Budget 2026 proposes a new capital gains exemption that could allow eligible Canadian-resident individuals to shield up to $15 million in gains from the sale of qualifying business shares.
The proposed Canada Growth Incentive would apply a separate $15-million limit to each qualifying individual in respect of each business, according to the federal government’s tax-measures document.
The measure is a proposal and is not yet an enacted tax rule.
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How the proposed capital gains exemption would work
The exemption would be available to an individual who is at least 18 years old when they acquire the qualifying shares and who is resident in Canada throughout the year in which the exemption is claimed.
The individual could claim the exemption for a capital gain realized in the year of the claim or in a preceding taxation year, subject to the proposed conditions and the available limit.
The shares would generally have to be issued directly to the individual, or to a partnership in which the individual is a member.
The shares would also have to be issued by a qualifying corporation rather than acquired from another shareholder on the secondary market.
Businesses and shares would face strict conditions
At the time the shares are issued, the corporation would have to be a Canadian-controlled private corporation.
Its assets would also need to be used, or reasonably intended to be used within 36 months, principally in a qualifying business carried on primarily in Canada.
The combined carrying value of the assets held by the corporation and related corporations could not exceed $100 million immediately before and after the shares were issued.
The shares would have to be issued solely for cash or in exchange for employment services provided by the qualifying individual.
The budget also proposes continuity rules for certain share-for-share exchanges and corporate reorganizations.
During the period the shares are held, at least 50 per cent of the corporation’s asset value would generally have to be connected to assets used, or reasonably intended to be used, principally in a qualifying business.
The business would also have to operate primarily in Canada for at least 24 consecutive months after the shares are issued.
The shares would need to be held by the individual, or the relevant partnership, for at least 36 consecutive months immediately before the disposition.
Several sectors would be excluded
The proposed definition of a qualifying business would exclude a number of activities and industries.
- Consulting businesses and several professional practices, including accounting, legal, medical, engineering and architectural practices.
- Businesses whose principal asset is the reputation or skill of one or more employees.
- Agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation businesses.
- Arts, recreation and entertainment businesses.
- Businesses operating under licensing or franchising agreements.
The exclusions mean that a corporation’s legal structure alone would not determine eligibility.
The nature of the business, how its assets are used and how long the shares are held would all matter.
When the proposal would apply
The measure would apply to qualifying shares issued on or after Budget Day and before 2037.
The government’s document defines Budget Day as the day on which Budget 2026 is presented.
That proposed start date is important for business owners considering future incorporation, fundraising or employee share arrangements.
Shares issued before Budget Day would not qualify under the stated coming-into-force rule unless later legislation provides otherwise.
Interaction with existing tax exemptions
The Canada Growth Incentive would not operate entirely independently of the existing Lifetime Capital Gains Exemption.
A claim under the new exemption would limit the ability to use the Lifetime Capital Gains Exemption for a sale of shares of the same corporation.
The reverse would also apply: using the Lifetime Capital Gains Exemption on shares of a corporation would limit the individual’s ability to later use the proposed Canada Growth Incentive for that corporation.
The budget says an individual could generally claim both the exemption for a sale to an Employee Ownership Trust or worker cooperative and the proposed Canada Growth Incentive on the same share sale, with one exemption not reducing the limit available under the other.
Capital gains sheltered through the proposal would still be subject to a 30 per cent inclusion rate for alternative minimum tax purposes, matching the treatment of gains eligible for the Lifetime Capital Gains Exemption.
Anti-avoidance rules are still to come
The government says additional integrity rules would be introduced to prevent taxpayers from multiplying the exemption by using several corporations that carry on the same underlying business.
Details of those rules have not yet been released.
That leaves important planning questions unresolved for owners with related companies, holding companies, reorganizations or multiple shareholders.
The accompanying Notice of Ways and Means Motion says the Income Tax Act would be modified to give effect to the Canada Growth Incentive proposal described in the budget documents.
The notice itself does not provide the full technical design of the exemption.
What business owners should do now
Business owners should treat the announcement as a proposed framework rather than an immediately available deduction or exemption.
Those considering a share issuance, sale or reorganization may want to preserve records showing the date and consideration for any shares, the corporation’s asset values, the location of business operations and the nature of the corporation’s activities.
Because the proposal includes minimum holding periods, Canadian business-operation tests, sector exclusions and possible anti-avoidance rules, taxpayers should obtain advice from a qualified tax professional before relying on the proposed $15-million limit.
Frequently Asked Questions
Is the $15-million capital gains exemption already law?
No. Budget 2026 proposes the Canada Growth Incentive, but Parliament would still need to enact the measure before taxpayers could claim it.
Who could qualify for the proposed exemption?
A Canadian-resident individual at least 18 years old when acquiring the shares could qualify, provided the shares, corporation, business activity and holding period meet the proposed conditions.
Would every private-company share qualify?
No. The proposal includes requirements for Canadian-controlled private corporations, business assets, Canadian operations, share issuance, holding periods and qualifying business activities.
How much could one person claim?
The proposal sets a $15-million limit for each qualifying individual in respect of each qualifying business.
When would the proposed measure apply?
It would apply to qualifying shares issued on or after Budget Day and before 2037, subject to the final legislation and any later technical changes.
Fact-Checked: Key details were checked against the Government of Canada’s Budget 2026 tax-measures document and accompanying draft legislative notice.
Disclaimer: This article describes a proposed tax measure and is not personal tax or investment advice.