What Happened: The Full Timeline
The 2024 federal budget proposed increasing the capital gains inclusion rate from 50% to 2/3 (66.67%) for gains realized after June 25, 2024. This would have raised the Ontario top-bracket effective capital gains rate from 26.77% to approximately 35.69% — a significant increase that prompted significant tax planning activity throughout 2024.
The proposed increase generated substantial uncertainty. Many Canadians accelerated asset sales before June 25, 2024 to lock in the 50% rate. Others restructured corporations, reorganized investments, and made estate planning decisions in anticipation of the change. Consultations with CPAs and financial advisors increased sharply in the second quarter of 2024.
On March 21, 2025, the federal government officially confirmed the proposed increase would not proceed. The 50% inclusion rate was confirmed to remain in effect for all capital gains transactions. The CRA updated its guidance accordingly. For official government confirmation, see the CRA capital gains information page.
What Changed vs What Stayed the Same
- LCGE raised to $1.25M — Lifetime Capital Gains Exemption for qualifying small business corporation shares permanently increased from $1,016,602 (2024) to $1,250,000. Applies to 2025 and beyond.
- LCGE for farming and fishing property — Also raised to $1.25M permanently. Applies to qualifying farming and fishing property dispositions.
- CRA filing procedures — CRA issued updated guidance for the 2024 tax year. Taxpayers who filed using the proposed 2/3 rate may need to amend returns. Consult a CPA.
- 50% inclusion rate — Unchanged. Only 50% of any capital gain is included in taxable income.
- Principal residence exemption — Unchanged. Gains on a designated principal residence remain 100% exempt.
- Capital loss carryover rules — Unchanged. Net capital losses carry back 3 years and forward indefinitely against capital gains.
- Deemed disposition on death — Unchanged. Estate still faces a deemed disposition at fair market value on death for non-registered assets.
- Corporate capital gains rules — Unchanged. The 50% inclusion applies at the corporate level as well.
Current Capital Gains Effective Rates — Ontario 2025
With the 50% inclusion rate confirmed, here are the current effective capital gains rates by income level in Ontario. These are illustrative calculations based on published 2025 combined Ontario-federal marginal rates. Your effective rate depends on your total income including the capital gain. Consult a CPA for your personal tax calculation.
| Ontario Income Level | Combined Marginal Rate | Capital Gain Inclusion | Effective CG Rate | Tax on $100K Gain (illustrative) |
|---|---|---|---|---|
| $50,000 | 29.65% | 50% | 14.83% | $14,830 |
| $80,000 | 31.48% | 50% | 15.74% | $15,740 |
| $100,000 | 43.41% | 50% | 21.71% | $21,710 |
| $150,000 | 51.97% | 50% | 25.99% | $25,990 |
| $246,752+ | 53.53% | 50% | 26.77% | $26,770 |
Illustrative. Based on 2025 combined Ontario-federal marginal rates applied to capital gains with 50% inclusion. Assumes the gain falls entirely within the stated bracket. Actual tax depends on income composition, total gains, losses, and credits. These are not personalized tax calculations — consult a licensed CPA for your specific situation.
The LCGE Increase: What $1.25M Means in Practice
While the inclusion rate proposal was cancelled, the Lifetime Capital Gains Exemption increase is permanent and represents a genuine planning opportunity for qualifying business owners and farmers. The LCGE allows eligible shareholders to shelter up to $1,250,000 in capital gains on the sale of qualifying small business corporation (QSBC) shares — completely exempt from tax.
An Ontario business owner selling qualifying small business shares at the top marginal rate with $1.25M in capital gains: without LCGE, illustrative tax = $1.25M × 50% × 53.53% = approximately $334,562. With full LCGE applied: $0 in tax on the exempt portion. The $334,562 illustrative tax saving is real money — and the LCGE increase from $1,016,602 to $1,250,000 added approximately $30,000 more in potential tax savings at the top bracket. Eligibility rules are complex — consult a CPA well before any planned business sale.
LCGE Eligibility Requirements
The LCGE does not apply automatically to all business share sales. To qualify, shares must meet the definition of Qualifying Small Business Corporation shares under the Income Tax Act. Key conditions include:
- The corporation must be a Canadian-Controlled Private Corporation (CCPC) at the time of sale
- At least 90% of the fair market value of the corporation's assets must be used in active business carried on primarily in Canada at the time of sale
- Throughout the 24-month period before the sale, more than 50% of the fair market value of assets must have been used in active Canadian business
- The shares must not have been owned by anyone other than the seller (or a related person) during the 24-month period
These rules are complex and fact-specific. Early planning — ideally 2–5 years before an anticipated sale — allows time to restructure the corporation to meet the eligibility criteria. A CPA and business lawyer should both be consulted well in advance. See the CRA's QSBC share guidance for technical details.
What Investors Should Do Now
If You Sold Assets Before June 25, 2024 to Lock In the 50% Rate
Your sale is not affected by the cancellation — you transacted at 50% and 50% applies. However, if you accelerated a sale you did not intend to make in 2024, you may now have capital gains tax to file on your 2024 return that you would not have otherwise had. Consult a CPA about your 2024 return and whether any planning opportunities remain (e.g., capital loss harvesting, RRSP contributions to offset the gain).
If You Deferred a Sale Expecting the Rate to Rise
The rate did not rise — you can proceed with your original timeline. If the anticipated rate increase factored into an estate plan, corporate reorganization, or investment strategy, revisit that plan with a CPA and advisor now that the rate environment is confirmed. Some decisions made in anticipation of the increase may need to be unwound or adjusted.
If You Filed Your 2024 Return Using the Proposed 2/3 Rate
If CRA had been administering the proposed rate during 2024 and you reported capital gains using 2/3 inclusion, you may be entitled to an amended return at the 50% rate. This is a factually complex area — the CRA provided specific guidance on how to handle 2024 returns affected by the cancelled proposal. Consult a CPA to determine whether an amendment is appropriate for your specific filing situation.
Capital gains tax rules are complex and fact-specific. The information in this article is current as of April 2026 based on published CRA guidance and federal government announcements. Tax laws can change. Individual situations vary significantly based on income, province, asset type, and holding structure. Consult a licensed CPA before making any investment, disposition, or estate planning decision based on capital gains tax considerations.
The capital gains inclusion rate in Canada is 50% as of April 2026. The proposed increase to 2/3 (66.67%) was officially cancelled by the federal government on March 21, 2025. This means only 50% of a realized capital gain is included in your taxable income and taxed at your marginal rate. For example, a $100,000 capital gain results in $50,000 of taxable income. At an Ontario marginal rate of 43.41%, the tax would be approximately $21,705. See the CRA capital gains guide for official current rules.
There is no separate capital gains tax rate in Ontario — capital gains are included in taxable income at 50% and taxed at your regular marginal rate. At the top Ontario-federal combined bracket (income over $246,752 in 2025), the marginal rate is 53.53%, producing an effective capital gains rate of 26.77% (53.53% × 50%). At lower income levels, the effective rate is proportionally lower. At $100,000 of income, the marginal rate is approximately 43.41%, producing an effective CG rate of approximately 21.71%. These are illustrative — individual tax depends on total income, deductions, and credits. Consult a CPA for your personal calculation.
The Lifetime Capital Gains Exemption (LCGE) was permanently increased to $1,250,000 in 2025 for qualifying small business corporation (QSBC) shares and qualifying farming and fishing property. This means up to $1.25M in capital gains on eligible assets can be sheltered from tax. At the Ontario top bracket, this represents an illustrative tax saving of approximately $334,562. The LCGE increase was part of the 2024 federal budget and was not cancelled along with the inclusion rate proposal — it is permanent. Eligibility requirements are complex. Consult a CPA well before any planned business or property sale. See the CRA QSBC share guidance.
Capital gains on a designated principal residence are generally 100% exempt from tax in Canada — no inclusion rate applies. To claim the exemption, you must designate the property as your principal residence for each year of ownership on CRA Form T2091(IND) and Schedule 3 of your tax return. The exemption requires the property to be "ordinarily inhabited" by you or certain family members in each year it is designated. Vacation properties, rental properties, and non-inhabited properties do not qualify. If you own multiple properties, you can only designate one as principal residence per year. Consult a CPA for properties with complex ownership history.
A capital loss occurs when you sell a capital property for less than its adjusted cost base (ACB). In Canada, capital losses can only be applied against capital gains — not against other types of income (with limited exceptions for allowable business investment losses). Capital losses can be carried back up to 3 years (to offset prior capital gains) or carried forward indefinitely until used against future capital gains. The superficial loss rule prevents you from claiming a capital loss if you (or an affiliated person) repurchases the same or identical property within 30 days before or after the sale. See the CRA capital losses guide. Consult a CPA for loss carryback or carryforward decisions.
The Bottom Line
The most important capital gains development in Canada since 2024 is what did not happen: the inclusion rate increase was cancelled, and the 50% rate remains. For most Canadian investors, this means no change to the fundamental after-tax economics of investing in non-registered accounts, selling investment properties, or disposing of corporate assets.
What did change — and should not be overlooked — is the LCGE increase to $1.25M. For qualifying small business owners, farmers, and fishers, this represents a permanent and significant tax sheltering opportunity. Early planning is essential, as LCGE eligibility requires the corporation to meet specific criteria for at least 24 months before a sale.
All information in this article is current as of April 2026 based on published federal government and CRA guidance. Tax rules can change. This article is educational only — not tax advice. Consult a licensed CPA before making any decision based on capital gains tax considerations.