Lifetime Capital Gains Exemption Limit for Ontario Owners

If you own shares of a small business corporation, or farm or fishing property, the lifetime capital gains exemption (LCGE) may shelter a large part of the gain when you sell. The headline number has changed in recent years, and published sources do not always agree, so it is easy to plan around the wrong figure.

This article explains what the limit is, why your own available amount may be lower, and how the exemption is claimed. It is general information for Ontario owners, not advice on your sale. The year of sale and your personal tax history matter a great deal.

What the limit is

The CRA says the LCGE limit is $1,250,000 for dispositions of qualifying property after June 24, 2024. Budget 2025 confirmed that increase for qualified small business corporation shares and qualified farm or fishing property, and said indexation resumes in 2026.

For dispositions in 2026, the CRA's indexation page lists the limit as $1,275,000. That is the $1.25 million base increased by 2.0% for 2026. A September 2026 Department of Finance backgrounder also describes an LCGE limit of $1.275 million for eligible entrepreneurs. The limit is indexed to inflation using Statistics Canada's Consumer Price Index.

If you see $625,000 mentioned, that is usually the maximum deduction, which is 50% of the $1,250,000 limit. The consolidated Income Tax Act text still shows $625,000 in section 110.6(2)(a). Because sources differ, confirm the figure for your year of sale with a tax professional.

How the limit changed over time

The rules for 2024 split on June 25, 2024. Period 1 applies to dispositions before that date and Period 2 applies on or after it. Your sale date, not the date you filed, decides which applies.

Because the figure depends on the year, confirm the year of your closing before you rely on any number you read online.

Why your available amount may be lower

The deduction is not simply the headline limit. Under the Income Tax Act, you can deduct the least of three listed amounts for the year, and the calculation is built on a cumulative gains limit. That cumulative idea is why earlier claims matter. Your own filing history is a practical place to start when working out what you have already used.

• Allowable business investment losses (ABILs) for the year reduce the annual gains limit.
• Cumulative net investment loss (CNIL) at the end of the year is subtracted in the cumulative gains limit, so a positive CNIL reduces the deduction.
• CNIL is the amount by which your cumulative investment expenses exceed your cumulative investment income, measured from 1988 on.
• Form T936 calculates CNIL, and it is required if you had investment income or expenses in any year from 1988 to 2025.

How these items interact with each other in your particular case is a tax-professional question. If you have claimed the exemption before, or have had investment losses or large investment expenses, ask for the numbers to be worked out before you agree on a price.

How the exemption is applied to a sale

The exemption works on the gain, not the sale price. Generally, a taxable capital gain is one-half of the capital gain. The earlier proposal to raise that fraction to two-thirds above $250,000 for individuals was deferred and then cancelled, so the one-half inclusion applies.

You calculate the capital gains deduction on Form T657, and you claim the allowable amount on line 25400 of your T1 return. The shares must also qualify. For example, a qualified small business corporation share must be owned by the individual at the determination time, other than by a trust that is not a personal trust. The tests for qualifying shares are covered in a separate article.

Sheltering a gain from regular tax does not always mean no tax at all. For alternative minimum tax, capital gains are included at 100%. The deduction under section 110.6 is counted at 7/5. Net, that leaves a portion of an LCGE-sheltered gain in the minimum tax calculation, and minimum tax is calculated on Form T691. AMT paid can be recovered in later years, but only to the extent regular tax exceeds that year's minimum amount. A one-time sale year may therefore not recover it quickly.

What to do next

• Confirm the expected year of closing, since the limit depends on the date of sale.
• Pull your prior returns and any past T657 forms to see what exemption you have already claimed.
• Check whether you have ABILs, or investment expenses that exceed investment income, since these can reduce the deduction.
• Ask an accountant whether AMT could apply, using Form T691.
• Have a lawyer or tax adviser confirm that your shares actually qualify before the price and structure are settled.

Ontario does not change the federal tests, but Ontario personal tax is generally calculated on what remains taxable. An accountant can model the combined federal and Ontario result for your year of sale.

Frequently asked questions