Update on Capital Gain Rate Change Proposals

(Prime Minister Mark Carney said on March 21, 2025 will cancel this proposed tax increase in capital gain inclusion rate but keep the $1.25M LCGE.)

The Department of Finance announced on January 31, 2025, that the federal government will delay the increase in the capital gains inclusion rate from 50% to 66.67%. The change, originally scheduled for June 25, 2024, will now take effect on January 1, 2026. The rate applies to individuals with capital gains over $250,000 annually, as well as all gains from corporations and most trusts.

To prevent higher taxes for most middle-class Canadians, several exemptions and incentives will be maintained or introduced:

• Principal Residence Exemption: Capital gains from selling a home will remain tax-free.
• $250,000 Annual Threshold: Starting in 2026, individuals can continue benefiting from the current 50% inclusion rate on capital gains under this threshold.
• Lifetime Capital Gains Exemption: This will increase to $1.25 million in June 2024 for small business, farming, and fishing property sales.
• Canadian Entrepreneurs’ Incentive: From 2025, this incentive will reduce the inclusion rate to one-third on up to $2 million in eligible capital gains, increasing yearly until it reaches $2 million in 2029.

This article is intended for general information purposes only and does not constitute professional advice.  Income tax law and regulation change frequently and the content on this article may no longer reflect the current state of the law. If you have any specific questions, you should consult a professional services advisor or email us for further advice.