Tax Planning
Smart Planning for Capital Gains: How the 2026 Inclusion Rate Update Affects Investors
Canada will raise the inclusion rate on capital gains starting January 1, 2026—this article walks you through what’s changing, who it impacts most, and how to plan accordingly.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## What’s Changing with Capital Gains Inclusion Rate
Starting **January 1, 2026**, capital gains realized in excess of **$250,000 annually by individuals**, and **all capital gains** realized by corporations and most trusts, will be taxed at an inclusion rate of **two-thirds** instead of the current **one-half**. ([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 means you’ll declare two-thirds of your capital gain as taxable income (rather than 50%), up to the thresholds and in applicable entities. The change is proposed via draft legislation. ([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))
## Who’s Affected
- Individuals with **capital gains over $250,000** in a year will face higher taxation on gains above that threshold. ([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))
- **Corporations** and most **trusts** are impacted on all capital gains starting the effective date. ([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))
- Capital gains realized before January 1, 2026 remain taxed under the **one-half** 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))
## What Remains the Same or Is Added
- The **Lifetime Capital Gains Exemption (LCGE)** is being raised to **$1.25 million** for eligible properties like small business shares, and will continue indexing from 2026 forward. ([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))
- A **new Entrepreneurs’ Incentive** will let qualifying individuals reduce the inclusion rate to **one-third** on up to **$2 million** in eligible capital gains. That applies first in 2025 and ramps up to $2 million by 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))
## Planning Strategies Before Jan 1, 2026
- **Accelerate dispositions**: If you have gains above $250,000 or operate through a corporation/trust, consider realizing gains **before 2026** to benefit from the lower inclusion rate.
- **Use the LCGE**: If eligible, structure your dispositions to maximise this exemption. It’s particularly useful for farmers, fishers, and small business owners.
- **Consider entity conversion**: Evaluate whether it makes sense to shift certain assets or operations under a trust or corporation *before* the law changes.
- **Coordinate with your financial year-end**: If your fiscal year ends late in 2025, timing may let you avoid some exposure. Work with accountants to model scenarios.
## Risks and Cautions
- If legislation fails to receive **Royal Assent**, tax returns filed under assumptions of the new rate could be reassessed.
- The **entrepreneurial incentive** has a phase-in schedule; early planning is essential to access full future benefits.
- For corporations or trusts, additional administrative burdens and record-keeping will accompany the new regime. Ensure compliance systems are updated.
## Practical Example
Imagine Jane Smith, an individual investor, realises **$400,000** in capital gains in **2026**. Under the proposed regime:
- First $250,000 taxed at **50% inclusion rate**
- Remaining $150,000 taxed at **66.67% inclusion rate**
- If Jane is eligible and uses the Entrepreneurs’ Incentive (say she often sells eligible small business shares), a portion of that gain might qualify for a **one-third** inclusion.
- Compare what would’ve been payable under current law vs new to see real dollar impact, then consider whether some gains can be harvested in **2025** instead.
## Key Takeaways
- The **one-half to two-thirds jump** will significantly affect individuals with large gains and many corporations.
- Take advantage of **existing exemptions** and incentives before 2026.
- Work with a tax advisor to time dispositions, structure your entity, and update financial plans.
- Stay tuned for finalized legislation and CRA guidance to ensure compliance.