Can I spread out capital gains tax if I receive sale proceeds over several years?

Yes. The federal Income Tax Act allows a taxpayer to claim a "capital gains reserve" when they sell a property but do not receive all the proceeds in the year of sale. This can happen when you take back a vendor-take-back mortgage, seller-finance a business sale, or accept installment payments over time.

The reserve allows you to defer recognizing a portion of the capital gain to future years, roughly in proportion to the proceeds still owing to you. However, the reserve cannot be stretched indefinitely — for most property, the maximum deferral is five years, meaning at least one-fifth of the total gain must be included in income in each of the five years following the sale. There are exceptions: the sale of farm property and qualified small business shares to a child can qualify for a ten-year reserve, and the sale of certain farming businesses may qualify for an extended reserve under different rules.

Using the reserve requires that the proceeds be genuinely outstanding — the CRA does not permit you to artificially arrange installment payments solely to defer tax. The reserve is reported on Form T2017 and included in your income in each year you hold the reserve. A tax professional can help you structure an installment sale to maximize the legitimate deferral.