Can I still get the capital gains exemption if my business rents out extra space it doesn't need?

This is worth checking carefully, because renting out space your business isn't actually using is generally treated as an income-producing, non-active use of that portion of the property for exemption qualification purposes, similar to how excess cash or an investment portfolio is treated. Even though the rental income is legitimate revenue for the business, the specific asset generating it — the extra space — isn't being used in the day-to-day active business itself, which counts against the tests used to determine whether the corporation's shares qualify.

Whether this actually disqualifies your shares depends on how significant that rented-out portion is relative to the rest of the corporation's assets; a small, incidental amount of excess space rented out is less likely to be a problem than a building where a substantial portion is leased to unrelated tenants. If the numbers are close, purification before a sale — for example, restructuring ownership of the rented portion — can be used to bring the corporation back within the qualifying range.

Because this test looks at the actual use of specific assets rather than the business as a whole, having an accountant assess your specific property and rental arrangement well before a sale is the practical next step.