This publication examines the planning considerations surrounding qualified small business corporation share (QSBCS) definitions and access to the Lifetime Capital Gains Exemption (LCGE). Specifically, it analyzes how intercorporate shareholdings can inadvertently disqualify shares from QSBCS status under paragraph 110.6(15)(b), and what steps advisors should take to ensure their clients remain eligible for this significant tax benefit.
Paragraph 110.6(15)(b) can deny LCGE access where intercorporate shareholdings exist that cause the corporation to fail the “all or substantially all” active business asset test, even if the operating business itself is fully active.
Tax advisors must audit the entire corporate group structure for passive investment holdings, intercompany loans, and minority shareholdings that could taint QSBCS status at any point during the 24-month holding period.
Pre-transaction purification strategies, including the extraction of passive assets through dividends or share reorganizations, are essential planning steps before any sale, estate freeze, or other disposition event where LCGE access is contemplated.
We implement estate freezes and share reorganizations across all nine common law provinces.
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