Excluded industries and the $100M active asset test
The CGI covers only an active “qualifying business” carried on primarily in Canada. The Budget annex excludes consulting, professional practices, reputation-or-skill businesses, franchises, and businesses in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation and entertainment sectors. Issuers must also hold $100,000,000 or less in group assets at carrying value.
The exclusion list, word for word
The Budget 2026 annex defines a qualifying business as “an active business other than”:
- “a business providing consulting services, a professional practice of an accountant, lawyer, notary, physician, other health care practitioner, engineer, architect, and any business whose principal asset is the reputation or skill of one or more employees;”
- “a business operating in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation, or entertainment sectors; and”
- “a business operating under a licensing or franchising agreement.”
That makes 16 categories. The first group is defined by what the business does (consulting, professional practice, reliance on people’s skill). The second is defined by sector, a word the annex does not define. The third is defined by business model (licensing or franchising). A business has to clear all three groups, be an active business, and be carried on primarily in Canada.
Sector reference table
| Business model | Reading of the annex | Why |
|---|---|---|
| B2B / B2C software product (SaaS, licensed software) | Not listed | No software or technology sector exclusion |
| Biotech, medtech, drug development | Not listed | A product company is not a “professional practice” of a health practitioner |
| Hardware, advanced manufacturing, robotics | Not listed | Manufacturing is not an excluded sector |
| Dev shop, agency, IT consulting billed by the hour | Excluded | “Consulting services”; often “reputation or skill of … employees” |
| Lender, payments institution, insurer, insurtech carrier | Excluded | Operates in the financial or insurance sector |
| Software sold to banks, brokers or landlords | Open question | “Operating in the … sectors” is undefined |
| Property owner, developer, brokerage | Excluded | Real estate sector |
| Clinic or practitioner-delivered health services | Excluded | Professional practice of a physician or other health care practitioner |
| Video games, streaming, media, events | Open question | Arts, recreation or entertainment sector boundaries undefined |
| Restaurant, hotel, ghost kitchen | Excluded | Food and accommodation sector |
| Agtech, mining tech, energy generation | Open question | Agricultural, mining or utilities sector boundaries undefined |
| Franchisee or licensee of another brand’s system | Excluded | “Operating under a licensing or franchising agreement” |
“Not listed” means only that the annex does not exclude the model. The business must still meet the active-business, CCPC, asset and Canada tests. “Open question” means the outcome depends on definitions not yet released.
SaaS vs. tech-enabled consulting
The line that matters most for Canadian tech companies is the one between selling a product and selling people’s time. The annex excludes “a business providing consulting services” and “any business whose principal asset is the reputation or skill of one or more employees.” The same “reputation or skill” phrase appears in the excluded-business list of the U.S. QSBS statute, 26 U.S.C. § 1202(e)(3), which the CGI list closely resembles. The CGI wording, though, will be interpreted on its own Canadian text once draft legislation is released.
| Points toward a product business | Points toward consulting / skill-based services |
|---|---|
| Recurring subscription or licence revenue for software the company owns | Revenue billed by hours, days or statements of work |
| Value sits in code, IP, data and customer contracts | Value sits in named individuals’ expertise and relationships |
| Gross margin scales without adding staff in proportion | Headcount grows roughly in line with revenue |
| Implementation services are a small share of revenue | The “platform” is mainly a delivery tool for bespoke work |
Many companies sit in the middle, for example SaaS businesses with large professional-services arms. The annex gives no percentage test for mixed businesses.
Fintech, proptech and other grey zones
Note the difference in wording. The professional-services exclusion is tied to activities (“providing consulting services”), while the sector exclusion is tied to operating in a sector. Expect the boundaries of the sector list to draw the most comments when draft legislation is published.
The four asset tests and when they apply
| When | Test | Measured by |
|---|---|---|
| At issuance | Corporation is a CCPC; all or substantially all of asset value attributable to assets used, “or reasonably intended to be used within 36 months,” principally in a qualifying business carried on primarily in Canada | Fair market value |
| Immediately before and after issuance | Combined assets of the corporation and all related corporations ≤ $100,000,000 | Carrying value |
| Throughout your ownership | 50% or more of asset value attributable to assets used, or reasonably intended to be used, principally in a qualifying business | Fair market value |
| 24 consecutive months after issuance | Qualifying business carried on primarily in Canada | Activity |
| At disposition | Canadian-resident corporation, private or listed on a designated stock exchange in Canada; all or substantially all of asset value attributable to assets used principally in a qualifying business | Fair market value |
“All or substantially all” is not quantified in the annex. The CRA has long read the phrase administratively as 90% or more, and the annex describes the same phrase in the rollover context as “generally at least around 90 per cent.”
The $100M carrying-value ceiling
The size test uses the combined carrying value of the issuer and all corporations related to it, checked immediately before and immediately after each issuance. Three consequences follow:
- Book value, not valuation. A company valued at $1 billion with $40 million on its balance sheet can pass. A capital-heavy company valued at $60 million with $110 million of book assets cannot.
- The round itself counts. Cash raised by the issuance is on the balance sheet “immediately after.” A company with $90 million of assets that raises $14 million ends at $104 million, so the new shares fail even though the company qualified a moment earlier.
- Related corporations count. Assets of related corporations (for example sister companies under common control) are added in, so a startup cannot get under the line by splitting assets across a related group.
The 36-month cash deployment rule: three cases
At issuance, cash can count as a qualifying asset only if it is “reasonably intended to be used within 36 months” principally in the qualifying business. Three companies, each with $25,000,000 of assets at fair market value immediately after a round:
| Case | Operating assets | Cash with 36-month plan | Surplus investments | Qualifying share | Result |
|---|---|---|---|---|---|
| A — $18M round, board-approved 30-month hiring and product budget | $6,000,000 | $18,000,000 | $1,000,000 | 96.0% | Meets ~90% reading |
| B — same round, $10M parked in GICs with no plan | $6,000,000 | $8,000,000 | $11,000,000 | 56.0% | Fails at issuance |
| C — $90M book assets before a $14M round | Carrying value: $90,000,000 before → $104,000,000 after | — | Fails $100M test | ||
Qualifying share = (operating assets + planned cash) ÷ total assets. Case A: ($6,000,000 + $18,000,000) ÷ $25,000,000 = 96.0%. Case B: ($6,000,000 + $8,000,000) ÷ $25,000,000 = 56.0%. Case B would still meet the separate 50% throughout-ownership test, but the shares issued in that round would not qualify. Documented intent, such as board-approved budgets and minutes, is how “reasonably intended” is usually shown.
The exit-day trap: no “intended use” at disposition
At issuance and throughout ownership, the annex counts assets used or reasonably intended to be used in the qualifying business. At disposition, the wording is narrower: “all or substantially all of the fair market value of the corporation’s assets must be attributable to assets used principally in a qualifying business.” Read literally, a company that is holding a large unspent round when the founders sell could fail the disposition test even if the cash is earmarked. Planning before a sale may therefore need to address idle cash. Whether the final CGI legislation keeps this asymmetry is something to watch in the draft.
For the remaining tests (the 36-month hold, the age-18 and residency rules, and the issuance window), run the 6-point eligibility self-check.
Frequently asked questions
Does a SaaS company qualify for the Canada Growth Incentive?
Is a fintech or proptech startup excluded from the CGI?
Can a startup that just raised a large round still pass the CGI asset test?
Does the $100 million CGI asset limit use market value or book value?
Statutory & official source references
- Department of Finance Canada — Budget 2026: Tax Measures: Supplementary Information (sections “Canada Growth Incentive – Capital Gains Exemption” and “Canada Growth Incentive – Rollover for Investments in Small Businesses”), tabled November 5, 2026.
- Department of Finance Canada — Notice of Ways and Means Motion to amend the Income Tax Act (Budget 2026).
- Income Tax Act, s. 125(7) — “Canadian-controlled private corporation” and “active business carried on in Canada” definitions.
- Income Tax Act, s. 248(1) — “small business corporation” and “active business” definitions.
- Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 110.6 — Lifetime Capital Gains Exemption and “qualified small business corporation share” definition.
- Income Tax Act, s. 44.1 — Eligible Small Business Corporation (ESBC) share rollover (as amended by S.C. 2026, c. 3).
- United States Code, 26 U.S.C. § 1202 — partial exclusion for gain from certain small business stock (as amended July 4, 2025).