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Lifetime Capital Gains Exemption (LCGE)
Income Tax Act s. 110.6
Lifetime Capital Gains Exemption Maximums
Quebec Lifetime Capital Gains Exemption - Same as Federal
Intergenerational Business Transfers of Corporations
Intergenerational Transfers and Bill C-208
Other Resources Re Intergenerational Transfers
Cumulative Net Investment Loss (CNIL)
Qualified Small Business Corporation (SBC) Shares
Canada Revenue Agency (CRA) Resources
Get Professional Advice and Plan Ahead
The Exemption / Deduction
There is a $1 million+ lifetime capital gains exemption (LCGE), which equates to a $500,000+ lifetime capital gains deduction (1/2 of the $1 million LCGE).
The deduction, claimed on line 25400 (line 254 prior to 2019) of the tax return, can be claimed against taxable capital gains on the disposal by an individual of:
 | qualified small business corporation (SBC) shares |
| qualified farm property, and |
| for dispositions occurring after May 1, 2006, qualified fishing property |
The capital gains exemption is available for small business corporation shares, farm property, and fishing property, and is reduced by any capital gains exemptions used in 1994 or earlier. Only gains that exceed cumulative net investment loss (CNIL) are eligible for the exemption. The capital gain is reported in Part 1 on Schedule 3 of the personal income tax return. The calculation of the deduction is done on Form T657 for the federal deduction, and on form TP-726.7-V for Quebec.
Lifetime Capital Gains Exemption (LCGE) Maximums
| Maximum Capital Gains Exemption Capital Gains Deduction is 50% of Exemption |
||
| Date of Disposition |
SBC Shares | Farming/Fishing Property |
| 2024 after Jun 24th, 2024 (1) | $1,250,000 | |
| 2024 before Jun 25th | $1,016,836 | |
| 2023 | 971,190 | 1,000,000 |
| 2022 | 913,630 | 1,000,000 |
| 2021 | 892,218 | 1,000,000 |
| 2020 | 883,384 | 1,000,000 |
| 2019 | 866,912 | 1,000,000 |
| 2018 | 848,252 | 1,000,000 |
| 2017 | 835,716 | 1,000,000 |
| 2016 | 824,176 | 1,000,000 |
| 2015 after Apr 20 (2) | 813,600 | 1,000,000 |
| 2015 before Apr 21 | 813,600 | 813,600 |
| 2014 | 800,000 | 800,000 |
| 2008 - 2013 (3) | 750,000 | 750,000 |
(1) The 2024 Federal budget proposes to increase the LCGE to $1.25 million for dispositions that occur on or after June 25, 2024 until December 31, 2025, with indexation to resume in 2026.
(2) The 2015 Federal Budget increased the maximum LCGE for qualified farm or fishing property dispositions on or after April 21, 2015 to the greater of:
| $1 million; and |
| the indexed Lifetime Capital Gains Exemption applicable to capital gains realized on the disposition of qualified small business corporation shares. |
This meant that once the LCGE exceeded $1 million for SBC shares through indexation, the LCGE for farm property and fishing property would be the same as the LCGE for SBC shares, which happened in 2024.
Quebec increased their exemption limit for qualified farm or fishing property to $1 million effective for dispositions after December 31, 2014.
(3) The maximum LCGE that can be claimed by any individual was increased from $500,000 to $750,000, effective March 19, 2007, as a result of the 2007 Federal budget. The 2013 Federal Budget increased the LCGE amount to $800,000 for the 2014 tax year, and it is indexed to inflation for tax years after 2014. The new limit will be applicable to qualified property of all individuals, reduced by previous claims.
Quebec Lifetime Capital Gains Exemption
Quebec announced in a November 2014 bulletin that the $800,000 limit is increased for Quebec taxpayers to $1 million for dispositions after December 31, 2014, for qualified farm property and qualified fishing property, or a combination of the two, and temporarily will not be indexed for inflation. The LCGE for qualified small business corporation shares is $800,000 for 2014, and indexed for inflation in subsequent years. Once the LCGE for qualified small business corporation shares exceeds $1 million through indexation, the same LCGE will then apply again for qualified farming and fishing properties - this is happening in 2024. The Quebec LCGE legislation is in the Quebec Taxation Act s. 726.6 and subsequent sections. The Quebec LCGE maximum is indexed using the federal indexation factor.
Intergenerational Business Transfers of Corporations
There have been many legislative changes regarding the transfer of shares of a qualified small business corporation (QSBC), or shares of a family-farm or family-fishing corporation (QFFP) to the next generation (children, stepchildren, grandchildren, nieces or nephews). The rules are complex. For this issue, the advice of a CPA tax specialist or a tax lawyer is required.
Intergenerational Transfers and Bill C-208
Bill C-208, An Act to Amend the Income Tax Act (transfer of small business or family farm or fishing corporation), received Royal Assent on June 29, 2021, thus becoming law. The effective date of the legislation was not specified, so according to the Interpretations Act, it became law when it received Royal Assent.
| The Bill allows inter-generational transfers of shares of certain small businesses to be treated the same as the sale of those shares to an arm's-length person (long overdue legislation). |
| The Bill has a lot of drawbacks and does not prevent surplus stripping. |
| The Dept. of Finance issued a press release June 30th stating that the Bill would not take effect until January 1, 2022. |
| Mr. Wayne Easter, Liberal MP who chairs the Finance Committee, called a special committee hearing for July 20, 2021 because "If you allow the cabinet or the department to take authority on their own, then you're weakening your own power as an MP and that of Parliament. And we can't have that." See the Globe and Mail article on this. |
| In a July 19, 2021 press release, the eve of the special hearing, the government admitted that they were wrong, that Bill C-208 is already law. They indicated that they would bring in legislation to safeguard against unintended tax avoidance loopholes created by Bill C-208, which would apply the later of either November 1, 2021, or the date of publication of the final draft legislation. |
On August 12, 2021, Finance Quebec issued Information Bulletin 2021-6 which indicates that "Quebec's tax legislation will be amended so that the easing of the Quebec integrity rule announced in 2015 and 2016 can take effect despite the coming into force of Bill C-208".
Bill C-208 Amendments
The 2023 Federal Budget includes proposals to amend Bill C-208, effective for transactions that occur on or after January 1, 2024. The legislation for these proposals was included in Bill C-59, Fall Economic Statement Implementation Act, 2023.
Other Resources Re Intergenerational Transfers
There are many articles written about this legislation and the loopholes created by it.
Re Bill C-208 Amendments:
New 2024 tax changes to intergenerational business transfers in Canada by RSM Canada LLP
Intergenerational business transfers: Changes you should know by Grant Thornton LLP Canada
Transferring a family business? New tax laws coming in January by Denise J. Deveau, November 2, 2023, on the CPA Canada website
Re Bill C-208:
BDO: Bill C-208 Tax Changes for Intergenerational Transfers Now Law
Articles by Allan Lanthier, who is a retired partner of an international accounting firm, and has been an advisor to the Department of Finance and the Canada Revenue Agency:
Tax relief for family business transfers: A legislative fiasco - Part I - Jul 8, 2021
Tax relief for family business transfers: A legislative fiasco - Part II - Jul 9, 2021
Surplus stripping and the new, costly tax loophole for intergenerational transfers - Jul 28, 2021
Surplus stripping: We need to fix Canada's tax rules - Jul 29, 2021
The general anti-avoidance rule (GAAR) and family surplus strips - Aug 12, 2021
Tax Tip: This is extremely complicated - get professional advice from a CPA tax specialist or a tax lawyer!
Alternative Minimum Tax (AMT)
AMT Until 2023
As pointed out by Denver Niklas, BBA, CPA of Baker Tilly CK LLP in his article Farmers and the Alternative Minimum Tax, the use of the capital gains exemption can trigger AMT in the year of the disposal. This would apply not only for farming property, but also for SBC shares and fishing property. See the article for some tax planning strategies, and be sure to plan ahead and get professional advice on this.
AMT 2024 and Later Years
As of December 11, 2023, no bill has yet been tabled in Parliament for the proposed changes in the Alternative Minimum Tax starting in 2024. Draft legislation has been published.
For how the proposed changes may affect those claiming the LCGE, see EY Tax Alert 2023 No. 45, 4 December 2023, Alternative minimum tax: Significant changes will impact taxpayers in 2024.
Cumulative Net Investment Loss (CNIL)
When the capital gains deduction is calculated, it is reduced by the taxpayer's CNIL balance.
The CNIL balance is calculated as:
| the total of all investment expenses for all tax years after 1987 |
| less the total of all investment income for all tax years after 1987. |
The CNIL can be calculated by completing Canada Revenue Agency's (CRA) Form T936 for each year after 1987.
Canada Revenue Agency (CRA) Resources
Line 25400 (line 254 prior to 2019) - Capital gains deduction
Form T657, Calculation of Capital Gains Deduction
Form T936, Calculation of Cumulative Net Investment Loss (CNIL)
Get Professional Advice and Plan Ahead!
The rules relating to the LCGE are complex, and professional advice should be obtained for anyone who is hoping to take advantage of this deduction. Long term planning is necessary to ensure you qualify.
If you have investment income or expenses, complete the T936 each year.
This is complicated and can save more than $200,000 in taxes - do it right, plan ahead, and get professional advice!
Revised: November 05, 2024