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Qualified small business corporation shares are shares that can qualify for the lifetime capital gains exemption, which is about ,275,000 for 2026 (it was $1,250,000 in 2025). If you sell them at a gain and every test is met, part or all of that gain can be sheltered from tax. Nobody hands these shares out as a product. A share is “qualified” only because of how the company and its owners behaved in the two years before the sale.
What makes a share a qualified small business corporation share?
Three ideas do the work, and the wording comes from section 110.6 of the Income Tax Act.
First, at the time of sale the shares must be shares of a small business corporation, owned by you, your spouse or common-law partner, or a partnership related to you. Second, for the 24 months before the sale, the company must have been a Canadian-controlled private corporation, with more than 50% of the fair market value of its assets tied to an active business carried on mainly in Canada. Third, nobody outside you and your related persons can have owned the shares during those 24 months.
Related persons include people connected by blood, marriage, common-law partnership or adoption. A corporation and another person can be related too.
That’s the outline. The full definition has more detail on how assets are counted and on the small business corporation test at the moment of sale, and we haven’t reproduced all of it. Read the Act or the CRA’s capital gains pages before you decide a company passes.
How big is the exemption?
| Period | Lifetime exemption | Deduction on the taxable half |
|---|---|---|
| Before 25 June 2024 | $1,016,836 (CRA news release figure) | $508,418 |
| From 25 June 2024 and for 2025 | $1,250,000 | $625,000 |
| 2026 | Indexed again, listed at about ,275,000 by the Department of Finance (release of 15 September 2026) | $637,500 |
The CRA’s page on the capital gains deduction gives the $1,250,000 figure, so that part is solid.
The 2026 number needs more care, because the Finance release gives no effective date. Indexing resumes in 2026, and the same figure shows up in one CRA indexation table, but we didn’t find it on the deduction page itself. Check the current figure before you plan around it.
Why does the deduction show up as half? Because only half of a capital gain is taxable. Our calculators use a 50% inclusion rate for 2026, since the proposed jump to two-thirds was cancelled. We haven’t found one CRA page that says “50%” for 2026 in a single line, so that’s our reading.
What does a sale actually look like in dollars?
Say an Ontario owner sells shares for $700,000 after paying $100,000 for them, with $80,000 of other income. The gain is $600,000. Half, $300,000, is taxable.
With no exemption, the capital gains tax calculator shows about $142,897 of extra tax. You’d keep $457,103. That’s roughly 23.8% of the gain gone, a hefty bite.
The same calculator applies the lifetime exemption only when you tick the box for qualified property and enter the amount you have left. So treat $142,897 as the bill if the shares don’t qualify. If they do qualify and you haven’t used any of your exemption, a $600,000 gain sits well inside the $1,250,000 limit, and the tax on it could fall to little or nothing.
Could fall. Other things can eat into your room, and we can’t see them from here. The gap between $0 and $142,897 is why owners check the tests years before a sale, not the week before.
How do you claim the exemption?
You work it out on Form T657, Calculation of Capital Gains Deduction. The CRA’s deduction page says to complete that form to calculate your capital gains deduction. The gain belongs on the return for the year of the sale, so keep the sale agreement and the share records you’ll need for the cost figure.
If you had investment income or expenses in any year from 1988 to 2025, the CRA also asks for Form T936, the cumulative net investment loss calculation. That can shrink the exemption you can use. We haven’t tested how, so a tax professional should run it if your history is long.
Why does the adjusted cost matter?
The exemption applies to the gain, not the sale price. A gain is what you get for the shares minus what you paid for them and any selling costs. If you started the company with $100 in share capital and sell for $900,000, nearly the whole sale price is gain. Find your original share records early, since people tend to lose them in a move or an old filing cabinet.
What can go wrong with the claim?
The 24-month rule catches people. If a friend held a few of the shares a year and a half ago, the test can fail. The assets can also drift the wrong way: a company that builds up cash and investments may stop meeting the more-than-50% active business rule.
The exemption isn’t unlimited across a lifetime either. What you claimed on earlier sales counts against it, so keep a note of past claims.
Selling a private company can also involve other taxes, such as tax on a dividend you take out first. The dividend tax calculator shows that side. For the company’s own tax bill, try the corporate tax calculator. And if the sale changes your total income, the income tax calculator shows your year as a whole.
Can you use the exemption more than once?
Yes, until the lifetime total runs out. Say you claim $400,000 of the exemption on one sale. On a about ,275,000 limit, that leaves $875,000 of room for a later sale. Once the limit is used up, further gains are taxed the usual way.
What this page is based on
The definition and limits come from the Canada Revenue Agency‘s guide T4037 on capital gains, its line 25400 page on the capital gains deduction and its news release on the exemption. The 2026 figure and the 50% rate are marked above as not fully confirmed. We’re an independent site and don’t speak for any government. Nothing here offers, sells or ranks shares in any company. For a bookkeeper’s role in records like these, see whether a bookkeeper can prepare tax returns.
Frequently asked questions
What is the lifetime capital gains exemption?
It was $1,250,000 for 2025 on qualifying property, which means a deduction of up to $625,000 on the taxable half of the gain. Indexing resumes in 2026, and we couldn't confirm the new amount on a CRA line page.
Can my spouse own the shares?
The CRA lets shares be owned by you, your spouse or common-law partner, or a partnership you belong to at the time of sale.
Does the 24-month rule matter?
Yes. Throughout the 24 months before the sale, only you or related persons can have owned the shares.
Which form claims the exemption?
Form T657 calculates the capital gains deduction. Form T936 is also needed if you had investment income or expenses since 1988.
Does the capital gains calculator include the exemption?
No. It shows the tax as if there were no exemption, so it is the worst case for qualifying shares.
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