What’s Your Tax Issue: Capital Gains Exemption


The Tax Issue

I am a Canadian citizen living in Quebec. I had sold stock options shares acquired through my employer which was a US based public company at the time, and I had paid taxes on capital gains taxes.

I want to know If  could have had benefited from Capital Gains Exemption then, and if so, could it be done retroactively?

The Answer

The Capital Gains Exemption provides every Canadian resident individual with a lifetime cumulative amount that may be used as a deduction against certain capital gains. For 2013, the lifetime amount was $750,000. In his 2013 federal budget, the Minister of Finance has proposed to increase the amount to $800,000 for 2014 and the amount will be indexed to inflation for taxation years after 2014.

But there are restrictions.

The exemption is available only on gains generated from the sale of Qualified Farm Property, or Qualified shares of a Small Business Corporation.

In the case of shares, they must meet certain restrictions. Essentially, the shares must have been owned for at least two years, and the company must meet certain asset tests for a period of two years.

In addition, the company must meet the definition of a Small Business Corporation, or SBC. An SBC refers to a Canadian controlled private corporation, all or substantially all of whose assets are used principally in the course of carrying on a business in Canada.

Since the shares you sold are shares of a US public company, the company would not qualify under the definition of an SBC and so unfortunately,  your gain would not have qualified for the Capital Gains Exemption.