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)
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)
Key Offsets & Incentives Introduced
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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)
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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)
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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)
Strategic Planning Tips Before 2026
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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.
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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.
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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.
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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.
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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)
Examples
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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%.
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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.