Capital Gains 2026: What Changed (And What Didn\’t)

Capital gains are a key component of Canadian personal and corporate taxation. In 2026, a proposed change that many taxpayers were expecting did not go into effect. Understanding why the inclusion rate stayed at 50% and how the Lifetime Capital Gains Exemption (LCGE) adjustments will shape your tax strategy is essential for Canadians and businesses alike.

The 2026 Inclusion Rate: 50% Still in Play

Background

For decades, Canada has taxed 50\% of a taxpayer\’s capital gains at their marginal income tax rate. In 2025, the federal government announced a plan to increase the inclusion rate to two-thirds for capital gains exceeding $250,000, aiming to broaden the tax base and address equity concerns. However, Prime Minister Mark Carney announced on March 21, 2025, that the proposed hike would be cancelled, keeping the 50\% inclusion rate unchanged for the 2026 tax year.

Why the Change Was Canceled

Political pushback from business and investor groups raised concerns about the impact on capital-market activity.

Economic analysis indicated that a higher inclusion rate could dampen investment flows and potentially slow job growth.

Stakeholder consultations highlighted the complexity of implementing a graduated inclusion rate for high-value assets.

For 2026, the inclusion rate remains at 50\%, meaning that individuals, trusts, and corporations will continue to include half of any realised capital gains in their taxable income.

Lifetime Capital Gains Exemption (LCGE) Adjustments

New LCGE Threshold

While the inclusion rate stayed the same, the LCGE ceiling was increased to $1.25 million for qualifying small-business shares and farming/fishing property, effective June 25, 2024. The 2026 tax year benefits from this higher ceiling, allowing entrepreneurs to shelter more gains.

Impact on Small-Business Owners

Shareholders of eligible corporations can now convert a larger portion of their sale proceeds into a tax-free windfall.

Agricultural enterprises benefit similarly, as farming property can qualify for the exemption.

The higher LCGE threshold aligns with the Government of Canada\’s commitment to support small-business growth.

The Canadian Entrepreneurs’ Incentive (CEI)

The CEI, originally proposed to reduce the inclusion rate to one-third on a lifetime maximum of $2 million for eligible business owners, was eliminated in early 2026. While the incentive would have provided significant relief for high-net-worth entrepreneurs, its removal underscores the government\’s focus on maintaining balanced tax policy.

Practical Takeaways for Taxpayers

1. Plan for a 50\% inclusion rate – No changes mean the tax treatment of capital gains remains stable.

2. Leverage the higher LCGE ceiling – Structure asset sales or transfers to maximise the tax-free exemption.

3. Review your investment strategy – A stable inclusion rate may encourage long-term holding, potentially reducing short-term capital gains.

4. Consult a CPA – Discuss timing of asset dispositions to align with your overall tax planning goals.

How to Prepare for 2026 Tax Returns

Update your financial models to reflect the 50\% inclusion rate and the new LCGE ceiling.

Review trust arrangements – Ensure any trust income and capital gains are allocated correctly.

Consider a tax-planning workshop – Many accounting firms offer sessions on capital gains optimisation.

For more detailed guidance on tax planning, visit our Tax Planning page. If you are a small business owner, explore our Small Business Accounting resources for tailored strategies.

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*Prepared for Insight SCPA. © 2026. All rights reserved.*

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