On Friday, January 31st, 2025, the Canadian government announced that taxpayers will not need to include the proposed increase in the capital gains inclusion rate in their 2024 tax filings.
This increase, which was originally scheduled for June 25, 2024, has now been deferred to January 1, 2026. The planned change would have raised the inclusion rate for individuals and corporations to two-thirds on gains exceeding $250,000.
According to the government’s website, the capital gains exemptions being maintained and created would include:
- Maintaining the Principal Residence Exemption – this exemption does not change and means Canadians selling their primary residence do not pay capital gains taxes.
- A new $250,000 Annual Threshold for Canadians – this becomes effective January 1, 2026, and means that those selling a secondary property, such as a cottage, will be eligible for the $250,000 annual threshold.
- Increasing the Lifetime Capital Gains Exemption to $1.25 million – this is retroactively effective from June 25, 2024, and means that the current lifetime capital gains exemption increased from the current amount of $1,016,836 on the sale of small business shares and farming and fishing property to $1,250,000.
- A new Canadian Entrepreneurs’ Incentive – meant to encourage entrepreneurship this will reduce the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains. This incentive takes effect with the 2025 tax year. This means the maximum would increase by $400,000 each year, reaching $2 million in 2029.
Should you have any questions about how this announcement effects your corporate or personal tax filings, please discuss the details with your accountant.
