Fortunately this day was the exception.
When a big file blows up, the talent from the Big Smoke comes in for a little look-see, and in nearly every case these people are an incalculable resource.
However, in an organization with some 75,000 employees, sometimes there is a little cootie that rises to the top with all that cream.
The specialist flew in from Toronto with his clunky black briefcase, his horn-rimmed glasses, and his Centre of Intergalactic Certitude point of view. The guy was all confidence and no tact, all mouth and no mind. He was as helpful as an old shoe baked into a cake. Leathery. Surprising. But something short of intriguing.
How on earth he got such an important job was beyond baffling to us. I mean, I have met some gnarly old bankers over the years, but most were actually brilliant in their own way. This guy... How do I say this? Rumour had it he had married well.
It's funny looking back, but this was very serious business. People's lives would be significantly impacted by the outcome of his visit, and, despite our reputation, the thought of families being put out of work weighed on our hearts and minds like a lump of coal in the throat.
While in the area, we took the specialist on a tour of one of the more impressive sawmills in the region. How can you understand the local economy without having a good grasp of this industry, right? It was break-up time, and the mill had stockpiled enough logs to last a few months if need be. For any number of our local mega-mills, this sort of timber yard is nothing short of breathtaking in its scale. Logs are decked stretching on for what seems to be endless miles.
The specialist looked over the gargantuan inventory, shook his head confidently, and leaned in to our local vice president, nodding his head with this whispered revelation: "I didn't know we imported wood from China!"
Just... stop.
I wish it was the only ridiculous thing he uttered. The day was an awkward dance - keeping His Specialness from embarrassing us too much while he was in town, overspeaking him, diverting his comments, and generally running interference. Then in the days that followed, more stroppy gyrations, submitting recovery plans for him to adjudicate, translating his replies from Toronto-speak to regular guy.
But dance we did. People kept their jobs, and in the course of time, life eventually returned to normal. Later, when the time was right, our VP - who was never known for his subtlety - called the Toronto executive's VP and went on record with a string of his own special words most definitely not to be repeated here.
Small business shareholders' capital gains exemption
If you are selling your small business corporation, preferably you are doing so under favourable terms, not in duress.
Following up on last week's introduction, I received an inquiry to clarify how these tax advantages work. First of all, in my view these are not elite privileges, but compensation for those who, instead of working for someone else (and likely generating a pension in the process), decided to create a business, and in the process probably created work and jobs (and pensions) for others. The write-off is roughly equivalent to a pension-sized, friendly thank-you, if you will.
Now, let's run through some sample calculations.
Assumptions:
You are the sole shareholder in a qualifying small business corporation.
Your income level puts you in the highest federal tax bracket (29 per cent).
When you sell your business, you sell the shares, (as opposed to directing the sale of the company's land, equipment, inventory, etc).
Your shares sell for $1,600,000 more than your cost, resulting in a capital gain.
You have claimed no other offsetting capital gains exemptions previously in your lifetime.
For simplicity, we will also say that today's lifetime capital gain exemption limit is $800,000, although it is actually a little higher.
Recall also that with capital gains, we are always looking at half. Half is usually taxable as regular income.
But with the lifetime exemption, the first $800,000 is a gimme.
Scenario 1 - One owner
Federal Tax Savings Calculation:
Gain on Share sale: $1,600,000
Qualifying capital gain exemption:
$800,000
Taxable capital gain$800,000
Federal Tax ($800,000 x 50% x 29%) $116,000
Half of the net gain is still taxed.
Scenario 2 - Two owners
Federal Tax Savings Calculation:
Gain on Share sale: $1,600,000
Qualifying capital gain exemptions: $1,600,000
Taxable capital gain:$ Nil
Here there are two shareholders each owning 50% of the shares, each also having their full $800,000 capital gains exemption fully available.
Note: The impact of provincial taxes increases this effect.
Once again, this article is not meant as individualized tax or legal advice. Readers should consult their own tax professionals before proceeding with a strategy.
Mark Ryan is a financial advisor in Prince George with RBC Wealth Management, Dominion Securities (Member CIPF) and can be reached at [email protected].
