LCGE (Lifetime Capital Gains Exemption)

The Lifetime Capital Gains Exemption (LCGE) is the most significant tax shelter available to Canadian business owners selling their company. It allows an eligible individual to shelter up to $1,275,000 of capital gains from income tax in 2026 on the sale of Qualified Small Business Corporation (QSBC) shares. Because the capital gains inclusion rate is 50%, the LCGE effectively shelters $637,500 from taxable income — at Ontario's top marginal rate of approximately 53.5%, this represents a tax saving of roughly $341,000.

The LCGE applies only to the sale of QSBC shares — not to asset sales, and not to the sale of holding company shares that do not meet the QSBC criteria. The qualifying criteria include: at least 90% of the corporation's assets must be used in an active business at the time of sale, more than 50% of assets must have been used in an active business for the 24 months immediately before the sale, and the shares must have been held for at least 24 months.

The LCGE amount is indexed to inflation annually. Each eligible individual has their own LCGE limit — in family-owned businesses, multiple family members holding shares may each be able to claim the exemption on their respective gains.

See also: QSBC, Capital Gains, Inclusion Rate, Share Sale, Estate Freeze, Purification.