The capital gains tax in Canada plays a crucial role in how investors, business owners, and corporations manage their assets. With major tax reforms set to take effect in January 2026, it’s essential to understand how these changes will impact your financial strategy.
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Whether you’re selling investments, real estate (excluding your principal residence), or business assets, these tax adjustments could significantly affect your returns. Here’s everything you need to know about the new capital gains inclusion rate, government decisions, and key tax exemptions in 2025 and 2026.
What Is Canada’s Capital Gains Tax & How Does It Work?
Capital gains tax applies to the profit earned from selling assets such as:
✔️ Stocks & investments
✔️ Rental & investment properties (not your primary residence)
✔️ Business assets & corporate holdings
🔹 Current Tax Rate (2024): 50% of capital gains are included in your taxable income.
🔹 New Tax Rate (2026 Update): 66.67% of capital gains will be taxable for certain individuals & all corporations.
This means that if you earn a capital gain of $300,000, your taxable income today would be $150,000. Under the new rules, it would rise to $200,000, resulting in higher taxes.
Major Capital Gains Tax Changes for 2025-2026
🔹 Increase in the Capital Gains Inclusion Rate (CGIR)
📅 Implementation Date: January 1, 2026 (originally scheduled for June 25, 2024, but delayed).
What’s Changing?
✅ For Individuals: The first $250,000 in annual capital gains will remain taxed at 50%.
✅ For Individuals Earning Over $250,000 in Gains: Any amount above $250,000 will be taxed at 66.67%.
✅ For Corporations & Trusts: All capital gains will be taxed at 66.67%, regardless of the amount.
🛑 Key Concern: If approved, this increase will significantly raise tax liabilities for high-income investors, business owners, and corporations.
Why Was the Capital Gains Tax Increase Delayed?
The federal government postponed the tax hike following strong political and economic opposition:
🔴 Conservative Party Leader Pierre Poilievre vowed to repeal the increase if elected.
🔵 Former Finance Minister Chrystia Freeland, who originally proposed the tax hike, now opposes it.
🏢 Financial & business organizations, such as CPA Canada & CFIB, warned that this tax could harm investments, job creation, and economic stability.
With Parliament prorogued in early 2025, the new tax rules still require formal approval, making their future uncertain.
Additional Capital Gains Tax Changes in 2024-2025
Beyond the CGIR increase, the 2024 federal budget introduced new tax incentives and exemptions:
1️⃣ Higher Lifetime Capital Gains Exemption (LCGE)
✅ Increase from $1.016 million to $1.25 million (effective June 25, 2024).
✅ Applies to:
- Small business shares
- Farming and fishing properties
✅ Helps reduce taxes on business sales and succession planning.
2️⃣ New Canadian Entrepreneurs’ Incentive
✅ Capital gains inclusion rate drops to 33.33% on up to $2 million in eligible gains.
✅ Applies to business owners selling their companies.
✅ Phased in at $400,000 per year starting January 1, 2025, reaching $2 million by 2029.
3️⃣ Principal Residence Exemption
🏠 No capital gains tax applies when selling your primary home.
✅ This rule remains unchanged, ensuring homeowners do not pay tax on their principal residence sales.
How Much More Will You Pay? Projected Tax Impact
The Parliamentary Budget Officer estimates the CGIR increase will generate $17.4 billion in new tax revenue over five years.
Here’s how much extra tax high-income investors and corporations could pay under the new system:
| Capital Gain | Taxable Amount (2024) | Taxable Amount (2026) |
|---|---|---|
| $100,000 | $50,000 | $50,000 |
| $300,000 | $150,000 | $183,334 |
| $500,000 | $250,000 | $316,667 |
| $1,000,000 | $500,000 | $650,000 |
🔹 The higher your capital gains, the more you’ll be taxed.
What Should You Do Before 2026? Expert Tax Planning Tips
🔹 Consider selling assets before January 1, 2026 to lock in the lower tax rate.
🔹 Use the Lifetime Capital Gains Exemption (LCGE) for business, farming, or fishing sales.
🔹 Take advantage of the Canadian Entrepreneurs’ Incentive if you own a business.
🔹 Speak with a tax professional to explore deferral strategies, trusts, and tax-efficient investments.
📌 Key Takeaway: Waiting too long to act could cost you thousands in extra taxes.
Final Thoughts: How These Tax Changes Affect You
💰 For Investors & Business Owners: Expect higher taxes on stock sales, investment properties, and company shares.
🏢 For Corporations & Trusts: The new 66.67% inclusion rate means significantly higher tax bills.
📆 For Sellers in 2025: You still have time to sell assets under the current lower tax rate before 2026.
📢 Stay Updated & Take Action Today!
Navigating these tax changes can be complex, but strategic planning can help you minimize your tax burden. Don’t wait until 2026—start planning now!
📞 Book a Consultation with a Tax Expert Today and ensure you’re making the smartest financial moves before the new tax laws take effect. 🚀
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