A QSBC is a Canadian-Controlled Private Corporation that meets specific CRA tests at the time of a share sale, and qualifying is the gateway to claiming the Lifetime Capital Gains Exemption.
Three tests must be satisfied. First, the corporation must be a CCPC at the time of sale. Second, substantially all, generally 90 percent or more, of the fair market value of the corporation’s assets must be used in an active business carried on primarily in Canada immediately before the sale. Third, throughout the 24 months preceding the sale, more than 50 percent of the assets must have been used in an active Canadian business, and the shares must have been owned by the taxpayer or a related person.
The most common disqualifier is excess passive assets inside the operating company, investments, cash, or real estate that reduce the active asset percentage below the threshold. Identifying and addressing this well in advance of a sale, through purification transactions or asset restructuring, is standard planning where access to the LCGE is expected.
See also: Lifetime Capital Gains Exemption (LCGE) · Canadian-Controlled Private Corporation (CCPC) · Asset Sale vs Share SaleQSBC qualification needs to be confirmed and, if necessary, engineered well before the sale process begins. See how Wefinx approaches exit planning.