Entity Setup
Entity Setup: Structuring for Capital Gains Tax Changes & Entity Efficiency
New capital gains proposals and entity structures make entity design more critical than ever for Canadian entrepreneurs, trusts, and corporations.
By NomadicTax Research Team • 5-8 min read • August 19, 2026
## What’s Changing with Capital Gains & Lifetime Exemption
Canada has proposed (though not yet fully enacted as of mid-2026) changes to the **capital gains inclusion rate**, especially for large individual gains, corporations, and most trusts. These proposals include increasing inclusion rate from 50% to 66⅔% for individuals disposing of shares in excess of $250,000 annually and applicable for corporations and trusts. ([canada.ca](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/whats-new.html?utm_source=openai))
There’s also ongoing discussion around lengthening the lifetime capital gains exemption and modifying rollover periods for small business corporation shares, alongside tightening definitions. ([canada.ca](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/whats-new.html?utm_source=openai))
## Structuring Entities to Adapt
When setting up a business entity (corporation, trust, partnership), consider the following:
- **Use of trusts vs corporations**: trusts are particularly impacted by these capital gains rules. Depending on your asset base and future growth, the choice affects inclusion amounts.
- **Tiered corporate structures**: proposed Budget 2025 measures aim to limit deferral of refundable investment income through staggered year ends and tiering. Ensuring all year-ends align or appropriate amounts are paid can reduce exposure. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
- **Small business corporation shares**: proposed reforms to capital gains rollovers and LBCE (Lifetime Exemption) thresholds make early planning (e.g., ideal inheritance design, share ownership timelines) more important. ([canada.ca](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/whats-new.html?utm_source=openai))
## Example Entity Setups
- A tech startup expecting growth and value accrual should plan shareholder agreements and equity ownership to stay within favourable LTCG thresholds, before inclusion rate increases apply.
- Agricultural business forming a trust to manage land transfers should consider whether lifetime exemptions and rollover availability will make transfers tax efficient.
## Actionable Advice
- Consult with a tax professional about whether proposed capital gains changes will apply in your context—watch for legislative passage.
- Track capital gains realized per taxation year to assess when rates might change or cross thresholds.
- For entities with multiple shareholders or beneficiaries, explore structuring equity ownership to spread gains—or use deferral mechanisms—where allowed.
While many changes remain proposed and subject to parliamentary process, understanding them now gives entity owners and their advisors time to adapt in ways that reduce tax exposure and preserve value.