If you're a business owner thinking about succession or planning a sale, you're not alone. As many Canadian baby boomers look to exit their businesses, there is one powerful tax benefit worth looking into, the Lifetime Capital Gains Exemption (LCGE).

The LCGE can offer a major tax break when selling shares of a qualified small business corporation (QSBC) — and it can apply to farming or fishing properties too. Done right, it could mean paying zero tax on all or part of the capital gains from a sale. Here's what you need to know.

1. How Much Is the LCGE in 2025?

For 2025, the LCGE limit for QSBC shares is $1.25 million, and it's indexed annually to inflation.

Because only 50% of capital gains are taxable in Canada, this means that if you sell shares with a $2.5 million capital gain, your entire taxable portion ($1.25 million) could be exempt — no capital gains tax due.

2. Do You Qualify?

To claim the LCGE on the sale of QSBC shares, you need to meet several conditions. The shares must:

- Be held by you or a related person (like a spouse or adult children) for at least 24 months prior to the sale.

- Belong to a Canadian-controlled private corporation (CCPC).

- Have more than 50% of the fair market value of the company's assets used in an active business carried on in Canada for that 24-month period.

If you're unsure whether your business qualifies, it’s worth reviewing this with your tax advisor — there may be ways to "purify" your company in advance to meet the test.

3. How Does the Exemption Actually Work?

Let’s say you sell shares of a qualified business in 2025 and realize a $2.5 million capital gain.

- 50% of that gain is taxable = $1.25 million

- If you haven’t used your LCGE yet, you can exempt that full $1.25 million

- Net result: No tax payable on the gain

That’s a significant benefit — and it’s why this exemption plays such a big role in succession planning.

4. Tips to Maximize the LCGE

Here are a few strategies that business owners often consider:

Purification: Ensure your business qualifies by cleaning up passive assets like excess cash or portfolio investments before the 24-month test period.

Crystallization: This involves triggering a gain now to lock in the exemption, even if you don’t sell right away — often done via a corporate reorganization.

Multiply the exemption: Family members (such as a spouse or adult children) can own shares and claim their own LCGE, potentially shielding millions more in capital gains.

Stay a resident: To claim the LCGE, you must be a Canadian resident at the time of the sale.

Whether your business sale is on the horizon or still a few years away, early planning is key. The LCGE offers a significant tax advantage, but it comes with specific rules — and missing a requirement could mean losing out on a major opportunity.

Connect with your advisor to ensure you're positioned to fully benefit and to structure your exit in a way that aligns with your long-term financial goals.