Capital Gains Exemption (CGE)

An individual (but not a corporation such as a holding company or trust) can realize up to $750,000 of capital gains tax-free from a

  • Qualified Small Business Corporation
  • Qualified Farm Property

This is an outright exemption, not a deferral of tax. The exemption was $500,000 until March 2007. The exemption is reduced by the earlier $100,000 exemption on other property.

The exemption is often crystallized when an estate freeze is implemented. There are potential complications if


Ownership of holding companies and operating companeis is analyzed on a consolidated basis

Qualified Small Business Corporation

There are three criteria

  1. a Canadian-Controlled Private Corporation (CCPC) during the preceding 24 months
    • 50% of shared owned by a Canadian taxpayer or related party (not by publicly-traded corporations)
    • shares held privately (not traded on a public exchange)
  2. at least 90% of the Fair Market Value (FMV) of assets used in the active business
    • during the 24 months before the share disposition, at least 50% of the FMV of assets must be used in the active business conducted primarily in Canada
      • inactive business assets: cash and other liquid investments, cash value of corporately-owned life insurance
      • this condition is least likely to be met, but usually solvable
  3. carrying on an active business primarily in Canada

Qualified Farm Property

  • land in Canada which is used for active farming on a regular and continuous basis by the taxpayer, the taxpayer's spouse or the taxpayer's children
  • includes interest in a family farm partnership or corporation


Year Change
1984 introduction of $500,000 CGE and $100,000 CGE on all other property
1994 phase out of the $100,000 CGE
Mar 2007 increase CGE from $500,000 to $750,000

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