How to Benefit from the CGE?
The eligibility criteria for the CGE are complex and must be carefully reviewed by your tax specialist to avoid the risks associated with improper tax qualification. Here are the essential conditions to respect, although other factors must also be considered:
On the day of the share sale, the company must be a Small Business Corporation (SBC).An SBC is:
- An actively operated company (thus excluding businesses with passive income, such as rental income)
- A company whose control (50% + 1) is held by Canadians
- A company whose assets are used more than 90% to generate active income
- A company where a maximum threshold of 10% of assets are used passively (these are “tainted assets”).
The shares must be Qualified Small Business Corporation Shares (QSBCS).
- QSBCS are shares issued by a company that qualifies as an SBC (see condition #1).
In the 24 months preceding the sale, the company must have a threshold of less than 50% tainted assets.
- This means that more than 50% of the company’s assets must be used to generate active income.
At the time of sale, the QSBCS must have been held personally, or by a trust, for at least 24 months.
- The 24 months of ownership are calculated from the date the shares were acquired.