The Lifetime Capital Gains Exemption (LCGE) in 2025
Planning to sell your qualified small business shares or farm property? The LCGE limit is indexed to inflation and could save you huge tax bills.
The Lifetime Capital Gains Exemption (LCGE) in 2025
For Canadian business owners, the LCGE is the holy grail of tax planning.
What is it?
It allows you to sell "Qualifying Small Business Corporation Shares" (QSBCS) or qualified farm/fishing property tax-free, up to a lifetime limit.
The Limit
The limit is indexed inflation. For 2024, it was roughly $1,016,836. (Budget 2024 proposed increasing this to $1.25 million effective June 25, 2024). This means the first $1.25 million of capital gains on the sale of your business could be tax-free.
Qualifying
This is the tricky part. To qualify as QSBCS:
- Holding Period: You must have owned the shares for at least 24 months.
- Asset Test: At the time of sale, 90% or more of the corporation's assets must be used in an active business in Canada.
- 50% Test: Throughout the 24 months prior to sale, more than 50% of assets must have been used in active business.
Purification: Often, businesses accumulate too much cash or investments ("passive assets"), failing the 90% test. You may need to "purify" the company by paying out dividends or moving assets before a sale.
Consult a TaxBuddy expert well in advance of any potential sale.