Canada's capital gains tax landscape has fundamentally shifted. The increase in the inclusion rate from 50% to 66.67% for gains above $250,000 — first announced in Budget 2024 and now fully in effect — has created a new reality for investors, real estate owners, and business founders across the country. If you have not yet adjusted your investment strategy to account for these changes, 2026 is the year to act.
This guide breaks down exactly how the new rules work, who is most affected, and what practical steps you can take to minimise your capital gains tax exposure within the law.
The New Inclusion Rate Explained
Prior to the change, only 50% of any capital gain was included in your taxable income — a simple, flat rate that had been in place since 2000. Under the new system, the first $250,000 in net capital gains realised by an individual in a calendar year is still included at 50%. However, any gains above that threshold are included at 66.67%.
For corporations and trusts, the two-thirds inclusion rate applies from the first dollar — there is no $250,000 threshold. This distinction is critical for business owners who hold investments inside a holding company, as the higher rate applies to their entire gain regardless of size.
To put this in concrete terms: if you sell investments for a $400,000 capital gain in 2026, the first $250,000 generates a $125,000 taxable inclusion, and the remaining $150,000 generates a $100,000 inclusion. Your total taxable amount is $225,000, compared to $200,000 under the old rules. At a 40% marginal tax rate, that is an additional $10,000 in tax. Use our capital gains tax calculator to model your specific scenario.
Impact on Real Estate Investors
The new rules have particular implications for anyone selling investment real estate. Your principal residence remains fully exempt from capital gains tax — that has not changed. However, rental properties, vacation properties, and commercial real estate are all subject to the new inclusion rates.
Consider a rental property purchased for $400,000 that you sell for $800,000. After accounting for the adjusted cost base (including capital improvements), your capital gain might be $350,000. Under the old rules, your taxable inclusion would have been $175,000 (50%). Under the new rules, the first $250,000 is included at 50% ($125,000) and the remaining $100,000 at 66.67% ($66,670), for a total inclusion of $191,670 — roughly $16,670 more in taxable income.
For investors with multiple properties, the impact compounds. If you are planning a portfolio restructuring that involves selling several properties, spreading dispositions across multiple calendar years can keep each year's gains below the $250,000 threshold where the lower inclusion rate applies. Use our rental property tax calculator to model the tax impact of different sale scenarios.
Portfolio Management Strategies Under the New Rules
The higher inclusion rate makes tax-loss harvesting more valuable than ever. By selling investments that have declined in value, you realise capital losses that can offset capital gains dollar for dollar. Any unused losses can be carried back three years or forward indefinitely. Strategic tax-loss harvesting can keep your net annual gains below the $250,000 threshold.
Asset location — the practice of holding different types of investments in different account types — is also more important. Tax-efficient investments like Canadian dividend-paying stocks and index ETFs that generate minimal annual capital gains can be held in taxable accounts. Investments that generate regular capital gains distributions should be prioritised for your RRSP or TFSA, where gains are either deferred or tax-free.
Review your portfolio allocation using our dividend vs salary calculator to understand how different income types are taxed and where each investment belongs in your account structure.
Business Owners and the Lifetime Capital Gains Exemption
For Canadian business owners, the Lifetime Capital Gains Exemption (LCGE) is more important than ever. When you sell qualifying small business corporation shares, up to $1,250,000 in capital gains is completely exempt from tax (the limit was increased from $1,016,836 in Budget 2024 and is now indexed to inflation).
Additionally, the new Canadian Entrepreneurs' Incentive provides a reduced inclusion rate of 33.33% on up to $2 million in eligible capital gains from the sale of qualifying small business shares — on top of the LCGE. This incentive is being phased in over several years, with a $200,000 limit in 2025 rising to $2 million by 2029.
To qualify for the LCGE, your corporation must be a Canadian-controlled private corporation (CCPC), and at least 90% of its assets must be used in an active business in Canada at the time of sale. Planning ahead is essential — there are holding period requirements and anti-avoidance rules that can disqualify you if not carefully managed. Our corporate tax calculator can help you model the tax implications of different business sale structures.
Timing Strategies for 2026
Under the new rules, the timing of when you trigger capital gains matters more than ever. Several strategies can help minimise your tax:
First, consider spreading large gains across multiple years. If you have $500,000 in unrealised gains, selling half in 2026 and half in 2027 keeps each year's gain at $250,000 — fully within the lower 50% inclusion rate. This requires no complex planning, just patience and discipline.
Second, if you are married or in a common-law partnership, ensure investments are structured so that both partners can utilise their individual $250,000 thresholds. If only one spouse holds all the investments, only one $250,000 threshold is available. Proper attribution planning (while respecting the attribution rules) can effectively double the threshold for a couple.
Third, maximise contributions to tax-sheltered accounts. Every dollar of gains earned inside an RRSP or TFSA is completely unaffected by the inclusion rate change. If you still have contribution room, use it aggressively for your highest-growth investments.
Planning for the Long Term
The two-thirds inclusion rate is now the reality of Canadian investing, and planning around it is not optional — it is essential for wealth preservation. The combination of tax-loss harvesting, strategic asset location, timing of dispositions, full use of the LCGE, and maximising tax-sheltered accounts can significantly reduce your effective capital gains tax rate even under the new regime.
Start by running your current portfolio through our capital gains tax calculator to understand your exposure. Then review your overall tax situation with our salary calculator to see how capital gains income interacts with your employment or business income. Knowledge and planning are the most effective tools for managing the new capital gains landscape.