Composite case study · Founders
Founder with $3M exit and LCGE strategy
How an 8-year service-business CCPC owner in Calgary saved ~$705K in tax on a $3M exit via family trust setup and 24-month QSBS purification
Composite illustration — not a single real client
This case is built from patterns across 5+ real clients and modified so no individual can be identified. Numbers are ranges, not exact values. The category + framework + decision logic reflect actual practice; specific details are abstracted. Not a recommendation for your situation — book a discovery call for individual setup.
Updated:
Client context (anonymized)
IT services founder, CCPC incorporated 8 years ago, 12 employees. B2B SaaS + custom development. Calgary, AB resident. Married, 2 adult children (22, 24). $200K salary + $300-500K dividends. Net worth ~$2.5M. TFSA + RRSP maxed, $400K in Holdco.
Three key questions
1) Is CCPC ready for LCGE-eligible sale (QSBS test)? 2) Maximize LCGE — single ($1.27M) vs multi-beneficiary via family trust? 3) Timing — now vs wait for valuation improvement?
Framework applied
Q1: Audit QSBS. 78% active assets, fail 90% test. Purification 18 months — move $300K excess cash + $400K Holdco investments via §85 rollover. Q2: Family trust settled 3 years ago with founder + spouse + 2 adult children. 24-month holding satisfied. Multi-LCGE × 3 adults (founder + 2 children) possible. Q3: Hold 12 extra months for valuation improvement ($3M → potential $3.4M) vs market downturn risk. Complete purification first, then market actively, close at ~$3M. Total time to exit: 24 months.
Quantified result
Sale $3M, capital gain $2.999M. 50% inclusion = $1.5M taxable. WITHOUT family trust: $1.27M LCGE offset → $230K residual @ 47% = ~$108K tax. WITH family trust: $3M distributed across 4 beneficiaries ($750K each). Each claims own LCGE ($375K ≤ $1.27M cap each). Total tax: $0. SAVED vs no planning: ~$705K ($3M × 50% × 47%). Setup cost (legal + 3 years accounting): $15K. ROI: ~47×.
Purification process detail
Month -24: hire exit-specialized CPA + M&A lawyer. Audit balance sheet. Month -18: §85 rollover $300K excess cash + $400K Holdco investments → CCPC's parent Holdco. Tax-free transfer (§112(1)). Month -12: 92% active business assets, 8% working capital. Month -6: M&A advisor engaged, buyer pipeline. Month 0: sale closes. LCGE election filed on each beneficiary's tax return Apr year+1.
What we did NOT do
Did NOT set up trust last-minute (trust must exist > 24 months before sale — last-minute = sham, LCGE denied). Did NOT use minor children as beneficiaries (TOSI triggers highest marginal). Adults only. Did NOT pay excess cash as personal dividend before sale (anti-avoidance risk). Moved to Holdco instead.
Lessons applicable
1) Family trust setup must precede sale ≥ 24 months. 2) Purification = 18-24 month process, not last-minute cleanup. 3) Multi-LCGE via trust = strongest Canadian tax break for founders. $5M+ savings possible for families of 4-5 adults. 4) Setup cost ($15K legal + $5K annual) — typical ROI 30-50× in successful exit. 5) If trust isn't justified (smaller exit, simpler family), Crystallization Option exists — lock LCGE at current value via §85 rollover.
Key takeaways
- 1.Family trust setup must precede sale by 24+ months
- 2.Purification = 18-24 month process, not last-minute cleanup
- 3.Multi-LCGE via trust = $700K-$5M savings for mid-size exit
- 4.Setup cost $15-25K typically; ROI 30-50× in successful exit
- 5.Adult beneficiaries only (TOSI restricts minor distributions)
What if...
If no family trust and exit in 6 months?
Solo LCGE only ($1.27M). On $3M sale: $230K taxable @ 47% = ~$108K tax. Still $362K saved vs no LCGE. Alternative: Crystallization Option — lock LCGE at current value via partial §85 rollover. No multi-benefit, but preserves current cap.
If sale value $1.5M, not $3M?
Single LCGE covers everything ($1.5M × 50% = $750K taxable ≤ $1.27M cap). Family trust overkill — setup cost not justified. Strategy: ensure QSBS test, claim solo LCGE, $0 tax.
If no dependent children for trust?
Spouse-only trust = single additional LCGE. $1.27M + $1.27M = $2.54M tax-free. Still $5K-10K legal setup, smaller ROI but meaningful for $2M+ exit.
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