How can I save on taxes through the lifetime capital gains exemption (LCGE)?
The Lifetime Capital Gains Exemption (LCGE) is an exemption on capital gains tax from the disposition of shares of a qualified small business corporation. A qualified small business corporation is, essentially, a privately-held Canadian Corporation where the value of the shares consists almost entirely of assets used in an active business where the seller held the shares for two years or more. The LCGE is one of several generous tax tratments available to qualified small business corporations.
How much can I save with the LCGE?
Currently, the LCGE allows you to shelter $848,252 in capital gains from tax.
What are the conditions for qualifying for the LCGE?
There are qualifying conditions that relate to 1. the owner 2. the corporation.
1. The Owner: It is the owner, not the corporation, who claims the LCGE. The owner must be a resident of Canada throughout the tax year in which the individual claims the exemption & must own the shares of the corporation throughout the 24 months preceduing the disposition of shares.
2. The Corporation: The corporation must use at least 90% of its assets in an active business at the time of the disposition of shares & at least 50% of the qualifying shares must be owned by the corporation in the preceding 24 months.
What if my corporation does not meet the conditions to qualify for the LCGE? Is there anything I can do?
Yes; through the use of a series of "rollover" provisions in section 85 of the Income Tax Act, one can "roll" inactive assets into another corporation without paying capital gains tax, allowing the corporation to meet the LCGE's stringent asset tests.
