Wednesday, April 22, 2015

Budget 2015: Capital Gains Exemption

A Canadian-resident individual can realize up to $813,600 in tax-free capital gains on the sale of specific types of assets.  Qualifying assets include the following.
  • Shares of a Canadian-controlled private corporation (an “Active Business Corporation”) that uses substantially all its assets in an active business carried on primarily in Canada.  With proper structuring, this can include shares in a holding corporation that holds only shares in a qualifying active business corporation.
  • Qualified Farm Property and Qualified Fishing Property (whether or not a corporation is involved).
The 2015 federal budget will increase the capital gains exemption limit to $1 million, but only in respect of capital gains realized on or after April 21, 2015 from the disposition of Qualified Farm Property and Qualified Fishing Property.

The new $1 million limit for Qualified Farm Property and Qualified Fishing Property will be fixed at $1 million (no inflation adjustments) until such time as the capital gains exemption limit (currently $813,600) for shares of an Active Business Corporation reaches $1 million through inflation adjustments.  Once that occurs, the Active Business Corporation and Qualified Farm Property and Qualified Fishing Property limits will march forward from that point on at the same level (with annual inflation adjustments).

The capital gains exemption limits are lifetime limits available to each individual resident in Canada.  For this reason, it is an advantage for each family member to hold an interest in an asset that might qualify for the exemption on a sale.  Such interests can be held through a family trust so as to provide additional flexibility in respect of capital gains exemption claims.


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The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.