SALE OF THE SHARES OF YOUR CORPORATION
If you have a corporation, it is far preferable for you as the seller to sell your shares of the corporation rather than the corporation selling its assets. Under the Income Tax Act of Canada, you are allowed a lifetime capital gains exemption of $100,000.00. However, under the recent changes being brought in by the federal government, this will increase to $125,000.00 applicable to the sale by you of your shares in your Corporation. Of course, when you sell the shares of the corporation, all of the assets owned by the corporation go to the buyer. You cannot pick and choose which assets go to the buyer and which don’t unless you sell some of those assets before the transaction involving the sale of the shares is to occur.
For example, if the corporation owns a number of trademarks and patents, all of the trademarks and patents will go to the buyer when the buyer purchases the shares of the corporation. For this reason, we often recommend that the owner of several patents would have several corporations, each corporation owning one patent or trademark so that when you sell the shares of one corporation the ownership of the patent or trademark owned by the corporation will go to the buyer, but you will retain the ownership of the other patents or trademarks that you own.
If you own a building and you are operating a business out of the building, you can sell the shares of the business but not sell the building only if you have 2 corporations, one of which operates the business and one which owns the building. The corporation owning the building would be the landlord and the corporation operating business would be the tenant of that landlord. In this fashion, you can sell the shares of the corporation owning the business but retain the ownership of the building.
In order to qualify for this exemption there are 3 qualifications:
- The corporation must be a Canadian controlled small business Corporation meaning the majority of the shares must be held by Canadian residents;
- 50% of the assets of the corporation must have been that used in the active business of the Corporation for the 2 years prior to the sale;
- 90% of the assets of the corporation must have been used in the active business of the corporation immediately at the time of sale.
Thus, if you have investments for example held by your Corporation which are more than half of the assets of the corporation, you will need to transfer those assets out of your corporation into another corporation in order to meet qualifications 2 & 3.
Stemp & Company
1670, 734 – 7th Avenue SW Calgary, Alberta T2P 3P8
Bill Stemp
403-777-1125 bill@stemp.com
Kari Ivey
403-777-1123 kari@stemp.com
Tasha Traynor
403-777 1129 tasha@stemp.com
