Capital Gains Tax Changes in Canada 2026: What Small Business Owners Need to Know

Canada’s capital gains rules for 2026 are less dramatic than the 2024 headlines suggested. The proposed increase in the inclusion rate from 1/2 to 2/3 — announced in Budget 2024 — was cancelled in Budget 2025 and never passed into law. The inclusion rate remains 50% for individuals and corporations alike.

What is the capital gains inclusion rate in Canada for 2026?

The inclusion rate is 50% (one-half). Only half of your capital gain is added to income and taxed at your marginal rate. The proposed Budget 2024 increase to 2/3 (66.67%) for gains above $250,000 was announced in April 2024 but formally cancelled in Budget 2025. It is not in force in 2026.

What is the LCGE limit for 2026?

The 2026 LCGE limit is $1,275,000 (indexed from the $1,250,000 base introduced in Budget 2024). The exemption does not apply automatically — you must file an election on your T1 return and the shares must qualify as Qualified Small Business Corporation (QSBC) shares: corporation must be a CCPC, at least 90% of assets used in an active business at time of sale, and 50%+ of assets used in active business throughout the prior 24 months.

Was the Capital Gains Exemption Incentive (CEI) enacted for 2026?

No. The CEI — which would have provided a reduced inclusion rate for founders — was announced in Budget 2024 alongside the inclusion rate increase. Both were cancelled in Budget 2025. Do not rely on any content referencing a CEI rate of 33.33% — that proposal never became law.

How does the capital gains reserve work for small business share sales?

If you sell qualifying small business shares or farm/fishing property to your child or grandchild, you can spread the capital gain over up to 10 years using the capital gains reserve. For other sales, the maximum is 5 years. Each year, bring 1/n of the remaining gain into income (minimum 1/5 per year for standard sales, 1/10 per year for intergenerational transfers).

What is the combined federal + Ontario top marginal rate on capital gains in 2026?

At a 50% inclusion rate and Ontario’s top marginal rate of approximately 53.53%, the effective tax rate on capital gains for high-income Ontario residents is roughly 26.77%. This compares favourably to employment income taxed at up to 53.53% — making capital gains timing strategies highly valuable for business owners.

How does the Principal Residence Exemption interact with capital gains on a rental property?

If you converted a rental property to or from a principal residence, a deemed disposition occurs. The Principal Residence Exemption covers years the property was your principal residence; the remaining years are subject to capital gains tax at the 50% inclusion rate.

Reviewed by: Bader A. Chowdry, CPA CA LPA — Insight Accounting CPA Professional Corporation, Mississauga, Ontario. Last reviewed: June 6, 2026. Updated: Budget 2025 cancelled inclusion rate increase; 2026 LCGE indexed to $1,275,000; CEI never enacted.