Understand the T657 form for capital gains deductions
Understand how to use Form T657 to claim the capital gains deduction and reduce taxes on qualified small business shares or farming and fishing property
Canada’s tax system allows certain capital gains to be deducted from your taxable income—but only if they come from specific types of property. If you sold qualified small business corporation shares (QSBC shares) or certain farming or fishing property, you may be eligible to claim the capital gains deduction using Form T657.
This matters because the capital gains deduction can shield a significant portion of profit from tax. But it comes with detailed rules, eligibility criteria, and tracking requirements. Filing Form T657 properly ensures your deduction is allowed and aligns with CRA expectations.
What Does Form T657 Do?
Form T657 helps you calculate and claim the lifetime capital gains deduction (LCGD) available on eligible dispositions. It tracks:
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Your total capital gains deduction claimed to date
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The current year’s eligible gains
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Your remaining lifetime limit (indexed annually)
The CRA uses the form to verify that your claimed deduction is correct, applies only to eligible property, and does not exceed your cumulative limit.
Who Can Use the Capital Gains Deduction?
The capital gains deduction applies to individuals (not corporations) who disposed of:
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Qualified small business corporation (QSBC) shares
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Qualified farm or qualified fishing property
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Shares or assets transferred to a spouse or estate in qualifying circumstances
To qualify, the property must meet CRA’s criteria both when acquired and when sold. For example, QSBC shares must meet specific ownership, use, and asset tests.
Capital Gains Deduction Eligibility Overview
| Eligible Property | Example | Lifetime Limit (2024) |
|---|---|---|
| Qualified Small Business Corporation Shares | Shares in an active Canadian-controlled private company | $1,016,836 |
| Qualified Farm Property | Real estate used in farming business | $1,000,000 |
| Qualified Fishing Property | Vessels and equipment used in a fishing business | $1,000,000 |
| Inherited Eligible Property | Gains on qualifying assets transferred via will | Subject to same limits if property qualifies |
The limits are indexed to inflation and may increase annually. The small business shares limit is higher due to policy support for entrepreneurship and business growth.
Key Features of Form T657
When completing the form, you’ll need to provide:
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Description of the property sold
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Date of acquisition and sale
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Proceeds of disposition and adjusted cost base
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Calculated capital gain and the eligible portion for deduction
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Your cumulative net investment loss (CNIL) balance, which may reduce or eliminate your deduction
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Any previously claimed capital gains deductions
If you have a CNIL balance, it offsets your eligibility for the deduction. You’ll need to calculate and disclose this as part of the form.
Tip: Always check your CNIL and ensure all investment income and expenses are correctly reported. An incorrect CNIL can affect your deduction even if the gain itself qualifies.
Lifetime Limit on the Capital Gains Deduction
As of 2024, the indexed lifetime limit is:
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$1,016,836 for qualified small business corporation shares
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$1,000,000 for qualified farm or fishing property
If you have already claimed a portion of this deduction in prior years, your remaining limit will be lower. CRA uses Form T657 to track your cumulative deduction balance.
Tip: If you’re planning to sell eligible shares or farm property, review your deduction history before closing the sale. Coordinating the timing and structure of the transaction can help you preserve more of your lifetime capital gains exemption.