If you plan on selling your business, you should plan at least 2 years in advance.
Individuals can shelter the first $1.25 million from the sale of their corporation, or $1,016,836 if the proposed legislation fails.
A single person must sell the corporation’s shares, and the shares must meet specific requirements.
If you restructure the company early, you can multiply the capital gain exemption.
Selling shares of a Qualified Small Business Corporation (QSBC) or ‘pure’ corporation qualifies for the lifetime capital gains exemption. To qualify, one must meet various conditions. The Small Business Corporation must be conducting an active business.
• It must be a Canadian company controlled by Canadians (at least 50% Canadian ownership).
• It must be a privately owned company (not publicly traded).
• At the point in time of disposition of the shares, 90% of the fair market value of the assets of the company must be used by it, or by a company owned by it, in an active business carried on in Canada.
• For the 24-month period prior to any sale of the shares, the fair market value of the assets used in the active business of the company must be at least 50% of the total fair market value of the assets.
• Where there are holding companies or numerous operating companies, the qualifying assets in each company must meet certain percentage tests for use in an active business.
Tax planning should be done in advance to ensure the above criteria are met.
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