What is QSBC?

QSBC (Qualified Small Business Corporation) is a tax classification of shares whose sale qualifies for the Lifetime Capital Gains Exemption (LCGE) — currently sheltering ~$1.25M of capital gains from federal tax.

The three QSBC tests

For shares to qualify at the time of sale:

1. CCPC test — corporation must be a CCPC 2. 90% asset test (point-in-time) — at the moment of sale, ≥90% of corporation's assets (by fair market value) must be used in active business carried on primarily in Canada, OR be shares/debt of a connected QSBC 3. 50% asset test (24-month look-back) — throughout the 24 months prior to sale, >50% of assets must have been used in active business

The shareholder must also have held the shares for at least 24 months.

What "tainted assets" look like

Common assets that DON'T count as active business and can break the 90% / 50% tests:

• Cash and short-term investments above operating needs
• Investment portfolios
• Personal use property
• Real estate not used in operations
• Loans to shareholders or related parties

Pre-sale purification

Most owner-managers need 12–24 months of "purification" planning before sale: distributing excess cash as dividends, separating real estate into a separate holdco, and restructuring intercompany loans. Start early.

Related terms