Canada Defers Capital Gains Inclusion Rate Increase to 2026

January 31, 2025 - Ottawa, Ontario
The federal government has delayed the increase in the capital gains inclusion rate from June 25, 2024, to January 1, 2026. Announced by Finance Minister Dominic LeBlanc, this move provides Canadians with more certainty ahead of tax season.

Key Changes and Exemptions

1. Principal Residence Exemption

   • Canadians selling their primary home remain exempt from capital gains tax.

2. New $250,000 Annual Threshold (Effective 2026)

   • Individuals earning gains under this limit continue to benefit from the current one-half inclusion rate.

   • Applies to secondary properties, e.g., a couple selling a cottage with a $500,000 gain faces no extra tax.

3. Increased Lifetime Capital Gains Exemption

   • Rising to $1.25 million (from $1,016,836) on June 25, 2024.

   • Small business owners, farmers, and fishers with eligible gains under $2.25 million benefit.

4. New Canadian Entrepreneurs’ Incentive

   • Lowers the inclusion rate to one-third on up to $2 million in gains.

   • Begins in 2025, increasing $400,000 annually, reaching $2 million in 2029.

   • Combined with the $1.25 million exemption, tax benefits apply to $6.25 million in gains.

Next Steps

The government will introduce legislation to formalize these changes. The increase in the Lifetime Capital Gains Exemption and the Canadian Entrepreneurs’ Incentive remains on schedule.

Minister’s Statement

“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.”

This decision aims to balance tax policy with economic growth, ensuring fairness for middle-class Canadians and business owners alike. Stay tuned for legislative updates.

Information provided by - https://www.canada.ca/en/department-finance/news/2025/01/government-of-canada-announces-deferral-in-implementation-of-change-to-capital-gains-inclusion-rate.html