This section focuses on the prerequisites for a share to be considered a QSBC. If you have a farming or fishing business, the criteria will differ. To qualify as a QSBC, all relevant criteria must be met.

The initial criterion requires the sale to involve a share of a Small Business Corporation's (SBC) capital stock. An SBC must be Canadian-controlled, privately owned (not publicly traded or owned by a publicly traded company), and the majority (90% or more) of its assets, assessed by fair market value, are primarily used (over 50%) in an active business mainly carried out in Canada. This is one of the "asset tests" that can be challenging to meet if the corporation holds investments, has surplus cash, or owns inactive assets. In addition, meeting this 90% test requires the corporation to be "purified" before the sale.

A secondary condition stipulates that for two years (24 months) before the share's disposition, it must have been owned exclusively by you or a related person. Furthermore, during these 24 months, over 50% of the assets should have been utilized in an active business run by a Canadian-controlled private corporation or related corporation. This is the second asset test with a lower threshold (50%) than the first one (90%).