Tax Planning
Capital Gains Inclusion Rate—What You Need to Know Before 2026
As Canada moves towards increasing capital gains inclusion rates in 2026, individuals and trusts must understand gaps, exemptions, and strategies to minimize tax impact.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## Recent Policy Shift in Capital Gains Taxation
The Government has **deferred** the increase in the capital gains inclusion rate from the previously proposed date to **January 1, 2026**. Individuals with capital gains over **$250,000 annually**, and virtually all *corporations* and certain *trusts*, will see the inclusion rate rise from one-half to **two-thirds**. ([canada.ca](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?utm_source=openai))
Additionally, the **Lifetime Capital Gains Exemption (LCGE)** has increased to **$1.25 million**, effective June-25-2024. An **Entrepreneurs’ Incentive** was proposed: a reduced inclusion rate of one-third on up to **$2 million** in gains (rising gradually) for qualifying entrepreneurs. ([canada.ca](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?utm_source=openai))
## Implications for Tax Planning
These changes present both risk and opportunity. Here’s how they affect individuals, trusts, and corporations:
- **Individuals** who realize capital gains above $250,000 will pay more tax from gains exceeding that threshold once rules are in force. Gains below that remain taxed at current inclusion rate.
- **Corporations and most trusts** will be taxed on all capital gains at the higher inclusion rate.
- LCGE increase benefits small business owners, farmers, fishers—it raises the exclusion ceiling.
- Entrepreneurs with eligible gains may benefit through the incentive once legislation fully rolls out.
## Strategies to Minimize Tax Burden
Here are actionable steps to mitigate tax exposure before the changes take effect:
1. **Time dispositions ahead of Jan 1, 2026** — Where possible, sell assets before the higher inclusion rate applies.
2. **Utilize LCGE** — If eligible, apply it for gains realized now to take advantage of the higher exemption.
3. **Structure trusts and corporations carefully** — Understand when beneficial to distribute gains personally vs. holding in trust/Corp. Certain structures may allow flexibility.
4. **Consider deferral or deferring sale improvements** — For property, improvements or ownership change could affect capital gain accounting; consider timing.
## Examples
- If Jane sells shares in 2025 and realizes $200,000 in gains, the standard inclusion (½) still applies. For $300,000 in gain, $250,000 taxed at ½; excess $50,000 taxed at 2⁄3 rate from 2026 onwards.
- Bob, a farmer with eligible property gains, benefits more as LCGE lifts ceiling to $1.25 million, making smaller businesses less exposed to rate increases.
## Action Items
- **Review investment holdings now**— anticipate what you expect to sell around 2025-26.
- **Model gains** — calculate impact of ½ vs 2⁄3 inclusion for your highest gains.
- **Consult tax professional** for complex holdings—especially if using trusts or international exposure.
Knowing these timelines and ceilings well before they kick in offers Canadians the chance to plan prudently, reducing surprises and maximizing exemptions.