hardwick63 said:
Hi, we are looking to move to Canada early next year and will be selling our business in UK whilst in Canada to avoid UK Capital gains Tax, what rate of CGT will we be looking to pay in Canada on this money?
Thanks
Colin
When you become a tax resident in Canada (usually the date when you move here) you are deemed to have sold and repurchased all your assets at fair market value. Therefore if your business is worth £100,000 and the exchange rate on that day is 1.66 then the business has a tax cost of $166,000 in Canada. Any gain made before you move to Canada is not taxable here.
When you sell the business you convert the net proceeds into Canadian dollars at the exchange rate ruling on that day. Say that you sold it for £105,000 but paid your lawyer £2,000. The exchange rate on that day was 1.75. Your proceeds are $180,250 ((105,000 - 2,000) * 1.75). Therefore your capital gain in Canada is $14,250 (180,250 - 166,000). Your
taxable capital gain is half this amount and it is added to your income for the year of the sale. The amount of tax you pay will depend on your other income in the year and your marginal tax rate in the province you live in. Even if you are a high earner in a highly taxed province you will not pay more than 25% of the total gain.
Of course, it is possible that the business sells for less than £100,000 or the exchange rate may go the other way, leaving you will a loss for Canadian tax purposes. The bad news is that you cannot deduct a capital loss from other income - it can only be set against capital gains. However, you can carry the loss forward to use against any future capital gains.
