Capital Gains Tax Changes 2026: What Canadian Small Businesses Need to Know
Canada’s capital gains rules for 2026 look different than many small business owners expected. The much-discussed two-thirds inclusion rate proposal was cancelled before it ever took effect, while the Lifetime Capital Gains Exemption (LCGE) did rise — and is now indexed. If you’re planning to sell business assets, real estate, or shares this year, this is what actually applies in 2026.
What Actually Applies to Capital Gains in 2026
The Department of Finance announced on March 21, 2025 that it was cancelling the proposed two-thirds inclusion rate that had been slated to apply to gains above the annual $250,000 threshold. That announcement was reinforced in Budget 2025 and is reflected in current CRA administration.
- Current rule (2026): The one-half (50%) inclusion rate continues to apply to capital gains for individuals, corporations, and trusts — no $250,000 threshold, no higher rate on the excess.
- Cancelled proposal: The two-thirds inclusion rate on gains above $250,000 (originally planned to take effect for 2024-and-onward gains) will not come into force.
Authoritative references: Department of Finance announcement (March 21, 2025) and Income Tax Act s.38.
Worked Example: $500,000 Capital Gain in 2026
To make the numbers concrete, here is a $500,000 capital gain realized in 2026 by an Ontario resident individual (using a 50% combined federal-plus-provincial marginal rate for illustration only — your actual rate depends on your total income and province).
| Item | Amount |
|---|---|
| Total capital gain | $500,000 |
| Inclusion rate (unchanged) | 50% |
| Taxable capital gain | $250,000 |
| Illustrative tax at 50% combined marginal rate | ~$125,000 |
Take-away: Because the two-thirds proposal was cancelled, a $500,000 gain in 2026 is taxed on the same 50% inclusion basis as in prior years. There is no $20,000-plus penalty on the second $250K that the cancelled proposal would have created.
What Did Change: LCGE Rose to $1,275,000 for 2026
Separate from the cancelled inclusion-rate change, the federal government did increase the Lifetime Capital Gains Exemption (LCGE). The June 25, 2024 legislative step-up brought the base LCGE to $1,250,000, and the 2026 indexed value is $1,275,000. The LCGE is now indexed annually for inflation.
This exemption allows eligible business owners to shelter up to $1,275,000 in capital gains from taxation when selling:
- Qualified small business corporation (QSBC) shares
- Qualified farm or fishing property
See CRA Line 25400 — Capital gains deduction for current-year eligibility and calculation rules.
Does Your Business Qualify for the LCGE?
To claim the LCGE, your business must meet specific CRA criteria, including:
- At least 90% of assets must be used actively in a business carried on primarily in Canada
- You must have owned the shares for at least 24 months
- More than 50% of the corporation’s assets must have been used in active business for at least 24 months before the sale
Not sure if your business qualifies? Our team at Insights CPA can review your situation and help you maximize this valuable exemption.
Strategic Tax Planning for 2026 and Beyond
With these changes in effect, proactive tax planning is more important than ever. Here are four strategies to consider:
1. Time Your Asset Sales Strategically
Even with the inclusion rate unchanged, timing still matters — because your marginal tax bracket, your LCGE availability, and interactions with dividends, spousal allocation, or trust distributions can all shift year over year. Consider:
- Spreading multi-parcel sales across tax years to keep your marginal rate lower each year
- Coordinating with family members whose marginal rates or LCGE usage differ from yours
- Reviewing whether accelerating or deferring a sale improves your after-tax outcome given LCGE indexing
2. Leverage the Increased LCGE
The $1,275,000 LCGE (2026 indexed value) is a powerful tool. Work with your accountant to:
- Confirm your business structure qualifies as a QSBC
- Ensure all CRA criteria are met well before your planned sale date
- Consider estate freeze strategies to multiply LCGE benefits across family members
3. Review Your Corporate Structure
Even with the inclusion rate unchanged, the LCGE rise and inflation indexing create a stronger case to revisit whether holding assets personally or corporately makes more sense. A corporate structure review can identify opportunities to:
- Minimize overall tax liability
- Better utilize the LCGE
- Optimize income splitting with family members
Explore our corporate tax planning services to ensure your structure supports your long-term goals.
4. Don’t Forget About Income Splitting and Trusts
Family trusts and income-splitting strategies can help distribute capital gains across multiple beneficiaries, each with their own $250,000 threshold before the higher inclusion rate kicks in.
What About Straddle Transactions or Prior-Year Sales?
Because the two-thirds inclusion rate never took effect, there is no straddle problem for sales that crossed the 2025-2026 boundary. Capital gains realized in either year use the same 50% inclusion rate. If you had already restructured or accelerated a sale in 2024 in anticipation of the (later-cancelled) higher rate, an accountant review can confirm your filings reflect the current rules and that any voluntary elections still make sense in the corrected regime.
Key Deadlines for 2026 Tax Filings
Don’t miss these important CRA deadlines for the 2025 tax year (filed in 2026):
- April 30, 2026: Filing and payment deadline for most individuals
- June 15, 2026: Filing deadline for self-employed individuals (payment still due April 30)
- March 15, September 15, December 15, 2026: Quarterly tax instalment dates
Missing these deadlines can result in interest charges and penalties. Check out our tax deadline resources to stay on track.
How Insights CPA Can Help
The 2026 capital gains changes are complex, but with the right guidance, you can navigate them confidently and minimize your tax liability. Our team specializes in:
- Capital gains tax planning and optimization
- LCGE qualification reviews and maximization strategies
- Corporate restructuring for tax efficiency
- Estate planning and family trust setup
Don’t let the new capital gains rules catch you off guard. Whether you’re planning to sell your business, real estate, or investment assets, early planning can save you thousands-or even tens of thousands-in taxes.
Book a consultation with Insights CPA today and let’s build a tax-efficient strategy tailored to your business goals.
Reviewed by Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA Professional Corporation, Mississauga ON. This article is general information, not accounting or tax advice.
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Capital gains planning 2026
Selling your business or triggering a gain in 2026?
We model the inclusion rate, the $1,275,000 lifetime capital gains exemption, and timing before you sell — so you keep more of the proceeds.
Important — informational only, not advice. Do not use this article to make any decision.
This article is published by Insight Accounting CPA Professional Corporation for general educational purposes only. It is not tax, legal, accounting, financial, or investment advice, and nothing in this article should be relied upon — by anyone, for any purpose — to make a business, tax, financial, accounting, legal, or investment decision.
Tax law, CRA administrative positions, court interpretations, and Ontario provincial rules change frequently, sometimes retroactively, and the content of this article may be incomplete, simplified, out of date, or wrong by the time you read it. The right answer for your specific situation depends on facts this article does not know — your structure, history, jurisdiction, filings, contracts, and goals.
Before acting, engage your own Chartered Professional Accountant or qualified advisor who has reviewed your specific circumstances in writing. Insight Accounting CPA Professional Corporation, the author, and any contributors expressly disclaim all liability — direct, indirect, or consequential — for any action taken or not taken on the basis of this content.
Insight Accounting CPA Professional Corporation is led by Bader A. Chowdry, CPA, CA, LPA — licensed by CPA Ontario under the Public Accounting Act, 2004. To engage us for situation-specific advice, book a free 30-minute discovery call.
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