Capital Gains Tax in Canada 2026: A Year-End Guide for Small Business Owners
Reviewed by Bader A. Chowdry, CPA, CA, LPA on November 2, 2026
Key facts: capital gains in Canada, 2026
- 50% of a capital gain is taxable in 2026, for individuals and corporations. The proposed increase to two-thirds was cancelled and never became law (Prime Minister’s announcement, March 21, 2025).
- $1,275,000 lifetime capital gains exemption (LCGE) for qualified small business corporation shares in 2026, a deduction limit of $637,500 because half of the gain is taxable (CRA indexation page).
- The Canadian Entrepreneurs’ Incentive proposed in Budget 2024 was cancelled in Budget 2025 and never enacted.
- About 26.77%: the top Ontario rate on a capital gain for an individual in 2026 (50% of the 53.53% top combined rate).
- Listed shares donated to a registered charity: 0% of the gain is taxable.
If you own a corporation, an investment portfolio or a rental property in Ontario, the capital gains rules for 2026 are simpler than the 2024 headlines suggested. Half of a gain is taxable, the lifetime exemption for qualifying business shares is $1,275,000, and the proposed higher inclusion rate is gone. What matters now is timing, structure and paperwork, and the next eight weeks are when most of those decisions get made.
What is the capital gains inclusion rate in Canada for 2026?
The inclusion rate is one-half (50%) for individuals, trusts and corporations. Only half of a capital gain is added to taxable income, and half of a capital loss can be deducted against capital gains. Budget 2024 proposed raising the rate to two-thirds for gains above $250,000 (and for all gains inside corporations), but the Prime Minister announced on March 21, 2025 that the increase was cancelled. It was never enacted, and the CRA administers the 50% rate.
What is the lifetime capital gains exemption (LCGE) for 2026?
For 2026 the LCGE is $1,275,000 of capital gains on qualified small business corporation (QSBC) shares and qualified farm or fishing property. Because half of a gain is taxable, the actual deduction on your return is up to $637,500. The exemption is a lifetime limit per individual, so a family where several people own shares can multiply it, provided each person’s shares qualify.
To qualify as QSBC shares, three tests generally have to be met:
- At the time of sale, the corporation is a Canadian-controlled private corporation and 90% or more of the fair market value of its assets is used in an active business carried on mainly in Canada.
- Throughout the 24 months before the sale, more than 50% of the assets were used that way.
- Throughout those 24 months, no one other than you or a related person owned the shares.
The most common reason a sale fails these tests is surplus cash or investments sitting in the operating company. Moving those out before a sale (often called “purifying” the company) has to happen well ahead of the deal because of the 24-month test.
Was the Canadian Entrepreneurs’ Incentive enacted?
No. Budget 2024 proposed a reduced inclusion rate for founders’ gains, called the Canadian Entrepreneurs’ Incentive. Budget 2025 cancelled it together with the inclusion-rate increase. Treat any article that still describes a lower rate for entrepreneurs as out of date.
How much tax will I pay on a capital gain in Ontario in 2026?
For an individual, the gain is taxed at your marginal rate on half the gain. At the top 2026 combined federal and Ontario rate of about 53.53%, that works out to roughly 26.77% of the whole gain. At lower incomes the effective rate is lower, because the taxable half is taxed in lower brackets.
| Who sells | Taxable portion | Approximate tax |
|---|---|---|
| You personally (shares that are not QSBC shares, or a rental property) | $200,000 | about $107,060 (53.53% of $200,000) |
| You personally, QSBC shares, LCGE unused | $0 after the LCGE deduction | $0 regular tax; alternative minimum tax can still apply |
| Your holding company | $200,000 | about $100,340 at the 50.17% investment-income rate, part refundable when dividends are paid; the untaxed $200,000 goes to the capital dividend account |
These are simplified figures. Your actual tax depends on your other income, losses, the alternative minimum tax and, for a corporation, the refundable tax and capital dividend account mechanics.
What should business owners do about capital gains before December 31, 2026?
- Harvest losses. Selling investments with unrealized losses can offset gains realized earlier in 2026, or be carried back up to three years. Trades must settle by December 31. See our guide to tax-loss selling in Canada for 2026.
- Time the sale. A sale in January 2027 moves the tax to the 2027 return, due April 30, 2028 for individuals, and may land in a lower-income year.
- Use the capital gains reserve. If you are paid over time, you can generally spread the gain over up to 5 years, or up to 10 years when qualifying small business shares or farm or fishing property are sold to your child.
- Donate listed securities instead of cash. A gift of publicly listed shares to a registered charity has 0% of the gain taxed and still earns the donation credit.
- Check QSBC status now. If a sale of your company is possible in the next two years, confirm the 90% and 50% asset tests today; purification takes time.
- Plan the after-tax cash. If your holding company realizes the gain, the capital dividend account lets you pay out the untaxed half tax-free, and timing the dividend matters for Ontario’s lower non-eligible dividend credit in 2027 (see our 2027 dividend credit guide).
Does the alternative minimum tax apply to large capital gains?
It can. The federal alternative minimum tax was redesigned starting in 2024 and includes a larger share of capital gains in its base than the regular 50%. A large one-time gain, especially one sheltered by the LCGE, can trigger minimum tax in the year of sale. Minimum tax paid can generally be recovered against regular tax over the following seven years, so the cost is often timing rather than permanent, but it should be modelled before the deal closes.
Is a gain on my rental property or cottage taxed the same way?
Yes, the 50% inclusion rate applies. The principal residence exemption can shelter years a property was your principal residence, but a family can designate only one property per year. Changing a property’s use (rental to personal or the reverse) can trigger a deemed sale. For rentals held in a corporation, see owning rental property in a corporation vs personally in Ontario.
Frequently asked questions
What is the capital gains inclusion rate in Canada for 2026?
50% for individuals and corporations. The proposed two-thirds rate was cancelled on March 21, 2025 and never enacted.
What is the lifetime capital gains exemption for 2026?
$1,275,000 of gains on qualified small business corporation shares and qualified farm or fishing property, which is a deduction of up to $637,500.
Was the Canadian Entrepreneurs’ Incentive enacted?
No. It was proposed in Budget 2024 and cancelled in Budget 2025.
What is the top tax rate on capital gains in Ontario in 2026?
About 26.77% of the gain for an individual in the top bracket (50% of the 53.53% top combined rate).
Can I reduce tax on a 2026 capital gain before year-end?
Often, yes: realize offsetting losses before December 31, consider a 2027 sale date, use the capital gains reserve for instalment sales, or donate listed securities instead of cash.
Official sources
- Prime Minister of Canada: proposed capital gains increase cancelled (March 21, 2025)
- CRA: indexation of personal income tax and benefit amounts (2026 LCGE)
- CRA: capital gains (line 12700)
- Income Tax Act, section 110.6 (capital gains exemption)
Selling shares, a property or your business in the next two years?
Insight Accounting CPA models the tax on a sale, checks whether your shares qualify for the lifetime exemption, and plans the timing with you.
Book a 30-minute planning call with Bader A. Chowdry, CPA, CA, LPA
General information only, not tax or legal advice. Figures are current as of November 2, 2026 and can change; confirm your situation with a qualified advisor before acting. Insight Accounting CPA Professional Corporation, Mississauga, Ontario.
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