On January 31, 2025, the Canadian federal government announced that it was deferring the previously announced increase to the capital gains inclusion rate until January 1, 2026. As a result, based on this announcement, the existing one-half inclusion rate will continue to apply to capital gains realized through December 31, 2025.
The federal government originally proposed to increase the capital gains inclusion rate in the 2024 federal budget. The proposed increase would have resulted in an inclusion rate of two thirds for corporations and trusts and two thirds for individuals for, generally, gains and stock option benefits in excess of $250,000 (net of certain amounts). The increase was supposed to take effect on June 25, 2024, with implementing amendments to the Income Tax Act to follow in the fall of 2024. Although the Department of Finance released draft legislation on June 10, 2024, and revised draft legislation on August 12, 2024, the federal government never introduced a bill to Parliament that would implement the proposed increase.
The normal policy of the Canada Revenue Agency (CRA) is to administer income tax reporting as though any proposed tax legislation and amendments have already been enacted. The CRA had previously stated that it would administer the proposed capital gains inclusion rate increase, including for purposes of 2024 income tax return filings. The announcement that the increase will be deferred allows the CRA to administer the 2024 income tax returns using the current one-half inclusion rate without affecting their normal policy of administering proposed but unenacted legislative changes.
The announcement stipulates that neither the proposed increase to the Lifetime Capital Gains Exemption (from $1,016,836 to $1,250,000), nor the proposed Canadian Entrepreneurs’ Incentive, is deferred. Neither of these measures has yet been enacted into law.
If you have any questions or require additional analysis, please contact any member of our National Tax Department.
