most important considerations, after who you plan to pass the company on to, is making sure you can qualify for any and all tax planning strategies.

In Canada, the most important tax planning strategy involves the Lifetime Capital Gains Exemption (LCGE) for qualifying small businesses.  The one requirement that catches a lot of small business owners it the need to meet the 24-month period requirements.  If you wait until the time of the sale to check if you qualify, you might be in for an unpleasant surprise.

Determining whether you are qualified for the LCGE can be complicated and you need to discuss your plans with your accountant and lawyer.  The basic requirements are:

  • Your company must be a small business corporation (SBC) at the time of the sale.
  • It must be a share sale of your business (asset sales, sole proprietorships and partnerships do not qualify).
  • More than 50% of the business’s assets must have been used in an active business in Canada for 24 months prior to the sale.
  • The shares must not have been owned by anyone other than you or someone related to you in the 24-month period before the sale.

For more information on the topic of the LCGE, consult the following link and then talk to your advisors.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/completing-schedule-3/qualified-small-business-corporation-shares.html