What is a capital gain?

In Canada about fifty percent of the realized capital gain is taxed at the tax rate of an individual. There is however some exception that applies to this, like selling of a personís primary residence which quite often are exempted from taxation

So just in case your capital gain is around hundred dollars then you are only taxed for the fifty dollars at a marginal tax rate. So if you are one who is in the top most tax bracket then you will be taxed somewhere at around forty three percent.

This is capital gain times fifty percent times the marginal tax rate which does give you the capital gain tax. This formula remains the same if you want to calculate the capital losses.

This is to help you know of the future years gains and also the capital losses that are not being used in that very year can be carried back and put in the previous three tax years so that you can offset the gains tax that is paid in those years. The gains that are not realized are not taxed at all.

There are certain facts on the exemption of this gain in the country of Canada that most of you would want to know. So here comes the first one on this concept in Canada. Share sales can only qualify for the exemption only if they are of a business corporation that is small and also one which is defined in the tax act. It has to be defined as one that is controlled by Canada and also that it is a private corporation with about ninety percent of the assets being involved in the business quite actively.

The next thing is that the shares that are owned by you or even by a relative, for at least two years that is about twenty four months, before you can sell it and also for that same period there has to be at the minimum of fifty percent of the assets that have to be put to use in business in the country of Canada. You have to make sure that you are taking the right steps to purify the corporation and also so that you can take the advantage of this exemption.

This simply means that you have to remove those investments that are held by the corporation as these are those assets that are not being used actively in business and hence they can go against the rules of the fifty and the ninety percent. The businesses that are unincorporated or the sole proprietorships and the partnerships are not allowed for any sort of an exemption which will benefit the incorporation primarily. There are still some ways to roll the business assets into a new corporation that is formed and also one that does not result in a tax.

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