Capital Gains Reserve Calculator
Spread a capital gain over up to 5 years (standard) or 10 years (family QFFP/QSBCS transfers) when proceeds are receivable in instalments. Computes the T2017 reserve year by year and compares the total tax to recognizing the full gain in the year of disposition.
Disposition Details
Proceeds − ACB − selling costs.
Assumed constant each year.
Proceeds Schedule (5 years)
Year-by-Year Reserve & Tax
| Year | Received | Outstanding | Reserve (a) Proportion | Reserve (b) Formula | Allowable Reserve | Gain Recognized | Tax on Gain |
|---|---|---|---|---|---|---|---|
| 2026 | $200,000 | $800,000 | $320,000 | $320,000 | $320,000 | $80,000 | $13,106 |
| 2027 | $200,000 | $600,000 | $240,000 | $240,000 | $240,000 | $80,000 | $13,106 |
| 2028 | $200,000 | $400,000 | $160,000 | $160,000 | $160,000 | $80,000 | $13,106 |
| 2029 | $200,000 | $200,000 | $80,000 | $80,000 | $80,000 | $80,000 | $13,106 |
| 2030 | $200,000 | $0 | $0 | $0 | $0 | $80,000 | $13,106 |
Allowable reserve each year is the lesser of (a) proportion-of-proceeds-outstanding or (b) the 5-year formula cap. Must reach 0 by year 5.
Total tax with reserve
$65,528Total tax without reserve (lump sum)
$89,720Tax savings from reserve
$24,19227.0% lower
How the reserve formula works
Annual reserve = lesser of:
- (a) Proportion test: gain × (proceeds not yet receivable at year-end) ÷ total proceeds
- (b) Formula cap: gain × (N − 1 − n) ÷ N, where N = 5 standard / 10 family and n = years since disposition (0, 1, 2…)
Standard reserve terminates at 0 by year 4 (year 5 of ownership); family reserve by year 9. The reserve is "added back" to the next year's gain and a new reserve is claimed.
Interaction with LCGE: Gain recognized in each year is eligible for the Lifetime Capital Gains Exemption if the underlying property is QSBCS or QFFP — the reserve defers the LCGE claim alongside the gain.
Watch-outs: Interest component of instalment sales is taxed separately as interest income (100% inclusion). Non-residents at disposition cannot claim the reserve. Election must be made each year on T2017 — you cannot claim a larger reserve than the formula, but you may claim less.
Frequently asked questions
What is a capital gains reserve?
Under ITA s.40(1)(a)(iii), if proceeds from a capital disposition are receivable over more than one year (e.g. vendor take-back mortgage, earn-out), you may defer part of the gain by claiming a reserve on Form T2017. The reserve is the lesser of (a) gain × outstanding proceeds ÷ total proceeds, or (b) gain × (4 − years since disposition) ÷ 5. At least 20% of the gain must be recognized each year.
When can I use the 10-year family reserve instead of 5 years?
Under s.40(1.1), the 10-year reserve applies when the disposition is of Qualified Farm or Fishing Property (QFFP) or Qualified Small Business Corporation Shares (QSBCS) to the taxpayer's child, grandchild, or great-grandchild. The formula changes to (9 − years since disposition) ÷ 10, so at least 10% must be recognized each year.
What form do I file?
Form T2017 — Summary of Reserves on Dispositions of Capital Property — is filed with your T1 return each year until the reserve is fully recognized. The prior-year reserve is added back to that year's capital gain, and the new reserve is deducted.
Who cannot claim a reserve?
Reserves are not available if you were a non-resident of Canada at any time in the year or at disposition, if you are exempt from Part I tax, or if the buyer is a corporation you control. Reserves are also denied for dispositions to tax-exempt entities and in certain section 85 rollovers.
Why spread the gain instead of taking it all at once?
Three reasons: (1) spreading can keep more of the gain in lower marginal tax brackets; (2) it preserves cash flow to match actual proceeds received; (3) it can prevent Old Age Security (OAS) clawback or loss of means-tested credits in a single high-income year. Downsides: if tax rates rise, deferred gain is taxed at higher future rates; and you can never claim more than the formula allows.
Sources
Last updated April 2026. Reflects TY2024–2026 rules (50% inclusion rate). Tax on each instalment computed using CATaxTools' federal + provincial marginal-rate engine. Consult a CPA for complex instalment-sale structures.
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