Qualified small business corporation shares

A share of a corporation will be considered to be a qualified small business corporation share if all the following conditions are met:

  • at the time of sale, it was a share of the capital stock of a small business corporation, and it was owned by you, your spouse or common-law partner, or a partnership of which you were a member
  • throughout that part of the 24 months immediately before the share was disposed of, while the share was owned by you, a partnership of which you were a member, or a person related to you, it was a share of a Canadian-controlled private corporation and more than 50% of the fair market value of the assets of the corporation were:
    • used mainly in an active business carried on primarily in Canada by the Canadian-controlled private corporation, or by a related corporation
    • certain shares or debts of connected corporations
    • a combination of these two types of assets
  • throughout the 24 months immediately before the share was disposed of, no one owned the share other than you, a partnership of which you were a member, or a person related to you

Generally, when a corporation has issued shares after June 13, 1988, either to you, to a partnership of which you are a member, or to a person related to you, a special situation exists. The CRA considers that, immediately before the shares were issued, they were owned by an unrelated person. As a result, to meet the holding-period requirement, the shares cannot have been owned by any person other than you, a partnership of which you are a member, or a person related to you for a 24-month period that begins after the shares were issued and that ends when you sold them.

However, this rule does not apply to shares issued in any of the following situations:

  • as payment for other shares
  • for dispositions of shares after June 17, 1987 as payment of a stock dividend
  • in connection with a property that you, a partnership of which you were a member, or a person related to you disposed of to the corporation that issued the shares. The property disposed of must have consisted of either:
    • all or most (90% or more) of the assets used in an active business carried on either by you, the members of the partnership of which you were a member, or the person related to you
    • an interest in a partnership where all or most (90% or more) of the partnership's assets were used in an active business carried on by the members of the partnership

Capital gains deduction
If you have a capital gain when you sell qualified small business corporation shares, you may be eligible for the capital gains deduction.

Completing your Schedule 3

Report the disposition of qualified small business corporation shares on lines 106 and 107 of Schedule 3.

Note 

Do not report the following transactions in this section of Schedule 3:

  • the sale of other shares, such as publicly traded shares or shares of a foreign corporation
  • your losses when you sell any shares of small business corporations to a person with whom you deal at arm's length. For more information, see Allowable business investment loss (ABIL)
  • any disposition of qualified small business corporation shares if you elect to defer the capital gains that resulted from it. See capital gains deferral for investment in small business for more information
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