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Lifetime Capital Gains Tax Exemption: facilitating the transfer of your business

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You’ve probably heard the term before, but you’re about to learn what it is, and why it may be crucial to your business and your retirement.

What are lifetime capital gains (LCG)?

As with almost everything in Canada, you are taxed on the sale of shares in your business, unless you qualify for Lifetime Capital Gains Exemption (LCGE). If you do, only 50% of the amount you sell your business shares for is taxable!

What is the LCGE limit? Do I qualify?

The LCGE limit for 2017 was set at $848,252. Thanks to our advocacy efforts, this amount will increase every year, indexed to inflation. 

Eligibility is somewhat more complex, and we recommend consulting an accountant and/or lawyer to ensure your eligibility. 

The basic requirements are: your company must be a small business corporation (SBC) at the time of the sale, and it must be a share sale of your business. This means that sole proprietorships and partnerships do not qualify.

Additionally, more than 50% of the business’ assets must have been used in an active business in Canada for 24 months prior to the sale, and 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. 

If I intend to pass the business on to my children, does this really matter?

Absolutely! Should you pass, your shares in your corporation can be passed onto your spouse without taxation. However, if you intend to pass your shares along to your children, this would be viewed by the government as a “sale” and taxes would apply, unless you are exempt. 

Okay, I have a corporation, I’m selling, and I want to claim the exemption… how?

First you have to ensure that you meet all of the requirements for exemption (an accountant or lawyer can help you out with this). If you meet the conditions, you can simply sell your business shares for a gain and claim the exemption in your next tax return.

More information on the LCGE can be found on this handout prepared by Danielle Sideris. Again, due to the complex requirements for eligibility, we recommend you speak with an accountant and/or lawyer prior to selling shares or changing your business structure. 

There have been several attempts over the years to eliminate the LCGE, however CFIB has successfully defended this important retirement tool for our members. If you have any more questions, please don’t hesitate to contact our Counsellors.