When it comes time to sell your incorporated business, you may be able to take advantage of a tax free gain on the sale of your shares. In fact, if you were to sell the shares of your business in 2015, and qualified for the capital gains deduction, the tax free portion of your gain would be up to a maximum of $813,600. However, what is not commonly known is that if you have been incurring investment losses over the years, these can negatively impact the amount of the tax free gain you can access. These losses are known as cumulative net investment losses, better known as the CNIL (pronounced “senile”) balance. The CNIL balance is the excess of your investment losses (such as rental losses, interest expense and other carrying charges) over your investment income (such as rental income, interest income and dividends). The tax free portion of the gain will be reduced by the CNIL balance, thus turning an otherwise tax free gain into a taxable gain.
Tax Tip: If you are a business owner and have a balance in your CNIL account and wish to eliminate it, instead of taking a salary, consider remunerating yourself with dividends. Since dividends are considered investment income, they can be applied to reduce and eventually eliminate your CNIL balance.