Qualified small business corporation (QSBC) shares are shares of a Canadian-controlled private corporation that meet a set of tests in the Income Tax Act, the reward for which is access to the lifetime capital gains exemption on a sale. Sheltering a substantial capital gain (over one million dollars per individual, indexed) under the exemption can make the QSBC tests among the most valuable provisions for a private-business owner.
Broadly, at the time of sale the corporation must be a small business corporation using all or substantially all of its assets in an active business carried on primarily in Canada; for the 24 months before the sale, more than 50% of its assets must have been so used; and the shares must have been owned by the seller or a related person throughout that period. Excess passive cash or investments can "contaminate" the shares and cause them to fail the tests. "Purification" — removing non-active assets well before a sale, often to a holding company — is the planning that keeps the shares qualifying.