Please note that these publications may not be up-to-date as taxation matters are subject to frequent changes.
Volume 7, Number 2
SPECIAL BUDGET COMMENTARY
March 19, 2007 Federal Budget
Leading up to this Budget, there was much discussion as to the deferral reduction or elimination of capital gains. This did not happen. Instead, the Budget focuses on the incentives for sale of certain private company shares as well as the donation of public company shares.
Capital Gains Exemption
The capital gains exemption is available to individuals who sell qualified small business corporation (QSBC) shares and qualified farm and fishing property. In general terms, QSBC shares are shares in a Canadian-controlled private company where the company uses at least 90% of its assets to earn active business income at the time of the sale and so used at least 50% of its assets during the 24 months before the sale. The Budget proposes to increase the capital gain eligible for the capital gains exemption from $500,000 to $750,000.
There are a number of small business owners who have crystallized the $500,000 capital gains exemption in the past. These new rules allow for an additional crystallization of $250,000. A careful review of all corporate structures should be undertaken to ensure that the shareholders take advantage of the maximum amount of capital gains exemption available to them.
Gifts to Private Foundations
In last year's budget, the government introduced new rules allowing for the donation of public company shares to a public foundation on a tax-free basis. This resulted in significant donations to non-profit institutions across the country. To further encourage charitable giving, the 2007 Budget extends the exemption of capital gains tax on gifts of public company shares to private foundations on or after March 19, 2007. A similar exemption applies to exempt stock option benefits where the stock is donated to a private foundation within 30 days of exercise. These exemptions have been made available with the introduction of "excess business holdings" rules so as to limit the shareholdings that a private foundation can hold, taking into account the holdings of persons who do not deal at arm's length with the foundation.