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Small business exemption to increase – regularly

The potential rewards of investing in small business, farming and fishing are about to get better. In its 2013 budget earlier this year, the federal government announced two changes that will help entrepreneurs secure their retirements and facilitate the transfer of their businesses to the next generation.

First, the small business lifetime capital gains exemption will increase to $800,000, up from $750,000 currently. The higher limit will apply beginning in 2014 to the sale of qualified small business corporation shares, and qualified farm and qualified fishing property. What it means is that you will be able to shield $800,000 of your profit from tax when you dispose of your business.

The new limit also applies to individuals who have already claimed the exemption to date. So someone who has previously capitalized on the $750,000 exemption would have $50,000 more to claim in 2014 – and even more in subsequent years.

This rise in future years is thanks to the second change. Beginning in 2015, and for the first time ever, the exemption limit will be adjusted to inflation. Compounded over time, this is a significant benefit for business owners.

All in the family

There are many ways you can take advantage of the small business exemption. With good planning, the exemption can be multiplied with members of your family and future generations. An estate freeze, for example, lets owners crystallize the value of their shares today and pass future growth and capital gains to their adult children, while maintaining control and drawing an income. The children, in turn, can claim the exemption and pass the business on to their children, and so forth.

The rules around which corporations qualify for the exemption are quite complex. It’s important to structure your business so that it meets these requirements. We can help you with this.

Working with our team, you can obtain specialized advice related to all aspects of your business and personal wealth management. Contact our office for an appointment to ensure you're taking full advantage of the enhanced small business exemption and related opportunities.

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