Today, Dominic LeBlanc, Minister of Finance and Intergovernmental Affairs, announced that the federal government is deferring—from June 25, 2024 to January 1, 2026—the date on which the capital gains inclusion rate would increase from one-half to two-thirds on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts. The capital gains inclusion rate represents the portion of capital gains that is taxable.
To ensure most middle-class Canadians do not pay more tax once the capital gains inclusion rate is increased, the government will maintain or enhance existing capital gains exemptions while creating a new investment incentive, said the government.
The government said the capital gains exemptions being maintained and created would include:
- Maintaining the Principal Residence Exemption, to ensure Canadians do not pay capital gains taxes when selling their home. Any amount they make when they sell their home will remain tax-free.
- A new $250,000 Annual Threshold for Canadians, effective January 1, 2026, to ensure individuals earning modest capital gains continue to benefit from the current one-half inclusion rate. Capital gains, including on the sale of a secondary property, such as a cottage, will be eligible for the $250,000 annual threshold, meaning a couple selling a cottage with a $500,000 capital gain would not pay more tax.
- Increasing the Lifetime Capital Gains Exemption to $1.25 million, effective June 25, 2024, from the current amount of $1,016,836 on the sale of small business shares and farming and fishing property. With this increase, Canadians with eligible capital gains below $2.25 million would pay less tax and be better off, even after the inclusion rate increases on January 1, 2026.
- A new Canadian Entrepreneurs’ Incentive, to encourage entrepreneurship by reducing the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains. This incentive would take effect starting in the 2025 tax year and the maximum would increase by $400,000 each year, reaching $2 million in 2029. Combined with the new $1.25 million lifetime capital gains exemption, when this incentive is fully rolled out, entrepreneurs would pay less tax and be better off on capital gains of up to $6.25 million.
Here’s how different organizations have reacted to the news
CPA Canada
The federal government’s decision to delay implementation of proposed changes to the capital gains inclusion rate provides temporary relief for taxpayers. However, amid growing economic uncertainty, CPA Canada believes it should consider rescinding the proposed changes entirely.
“This decision reflects the concerns that CPA Canada has consistently raised with the Minister of Finance,” says John Oakey, CPA Canada’s vice-president of tax.
“The retroactive impact on the proposed legislation with a prorogued parliament was creating significant uncertainty for taxpayers and their advisors”
“Through our advocacy, we’ve emphasized the need for tax policy, along with its implementation, that provides clarity and stability for Canadian taxpayers—especially during times of economic uncertainty.”
The proposed changes combined with prorogation of parliament have created significant uncertainty for taxpayers. While delayed implementation provides temporary relief, the fate of the changes to the capital gains remains unknown.
Canadian Federation of Independent Business
The Canadian Federation of Independent Business (CFIB) is pleased that the federal government has deferred the increase in the capital gains inclusion rate to 66.7% until 2026 – after the next federal election.
This will be welcome news to many small business owners who were facing higher taxes from a tax change that was proceeding despite the lack of any legislation from Parliament. With the uncertainty Canadians face due to U.S. tariffs and our domestic political situation, making clear that taxes on entrepreneurship will not rise at this time is especially important.
This experience highlights the need for Canada to introduce rules guiding provisional authority for the Canada Revenue Agency to collect taxes. CFIB will be lobbying the next federal government to put in place legislation similar to the United Kingdom which allows its tax authority no more than six months to pass legislation and makes clear that prorogation in Parliament automatically returns tax rates to their previous levels if legislation was not passed.
Calgary Chamber of Commerce
We certainly welcome this policy shift; however, we shouldn’t have been here in the first place. It is also unclear at this point how the federal government will enact this change.
We’ve been clear since its announcement that increasing the capital gains inclusion rate is a negative signal for investment – and we’ve seen some of those consequences play out. We know access to capital remains a challenge, especially for small and scaling businesses, and this policy has made it even harder. Additionally, the capital gains tax compromises the recycling of capital into new business opportunities, which are critical in fostering economic growth and productivity.
Our businesses across the country drive an innovative Canadian economy – solving waning productivity, de-risking technology adoption, addressing supply chain challenges and advancing climate action. They need to be set up for success. If businesses have the latitude to solve global challenges such as productivity, climate action, food security and infrastructure development, it serves to improve quality of life and economic outcomes for all Canadians.
And at a time when productivity is waning quickly, we need to protect and improve our competitive position to support our businesses, grow our economy and protect Canadian prosperity.
Deborah Yedlin, President and CEO
Canadian Taxpayers Federation
The Canadian Taxpayers Federation will keep fighting to scrap the capital gains tax hike completely after winning a victory forcing the Canada Revenue Agency to pause enforcement this year.
“Taxpayers across Canada forced the Trudeau government to back down from enforcing this illegal and undemocratic capital gains tax hike this year, but the fight will continue until the policy is scrapped completely,” said Franco Terrazzano, CTF Federal Director. “This is a huge win for taxpayers who stood up and fought back against a tax grab that would illegally take billions of dollars from Canadians.
“Now the fight will continue until the capital gains tax hike is permanently scrapped.”
Finance Minister Dominic LeBlanc announced that the government is postponing enforcement of the capital gains tax increase from June 25, 2024, to Jan. 1, 2026.
The pause comes just one week after the CTF launched a legal challenge to stop the Canada Revenue Agency from enforcing the tax hike without parliamentary approval. The CTF’s legal application argues that enforcing the tax increase violates the rule of law and is unconstitutional.
A recent C.D. Howe Institute report warns the capital gains tax hike would cost 414,000 jobs and shrink Canada’s GDP by nearly $90 billion.
“This is a win for taxpayers who should never be forced by unelected bureaucrats to pay a tax that was never properly enacted,” said Devin Drover, CTF General Counsel. “Our court fight isn’t over. We will keep pushing to establish a firm precedent: no taxation without representation.”
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