Updated Checked by the Tax-Services.ca editorial team How we check
The capital gains exemption most people mean is the lifetime one. On the CRA’s line 25400 page, it’s $1,250,000 of gain on qualifying property for 2025, which works out to a deduction of $625,000 once the half-rate is applied. It covers qualified small business shares and qualified farm or fishing property. Your home has its own, separate rule.
What does the capital gains exemption cover?
Two different things get called an exemption. Mixing them up is where most wrong assumptions start.
| Rule | What it covers | Limit | Form |
|---|---|---|---|
| Lifetime capital gains exemption | Qualified small business corporation shares, qualified farm or fishing property | $1,250,000 of gain (2025 per CRA) | T657 |
| Principal residence exemption | The home that was your principal residence | No dollar cap, but years matter | Schedule 3 and T2091(IND) |
To claim the lifetime one, the CRA says you must be a resident of Canada throughout the year, have eligible gains and have room left. It’s a lifetime amount, so earlier claims use it up. The CRA page names those two kinds of property only, so a stock portfolio or a rental building isn’t on the list. You can read the rules on the CRA’s line 25400 page.
What is the limit for 2026?
We couldn’t confirm it. The CRA page we read is for the 2025 return and shows $1,250,000. Some non-government sites quote a higher, indexed number for 2026, but we don’t repeat a figure we couldn’t see on an official page. Check the CRA’s line 25400 page for the year you’re filing before you plan around it.
The two numbers on that page are the same thing counted two ways. The exemption is the gain you can shelter ($1,250,000), and the deduction on your return is half of it ($625,000), because only half of a gain is taxable in the first place.
How much tax does the exemption save?
Here’s an example from our engine. An Ontario resident with $60,000 of other income sells qualifying shares at a $1,500,000 gain. With no exemption, the capital gains tax calculator gives $379,264.82 of extra tax, or 25.3% of the gain.
Now use the lifetime amount. It removes $1,250,000 of the gain, leaving $250,000 to tax. On that, the engine gives $47,853.13. The exemption saves about $331,412.
That second figure is an estimate. The calculator doesn’t model the exemption itself, and we didn’t check other rules that can apply when a large deduction is claimed. Treat the gap as a ceiling for the saving, not a promise.
A smaller case shows the other side. If a farm family sells qualifying farm property for a $600,000 gain and has never claimed before, the whole gain fits under the $1,250,000 limit, so no part of it is taxable. They’d still file T657 and report the sale. What’s left unused is $650,000 of room for later.
Is the sale of your home tax free?
Often, yes, and it’s the exemption most Canadians will ever use, which is exactly why the paperwork gets ignored. The CRA says that if the property was solely your principal residence for every year you owned it, you don’t pay tax on the gain. But since 2016, the exemption only applies if you report the sale and name the home on your return, using Schedule 3 and Form T2091(IND). Skipping that step catches people out.
You can name only one home per family for each year. A special “plus 1” rule helps in the year you sell one home and buy another. If the property wasn’t your principal residence every year, part of the gain is taxable, and T2091(IND) is where you work that part out.
Selling a house and want to see what’s left? The home sale proceeds calculator covers costs, and the marginal tax rate calculator shows what a taxable gain would do to your rate.
Can you use both exemptions in the same year?
Yes. They’re separate rules with separate forms, and using one doesn’t eat into the other. Someone who sells a farm and the family home in the same year would deal with T657 for the farm side and Schedule 3 with T2091(IND) for the house. Keep the paperwork for each in its own pile.
Mistakes to avoid
Claiming the exemption on shares that don’t qualify is the big one. What makes a corporation a qualified small business one is a detailed test, and we didn’t check it for this page. Get the corporation’s accountant to confirm it before you sign a deal.
Another slip is forgetting that a claim shrinks the room for later years. If you might sell a second business or a farm one day, a claim now leaves less. And a gain that’s partly exempt still goes on the return, so file it even when the tax is nil.
For the rest of your return, try the income tax calculator.
The sources behind this page
The lifetime limit and the form come from the CRA‘s line 25400 page for 2025, and the home rules from the CRA’s principal residence page. Tax figures in the example come from our 2026 engine, which counts half of a gain as income. That 50% rate isn’t stated on a single CRA page we read, so confirm it when you file. We aren’t a government service and we don’t speak for one.
Frequently asked questions
What is the lifetime capital gains exemption?
It lets a Canadian resident shelter gains on qualified small business shares and qualified farm or fishing property. The CRA's 2025 page shows $1,250,000 of gain.
What is the limit for 2026?
We could not confirm it on an official page. Check the CRA's line 25400 page for your filing year.
Is selling my home tax free?
If the property was solely your principal residence for every year you owned it, yes. You still report the sale on Schedule 3 and file Form T2091(IND).
Can I claim it on rental property or stocks?
No. It covers qualifying small business shares and farm or fishing property only.
Which form claims the lifetime exemption?
Form T657, Calculation of Capital Gains Deduction.
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