Canada Growth Incentive $15M capital gains exemption: Key considerations

Canadian business owners could see potentially significant tax relief on their exits under the proposed Canada Growth Incentive (CGI). This measure, proposed in Federal Budget 2026, introduces a new $15 million capital gains exemption on the disposition of qualifying shares of an eligible corporation, as part of the two-part CGI benefit. The exemption is intended to provide an incentive comparable to the US Qualified Small Business Stock (QSBS) regime, encouraging founders, early employees, and investors to scale businesses and retain capital in Canada. The new $15 million exemption would apply separately to each qualifying individual for each qualifying business. If enacted, it would apply to qualifying shares issued on or after November 5, 2026, and before 2037.

The potential benefits are substantial, but qualification may depend on decisions made when shares are issued and throughout the years they're held. Draft legislation hasn't yet been released, and the detailed rules remain subject to change.

What's the new exemption?

Qualifying individuals can claim the CGI exemption to offset capital gains realized on the disposition of qualifying shares of a qualifying business in that year or a preceding tax year, up to $15 million.  

Additional rules will be proposed to prevent individuals from accessing the CGI exemption in circumstances that are inconsistent with the intent of the measure, including arrangements that seek to multiply the exemption limit using multiple corporations that carry on the same underlying business.

What’s a qualifying individual?

A qualifying individual must be at least 18 years old when the qualifying shares are acquired, be a resident in Canada throughout the year in which the CGI is claimed, and not be a trust.

The individual must own the qualifying shares either directly or indirectly through a partnership. Where the shares are held through a partnership, the individual must have been a member of the partnership and at least 18 years old when the partnership acquired the shares. 

Consideration: Trusts aren’t eligible to claim the exemption. This restriction may be particularly relevant for founders who hold startup equity through family trusts and may need to consider how future share issuances are structured to access the CGI exemption. However, given that many sectors are excluded from the definition of qualifying business (discussed below), existing trust structures may continue to be appropriate for many businesses.

What’s a qualifying business? 

A qualifying business is an active business, excluding: 

• Consulting and certain professional practices, including accounting, legal, notarial, medical and other health care, engineering, and architectural practices, and businesses whose principal asset is the reputation or skill of one or more employees.
• Businesses operating in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation, or entertainment sectors.
• Businesses operating under a licensing or franchising agreement.

Consideration: A business whose principal asset is the reputation or skill of one or more employees will not qualify for the exemption. The scope of this exclusion is unclear and will likely depend on the facts and circumstances of each business. This may be particularly relevant for technology start-ups with a small number of employees whose specialized knowledge and skills are key to the value of the business. Additional guidance will be important in determining how this exclusion will apply in practice.

What are qualifying shares? 

To qualify, a corporation’s shares must meet the following conditions:

• At the time the shares are issued, the corporation must be a Canadian-controlled private corporation (CCPC), and all or substantially all of the fair market value of its assets must be attributable to assets used, or reasonably intended to be used within 36 months, principally in a qualifying business carried on primarily in Canada.
• Immediately before and after the shares are issued, the aggregate carrying value of the assets of the corporation and all related corporations must not exceed $100 million.
• The shares must have been issued solely for cash consideration or in exchange for employment services provided by the qualifying individual to the qualifying corporation.
• Throughout the period during which the qualifying shares are owned by the qualifying individual or partnership, at least 50% of the fair market value of the corporation’s assets must be attributable to assets used, or reasonably intended to be used, principally in a qualifying business carried on primarily in Canada. The qualifying business must also be carried on primarily in Canada for at least 24 consecutive months after the shares are issued.
• For at least 36 consecutive months immediately before the disposition, the shares must have been held by the qualifying individual or a partnership of which the qualifying individual was a member.
• At the time of disposition, the corporation must be resident in Canada, and all or substantially all of the fair market value of its assets must be attributable to assets used principally in a qualifying business. The corporation may be either a private corporation or a public corporation listed on a designated stock exchange in Canada.

Considerations: Further clarity is needed on how the $100 million carrying value threshold will be calculated. Based on the existing rollover rules on which the CGI appears to be modelled, carrying value may be determined using the amounts that would be reported on a corporation’s balance sheet under Canadian generally accepted accounting principles. However, this approach can’t be confirmed until draft legislation is released.

It’s also important to note that, although the shares must be issued by a private corporation, they may continue to qualify for the exemption if the corporation subsequently goes public, provided it remains resident in Canada and its shares are listed on a designated stock exchange in Canada. Further consideration should be given to how the 36-month holding period will be tracked in these circumstances.

How does it interact with the lifetime capital gains exemption and alternative minimum tax rules?

Where a qualifying individual claims the CGI exemption on shares of a corporation, the amount of lifetime capital gains exemption (LCGE) available on shares of that corporation will be reduced, and vice versa. In contrast, the CGI exemption and the capital gains exemption for sales to an employee ownership trust or worker cooperative may generally be claimed on the same disposition without reducing the exemption limit available under either measure.

Furthermore, capital gains exempt under the CGI would be subject to a 30% inclusion rate for alternative minimum tax purposes, consistent with the treatment of capital gains eligible for the LCGE. 

Expanded capital gains rollover opportunity

Budget 2026 also expands the existing capital gains rollover for investments in eligible small business corporation shares. This expansion may allow an individual to defer capital gains that aren’t sheltered by the $15 million CGI exemption, including gains exceeding that limit, where qualifying proceeds are reinvested in replacement shares within an expanded window of time (generally, three years after the disposition). Unlike the CGI exemption, the rollover doesn’t have a stated $15 million limit. However, the amount deferred would depend on the qualifying proceeds actually reinvested and the satisfaction of detailed eligibility requirements. The exemption and rollover have different qualification requirements, but when considering ownership structures and a future sale, business owners may wish to consider how the two opportunities could be used together.

Plan now for a future CGI claim

The proposed CGI may provide significant tax savings, but accessing those benefits could depend on decisions made years before a business is sold. Although draft legislation hasn’t yet been released and the detailed rules remain subject to change, business owners should work with their tax, accounting, and business advisors to consider the following planning actions: 

If you would like help evaluating how this proposed measure could benefit your business, contact your local advisor or reach out to us. 

Talk to an advisor

^{Disclaimer 
The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.}