Overview
Canada’s government has proposed major changes to how capital gains are taxed, starting January 1, 2026. The changes affect individuals, corporations, and trusts, especially for gains exceeding $250,000 annually, and introduce new exemptions and incentives. Understanding this early will allow investors to plan ahead and potentially minimize tax liabilities. (canada.ca)
Key Changes to Know
- Increased inclusion rate: For individuals with capital gains over $250,000 per year, the inclusion rate of taxable capital gains will rise from ½ (50%) to ⅔ (≈66.67%). Corporations and most trusts will see all capital gains being taxed at the higher rate. (canada.ca)
- Lifetime Capital Gains Exemption (LCGE): Increased to $1.25 million for eligible capital gains from small business shares and farming/fishing properties. Indexation will resume in 2026. (canada.ca)
- New Canada Entrepreneurs’ Incentive: Reduces inclusion rate to one-third (≈33.33%) on up to $2 million in eligible capital gains. The maximum amount increases annually, reaching full effect by 2029. (canada.ca)
Actionable Planning Strategies
| Strategy | Why It Matters | What You Can Do Now |
|---|---|---|
| Realize capital gains before Jan 1, 2026 | Gains realized before that date are still taxed at the old 50% inclusion rate for individuals with gains ≤ $250,000. If above, the rate still applies until the new law takes effect. (canada.ca) | Review your investments that are likely to appreciate or mature soon. Consider selling some holdings to realize gains now rather than later. |
| Maximize use of the LCGE | With the exemption now raised and being indexed again, qualifying disposals before or just after June 25, 2024 have already benefited. But aligning disposals with the exemption limit before the new inclusion rate kicks in still matters. (canada.ca) | For small business owners, farmers, and fishers, time asset sales or restructurings to maximize LCGE benefits. |
| Structure entrepreneurial exit | The Entrepreneurs’ Incentive gives favorable inclusion rates on part of your gains. Planning an exit, sale, or inheritance within its limits can yield significant tax savings. (canada.ca) | Explore whether your business or shares qualify. Possibly accelerate a sale or succession plan. |
| Reassess holdings in trusts or corporations | Since trusts and corporations will have all capital gains taxed at the higher rate, planning around ownership structure and timing can reduce impact. | Consult your tax advisor to review whether ownership restructuring makes sense before 2026. |
Example Case
Imagine Alex, an individual entrepreneur expecting $300,000 in capital gains in 2025 from selling shares of her tech startup. Under current rules, only half, $150,000, is taxable. Starting Jan 1, 2026, $200,000 (⅔ of $300,000) becomes taxable, unless aligned with the Entrepreneurs’ Incentive or exemptions. If Alex can realize some gain before 2026 (say $100,000 early), she benefits from the old inclusion rate. She can also ensure that part of the remaining gain qualifies for LCGE or the new Entrepreneurs’ Incentive, potentially reducing taxable amount significantly.
What to Do Immediately
- Start crafting or updating your capital gains forecast for 2025.
- Identify assets likely to generate gains beyond $250,000 and plan whether realization before 2026 is feasible.
- Confirm eligibility for LCGE or Entrepreneurs’ Incentive.
- Document business structures, share classes, and trust ownership to make sure you meet qualification criteria.
Final Thoughts
These changes represent some of the most sweeping capital gains tax reform in years. Whether you are an investor, a business owner, or planning succession, timing, eligibility, and structuring will matter enormously. Early planning is your biggest advantage. If in doubt, consult a tax professional who specializes in corporate and trust taxation to ensure you’re making the best moves before the new rules take effect.