Lifetime Capital Gains Exemption When Selling Saskatchewan Business Shares

If you own a Saskatchewan corporation and are planning to sell, the federal lifetime capital gains exemption may reduce the tax on your gain. Whether you can use it often depends on how the sale is structured and on how the company has been run for the past two years or more.

This article explains the tests, the exemption amounts the CRA has published and why an asset sale usually loses the benefit. Your accountant should confirm the numbers that apply to your sale date and your own tax situation.

This article covers the law of Saskatchewan.

What the exemption is

The CRA states that the lifetime capital gains exemption (LCGE) is $1,250,000 for dispositions of qualifying property in 2025, giving a maximum capital gains deduction of $625,000, and that the figure is indexed to inflation. Confirm the amount that applies to your sale date, since it can change.

The benefit is generally available to individuals selling qualified small business corporation (QSBC) shares, which is a major reason a share sale is attractive to a seller.

The tests your shares must meet

To qualify, the shares must pass several tests. They are listed below.

• Holding period: the share must have been held for at least 24 months before the sale by the individual, a spouse or common-law partner, or a related partnership.
• Corporation type: it must have been a share of a Canadian-controlled private corporation throughout that period.
• Active business assets: more than 50% of the corporation's asset value must have been used mainly in an active business carried on primarily in Canada.

Holding companies, investment assets sitting in the corporation and recent changes in ownership can complicate these tests. A tax review before you list the business is worth the effort.

Why the amount changed over time

The limit is not the same for every sale date. For dispositions before June 25, 2024, the deduction limit was $508,418, based on a $1,016,813 LCGE, and for dispositions after June 24, 2024, it was $625,000.

Share sale versus asset sale

If the corporation sells its assets instead of you selling your shares, the corporation cannot claim the exemption on its own gain. That is the main reason an asset sale usually loses the benefit.

Buyers often prefer assets, because in an asset purchase the price is allocated to each asset at fair market value, with the balance to goodwill, and they are placed in capital cost allowance classes. In a share purchase, the tax values of the corporation's assets do not change and the buyer inherits the existing tax cost base and history.

GST/HST also differs. Buying shares is generally not subject to GST/HST, while an asset purchase can attract it unless an election applies. These differences are often negotiated in the price.

What to do next

• Ask your accountant to test the shares against the 24-month, Canadian-controlled private corporation and 50% asset tests.
• Confirm the exemption limit that applies on your expected sale date.
• Raise the share-versus-asset structure with the buyer early.
• Have a lawyer review the purchase agreement before you sign.

Frequently asked questions