Can a non-resident claim the lifetime capital gains exemption when selling a business?

The lifetime capital gains exemption is delivered as a deduction in computing taxable income, and the deduction depends on where you lived. Income Tax Act s.110.6 requires residence in Canada for the year in question. That matters for an owner who sells a company and moves abroad around the same time. This page covers the residence condition only, not the amount of the exemption; for which properties it covers and how the limit is set, see what the lifetime capital gains exemption allows.

What the Act says about residence

Section 110.6(2.1) lets an individual, other than a trust, who was resident in Canada throughout the year deduct an amount for disposing, in the year or a preceding taxation year, of a qualified small business corporation share, subject to the section’s other conditions and limits. Section 110.6(2) uses the same residence words for qualified farm or fishing property. The residence test covers the whole taxation year for which the deduction is claimed, not only the day of the sale.

The deemed-residence rule

Section 110.6(5) deems an individual resident throughout a taxation year, for subsections (2) to (2.2), if the individual was resident in Canada at any time in that year and was resident throughout the preceding year or throughout the following year. Both parts must be met. The CRA’s line 25400 page sets out the same two-part test, says residents include factual and deemed residents, and says you generally have to meet all the conditions.

The year you leave

Section 128.1(4)(a), which deems a taxation year to end immediately before a taxpayer ceases to be resident in Canada and a new one to begin, applies where the taxpayer is a corporation or a trust; it is not the rule for an individual seller. For an individual who leaves part-way through a year, the s.110.6(5) test above is what can treat that year as one of residence throughout. How it applies to your dates, and whether a sale after you leave also brings in section 116, is a question for a tax adviser.

Residence is not the only test

Residence is one condition among several. The shares or property must also qualify, and the CRA publishes the current limit. For the share tests, see whether your shares qualify.