Ottawa announces deferral in implementing capital gains changes, new exemptions

The federal government of Canada has announced that it is delaying the implementation of changes to the capital gains inclusion rate until June 2026. The change, which was originally scheduled to take effect on June 25, 2025, would have increased the capital gains inclusion rate for corporations from 50% to 66% for individuals with capital gains income of more than $250,000.

The government said in a press release that the delay is being done to “preserve or improve” existing exemptions and create new incentives for investment. Four exemptions are highlighted:

1. **Maintaining the principal residence exemption:** Canadians will not pay capital gains tax when they sell their home.

2. **New $250,000 threshold:** Individuals with capital gains of less than $250,000 per year will be subject to a 50% inclusion rate. This includes the sale of secondary properties such as cottages.

3. **Increase in lifetime capital gains exemption:** The exemption for the sale of shares in small businesses, agricultural and fishing properties has been increased to $1.25 million (from $1,016,836 currently). The increase will take effect on June 25, 2024.

4. **New incentive for Canadian entrepreneurs:** The inclusion rate for up to $2 million in qualified capital gains will be reduced by one-third. The incentive will take effect in fiscal year 2025, with the maximum amount increasing by $400,000 each year, reaching $2 million in 2029.

The delay came after uncertainty about the implementation of the changes after Parliament was suspended until March 24. The Canadian Chamber of Commerce had expressed concerns about the impact of the tax increase on investment and entrepreneurship.

Source