Capital Gains Tax in Canada: Rates and How Much You’ll Pay

The 2024 federal budget introduced changes to how capital gains are taxed in Canada. Under the proposals, certain taxpayers would see a larger portion of their capital gains included in taxable income — two-thirds instead of the long-standing one-half inclusion rate — for part or all of their gains.

“Inclusion rate” refers to the percentage of a capital gain that is added to your taxable income. Since 2000, Canada’s inclusion rate for capital gains has generally been 50%. The new proposals would raise that rate to 66.67% for some taxpayers, increasing the effective tax paid on capital gains for those affected.

Who is affected by the new capital gains rules?

The budget proposals target three groups:

1. Individuals with annual capital gains exceeding $250,000
2. All corporations
3. All trusts

Most individuals do not report more than $250,000 of capital gains in a single year, but some middle-income taxpayers could be affected—for example, those selling a cottage. The changes would also hit incorporated business owners and professionals who accumulate savings in a corporation or holding company. While active business income typically benefits from lower corporate tax rates, investment income held inside a corporation is already taxed at high rates similar to top personal rates; a higher inclusion rate will reduce the speed at which savings can be accumulated and increase the tax paid when funds are withdrawn.

Trusts may experience more limited effects because trust income is often allocated to beneficiaries and taxed at their personal rates. Still, some trusts could see higher taxes depending on how income is reported and distributed.

Capital gains and employee stock options

Employees who receive stock options may also be affected. The stock option deduction — which effectively reduced the taxable portion of an option gain — would be reduced for amounts above the $250,000 threshold. In practice, that means option income above $250,000 could be taxed with a two-thirds inclusion rate, rather than one-half.

Capital gains from the sale of businesses in Canada

The budget also proposed increasing the lifetime capital gains exemption (LCGE) for qualifying small business corporation shares and for qualifying farm or fishing properties. The exemption limit would rise from $1,000,000 to $1,250,000 effective June 25.

Additionally, a new Canadian Entrepreneurs’ Incentive was proposed. Beginning January 1, 2025, founders of qualifying Canadian-controlled private corporations (CCPCs) could see an extra exemption that accrues in $200,000 increments up to a $2-million maximum by January 1, 2034. This measure is intended to provide additional capital gains relief for founding investors in eligible businesses.

Current status of the capital gains tax proposals

Notably, the Budget Implementation Act introduced shortly after the budget did not include the capital gains changes. Finance Minister Chrystia Freeland has indicated the measures are still planned, but their omission from the implementation bill raises the possibility of further revisions before any changes are finalized and enacted.

Answering common questions about the changes

Readers have submitted several practical questions about how the proposed rules would work. Below are clear answers to a few common scenarios to help you evaluate potential impacts.

Is there a limit on capital gains tax?

For corporations the answer is straightforward: the higher inclusion rate would apply to every dollar of a corporation’s capital gains. The $250,000 threshold applies only to individuals. Corporations would report two-thirds of capital gains as taxable income under the proposal, rather than one-half.

Remember that the inclusion rate is not the final tax rate. Corporate tax on passive income is typically high — roughly comparable to top personal rates — so a 66.67% inclusion rate combined with an approximate 50% tax on that income would result in an effective tax of about 33.33% on a capital gain realized inside a corporation.

Should I try to sell assets before June 25 to avoid higher taxes?

It depends on your situation. Selling before the effective date could lock in the lower inclusion rate and reduce tax payable in the short term, which may be beneficial if you already plan to sell within a few years. For example, using a simplified scenario where a corporation faces a 50% tax on taxable income: under a 50% inclusion rate a $10,000 capital gain generates $2,500 in tax; under a 66.67% inclusion rate it would generate $3,333 in tax. That’s a $833 difference.

Viewed as a financing question, paying $833 extra in a year is like paying a 33.33% premium; spread over multiple years that premium is lower on an annualized basis. If you expect modest mid-single-digit investment returns, deferring tax and keeping the asset invested can make more sense; if you plan to sell soon, accelerating the sale may save tax. Each decision should consider expected returns, timing, personal circumstances, and the possibility that proposals may change before becoming law.

Can capital gains be split between spouses?

In many cases spouses can allocate capital gains between them, but the outcome depends on beneficial ownership. If both spouses are beneficial co-owners, each can generally claim their own individual $250,000 threshold (where applicable) and benefit from the lower inclusion rate on their portion. However, if one spouse inherited the property or only one spouse effectively paid for it, tax attribution rules may mean the gain is taxed to the contributing spouse.

On death, there is a deemed disposition of assets. A property left to a surviving spouse can be transferred at its adjusted cost base, delaying tax, but taxpayers may have new reasons to consider reporting part of a gain on the first death to take advantage of the lower inclusion rate before the higher rate applies. These are complex planning questions and will depend on ages, tax positions, and long-term plans.

Capital gains tax in Canada — what to consider

Capital gains tax settings have changed over past decades. The inclusion rate was higher in the past (75% in the 1990s), and this proposal represents a partial return toward earlier levels for some taxpayers. While the government frames the changes as targeting the wealthiest Canadians, the revisions could affect a broader group, including owners of publicly traded shares held inside RRSPs, pension funds, and other registered and non-registered accounts.

Whether the change feels fair will depend on your perspective and tax position. What matters practically is understanding how the new rules could affect your own situation and taking steps — where appropriate and in consultation with a tax professional — to adapt your tax planning and investment strategy.

More about capital gains tax in Canada:

• What is a non-registered account and how does it work?
• Can you save on taxes by owning an investment account with your child?
• How to carry back a capital loss for a tax refund
• The tax implications for Canadians selling foreign real estate