Capital Gains Reserve Calculator
Spread a capital gain over up to 5 years (standard) or 10 years (family QFFP/QSBCS transfers) when proceeds are receivable in instalments. Computes the T2017 reserve year by year and compares the total tax to recognizing the full gain in the year of disposition.
Disposition Details
Proceeds − ACB − selling costs.
Assumed constant each year.
Proceeds Schedule (5 years)
Year-by-Year Reserve & Tax
| Year | Received | Outstanding | Reserve (a) Proportion | Reserve (b) Formula | Allowable Reserve | Gain Recognized | Tax on Gain |
|---|---|---|---|---|---|---|---|
| 2026 | $200,000 | $800,000 | $320,000 | $320,000 | $320,000 | $80,000 | $12,268 |
| 2027 | $200,000 | $600,000 | $240,000 | $240,000 | $240,000 | $80,000 | $12,268 |
| 2028 | $200,000 | $400,000 | $160,000 | $160,000 | $160,000 | $80,000 | $12,268 |
| 2029 | $200,000 | $200,000 | $80,000 | $80,000 | $80,000 | $80,000 | $12,268 |
| 2030 | $200,000 | $0 | $0 | $0 | $0 | $80,000 | $12,268 |
Allowable reserve each year is the lesser of (a) proportion-of-proceeds-outstanding or (b) the 5-year formula cap. Must reach 0 by year 5.
Total tax with reserve
$61,340
Total tax without reserve (lump sum)
$77,442
Tax savings from reserve
$16,101
20.8% lower
How the reserve formula works
Annual reserve = lesser of:
- (a) Proportion test: gain × (proceeds not yet receivable at year-end) ÷ total proceeds
- (b) Formula cap: gain × (N − 1 − n) ÷ N, where N = 5 standard / 10 family and n = years since disposition (0, 1, 2…)
Standard reserve terminates at 0 by year 4 (year 5 of ownership); family reserve by year 9. The reserve is "added back" to the next year's gain and a new reserve is claimed.
Interaction with LCGE: Gain recognized in each year is eligible for the Lifetime Capital Gains Exemption if the underlying property is QSBCS or QFFP — the reserve defers the LCGE claim alongside the gain.
Watch-outs: Interest component of instalment sales is taxed separately as interest income (100% inclusion). Non-residents at disposition cannot claim the reserve. Election must be made each year on T2017 — you cannot claim a larger reserve than the formula, but you may claim less.
Frequently asked questions
What is a capital gains reserve?
ITA s.40(1)(a)(iii) lets you defer part of a capital gain when proceeds are receivable in future years. Annual reserve is the lesser of the proportion test and the 1/5 formula cap; at least 20% of the gain must be recognized each year.
When can I use the 10-year family reserve?
s.40(1.1) — QFFP or QSBCS transferred to your child, grandchild, or great-grandchild. Formula becomes 1/10, so gain spreads across 10 years.
What form do I file?
T2017 — Summary of Reserves on Dispositions of Capital Property — filed with T1 each year until the reserve is fully recognized.
Who cannot claim a reserve?
Non-residents of Canada, tax-exempt entities, and dispositions to controlled corporations cannot claim the reserve.
Why spread the gain?
Bracket smoothing, cash-flow matching with actual proceeds, and avoiding OAS clawback or credit loss in a single high-income year.
Sources
Last updated April 2026. Reflects TY2024–2026 rules (50% inclusion rate). Tax on each instalment computed using CATaxTools' federal + provincial marginal-rate engine. Consult a CPA for complex instalment-sale structures.
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