The Lifetime Capital Gains Exemption (LCGE)
Capital gains exemption
Section 110.6 provides an exemption from tax on up to $1,250,000 (in 2025+) of capital gains on the disposition of qualifying small business corporation shares, qualified farm property, and qualified fishing property.
Plain-language explanation
Section 110.6 is one of the most valuable provisions available to small business owners, farmers, and fishers in Canada. It creates a deduction against capital gains (reducing taxable income) equal to the lesser of your gain and the available exemption limit.
The 2025/2026 limit: $1,250,000 On a qualifying disposition, up to $1,250,000 of capital gains is exempt from tax. At a 50% inclusion rate, this shields $625,000 of taxable income from tax.
Three types of qualifying property: 1. Qualifying small business corporation (QSBC) shares: Shares of a CCPC where at the time of sale, 90%+ of asset FMV is used in an active business carried on primarily in Canada, AND for 24 months before the sale, 50%+ of asset FMV was in active business use, AND no one other than the seller or a related person owned the shares in the prior 24 months.
2. Qualified farm property: Farm property (land, buildings, quota, shares in a family farm corporation, partnership interest) used principally in farming in Canada.
3. Qualified fishing property: Similar to farm property but for fishing operations.
Cumulative gains limit: Your available LCGE is reduced by capital gains exemptions you've claimed in prior years. Once you've used $1,250,000 of exemption across your lifetime, the LCGE is exhausted.
Planning: Crystallizing gains (using a s.85 or s.86 reorganization to "trigger" an accrued gain before the LCGE is changed) is a common tax planning strategy for owners who have built substantial value in their businesses.
Example
Tariq sells his CCPC shares in 2026, realizing a $900,000 capital gain. The shares qualify as QSBC shares. He claims a $900,000 LCGE deduction under s.110.6. His net taxable gain from this sale: $0. He has $350,000 of remaining LCGE ($1,250,000 − $900,000) for future qualifying dispositions.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
LCGE limit increased via indexation to $1,016,602 for 2024.
Before
$971,190 (2023)
After
$1,016,602 (2024)
2024 federal budget announced LCGE increase to $1,250,000 for qualifying dispositions occurring on or after June 25, 2024. Enacted in Budget Implementation Act, 2024, No. 2.
Before
$1,016,602
After
$1,250,000
Common questions
What is the LCGE limit in 2026? +
The LCGE limit is $1,250,000 in 2026 for qualifying dispositions of QSBC shares, qualified farm property, and qualified fishing property. This was raised from $1,016,602 (2024) by the 2024 federal budget.
Do QSBC shares always qualify for the LCGE? +
Not automatically. The shares must meet the "qualified small business corporation share" tests: at time of sale, 90%+ of FMV in active business assets. For the 24 months before sale, 50%+ in active business use, and only you or related persons owned them. These rules require careful planning well in advance of a sale.
Can I multiply the LCGE by selling to family members? +
CRA has anti-avoidance rules (especially s.84.1 and the surplus-stripping rules) that can prevent LCGE multiplication through transactions with non-arm's-length persons. Genuine estate freezes using s.86 or s.85 with family trusts may allow LCGE multiplication — this requires a CPA who specializes in tax planning.
Key terms
Related sections
Related calculators
CPA recommendation
LCGE claims require careful advance planning and professional documentation. A CPA specializing in business sales or estate planning should review any planned transaction involving the exemption.
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 110.6. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.