Does the capital gains exemption apply if I owned the shares only briefly?

People ask this after buying into a company, restructuring it or incorporating a sole proprietorship shortly before a sale. The exemption is claimed on a gain from qualified small business corporation shares, and one condition looks at the history of the shares rather than their value. Short ownership does not rule you out, but the exceptions are narrow and technical.

What the look-back tests

The Income Tax Act asks whether, throughout the 24 months before the sale, the shares were owned only by you or by persons and partnerships related to you. The question is not how long you personally held them. Shares bought from an unrelated seller recently were owned by a stranger within the period, while shares held by a relative for years and then passed to you have a different history.

Newly issued shares get a cautious reading

Where a corporation issues shares to you, the Act generally treats them as having been owned just before issue by an unrelated person, unless they were issued as consideration for other shares or fall within another listed exception. That is why shares issued shortly before a sale, including in a restructuring, need a careful look.

Exchanges and substitutions

A separate rule covers shares that were substituted for other shares during the period, which can let the earlier shares’ history count. Whether a particular exchange qualifies depends on how it was carried out, so the documents matter more than the intention.

The other conditions still apply

The holding period is one condition among several. The CRA directs claimants to Form T657 to calculate the deduction, and the company must also pass the tests described in our page on whether your shares qualify. An accountant can chart who held the shares and when, which establishes when the clock started.