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Federal government postpones capital gains inclusion rate increase

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The federal government has deferred the increase of the capital gains inclusion rate from June 25, 2024, to January 1, 2026. This change affects individuals with annual capital gains exceeding $250,000, as well as corporations and most trusts.

Finance Minister Dominic LeBlanc announced this deferral on January 31, 2025. The inclusion rate determines the taxable portion of capital gains – meaning the portion of capital gains that are added to income in a given taxation year.

The following is a summary of proposed tax changes that are currently announced – but not yet enacted as law – by the federal government :

  • Principle Residence Exemption Remains: The Principle Residence Exemption remains in effect, allowing Canadian homeowners to sell their primary home without paying capital gains tax on the increase in its value.
  • Deferred Inclusion Rate Increase: Now deferred to January 1, 2026, the Capital Gains Inclusion Rate – meaning the portion of capital gains added to income – will change for individuals and most trusts from 50% on all annual capital gains to a 50% inclusion rate on the first $250,000 of annual capital gains, and a higher two-thirds (2/3, or 66.66%) rate thereafter. For corporations and most trusts, the Capital Gains Inclusion Rate will change to the higher two-thirds (2/3, or 66.66%)
  • Increased Lifetime Capital Gains Exemption: As of June 25, 2024, the exemption will rise from $1,016,836 to $1.25 million for eligible small business shares, farming, and fishing property.
  • New Canadian Entrepreneurs’ Incentive: Beginning in the 2025 tax year, certain entrepreneurs will qualify for a reduced one-third (1/3) inclusion rate on certain lifetime eligible capital gains. The limit will increase by $400,000 annually, reaching $2 million by 2029. When combined with the increased lifetime capital gains exemption, eligible entrepreneurs could see reduced tax on up to $6.25 million in capital gains.

Important caution:  The above is a summary of ministerial announcements that have not yet been enacted as law by the current Parliament.  While the government intends to introduce legislation that will implement the same, there is a significant degree of uncertainty as to which, if any, of the proposals will be enacted as the law given the prime minister’s resignation.

If you or your business may be impacted and would like to discuss, please contact a member of Fillmore Riley LLP’s Taxation Practice.

Fillmore Riley LLP's Taxation Practice

We offer tax advice to both individual and business clients on a wide range of matters, including corporate and commercial transactions, estate planning, and tax dispute resolution and litigation. For more information, or if you have any questions, please contact a member of the Fillmore Riley Taxation practice.


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