Tax Planning
Planning Around Capital Gains Changes: What Individuals Should Know in 2025-2026
With the inclusion rate increase on hold until January 1, 2026, and a $250,000 annual threshold in place for individuals, tax planning around capital gains has new urgency—these strategies can help you stay ahead.
By NomadicTax Research Team • 5-8 min read • February 21, 2026
## What’s the Current Capital Gains Landscape?
- Originally, **Budget 2024** proposed raising the capital gains inclusion rate from **½** to **⅔** for corporations/trusts and for individual gains over **$250,000/year**. Effective date proposed as **June 25, 2024**. ([canada.ca](https://www.canada.ca/en/department-finance/news/2024/06/capital-gains-inclusion-rate.html?utm_source=openai))
- However, in **January 2025**, the government **deferred** implementing the higher inclusion rate for individuals and corporations, pushing it back to **January 1, 2026**. Until then, all capital gains realized remain subject to the **½ inclusion rate**, except above-threshold amounts once the measure takes effect. ([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))
- Additionally, the **Lifetime Capital Gains Exemption (LCGE)** was increased to **$1.25 million** for qualifying property as of **June 25, 2024**, and indexation is to resume in 2026. ([canada.ca](https://www.canada.ca/en/department-finance/corporate/laws-regulations/forward-regulatory-plan/regulatory-proposals-relating-income-tax-august-2024.html?utm_source=openai))
## What Do These Changes Mean in Practice?
- Lower inclusion rate (½) for gains realized in 2025 gives fewer taxable gains now than under the proposed ⅔ rate.
- Gains above $250,000/year will be more impacted once ⅔ rate kicks in. Individuals should plan dispositions accordingly.
- LCGE limit higher means more gains may qualify for exemption—especially for small business shares or farm/fishing property.
## Tax Planning Strategies Before the Change
1. **Accelerate Dispositions into 2025**: If considering selling business shares, real estate, or other capital property, doing so before **January 1, 2026** means inclusion at ½. If after, gains above $250,000 taxed more heavily.
2. **Combine Gains and Losses**: Harvest losses in 2025 to offset gains. Net capital losses from other years can be carried forward.
3. **Use the Lifetime Capital Gains Exemption (LCGE)**: Qualifying gains of up to $1.25 M (for the property types allowed) may be exempt—move toward qualifying property or structuring for eligibility.
## Example Scenario
Sarah, a small business owner, plans to sell her shares and realize a $300,000 capital gain in 2024. Currently, inclusion at ½ means $150,000 is taxable. Post-Jan 1, 2026, for gains over $250,000, she may have to include $33,333 extra if ⅔ rate applies to portion above threshold—i.e. gains over $250,000 taxed more heavily. By selling in 2025, she locks in inclusion at ½.
## What to Watch for Going into 2026
- Keep an eye on whether **draft legislation** becomes law. Rights and obligations will hinge on law, not proposals, even if many details have already been public.
- Monitor updates to CRA’s forms and guides—updated T4037 guide and schedule lines are updated as early as **last week** (per CRA resources) to reflect these proposals. ([canada.ca](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html?utm_source=openai))
- Be aware of phase-outs and thresholds—$250,000 cap, and only certain property types qualify for LCGE. Structuring matters.
## Actionable Checklist
- Confirm anticipated gains and estimated tax hit under both inclusion rates.
- If planning property dispositions or asset sales, accelerate if gains likely to be high.
- Use LCGE where eligible.
- Track and document eligible properties, meeting holding periods.
- Consult tax advisors early to model different outcomes.
By staying on top of these timing-based rules, individuals can make informed decisions to **minimize tax liability** under the revised regime, especially in the transition into **2026** when new rates become effective.