How to Claim the Lifetime Capital Gains Exemption in Ontario

You have sold qualifying small business shares or qualified farm or fishing property, and now you need to report the sale and claim the exemption. The claim is made on your personal tax return, and the paperwork has a few steps that are easy to get wrong.

This guide covers the mechanics of filing: working out the gain, how much room you have, which forms to complete, and the items that can change the result. It does not cover whether your company qualifies or whether a share sale or asset sale suits you. Those questions are worth confirming with a lawyer or accountant.

Step 1: Work out your capital gain

Start with the gain itself. Your adjusted cost base (ACB) is usually what you paid for the property plus expenses to acquire it, such as commissions and legal fees. From your sale proceeds, you subtract the costs of selling, such as commissions, legal fees and advertising.

Only one-half of a capital gain is taxable. That is the taxable capital gain.

Step 2: Know how much exemption you have

An individual who sells qualified small business corporation shares or qualified farm or fishing property may claim the capital gains deduction on line 25400. The limit depends on when you sold.

The table figures come from the CRA. The Income Tax Act, s. 110.6(2), sets the deduction by a formula built on $625,000: [$625,000 − (A + B + C + D)] × E. In plain terms, 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. Check the current figure with the CRA or your accountant before you file for a later year.

You do not have to use all of it. Any amount of the deduction may be claimed in a year, up to the maximum allowable amount.

Step 3: Complete the forms

To claim the deduction, you complete Form T657, Calculation of Capital Gains Deduction. If you had investment income or expenses in any year from 1988 to 2025, you must also complete Form T936, which deals with cumulative net investment loss. The deduction itself is claimed on line 25400 of your return. Cumulative net investment loss is the amount by which your total investment expenses since 1987 exceed your total investment income since 1987, and a balance reduces the deduction you can claim.

• Records of what you paid for the shares or property and the costs of acquiring it
• The sale agreement and a list of selling costs
• Past returns showing any capital gains deduction you already claimed
• Records of investment income and expenses since 1987
• Any allowable business investment loss claims you have made
• Proof of your residency for the year

What can reduce or block your claim

• Cumulative net investment loss (CNIL): this is the amount by which your total investment expenses since 1987 exceed your total investment income since 1987, and a CNIL balance reduces the deduction available.
• Allowable business investment losses (ABILs): an ABIL claimed for 2025 reduces the capital gains deduction for 2025 and future years.
• Deferred gains: gains held back under a reserve or deferral do not qualify for the deduction.
• Residency: only an individual resident in Canada throughout the year can claim the deduction. If you were resident at any time in the year, you are deemed resident throughout it if you were also resident throughout the year before or the year after.

Watch for alternative minimum tax, then plan your next steps

A large capital gain sheltered by the exemption can trigger alternative minimum tax (AMT). The AMT calculation changed for 2024 and later years and is done on Form T691. Ask your accountant to run that calculation before you file, so the result is not a surprise.

• Gather your cost, sale and expense records and calculate the gain
• Confirm how much deduction you used in earlier years
• Complete Form T936 if you had investment income or expenses, then Form T657
• Check for ABIL claims, reserves or deferrals that affect the claim
• Run the AMT calculation on Form T691
• Have an accountant or lawyer review the filing before you submit it

Frequently asked questions