Ottawa announces deferral in implementing capital gains changes, new exemptions

VP of advocacy at the CFIB Corinne Pohlmann shares her reac tion to the feds delaying its capital gains tax hike to Jan. 1, 2026 after court challenges forced Trudeau's government to abandon the policy.

The federal government announced it is deferring the implementation of its change to the capital gains inclusion rate from June 25 of this year to Jan. 1 2026.

The government announced the deferral in a press release Friday and said it would “maintain or enhance” existing exemptions and create new incentives for investment.

The tax hike would raise the inclusion rate on capital gains that companies pay to two-thirds from one half. On an individual basis, the changes would apply to those with earnings from capital gains above $250,000.

LeBlanc, the minister of finance and intergovernmental affairs, said in the announcement.

“Given the current context, our government felt that it was the responsible thing to do. I look forward to further conversations with Canadians on how we can ensure Canada’s fiscal policy encourages robust and sustained economic activity in every region of our country.”

Four exemptions highlighted

The government highlighted four exemptions that were being maintained or created.

This included maintaining the principal residence exception to “ensure Canadians do not pay capital gains taxes when selling their home,” the release said.

Ottawa also said it would pair a new $250,000 annual threshold for Canadians effective Jan. 1 2026, with the increase to the lifetime capital gains to “ensure individuals earning modest capital gains” can benefit from the 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,” the release reads.

The third exemption listed was a move to increase the lifetime capital gains exemption to $1.25 million, from the current amount of $1,016,836, for the sale of small business shares as well as farming and fishing property. This exemption is effective June 25, 2024, according to the government.

“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,” the release said.

Lastly, the government said it is introducing 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,” the release said.

The increased inclusion rate on the capital gains tax was initially proposed in the federal government’s budget last April and subsequently introduced in a ways and means motion. The proposed change has not been passed in parliament, which is prorogued until March 24.

The Canada Revenue Agency (CRA) said in a release Friday that as a result of the government’s announcement, it would revert to administering the current capital gains inclusion rate of one half. Meaning that capital gains realized before Jan. 1, 2026 will be subject to the “currently enacted inclusion rate of one-half, unless an exemption applies.”

“The announcement confirms the government’s intention that, effective for dispositions that occur on or after January 1, 2026, the inclusion rate will increase from one-half to two-thirds on capital gains realized in excess of $250,000 annually for individuals and on all capital gains realized by corporations and most types of trusts,” the release said.

The deferral will offer more clarity for individuals and businesses, which were facing some uncertainty.

Earlier this month, the Canada Revenue Agency (CRA) said it would continue to administer the changes to the capital gains tax despite the fact that it wasn’t passed in Parliament.

In a statement to BNNBloomberg.ca earlier this month Jessica Brandon-Jepp, senior director of fiscal and financial services policy at the Canadian Chamber of Commerce, said that some Canadians and businesses had concerns about how the measure would be enforced after the prorogation of Parliament.

“It is inappropriate—and, by our analysis, unprecedented—for a government to continue to implement a tax change solely based on a ‘Ways and Means’ motion, with the clear threat of a non-confidence motion and no clear timeline to table legislation,” Brandon-Jepp said.

“This increased uncertainty compounds the impact of this tax increase in driving away new investment and entrepreneurship from our country at the exact moment we need it most.”

With files from the Canadian Press.