How does the LCGE work for an Ontario CCPC sale in 2026?
For 2026, the Lifetime Capital Gains Exemption is $1,275,000. An Ontario shareholder selling shares that meet the qualified small business corporation (QSBC) tests under Income Tax Act s. 110.6 can exempt up to that amount of capital gain from tax, per individual, once in a lifetime (though indexation increases the pool annually).
QSBC tests (s. 110.6(1) definitions). At the time of sale: (a) shares are of a small business corporation, (b) more than 90% of the corporation’s assets by FMV are used in an active business carried on primarily in Canada, or are shares/debt of a connected small business corporation. During the 24 months before sale: (a) shares must have been owned by no one but the individual (or related person) throughout, and (b) more than 50% of the corporation’s assets by FMV must have been used in active business.
Example: an Ontario dentist sells her PC shares for $2,000,000 in 2026. ACB is $100. Capital gain: $1,999,900. LCGE claim: $1,275,000. Taxable capital gain after LCGE: $362,450 (50% x $724,900). Ontario top-rate tax on that: about $195,000, versus $538,000 without the LCGE – saved roughly $343,000.
Multiplication: family trusts holding QSBC shares can allocate the taxable capital gain to multiple beneficiaries, each of whom claims their own $1,275,000 exemption. AMT applies (s. 127.5), but is generally recoverable over seven years.
Note: Purification. If the CCPC holds excess non-active assets (cash, investments) at sale, it may fail the 90% test. Pre-sale purification via dividend up to Holdco or intercompany loan is a standard playbook. Plan 24 months out.
Source: canada.ca â Lifetime capital gains exemption
— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA
Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.