Selling a business in Canada: the lifetime capital gains exemption

In 2026 the lifetime capital gains exemption lets you sell shares of a qualifying small business and pay no tax on up to C$1,275,000 of capital gain, according to the CRA’s 2026 indexation table. That’s per person, over your lifetime, and only if the company passes tests that look back 24 months before the sale. Most of the planning happens before a buyer appears. A one-time plan from a Canadian fee-only planner costs a median C$1,900, and planning around a sale usually costs more than that.

This is the Canadian version of our guide to a financial advisor for selling a business, which covers US rules.

The rules as of 2026

• The limit. C$1,250,000 for dispositions after June 24, 2024 and in 2025, and C$1,275,000 in 2026 after indexation. It’s a lifetime total, so earlier claims reduce what’s left.
• What qualifies. Qualified small business corporation shares, and qualified farm or fishing property.
• The inclusion rate is one-half. The CRA’s 2025 capital gains guide shows half of a capital gain as taxable; see capital gains tax in Canada. The proposal to raise the rate to two-thirds was cancelled, and Budget 2025 confirmed the government wouldn’t proceed with the Budget 2024 capital gains changes. The proposed Canadian Entrepreneurs’ Incentive went with them.
• What it’s worth. Sheltering C$1,275,000 of gain keeps C$637,500 of taxable capital gain off your return. At a 50% marginal rate, an illustrative figure since rates vary by province and income, that’s about C$318,750 of tax.

The tests your shares have to pass

The CRA’s definition has three parts:

1. At the time of sale, the company is a small business corporation: a Canadian-controlled private corporation with 90% or more of its assets, by fair market value, used mainly in an active business carried on primarily in Canada, or held as shares or debt of connected small business corporations.
2. For the 24 months before the sale, no one owned the shares other than you, a person related to you, or a partnership you belong to.
3. Throughout that 24 months, more than 50% of the company’s assets met the same active-business test.

The test that catches most owners is the asset mix. A profitable company that has piled up cash or an investment portfolio may fail the 90% test at the sale, or the 50% test over the two years before it. Moving those surplus assets out, often called purifying the company, has to happen early enough and in a way your accountant can defend.

Shares or assets

Buyers often prefer to buy a company’s assets. Sellers often prefer to sell shares. The exemption applies to shares you sell personally. If the corporation sells its assets, the gain is the corporation’s, and you’d then pay tax again to take the money out. On a deal that would fit within the exemption, the difference can be worth hundreds of thousands of dollars, which is why sellers often negotiate on price to keep a share sale.

Other ways to cut the tax

• Family members’ exemptions. Each person has their own limit. Shares owned by a spouse or adult children, directly or through a family trust, can each qualify if the tests are met. With the 24-month rules, this has to be set up well before a sale.
• Payment over time. If part of the price is paid in later years, a capital gains reserve can spread the gain, generally over up to five years, and longer in certain cases.
• Selling to your employees. Individuals selling a business to an employee ownership trust or a worker co-operative can exempt up to C$10 million of gain in total, on qualifying sales after 2023 and up to the end of 2026, if they meet conditions including 24 months of active work in the business. The Spring Economic Update 2026 proposes making this permanent. Check its status before you plan around it.

Ask your accountant whether alternative minimum tax applies in the year of sale, since a large exemption claim can affect it.

Common mistakes

• Starting when the letter of intent arrives. The 24-month tests mean the planning window closes long before the deal.
• Agreeing to an asset sale without pricing it. Model the after-tax result of both before you negotiate.
• Letting cash build up in the company. It can quietly break the 90% and 50% tests.
• Forgetting the money afterwards. The day after closing, you hold more cash than you may ever have managed, and no salary.

Questions to ask an advisor before a sale

When a fee-only or advice-only planner is worth it

Your accountant and tax lawyer handle the exemption, the structure and the filings. A planner’s job is the question around them: how much you need from the sale to stop working, what you can spend afterwards, and how to invest the proceeds away from the industry you just left. In our study of fee-only firm websites, 7% of firms named founders before an exit as a specialty, so expect to look beyond your own city.

Those medians are for typical households, from small samples; a sale is more work, so expect quotes above them. We don’t report a Canadian percentage-of-assets figure, because fewer than 12 Canadian fee-only firms published one we could check. For scale, the US median is 1% of assets a year, which on C$5 million of proceeds would be C$50,000 a year before any discount for larger balances; see what a 1% fee costs on C$1 million for the long-run math. A flat or project fee from an advice-only planner is many times cheaper, and it means the advice before the sale isn’t tied to managing the money after it. Read what fee-only advisors charge in Canada before comparing quotes.

Some advisors hold the CEPA, an exit planning credential; it shows training, not how they’re paid. Start with the founders before an exit and small business owners specialties, or the lists of advisors for small business owners and founders in the public graph. If you plan to pass the business or the proceeds to family, estate planning in Canada covers the tax at death that a sale’s proceeds will eventually face.