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Increase in Capital Gains Exemption

Subject: Capital Gains Exemption Number: 13-18 Date: 11/11/2013

If commercially practical structure a partial sale of Qualifying Property in 2013 and the remainder in 2014

The capital gains exemption on certain private corporation shares, qualified farming property and qualified fishing property (collectively, "Qualifying Property") will increase from $750,000 to $800,000 in 2014, and will be indexed to inflation after 2014. The potential extra income tax savings from the additional exemption at the highest marginal rate, depending on the province, range from $9,500 to $12,500 (and higher in years after 2014).

This amendment to the Income Tax Act is included in Bill C-4, the 2013 Budget second bill, which is currently before Parliament (First Reading October 22, 2013 and Second Reading October 29, 2013) and is expected to be enacted by late December.

Taxpayers who are contemplating selling Qualifying Property in late 2013 should consider whether to defer the sale until 2014 so as to benefit from the higher capital gains exemption. While the benefit of a single additional $50,000 exemption is modest, the amount is magnified in situations where multiple capital gains exemptions are available.

Here are some ideas to keep in mind:

1. If commercially practical structure a partial sale of  Qualifying Property in 2013 and the remainder in 2014. This approach may also be of benefit by reducing or eliminating alternative minimum tax that may apply.
2. Don't forget that the additional $50,000 exemption is also available to individuals who have already used up their $750,000 capital gains exemption.  An individual who is fortunate enough to have another gain on Qualifying Property can use the additional $50,000 exemption.  
3. On top of the $50,000 increase, the amount of exemption available may be even higher if the taxpayer no longer has a cumulative net investment loss or prior allowable business investment losses that ground down an earlier exemption.

If you have any questions on how these and other strategies may allow you to benefit from the $800,000 capital gains exemption for sales initiated in 2013, please contact your TSG tax advisor.

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The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.