If you invest in stocks, own rental property, or run a business in Canada, the capital gains tax landscape has shifted dramatically. Starting with dispositions after 25 June 2024, the federal government raised the capital gains inclusion rate from one-half to two-thirds for individuals realising gains above $250,000 in a single year. For corporations and trusts, the two-thirds rate applies on the very first dollar of capital gains, with no threshold at all.
This change represents the most significant shift in Canadian capital gains taxation in over two decades. Whether you are a long-term investor, a small business owner planning a sale, or someone sitting on appreciated real estate, understanding how this new structure works is essential for your financial planning in 2026 and beyond.
What Actually Changed: The Two-Thirds Inclusion Rate
For decades, Canada taxed only 50% of capital gains — meaning if you made $100,000 on the sale of an investment, only $50,000 was added to your taxable income. That was one of the more favourable capital gains regimes among developed nations, and it encouraged investment and entrepreneurship.
Under the new rules, the first $250,000 in net capital gains realised by an individual in a calendar year is still included at the 50% rate. However, any amount above that threshold is included at 66.67% — two-thirds. So if you realise $400,000 in capital gains, the first $250,000 has a $125,000 inclusion, and the remaining $150,000 has a $100,000 inclusion, for a total taxable amount of $225,000 instead of the $200,000 you would have paid under the old rules.
For corporations and trusts, there is no $250,000 threshold. Every dollar of capital gains is included at the two-thirds rate. This is particularly important for business owners who hold investments inside a corporation, as the tax hit is more immediate and unavoidable.
Use our capital gains tax calculator to see exactly how the new inclusion rate affects your specific situation.
Who Is Most Affected?
The government has framed this as a measure that only affects the wealthiest Canadians, and it is true that the $250,000 annual threshold means most people selling a few thousand dollars of stocks will not notice a difference. Your principal residence remains fully exempt from capital gains tax, which protects the majority of homeowners.
However, several groups are more significantly affected than the headlines suggest:
Small business owners selling their company. If you have built a business over 20 years and sell it for $2 million above your adjusted cost base, you are now paying the higher inclusion rate on a substantial portion of that gain. The Lifetime Capital Gains Exemption (LCGE) has been increased to $1.25 million for qualifying small business shares, which helps — but many business sales exceed that amount.
Cottage and recreational property owners. Families who own a cottage or cabin that has appreciated significantly will face the higher rate when they sell or pass it to the next generation. A property purchased for $150,000 that is now worth $800,000 generates a $650,000 gain — well above the threshold.
Investors with concentrated positions. If you hold a large position in a single stock or ETF and decide to rebalance or liquidate, you could easily exceed $250,000 in gains in a single year. This is especially relevant for retirees drawing down their non-registered portfolios.
Incorporated professionals. Doctors, dentists, lawyers, and other professionals who invest through their professional corporations face the full two-thirds rate from dollar one on corporate investment gains.
The Lifetime Capital Gains Exemption Increase
To partially offset the impact on small business owners, the government raised the LCGE from approximately $1,016,836 to $1.25 million, effective 25 June 2024. This exemption applies to the sale of qualifying small business corporation shares, qualified farm property, and qualified fishing property.
Additionally, a new Canadian Entrepreneurs Incentive was introduced, which will reduce the inclusion rate to one-third on up to $2 million in eligible capital gains when disposing of qualifying shares. However, this incentive is being phased in gradually — the limit starts at $200,000 in 2025 and increases by $200,000 per year until it reaches the full $2 million in 2029.
For business owners planning an exit, the timing of a sale is now a critical tax planning consideration. Use our salary calculator alongside the capital gains calculator to model your total tax burden in the year of a potential sale.
Planning Strategies for 2026
Spread gains across tax years. If you have the flexibility to structure a sale with installment payments, you can potentially keep each year below the $250,000 threshold and maintain the 50% inclusion rate on all your gains. This works well for real estate and business sales where the buyer agrees to a vendor take-back mortgage.
Maximise your TFSA and RRSP. Capital gains earned inside a Tax-Free Savings Account are completely exempt from tax — no inclusion rate applies at all. Similarly, gains inside an RRSP are tax-deferred until withdrawal. Every dollar you can shelter in these registered accounts avoids the higher inclusion rate entirely. Check our TFSA calculator and RRSP calculator to see your current contribution room.
Consider triggering gains strategically. If you have unrealised gains and expect to exceed the threshold in a future year — perhaps due to a planned property sale — it may make sense to crystallise some gains now while you can stay under the $250,000 limit. This is sometimes called tax-gain harvesting, and it is the opposite of the more common tax-loss harvesting strategy.
Review your corporate investment portfolio. Since corporations face the two-thirds rate from dollar one, it may be worth rethinking whether holding passive investments inside a corporation still makes sense. The refundable dividend tax on hand (RDTOH) mechanism partially offsets the corporate tax, but the math has changed. Speak to your accountant about whether shifting some investments to personal registered accounts is worthwhile.
How This Compares Internationally
Even with the increase, Canada still taxes capital gains more favourably than several comparable countries. The United States taxes long-term capital gains at rates up to 20% (plus a 3.8% net investment income tax), and there is no inclusion rate mechanism — the full gain is subject to tax at the preferential rate. In the UK, capital gains tax rates range from 10% to 24% depending on income and asset type.
However, when you combine the two-thirds inclusion with Canada top marginal rates — which exceed 50% in several provinces — the effective capital gains tax rate on amounts above $250,000 can reach approximately 35% or higher. That is competitive with, and in some cases exceeds, the rates in peer nations.
The Bottom Line
The capital gains inclusion rate increase is a significant change that affects far more Canadians than just the ultra-wealthy. If you own a business, hold investment property, have a concentrated stock portfolio, or invest through a corporation, your tax planning needs to account for the new two-thirds rate.
The key takeaway is that timing and structuring matter more than ever. Small differences in when and how you realise gains can translate into thousands of dollars in tax savings. Start by running your numbers through our capital gains tax calculator, and consider working with a tax professional to develop a multi-year plan that minimises your exposure to the higher rate.