Qualified small business corporation (QSBC) shares
Qualified small business corporation shares are shares of a Canadian-controlled private corporation that meet specific tests about the corporation’s activities, the composition of its assets, and how long the shares have been held. Meeting the QSBC tests is what makes the lifetime capital gains exemption available on a share sale.
QSBC status is the gateway to the LCGE, and it is a status the corporation has to be in — not something a seller elects at closing. Broadly, the tests look at whether the corporation is a Canadian-controlled private corporation, whether substantially all of its assets are used in an active business carried on primarily in Canada, and whether that has been true over a period leading up to the sale.
The most common reason companies fail
Accumulated cash and passive investments. A profitable company that has retained earnings inside the corporation for years can find that too large a share of its assets is no longer used in the active business. The business is fine; the balance sheet is the problem. Correcting it is possible but takes planning, which is why owners are advised to look at this well before a sale is contemplated.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentSelling a business
- 02Canadian Federation of Independent BusinessResearch dataCapital Gains Changes
- 03Treadstone LawLegal commentaryHow the Lifetime Capital Gains Exemption Shapes the Asset vs Share Decision in Ontario
- 04Treadstone LawLegal commentaryTax Law
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.