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There is a $1 million+ lifetime capital gains exemption (LCGE), which equates to a $500,000+ lifetime capital gains deduction (1/2 of the $1 million LCGE).

The deduction, claimed on line 25400 (line 254 prior to 2019) of the tax return, can be claimed against taxable capital gains on the disposal by an individual of:

	qualified small business corporation (SBC) shares
	qualified farm property, and
	for dispositions occurring after May 1, 2006, qualified fishing property

The capital gains exemption is available for small business corporation shares, farm property, and fishing property, and is reduced by any capital gains exemptions used in 1994 or earlier. Only gains that exceed cumulative net investment loss (CNIL) are eligible for the exemption.

Completing Form T657 for the Capital Gains Deduction

The capital gain is reported in Part 1 on Schedule 3 of the personal income tax return. The calculation of the deduction is done on Form T657 for the federal deduction, and on form TP-726.7-V for Quebec.

If you have done the T657 calculation, you can input this amount into the Detailed Canadian Tax Calculator to help calculate your tax liability for the year.

Depending on the taxpayer, Form T657 can require decades of collected data, beginning with 1985 data, including:

	net capital losses of other years
	reserves reported each year

The information from Form T936 for the Cumulative Net Investment Loss (CNIL - see next topic) is used to calculate the Capital Gains Deduction, and also includes decades of data.

When using tax software to complete tax returns, these forms automatically collects the necessary data, which is carried forward each year.

Tax Tip: This is extremely complicated - get professional advice from a CPA tax specialist or a tax lawyer!

Cumulative Net Investment Loss (CNIL) & Form T936

When the capital gains deduction is calculated, it is reduced by the taxpayer's CNIL balance. For this reason, all investors must complete Form T936 for every year after 1987.

The CNIL balance is calculated as:

	the total of all investment expenses for all tax years after 1987
	less the total of all investment income for all tax years after 1987.

The CNIL can be calculated by completing Canada Revenue Agency's (CRA) Form T936 for each year after 1987. When using tax software to complete tax returns, this form automatically collects the necessary data, which is carried forward each year.

Lifetime Capital Gains Exemption (LCGE) Maximums

Maximum Capital Gains Exemption Capital Gains Deduction is 50% of Exemption
Date of Disposition	SBC Shares	Farming/Fishing Property
2024 after Jun 24th, 2024, & 2025 ⁽¹⁾	$1,250,000
2024 before Jun 25th	$1,016,836
2023	971,190	1,000,000
2022	913,630	1,000,000
2021	892,218	1,000,000
2020	883,384	1,000,000
2019	866,912	1,000,000
2018	848,252	1,000,000
2017	835,716	1,000,000
2016	824,176	1,000,000
2015 after Apr 20 ⁽²⁾	813,600	1,000,000
2015 before Apr 21	813,600	813,600
2014	800,000	800,000
2008 - 2013 ⁽³⁾	750,000	750,000

(1) The 2024 Federal budget increased the LCGE to $1.25 million for dispositions that occur on or after June 25, 2024 until December 31, 2025, with indexation to resume in 2026. The increase in the capital gains inclusion rate did not happen, but the LCGE increase happened as scheduled.

(2) The 2015 Federal Budget increased the maximum LCGE for qualified farm or fishing property dispositions on or after April 21, 2015 to the greater of:

	$1 million; and
	the indexed Lifetime Capital Gains Exemption applicable to capital gains realized on the disposition of qualified small business corporation shares.

This meant that once the LCGE exceeded $1 million for SBC shares through indexation, the LCGE for farm property and fishing property would be the same as the LCGE for SBC shares, which happened in 2024.

Quebec increased their exemption limit for qualified farm or fishing property to $1 million effective for dispositions after December 31, 2014.

(3) 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. The 2013 Federal Budget increased the LCGE amount to $800,000 for the 2014 tax year, and it is indexed to inflation for tax years after 2014. The new limit will be applicable to qualified property of all individuals, reduced by previous claims.

Quebec Lifetime Capital Gains Exemption

Quebec also increased their LCGE to $1,016,836 for dispositions after 2023 and before June 25, 2024, and to $1,250,000 for dispositions in 2024 after June 24, 2024. Indexation will resume after 2024.

Quebec announced in a November 2014 bulletin that the $800,000 limit is increased for Quebec taxpayers to $1 million for dispositions after December 31, 2014, for qualified farm property and qualified fishing property, or a combination of the two, and temporarily will not be indexed for inflation. The LCGE for qualified small business corporation shares is $800,000 for 2014, and indexed for inflation in subsequent years. Once the LCGE for qualified small business corporation shares exceeds $1 million through indexation, the same LCGE will then apply again for qualified farming and fishing properties - this is happening in 2024. The Quebec LCGE legislation is in the Quebec Taxation Act s. 726.6 and subsequent sections. The Quebec LCGE maximum is indexed using the federal indexation factor.

Intergenerational Business Transfers of Corporations

There have been many legislative changes regarding the transfer of shares of a qualified small business corporation (QSBC), or shares of a family-farm or family-fishing corporation (QFFP) to the next generation (children, stepchildren, grandchildren, nieces or nephews). The rules are complex. For this issue, the advice of a CPA tax specialist or a tax lawyer is required.

Intergenerational Transfers and Bill C-208

Bill C-208, An Act to Amend the Income Tax Act (transfer of small business or family farm or fishing corporation), received Royal Assent on June 29, 2021, thus becoming law. The effective date of the legislation was not specified, so according to the Interpretations Act, it became law when it received Royal Assent.

	The Bill allows inter-generational transfers of shares of certain small businesses to be treated the same as the sale of those shares to an arm's-length person (long overdue legislation).
	The Bill has a lot of drawbacks and does not prevent surplus stripping.
	The Dept. of Finance issued a press release June 30th stating that the Bill would not take effect until January 1, 2022.
	Mr. Wayne Easter, Liberal MP who chairs the Finance Committee, called a special committee hearing for July 20, 2021 because "If you allow the cabinet or the department to take authority on their own, then you're weakening your own power as an MP and that of Parliament. And we can't have that." See the Globe and Mail article on this.
	In a July 19, 2021 press release, the eve of the special hearing, the government admitted that they were wrong, that Bill C-208 is already law. They indicated that they would bring in legislation to safeguard against unintended tax avoidance loopholes created by Bill C-208, which would apply the later of either November 1, 2021, or the date of publication of the final draft legislation.

On August 12, 2021, Finance Quebec issued Information Bulletin 2021-6 which indicates that "Quebec's tax legislation will be amended so that the easing of the Quebec integrity rule announced in 2015 and 2016 can take effect despite the coming into force of Bill C-208".

Bill C-208 Amendments

The 2023 Federal Budget includes proposals to amend Bill C-208, effective for transactions that occur on or after January 1, 2024. The legislation for these proposals was included in Bill C-59, Fall Economic Statement Implementation Act, 2023.

Other Resources Re Intergenerational Transfers

There are many articles written about this legislation and the loopholes created by it.

Re Bill C-208 Amendments:

New 2024 tax changes to intergenerational business transfers in Canada by RSM Canada LLP

Intergenerational business transfers: Changes you should know by Grant Thornton LLP Canada

Transferring a family business? New tax laws coming in January by Denise J. Deveau, November 2, 2023, on the CPA Canada website

Re Bill C-208:

BDO: Bill C-208 Tax Changes for Intergenerational Transfers Now Law

PwC: Tax relief for intergenerational transfers of small businesses and family farms: But how will the new rules work?

Articles by Allan Lanthier, who is a retired partner of an international accounting firm, and has been an advisor to the Department of Finance and the Canada Revenue Agency:

Tax relief for family business transfers: A legislative fiasco - Part I - Jul 8, 2021

Tax relief for family business transfers: A legislative fiasco - Part II - Jul 9, 2021

Surplus stripping and the new, costly tax loophole for intergenerational transfers - Jul 28, 2021

Surplus stripping: We need to fix Canada's tax rules - Jul 29, 2021

The general anti-avoidance rule (GAAR) and family surplus strips - Aug 12, 2021

Tax Tip: This is extremely complicated - get professional advice from a CPA tax specialist or a tax lawyer!

Canada Revenue Agency (CRA) Resources

Line 25400 (line 254 prior to 2019) - Capital gains deduction

Form T657, Calculation of Capital Gains Deduction

Form T936, Calculation of Cumulative Net Investment Loss (CNIL)

Get Professional Advice and Plan Ahead!

The rules relating to the LCGE 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.

Tax Tips:

If you have investment income or expenses, complete the T936 each year.

This is complicated and can save more than $200,000 in taxes - do it right, plan ahead, and get professional advice!

Revised: August 01, 2025