What is LCGE?

The Lifetime Capital Gains Exemption (LCGE) is a Canadian tax provision that allows individual residents to shelter capital gains on qualifying small business shares (and qualifying farm/fishing property) from federal income tax.

2026 limits

• Qualifying small business shares: ~$1,250,000 lifetime exemption per individual
• Indexed annually to inflation

What qualifies

Shares of a "Qualified Small Business Corporation" (QSBC). The corporation must:

1. Be a CCPC at time of sale 2. Use at least 90% of assets in active business carried on primarily in Canada at time of sale 3. Have used at least 50% of assets in active business throughout the 24 months preceding sale 4. Shareholder must have held the shares for at least 24 months

Why it matters

For a founder selling a $5M business, structuring the sale to qualify $1.25M of the gain for LCGE saves roughly $300K in personal tax (depending on province).

Common pitfalls

• "Tainted" assets (excess cash, investments, real estate) can break the 90% / 50% active business tests
• Shares held in a holding company often don't qualify directly
• Pre-sale "purification" planning typically takes 12–24 months and should start early

Related terms