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Lifetime Capital Gains Exemption (LCGE) Canada: $1,275,000 for 2026

Updated

What is the lifetime capital gains exemption?

The lifetime capital gains exemption (LCGE) lets an individual resident in Canada earn a set amount of capital gains, over a lifetime, on certain property without paying regular income tax on them. For 2026 the limit is $1,275,000, indexed from the $1,250,000 that applied to dispositions after June 24, 2024 (CRA, adjustment of personal income tax and benefit amounts). The limit is indexed to inflation, using the Consumer Price Index data as reported by Statistics Canada.

What you claim on your return is the capital gains deduction on line 25400, which is half of the lifetime capital gains exemption (LCGE) (CRA line 25400). Only the taxable half of a capital gain is in your income at the 50% inclusion rate, so a deduction of half the exemption covers a gain of the full exemption amount.

A gain equal to the full 2026 exemption, on property that qualifies, with no deductions claimed before:

StepAmount
Capital gain$1,275,000
Taxable capital gain at the 50% inclusion rate$637,500
Capital gains deduction (half the exemption)$637,500
Taxable capital gain left in taxable income$0

Regular income tax on the gain is nil, but the alternative minimum tax can still apply (see below).

The capital gains deduction can be claimed on taxable capital gains from:

  • dispositions of qualified small business corporation shares (QSBCS)
  • dispositions of qualified farm or fishing property (QFFP)
  • the allocation and designation by a trust of taxable capital gains reported in the trust's tax year on the disposition of QSBCS or QFFP

A capital gains reserve brought into income from an earlier sale of either kind of property also qualifies, based on the year of the sale. Gains on other property, such as public company shares, rental property or crypto-assets, don’t qualify.

The tests for qualified small business corporation shares

Shares qualify only if they meet the conditions below, from CRA Guide T4037, and you meet two personal conditions.

At the time of sale: the 90% test

When you sell, the share is a share of a small business corporation, owned by you, your spouse or common-law partner, or a partnership you are a member of. A small business corporation is a Canadian-controlled private corporation with 90% or more of the fair market value of its assets used mainly in an active business carried on primarily in Canada, or in shares or debts of connected small business corporations.

A corporation whose assets are worth $2,000,000 in total holds a $300,000 GIC and a $200,000 stock portfolio that aren’t used in its business (all figures illustrative). Those assets are 25% of the total, so only 75% of its assets are used in the active business, below the 90% needed when the shares are sold.

The 24 months before the sale: the more-than-50% test

Throughout those 24 months, while you or a related person owned it, it was a share of a CCPC with more than 50% of the fair market value of its assets used mainly in an active business carried on primarily in Canada (or in shares or debts of connected corporations).

This test is why passive assets can’t simply be moved out just before a sale.

The 24-month ownership test

Throughout the 24 months before the sale, no one other than you, a partnership you were a member of, or a person related to you owned the share.

Personal conditions

You were resident in Canada throughout the year of the sale. The CRA also considers you resident throughout the year if you were resident for at least part of it and throughout the year before or the year after, which matters if you emigrate in the year of the sale. You have exemption room left: the exemption is a lifetime amount ($1,275,000 for 2026), and the capital gains deduction is half of it.

Qualified farm or fishing property

The same lifetime limit covers qualified farm or fishing property: the Income Tax Act’s deduction for farm or fishing property and its deduction for small business shares are built on the same base amount (Income Tax Act, section 110.6), and one lifetime limit applies to both. According to Guide T4037, qualified farm or fishing property includes:

  • a share of the capital stock of a family-farm or fishing corporation that you or your spouse or common-law partner owns
  • an interest in a family-farm or fishing partnership that you or your spouse or common-law partner owns
  • real property, such as land, buildings, and fishing vessels
  • property included in capital cost allowance Class 14.1, such as milk and egg quotas, or fishing licenses

The property also has to have been used in a farming or fishing business in Canada by you or certain family members, under tests that depend on when it was acquired. The CRA points to Guide T4002 and the AgriStability and AgriInvest guides for the details.

Purification: meeting the asset tests

Profitable corporations accumulate cash and investments that aren’t used in the active business, and those assets count against the 90% and more-than-50% tests. Purification means removing or reducing them before a sale: for example, paying out surplus cash as dividends or salary, repaying shareholder loans, or moving investments to a holding company. Each method has its own tax result, and because of the 24-month test it has to start well before a sale. The holding company guide and passive income in a corporation cover the related rules.

Family members and trusts

Each individual has their own lifetime limit. When a trust sells qualifying shares, it can allocate and designate the taxable capital gains to its beneficiaries, who can each claim the deduction against them (CRA line 25400). Each beneficiary still has to meet the personal conditions, such as residence in Canada, and have room left.

Illustrative figures. A family trust holds growth shares of a qualifying corporation. They are sold for $5,000,000; their ACB is $500,000. The trust allocates the gain equally to four adult beneficiaries.

StepAmount
Capital gain$4,500,000
Each beneficiary’s share (one quarter)$1,125,000
Lifetime limit per person for 2026$1,275,000

Each share is within one person’s limit, so if all four have their full room and meet the conditions, the deduction can cover the whole gain. Alternative minimum tax can still apply to each of them.

The tax on split income and the attribution rules can apply to amounts family members receive through a corporation or trust, so the structure has to be planned long before a sale; see family trusts in Canada and the attribution rules.

Alternative minimum tax

The alternative minimum tax (AMT) is a parallel calculation that allows fewer deductions and credits. As the Budget 2024 tax measures put it, “Taxpayers pay either regular tax or AMT, whichever is highest.” For AMT, 30% of capital gains eligible for the lifetime capital gains exemption is included in income, so a large gain sheltered from regular tax by the deduction can still produce AMT. Form T691 calculates it.

AMT paid isn’t necessarily a permanent cost. In a later year when you don’t have to pay minimum tax and your regular tax is higher than your minimum tax, you can claim a credit on line 40427 to recover some of the minimum tax you paid in previous years; any carryover not used within the 7-year carry-forward period is lost (CRA, minimum tax carryover).

The inclusion rate

Capital gains are included in income at 50%. The increase to two-thirds proposed in the 2024 federal budget was cancelled in March 2025 and never took effect; the inclusion rate page has the history.

How to claim it and check your remaining room

  1. Report the sale on Schedule 3 of your return.
  2. Complete Form T657, Calculation of Capital Gains Deduction. If you have had investment income or investment expenses since 1988, you also complete Form T936, Calculation of Cumulative Net Investment Loss (CNIL), because a CNIL balance reduces the deduction you can claim.
  3. Claim the deduction on line 25400. You can claim any amount of the capital gains deduction that you want to in a year, up to the maximum allowable amount that you calculated.

Capital gains deductions you claimed in earlier years reduce the room you have now; your earlier returns show what you claimed on the capital gains deduction line (line 25400 today), and Chart 2 of Form T657 adds them up.

Sources

The figures and rules on this page come from these sources, last checked against them between September 23, 2026 and October 1, 2026. How we check facts.