The Canadian government has announced a significant delay in the planned increase to the capital gains inclusion rate, which will now take effect on January 1, 2026, rather than its originally scheduled date of June 25, 2024. This decision aims to provide greater certainty for Canadians and small business owners as the government prepares for tax season.
Under the new plan, the capital gains inclusion rate will rise from 50% to 66.67%. This increase is designed to ensure that companies pay more tax on their capital gains. However, the government has committed to implementing new exemptions that aim to protect most middle-class Canadians from facing higher tax bills.
One of the key changes includes an increase in the lifetime capital gains exemption from approximately $1 million to $1.25 million. This exemption will apply specifically to the sale of small business shares, as well as farming and fishing properties. Furthermore, a new Canadian Entrepreneurs' Incentive has been introduced, which will lower the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains.
Despite these changes, the Canada Revenue Agency (CRA) had already begun administering the original tax proposals following parliamentary convention, which mandates that taxation changes take effect upon the government's tabling of a notice of ways and means motion. The policy will still affect individuals with capital gains earnings exceeding $250,000, and the new $250,000 annual threshold will come into effect on January 1, 2026.
Finance Minister Dominic LeBlanc stated that the government considered it prudent to delay the implementation of the capital gains inclusion rate hike. He emphasized the importance of providing certainty to Canadians during this transitional period:
“Given the current context, our government felt that it was the responsible thing to do.”
LeBlanc further remarked on the implications for taxpayers as they approach tax season:
“The deferral of the increase to the capital gains inclusion rate will provide certainty to Canadians, whether they be individuals or business owners.”
The announcement has been met with approval by the Canadian Federation of Independent Business (CFIB), which described it as "welcome news" for small businesses. However, CFIB President Dan Kelly cautioned that there is a vital lesson to be learned from the government's decision to defer the implementation. He highlighted the need for clearer rules regarding provisional authority for the CRA in collecting taxes:
“This experience highlights the need for Canada to introduce rules guiding provisional authority for the Canada Revenue Agency to collect taxes.”
Benjamin Bergen, president of the Council of Canadian Innovators, echoed concerns regarding the government's handling of tax policies. He suggested that real certainty would involve admitting previous mistakes and moving forward without further confusion:
“Providing real certainty to Canadians would be to admit once and for all that this was a mistake and move on.”
