How to Sell Your Business Tax Free
Are you looking to sell some or part of your business? Well you can potentially sell without paying any taxes on the amount you sell for.
What’s the catch? Well, you have to meet certain criteria to be able to qualify! Now this is only available to Corporations unfortunately and not to sole proprietorships, and you must be selling your shares of the business; selling assets within the business won’t count.
How to Sell Your Business Tax Free
Lifetime Capital Gains Exemption(LCGE)
What is this? Essentially every Canadian resident is eligible to sell QSBC(Qualified Small Business Corporation) shares up to a total of $913,630(2022) without having to pay tax on that sale of shares.
Now it has the word Lifetime in it’s name because you can only use up that amount once in your lifetime and once you use it, you lose it!
Now that we know what LCGE is, it’s important to understand how you can make sure that your business qualifies to sell their QSBC shares.
Qualified Small Business Corporation Shares
The criteria for shares to qualify as QSBC shares, is as follows, and must meet ALL criteria:
- The corporation is a Canadian Controlled Private Corporation(CCPC) – which means that the company is controlled by Canadian residents and also is not a public company
- The shareholder must have owned the shares at least 24 months before the actual sale of the shares
- At the time of sale, the corporation must have 90% of it’s assets, used in “Active Business”(eg. Not in passive investments(land, shares, etc.) primarily in Canada by the corporation or a related corporation, or are shares of a connected corporation that meets the 90% test
- 24 months before the sale, at least 50% of the fair market value of the assets in the corporation are used in the active business operations in Canada by the corporation or a related corporation, or are shares in a connected corporation that meets the 90% test above
As you can see there’s actually quite a bit of planning that needs to occur possibly to ensure that your shares will indeed qualify to be able to be sold tax-free.
Talk to your accountant well in advance if you think you’ll be selling some or all of your business so they can start planning to save you money!
**Disclaimer
This article provides information of a general nature only. It does not provide legal/accounting advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific questions you should consult a CPA/lawyer.