Somewhere between the spring of 2024 and the spring of 2025, a meaningful number of Canadian business owners made real decisions, sold assets early, delayed a planned exit, restructured a holding company, based on a capital gains tax increase that, in the end, never became law[1]. If you are still planning around the 66.67% inclusion rate you read about two years ago, this is the article that corrects the record.
Key Takeaway
The capital gains inclusion rate in Canada is 50% for the 2026 tax year. The proposed increase to 66.67% was announced in the 2024 federal budget, deferred once, and then cancelled entirely in March 2025. It never took effect for any taxpayer. Separately, the Lifetime Capital Gains Exemption increase to $1.25 million did go through and remains in effect, now indexed to $1,275,000 for 2026.
The Full Timeline
Following the actual sequence of events matters here, because the confusion many business owners still carry comes directly from how many times this proposal changed shape[2]:
The Proposal
Federal budget proposes raising the inclusion rate from one-half to two-thirds, effective June 25, 2024, for individual gains above $250,000 annually and all corporate and trust gains.
The Deferral
Finance Minister Dominic LeBlanc announces the effective date is pushed to January 1, 2026, giving taxpayers certainty heading into that tax season.
The Cancellation
Prime Minister Mark Carney announces the increase is cancelled outright. The inclusion rate remains 50%, permanently, not merely deferred again.
Where It Stands
Budget 2025 formally accounts for the cancellation. The 50% inclusion rate, unchanged since October 2000, continues to apply.
Where Things Actually Stand
For a 2026 disposition, half of any capital gain is added to taxable income and taxed at the seller's marginal federal and provincial rate. There is no separate, preferential capital gains rate in Canada, the taxable half simply flows through the ordinary tax brackets[3]. A business owner realizing a $500,000 gain on the sale of investment property, for example, includes $250,000 in income, not the $333,333 that would have applied under the cancelled proposal.
This is genuinely good news for anyone who spent 2024 and early 2025 restructuring a portfolio, delaying a sale, or accelerating a disposition specifically to get ahead of a rate that was never actually implemented[4]. If a transaction was economically sound on its own merits, it remains so. If it was rushed purely to beat a deadline that has since evaporated, it is worth revisiting whether that rush was necessary.
What Did Change: The LCGE
Not every part of the 2024 announcement was cancelled. The Lifetime Capital Gains Exemption increase, from roughly $1.016 million to $1.25 million on qualified small business corporation shares and qualified farm and fishing property, took effect for dispositions after June 24, 2024, and was explicitly preserved through the March 2025 cancellation[5]. Indexation resumed for 2026, bringing the current limit to $1,275,000[5].
For an owner selling qualifying shares in 2026, this is the number that actually matters day to day, not the abandoned inclusion rate hike. At a 50% inclusion rate and a combined top marginal rate near 53% in most provinces, a fully-used $1,275,000 exemption shelters roughly $337,000 in tax that would otherwise be owed[6].
The Canadian Entrepreneurs’ Incentive
A second measure from the same 2024 budget, the Canadian Entrepreneurs’ Incentive, reduces the inclusion rate to one-third on top of the LCGE, on a separate lifetime limit that began phasing in for the 2025 tax year and grows by $400,000 annually toward a $2 million cap by 2029[7]. Reporting on its status following the March 2025 cancellation has been somewhat mixed, some professional commentary describes it as proceeding on schedule, while other sources flagged its future as less certain once the broader inclusion rate hike was scrapped[2]. Given that ambiguity, confirm current CEI eligibility and status directly with a tax advisor before building a specific exit plan around it, rather than treating the $400,000 annual phase-in as guaranteed.
If You Already Filed At The Higher Rate
Some corporations, following CRA's own guidance to file in accordance with the tabled legislation, reported gains at the higher two-thirds rate before the cancellation was announced. CRA has confirmed it will coordinate corrective reassessments to reverse the application of that rate for affected filers[8]. If your corporation filed a return between the original proposal and the March 2025 cancellation, it is worth confirming with your tax preparer whether a reassessment has actually been processed, rather than assuming CRA caught it automatically.
The Actual Lesson Here
Two full years of proposed-then-deferred-then-cancelled tax policy is a genuinely useful case study in why acting on a proposal, rather than enacted law, carries real risk. The businesses that fared best through this saga were the ones that kept their underlying decisions, sell now or later, restructure or don't, anchored to their own operational and financial logic, and treated the rate change itself as a factor to monitor rather than a certainty to build a plan around.
Frequently Asked Questions
Is the capital gains inclusion rate actually 50% right now?
Did the Lifetime Capital Gains Exemption increase also get cancelled?
What about corporations that already paid tax at the higher rate?
Should I still expect a capital gains increase in the future?
References
- Enriched Thinking, Scotia Wealth Management. (2025, April 7). Cancellation of the proposed capital gains inclusion rate increase. enrichedthinking.scotiawealthmanagement.com/.../cancellation-capital-gains
- CFIB. (2026). Capital gains changes. cfib-fcei.ca/site/capital-gains
- Taxes for Expats. (2026). Capital gains tax in Canada: 2026 guide for US expats. taxesforexpats.com/country-guides/canada/capital-gains-tax
- Prospyr. (2026). Canada’s capital gains inclusion rate in 2026, what actually changed and what didn’t. prospyr.ca/blog/capital-gains-inclusion-rate-canada-2026
- Department of Finance Canada. (2025, January 31). Government of Canada announces deferral in implementation of change to capital gains inclusion rate. canada.ca/.../deferral-capital-gains-inclusion-rate
- Insight Accounting CPA. (2026, May 20). Capital gains tax changes in Canada 2026: What small business owners need to know. insightscpa.ca/capital-gains-tax-canada-2026-small-business-guide
- Invested MD. (2026). Cancellation of proposed capital gains inclusion rate increase. invested.mdm.ca/cancellation-of-proposed-capital-gains-inclusion-rate-increase
- Wolters Kluwer. (2026). Capital gains inclusion rate change planned for 2026 canceled. wolterskluwer.com/.../capital-gains-inclusion-rate-canceled
This article reflects publicly available government announcements and professional commentary current as of publication and is provided for general informational purposes. It is not tax advice for any specific transaction. Confirm current legislative status directly with a tax advisor before making a decision based on any figure in this article.