Lifetime Capital Gains Exemption 2024: What Is It & How To Claim It?
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08 Feb 2024
LCGE is a tax benefit in Canada that allows eligible individuals to claim a deduction on the sale of certain assets.
These assets are –
LCGE is calculated as a percentage of the capital gains that you realize upon the sale of either Qualified Small Business Corporation Shares (QSBCS) or qualified farm/ fishing property (QFFP).
Here's how you can calculate LCGE:
If you aren’t sure about what to do, schedule your first FREE consultation from CJCPA, a Corporate Tax filing Canada firm based in Surrey, helping small business owners like you make the best of their finances. No matter the industry, we’ll find out what exactly you need!
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Disclaimer: Remember, this blog is for informational purposes only and does not constitute professional financial advice.
Lifetime Capital Gains Exemption 2024: What Is It & How To Claim It?
If you are an owner of a thriving small incorporated business, you would surely have an understanding of the enterprise outliving you. Isn’t it? At any point in time, when you think of retirement, you may sell your business for a good value or pass it to the next generation. This transfer will be considered a sale, and it will invite a CAPITAL GAIN TAX in Canada. Does it mean that you shouldn’t sell your business? That’s not it – You can claim CRA’s LIFETIME CAPITAL GAINS EXEMPTION or LCGE, which is a relief indexed for inflation every year. How do I get a lifetime capital gains exemption? What do you mean by capital gains? How much capital gains are tax-free in Canada? We have provided answers to all these questions in plain English in our blog, so you don’t get tangled up in the financial jargon. Keep reading to find out all the answers! Do Check Out: We offer a FREE 30-minute consultation to all those small business owners in Canada and individuals who want to plan their taxes better, without getting financially confused. You can book your slot early and talk to a CPA in Surrey Canada now!What Are Capital Gains & How Are They Taxed In Canada?
Canada’s official website defines Capital gains as: “You have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.” To explain in plain language, Capital gains in Canada are the profits you make from selling certain assets, like stocks or real estate, for more than you paid for them. The capital gains tax is the tax you pay on these profits. Currently, it's calculated as 50% of your capital gains and added to your income, then taxed at your regular tax rate. The actual amount of tax you'll pay depends on your income and the province you live in. Note: Get in touch with a Corporate Tax filing Surrey Canada firm to accurately calculate your Capital Gains in 2024.What Is Lifetime Capital Gains Exemption?
LCGE is a tax benefit in Canada that allows eligible individuals to claim a deduction on the sale of certain assets.
These assets are –
- Qualified Small Business Corporation Shares (QSBCS) OR
- Qualified farm or fishing property (QFFP)
Lifetime Capital gains deduction limit for 2024 –
The total limit for LCGE (Lifetime Capital Gains Exemption) is adjusted every year to keep up with inflation. For the 2024 tax year, the LCGE limit has increased to $1,016,836. It is designed to help small business owners save for retirement or invest more in another small business. For eligible individuals who sell QFFP, the LCGE limit for QFFP was $750,000 for dispositions before 2014, but for dispositions after April 20, 2015, the LCGE is $1,000,000Who is eligible to claim the capital gains deduction –
You are eligible to claim the capital gains deduction if you are a resident of Canada throughout 2023. For this deduction, the CRA will also consider you to be a resident throughout 2023 if you meet both of the following conditions:- You were a resident of Canada for at least part of 2023
- You were a resident of Canada throughout 2022 or 2024
How To Calculate LCGE in Canada?
LCGE is calculated as a percentage of the capital gains that you realize upon the sale of either Qualified Small Business Corporation Shares (QSBCS) or qualified farm/ fishing property (QFFP).
Here's how you can calculate LCGE:
- Step 1: Calculate the capital gains (QSBCS or QFFP) by finding the difference between the sale price and the adjusted cost base (ACB) of the assets.
- Step 2: Check the eligibility requirements that are different for both QSBCS and QFFP and ensure that the taxpayer meets the ownership and holding period criteria.
- Step 3: The exemption amount is calculated on 50% of the entire capital gains because only half of the realized capital gains are taxable. It shouldn’t exceed the provided 2024 exemption limit, as discussed above.
- Step 4: Subtract the exemption amount from the capital gains to determine the taxable capital gains.
Wrapping Up!
We hope this blog has helped you understand the basics of LCGE. If you are a small business owner in Canada, consider taking advantage of this valuable tax benefit to maximize your retirement savings and investments. If you are actively planning to retire from your business, or simply transfer a greater asset to the next generation, you must find out how it has several tax implications, and how you can get relief from it.
If you aren’t sure about what to do, schedule your first FREE consultation from CJCPA, a Corporate Tax filing Canada firm based in Surrey, helping small business owners like you make the best of their finances. No matter the industry, we’ll find out what exactly you need!
Follow us for more such business & taxation insights!
Disclaimer: Remember, this blog is for informational purposes only and does not constitute professional financial advice.
