Capital gains tax increase: Postponed until 2026

On January 31, 2025, the Canadian federal government announced a deferral of the proposed increase in the capital gains inclusion rate. Originally set to take effect on June 25, 2024, the implementation date has now been postponed to January 1, 2026. This change affects individuals realizing annual capital gains exceeding $250,000, as well as corporations and most types of trusts.

Key highlights

• Inclusion rate increase postponed: The planned increase in the capital gains inclusion rate from 50 per cent to 66.7 per cent has been deferred to January 1, 2026. This provides taxpayers with additional time to plan for the rate increase.
• Lifetime Capital Gains Exemption (LCGE): Despite the postponement of the inclusion rate increase, the increase in the LCGE limit to $1.25 million will be effective June 25, 2024. This allows small business owners and entrepreneurs to shelter a greater portion of their capital gains from taxation.
• Canada Revenue Agency (CRA) administration: As a result of the deferral, the CRA will continue to administer the current capital gains inclusion rate of 50 per cent until the new effective date. Taxpayers who have realized capital gains after June 25, 2024, will not face the previously proposed immediate tax increase.

Implications for taxpayers

The deferral offers taxpayers a window of opportunity to reassess their financial and investment strategies. Individuals and entities should consider consulting with a tax professional before taking any action.

This announcement eliminates the uncertainty for those taxpayers about to file a return with a capital gain after June 24, 2024. There is still uncertainty as to whether the increase will ever be enacted. The current Liberal government will face a non-confidence vote as soon as parliament resumes, and it is expected that a general election will take place, meaning the next government will have the final say as to whether the inclusion rate is going to change.