Big Tax Change Deferred: What It Means for You
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- Jan 31
- 3 min read
January 31, 2025 | Ottawa, Ontario
If you’ve been following Canada’s tax policy updates, you might have been bracing for the capital gains tax increase set to take effect in mid-2024. However, in a significant move, the federal government has announced a deferral of the planned increase in the capital gains inclusion rate—pushing the change to January 1, 2026.
So, what does this mean for Canadians, and how will it impact investors, business owners, and everyday taxpayers? Let’s break it down.
What’s Changing and When?
Finance Minister Dominic LeBlanc confirmed that the government will delay the increase in the capital gains inclusion rate from one-half (50%) to two-thirds (66.7%) until January 1, 2026.
This applies to:
Capital gains exceeding $250,000 per year for individuals.
All capital gains realized by corporations and most trusts.
This delay provides more time for taxpayers to plan their finances while allowing for further discussions on Canada’s economic policy.
What’s Staying the Same?
To ensure that middle-class Canadians are not disproportionately affected, the government is keeping or enhancing several key exemptions:
✔ Principal Residence Exemption – The sale of your home remains tax-free, meaning homeowners won’t pay capital gains taxes when selling their primary residence.
✔ $250,000 Annual Threshold – Canadians selling investments, secondary properties, or other capital assets will continue to benefit from the one-half inclusion rate on capital gains up to $250,000 per year, even after the new tax rate kicks in.
✔ Higher Lifetime Capital Gains Exemption (LCGE) – As of June 25, 2024, the exemption will increase from $1,016,836 to $1.25 million for the sale of small business shares, farming, and fishing properties. This means eligible Canadians will pay less tax on capital gains up to $2.25 million.
✔ New Canadian Entrepreneurs’ Incentive – To promote entrepreneurship, the government is introducing a reduced one-third (33.3%) inclusion rate on a lifetime maximum of $2 million in eligible capital gains. This will start in the 2025 tax year and increase by $400,000 annually, reaching $2 million by 2029.
Why the Delay?
With tax season approaching, this decision provides individuals and businesses with more certainty. Minister LeBlanc noted that the government wanted to act responsibly given the current economic environment. The extra time allows taxpayers to plan more effectively while maintaining confidence in Canada’s tax system.
What’s Next?
The government has committed to introducing legislation soon to implement these tax adjustments. In the meantime, if you’re planning a significant asset sale—whether it’s an investment property, business shares, or farmland—you now have more time to make informed decisions before the new inclusion rate takes effect in 2026.
For investors and business owners, this deferral may provide strategic planning opportunities. If you have questions about how these changes impact you, consider consulting with a tax professional to optimize your tax strategy.
Final Thoughts
This announcement is big news for Canadians looking to navigate capital gains taxes. While the higher inclusion rate is still on the horizon, the delay offers a crucial window for financial planning. With enhanced exemptions and a new entrepreneurial incentive, there are still ways to reduce your tax burden—if you plan ahead.
Stay tuned for updates as the government rolls out the official legislation. In the meantime, share your thoughts—how will this change impact you? Let’s keep the conversation going!
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