February 11th, 2025

On January 31st, the Federal government announced a deferral of the capital gains inclusion rate increase. Originally set to take effect on June 25, 2024, the change will now take effect on January 1, 2026. The inclusion rate will rise from one-half to two-thirds for annual capital gains exceeding $250,000 for individuals and for all capital gains realized by corporations and most types of trusts. The capital gains inclusion rate determines the taxable portion of capital gains. 

To ensure most middle-class Canadians do not pay more tax once the capital gains inclusion rate is increased, the government will maintain or enhance existing capital gains exemptions while creating a new investment incentive. 

The capital gains exemptions being maintained and created would include: 

• Maintaining the Principal Residence Exemption, to ensure Canadians do not pay capital gains taxes when selling their home. Any amount they make when they sell their home will remain tax-free. 
• A new $250,000 Annual Threshold for Canadians, effective January 1, 2026, to ensure individuals earning modest capital gains continue to benefit from the current one-half inclusion rate. Capital gains, including on the sale of a secondary property such as a cottage, will be eligible for the $250,000 annual threshold, meaning a couple selling a cottage with a $500,000 capital gain would not pay more tax. 
• Increasing the Lifetime Capital Gains Exemption to $1.25 million, effective June 25, 2024, from the current amount of $1,016,836 on the sale of small business shares and farming and fishing property. With this increase, Canadians with eligible capital gains below $2.25 million would pay less tax and be better off, even after the inclusion rate increases on January 1, 2026. 
• A new Canadian Entrepreneurs’ Incentive, to encourage entrepreneurship by reducing the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains. This incentive would take effect starting in the 2025 tax year and the maximum would increase by $400,000 each year, reaching $2 million in 2029. Combined with the new $1.25 million lifetime capital gains exemption, when this incentive is fully rolled out, entrepreneurs would pay less tax and be better off on capital gains of up to $6.25 million. 

The proposed implementation date for the increase in the Lifetime Capital Gains Exemption and the introduction of the Canadian Entrepreneurs’ Incentive would not change. 

The government will introduce legislation effecting the increase in the capital gains inclusion rate, the increase in the Lifetime Capital Gains Exemption and the introduction of the Canadian Entrepreneurs’ Incentive in due course. 

June 18th, 2024

Earlier this year, the 2024 Federal Budget announced plans to increase the inclusion rate for capital gains realized on or after June 25, 2024. Alongside tabling the Notice of Ways and Means Motion, the Department of Finance has recently released additional information that clarifies how the change will be implemented.  

Effective June 25, 2024, the inclusion rate will increase from 1/2 to 2/3 for corporations and trusts and from 1/2 to 2/3 for individuals on the portion of capital gains in the year that exceeded $250,000. Transitional rules will apply to address tax years that begin before and end on or after June 25, 2024 where two different inclusion rates would apply. 

For more information, please review the Notice of Ways and Means Motion, and Technical Backgrounder provided by the Department of Finance.