Capital Gains Reserve

Income Tax Act s. 40(1)(a)(iii), 40(1.1), 40(2)(a)

When you sell any type of property that results in a capital gain, it may be possible to spread the gain over a number of years. This is done by claiming a capital gains reserve.

The reserve cannot be claimed in a tax year if you:

were not a resident of Canada at the end of the tax year, or at any time in the following year;
were exempt from paying tax at the end of the tax year, or at any time in the following year; or
sold the capital property to a corporation that you control in any way.

Claiming the reserve is done on your tax return, by completing and filing Form T2017, Summary or Reserves on Dispositions of Capital Property. The reserves are then deducted from Total of all gains (or losses) before reserves, on Schedule 3 of the tax return. Then the capital gains and losses inclusion rate is applied to determine the Taxable capital gain (or net capital loss) for the year.

The inclusion rate for capital gains and losses changed effective June 25, 2024. Depending on the amount of the capital gain, this may affect the taxable amount of capital gains reserve that is included in income. See the article for the capital gains reserve for All other property except donated non-qualifying securities for more information on this.

Categories For The Capital Gains Reserve

All other property except donated non-qualifying securities - applies to most dispositions

Dispositions to your child of family farm property, family fishing property after May 1, 2006, and small business corporation shares

Gifts of non-qualifying securities (other than an excepted gift) to a qualified donee

TaxTips.ca Resources

Capital Gains and Losses - for other methods of reducing or eliminating capital gains

Election to designate the amount of proceeds when capital property is donated

Canada Revenue Agency (CRA) Resources

Claiming a capital gains reserve

T4037 Capital Gains - Claiming a Reserve

P113 Gifts and Income Tax

IT-288R2 (Archived) Gifts of Capital Property to a Charity and Others

Form T2017, Summary or Reserves on Dispositions of Capital Property

Tax Tip: The capital gains reserve is a good tool for deferral of capital gains. See your tax professional, and do some advance planning!