What’s Proposed with Capital Gains Rules
- The government intends to increase the inclusion rate (the portion of capital gains that’s taxable) from one-half to two-thirds for individuals with annual capital gains in excess of $250,000, as well as for corporations and most trusts, effective January 1, 2026. (canada.ca)
- Alongside this, the Lifetime Capital Gains Exemption (LCGE) is being increased to $1.25 million for eligible small business, farm, and fishing-property dispositions. This change applies for dispositions after June 25, 2024, with indexation resuming in 2026. (canada.ca)
- A new Canadian Entrepreneurs’ Incentive is also proposed: it would reduce inclusion rate to one-third on a lifetime maximum of $2 million of eligible gains; growing by $400,000 annually, full max reached by 2029. (canada.ca)
Impacts for Real Estate and Small Business Investors
- If you plan to dispose of investment or rental real estate in 2026 and expect gains > $250,000, you’ll face the higher inclusion rate unless eligible for exemptions.
- For small business owners disposing of shares or property, the LCGE increase empowers bigger gains to be sheltered—but beware: inclusion rules and conditions may limit usage.
- Entrepreneurs may benefit later from the Entrepreneurs’ Incentive, especially if eligible property or shares held long term and future gains targeted.
Planning Strategies Now
- Consider timing sales so they fall before January 1, 2026, if possible, to use current inclusion rate of one-half if you’ll exceed thresholds.
- Utilize LCGE now for eligible dispositions made after June 25, 2024, especially before any constraints or qualifiers change.
- Estimate future gain thresholds: if expecting gains near critical limits, consider structuring disposals across tax years or among trusts/corporations.
- Maintain proper records for small business, farm or fishing property to ensure you qualify for LCGE or Entrepreneur’s Incentive.
Examples
| Scenario | Gain on Disposition | Before Jan 1, 2026 | After Jan 1, 2026 |
|---|---|---|---|
| Individual with $300,000 gain on investment property (no trust or corporate structure) | Inclusion 50% → taxable $150,000 | Inclusion 66.7% → taxable ~$200,000 → approx $11,000 more tax (at 33% rate) | |
| Small business share sale with $1 million gain, eligible for LCGE | If under exemption, may shelter up to $1.25 million of eligible gains—potentially zero gain inclusion. |
Actionable Insights
- Review your portfolio: which properties or assets are likely to be sold in 2026.
- Consult on eligibility: LCGE applies only to qualified small business, farm or fishing properties—expert advice is critical.
- Consider incorporation or trust structuring if multiple properties or assets, to manage threshold exposure.
- Plan cash flow: higher tax may reduce after-tax capital available—anticipate tax bills.
Bottom Line
The proposed capital gains changes could significantly increase taxable amounts for large gains starting January 1, 2026—but exemptions and incentives offer mitigation paths. Real estate investors and small business owners who plan ahead now can preserve value, reduce tax exposure, and optimize disposals.