Shares are the most interesting tax shelter, against the RRSP, or the Fund of FTQ, among others. Indeed, this type of investment can generate tax savings of up to 60% of the amount invested. The shares are issued by companies for exploration of resources, such as small companies of the mining, oil and gas sectors.
The benefits of these actions are maximized when the Fund invests in exploration companies established where the deduction can reach 150%; In addition, the capital gain is reduced when it sells those shares. The adjusted cost base (ACB) of a flow-through share price is usually zero, and the sale therefore results in taking account of the total capital gain. There is however an exception when the Fund invests in companies for exploration: In this case, the capital gain is eliminated at the provincial level.
The other advantage lies in terms of tax deductions. Indeed, in terms of the placement fee deductions, the shares are subject to the limit that can claim an individual. However, this restriction does not apply to flow-through shares funds that are invested in the company. The total amount of the investment may therefore be deducted from any source of income, and not only of investment income. The period of detention varies between eight months and two years, according to the Fund. Shares however are of a very high risk and are not suitable for all investors.
Exemption from capital gain on the shares of private companies
You are a business owner, you have worked hard for several years to achieve your goals and the value of your company is respectable. But what makes you happiest, is the fact that you have a statement within your family. Yes, one of your children is interested to continue what you started. You then consider him pass the torch and retire quietly. However, in chatting with acquaintances who are, or were, owners of private companies to the Canada small business (referred to as “qualifying corporation”), we inform you that you should not pay tax on the first of your capital gain realized on the sale of the shares of your company. You’re so delighted that you can sell your business to one or more members of your family and be entitled to receive an amount from the tax. This could even lighten the financial burden on the company.
The initiative may, by itself, encouraged investment in SMEs in the Canada, but not at the level of the family business. While the Minister introduced this rule, it introduces another eliminates that, indeed, the tax exemption of $500,000 of capital gain when there is a disposition of the shares of a qualifying Corporation for a person with whom the seller is bound. The definition of a related person includes, among others: spouse, children, brothers, sisters, parents, grandparents, in-laws. Representatives of the Agency of customs and Revenue Canada (CCRA) argue that in the absence of this rule, a firm could distribute accumulated profits for the shareholders, without tax implications. This is not the spirit of the (law) income tax Act, they say. How to explain that the sale of the shares of an eligible Corporation to a related person is a distribution of its surplus, while the sale of these same actions to a non person, does not?
See now an example of the application of the provisions on the capital gains exemption that explains how they can be unfavourable to the child who wants to buy the shares of the company of his parents rather that buy a foreigner
A model commonly used to acquire the shares of an eligible Corporation is through a management company. Indeed, the purchaser incorporates a new company that gets the financing to pay the shares of the seller. The latter calls for the $500,000 capital gains exemption. However, it pays no tax on the sale of its shares – excluding the application of the minimum tax. Subsequently, the management company and the acquired company are merged. However, this model does not work when they deal between related persons.The child will effectively transform the capital gain of the seller, in a taxable dividend. The seller could have approximately $186,000 tax to be paid on a gain of $500,000. The only way to purchase the shares of a related person who wishes to benefit from the exemption of capital gains, is to buy by the individual, and not by a company. However, since the money to repay the loan will come from the company, a dividend or a salary should be paid to the individual buyer so that it can repay its debt. The buyer should pay tax on the dividend and that salary to pay his debt.