Updated Checked by the Tax-Services.ca editorial team How we check
QSBC shares are qualified small business corporation shares, the kind of private company stock that can earn you the lifetime capital gains exemption when you sell. For 2025 the CRA puts that exemption at $1,250,000, which means a deduction of up to $625,000 on your return. We read “QSBC” as the Canadian tax term. If you were after a listed company with a similar ticker, nothing here applies.
What makes shares QSBC shares?
The CRA lists a set of conditions, and every one has to be true. The company must be a Canadian-controlled private corporation. It must be a small business corporation, which the CRA defines as one where 90% or more of the fair market value of its assets is used mainly in an active business in Canada, or held as shares or debt of connected companies. On top of that come two tests that look back over the 24 months before you sell.
| Test | What the CRA says |
|---|---|
| Who held the shares | You, your spouse or common-law partner, or a partnership you belonged to, at the time of sale |
| 24 month holding | Nobody other than you, a partnership you’re in or a related person owned the shares |
| 24 month assets | More than 50% of the company’s asset value used mainly in an active business in Canada, or in shares and debt of connected companies |
The wording has more detail than this table, and the details are where claims fail. Read the CRA’s definitions page for capital gains before you count on it.
How much is the lifetime capital gains exemption?
The CRA says $1,250,000 for 2025, for shares of a qualified small business corporation and for qualified farm or fishing property. The CRA shows the maximum deduction at $625,000 for dispositions after June 24, 2024, and says the limit is indexed to inflation. We couldn’t find a 2026 amount on a CRA page, so check before you plan around a number. You claim it on Form T657, and you also need Form T936 if you have investment income or expenses from 1988 on, to work out your cumulative net investment loss.
The exemption is a lifetime amount. Use some on one sale and there’s less for the next.
What does the exemption save on a $1.4 million gain?
Take an Ontario owner with $90,000 of other employment income who sells shares for a $1,400,000 gain. Half the gain is taxable under the usual 50% inclusion rate. The plan to raise it to two-thirds was cancelled in the Prime Minister’s release of 21 March 2025, and we haven’t found a CRA page that states the 2026 rate, so 50% is our working figure.
With no exemption, our capital gains tax calculator engine puts the extra tax at $359,355, which is 25.7% of the gain. Now assume the $1,250,000 exemption covers most of it and $150,000 of gain is left. The tax on that is $29,605. The difference is $329,750, and it’s why people plan a business sale around this rule.
The calculator doesn’t model the exemption, so run it on the leftover gain. It also ignores the cumulative net investment loss and other limits. Treat the result as a ceiling on what you might save.
What goes wrong with QSBC claims?
Timing, mostly. A company can look like an active business today and still fail the 24 month look-back if a large share of its assets sat in cash or investments earlier. Family share structures trip the holding test when someone outside the related group owned shares in the past two years. And people assume the exemption covers a sale of the whole business, when a buyer may be buying assets instead.
Fixing these takes a plan that starts a year or two before any sale, and usually an accountant who has done it. Nothing on this page checks your company’s facts.
What else should you work out before a sale?
Your other income sets the rate on whatever part of the gain isn’t sheltered, and the marginal tax rate calculator shows it. If the company also pays you dividends, the dividend tax calculator covers that side, and the corporate tax calculator shows what the company pays on its own profit.
Where do these numbers come from?
The exemption amount, the forms and the share tests come from the CRA’s pages on line 25400 and on capital gains definitions. The inclusion rate and the cancellation date come from the Prime Minister’s release of 21 March 2025. The tax figures come from our engine, using 2026 federal and Ontario rates. We haven’t seen a CRA statement of the 2026 exemption or inclusion rate, so both are hedged above.
Frequently asked questions
What does QSBC stand for?
Qualified small business corporation. In tax terms, QSBC shares are shares of a qualifying private company that can earn the lifetime capital gains exemption.
How large is the lifetime capital gains exemption?
The CRA gives $1,250,000 for 2025, a deduction of up to $625,000. We couldn't confirm a 2026 figure on a CRA page.
How long do I have to hold the shares?
The CRA's test is that no one other than you, a partnership you are in or a related person owned them for the 24 months before the sale.
Which forms do I file?
Form T657 to calculate the capital gains deduction, and Form T936 if you have investment income or expenses from 1988 on.
Does the capital gains calculator include the exemption?
No. Enter only the gain left after the exemption, and treat the result as an estimate.
- How Canadian income tax works: brackets and credits
How federal and provincial Canadian income tax stack up, what marginal and average rates mean, and how credits and deductions change your bill
Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.