On January 31, 2025, Minister of Finance Dominic LeBlanc announced the federal government would delay increasing the capital gains inclusion rate. Initially set for June 25, 2024, the change will take effect on January 1, 2026.
The capital gains inclusion rate determines the taxable portion of capital gains. Under the deferred plan, this rate will rise from one-half to two-thirds for annual gains over $250,000 for individuals and all gains by corporations and most trusts.
Key Exemptions and Incentives
Principal Residence Exemption
Canadians will continue to enjoy tax-free capital gains when selling their principal residence. Proceeds from such sales will remain exempt from taxes even after the inclusion rate increases.
New $250,000 Annual Threshold
Starting January 1, 2026, individuals with modest capital gains will benefit from a $250,000 annual threshold, maintaining the current one-half inclusion rate.
Increase in the Lifetime Capital Gains Exemption
Effective June 25, 2024, the Lifetime Capital Gains Exemption will increase from $1,016,836 to $1.25 million. This exemption may be available for sales of small business shares and farming or fishing property.
Canadian Entrepreneurs' Incentive
The new Canadian Entrepreneurs' Incentive reduces the capital gains inclusion rate to one-third for up to $2 million in eligible capital gains. Starting in 2025, the maximum for this incentive will increase by $400,000 annually, reaching $2 million by 2029.
Timeline
While the deferral includes a delay in increasing the capital gains inclusion rate, the implementation dates for other measures, such as the increase in the Lifetime Capital Gains Exemption and the Canadian Entrepreneurs' Incentive, remain unchanged. Legislation enabling these measures will be introduced in due course.
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