What is the capital gains exemption when I sell shares of my Ontario corporation?

The lifetime capital gains exemption is a federal program that allows eligible individuals to shelter a substantial amount of capital gain when they sell qualifying small business corporation shares. The exemption amount has increased over the years and is indexed to inflation, so confirm the current figure with a tax professional — it has historically been in the hundreds of thousands of dollars per individual.

To qualify, the shares must be shares of a qualifying small business corporation. Broadly, the corporation must be a CCPC carrying on an active business primarily in Canada, and the shares must pass tests about what assets the corporation holds both at the time of sale and in the 24 months before the sale. If the corporation holds significant passive assets, the shares may not qualify.

Planning for the exemption should start well before a sale. Restructuring a corporation to purify passive assets out of it can take two years or more to satisfy the holding-period tests. Multiple family members who own shares can each claim their own exemption if they qualify. Get tax and legal advice early to protect eligibility.