Selling My Canadian Business Before or After Moving to the US

By Yarik Yarosh, CPA ·August 21, 2026 ·10 min read

Written by Yarik Yarosh, CPA (US & Canada) August 21, 2026 · FL CPA license AC61704 · CPA Ontario

If you own shares of a qualifying small business corporation (QSBC) in Canada and you are planning to move to the US, the timing of the sale relative to your departure changes the tax outcome significantly. Selling before you leave lets you use the Lifetime Capital Gains Exemption (LCGE) under ITA 110.6, which can shelter up to $1,275,000 (2025, indexed) of capital gains on qualifying shares. Selling after you leave means the LCGE is no longer available (it requires Canadian residency), and the gain may be taxable in both countries.

The departure tax (deemed disposition under ITA 128.1(4)) adds another layer: when you leave Canada, you are deemed to have sold your shares at fair market value, triggering a capital gain. If you have not actually sold the shares, you owe tax on the unrealized gain at departure, and you can claim the LCGE against that deemed gain if the shares qualify. If you sell after departure, the US taxes the gain from the departure-date FMV to the actual sale price, and Canada has already taxed the gain up to the departure date.

✓Key takeaway

Sell before you leave if the shares qualify for the LCGE. The exemption shelters up to $1,275,000 of capital gains (2025) at a 0% effective rate. After departure, the LCGE is unavailable, and the gain is split between two countries: Canada taxes the gain accrued to the departure date (through the deemed disposition), and the US taxes the gain accrued after the departure date (with a stepped-up basis at the departure-date FMV). If the gain exceeds the LCGE, the excess is taxed at regular capital gains rates in Canada (50% inclusion, or 66.7% above $250,000 of net gains), and the departure tax on the excess must be considered alongside the US tax on any post-departure appreciation.

The Lifetime Capital Gains Exemption

The LCGE under ITA 110.6 allows Canadian residents to claim a deduction that eliminates tax on capital gains from the disposition of qualified small business corporation shares. For 2025, the cumulative limit is $1,275,000 (indexed annually).

Qualifying conditions for QSBC shares:

The shares must be of a Canadian-controlled private corporation (CCPC) at the time of disposition
Throughout the 24 months before disposition, the shares must have been owned by the taxpayer or a related person
Throughout the 24 months before disposition, more than 50% of the corporation’s assets (by FMV) must have been used principally in an active business carried on primarily in Canada
At the time of disposition, 90% or more of the corporation’s assets (by FMV) must be used principally in an active business carried on primarily in Canada, shares of connected corporations meeting the same test, or a combination

The conditions are strict, and the 24-month holding period and asset tests must be met at the time of sale (or deemed sale). If your corporation has significant passive investments (rental income, portfolio investments, excess cash), the asset tests may fail, and the LCGE may not be available.

Scenario 1: sell before departure

You sell the QSBC shares while you are still a Canadian resident. The gain is reported on your Canadian return. The LCGE shelters up to $1,275,000 of the gain. Any excess is taxed at regular capital gains rates (50% inclusion on the first $250,000 of net gains, 66.7% above that).

US tax: if you are not yet a US person (you have not become a US resident for tax purposes), the US has no taxing right on the sale. The gain is purely Canadian. If you are already a US person (e.g., a US citizen living in Canada who is about to move to the US), you must report the gain on your US return, but the FTC for Canadian tax paid offsets the US tax.

The LCGE and the US: the US does not recognize the LCGE. From the US perspective, the full capital gain is taxable income. However, the FTC for Canadian tax paid on the non-exempt portion of the gain, combined with the fact that the gain is capital (taxed at lower US rates), usually produces a manageable US tax bill. The portion sheltered by the LCGE in Canada produces no Canadian tax, which means no FTC is available for that portion, and the US taxes it. For a US citizen selling before departure, the LCGE produces a Canadian tax savings but does not produce a US tax savings. The net benefit of the LCGE is reduced by the US tax on the exempted portion.

For a non-US-person selling before departure: the LCGE shelters the gain completely (up to the limit), and the US has no role. This is the cleanest outcome.

Scenario 2: departure tax (deemed disposition)

When you leave Canada, ITA 128.1(4) deems you to have disposed of all your capital property (including QSBC shares) at fair market value. The deemed disposition triggers a capital gain equal to the FMV minus your adjusted cost base.

You can claim the LCGE against the deemed disposition, the same as if you had actually sold the shares. If the shares qualify and the gain is within the LCGE limit, the departure tax on the shares is zero.

Why not just rely on the departure tax + LCGE? This works if the shares qualify. The risk is that the shares may not qualify at the departure date. The QSBC asset test (90% active business assets at disposition, 50%+ for the prior 24 months) is tested at the deemed disposition date. If the corporation has accumulated cash or passive investments by the time you leave, the tests may fail, and the LCGE may not be available for the deemed disposition.

If you know you are leaving, selling the shares (or purifying the corporation by removing excess passive assets) before departure gives you more control over the timing and the asset test.

Scenario 3: sell after departure

You leave Canada without selling the shares. The departure tax triggers a deemed disposition at FMV. You claim the LCGE against the deemed gain (if the shares qualify). After the departure, you actually sell the shares.

Canada: the deemed disposition at departure already triggered the gain up to the departure-date FMV. The subsequent actual sale is a disposition by a non-resident. If the shares are “taxable Canadian property” (TCP), Canada has the right to tax the gain on the actual sale. QSBC shares are TCP by definition (ITA 248(1), paragraph (d) of the definition). The gain on the actual sale is the sale price minus the departure-date FMV (which became your new ACB for Canadian purposes). Canada taxes this post-departure gain under Section 116 (non-resident dispositions of TCP), and the buyer must withhold 25% of the sale price unless you obtain a clearance certificate.

US: the US uses the departure-date FMV as your cost basis (because ITA 128.1(1)(b) provides a step-up at immigration for the move TO the US, and the departure-date FMV is the same number). The US gain is the sale price minus the departure-date FMV. This is the same gain Canada taxes on the post-departure sale, so both countries tax the same post-departure gain. The FTC prevents double taxation: you claim a credit for the Canadian tax on the US return.

The complication: the pre-departure gain was sheltered by the LCGE in Canada (zero Canadian tax). The US does not recognize the LCGE. But if you were not a US person at the time of the deemed disposition, the US had no taxing right on the pre-departure gain. The US only taxes the post-departure gain (from immigration-date FMV to sale price). If the post-departure appreciation is small (you sell shortly after arriving in the US), the US tax is small. If you hold the shares for years in the US and the business appreciates significantly, the US gain grows.

Hypothetical example

A hypothetical with made-up numbers. A Canadian entrepreneur in Vancouver owns 100% of a QSBC. Her ACB is $100,000. The shares are worth $1,500,000. She is moving to Washington State.

Option A: sell before departure. Canadian gain: $1,400,000. LCGE shelters $1,275,000. Taxable gain: $125,000 (at 66.7% inclusion above $250,000 threshold, but she has only $125,000 of excess, so 50% inclusion applies). Tax on $62,500 of included gain at approximately 45% combined rate: approximately $28,000. Total Canadian tax: $28,000. If she is not a US person, US tax: $0.

Option B: departure tax + LCGE, sell after moving. Departure deemed disposition: gain of $1,400,000. LCGE shelters $1,275,000. Canadian tax on excess: approximately $28,000 (same as Option A). She moves to Washington. Shares are now worth $1,500,000 (same FMV). She sells immediately after arriving. US basis: $1,500,000 (step-up at immigration). US gain: $0. Canadian post-departure gain: $0 (sale price = departure FMV). Total tax: same $28,000.

Option C: departure tax + LCGE, sell two years later at $2,000,000. Departure deemed disposition: same $28,000 Canadian tax. Two years later, she sells for $2,000,000. Post-departure gain: $500,000 ($2,000,000 - $1,500,000 departure FMV). Canada taxes the $500,000 as a non-resident disposition of TCP (Section 116). US taxes the $500,000 as a long-term capital gain (15% or 20% rate). FTC prevents double taxation. But both countries tax the post-departure appreciation, and the LCGE is not available for the post-departure gain (she already used it on the pre-departure gain).

If she had sold before departure for $2,000,000 instead: Canadian gain: $1,900,000. LCGE shelters $1,275,000. Excess: $625,000 (66.7% inclusion on $375,000 above $250,000, 50% on first $250,000). Tax: approximately $120,000. But no US tax (she is not a US person). Net saving vs Option C: she avoids US tax on $500,000 of post-departure gain, which would be approximately $75,000 to $100,000 (federal + Washington 7% capital gains tax on gains over $270,000).

Illustrative numbers only, not a real client and not advice for your facts.

Corporation purification

If your corporation has excess cash or passive investments that may cause the QSBC asset tests to fail, you can “purify” the corporation before the sale or departure. This involves:

Paying out excess cash as dividends (taxable to you, but preserves the LCGE for the share sale)
Transferring passive assets to a holding company (requires careful structuring to avoid anti-avoidance rules)
Using excess cash to pay down corporate debt or invest in active business assets

Purification should be planned well in advance of the sale or departure, because the 24-month holding period test looks back from the disposition date. A last-minute purification may not satisfy the 24-month test.

What should I do next?

If you own a QSBC and are planning to move to the US, get the LCGE qualification confirmed now. If the shares qualify, decide whether to sell before departure (cleanest for non-US-persons) or rely on the departure tax + LCGE (works if qualification is certain). If the shares do not currently qualify, determine whether purification can fix it within the 24-month window. The planning should start at least two years before the move.

Leaving Canada permanently: a tax checklist, the full departure process
Canada vs US tax rates: a side-by-side comparison, for the post-move tax picture
Form 1116: why isn’t my FTC dollar for dollar?, the FTC mechanics on the post-departure gain

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Cite this page

Yarik Yarosh, CPA. "Selling My Canadian Business Before or After Moving to the US." Blue Cloud CPA, August 21, 2026. https://bluecloudcpa.com/guides/selling-canadian-business-before-after-moving-to-us

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.