A capital gains reserve lets a taxpayer who sells capital property at a gain but is paid over time spread the resulting capital gain across the years in which the proceeds are received, rather than reporting the whole gain in the year of sale. It is claimed on Form T2017, filed with the individual's T1 return.
The reserve generally allows the gain to be deferred over a maximum of five years. For example, a $500,000 gain paid out at $100,000 a year can be reported at roughly $100,000 of gain per year. The reserve can be less attractive where the taxpayer's income is expected to rise over the deferral period, because spreading the gain into higher-bracket years may increase the overall tax.