Tax Planning
Maximizing Capital Gains Strategies Before Canada’s Inclusion Rate Changes in 2026
The capital gains inclusion rate in Canada is set to rise from one-half to two-thirds effective January 1, 2026 — here’s how individuals, entrepreneurs, and trusts can plan now to minimize tax impact.
By NomadicTax Research Team • 6 min read • November 23, 2025
## Overview
Effective **January 1, 2026**, proposed changes in Canada will increase the capital gains inclusion rate — the portion of a capital gain that’s taxable — from **½ to ⅔** on gains exceeding **$250,000 annually** for individuals and on nearly all capital gains for corporations and most trusts.([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 article outlines planning tactics to reduce your exposure, with real-world examples.
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## Key components of the change
| Element | What’s Changing | Who’s Affected |
|---|---|---|
| Inclusion rate increase | From 50% to about 66.7% on gains over $250K annually for individuals; all gains for corporations/trusts. | Individuals with large gains; corporations; most trusts. ([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)) |
| Effective date | January 1, 2026 | Applies to dispositions occurring on or after this date. ([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)) |
| Existing exemptions and new incentives | Lifetime Capital Gains Exemption (LCGE) raised to $1.25 million; a new “Canadian Entrepreneurs’ Incentive” reducing rate to one-third on eligible lifetime gains starting 2025, rising gradually. ([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)) |
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## Planning strategies you can act on now
These approaches can help limit your taxable exposure over the threshold:
1. **Time your disposals**
- Realize gains **before** January 1, 2026 when possible. Gains realized in **2025 or earlier** will be taxed at the existing 50% inclusion rate. ([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))
- Break up a big gain into multiple transactions across different tax years to stay under the $250,000 threshold.
2. **Use enhanced exemptions**
- Use the **Lifetime Capital Gains Exemption (LCGE)** which has been increased to **$1.25 million** for eligible small business shares, and farming/fishing property, applied to gains from **June 25, 2024** onwards. ([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))
- If you’re an entrepreneur, explore the **Canadian Entrepreneurs’ Incentive**, which will offer reduced inclusion rate (one-third) on a lifetime maximum. It's especially useful for serial business owners. ([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))
3. **Structure disposals through trusts or corporations**
- If you control a corporation or trust, structure disposals to take advantage of favorable rules or defer distributions.
- Consider allocating gains to partners where thresholds apply separately, if applicable.
4. **Revisit your asset allocation**
- Assets likely to generate high capital gains—investment properties, private company shares—may now carry more tax burden. Rebalance into income-producing or lower-gain assets.
5. **Track deferred capital losses and carryforwards**
- Those with unapplied losses can use them to offset gains realised post-2026, helping moderate taxable amounts.
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## Example scenario
**Pat and Sam** are co-owners of a cottage. In 2026, they plan to sell and realise **$600,000** of capital gains each, so **$1.2 million** together. Without planning, their taxable portion—if gains are above $250,000 per person—would be taxed at the ⅔ inclusion rate, giving **$400,000 taxable gain** each. By using LCGE and entrepreneurs’ incentive (if eligible), they may reduce taxable exposure significantly.
If Pat uses her full LCGE ($1.25 million), her first $1.25 million of eligible gains are fully exempt. If only part is eligible, she could also split disposal between trusts or defer part of the gain into 2025. Sam could similarly use other mechanisms.
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## Actionable checklist
- ✅ Review your portfolio and identify potential dispositions in 2025 vs 2026.
- ✅ Consult with a tax advisor to see eligibility for LCGE or Entrepreneurs’ Incentive.
- ✅ Create timing plans for asset sales that may push you over the $250,000 individual threshold.
- ✅ Keep full and clear records of adjusted cost base, allowable expenses, and prior losses.
- ✅ Monitor draft legislation and CRA guidance—they’ll flesh out many detail rules.
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## Bottom line
These proposed changes will meaningfully increase the taxable portion of large capital gains. But individuals who plan ahead can use exemptions, timing strategies, and incentives to soften the blow. Structuring dispositions and using incentives like the LCGE or Entrepreneur’s path can spell the difference between paying significantly more tax or preserving more capital.