Which section of the Income Tax Act sets out the lifetime capital gains exemption?

The Act’s definition of a qualified small business corporation share is a definition for an individual, other than a trust that is not a personal trust, tested at a determination time. This page maps where the federal rules sit and does not work out any amount.

The deduction in section 110.6

Section 110.6(2.1) lets the individual deduct such amount as they may claim, capped by the least of the amounts listed in its paragraphs. Paragraph (a) makes the first amount the amount determined by the formula in section 110.6(2)(a) for the year. Another amount is the excess of the cumulative gains limit at the end of the year over the amount deducted under section 110.6(2) for the year. A further amount is the excess of the annual gains limit for the year over that same deducted amount. Notwithstanding subsections (2) and (2.1), section 110.6(4) caps the total deductible under section 110.6 for a year at the section 110.6(2)(a) formula amount plus any amount deductible under section 110.6(2.2).

Small business corporation in section 248(1)

Subject to section 110.6(15), section 248(1) defines a small business corporation at a particular time as a Canadian-controlled private corporation all or substantially all of whose asset value at that time is attributable to the asset types in paragraphs (a) to (c).

Sections 110.61 and 110.62

Section 110.61 has a separate deduction for an individual other than a trust who disposes of shares to a trust, or to a purchaser corporation wholly owned by the trust, after 2023 under a qualifying business transfer, if its listed conditions are met. Section 110.62 has its own deduction for a qualifying cooperative conversion, with its own conditions.

The CRA’s guide and form

The CRA describes form T657 as the form for individuals who have disposed of farm or fishing property or small business corporation shares, in the year or in a previous year. Its guide T4037 for 2025 says a taxpayer who disposes of shares under a qualifying business transfer may also claim a deduction under section 110.6 if the shares also qualify and all requirements are met.

Ask your accountant about your own shares.