Overview
The capital gains inclusion rate in Canada is undergoing significant changes, impacting how individuals and corporations are taxed on their investment profits. These adjustments, announced in the 2024 federal budget, aim to enhance tax fairness and generate additional revenue for government initiatives.
Understanding these modifications is crucial for effective financial planning, as they will influence decisions related to asset disposition and investment strategies.
- Inclusion Rate Increase: The capital gains inclusion rate is increasing from one-half (50%) to two-thirds (66.7%) for corporations and trusts, and for individuals on capital gains exceeding $250,000 annually, as detailed in recent updates.
- Effective Date: These new rates will apply to capital gains realized on or after June 25, 2024, marking a pivotal shift in the tax landscape.
- Individual Exemption: Individuals will retain the 50% inclusion rate for the first $250,000 of capital gains realized each year, providing a threshold before the higher rate applies, as part of key changes.
- Impact on Businesses: Corporations and trusts will see the two-thirds inclusion rate apply to all capital gains, without a similar $250,000 exemption.
Understanding Canada’s Capital Gains Inclusion Rate Changes
Find updates from the 2025 Federal Budget that may affect the information below here.
Find our June 2025 update here.Â
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The Department of Finance issued a statement on January 31, 2025 indicating that the changes to the capital gains inclusion rate that were introduced in the 2024 budget will be now be effective January 1, 2026, impacting corporations, trusts, and individuals in Canada. This date has changed from June 25, 2024.
Key Changes to Canada’s Capital Gains Inclusion Rate in 2024
For Individuals:
The capital gains inclusion rate for individuals now increases tax liabilities on gains exceeding $250,000 in any tax year. Previously, gains over $250,000 were taxed at a 50% inclusion rate. Under the new rules, these gains will now be subject to a 66.7% inclusion rate, raising the tax burden. This change could affect investment decisions and tax planning for individuals with substantial capital gains.
Individuals may want to consider triggering gains on assets before June 25, 2024, to avoid exceeding the $250,000 threshold and facing higher taxes.
For Corporations and Trusts:
Corporations and trusts will also see higher tax liabilities due to the increased inclusion rate of 66.7% on all realized capital gains.
Legislative and CRA Updates
- September 23, 2024: The government tabled a Notice of Ways and Means Motion introducing An Act to amend the Income Tax Act and the Income Tax Regulations.
- This motion revised a previous proposal from June 10, 2024.
- For more details on the capital gains tax changes, visit the Notice of Ways and Means Motion.
- These proposed changes are still subject to parliamentary approval, but the Canada Revenue Agency (CRA) is already administering the capital gains inclusion rate changes, effective June 25, 2024, based on the proposals outlined in the September 23, 2024 Notice of Ways and Means Motion.
- According to standard parliamentary practice, taxation proposals take effect as soon as the government tables a Notice of Ways and Means Motion, ensuring fairness and consistency for all taxpayers.
- The CRA will issue the necessary forms for filing under the new rules by January 31, 2025.
- Corporations and trusts affected by these changes will have access to interest and penalty relief if their filing due date is on or before March 3, 2025.
- When Parliament is prorogued or dissolved, the CRA will generally continue to administer the proposed legislation according to its established guidelines.
- If Parliament resumes and no bill is passed, and the government decides not to proceed with these changes, the CRA will stop administering them. In such a scenario, the CRA will assist taxpayers in making any necessary corrections to affected returns.
Key Updates to Canada’s Capital Gains Inclusion Rate
Budget 2024 highlights the need to stay informed and proactive in managing tax liabilities. By understanding these capital gains inclusion rate changes and taking strategic steps to optimize tax positions, individuals and entities can mitigate risks and seize opportunities in the evolving tax landscape.
Adapting to these changes requires expertise and careful planning. At KWB Accountants & Advisors, we offer tailored tax and financial advisory services to help you navigate these adjustments with clarity and confidence. Schedule an introductory meeting here to learn more.