Canada proposes C$15 million growth-company gains exemption

The proposed Canada Growth Incentive would provide a separate C$15 million limit for each qualifying individual in respect of each business. The budget presents the measure as a proposed modification of the Income Tax Act, not enacted legislation. A claim would be available to a Canadian-resident individual, other than a trust, who was at least 18 when the relevant shares were acquired.^[1][2]

Share and company conditions

Qualifying shares would generally need to be issued by a Canadian-controlled private corporation whose assets are used principally in a qualifying business carried on mainly in Canada. The combined carrying value of the issuer’s and related corporations’ assets could not exceed C$100 million immediately before or after issuance. Shares would need to be issued for cash or in exchange for the individual’s employment services.^[1]

Business and holding tests

At least half of the corporation’s assets would need to remain attributable to a qualifying business during ownership, and that business would need to be carried on primarily in Canada for at least 24 consecutive months after issue. The individual would need to hold the shares for at least 36 consecutive months immediately before disposal. The proposal excludes specified activities and sectors, including financial services, real estate, agriculture, mining, utilities, food and accommodation, and arts and entertainment.^[1]

Interaction with other reliefs

The measure would apply to qualifying shares issued on or after Budget Day and before 2037. Exempt gains would be included at 30% for alternative minimum tax purposes. A claim would restrict access to the Lifetime Capital Gains Exemption for shares of the same corporation, and vice versa. Finance Canada says further integrity rules will address arrangements such as multiplying the limit through several corporations carrying on the same underlying business.^[1]

Practical effect remains prospective

Founders, employees and investors considering new equity should preserve evidence of issue terms, consideration, company size, business activity and ownership periods. The proposed Budget Day start makes those facts relevant now, but no exemption can be treated as final until Parliament enacts operative provisions. The budget does not yet supply the complete integrity rules, claim procedure or final statutory wording.^[1][2]