The federal budget tabled on November 5, 2026, has already generated considerable discussion. Beyond the headlines, however, certain conditions warrant particular attention.
Here are some observations on the announced measures and their potential implications for entrepreneurs and their families.
The Canada Growth Incentive (CGI) would allow an individual to claim a capital gains exemption of up to $15 million for each qualifying business. Unlike the lifetime capital gains exemption (LCGE), which provides an exemption of $1,275 million, this limit would apply separately to each business, subject to rules intended to prevent it from being multiplied through several corporations operating the same business.
The measure appears to draw inspiration from the U.S. regime for Qualified Small Business Stock (QSBS), whose limit was recently increased to US$15 million. It could therefore help narrow the competitive gap with the United States in attracting and retaining entrepreneurs.
Several conditions would have to be met to benefit from the measure. In particular, shares would have to be issued between November 5, 2026, and December 31, 2036, in exchange for cash or employment services, and held for at least 36 months. The individual would have to hold them directly or through a qualifying partnership. In our understanding, ownership through a holding company or family trust would therefore be excluded.
Existing businesses are not necessarily excluded. However, it is not yet clear whether a simple reorganization could make previously held shares eligible. The details of the announced continuity rules will be needed to determine this.
Several sectors would also be ineligible, including professional services, consulting, real estate, financial services, restaurants and accommodation, as well as businesses operated under a licence or franchise.
The exclusion of businesses whose principal asset is the “reputation or skill of one or more employees” raises interpretive difficulties. Does the value of the business depend primarily on key individuals, or on assets belonging to the business itself, such as its intellectual property, processes or equipment? The question will be particularly delicate where goodwill is the most significant asset, as is often the case for an SME: does that goodwill arise from the business itself or from the reputation of its executives? Some uncertainty will remain until the tax authorities clarify their position.
Finally, anti-avoidance rules would prevent the CGI and LCGE from being claimed on the same gain. Other combinations might be possible: for example, the exemption applicable to a sale to an employee ownership trust could be combined with the CGI, for a total of up to $25 million.
As with the LCGE, an amount equal to 30% of the exempt gain would be included in the calculation of alternative minimum tax (AMT).
For a fully exempt gain of $15 million, the calculation would be as follows, assuming Quebec harmonizes its rules with the federal measure:
Exempt capital gain: $15,000,000
Inclusion for AMT purposes (30%): $4,500,000
Basic exemption (2026): ($181,440)
Tax base after exemption: $4,318,560
AMT rate: 20.5%
AMT before federal abatement: $885,305
Québec federal abatement (16.5%): ($146,075)
AMT after exemptions and abatement: $739,230
Exempt capital gain: $15,000,000
Inclusion for AMT purposes (30%): $4,500,000
Basic exemption (2026): ($183,680)
Tax base after exemption: $4,316,320
AMT rate: 19%
AMT after exemption: $820,101
Combined Result
The total AMT would therefore amount to $1,559,330, broken down as follows:
Federal: $739,230, representing an effective tax rate of 4.93%.
Québec: $820,101, representing an effective tax rate of 5.47%.
The combined effective tax rate would therefore reach 10.40% on the $15 million exempt capital gain.
Excess AMT can normally be recovered over the following seven years, to the extent that regular income tax in those years exceeds the AMT that would otherwise be payable.
However, this recovery is not automatic. In our example, more than $1,1 million in taxable income would have to be earned annually during those years to recover the full AMT. This income must be other than a capital gain and must be earned personally by the same taxpayer, rather than through a holding company.
As with the LCGE, the business would have to be “purified,” meaning that its assets would have to be used primarily in its operations. “All or substantially all” (approximately 90%) of its assets would have to be used in the business when the shares are issued and when they are sold, and at least 50% throughout the holding period.
This is a test based on the corporation’s balance sheet, requiring regular monitoring of financial statements rather than a review limited to the time of sale and the preceding 24 months, as is the case with the LCGE.
A business that accumulates cash or investments not needed for its operations therefore risks losing eligibility. Such surplus assets will often have to be removed from the corporation before the sale.
Under many ownership structures, a family trust holds the growth shares and a holding company is among its beneficiaries, particularly to extract surplus cash and protect assets. The requirement for direct ownership by the individual makes it necessary to consider other approaches.
Could certain shares be transferred to a holding company that does not own the operating company, and then redeemed by the operating company? This approach would require an analysis of safe income, subsection 55(2) of the Income Tax Act (ITA), and the exception under paragraph 55(3)(a) of the ITA. A sale to a third party forming part of the same “series” could jeopardize that exception. Moreover, such a transaction would likely have to be repeated annually to purify the corporation.
In light of the foregoing—namely, the impact of AMT, the significant number of excluded businesses, and the uncertainty surrounding corporate purification and asset protection—we believe family trusts remain relevant.
A family trust continues to serve estate-transfer and asset-protection objectives, while providing flexibility in determining who will benefit from future growth.
Before changing your ownership structure, the often-uncertain advantages of the CGI must be weighed against the functions of the existing structure, particularly since shares already held would not automatically become eligible.
Section 44.1 of the ITA allows an individual, other than a trust, to defer certain capital gains when the proceeds from the disposition of small business shares are reinvested in eligible replacement shares.
This mechanism also has conditions. In particular, the shares sold must have been held for at least 185 days.
Both the shares sold and the shares acquired must meet the applicable criteria; simply acquiring shares of another corporation is not enough. As a general rule, the new shares must be issued directly to the individual by the corporation. Certain businesses, including professional and real estate corporations, are excluded.
The budget proposes the following changes for qualifying dispositions made on or after January 1, 2027:
The deferral applies only to the gain exceeding the portion exempt under the LCGE and is proportional to the share of the disposition proceeds that is reinvested.
For example, an individual sells qualifying shares for $1 million with an adjusted cost base (ACB) of $200,000, realizing a gain of $800,000. If the individual reinvests only $800,000 (80% of the proceeds), only $640,000 of the gain can be deferred, and $160,000 will be immediately taxable. To defer the entire gain, the full $1 million must be reinvested.
The potential tax is thus shifted to a future disposition: the gain is not eliminated.
For an entrepreneur seeking to finance a new venture after a sale, the proposed relief, including the extended deadline, offers greater flexibility. For example, a qualifying sale completed in 2027 would generally allow reinvestment until the end of 2030, or even 2032 in certain circumstances.
Since January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act has, subject to exceptions, prevented non-Canadians from directly or indirectly purchasing residential property located in Canada.
The prohibition covers, in particular, buildings containing no more than three dwelling units, such as detached houses, semi-detached houses and row houses, as well as condominium units. It also applies to corporations and entities controlled by non-Canadians. It primarily targets properties located in certain specified areas. A violation may result in a fine of up to $10,000 and an order to sell the property.
The budget proposes extending the ban on purchases of existing residential properties by non-Canadians until January 1, 2029. Newly built properties, however, would be exempt. This distinction is intended to encourage investment in construction.
The regime already provides for several exceptions. Our team can help you assess them and structure your transfers accordingly.
We welcome these new measures, but their actual benefits will depend on your circumstances. Note that legislative proposals for the CGI have not yet been released, and some of its details may still change.
Our tax law team can help you assess your circumstances and incorporate these measures into a plan tailored to your objectives.
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