Updated Checked by the Tax-Services.ca editorial team How we check
The lifetime capital gains exemption lets you sell qualifying small business shares or farm and fishing property and shelter a large gain from tax. The CRA page for line 25400 puts the limit at $1,250,000 for 2025, which works out to a deduction of up to $625,000 once the 50% inclusion is applied. For 2026, a CRA indexation table and the Department of Finance’s release of 15 September 2026 both list about ,275,000, but the CRA line page itself doesn’t state it yet.
What does the lifetime capital gains exemption cover?
Two kinds of property, according to the CRA: shares of a qualified small business corporation, and qualified farm or fishing property. A home isn’t on that list. Selling your house has its own rule (the principal residence exemption), and the two don’t share a limit.
The exemption is a lifetime pool. Use part of it on one sale and only the rest is left for the next.
| Period | Deduction limit shown by the CRA |
|---|---|
| 2023 | $485,595 |
| 2024, to June 24 | $508,418 |
| 2024, from June 25 | $625,000 |
| 2025 (gain limit $1,250,000) | $625,000 |
| 2026 | about ,275,000 for gains per the Finance release (the CRA line page hasn’t restated it) |
Old and new figures look confusing side by side. The CRA quotes the deduction, which is half the gain, so before mid 2024 a $508,418 deduction meant about $1,016,836 of gain. The same halving applied to about ,275,000 gives $637,500 as the 2026 deduction. You can check the 2025 numbers on the CRA’s line 25400 page.
Which shares count as qualified?
This is where most claims go wrong. The CRA’s capital gains guide says the company must be a small business corporation when you sell. That means a Canadian controlled private corporation where 90% or more of the asset value is used mainly in an active business carried on mostly in Canada.
There’s a look-back too. During the 24 months before the sale, more than 50% of the asset value had to sit in an active business in Canada, and the share had to belong to a Canadian controlled private corporation. Holding a pile of cash or investments inside the company can break the tests. If that sounds like your company, ask your accountant to check the numbers before you sign a sale agreement, because fixing it afterwards is much harder.
What does a sale look like with numbers?
Say you sell shares for a $1,400,000 gain and you’ve never used the exemption. With a about ,275,000 limit, $125,000 of the gain is left over. At a 50% inclusion rate, $62,500 is taxable. On top of $80,000 of other income in Ontario, our capital gains tax calculator shows roughly $22,900 of extra tax on that slice.
Now the same style of sale without the exemption. A $900,000 gain means $450,000 taxable. The same $80,000 of income then produces about $223,500 of extra tax in Ontario and about $196,900 in Alberta. That gap is the reason business owners plan a sale years ahead.
The 50% inclusion rate is our working assumption for 2026. The plan to raise it to two thirds was cancelled, but we didn’t find one CRA page that says “50% for 2026” in a single line. Check it before you rely on the result.
What if you’ve already used some of it?
Then only the rest is available. As a rough picture, if an owner claimed on $400,000 of gains years ago, about $875,000 of a about ,275,000 limit would remain (1,275,000 less 400,000). That’s an illustration only. Form T657 does the real calculation, and it works with the cumulative net investment loss mentioned just below, so take the number from the form and not from this page.
When should you start planning a sale?
Earlier than feels necessary. The 24-month look-back means the company’s makeup today is what counts at the sale, so an owner who lets cash pile up for two years can be caught out. Picture Hal, who runs a small machine shop and expects to sell in three years. A sit-down with his accountant now, long before any buyer shows up, is a ballpark-cheap way to find out whether the shares would pass the tests. Waiting until there’s a signed offer leaves little room to fix anything.
How do you claim it?
You file Form T657, Calculation of Capital Gains Deduction, with your return and claim the result on line 25400. If you have investment income or expenses from 1988 onward, the CRA also asks for Form T936 to work out your cumulative net investment loss, which can cut the room you have left.
You also have to be a resident of Canada throughout the year of the claim. Report the sale itself on Schedule 3 first. The income tax calculator shows the rest of your return, and the marginal tax rate calculator shows how the taxable part of a gain stacks on top of your salary.
What should you plan around?
Room used is room gone. If a sale is likely, find out what you’ve already claimed in earlier years before you count on the full amount.
Also check where the cash goes afterwards. Much of the sale money may end up in savings plans or a mortgage payoff, and the RRSP calculator and retirement calculator help you see what a lump sum is worth in the long run.
These estimates leave out anything beyond a simple return. Our calculators don’t model minimum tax rules, earlier claims or a sale of shares in stages.
How we checked the figures
Limits by year and the claim form come from the CRA page for line 25400. The share tests come from the CRA’s definitions for capital gains. The 2026 figure and the 50% inclusion rate come from CRA material we read in part and flagged above. The examples use our calculators with basic credits only. This is an independent guide, separate from any government body.
Frequently asked questions
How much is the lifetime capital gains exemption?
The CRA's line 25400 page shows $1,250,000 for 2025, a deduction of up to $625,000. A CRA indexation table lists $1,275,000 for 2026, which we couldn't read on the line page.
Does the exemption apply to my house?
No. It covers qualified small business corporation shares and qualified farm or fishing property. Homes fall under the principal residence rules.
Which form do I file?
Form T657, Calculation of Capital Gains Deduction, and Form T936 if you have investment income or expenses from 1988 onward.
Can I use the exemption more than once?
Yes, until the lifetime limit is used up. Each claim reduces what's left for later sales.
Do I need to be a Canadian resident?
The CRA says you must be a resident of Canada throughout the year you claim the deduction.
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