How does the lifetime capital gains exemption work when I sell my Ontario business shares?
The lifetime capital gains exemption can shelter up to $1,250,000 of capital gains on qualifying shares, which is a maximum deduction of $625,000 for 2025 and for dispositions after June 24, 2024. It applies when an individual sells qualified small business corporation shares or qualified farm or fishing property. Whether your shares qualify as qualified small business corporation shares is a separate set of tests.
Only one-half of a capital gain is taxable. You claim the deduction on line 25400 using Form T657. Any deduction you claimed in earlier years reduces what is left. The $625,000 amount is indexed to inflation for taxation years that begin after 2025. Confirm the indexed figure for your year with a lawyer or accountant before you plan around it.
The amount available can be lower. A cumulative net investment loss reduces it. So does an allowable business investment loss claimed for 2025. Deferred gains do not qualify. Only an individual resident in Canada throughout the year can claim it, but someone resident at any time in the year is treated as resident throughout it if they were also resident throughout the year before or the year after. A large sheltered gain can also trigger alternative minimum tax.
Key takeaways
- For 2025 and for dispositions after June 24, 2024, the exemption covers $1,250,000 of gains, a maximum deduction of $625,000.
- You claim it on line 25400 using Form T657, and Form T936 is also needed if you had investment income or expenses in any year from 1988 to 2025.
- Earlier claims, a cumulative net investment loss and allowable business investment losses can reduce what you can claim.
- Only residents of Canada can claim it, and the $625,000 amount is indexed for taxation years beginning after 2025, so confirm your year's figure.