Finance Minister Dominic LeBlanc made the announcement in a release, aiming to provide certainty ahead of the upcoming tax season.
The increase was set to raise the capital gains inclusion rate—the portion of gains that is taxable—from 50% to 66.7% for individuals earning over $250,000 in annual capital gains, as well as for corporations and most types of trusts.
This change was originally announced in Budget 2024, but it had yet to be legislated when Parliament was prorogued earlier this year, leaving the policy in limbo. With a federal election expected later this year, a change in government could potentially result in the scrapping of the proposed increase altogether.
In today’s announcement, Minister LeBlanc said the decision was made to offer clarity to taxpayers and business owners.
“Given the current context, our government felt that it was the responsible thing to do,” LeBlanc said, highlighting the need for stability as tax season approaches. He added that the government is committed to engaging with Canadians about fiscal policies to sustain robust economic activity across the country.
While the decision clears up uncertainty ahead of tax season, it may affect both Ottawa’s and the provinces’ fiscal outlook, potentially delaying expected revenue from the tax hike and impacting their ability to meet budgetary targets in the short term.
Exemptions and related measures remain on track
Although the capital gains tax hike has been delayed, several related measures are proceeding as planned, including key exemptions and new thresholds. These changes are designed to support Canadians and encourage investment while maintaining tax benefits for certain real estate transactions and small businesses, the government says.
The key measures include:
- Principal residence exemption: No capital gains tax on the sale of a primary home, keeping profits tax-free.
- $250,000 annual threshold (effective January 1, 2026): Individuals with modest gains continue to benefit from the 50% inclusion rate. For example, a couple selling a cottage with a $500,000 gain would pay no extra tax.
- Lifetime capital gains exemption increased to $1.25 million (effective June 25, 2024): Reduces taxes on small business shares and farming/fishing properties for Canadians with eligible gains under $2.25 million.
- Canadian Entrepreneurs’ Incentive (effective 2025): Reduces the inclusion rate to one-third for up to $2 million in eligible gains, growing each year to $2 million by 2029. Entrepreneurs could pay less tax on up to $6.25 million in gains.
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Last modified: February 2, 2025