I am a sole proprietor and am selling my business. Can I use the lifetime capital gains exemption of $800,000?

As a sole proprietor you are not eligible for the lifetime capital gains exemption (CGE). The CGE is only available on the sale of the shares of a Canadian Controlled Private Corporation (CCPC). The CGE, as the name suggests, exempts up to $800,000 of profit (i.e. capital gain) on the sale of shares of a CCPC.

There is a valid tax strategy that sole proprietors can use to take advantage of the CGE:

• Transfer all of you business assets to a new corporation tax-free, pursuant to Section 85 of the Income Tax Act (election form must be filed)
• In exchange for the transfer, take back shares of the new corporation
• Sell shares of new corporation to the buyer and claim the CGE on the sale Technical note: The Income tax act has a special rule (Section 110.6.(2.1)) that exempts an unincorporated business from one of the conditions of the CGE.

This condition requires the seller to have owned the shares sold for at least 24 months continuously prior to sale. You should consult with a tax accountant to determine if you are eligible to claim the CGE, as there are many additional conditions and rules to consider.

ABOUT THE AUTHOR

ALLAN MADAN

CA.CPA.CGA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

Related Resources