Tax Planning
Planning Ahead for the 2026 Capital Gains Inclusion Rate Changes
As the capital gains inclusion rate is set to increase from one-half to two-thirds for many taxpayers on January 1, 2026, this article walks investors and business owners through what the new rules mean and how to reduce your tax burden before the shift.
By NomadicTax Research Team • 5-8 min read • November 21, 2025
## What’s Changing and Who It Affects
Effective **January 1, 2026**, the federal government plans to increase the **capital gains inclusion rate** from the current **50%** to **66⅔%** for:
- Individuals realizing capital gains **in excess of $250,000 annually**, and
- For **all capital gains** realized by 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))
Meanwhile, gains realized **before** January 1, 2026 will continue to be taxed with the inclusion rate of **one-half**, unless a specific exemption applies. ([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))
## Key Offsets & Incentives Introduced
- The **Lifetime Capital Gains Exemption (LCGE)** is being raised to **$1.25 million** (from ~$1,016,836) for eligible small business shares, farming, and fishing property for dispositions **on or after June 25, 2024**. ([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))
- A **$250,000 annual threshold** is introduced for individuals: capital gains up to this threshold will still qualify for the one-half rate. The higher inclusion rate only kicks in on amounts above this. ([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))
- The new **Canadian Entrepreneurs’ Incentive** reduces the inclusion rate to **one-third** on a lifetime maximum of **$2 million** of eligible capital gains; this maximum will increase annually until fully implemented in **2029**. ([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))
## Strategic Planning Tips Before 2026
- **Realize gains before the cutoff date**: Swinging profitable dispositions (e.g. selling assets, shares, or investment property) before **January 1, 2026** means only 50% of the gain is taxed. After that date, only **gains over both the $250,000 and inclusion rate thresholds** will see the higher rate.
- **Use the raised LCGE effectively**: If disposing of businesses, farming or fishing property, the $1.25 million exemption can shelter a bigger portion of your gain. Plan any dispositions occurring after June 25, 2024 but before January 1, 2026 carefully.
- **Consider subdividing gains over years or among entities**: For example, splitting gains across family trusts or multiple entities may help stay under the $250,000 individual threshold or take advantage of the Entrepreneur Incentive.
- **Get legal structure right**: Corporations and trusts have full inclusion rates starting January 1, 2026. Seek advice on whether using a corporation, a partnership, or trust aligns with your gain profile.
- **Prepare for administrative changes**: CRA is updating forms and withholding the higher rate until legislated; late-filing penalties and arrears interest relief is being provided for affected T1/T3 filers. ([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))
## Examples
- **Investor with $300,000 in gains in 2026**: First $250,000 will be taxed at 50% inclusion; the $50,000 excess will be taxed at 66.67%. Effective inclusion: (0.5×250,000 + 0.6667×50,000)/300,000 ≈ 52.78%.
- **Entrepreneur disposing $2 million over time**: Through the Canadian Entrepreneurs’ Incentive, up to **$2 million** of eligible gains might qualify for only one-third inclusion—potentially saving significant taxes—but only once legislation rolls out and system in place.
## Take-Away Actions
- Consult a tax advisor before year-end to plan any disposals.
- Review your entity’s structure (individual vs corporation vs trust) in light of new rules.
- Document eligible gains properly, ensure you meet criteria for LCGE and the Entrepreneurs’ Incentive.
- Budget for higher tax liabilities in 2026 and beyond, especially for corporate or trust-realized gains.
By acting now and understanding the offsets, businesses and investors can soften the impact of the higher inclusion rate—while staying fully compliant with the upcoming legislation.