Make a business sale tax efficient

When children don’t want to carry on the business, an owner generally has no alternative but to sell the business to a third-party.

Whenever possible, the sale should be structured to take advantage of the $750,000 lifetime capital gains exemption.

Every Canadian resident is allowed a lifetime exemption of up to $750,000 of capital gains realized on the sale of certain property, including the shares of a “qualified small-business corporation.” To qualify, shares must be held for two years prior to sale.

The ability to claim the exemption may be lost if the company retains excess cash or investments that are not used during operation of the business.

Using the $750,000 lifetime capital gains exemption will result in a tax savings of up to $175,000 for each family member able to use the exemption.

If a sale to a third party is not imminent, you can restructure your company to ensure the tax efficiency of a future sale. This involves removing assets that will not be sold in the course of the sale of the business, such as marketable securities or stocks. This type of planning should be completed at least two years before any proposed sale.

Paul Gibney, LLB, and Brent Pidborochynski, LLB, are lawyers with Thorsteinssons LLP.

This article was originally published on capitalmagazine.ca.