Entity Setup
Entity Setup Insights: Structuring Your Canadian Business Amid Capital Gains Rule Changes
With proposals around capital gains inclusion rates changing for trusts, corporations, and high-value individuals, structuring your entity now could lock in favourable treatment before new rules take effect.
By NomadicTax Research Team • 5-8 min read • November 21, 2025
Canada has proposed changes to the **capital gains inclusion rate** effective **January 1, 2026**, as well as related changes to entities like corporations and trusts. Understanding these will be key for anyone forming or restructuring business entities. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
This guide explains how entities are affected, with actionable structuring strategies and examples.
## Proposed Rule Changes at a Glance
- Individuals will see inclusion rate increase from **one-half (50%)** to **two-thirds (≈66.67%)** on capital gains realized above **CAD 250,000 annually**. Corporations and most trusts will have **all capital gains** subject to the higher rate. Effective for dispositions **on or after January 1, 2026**. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
- Lifetime Capital Gains Exemption (LCGE) will increase to **$1.25 million** for eligible small business shares, farming and fishing property. Indexation to resume in 2026. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
## Entity Types Affected & Considerations
### Corporations and Trusts
- Corporations will no longer benefit from the lower inclusion rate; **all capital gains** will be taxed at the increased inclusion rate if proposals pass.
- Trusts (other than certain ones) will also lose favourable treatment. If you use a trust to hold investment property, sale/gains will now face higher taxable portion.
### Individual Investors / Entrepreneurs
- If eligible for LCGE (e.g. small business shares), raising capital gains exemption to $1.25 million provides room to structure exit planning or transfers.
- For high‐net-worth individuals expecting gains beyond $250,000, consider spreading dispositions or deferring sales until after the rate rise (if advantageous).
## Structuring Strategies & Examples
- **Cottage / Secondary Property Sales:** Married couple sells cottage and realizes $500,000 capital gain. Under new rules, only first $250,000 uses 50% inclusion, the rest taxed at 66.67%. Consider selling before rate change or splitting ownership among family members to use lower thresholds.
- **Entrepreneur Exits / Business Sales:** If your business qualifies under LCGE, exits structured to keep gains within exemption thresholds will yield substantial savings. For example, selling qualifying small business shares that generate $1 million in gain could be mostly exempt up to the LCGE level.
- **Trust Settlement or Restructuring:** If trust is expected to sell investments with capital gains, shifting holdings or accelerating dispositions before Jan 1, 2026 could avoid higher inclusion rate. Use of spousal or family trusts may help spread taxable gains. Consult trust law.
## Actionable Advice Most Entities Should Act On Now
- Review any planned major asset dispositions (shares, investment property, business sale) scheduled for late 2025 vs 2026; assess tax cost under new inclusion rates.
- Ensure compliance with LCGE eligibility: small business share rules, farming/fishing properties—you’ll want to satisfy all requirements before triggering dispositions.
- Engage advisors early to explore ownership restructuring, potential for partnership structures, trusts, or corporations tailored to maximize exemption.
- Document intent and timing so that legislation when enacted supports your planned structuring.
Even though these changes are still **proposed**, knowing them now gives individuals and businesses weeks to build strategies that could save tens or hundreds of thousands of dollars once the new rules are in force.