Federal Government Delays Capital Gains Tax Increase Until 2026
January 31, 2025
Today, the Honourable Dominic LeBlanc, Minister of Finance and Intergovernmental Affairs, announced that the federal government is deferring—from June 25 of this year to January 1, 2026—the date on which the capital gains inclusion rate would increase from one-half to two-thirds on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts. The capital gains inclusion rate represents the portion of capital gains that is taxable.
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 deferral of the increase to the capital gains inclusion rate will provide certainty to Canadians, whether they be individuals or business owners, as we quickly approach tax season. Given the current context, our government felt that it was the responsible thing to do. I look forward to further conversations with Canadians on how we can ensure Canada’s fiscal policy encourages robust and sustained economic activity in every region of our country,” said LeBlanc.
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 selling 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 increasing the Lifetime Capital Gains Exemption and introducing the Canadian Entrepreneurs’ Incentive would remain the same.
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.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.