Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be
correct at the time of issue, may not represent the current
Position of the Department.
Prenez note que ce document, bien qu'exact au moment ‚mis, peut
ne pas repr‚senter la position actuelle du ministŠre.
Principal Issues:
Where an individual does not use the entire $500,000
capital gains exemption on the sale of a business that
qualifies for the exemption, can the balance be used for
future gains on the stock market.
Position TAKEN:
Yes up to the $100,000 capital gains exemption.
Reasons FOR POSITION TAKEN:
Subsection 110.6(4) of the Act includes the deductions
found under 110.6(2),(2.1) and (3) of the Act for a
maximum of $500,000. The $100,000 capital gains
exemption referred to in subsection 110.6(3) of the Act
is included in the $500,000 capital gains exemption.
5-940387
XXXXXXXXXX M.Shea-DesRosiers
May 4, 1994
Dear Sir/Madam:
This is in reply to your letter of February 11, 1994 concerning the application of capital gains exemption to small business.
All references to statute are to the Income Tax Act S.C. 1970-71-72, c. 63, as amended, consolidated to June 10, 1993 (the "Act").
The capital gains exemption, enacted in 1985, allowed an individual to claim a $500,000 lifetime capital gains exemption.
In 1988, the capital gains exemption was capped at $100,000 for property other than qualified farm property for which the
exemption remains at $500,000. An enhanced $500,000 exemption was also introduced for dispositions of qualified shares of a small business corporation. These are the only two situations where the $500,000 capital gains exemption apply. In all other situations, the maximum capital gains exemption was $100,000.
The 1994 budget proposes to eliminate the $100,000 capital gains exemption for gains accruing after February 22, 1994.
For the purpose of our answer, we will assume that the $500,000 capital gains exemption applies to the situation you describe in your letter.
Accordingly, if $300,000 of the $500,000 is used on the sale of the business, the balance can be used for future gains on the
stock market only up to $100,000 being the personal capital gains exemption which is included in the $500,000 capital gains exemption, subject to the provisions of the February 22, 1994 budget on capital gains.
We include, for your information, a copy of the Supplementary Income Tax Guide on Capital Gains. Capital gains deduction is discussed at chapter 7, pages 30 to 37 inclusive.
We trust the above comments will be of assistance to you. Should you have a particular situation, your local district taxation
office should be contacted for any further information.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
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