Legislation has now been released on this new incentive. It allows a reduced tax rate for individuals who realize capital gains from sale of shares of a small business corporation.
A surprise. It was to be phased-in over 10 years. It will now be 5 years, making it much more interesting.
The incentive takes the form of a deduction from income in determining taxable income, much like the capital gains exemption. The maximum deduction is $666,666 in 2029. The deduction acts to reduce the capital gain that is taxable from a 2/3 to a 1/3 inclusion rate up to $2,000,000 of capital gain.
There are many conditions which take 3 basic forms:
- Which types of businesses qualify, and which don’t
- Minimum ownership of 5% (by votes and value) for 24 months
- The individual must be actively engaged in the activities of the business for at least 3 years (non-continuous)
There are many questions that come to mind from reading the legislation. True to form, it is complicated. The most noteworthy aspect is the list of businesses which don’t qualify. These fall into 9 broad categories.
Even though the incentive does not begin until 2025, there may be planning to consider now.
We will cover this topic later in our 2024 Tax Seminar Series. Meanwhile, if you wish to view the draft legislation, click here.