Eligible small business investment rollover (s. 44.1)
The eligible small business investment rollover is a deferral in section 44.1 of the Income Tax Act. Where an individual makes a qualifying disposition of eligible small business corporation shares and acquires replacement shares, the capital gain may be deferred, subject to the conditions in the section.
Sellers who are individuals and reinvest their proceeds in another small business may ask about this rule. Subsection 44.1(1) defines the terms that matter, including qualifying disposition, qualifying portion of the proceeds of disposition and replacement share. Subsection 44.1(2) applies where an individual has made a qualifying disposition in a taxation year.
What the CRA says
The CRA’s capital gains guide lists the deferral of eligible small business corporation shares as a reporting line. It describes a qualifying disposition as one made by an individual other than a trust, and describes an eligible small business corporation as generally a Canadian-controlled private corporation where all or substantially all of the fair market value of its assets are used principally in an active business carried on primarily in Canada, or are shares or debt of related eligible small business corporations. The guide also describes proposed changes to the definition and to the time allowed to acquire replacement shares, so confirm what is in force.
What to ask
- Is the seller an individual rather than a trust?
- Were the shares sold eligible small business corporation shares?
- Are the replacement shares themselves eligible, and by when must they be acquired?
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of Canada — Justice LawsGovernmentIncome Tax Act, section 44.1 (deferral of capital gain on eligible small business investments)
- 02Canada Revenue AgencyGovernmentCapital Gains – 2025
- 03Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
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