Unlocking Tax Opportunities Under the New Canada Growth Incentive

Overview

On November 5, 2026, the federal government tabled “Budget 2026: Masters of Our Destiny” (“Budget”). Included in the Budget among its measures for entrepreneurs is the Canada Growth Incentive (“CGI”), which includes a new exemption on up to $15 million of capital gains realized on the disposition of qualifying shares of a qualifying corporation. The limit applies separately to each qualifying individual in respect of each business. It is important to note that no draft legislation was released in Budget 2026 to implement the CGI. The details of the CGI discussed herein are proposals only, and no assurance can be given that they will be enacted in the form proposed in Budget 2026, or at all.

Who Can Claim the Exemption

The application of the CGI exemption is limited to an individual who:

• was at least 18 years old when the qualifying share was acquired;
• was resident in Canada throughout the year of the claim;
• on or after November 5, 2026 either:
• was issued a share by a qualifying corporation; or
• was a member of a partnership that was issued a share by a qualifying corporation; and
• at the time of disposition, either owned the qualifying share directly or indirectly through a partnership.

Unlike the Lifetime Capital Gains Exemption (“LCGE”), the CGI cannot be claimed in respect of a gain allocated to a beneficiary of a trust. Instead, the policy underlying the CGI seems to preclude income splitting.  In this regard, it is notable that Budget 2026 did not disclose an exemption from the Tax on Split Income rules for gains that qualify for the CGI. From this standpoint, the CGI seems to present a more targeted scope of eligibility.

An individual may claim the exemption in respect of a gain realized in the year of the claim or in a preceding taxation year.

What Business Qualifies

As discussed below, to qualify for the exemption on a disposition of shares of a corporation, the corporation must carry on a “qualifying business”. While the LCGE does not restrict the type of active business carried on by the corporation, the CGI may be claimed only in respect of shares of a “qualifying business”. For these purposes, a qualifying business is an active business other than: consulting services; the professional practice of an accountant, lawyer, notary, physician, other health care practitioner, engineer or architect; any business whose principal asset is the reputation or skill of one or more of its employees; businesses in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation or entertainment sectors; and businesses operating under a licensing or franchising agreement.

Conditions for Claiming the CGI

The following conditions apply for an individual to claim the CGI in respect of a capital gain realized on a disposition of shares.

• CCPC: The shares must be issued by a corporation that was a “Canadian-controlled private corporation” (CCPC) at the time of issuance.
• Holding Period: The share must be held by either the individual claiming the CGI or a partnership of which the individual was a member throughout the 36-month period preceding the disposition.
• 90% Asset Test at Issuance: At the time the share is issued, all or substantially all of the fair market value of the corporation’s 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.
• 50% Asset Test throughout Holding Period: 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 throughout the holding period. That business must also be carried on primarily in Canada for at least the first 24 consecutive months after the share is issued.
• Carrying Value Limit: Immediately before and after the share is issued, the combined carrying value of the assets of the corporation and all corporations related to it must not exceed $100 million.
• Consideration: The share must be issued on or after the Budget date and before 2037 for consideration that consists solely of either cash or employment services provided by the individual to the corporation. Therefore, the CGI operates to only exempt new growth in the corporation that accrues after the Budget date.  Continuity rules will be proposed to permit certain share exchanges involving qualifying shares.
• Disposition: At the time of disposition, the corporation must be a Canadian-resident corporation that is either a private corporation or a public corporation listed on a designated Canadian stock exchange. All or substantially all the fair market value of its assets must be attributable to assets used principally in a qualifying business. It is noteworthy that the corporation is not required to be Canadian-controlled at the time of disposition.

Other Key Features

1. Alternative Minimum Tax: Gains sheltered by the CGI would be included at 30% for AMT purposes, the same as gains eligible for the LCGE.
2. Lifetime Capital Gains Exemption: Claiming the CGI on shares of a corporation limits the LCGE that an individual can claim on shares of the same corporation, and vice versa.
3. Employee Ownership Exits: The CGI can generally be claimed together with the exemption for sales to an employee ownership trust or worker cooperative, and neither claim reduces the other's limit.

Who Should Take Note

• Shareholders of new and early-stage Canadian companies who stand to shelter up to $15 million of gain on a successful exit.
• Investors subscribing for new shares for cash in eligible growth companies.
• Employees receiving shares in exchange for employment services, for whom equity compensation may become considerably more valuable.
• Owners considering an employee ownership transition, who may be able to combine the CGI with the employee ownership trust exemption on a sale of qualifying shares.

Planning Considerations

The CGI applies only to shares issued on or after November 5, 2026, and before 2037, so business owners face meaningful decisions over the next decade. Shareholders should examine their existing ownership structures to determine the optimal tax planning strategy having regard to their circumstances and expectations. For example, shareholders might determine that it is tax efficient to refreeze shares owned by a family trust to shift growth to new shares issued to an active shareholder so as to maximize a CGI claim. Owners and investors should speak with their tax advisors now to best position themselves for an eventual sale.

Key Takeaways

• Advice: Start strategic discussions now to optimize tax efficiency.
• Considerations: Planning to maximize the benefit of claiming the CGI on shares of a corporation may be incompatible with structures designed to access the ability LCGE available on shares of that same corporation, and vice versa. Unlike the LCGE, access to the CGI cannot be multiplied through a family trust and is not available to individual under the age of 18.
• Mechanics: The CGI shelters gain resulting from future growth, and not value that accrued before the Budget date.  The CGI’s application is limited to shares newly issued on or after November 5, 2026, for consideration of either cash or employment services, subject to a 36-month holding period. The exemption is only applicable to qualifying Canadian-controlled private corporations with no more than $100 million in combined assets (including related corporations) at issuance.
• Details to Come: Draft legislation, including continuity and integrity rules, will be released at a future time to supplement the application of the CGI exemption.

How We Can Help

Torkin Manes’ Tax Group advises founders, investors, emerging companies and their employees on structuring and exit planning. We can help you assess whether the CGI may be available to you. For more information, please contact members of our Tax Group.