Get answers to your questions about capital gains exemption and how to effectively multiply its outcome when factoring family members over the age of 18.
Most dental practice owners understand the dynamics of a capital gains exemption. However, most dental practice owners may not know that there is a lifetime capital gains exemption (LCGE) available for each family member (including their parents). Now if your parents owned a business and it has been sold, they may no longer have their Capital Gains Exemption. Now, the dentist then will be allowed to multiply the exemption by the amount of Growth Shareholder Family Members they add to their Dentistry Professional Corporation.
Typically, we would like adding family members over the age of 18. Most accountants and tax advisors have diverse and varied clientele, they rarely understand all the financial nuances of your situation. This means that you can be leaving thousands of tax dollars on the table when you sell your dental practice missing out in multiplying your LCGE.
If you own a dental practice, it’s essential to understand what financial benefits you can receive and find a dental accountant. Please read on if you want to know more about where to go and ask questions that will open the door to tax exemptions you never knew were available to you.
Capital Gains Exemption
The lifetime Capital gains exemption (LCGE) is available to all Canadians that own a Canadian Controlled Private Corporation (CCPC). Big Picture – a Incorporated business – such as a dental practice. In Canada, this amount is $892,218 for 2021 and indexed to inflation.
It takes a very targeted knowledge base to understand how to structure the articles of incorporation or the blueprint of your dentistry professional corporation when you incorporate. The dental lawyer or dental accountant will need to know your personal situation so they can make this “blueprint” adaptable to future planning. Let’s assume you are not married yet or do not have kids. You want to make sure the articles of incorporation have a proper share structure from the start. If it is not, it will cost you more money to amend it later in the future.
This year the Capital Gains Exemption is $892,218 per family member. So when you sell the dental practice, you will be able to multiply this with Growth Shareholders. That’s why when the time comes for the Canadian dental practice owner to prepare for ways to sell your practice, you need to start with a professional team that focuses in the dental industry. You want to find a company that will help you be proactive in terms of tax planning; saves you taxes and fees thereby allowing you to focus in growing your dental practice as well as be with your family.
How To Multiply The Exemption?
You can save thousands of dollars in taxes by multiplying the capital gains exemption. When you multiply capital gains exemption – your spouse or family member must be a GROWTH SHAREHOLDER… This is very important, they can each save $892,218 in Capital Gains Taxes for 2021. If not, we have to add them or give them growth shares and to do this you would need to do an Estate Freeze.
In 2018 the Canadian Liberal Government eliminated the ability of service-based businesses (essentially targeting doctors & dentists) to distribute dividends to lower income family members unless they met certain requirements. These exemptions are under a provision called TOSI. For purposes of this article, we will not go into TOSI and the exemption rules. That said most dentists out there have their spouse or children as special or preference shareholders and therefore they do not participate in the growth of the dental practice.
This means we need to add them as a growth shareholder and go through an estate freeze. If you don’t do this, when it comes down to selling your shares of your professional corporation in the future, you may be shocked with the amount of tax you have to pay.
That’s why an important tax tip for dental practice owners is to contract with a dental accountant or have professional knowledgeable in estate planning. You want the dental estate planning professional also to become an essential tool to understand the big picture.
If your spouse, parents or children over 18 years old is a special shareholder or preferred shareholder, you will need to do an estate freeze if you want to use their LCGE. By doing an estate freeze you give them the future growth of your dental practice. The preferred shares that you retain will be for the current market value of your dental practice or now frozen value. You will need to make sure you retain the voting control and have a shareholder’s agreement. Remember, the growth now is on your kids, spouse or parents so they now own those shares and dollars when you sell. Hence, needed a shareholder’s agreement to make sure you control everything.
Also, if you have your parents on, you need to make sure their wills are setup properly to make sure the value flows through their estate properly.
Multiplying the LCGE
Each Canadian has the right to the LCGE once, so again if your parents or spouse has an incorporated business they may have used it if they sold or when they sell.
Capital Gains Exemption Rules
When you’re ready to look at what capital gains exemption you can qualify for reach out to Dental Tax Accounting and Financial Solutions. When you reach out to Dental Tax, you” find the accountants and financial advisors that have the tax solutions and answers you not only want but need. There are times in your life you want someone who is knowledgeable and has the experience you need.
You wouldn’t go to a landscaper to build you a home. Why would you go anywhere but to a dental tax professional to ensure you received the most lucrative tax options and exemptions possible?
The same qualification criteria apply for associate dentists.
You can still qualify as long as you meet the following conditions:
- Have a Canada Revenue Agency business number
- Have filed a 2018 or 2019 tax return
- Have documents with all eligible non-deferrable expenses between $40,000 and $1,500,000 CAD.
- You must have a business bank account
It does not matter if you are operating as a sole proprietor or corporation, the key distinction is that you must have a business bank account and not using your personal bank account.
If you are using your personal bank account, unfortunately you do not qualify
How Many Invoices Do I Need to Upload?
After you apply for the CEBA loan, your bank will direct you to upload your supporting documentation of non-deferrable expenses to the Government portal.
How many invoices do you need to upload?
Answer: as many as you need to show you have $40,000 in non-deferrable expenses for 2020.
Problem is, for each expense, the Government site only allows you to upload one file per expense.
So what to do?
For example, let’s say you have 10 invoices from a supplier this year.
You can’t upload all 10 invoices separately, so merge them all into one PDF using a site like Small PDF and upload that to the Government site.