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Lifetime Capital Gains Exemption, part 1in Tax Advice Information and Updates
An eligible individual is entitled to a cumulative lifetime capital gains exemption (LCGE) on net gains realized on the disposition of qualified property. The LCGE also applies to reserves from these properties into income in a tax year.
The capital gains deduction can be applied against taxable capital gains included in 2015 income that arose from:
- Dispositions of qualified small business corporation shares,
- Dispositions of qualified farm or fishing property,
- Reserves brought into income in 2015, from any of the above.
For 2015 dispositions of qualified small business corporation shares (QSBCS), the capital gains deductions limit is $406,800 or ½ of a LCGE of $813,600.
For dispositions before April 21, 2015, of qualified farm or fishing property (QFFP), the capital gains deductions limit is $406, 800 or ½ of a LCGE of $813,600.
For dispositions of QFFP after April 20, 2015, the LCGE has increased to $1,000,000. The additional deduction is calculated as the difference between $500,000 or ½ of LCGE of $1,000,000 and the $406,800 limit.
Please note that the additional deduction can only be used after the $406,800 is used up. This additional deduction does not apply to dispositions of qualified small business corporation shares.
Since the capital gains inclusion rate in 2015 is ½, only 50% of the capital gain from a disposition of property is taxable.
In a year, you can claim any amount of the deduction you want, up to the maximum amount you calculated.
Part 2 of this blog series will focus on the definition of qualified small business corporation shares and qualified farm and fishing property so check back soon!
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