Federal government defers increase to capital gains inclusion rate

Updated: January 31, 2025

On January 31, 2025, the federal government announced that it’s deferring the effective date for the proposed capital gains inclusion rate increase to 66.67% (from 50%) to January 1, 2026 (from June 25, 2024). This provides welcomed certainty for Canadians as we approach tax season, especially considering the Prime Minister’s recent resignation and the Parliament prorogation. The CRA has also confirmed that it will administer the currently enacted inclusion rate of 50% for capital gains realized before January 1, 2026.

The federal government also confirmed it will:

• Maintain the principal residence exemption.
• Retain the proposed $250,000 annual threshold for individuals effective January 1, 2026, to continue to benefit from a 50% inclusion rate if the inclusion rate increases.  
• Increase the proposed Lifetime Capital Gains Exemption to $1.25M (from $1.016M) effective June 25, 2024.
• Introduce the proposed Canadian Entrepreneurs Incentive effective January 1, 2025, which reduces the capital gains inclusion rate to 33.33% on a lifetime maximum of $2 million for eligible capital gains in certain conditions.

The capital gains inclusion rate increase, lifetime capital gains exemption increase, and the Canadian Entrepreneurs incentive measures are not yet enacted.

Proposed changes summary

For corporations and most trusts, 66.67% of capital gains realized on or after January 1, 2026 (formerly proposed to be June 25, 2024) will be included in income for tax purposes (up from 50%). For individual taxpayers, the increased rate will only apply to the portion of capital gains that exceed $250,000. Capital gains under the $250,000 threshold realized by an individual either directly or indirectly through a trust or partnership will remain subject to the 50% inclusion rate each year. Graduated rate estates (GREs) and qualified disability trusts (QDTs) would also be eligible for the $250,000 threshold available to individuals. This would apply to capital gains taxed in the trust rather than allocated out to beneficiaries.

If you need additional guidance on how this will impact your current or future tax planning, contact your local advisor or reach out to us here.

_Disclaimer

_{The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.}