QSBS in Canada: The Canada Growth Incentive (CGI)

The Canada Growth Incentive (CGI) was announced in Canada's federal Budget 2026 on November 5, 2026. It pairs two measures: a capital gains exemption of up to C$15 million on qualifying shares, and an expanded small business investment rollover.

The CGI is modelled on the U.S. Qualified Small Business Stock (QSBS) regime. Canadian tech and investor groups pushed for a Canadian QSBS, including the “Bet on Canada” campaign led by the Council of Canadian Innovators, NACO and the CVCA.

These are budget proposals and not yet law. Details may change before the measures are enacted.

The CGI capital gains exemption shelters up to C$15 million of gains on qualifying shares. These are the key rules proposed in Budget 2026.

• You’re a Canadian-resident individual (not a trust) for the year you claim
• You were 18 or older when you acquired the shares
• The shares were issued to you (or your partnership) for cash or for employment services
• The shares were issued on or after November 5, 2026, and before 2037
• At issuance, the company was a Canadian-controlled private corporation with C$100M or less in assets (including related companies)
• The business isn’t in an excluded sector
• The business was carried on primarily in Canada for at least 24 months after issuance
• You held the shares for at least 36 months before selling
• At sale, the company is Canadian-resident and private, or listed on a designated Canadian stock exchange

Additional anti-abuse rules are still to come, so treat this as a starting point, not a final test.

Budget 2026 illustrates the effect of the exemption on a C$15M capital gain.

QSBS is a U.S. federal rule, and some states, including California, tax those gains anyway, which is part of why California's figure is lower.

The small business rollover in section 44.1 of the Income Tax Act defers, but does not forgive, tax when you sell qualifying small-business shares and reinvest in new ones. The deferred gain reduces the cost base of the new shares. Budget 2026 expands the section 44.1 rollover in several ways:

• Reinvestment window: the year of sale plus three calendar years for sales from January 1, 2027 (currently the year of sale plus one).
• SAFEs: investors who enter a qualifying agreement for future equity can get up to two extra years, for up to five in total.
• Looser active-business test: during the holding period a company needs to use “primarily” all of its assets (generally over 50%) in an active business, instead of “all or substantially all” (generally 90%+). The 90% test still applies when the shares are issued and sold.
• Proportional deferral: deferral is proportional to how much of the proceeds you reinvest; proceeds never reinvested are charged interest at a prescribed rate.
• Individuals only: the rollover is available to individuals (not trusts). Budget 2026 did not extend it to corporations or funds.

How does the small business rollover in Canada compare with the U.S. Section 1045 rollover?

Canada wins on time. The 60-day U.S. window is the rollover's biggest practical hurdle. Canada's multi-year runway makes it a real tool for building a portfolio of new companies.

The U.S. wins on flexibility. Section 1045 works for partnerships and trusts, and fund investors can roll gains at the fund level or personally. Canada's rollover is limited to individuals.

The big open question. It isn't yet clear whether time held in the old shares counts toward Canada's 36-month requirement, or whether a deferred gain could later be sheltered by the C$15M exemption. Draft legislation should settle both.

• Founders

  Keep far more of a successful exit at home.

• Early employees

  Shares issued for employment services can qualify, making startup equity more valuable.

• Angel investors

  Better after-tax returns on the riskiest early cheques, and years to reinvest exit proceeds into the next Canadian startup.

1. November 5, 2026

   Budget 2026 tabled; the CGI exemption applies to qualifying shares issued from this date.

2. January 1, 2027

   Expanded rollover applies to qualifying sales from this date.

3. 2027–28

   First fiscal year the government expects CGI tax relief.

4. To come

   Draft legislation and anti-abuse (“integrity”) rules.

5. End of 2036

   Last date shares can be issued and still qualify for the exemption.

• Sector exclusions: consulting and professional services, finance, insurance, agriculture, fishing, forestry, mining, utilities, real estate, food and accommodation, arts, recreation, entertainment, and franchised or licensed businesses.
• You can’t use both the CGI and the Lifetime Capital Gains Exemption on the same company’s shares.
• CGI-exempt gains still count toward Alternative Minimum Tax, at a 30% inclusion rate.
• Anti-abuse rules are still to come, including rules to stop people from multiplying the limit across several corporations.
• Only shares issued on or after November 5, 2026, qualify, so existing shareholdings don’t benefit.
• The measures are proposals and could change before becoming law.