How Canada’s Capital Gains Tax Changes Affect Investors

In its 2024 budget, the federal government announced a plan to raise the capital gains inclusion rate. Canadians were given just over two months’ notice in April before the proposed changes were scheduled to take effect on June 25, 2024. Below is an up-to-date summary of what was proposed, how the legislative process has unfolded, and what it may mean for taxpayers.

What are the proposed changes to capital gains tax?

Under the proposal, the capital gains inclusion rate would change for gains realized on or after June 25, 2024. For more than two decades, Canada has taxed only half of a capital gain (a 50% inclusion rate). The proposal would alter that approach as follows:

• Individuals: The 50% inclusion rate would continue to apply to the first $250,000 of capital gains realized in a single tax year. Any capital gains above $250,000 in a single year would be taxed at a higher inclusion rate of two-thirds (66.67%) on the excess, meaning only one-third of that excess would be exempt.
• Corporations: Corporations would have all capital gains subject to the two-thirds inclusion rate, leaving only one-third of gains exempt from tax.
• Trusts: Most trusts would also see all capital gains taxed at a two-thirds inclusion rate, with one-third exempt. Exceptions would apply for graduated rate estates and qualified disability trusts, which would receive the same $250,000 preferential threshold as individuals.

What has the legislative process entailed?

The government introduced a notice of ways and means motion in June to amend the Income Tax Act and set out the proposed capital gains changes. That initial motion was passed, but the amendment must still be converted into law through the formal bill process. A draft version of the bill was tabled in late September, but it has not yet completed the legislative stages required to become law.

Political developments this fall have added uncertainty. There have been non-confidence motions and continued partisan debate, and one option available to the prime minister would be to prorogue parliament temporarily. Prorogation would pause parliamentary business and require committees to be re-established when the legislature resumes, potentially delaying tax legislation further.

If a federal election were called and held before the change was enacted into law, the proposal might not proceed at all under a new government. That possibility introduces meaningful uncertainty about whether the amendment will ever be implemented.

What does this mean for capital gains in 2024 and beyond?

Some taxpayers reacted to the announcement by realizing capital gains before the June 25 effective date to lock in the lower 50% inclusion rate. If the higher inclusion rate is never enacted, those sales may have been unnecessary. More importantly, some sellers—especially in real estate—may have accepted lower offers to complete transactions quickly ahead of the deadline. In thin or cooling markets, buyers were aware of sellers’ motivations and sometimes bid accordingly, which could have reduced proceeds for hurried sellers.

If the proposed change fails to pass and a different party forms government, it is unlikely the measure would be pursued again in the same form. Conversely, if the proposal becomes law, taxpayers who realized gains after June 25 could face significantly higher tax bills on the portion of gains above the $250,000 individual threshold, as corporations and most trusts would be fully subject to the higher inclusion rate.

Tax planning in uncertain times

Planning around potential tax changes is always difficult, and the risk of acting prematurely rises when rules are in flux. Announcements and consultation periods can prompt taxpayers to make irreversible decisions—selling investments or property—that may later prove unnecessary or costly. In some cases, public consultation or political pushback can also cause governments to revise, delay, or withdraw proposed amendments.

With political dynamics in Canada likely to remain active in the coming months, taxpayers should be cautious about making major moves based solely on proposed legislation. Where possible, consider the longer-term financial and tax consequences of selling assets, and weigh the costs of realizing gains now versus holding investments and deferring tax.

When in doubt, contact a qualified tax professional or financial advisor who can evaluate your personal circumstances and provide tailored guidance. Thoughtful planning can help manage tax risk while avoiding rushed decisions driven by uncertainty.

Read more about capital gains in Canada:

• Capital gains tax in Canada, explained
• Year-end tax and financial planning considerations
• Yes, a cottage is an investment property—how to minimize capital gains tax
• How to prepare for future changes in tax policy, including capital gains tax