Capital Gains Tax Change Deferred:

The Government of Canada has announced a deferral in the implementation of the previously planned increase to the capital gains inclusion rate. Originally set to take effect on June 25, 2024, the proposed increase will now be postponed until January 1, 2026. The change, if implemented, will see the inclusion rate rise from one-half to two-thirds on capital gains exceeding $250,000 annually for individuals and on all capital gains realized by corporations and most trusts.

The process of getting the necessary legislation for the proposed increase to the capital gains inclusion rate passed remains uncertain due to ongoing political challenges in the House of Commons. As a result, there is no guarantee that the proposed increase now set to take effect on January 1, 2026, will ultimately be passed into law.

Key Announcements from the Current Government

The current federal government has announced their intention to maintain the following exemptions and previously announced measures:

• Principal Residence Exemption: Canadians will continue to benefit from a tax-free capital gain when selling their primary residence.
• $250,000 Annual Threshold for Individuals: Effective January 1, 2026, individuals will benefit from the one-half inclusion rate on up to $250,000 of capital gains annually.
• Increased Lifetime Capital Gains Exemption (LCGE): As previously announced, the current federal government intends to keep the proposed increase in the Lifetime Capital Gains Exemption amount to $1.25 million on the sale of small business shares and farming and fishing properties, effective June 25, 2024.
• Canadian Entrepreneurs’ Incentive (CEI): As previously announced, the current federal government intends to move forward with the CEI, which would reduce the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains once the measure is fully implemented by 2029.