Tax break to help family business

Lifetime capital gains exemption increases

O T TAWA • Small businesses are getting a tax break that could help families pass on their operations to the next generation.

Budget 2013 will increase the lifetime capital gains exemption from $750,000 to $800,000, effective for the 2014 taxation year, on the sale of qualified property, small business corporation shares, and farm and fishing equipment.

The exemption will indexed to inflation for taxation years after 2014.

Elio Luongo, Canadian managing partner with KPMG, said the news will be welcomed for family-run businesses that face a huge tax bill when they pass on their companies to children.

“There have been certain organizations that had wanted a [tax] rollover to the next generation but that hasn’t come in,” said Mr. Luongo. “This is a measure along the way. It will help people with family businesses and if you look at our demographics, they are going to be sellers.”

In its budget document, the government noted “business owners, farmers and fisherman are key contributors to creating jobs and

Facilitates the transfer of their business to next

generation

economic growth” and the increase in the exemption rewards those people.

“The exemption also helps these entrepreneurs better ensure their financial security for retirement and facilitates the inter-generational transfer of their business,” the government said.

The last time the exemption was increased was 2007, when it went from $500,000 to $750,000.

Doug Porter, chief economist with Bank of Montreal, noted that in some prebudget submissions, people were talking about doing away with the exemption entirely or scaling it back, so Thursday’s news is a minor victory.

“The government wasn’t interested in that at all,” said Mr. Porter, adding increasing the amount and indexing it for the future just recognizes inflation.

Heather O’Hagan, international tax partner with KPMG, said people have speculated Ottawa would get rid of the tax break but she is pleased they have increased it instead.

“Everybody hopes their business will increase in value and the [exemption] is there to take advantage of down the road,” she said, adding while the $50,000 increase is not huge it could act as an incentive for people to sell their businesses.

“The fact they are indexing it is huge because it will start to grow over the years.”