Does my Ontario corporation qualify as a qualified small business corporation for the capital gains exemption?

Your shares generally qualify if held by you, your spouse or common-law partner, or your partnership, and they pass a 90% test at sale, a 24-month holding test and a 50% test; on death, meeting the 90% test any time in the prior 12 months can be enough.

The 90% test asks whether 90% or more of the fair market value of a Canadian-controlled private corporation's assets is used mainly in an active business carried on primarily in Canada, or is shares or debts of connected small business corporations. The holding period means no one other than you or a related person or partnership owned the share for the 24 months. The 50% test needs more than 50% of asset value in an active business or qualifying connected corporations throughout that time. Newly issued shares start their 24-month clock when issued, with exceptions such as shares issued in exchange for other shares.

If your company holds too much cash or investments, it may need to bring its non-active assets down. Timing matters, because the 90% test applies only at the time of sale while the more-than-50% test applies throughout the 24 months. Each way of reducing excess cash can have its own tax consequences, so get tax advice before moving anything.