Timeline of the inclusion rate saga
April 2024: Trudeau budget proposes raising the capital gains inclusion rate from 50% to 66.67% for: • All gains over $250K/year for individuals • All gains for corporations and trusts (no $250K threshold)
: proposed implementation date. CRA published interim guidance treating all gains realised after this date as subject to the new rates, even though no legislation had passed.
September 2024: Notice of Ways and Means Motion tabled but never put to vote due to parliamentary dysfunction.
December 2024: Trudeau announces resignation. Bill remains dormant.
: CRA reverses interim guidance - announces no enforcement of the proposed 66.67% rate pending legislation. Taxpayers who had filed at the higher rate could amend.
March 21, 2025: Federal election called. Liberals under Mark Carney win.
budget: Carney confirms 50% inclusion rate stays. The 2024 proposal is officially dead.
2026 status: 50% inclusion rate applies to all capital gains for all taxpayers. Corporate and trust gains also at 50%.
2024 disposition refunds: anyone who paid CRA the 66.67% rate on dispositions June 25 - Dec 31 2024 can file T1-ADJ to recover the overpayment. Tens of thousands of taxpayers are still in the refund queue as of .
What 50% inclusion actually means
You realise a capital gain when you sell an asset (stock, mutual fund, second home, etc.) for more than your adjusted cost base.
Mechanics: 1. Gain = Proceeds of Disposition - ACB - Costs of Disposition 2. Taxable Capital Gain = Gain × 50% 3. The taxable amount is added to your regular income for the year 4. Taxed at your marginal rate (combined federal + provincial)
Worked example - sold $400K of QQQ ETF in March 2026, bought for $250K in 2019: • Capital gain: $150,000 • Taxable portion (50%): $75,000 • Added to taxable income for 2026
If you live in Ontario and earn $120K base salary: • Without the gain: $120K → $33K tax • With the gain: $195K taxable → $73K tax • Tax on the gain: $40K (effective rate 27% of the $150K gain)
If the 66.67% rate had applied: • Taxable portion: $100,000 (66.67%) • Added to income → ~$56K tax on the gain • Effective rate: ~37% of the gain • Saved by reversal: ~$16,000
For corporations: corporate tax rate is roughly 26.5% combined federal+provincial. With 50% inclusion: effective rate ~13.25% on capital gains - one of the cleanest small-business tax structures available.
| Date | Status | Effective rate |
|---|---|---|
| Pre- | Existing 50% rate | 50% |
| June 25 - Dec 31, 2024 | Interim CRA guidance (proposed 66.67%) | 66.67% applied |
| Jan 31, 2025 | CRA reverses guidance | 50% |
| Sept 2025 (Carney budget) | Officially 50% retained | 50% |
| 2026 (current) | 50% confirmed for all taxpayers | 50% |
| Province | Top marginal | Tax on $150K gain | Effective on gain |
|---|---|---|---|
| Quebec | 54.97% | $41,228 | 27.5% |
| Newfoundland | 54.80% | $41,100 | 27.4% |
| Nova Scotia | 54.00% | $40,500 | 27.0% |
| Ontario | 53.53% | $40,148 | 26.8% |
| BC | 53.50% | $40,125 | 26.8% |
| Manitoba | 50.40% | $37,800 | 25.2% |
| Saskatchewan | 47.50% | $35,625 | 23.8% |
| Alberta | 48.00% | $36,000 | 24.0% |
The Lifetime Capital Gains Exemption (LCGE) for 2026
Separate from the inclusion rate is the Lifetime Capital Gains Exemption. This exempts a chunk of gains from qualifying small business corporation (QSBC) shares and farm/fishing property entirely from tax.
2026 LCGE amounts: • Qualifying small business shares: $1,250,000 (up from $1,016,836 in 2024 - the 2024 budget raised it to $1.25M; this part survived) • Qualifying farm/fishing property: $1,250,000 (same)
What qualifies as QSBC: • Canadian-controlled private corporation • 90%+ of fair market value in active business assets used in Canada at time of sale • 50%+ active business assets test for the 24 months prior to sale • Owned by you (not a holdco) for 24 months prior • Various detailed requirements - speak to a tax advisor before the sale
Example use case: founder sells their tech startup for $5M. If QSBC qualifies: • Exempt portion: $1,250,000 (LCGE) • Taxable gain: $3,750,000 • Taxable income (50% inclusion): $1,875,000 • Tax at top Ontario bracket (53.53%): $1,003,690 • Without LCGE: would have been $1,338,750 → saved $335K
The LCGE is one of the most valuable tax breaks for business owners in Canada. Pre-sale planning to ensure QSBC status is critical.
Principal residence exemption: still untouched
Capital gains on your principal residence remain fully exempt in 2026. This is the biggest tax break in Canadian personal finance and was never on the table during the 2024 reform debate.
Rules: • You (or your family) must have ordinarily inhabited the home for each year of the exemption claim • Only one principal residence per family per year • Land up to 0.5 hectares (1.24 acres) qualifies automatically; larger may qualify if reasonably needed • You must report the sale on Schedule 3 + Form T2091 even if fully exempt - missed reporting can mean the full gain is taxable
The "plus 1 rule": the exempt fraction is calculated as (years designated + 1) ÷ total years of ownership. The +1 lets you cover the year of move with no impact.
House flippers - 2023+ "anti-flipping rule": if you sell a property within 365 days of purchase, the gain is treated as business income (100% taxable, not 50%) - NOT a capital gain. Principal residence exemption does NOT apply. Exceptions for life events (job change, divorce, death, foreclosure).
Multiple properties: cottage + city home → you can only designate ONE as principal residence per year. Most strategies: designate the higher-gain property as principal residence for the years it appreciates most.
Crystallization strategy for 2026
With the 50% rate confirmed and political stability under Carney, the urgency to crystallize gains before a potential change has eased - but rate certainty is never guaranteed.
Reasons to crystallize a gain in 2026: • You're in a temporary low-income year (sabbatical, parental leave, gap year) • You expect a higher marginal rate in retirement (uncommon, but possible) • You want to step up your ACB for estate planning • You're moving provinces - selling in low-tax province (Alberta 48%) and rebuying after the move
Reasons to defer: • You're currently in a high-income year • You expect retirement to drop you 2+ brackets • The asset has solid future return prospects (deferral = compounding the deferred tax)
Tax-loss harvesting (still works): realize losses to offset realized gains. Excess losses carry back 3 years or forward indefinitely.
2026 watch items: • Federal election cycle 2029 (mid-term Carney) • Provincial budgets - watch for surtax changes in Ontario (the 56% top bracket can creep up) • AMT reform 2024 - Alternative Minimum Tax now hits more high earners on capital gains - confirm your AMT exposure before large dispositions
Run the math for your situation
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