Government of Canada delays capital gains rate increase

On January 31, 2025, the Government of Canada announced a deferral in the implementation of the proposed increase to the capital gains inclusion rate.

Do I still have to pay tax on capital gains this year?
If the increase is being deferred, what is the current rate?
What is the new rate that is being proposed?
When does the new rate go into effect?
Will the rate increase actually happen in 2026?
What if I already paid tax using the increased inclusion rate?
Are there any other changes taking effect?

Do I still have to pay tax on capital gains this year?

Yes, you still have to pay tax on capital gains, but you will not be subject to the higher inclusion rate that was proposed last year.

If the increase is being deferred, what is the current rate?

The current inclusion rate is 50%. So for individuals, any capital gains earnings above $250,000 will be taxed at 50%, and for corporations and trusts, all capital gains will be taxed at 50%.

What is the new rate that is being proposed?

The new inclusion rate for individuals is 50% on the first $250,000 of capital gains, and 66.67% on anything above $250,000. For corporations and trusts, all gains will be subject to a 66.67 inclusion rate%.

EXAMPLE An individual sells a revenue property and realizes $400,000 in capital gains. Under the proposed increase:

• The first $250,000 will be included at 50%
• The reining ma$150,000 ($400,000 - $250,000) will be included at 66.67%
• Resulting in a total taxable capital gain of $225,000

When does the new rate go into effect?

The new rate is being deferred until January 1, 2026.

Will the rate increase actually happen in 2026?

The current government has indicated its intention to do so, however, there are multiple variables at play (leadership race, possible election, etc.) that could affect the outcome of this decision. For the time being, we recommend proceeding as though the proposed changes will, in fact, come into play in 2026.

What if I already paid tax using the increased inclusion rate?

The CRA will coordinate corrective reassessments to reverse the application of the two-thirds (66.67%) inclusion rate, and taxpayers who already filed a return using the increased rate should be able to amend their prior filing. In other words, if you overpaid your taxes, you're eligible to get that money back.

Are there any other changes taking effect?

• 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.
  
  
• Increasing the Lifetime Capital Gains Exemption (LCGE) 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.
  
  
• A new Canadian Entrepreneurs’ Incentive, to encourage entrepreneurship by reducing the inclusion rate to one-third (33.33%) 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.

Questions?

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