If you sell the shares of a small Canadian company, you can get 750000 capital relief!
Section 110.6 of the Income Tax Act (ITA) allows individuals to obtain 750000 yuan of tax-free capital gains. The exemption includes the proceeds from the sale of small business shares, namely “qualified small business shares”; According to the definition of ITA S.110.6 (1), enterprises must meet the following standards:
“… means shares in the capital of the Company,
(a) At the time of determination, a portion of the share capital of a small business company owned by an individual, an individual’s spouse or a common law partner or a partnership associated with an individual;
(b) Within 24 months prior to the date of determination, no one except individuals or individuals or partners related to individuals has
(c) If it is held by an individual or an individual or partner enterprise related to an individual within 24 months prior to the date of determination, the shares of a private company controlled by Canada will exceed 50% of the fair market value of the assets.
(i) Assets mainly used for the active business of the Company or its related companies in Canada… “;
Example:
Mr. Holder holds 30% of the holding company. The shares were acquired two years ago for $500000. The holding company is an active business in Canada and a private company controlled by Canada. Mr. Holder sold the shares to Mr. Rich for $1150000 this year. Accordingly, Mr. Holder will receive a taxable capital gain of $650000 from the sale of the shares. If all the criteria for capital gains deduction are met, $650000 will not be taxed. Mr. Holder could also use the remaining $100000 of the previously available $750000 for future use.
There are several provisions in the Act that give the CRA some discretion to prevent aggressive tax plans from abusing the provision. Article 110.6 (7) and 110.6 (8) involve the problem of cost manipulation of the company, but the second article deprives the company of the qualification of having no dividend similar to income in the past few years, so it will also bring problems to honest taxpayers.
When the enterprise is sold and the buyer is willing to transfer the assets rather than the ownership of the company, micro loans will occur. Buyers’ lawyers often suggest that simply buying corporate assets can protect the company from past problems, such as audits, claims from creditors or customers. In this case, if the company is consistent with the owner, the advantage of capital gains exemption will disappear.
In this case, the way to satisfy the buyer and seller may be that the owner sells the company to a third party, and the third party sells the enterprise assets to the prospective buyer using the 750000 capital gains exemption available. The third party owns the company.
Due to the complexity of the matter, we very much hope to obtain professional advice and business transaction plans in advance. Here, the purpose of the authors is just to grasp the main principles.
Important: The above information can reflect the subjective interpretation of the author. The author shall not assume any responsibility or responsibility for the accurate or improper use of all or part of the results of the above information. It is also expressly stated that any information provided by the author may not be suitable for the specific purpose of a particular reader. You can’t make a decision on this alone. Professional advice is required in each case.
