Maximizing the use of your corporation Part 4

Maximizing the use of your corporation isn’t all about tax savings.  There are many other things to look at in your corporation such as building a good team and using leverage.  Looking at leverage, businesses seem to have to biggest option of creating sweat equity and you can leverage relationships as well as assets and even credit of the company.  Businesses can build their own credit rating and use assets, including accounts receivable, to leverage for financing.

One last thing that we will look at in this blog on maximizing your corporation is the Capital Gains Exemption.  Every Canadian taxpayer has a $750,000 lifetime Capital Gains Exemption.  This exemption is on qualified small business shares, as well as qualified farming and fishing property.  Here we will just talk about the qualified small business shares which are the shares of your corporation.  So in essence if you sell the shares of your corporation you, and each other shareholder, can make up to $750,000 in capital gains on the sale tax free!  If you don’t use this exemption before you pass away it is gone forever!  So what is it that makes the shares qualified?  Here are the factors:

1.      Must be a CCPC (Canadian Controlled Private Corporation)

2.      The Corporation’s assets must be used at least 90% for Active Income. 

3.      At least 50% of the Corporation’s Assets must have been used to carry on active business in CANADA.

4.      The shares must have been owned by you or a relative for a 24-month period prior to the sale.

5.      The shares can’t be acquired as payment for other shares, stock dividends, or the disposition of a property.

In the case of a trust each of the beneficiaries have the $750,000 Capital Gains Exemption as well as the trust has $750,000 of it’s own Capital Gains exemption on the sale of small business shares.  So it is very beneficial to have the a trust own the shares of the corporation(s).  This leads us into the final part of our series on corporations “Selling, closing, or passing on your corporation”  See you next blog!