Qualified small business corporation shares

A share of a corporation is 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 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, an unrelated person owned them. 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

You have to complete Schedule 3 to determine your taxable capital gains or your net capital loss.

Report the dispositions of qualified small business corporation shares on lines 10683 and 10684 of Schedule 3, Capital Gains or Losses for Period 1 and on lines 10699 and 10700 for Period 2.

Forms and publications

• Guide T4037, Capital Gains
• Schedule 3, Capital Gains or Losses

Related topics

• Line 25400 – Capital gains deduction
• Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares, and other shares