Business -> Capital gains exemption / Capital gains deduction

$750,000 Lifetime Capital Gains Exemption (LCGE) / $375,000 Lifetime Capital Gains Deduction

There is a $750,000 lifetime capital gains exemption (LCGE), which equates to a $375,000 lifetime capital gains deduction (1/2 of the $750,000 LCGE).  The deduction can be claimed against taxable capital gains on the disposal by an individual of:

The maximum LCGE that can be claimed by any individual was increased from $500,000 to $750,000, effective March 19, 2007, as a result of the 2007 Federal budget.  This includes exemptions for small business corporation shares, farm property, fishing property, and any capital gains exemptions used in 1994 or earlier.  The calculation of the deduction is done on CRA's form T657.

The rules relating to the capital gains exemption are complex, and professional advice should be obtained for anyone who is hoping to take advantage of this deduction.  Long term planning is necessary to ensure you qualify.  The following articles provide more information:

Qualified small business corporation (SBC) shares

Qualified farm property

Qualified fishing property

Cumulative net investment loss (CNIL)

When the capital gains deduction is calculated, it is reduced by the taxpayer's CNIL balance.  The CNIL balance is the amount by which the total of all investment expenses exceeds the total of all investment income for all tax years after 1987.  The CNIL can be calculated by filling in CRA's form T936 for each year after 1987.

Tax tip:    This is complicated and can save more than $100,000 in taxes - do it right and get professional advice!

Revised: December 30, 2010