Canada Defers Capital Gains Inclusion Rate Changes: What You Need to Know

After months of uncertainty and debate, the federal government has officially postponed its planned increase to the capital gains inclusion rate. The move comes after intense pushback from taxpayers, business groups, and opposition parties, who raised concerns about the timing and implementation of the policy.

The sudden announcement in Budget 2024 left many scrambling to adjust their financial plans, with tax professionals warning of potential disruptions. Initially set to take effect on June 25, 2024, the implementation has now been pushed back to January 1, 2026—a decision that reflects the mounting challenges and opposition the government faced in rolling out the changes.

Filing chaos and political pushback

The original announcement in Budget 2024 proposed raising the capital gains inclusion rate from 50% to 66.67% for individuals realizing gains over $250,000 annually and for all corporations and trusts. This sparked a flurry of tax planning activity—including our article on crystallizing accrued capital gains—as individuals and businesses scrambled to manage their gains before the proposed June 24, 2025 deadline.

The CRA was slow to clarify how transitional rules would apply, leading to widespread uncertainty. Some taxpayers rushed to file transactions, while others hesitated, unsure whether the changes would even hold up. The backlash was compounded by criticism from business groups, opposition parties, and tax professionals who argued that the changes were being rushed without proper consultation.

Finance Minister Freeland walks it back

Facing mounting pressure, Finance Minister Chrystia Freeland walked back the urgency of the change, stating that the government was committed to a “smooth implementation.” The latest announcement acknowledges the administrative burden and tax-planning chaos the mid-year change would have caused, delaying the new rules until 2026.

While this delay provides temporary relief, many industry experts believe the new rules may never see the light of day. With a federal election expected in 2025, any shift in government could see the proposal scrapped entirely.

CRA will not enforce the June 2025 deadline

Adding to the uncertainty, the CRA recently updated its position, confirming that it will not enforce the previously proposed June 24, 2025, implementation date. This clarification eliminates the immediate need for taxpayers to rush transactions or preemptively file under the assumption that the changes would take effect mid-year.

Four exemptions highlighted

Despite the delay in implementation, the federal government confirmed that certain exemptions will remain intact or be introduced to mitigate the impact of the proposed changes:

1. Principal residence exemption: Homeowners will continue to be exempt from capital gains taxes when selling their primary residence, ensuring that taxation does not extend to personal home sales.
2. Annual $250,000 capital gains threshold: Starting January 1, 2026, individuals will benefit from a new annual threshold that allows up to $250,000 in capital gains to be taxed at the current 50% inclusion rate. Gains beyond this limit will be subject to the higher inclusion rate, but this measure is designed to reduce the impact on those with smaller capital gains. This applies to secondary properties, including cottages, meaning a couple selling a secondary property with a $500,000 gain would still qualify for the threshold.
3. Lifetime capital gains exemption increase: The government is increasing the lifetime exemption for small business shares, as well as farming and fishing properties, from $1,016,836 to $1.25 million. This change takes effect June 25, 2024, and will benefit individuals selling qualifying business assets.
4. Canadian entrepreneurs’ incentive: A new tax incentive is being introduced to encourage entrepreneurship by setting a lower one-third inclusion rate on up to $2 million in eligible capital gains. This incentive starts in 2025 and will gradually increase by $400,000 per year, reaching $2 million in 2029. When fully implemented, this measure will offer a reduced tax rate on capital gains for eligible business owners, especially when combined with the increased lifetime capital gains exemption.

What this means for you

For now, capital gains continue to be taxed at the 50% inclusion rate, providing a window of opportunity for individuals and businesses to plan ahead. However, given the political landscape, taxpayers should remain cautious—while the changes are delayed, they are not entirely off the table.

If you’re reconsidering your tax-planning strategies in light of these developments, your DMCL advisor can help you navigate the evolving landscape and make informed decisions. If you have concerns about how these proposed changes might impact your tax strategy, reach out to us and subscribe to our newsletter, Between the [Spread]Sheets—we’ll keep you updated as more details emerge and help you plan with confidence.