Are You Capital Gains Exempt?

The Income Tax Act provides a $750,000 capital gains exemption on any capital gains from Qualified Farm Property (QFP), for fishermen, and Qualified Small Business Corporation Shares (QSBCS) over a taxpayer’s lifetime.

The capital gains deduction is the least of:

• unused lifetime deduction*;

• annual gains limit**; and

• cumulative gains limit***.

*Unused Lifetime Deduction

The unused lifetime deduction is $375,000 (50% of $750,000) less all previous claims from QFP and QSBCS and claims from previous deduction limits (i.e. $500,000 and $100,000).

**Annual Gains Limit

The annual gains limit refers to the taxpayer’s maximum entitlement to capital gains deductions during the current year.

***Cumulative Gains Limit

The cumulative gains limit refers to the taxpayer’s entitlement to capital gains deduction for all years.

Exclusions from Capitals Gains Treatment

Life Insurance Policy

If a taxpayer incurs a gain on the disposition of a life insurance policy or the cash value/investment account exceeds the adjusted cost base (ACB), the gain is treated as income and doesn’t receive any preferential tax treatment i.e. Capital Gains.