Lifetime Capital Gains Deduction on QSBC Shares

Lifetime Capital Gains Deduction

The lifetime Capital Gains Deduction is a $848,252 (2018 limit) gross deduction available throughout the taxpayer’s lifetime on the disposal of Qualified Small Business Corporation (QSBC)
The LCGD is a Division C deduction = 848,252 * 50% = $424,126 (over a taxpayer’s life)
This deduction will mean that $424,126 of taxable capital gains on the disposal of QSBC are not taxable
This deduction is only available to individuals

The following 3 must be met for shares to be considered QSBC Shares:

1. The shares must be of a Small Business Corporation on the date of disposal:

A small business corporation is a Canadian Controlled Private Corporation (CCPC) of which all or substantially all (≥ 90%) of the fair market value of its assets are
- used in an active business carried on primarily (>50%) in Canada; or
- invested in shares or debt of a connected small business corporation
  - connected means ownership of > 10% of the voting shares
Assets not used in an active business include:
- Marketable securities
- Vacant land
- Cash not being used in active business (excessive cash beyond what is needed to run operations)
Purification Techniques
- If this 90% rule is not being met, you can purify your assets by selling your non-active business assets (like vacant land) and using the proceeds to pay off liabilities

2. The shares must have been owned by the taxpayer or a related person throughout the last 24 months before disposal.

3. Throughout the last 24 months before disposal:

The share is a CCPC share; and
More than 50% of the FMV of the corporation’s asset must be used in an active business carried on primarily in Canada

Cumulative Net Investment Loss = the excess of investment expenses over investment income since 1988
The Cumulative Net Investment Losses decrease the $424,126 Lifetime Capital Gains Deduction claimed in Division C