• by admin
• March 8, 2023

A lifetime capital gain exemption may allow you to sell or transfer the ownership of your business without paying taxes.

The Lifetime Capital Gains Exemption (LCGE) is a tax benefit available to Canadian taxpayers who sell certain types of qualified assets and realize a capital gain. The Lifetime Capital Gains Exemption allows taxpayers to reduce or eliminate the amount of tax they would otherwise have to pay on the capital gain.

Lifetime Capital Gains Exemption involves a long-term tax planning and plays an important role in succession planning. Lifetime Capital Gains Exemption is also available through a holding company in which the transfer or change of ownership can be done smoothly and without affecting your operations.

As of the knowledge cutoff date of 2021-09, the Lifetime Capital Gains Exemption limit was $892,218 for the 2021 tax year. This means that an individual who sells a qualified asset and realizes a capital gain can claim an exemption of up to $892,218, effectively reducing or eliminating the tax on the gain.

 

To be eligible for the Lifetime Capital Gains Exemption, the asset being sold must meet certain criteria, including:

1. You were a factual or deemed resident of Canada
2. Being a qualified small business corporation share, qualified farm or fishing property, or shares of a qualified small business investment corporation
3. Being owned by the taxpayer for at least two years before the sale
4. Meeting certain other requirements under the Income Tax Act.

 

Shares of a qualified small business corporation

1. You or your spouse were the owners of the Shares of a qualified small business corporation when you sold the shares
2. You owned the shares at least 24 months prior to the sell
3. The shares were issued to you by a Canadian Controlled Private Corporation
4. The above Canadian Controlled Private Corporation was involved in an active business in Canada

 

It is important to note that the Lifetime Capital Gains Exemption can only be claimed once in a taxpayer’s lifetime and is not transferable to another person or carried forward to future years.

 

Overall, the LCGE is an important tax incentive for Canadian taxpayers who sell certain types of qualified assets and realize a capital gain. By allowing them to reduce or eliminate the tax on the gain, the LCGE can provide significant tax savings and help to encourage investment in small businesses and other qualified assets.

Reference: CRA

 

RKB Accounting has expertise in cross-border taxation and has been providing accounting and taxation services for the last fifteen years in Canada and USA. RKB services include incorporating a business on both sides of the border, bookkeeping, sales tax, payroll, and corporate and personal income tax. RKB’s expertise includes cross-border tax planning, long-term tax planning, helping business start-ups, business structure planning, and resolving complex tax matters.

Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.

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