When you sell assets, most times, it is treated as a capital gain for tax purposes and is subject to taxation. However, selling certain types of property may be exempt from taxation under the Lifetime Capital Gains Exemption (LCGE). These properties include:
- Qualified Small Business Corporation (“QSBC”) shares (shares of a Canadian Controlled Private Corporation, in which all or substantially all of the fair market value of assets are used principally in active business carried on primarily in Canada)
- Qualified farm property
- Qualified fishing property
The LCGE allows for an exemption of up to $824,176 in 2016 for QSBC shares and $1,000,000 for Qualified farm and fishing property. Both exemption amounts are being indexed for inflation in subsequent years.
Any claim you make will be reduced by any prior capital gains exemptions that you may have claimed in the past as well as any cumulative net investment losses you may have accumulated. Note that 50% of any gain above your available LCGE will be taxed at your marginal tax rates.
However, significant non-taxable income during a year that may result from accessing your LCGE may trigger Alternative Minimum Tax (AMT). AMT is designed to limit the amount of savings from tax incentives that you can incur in any particular year. However, the AMT can be recovered over the following seven years, with proper tax planning.
When taxes become taxing, count on Cloutier Matthews LLP to provide the level of expertise you need.