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Income tax — getting the $500,000 capital gains exemption

My client worked for a small but growing technology company. She was issued shares that increased substantially in value. She had sold the shares for more than $500,000 in capital gains, and asked me if she was able to claim the capital gains exemption.

I reviewed the facts in detail and concluded that, as things stood, my client would not qualify for the exemption because she had not owned the shares for 24 months. However, I was aware of an exception to this rule which applies where a person has transferred all the assets of a business to a corporation and then sells the shares.

Digging a little deeper, I determined that my client had in fact been carrying on business as an independent contractor before she became an employee of the company. She had in fact transferred her business assets to the company when she became an employee. I arranged for this transfer to be properly documented, and advised her that, based on all the conditions for the capital gains exemption, she could qualify. There was some uncertainty as to whether the CRA would accept this analysis, but it was certainly a legitimate filing position.

My client accepted my advice and claimed the capital gains exemption, saving about $165,000. The CRA did not challenge her claim.

A significant tax saving!

(2000)