The Capital Gains Inclusion Rate Was Cancelled: Where Things Stand in 2026

Where We Are in 2026: The 50% Inclusion Rate Stays

As of the 2026 tax year, only 50% of a capital gain is included in taxable income, just as it has been since October 2000. There is no separate higher inclusion rate for gains above $250,000. There is no two-tier structure. The rule applies the same way to corporations, trusts, and individuals: realize a $100,000 gain on a non-registered investment and $50,000 is added to your taxable income at your marginal rate.

For most Canadian investors, this is the rule that has been in place for nearly a quarter century, and 2026 is the year in which the dust finally settled around it after a turbulent stretch. The clarity matters because it removes a planning variable that had been driving real and sometimes hasty decisions through 2024 and 2025.

Timeline of the Saga

April 2024: The original announcement

In the April 2024 federal budget, the previous government proposed raising the capital gains inclusion rate from 50% to 66.67% for the portion of an individual's annual capital gains above $250,000. Corporations and most trusts would have seen the 66.67% rate apply to all gains, with no $250,000 threshold. The proposed effective date was June 25, 2024.

Summer 2024 to January 2025: Limbo

The change was announced via a Ways and Means motion but was not enacted into law before Parliament was prorogued. CRA published administrative guidance that it would administer based on the proposal, even though the proposal lacked Royal Assent. Investors faced the awkward situation of filing returns under a rule that had been announced but never passed.

January 31, 2025: Deferral

The Department of Finance announced that the effective date would be deferred to January 1, 2026, giving more time for legislative process and stakeholder consultation.

March 21, 2025: Cancellation

Prime Minister Carney's government formally cancelled the proposed increase. The Department of Finance confirmed the 50% inclusion rate would remain, and CRA reversed its administrative position to reflect the cancellation. Many investors who had triggered gains early specifically because of the proposal were left holding tax bills they would not otherwise have had.

Why It Was Cancelled

The cancellation was framed by the Department of Finance as recognition that the proposed rate would have created competitive and administrative problems disproportionate to the revenue it was projected to raise. The proposed rules also included complex transitional provisions for corporate alternative minimum tax interactions, integration with the small business deduction, and treatment of pre-effective-date and post-effective-date gains within the same taxation year. Stakeholders, including the Canadian Bar Association and Chartered Professional Accountants of Canada, had publicly raised drafting and compliance concerns.

The political context mattered too. With a new government and a different policy mix, the inclusion rate change was not a priority. Cancelling it was a relatively straightforward way to restore certainty.

What WAS Kept: LCGE Raised to $1,250,000

Not everything from the 2024 budget was rolled back. The Lifetime Capital Gains Exemption (LCGE) on the sale of qualifying small business corporation shares and qualified farm or fishing property was increased to $1,250,000 (from approximately $1,016,836 in 2024). This is a substantial expansion of the exemption available on lifetime business sales and is indexed for inflation in future years.

For owners of qualifying private corporations, this is meaningful: the first $1,250,000 of a lifetime gain on QSBC shares can still be sheltered from tax, in addition to the regular 50% inclusion rate that applies above the exemption. For farmers and fishers, the same principle applies to their qualifying property.

Who Benefited from the Cancellation

The most direct beneficiaries of the cancellation are people who were going to be on the wrong side of the original $250,000 personal threshold or who hold investments inside a corporation. That group includes:

• Small business owners selling shares or assets beyond the LCGE shelter
• Farmers and fishers crystallizing intergenerational transfers
• High-net-worth individuals selling concentrated stock positions or investment real estate
• Holding companies and CCPCs realizing investment gains, which would have been hit by the 66.67% rate on all gains, with no $250,000 threshold
• Trusts and estates winding up taxable accounts

For an investor with a typical RRSP, TFSA, FHSA, and a small non-registered account, the cancellation is mostly procedural good news: it confirms that prevailing rules still apply.

What About Past Reorganizations

One of the harder edges of the cancellation is its impact on Canadians who triggered gains in 2024 to lock in the 50% rate before the proposed effective date. Some sold shares; some used elections to bump asset cost bases; some reorganized holding company structures. After the cancellation, those crystallizations remained taxable even though the precipitating proposal never became law.

The Department of Finance did not announce a special remedial regime for those filers. CRA's position has been that completed dispositions stand. If you implemented a strategy in 2024 expressly because of the proposed rate change, this is a good moment to revisit the structure with a tax professional to make sure subsequent steps still make sense.

Worked Example: A $400,000 Capital Gain in 2026

Consider an investor with a marginal tax rate of 50% who realizes a $400,000 capital gain on a non-registered investment in 2026.

Under the current 50% inclusion rate: 50% of $400,000, or $200,000, is added to taxable income. At a 50% marginal rate, the tax is $100,000.

Under the cancelled proposal: The first $250,000 would have been included at 50%, contributing $125,000 to taxable income. The remaining $150,000 would have been included at 66.67%, contributing about $100,005. Total taxable amount would have been about $225,005, and tax at a 50% marginal rate would have been about $112,502.

Net effect: the cancellation saves about $12,500 of tax on this single $400,000 gain. For corporate gains, where the proposal would have applied 66.67% inclusion on every dollar without a threshold, the saving on the same gain would have been larger.

Our Capital Gains Tax Calculator applies the 50% inclusion rate by default and uses your province's brackets to show the after-tax outcome on your specific gain.

Looking Forward: Could a Future Government Reintroduce It?

Tax law is set by Parliament, so a future government can always reintroduce a higher inclusion rate. There is no signal from the current government that this is on the table. Anything that proceeded would presumably be subject to the same legislative debate the original proposal triggered, and tax professionals are watching closely for any signals during pre-budget consultations.

The practical takeaway for 2026 planning is that the 50% inclusion rate should be treated as the operative rule for at least the current taxation year. Many Canadians in this position prefer to plan their realizations evenly over time rather than try to time policy changes, because doing so smooths their marginal rate exposure and avoids forced selling decisions.

FAQ

Is the capital gains inclusion rate 50% or 66.67% in 2026?

It is 50%. The proposal to raise the rate to 66.67% above $250,000 of personal gains (and on all corporate gains) was formally cancelled on March 21, 2025.

Does the cancellation apply retroactively to gains realized in 2024 and 2025?

Yes. Because the proposed rate never received Royal Assent, no gains were ever taxable under it. CRA reversed its administrative position so that 2024 and 2025 returns are administered on the 50% rate.

Can I claim a refund if I overpaid based on the proposal?

If you filed a 2024 or 2025 return that used the higher inclusion rate (because of CRA's interim administrative position), CRA has been processing adjustments. A professional review of your return is the right path if you suspect overpayment.

Was the Lifetime Capital Gains Exemption increase kept?

Yes. The LCGE was raised to $1,250,000 for qualifying small business corporation shares and qualifying farm or fishing property, and it is indexed for inflation going forward.

Does the principal residence exemption still apply?

Yes. The principal residence exemption is unrelated to the inclusion rate and continues to apply to gains on qualifying principal residences. Reporting on Schedule 3 is still required.

Are there any changes to how losses are claimed?

No. The 50% inclusion rate applies symmetrically: half of a capital loss is an allowable capital loss, deductible against allowable capital gains in the year, or carried back three years or forward indefinitely.

Calculate Your Capital Gains Tax for 2026

Use our calculator to see the exact tax on a 2026 capital gain with the 50% inclusion rate, by province and marginal bracket.