Lifetime Capital Gains Exemption (LCGE)

What qualifies for the LCGE

The LCGE covers two categories of property:

• Qualified Small Business Corporation (QSBC) shares — most common case, applies to most Canadian private business shares
• Qualified farm property or qualified fishing property — separate higher limits, applies to family farms and commercial fisheries
• Both require strict tests on holding period, active business use, and corporation structure

QSBC tests in detail

To qualify a corporation as a QSBC at the time of share disposition, three tests must be met:

• Small Business Corporation (SBC) test at disposition: at the moment of sale, the corporation must be a CCPC (Canadian-controlled private corporation) with 90% or more of its assets used in an active business carried on primarily in Canada
• 24-month holding period test for shares: the shareholder must have held the shares for at least 24 months before disposition
• 24-month asset use test: throughout the 24 months preceding disposition, more than 50% of the corporation's assets must have been used in an active business carried on primarily in Canada

Multiplication of the LCGE

Each individual Canadian resident has their own LCGE limit. By structuring share ownership through a family trust (with multiple beneficiaries) or by issuing shares directly to multiple family members, the cumulative LCGE available can be multiplied. A common holdco-opco estate freeze with a family trust holding new common shares can multiply the LCGE across the family — subject to attribution rules, kiddie tax rules, and post-2018 TOSI considerations.