Lifetime Capital Gains Exemption

The lifetime capital gains exemption (LCGE) shelters gains on certain business and farming assets from tax. It is claimed as the capital gains deduction on line 25400 using Form T657.

LIMIT

$1,250,000 of gains for dispositions after June 24, 2024, indexed to $1,275,000 for 2026.
The deduction itself is half that amount ($637,500 for 2026), because only half of capital gains are taxable.
The limit is cumulative over a lifetime, reduced by amounts used in earlier years.

ELIGIBLE PROPERTY

Qualified small business corporation (QSBC) shares: shares of a Canadian-controlled private corporation that uses all or substantially all (90 percent) of its assets in an active business in Canada at the time of sale; more than 50 percent throughout the previous 24 months; and held by the seller or related person for 24 months.
Qualified farm or fishing property: farmland, fishing vessels, and shares or partnership interests in family farm or fishing businesses, subject to use and holding tests.

RESTRICTIONS

Cumulative net investment loss (CNIL): the deduction is reduced by the excess of investment expenses (such as interest and rental losses) over investment income claimed since 1988.
Allowable business investment losses claimed in the past reduce the available exemption.
Alternative minimum tax: 30 percent of gains sheltered by the LCGE are included in adjusted taxable income for AMT.

EMPLOYEE OWNERSHIP TRUSTS

Separately, the first $10 million of capital gains on a qualifying sale of a business to an employee ownership trust is exempt for dispositions in 2024 to 2026. The 2026 Spring Economic Update proposed making this exemption permanent.

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