Resources · Selling your business
The lifetime capital gains exemption, up to $1.275M of your sale, tax-free.
If you ever sell the shares of the company you built, the lifetime capital gains exemption (LCGE) can shelter the first $1,275,000 of gain from tax in 2026. It is the single largest tax break most owners will ever use — and it only works if your shares pass three tests that are easy to fail without noticing. This guide explains the exemption, the tests, and the planning that keeps you eligible.
The concept
A lifetime allowance of tax-free gain
When you sell shares for more than you paid, half the gain is taxable (the 50% inclusion rate). The LCGE is a deduction that cancels that taxable half on qualifying gains, up to a lifetime limit per person. Use some of it on one sale and the rest stays available for the next.
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Per person, not per company
Every individual resident in Canada has their own limit. A corporation can’t claim it — which matters if a holding company owns your operating company.
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Indexed again from 2026
The limit jumped to $1,250,000 for sales after June 24, 2024, and inflation indexing resumed in 2026, bringing it to $1,275,000. The same limit covers qualified farm and fishing property.
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Only qualifying shares
For a business owner, the property that qualifies is qualified small business corporation (QSBC) shares of a Canadian-controlled private corporation. Rental properties, public stocks and your corporation’s assets don’t.
The ≈ $341,000 figure applies BC’s 2026 top combined rate of 53.5% (26.75% on a capital gain). If more of your income sits in lower brackets, the saving is smaller. You claim the exemption on Form T657 with your personal return for the year of the sale. For how capital gains fit with the rest of your income, see how income is taxed.
Worked example
Priya sells Fraser Valley HVAC for $2.4 million
Priya incorporated her HVAC business years ago with shares that cost next to nothing. A buyer offers $2,400,000 for the shares. Here is what the exemption is worth in three versions of the same sale.
| Scenario | Gain | Exempt | Taxable capital gain | Approx. tax |
|---|
Shares don’t qualify
Too much idle cash in the company |
$2,400,000 |
$0 |
$1,200,000 |
$642,000 |
Priya claims her exemption
She owns 100%; shares qualify |
$2,400,000 |
$1,275,000 |
$562,500 |
$300,900 |
Priya and her spouse each claim
50/50 ownership, set up years earlier |
$1,200,000 each |
$1,200,000 each |
$0 |
$0 regular tax* |
Saved with one exemption
≈ $341,000
Saved with two
≈ $642,000
Cost of failing the tests
the whole saving
Simplified: every taxable dollar is taxed at BC’s 2026 top combined rate (53.5%), and selling costs and Priya’s other income are ignored. *A large exempt gain can trigger alternative minimum tax (AMT) in the year of sale, because 30% of an LCGE-sheltered gain counts toward the AMT calculation. In a sale this size that can be tens of thousands of dollars each, but AMT is a prepayment you can recover against regular tax over the next seven years. The spouse version works only if her shares were acquired in a way the attribution rules respect, such as subscribed for with her own money, and held for 24 months.
Keeping the shares qualified
Purification: clearing out what doesn’t belong
A profitable company tends to pile up cash and investments. That’s good for deferring tax, but every dollar not used in the business erodes Tests 1 and 2. Purification means moving those passive assets out before a sale, and ideally keeping them out year after year.
Usually counts as passive
Cash beyond what the business needs to run, GICs and investment portfolios, loans to shareholders or relatives, life insurance cash value, and real estate rented to outsiders.
Common ways to purify
Pay a tax-free intercorporate dividend up to a holding company, pay down business debt or invest in the business, collect shareholder loans, or move a rental property out of Opco.
⚠Timing is everything. Purifying in the year of the sale can rescue Test 1, but Test 2 looks back 24 months, so a problem there takes two clean years to cure. Dividends to a holdco also have to clear the anti-avoidance rule in section 55(2), which can turn a tax-free dividend into a capital gain. Plan this with your CPA, not the week before closing.
Deciding whether to keep investing inside the company at all? The passive income calculator compares investing corporately vs. personally, and the shareholder loan account guide covers the loans that quietly count against you here.
Negotiating the sale
Share sale or asset sale?
The exemption only applies when you sell your shares. Many buyers would rather buy the company’s assets, so the deal structure is often the first negotiation.
Share sale · what sellers want
LCGE available
You sell the shares personally and can shelter up to $1,275,000 of gain. The buyer takes on the company’s history, so expect more due diligence and warranties.
Asset sale · what buyers want
No LCGE
The company sells its assets and pays the corporate tax, then you pay personal tax on what you take out (partly eased by the tax-free capital dividend account). The buyer gets a fresh tax cost to depreciate and leaves old liabilities behind.
Knowing what the exemption is worth to you is what lets you price that gap: a seller can sometimes accept a lower share price and still come out ahead. Our business valuation guide walks through how the number, and the asset-vs-share tension, is worked out.
Quick answers
Common questions
How much is the lifetime capital gains exemption in 2026?
For 2026 the limit is $1,275,000 of capital gain on qualified small business corporation shares (and qualified farm or fishing property). Because only half of a capital gain is taxable, the deduction on your return is half of that: $637,500. The limit was $1,250,000 for sales after June 24, 2024, and inflation indexing resumed in 2026.
Can I use the exemption if my company sells its assets instead of its shares?
No. The exemption is only available to an individual who sells qualifying shares. In an asset sale, the corporation is the seller, so there is no exemption to claim. That is why sellers usually prefer a share sale and buyers often prefer an asset sale, and why the structure of the deal is negotiated alongside the price.
Can my holding company claim the lifetime capital gains exemption?
No. Only individuals can claim it. If your holding company owns the operating company, selling the operating company’s shares from the holdco produces no exemption. Instead, you would sell the holdco’s shares personally, and those shares must pass the tests, which look through to the operating company.
Does the exemption apply to rental properties or stocks in my portfolio?
No. The exemption covers qualified small business corporation shares and qualified farm or fishing property. Rental real estate, publicly traded shares and other investments don’t qualify, and holding them inside your operating company can actually cause its shares to fail the tests.
What happens to the exemption when a business owner dies?
At death you are treated as having sold your shares at fair market value, and the exemption can be claimed on the final return against that deemed gain. The 90% test is relaxed at death: the shares can qualify if the company met the qualified small business corporation test at any time in the 12 months before death.
Will claiming the exemption trigger alternative minimum tax?
It can. Since 2024, 30% of a capital gain sheltered by the exemption is included in the alternative minimum tax calculation, which applies a 20.5% federal rate above a $181,440 exemption in 2026 (BC has its own AMT as well). Any AMT you pay can be carried forward for seven years and recovered against regular tax that exceeds AMT in those years.
What is a CNIL and how does it affect my exemption?
Your cumulative net investment loss (CNIL) is the total of investment expenses and interest you’ve deducted since 1988, less your investment income. A CNIL balance reduces the capital gains deduction you can claim in that year. Paying yourself dividends or other investment income before the sale can reduce it, which is worth checking before you crystallize or sell.
Can my family members each use their own exemption?
Yes. Every individual has their own lifetime limit, so shares owned by a spouse, adult children or a family trust can multiply the total exemption available on a sale. The ownership has to be in place well before the sale because of the 24-month holding test, and the attribution and income-splitting rules need careful handling.
Selling someday?
Make sure your shares still qualify when it counts
The exemption rewards owners who plan two or more years out: keeping the company clean, setting up family ownership early, and crystallizing when it makes sense. We’ll review your structure, test your shares against the rules, and map out what needs to happen before a buyer calls.
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A conversation starter, not advice. This page simplifies a technical area of the Income Tax Act. The checker uses your own estimates and can’t confirm eligibility. Real qualification depends on fair market values, connected-corporation rules, CCPC status, related-person definitions, and your own CNIL, ABIL, AMT and prior claims. Tax figures assume a BC resident at the 2026 top combined rate with no other income, deductions or selling costs. Let’s look at your actual facts before you rely on the exemption.