Selling a dental practice: the lifetime capital gains exemption
Key takeaways
- The Lifetime Capital Gains Exemption for 2026 is $1,275,000 on qualifying shares.
- A share sale qualifies for the exemption. An asset sale does not.
- Goodwill on an asset sale is Class 14.1 at 5 percent declining balance.
- Whether your shares qualify depends on holding period and active-business tests that need attention years before a sale.
The LCGE for dentists
The Lifetime Capital Gains Exemption lets you sell qualifying shares of your dental corporation and shelter up to $1,275,000 of capital gains in 2026. That is an indexed increase from $1,250,000 in 2025.
The shares must be shares of a qualified small business corporation. That means you must have held them for at least 24 months, and during that period at least 50 percent of the corporation’s assets must have been used in an active business carried on primarily in Canada.
Share sale vs asset sale
| Feature | Share sale | Asset sale |
|---|---|---|
| LCGE eligible | Yes, up to $1,275,000 | No |
| Goodwill | Included in share gain | Taxed as capital gain, buyer gets Class 14.1 at 5% |
| Equipment | Transfers with the corporation | Sold separately, CCA recapture taxed |
| Buyer preference | Less common (no fresh cost base) | More common (fresh cost base on assets) |
Goodwill on a dental practice sale
In an asset sale, goodwill is treated as Class 14.1 under the capital cost allowance rules. It is taxed as a capital gain to you, half included in income, and the buyer amortizes it at 5 percent declining balance per year.
Before a share sale it helps to know who can hold the shares. In a BC dental corporation, voting shares are held by the dentist, and non-voting shares can be held by family such as a spouse, children, or parents. Setting up those family non-voting shares early is often part of what lets a later share sale qualify for the exemption.
On a share sale, goodwill is not separated out from other assets. The total gain on the shares is calculated, and the LCGE applies to that gain up to the exemption limit.
Why this matters: the buyer usually wants an asset sale. The seller usually wants a share sale. That negotiation drives the deal structure. If you plan early, keeping the corporation qualifying as a QSBC, you have more leverage.
Frequently asked questions
Can I use the LCGE on an associate’s buy-in?
Yes, if the buy-in involves selling shares of your corporation. A partial sale of shares to an incoming associate can qualify for a proportional use of your exemption.
Does the exemption apply to goodwill only?
No. The exemption applies to the entire capital gain on qualifying shares, not just the portion of the gain that relates to goodwill.
What if my practice owns real estate separately?
Real estate held inside the corporation counts toward the active-asset test. If more than 50 percent of the corporation’s assets are real estate used in the practice, it still qualifies. But if the corporation owns investment real estate unrelated to the practice, that may push the QSBC test out.
What is Class 14.1?
Class 14.1 is the CCA class for purchased goodwill. Depreciation is 5 percent declining balance per year. That means the buyer recovers the cost of goodwill very slowly.
Can my spouse use the LCGE too?
Yes. If your spouse holds qualifying shares in the dental corporation and sells them, they can use their own lifetime capital gains exemption on the gain. Each person has their own $1,275,000 limit.
Talk to us about your practice sale plans at ghumans.ca/accounting-for-dentists.
General information only. Talk to us about your situation.