Yes, you need to complete a T657 form in TurboTax to claim the Lifetime Capital Gains Exemption (LCGE) on the sale of your small business shares. The T5 slip includes the full amount of your capital gains and any eligible dividends. However, the LCGE allows you to deduct a portion of your capital gains. Completing the T657 helps calculate the eligible portion of the capital gain that qualifies for the exemption.
Why your test has shown higher income:
T5 includes the full amount of your capital gain (not the deducted amount), causing a higher net income for tax purposes. The T657 form will then reduce your taxable income by the amount of the capital gains exemption you qualify for. This will ultimately lead to a lower tax owing compared to not claiming the exemption.
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