Tax Help for Canadian lifetime capital gains exemption for Qualified Small Business Corporation ("QSBC") Shares

The Canadian capital gains exemption allows Canadian individual taxpayers to realize tax-free capital gains on the disposition of shares of a Qualified Small Business Corporation ("QSBC") and certain other qualified properties. As of 2014 the capital gains exemption amount will increase to $800,000 from $750,000, and will further be indexed for inflation as of 2015. The rules to qualify for the lifetime capital gains exemption are complex and often require tax planning by a top Toronto income tax lawyer to ensure eligibility. If you would like to realize a Canadian tax-free capital gain, or if you have previously utilized your $750,000 lifetime capital gains exemption and would like to benefit from the additional $50,000 capital gains exemption on shares of a QSBC now available in 2014, please contact our expert Canadian income tax law firm to discuss your Canadian income tax planning options.

Tests to Qualify for Qualified Small Business Corporation ("QSBC") Share status

For shares to be considered QSBC shares and thus eligible for the LCGE, the shares must, amongst other things, not be owned by anyone other than the individual (or a related person or entity) throughout the 24-month period preceding the sale of those shares.

When a shareholder owns identical shares that were acquired at different times and subsequently disposes of a portion of those shares in an effort to utilize the LCGE, it can be difficult to determine whether or not the 24-month holding period test has been met.

CRA recently commented that, for purposes of the QSBC share definition, a taxpayer is deemed to dispose of identical shares in the same order as he or she acquired them. In other words, the "first-in-first-out" ("FIFO") method is used to determine the order in which the shares are disposed of in this context.

If you are interested in realizing a tax-free capital gain, or if you have previously utilized your LCGE and would like to take advantage of the additional $50,000 limit available in 2014, please contact our top Ontario income tax planning lawyers to discuss what tax savings opportunities may be available to you.