What’s Changed for 2026 That Matters to Small Business Owners
Two interlinked changes from recent budgets will affect owners of Canadian-controlled private corporations (CCPCs), farmers, fishers, and those disposing of small business shares:
- The Lifetime Capital Gains Exemption (LCGE) has been increased to $1.25 million, effective June 25, 2024. This means there's higher tax-free capacity when selling eligible small business shares or farm/fishing property. (canada.ca)
- The capital gains inclusion rate increase from one-half to two-thirds has been deferred to January 1, 2026, so while proposed, the increased tax bite only begins then. (canada.ca)
Strategies to Optimize Exits and Investments
Time the Sale
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If you're considering selling eligible shares or other capital property, closing the deal before January 1, 2026 may allow you to use the lower 50% inclusion rate, resulting in lower taxable gain.
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If the transaction happens after that date, only the portion over $250,000 will be taxed at the higher inclusion rate. (canada.ca)
Maximize the LCGE Benefit
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Make sure your eligible small business shares or properties qualify under the LCGE rules. Changes include updating definitions and ensuring active business involvement.
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Use the enlarged exemption carefully: with future indexation starting in 2026, your LCGE threshold will gradually increase. Planning ahead ensures you don’t ‘waste’ part of the exemption.
Consider the $250,000 Threshold for Individuals
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For individuals (excluding most trusts), the first $250,000 of net capital gain in 2026 will still get taxed at the 50% inclusion rate, even under the higher rate regime. Increase occurs only on gain amounts above $250,000. (canada.ca)
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If you're partnering or transferring ownership, remember each individual gets access to their own threshold, which opens up aggregation strategies.
Practical Examples
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Example 1: Alisha, owner of eligible small business shares, plans to sell shares realizing $600,000 gain in late 2025. She'd still benefit from 50% inclusion if the disposition occurs before 2026. Her taxable gain would be $300,000. Post-2025, similarly, the first $250,000 inclusion at 50%, the rest (above) at ~66.67%.
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Example 2: Matthew and Priya jointly own an investment property and plan a sale for early 2026 generating $400,000 net gain. Each owns 50%, so each gets a $200,000 gain; both are below the $250,000 threshold individually—allows full 50% inclusion on their shares.
Role of Professional Advice & Legal Status
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Check eligibility under Bill C-4 and related legislation; definitions matter for farming, fishing, and small business corporation shares.
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Keep records of when eligible property was acquired, used, and sold—even partial years may bridge rules under transitional or proposed regimes.
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Monitor CRA guidance and legislative updates—proposed changes are often published in budget documents or in Explanatory Notes to Legislative Proposals. (canada.ca)
Takeaway: Small business owners now have a limited time to act before new rates roll in, and there are enhanced tools (higher LCGE, threshold rules) to reduce taxable gain. Aligning sale dates and ownership structuring before January 1, 2026 will be key to maximize after-tax returns.