
The federal government has announced a delay in the planned increase to the capital gains inclusion rate, pushing the effective date from June 25, 2024, to January 1, 2026.
Minister of Finance and Intergovernmental Dominic LeBlanc confirmed the postponement, citing measures to protect middle-class Canadians and encourage investment.
The capital gains inclusion rate determines the taxable portion of capital gains. Under the revised timeline, the inclusion rate will rise from one-half to two-thirds on annual capital gains exceeding $250,000 for individuals, and on all capital gains realized by corporations and most trusts.
To offset potential tax burdens, the government is maintaining and enhancing key capital gains exemptions:
- Principal Residence Exemption: Canadians will continue to be exempt from capital gains tax on the sale of their primary home.
- New $250,000 Annual Threshold: Effective January 1, 2026, individuals will pay the existing one-half inclusion rate on the first $250,000 of annual capital gains. This includes gains from selling secondary properties such as cottages. A couple selling a cottage with a $500,000 gain would not see an increase in taxation.
- Increased Lifetime Capital Gains Exemption: The exemption will rise from $1,016,836 to $1.25 million, effective June 25, 2024, for small business shares and farming and fishing property. Canadians with eligible capital gains under $2.25 million will benefit from lower taxes, even after the inclusion rate increase in 2026.
- Canadian Entrepreneurs’ Incentive: A new measure to support entrepreneurship, this incentive will reduce the inclusion rate to one-third for eligible capital gains, up to a lifetime maximum of $2 million. It will take effect in 2025 and increase annually by $400,000, reaching $2 million in 2029. Combined with the new lifetime exemption, entrepreneurs will see tax relief on up to $6.25 million in capital gains.
The federal government will introduce legislation to implement these changes, including the inclusion rate adjustment, increased lifetime exemption, and new entrepreneurs’ incentive, in due course.