How you’re taxed when selling a business to family

Nov 24 11:11 2017 Print This Article

Q: I want to sell our Dairy Queen (DQ) to my oldest daughter. The profit year after year is $56,000.00 to $76,000.00 but sales are about $1.5 million. We do not own the building—we lease it from a large company. We only own the equipment inside and the signage. I would like to sell the DQ to her at fair market value which it’s at right now so that the Canada Revenue Agency (CRA) will not come back later requesting more capital gains tax from me. I assess it to be worth between $340,000 to $360,000. The transfer to my daughter of DQ rights is free from DQ and the equipment is about $189,000. Will the CRA consider that or will there be problems?

—Larry

A: One of the first questions to be considered is whether you are selling shares that qualify for the Lifetime Capital Gains Exemption, or not. The sale of shares to a related party can invoke some very complicated rules, currently under review by the Finance Department. Specifically, Section 84.1 could deem the proceeds to be a dividend rather than a capital gain. You will want to get some professional advice on that front.

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Money Sense

MoneySense is a Canadian personal finance and lifestyle magazine published by Rogers Publishing Limited, a division of Rogers Communications.Written for Canadians who want to take financial control of their lives, MoneySense is Canada's best-selling investment and lifestyle magazine, helping readers make smart, informed decisions about how to get the most from their money. The magazine has received many awards, including multiple National Magazine Awards and CFA Society Toronto Awards.

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