In Canada, Lifetime Capital Gain Exemption (LCGE) is a valuable tax benefit available to Canadian residents, providing an opportunity to save on taxes when selling certain types of assets.
Whether an individual is a small business owner, a farmer or an investor, understanding LCGE can help them make informed financial decisions and maximize their gains.
LCGE is a tax provision that allows individuals to protect a portion of the capital gains they realize from the sale of qualified properties from taxation. If an individual sell qualifying shares of a Canadian small business in 2023, LCGE limit is $971,190.
However, as only half of the realized capital gains is taxable, deduction limit is $485,595. This means that eligible individuals can claim up to this amount of capital gains tax free which can result in significant tax savings for them.
To be eligible for the Lifetime Capital Gain Exemption, certain criteria must be met:
The LCGE applies to the sale of qualified small business corporation shares(QSBCS), qualified farm property, or qualified fishing property.
Qualified small business corporation shares must be held by the taxpayer for at least two years and corporation must meet specific conditions to be considered a qualified small business corporation.
Only Canadian residents can benefit from the LCGE. Non-residents are not entitled to claim this tax benefit.
The property being sold must have been used primarily in the taxpayer’s own active business, farming or fishing operations throughout the 2-year holding period.
To take advantage of the Lifetime Capital Gain Exemption, follow these steps:
Taxpayer must ensure that assets tey are intend to sell fall under category of QSBCS, qualified farm property or qualified fishing property. They must also verify that they have met the holding period and usage criteria.
Determine the eligible capital gains from the sale of the qualified assets. If the total falls within the current LCGE limit, taxpayer can claim entire amount as tax-free.
When filing your tax return, report the LCGE amount in the appropriate section to claim the exemption.
– If you are considering selling qualified assets, consult with a qualified perosnal tax accountant to ensure compliance with current regulations and to make the most of this advantageous tax provision.