What to take away
- A reserve is only about timing: it defers part of a gain when you have not yet been paid in full, and it generally runs for four years, so the gain is included over five.
- A longer nine-year reserve period applies only to certain transfers, such as family farm or fishing property or qualified small business corporation shares passed to a child.
- You claim the reserve on Form T2017 each year, you must include the prior year’s reserve in the next year, and a later reserve cannot exceed the one before.
What a capital gains reserve does
Normally you report a capital gain in the calendar year you sell the property, even if the buyer has not paid you yet. That can create a tax bill on money you have not received. A reserve is the Canada Revenue Agency’s mechanism for easing that mismatch. You work out the full gain, deduct a reserve for the part of the proceeds you have not been paid, and report only the remainder in the year of the sale.
The reserve does not cancel the gain. It moves part of it into later years, where it comes back into your calculation. If you were paid in full at closing, as with most home or share sales, there is nothing to defer and no reserve is needed.
Who can and cannot claim one
Most individuals can claim a reserve, but CRA lists situations where you generally cannot. You cannot claim a reserve for a tax year if, at the end of that year or at any time in the following year, you were not a resident of Canada, you were exempt from paying tax, or you sold the property to a corporation that you control in any way.
The residency condition looks a year ahead, which matters if you are planning a move. A reserve claimed in one year can be lost if you stop being a Canadian resident during the next. If you may leave Canada, or you plan to sell to your own holding company, raise it before the sale agreement is final.
How long a reserve can last
For most sales the maximum reserve period is four years, so the whole gain is included in income over five years: the year of the sale and the four that follow. You do not have to claim the maximum in a given year. You can choose to report more of the gain sooner, for example in a year when your income is low.
CRA provides a nine-year reserve period, with the gain included over ten years, in certain cases. These include transfers to your child of family farm or fishing property, transfers to your child of qualified small business corporation shares, a qualifying business transfer, and certain intergenerational business transfers to a corporation controlled by your children. CRA defines who counts as your child for this purpose, and the definition is broader than a biological child, so check it against your family situation.
An illustrative example
The numbers below are round and illustrative only, and the size of the reserve you can actually claim comes from the calculation on Form T2017. Suppose you sell a rental property and your capital gain, after the adjusted cost base and selling costs, is $100,000. You are paid part of the price at closing and the rest over later years, and in year one you claim a reserve of $60,000. You report $40,000 of the gain in year one.
In year two, the $60,000 reserve from year one is added back into the calculation. If money is still owing, you may claim a new reserve, but it cannot be more than $60,000. Say you claim $30,000, so you report $30,000 net for year two. In year three the $30,000 comes back in, and if nothing remains owing you claim no new reserve and report $30,000. The full $100,000 has now been reported in three years, with the taxable portion determined by the inclusion rate that applies.
The inclusion rate and what is not changing
A reserve changes when the gain is reported, not how much of it is taxable. CRA’s capital gains pages treat one-half of a capital gain as taxable in their current examples. The proposed increase of the inclusion rate that was announced in 2024 was later cancelled, as CRA notes on its page for corporations. As always, confirm the rate that applies to the year your gain is included before estimating a tax bill.
The reserve also interacts with the capital gains deduction. A gain that comes back from a reserve qualifies for the capital gains deduction only if the original gain was from property eligible for it. If you expect to rely on the lifetime capital gains exemption for a business sale, discuss the reserve and the exemption together rather than separately.
How to claim it on your return
You calculate the reserve on Form T2017, Summary of Reserves on Dispositions of Capital Property. The last page of the form explains how to work out the maximum you can deduct and for how many years. The amount from line 31 of Form T2017 is entered on line 19200 of Schedule 3, and the related gain is reported on the same schedule. You also need to include the previous year’s reserve in the current year’s gain, and CRA’s example uses a 2024 reserve that is included for 2025.
CRA reminds taxpayers that reporting a disposition requires a return even if no tax is owing, and that this includes reporting the taxable part of a reserve deducted in an earlier year. For an intergenerational business transfer, there is an additional step: complete the relevant section of Form T2017 and file Form T2066 on or before the transferor’s filing due date for the year of the sale.
Gifts of certain securities
A separate reserve rule applies if you donate a non-qualifying security to a qualified donee. The reserve cannot exceed the eligible amount of the gift, and it is available for tax years that end within 60 months after the gift. If the donee disposes of the security, or it stops being a non-qualifying security, before the end of the year, no reserve is allowed. Instead you are treated as having made a donation that year and can claim the donation credit.
This is a specialized area and the details are in CRA’s capital gains guide. If you are considering a donation of shares or similar property, plan it with an accountant ahead of time.
What to settle before the sale closes
The reserve depends on the payment terms, so the sale agreement matters. Ask for a written schedule showing how much is paid at closing, how much is due each year and when. Keep the closing statement, the adjusted cost base calculation, a note of your selling costs and every T2017 you file, because each year’s claim builds on the last.
Bring these questions to your accountant. Do you meet the residency and related-party conditions for this year and the next? Is a four-year or nine-year period available? How would the exemption, a recapture amount or a flipping rule affect the result? The articles on selling a rental property and on selling a business cover those neighbouring questions.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- Claiming a capital gains reserveCanada Revenue Agency
- How do you calculate and report a reserve?Canada Revenue Agency
- Calculating and reporting your capital gains and lossesCanada Revenue Agency
- What’s new for corporationsCanada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.