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 Capital Gains Rules Actually Apply 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: the Department of Finance news release deferring the increase (January 31, 2025), which was followed by outright cancellation on March 21, 2025; the CRA current-year position at New for 2025 for capital gains; and the inclusion-rate provision itself at 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 in 2026? The LCGE Rose to $1,275,000

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 Insight Accounting CPA can review your situation and help you maximize this valuable exemption.

How Should You Plan Capital Gains 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 can allocate a capital gain across multiple beneficiaries, and where the underlying shares qualify, more than one beneficiary may be able to claim their own Lifetime Capital Gains Exemption — which is the real multiplier, since the exemption is per person. Note that there is no longer any $250,000 threshold to spread a gain beneath: the inclusion rate is a flat 50% regardless of the size of the gain, so the old pre-cancellation logic of splitting gains to stay under a threshold no longer applies. Allocations through a trust also have to survive the tax on split income (TOSI) rules, which can tax an allocation to an uninvolved family member at the top marginal rate, so this only works with a properly drafted trust and genuine qualification.

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.

What Are the Key CRA 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, June 15, September 15, December 15, 2026: Quarterly tax instalment dates

Missing these deadlines can result in interest charges and penalties. Browse our tax deadline and planning library to stay on track.

How Do You Actually Claim the LCGE on a Share Sale?

The exemption is claimed as a deduction on your personal return, not as an adjustment to the sale price. The mechanics matter, because the deduction is only available if the shares met the qualification tests at the moment of sale — and those tests look backwards over two years. The statutory rules sit in section 110.6 of the Income Tax Act, and the filing mechanics are set out at CRA Line 25400.

In practice the sequence runs like this:

• Confirm the shares qualify. This is the step that most often fails, and it fails on the asset tests rather than on the ownership period.
• Purify the balance sheet if needed. Excess cash, portfolio investments, or a rental property sitting inside the operating company can push you below the active-asset threshold. Purification usually has to happen well before a sale, not during it.
• Report the disposition on Schedule 3, then claim the capital gains deduction at line 25400.
• Track your lifetime usage. The LCGE is cumulative across your lifetime, so prior claims reduce what is left. The CRA tracks this, and so should you.

One point worth stressing: the LCGE is a personal exemption. If the shares are held by a holding company rather than by you individually, the exemption is not available on that disposition. Restructuring to move shares into personal hands ahead of a sale is possible, but it has its own tax consequences and its own timing constraints.

What Records Does the CRA Expect to See?

Capital gains claims are document-driven. If the CRA reviews a disposition, it will generally ask for evidence of adjusted cost base, proceeds, and — where the LCGE is claimed — qualification. Owners who assemble this after the fact usually find gaps.

• Share purchase and subscription agreements, including any amendments
• Year-end financial statements for the 24 months before the sale, supporting the active-asset tests
• Corporate minute book entries authorising the transfer
• A calculation of adjusted cost base, including any prior reorganisations, rollovers, or paid-up capital adjustments
• Valuation support where the sale was not fully arm’s length
• Records of prior LCGE claims, so cumulative usage can be proven

For provincial context on how Ontario layers its own tax and credit rules on top of the federal system, see Ontario’s benefits and taxes hub.

Which Capital Gains Mistakes Cost Ontario Owners the Most?

Across owner-managed files, the same handful of errors recur — and most of them are timing errors rather than arithmetic errors.

• Planning around rules that were cancelled. Some owners accelerated dispositions in 2024 to beat a two-thirds inclusion rate that never arrived. Others are still budgeting for the Canadian Entrepreneurs Incentive, which was cancelled and never enacted.
• Leaving purification too late. The active-asset tests look back 24 months. A balance sheet cleaned up the month before closing will not retroactively fix a two-year history.
• Assuming a holding company can claim the LCGE. It cannot. Ownership structure has to be settled long before a letter of intent is signed.
• Ignoring instalment obligations after a large gain. A significant gain in one year often creates instalment requirements in the next, and interest on missed instalments is not deductible.
• Treating a share sale and an asset sale as interchangeable. The LCGE applies to share sales. An asset sale can leave the gain trapped in the corporation, with a very different after-tax result for the shareholder.

Frequently Asked Questions About Capital Gains in 2026

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

One-half, or 50%. That single rate applies to individuals, corporations, and trusts, and there is no higher rate on gains above any threshold. The CRA’s current-year guidance is published at New for 2025 for capital gains.

Did the two-thirds capital gains inclusion rate ever take effect?

No. It was deferred, then cancelled on March 21, 2025 before ever coming into force. It applies to no tax year, so there is no straddle issue for sales spanning 2025 and 2026.

How much is the Lifetime Capital Gains Exemption in 2026?

$1,275,000. The exemption is now indexed to inflation annually, so the figure moves each year and should be confirmed for the year of your disposition rather than carried forward from an older article.

Can a holding company claim the Lifetime Capital Gains Exemption?

No. The LCGE is a personal exemption available to individuals (and certain trusts), not to a corporation. If your operating-company shares are held by a holdco, the exemption is not available on that disposition, and any restructuring to change that needs to be planned well ahead of a sale.

Is the Canadian Entrepreneurs Incentive available in 2026?

No. The Canadian Entrepreneurs Incentive was cancelled and never enacted, so there is no reduced inclusion rate to claim under it. Any plan built on that incentive needs to be revisited.

When are 2026 personal tax instalments due?

March 15, June 15, September 15, and December 15, 2026. A large capital gain in one year frequently creates an instalment obligation in the next. The CRA sets out the requirement and the due dates at Required tax instalments for individuals.

Where Should You Read Next?

Two related guides go deeper on the timing and structuring questions raised above: our walkthrough of tax-loss selling in 2026, which covers how to offset a realised gain before year end, and our analysis of capital gains inside a holding company, which covers the corporate side of the same question.

How Can Insight Accounting CPA Help With a 2026 Capital Gain?

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 Insight Accounting CPA today and let’s build a tax-efficient strategy tailored to your business goals.

Reviewed 2026-09-26 by Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA Professional Corporation, Mississauga, Ontario. Bader is a Licensed Public Accountant, a designation issued and regulated by CPA Ontario. Figures in this article were re-verified against CRA and Department of Finance sources on 2026-09-26.