Lifetime capital gains exemption
This guide explains the lifetime capital gains exemption on the sale of shares in a Canadian small business. It covers the qualifying share tests, the 24-month holding period and purification. We prepare and file your articles of incorporation for $35.00, HST included. The government fee is separate and charged at cost: $200.00 to Corporations Canada under the CBCA, or $300.00 to the Ontario Business Registry under the OBCA. Open Corporation for $35 is a department of Gondaliya CPA. A Chartered Professional Accountant reviews this guide against Canada Revenue Agency guidance before it is published, and again after each federal budget.
What the exemption is
The lifetime capital gains exemption shelters a capital gain on the sale of qualified small business corporation shares. Each individual resident in Canada has their own lifetime limit.
The limit is $1,250,000 for dispositions after 24 June 2024. It is indexed to inflation from 2026, and the 2026 indexed amount is not confirmed, reviewer to verify on the official Canada Revenue Agency page.
| Item | Rule |
|---|---|
| Who can claim | Individuals resident in Canada |
| What qualifies | Qualified small business corporation shares, and qualified farm or fishing property |
| How it is used | Claimed against capital gains, in one year or across several, up to the lifetime limit |
| Family shareholders | Each individual shareholder has a separate lifetime limit |
The limit is set by federal budgets. These tax figures were last checked on 14 October 2026.
The tests for qualified shares
Shares qualify only if they pass tests at the time of sale and over the 24 months before it. Each test looks at the corporation's assets or at who owned the shares.
| Test | Requirement |
|---|---|
| Status at the sale | The corporation is a Canadian-controlled private corporation |
| Assets at the sale | 90 percent or more of asset value is used in an active business carried on primarily in Canada |
| Holding period | For 24 months before the sale, no one other than the seller or a related person owned the shares |
| Assets over 24 months | Throughout those 24 months, more than 50 percent of asset value was used in an active business carried on primarily in Canada |
Shares issued from the corporation's treasury are treated as owned by an unrelated person until issued. New shares therefore start their own 24 months, with limited exceptions for shares issued in exchange for other shares.
Shares of a holding company can qualify through the operating company it owns. Our holding company guide explains that structure.
Our $35.00 fee includes HST. Government fees are passed through at cost with no mark-up. Every figure is on our full pricing page.
Purification before a sale
Purification means removing passive assets so the corporation passes the asset tests. Surplus cash and investments are the assets moved out.
Cash can be paid up to a holding company as a dividend, or used in the business. The 24-month test means purification is planned well before a sale.
| Method | Effect |
|---|---|
| Dividend to a holding company | Moves surplus cash out of the operating company |
| Paying down business debt | Puts passive cash to use in the business |
| Buying business assets | Converts cash into assets used in the business |
| Starting early | Leaves time to pass the 24-month asset test |
A purification dividend between corporations can be caught by the anti-avoidance rules on inter-corporate dividends. Advice is needed before any cash moves.
We file your incorporation for $35.00, HST included
Government fee shown separately at cost. A CPA reviews the share structure with a future sale in mind.
What can reduce the exemption
A cumulative net investment loss reduces the exemption available in a year. It builds up when investment expenses exceed investment income over the years since 1987.
Allowable business investment losses claimed in earlier years also reduce what remains. Alternative minimum tax can apply in the year of a large exempt gain.
| Item | Effect |
|---|---|
| Cumulative net investment loss | Reduces the exemption available in the year |
| Allowable business investment losses | Reduce the exemption that remains |
| Alternative minimum tax | Can create tax in the year of a large exempt gain |
| Exemption already used | Only the unused balance is available |
Each of these items is tracked across your personal returns. They are checked before the sale price and timing are agreed.
Planning ahead of a sale
The exemption belongs to individuals, so the list of shareholders matters. Family members who own qualifying shares can each claim their own lifetime limit.
The share structure is set long before a sale. A freeze that issues new common shares to family members must be done early enough for those shares to meet the 24-month test.
| Step | When |
|---|---|
| Review the share structure | Years before a sale |
| Freeze and issue new common shares | At least 24 months before a sale |
| Purify the corporation | Before the sale, and throughout the 24 months |
| Confirm the shares qualify | Before the sale agreement is signed |
Dividends to family shareholders before a sale are tested separately. Our tax on split income guide explains those rules.
What setting up the structure costs
Adding share classes for a freeze is an amendment to the articles. A holding company used for purification is a second incorporation.
The table sets out each charge, its HST treatment and who collects it.
| Item | Amount | HST | Total | Who charges it |
|---|---|---|---|---|
| Our incorporation filing fee | $35.00 | Included | $35.00 | Open Corporation for $35 |
| Federal articles of incorporation | $200.00 | Not applicable | $200.00 | Corporations Canada |
| Ontario articles of incorporation | $300.00 | Not applicable | $300.00 | Ontario Business Registry |
| Federal articles of amendment | $200.00 | Not applicable | $200.00 | Corporations Canada |
| Ontario articles of amendment | Not confirmed, reviewer to verify on the official registry page | Not applicable | Not confirmed, reviewer to verify on the official registry page | Ontario Business Registry |
Our $35.00 fee includes HST and government fees are passed through at cost with no mark-up. These figures were last checked on 7 September 2026.
What a CPA checks before a sale
This guide explains the rules. It cannot tell you whether your shares will qualify, because that depends on the assets and owners over two years.
The asset tests are the first thing we look at. We measure passive assets against the 90 percent and 50 percent thresholds.
Then ownership. We check who has held each share class, and when new shares started their 24 months.
Then purification. If passive assets are too large, we plan how and when they move, and test each step against the anti-avoidance rules.
Then your personal position. We check unused exemption, cumulative net investment loss and alternative minimum tax before a price is agreed.
Last, the family. We confirm which family members hold qualifying shares and can each claim a limit. The parent firm sets out the same ground in its Gondaliya CPA resources library.
Frequently asked questions
These are the questions owners ask about the lifetime capital gains exemption. Each answer carries the figure, the rule or the body that makes it true, so it can be read on its own.
What is the lifetime capital gains exemption?
How much is the lifetime capital gains exemption?
What are qualified small business corporation shares?
What is the 24-month holding period test?
What is purification?
Can family members each claim the exemption?
Can shares of a holding company qualify?
What does it cost to set up the structure?
Why owners trust the filing to us
Gondaliya CPA Professional Corporation is registered with CPA Ontario under firm registration number 61330051. Our clients have left us 1,300+ five-star Google reviews, and we work from 13 Ontario offices, open 9:00 AM to 8:30 PM, Monday to Sunday. We back every filing with a 30-day money-back guarantee and a 60-day fee-matching policy, and we are a Xero Partner Award Winner 2026. Open Corporation for $35 is a department of Gondaliya CPA.
Ready to incorporate
Send the intake form and we will confirm your jurisdiction, your share structure and your year end before anything is filed. Our fee is $35.00, HST included, and the government fee is shown separately at cost. Payment is by Interac e-Transfer to info@gondaliyacpa.ca, and the security question is Not Applicable because auto-deposit is enabled.
No legal advice
Gondaliya CPA Professional Corporation is a firm of Chartered Professional Accountants licensed by CPA Ontario, firm registration number 61330051. It is not a law firm. We prepare and file corporate documents and we provide accounting and tax advice. Nothing on this page is legal advice, and reading it creates no solicitor and client relationship. For legal advice, including advice on a share purchase agreement, consult a lawyer licensed in the province where your corporation carries on business.
