You’ve invested so much into your shop over the years. Now it’s time for that hard work to pay off.
You’ve built up your business. You’ve devoted your energies to staying on top of automotive innovations, creating a strong network of reliable suppliers, and developing a loyal customer base. Your employees are happy, your clients are satisfied, and your reputation is great.
It’s the perfect time to move on to your next chapter.
But selling your automotive repair shop is not always straightforward. It can be complicated and surprisingly expensive.
Let the tax experts at PDC help you save thousands of dollars on the transaction by ensuring that you qualify for the Capital Gains Exemption.
Structure is the key
All business owners want to structure their investment with an eye to the future. Alas! At PDC, we find that many of our automotive clients (when they first come to us) are not actually set up in the most beneficial way. With our comprehensive experience and advice, however, we are able to redirect their holdings in a manner that could, ultimately, save them tens of thousands of dollars on the eventual sales of their repair shops.
The Lifetime Capital Gains Exemption (CGE) is one of the most advantageous tax “gifts” available in Canada, and it’s easy to access with proper organization.
The CGE is a tax shelter available to all Canadian business corporation owners as a means of protecting your capital gains and lowering your taxable income. It allows individual business owners to sell shares of their company and pay no taxes on up to 50% of the resulting net income (to a maximum of $860,912, as of 2019). The exemption is cumulative over a lifetime, you can reach the maximum over the course of many years and many transactions.
It’s also important to note, especially with privately-owned aftermarket repair shops and tire shops, that your final, non-taxable profits can actually be much larger. For example, if you and your spouse jointly own your shop, you can each claim the CGE when you dispose of your shares, which means your total tax-free gain can be as much as $1,700,000.
The exemption is definitely worthwhile. A tax expert can help.
Do you qualify?
There are three key considerations for CGE eligibility:
- Your company must conduct most (more than 50%) of its business in Canada, and at least 90% of your assets have to be actively used in your business. This is usually an easy qualification to meet for owner-operated repair shops.
- The sellable shares of the business must be owned by individual owners or a Family Trust (a “private corporation”). Shares held by holding companies can still be used to shelter profits, but careful consideration must be taken to clarify exactly how those fit into the business structure.
- Any business structure –or restructure– aimed at collecting on the CGE must have been in place for at least two years prior to the sale of the business. This is why early planning is important!
Sweat equity should pay off, too
We know that there’s so much more to operating a successful business than just loving what you do. You have tangible assets, like the building, tools, and inventory, but you also have valuable knowledge and strong relationships, accumulated over years of hard work. All of the time and effort you put into your business is worth something! You deserve to get that money out again when you sell.
Don’t make the mistake of waiting until you’re on the brink of retirement to learn what your options are!
Smart, strategic planning (beginning at least 2 years before you anticipate selling) with the support of a qualified tax advisor can significantly increase the amount of money you have in your pocket after the sale of your shop. And that means a much more comfortable retirement for you.
If you’re considering selling your automotive business in the not-too-distant future, now is the time to make sure you have your company set up to make you money. PDC’s experienced tax accounting team knows how to structure your investment and holdings to take advantage of the Lifetime Capital Gains Exemption.
We are happy to answer any questions you might have (we’ve heard them all!). Contact us to learn more.
