Exemption can help when selling business.

• Author: Bissonette, Laurie
• Position: Business Sense

If you plan to sell the shares of your business in the near future, don't forget to take advantage of the lifetime capital gains exemption--it could save you and your family members up to $200,000 in tax each, depending on your province and when the shares are sold. That's because every individual is entitled to a lifetime "capital gains exemption" up to $813,600 (in 2015), which can apply to the sale of qualifying private company shares (and farm and fishing property). While your exemption is limited to your total gains on qualifying property over your lifetime, you can carry forward any unused amount. However, proper planning is needed if you intend to take full advantage of the capital gains exemption.

Before you can attain this substantia] tax savings, you'll have to ensure the shares are considered "qualified small business corporation shares." Generally, this means that, at the time of the sale, substantially all (i.e., 90 per cent or more of the value) of the business's assets must be used for carrying on an active business in Canada, or the assets must be shares or debt in other qualifying small business corporations. Another requirement is that you, or a person "related" to you, must have owned the shares for two years before selling them and, throughout that period, more than 50 per cent of the business's assets must have been used principally in an active business carried on in Canada or invested in other small business corporations (or any combination of these two).

This is where advance planning becomes important. If you're thinking about selling your company, you should remove any assets, such as investments that aren't used in its active business, to ensure you can claim the exemption in two years' time. You may also want to regularly withdraw any excess cash and assets from your business.

You can also "crystallize" the capital gains exemption in certain situations so you don't have to keep checking whether your company meets the qualified small...