How it works
The exemption applies to qualified small business corporation shares and qualified farm or fishing property. For shares, at the time of sale 90% or more of the company's assets by fair market value must be used mainly in an active business in Canada, more than 50% throughout the 24 months before, and the shares must not have been owned by anyone other than the seller or a related person during those 24 months.
The result is a rough guide. Alternative minimum tax, cumulative net investment losses and allowable business investment losses can reduce what you can claim, and family trusts can multiply the exemption across beneficiaries. Talk to a tax adviser before you sign a letter of intent.
Source: Canada Revenue Agency, capital gains deduction; Department of Finance, March 21, 2025 (inclusion rate increase cancelled). Figures are for planning only and are not legal or tax advice.
Where this matters
- Data room for selling a business in Canada
- Data room for family business succession in Canada
- Data room for selling a dental practice in Canada
FAQ
Can both spouses claim the exemption?
Each individual who owns qualifying shares has their own lifetime limit, so shares held by both spouses or through a family trust can shelter more than one C$1.25 million amount, if the rules are met.
Does an asset sale qualify?
No. The exemption applies to shares. In an asset sale the company sells and pays tax; that is one reason sellers prefer share sales and buyers often prefer assets.
How do I purify a company before a sale?
Move excess cash and investments out before the sale so the 90% and 50% asset tests are met, usually through dividends or a reorganization planned well in advance.