LCGE (Lifetime Capital Gains Exemption)
The Lifetime Capital Gains Exemption allows qualifying Canadians to shelter up to $1,275,000 (2026, up from $1,250,000 in 2025) of capital gains from the sale of qualifying small business corporation (QSBC) shares, qualified farm property, or qualified fishing property. Gains sheltered by the LCGE are excluded from taxable income under the regular rules — but NOT from the alternative minimum tax. ITA s.127.52(1) computes adjusted taxable income with capital gains included at 100% and allows the s.110.6 deduction at only 7/5 of the amount claimed, so 30% of a fully sheltered gain remains in the AMT base. A maximum claim by someone with little other income in the year produces roughly $39,000-$41,000 of federal AMT (recoverable as a credit against regular federal tax over the following seven years), plus provincial minimum tax in most provinces.
To use the LCGE on QSBC shares, the corporation must meet strict criteria: it must be a Canadian-controlled private corporation (CCPC), at least 90% of assets must be used in active business in Canada at the time of sale, and more than 50% of assets must have been used in active business throughout the 24 months before the sale.
The LCGE is a lifetime cumulative limit tracked against the exemption amount in effect for the year of disposition — once you've used the full amount available in the year you claim (up to $1,275,000 for 2026), any further qualifying gains are taxable at the normal inclusion rate. The exemption is indexed to inflation and has increased significantly over the years. Proper tax planning around the LCGE can save hundreds of thousands of dollars for business owners and farmers.
How it works
The LCGE is tracked as a lifetime cumulative limit against the exemption amount in effect for the year you actually dispose of the property - $1,275,000 for 2026, up from $1,250,000 in 2025. Once you've claimed the full amount available in your year of disposition, any further qualifying gains you realize are taxed the normal way, through the standard capital gains inclusion rate.
To use the LCGE on shares, the corporation has to meet strict qualified small business corporation tests: it must be a Canadian-controlled private corporation, at least 90% of its assets must be used in active business in Canada at the time of sale, and more than 50% of its assets must have been used in active business throughout the 24 months leading up to the sale. Qualified farm and fishing property follow a similarly structured but separate set of tests.
Because the LCGE lets you shelter large gains from tax in a single year, it's one of the preference items that can trigger a recalculation under the Alternative Minimum Tax for high-income filers, alongside things like the capital gains inclusion rate itself. That interaction is worth factoring into the timing of a large qualifying sale, particularly if other large deductions land in the same year.
Example: Sheltering a $1,275,000 gain in 2026
A business owner sells qualifying small business corporation shares in 2026 for a capital gain of $1,275,000, having never claimed the LCGE before. Because this is exactly the 2026 exemption amount, the full gain is sheltered and none of it is added to taxable income.
Compare that to a sale that doesn't qualify for the LCGE: at the standard 50% inclusion rate, the same $1,275,000 gain would add $637,500 to taxable income, taxed at the seller's marginal rate - the LCGE is the difference between that and paying nothing on the gain at all.
Frequently asked questions
Is the LCGE a one-time claim or does it carry forward?
It's a lifetime cumulative limit tracked against the exemption amount for your year of disposition, so you can use it across multiple qualifying sales until the full lifetime amount is used up.
Does the LCGE apply to any small business I sell?
No, the shares have to meet qualified small business corporation tests - Canadian-controlled private corporation status, at least 90% of assets in active business at the time of sale, and over 50% throughout the prior 24 months - or the property has to be qualified farm or fishing property.
Can claiming the LCGE affect my Alternative Minimum Tax?
Yes, the LCGE is one of the tax preference items the AMT recalculation adds back, so a large LCGE claim can push a high-income filer into paying AMT in that year.
Related Terms
Capital Gains
A capital gain arises when you sell a capital property — such as stocks, mutual funds, ETFs, real estate (other than your principal residence), or cryptocurrency — for more than its adjusted cost base (ACB).
Inclusion Rate
The inclusion rate determines what portion of a capital gain is included in your taxable income.
ACB (Adjusted Cost Base)
The Adjusted Cost Base (ACB) is the cost of an asset for tax purposes, used to calculate capital gains or losses when the asset is sold.