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Canada delays capital gains tax increase until 2026, introduces new exemptions

January 31, 2025 – The federal government has announced a deferral of the planned increase to the capital gains inclusion rate, pushing the implementation date from June 25, 2024, to January 1, 2026. The decision, announced by Finance Minister Dominic LeBlanc, aims to provide certainty to individuals and business owners ahead of tax season.

The capital gains inclusion rate determines the taxable portion of capital gains. The upcoming change will increase the inclusion rate from one-half to two-thirds on annual capital gains exceeding $250,000 for individuals, as well as all capital gains for corporations and most trusts.

To mitigate the impact on middle-class Canadians, the government is maintaining and enhancing several capital gains exemptions, including:

  • Principal Residence Exemption: Ensuring homeowners will not pay capital gains tax when selling their primary residence.
  • $250,000 Annual Threshold: Effective January 1, 2026, individuals earning capital gains up to this limit will continue to benefit from the current one-half inclusion rate. This includes sales of secondary properties such as cottages.
  • Lifetime Capital Gains Exemption Increase: The exemption for small business shares, farming, and fishing properties will rise to $1.25 million, effective June 25, 2024, up from $1,016,836. This will reduce tax burdens on eligible capital gains below $2.25 million.
  • Canadian Entrepreneurs’ Incentive: A new measure set to take effect in 2025, lowering the inclusion rate to one-third for a lifetime maximum of $2 million in eligible capital gains. The limit will rise by $400,000 annually, reaching $2 million by 2029.

Despite the deferral of the capital gains inclusion rate increase, the implementation dates for the Lifetime Capital Gains Exemption increase and the Canadian Entrepreneurs’ Incentive remain unchanged.

Minister LeBlanc emphasized the government’s commitment to balancing economic growth with fiscal responsibility. “Given the current context, our government felt that it was the responsible thing to do,” he stated, adding that discussions will continue to ensure Canada’s fiscal policy supports sustained economic activity.

The government plans to introduce legislation for these changes in the near future.

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