Capital Gains Tax in Canada 2025: Proposed Changes and Current Rules

Capital gains taxation in Canada went through a period of significant uncertainty in 2024 and into 2025. The federal government proposed increasing the capital gains inclusion rate from 50% to 66.67% on gains above $250,000 for individuals, and on all corporate and trust gains. Here is the current state of play and how to plan around it.

How Capital Gains Tax Works in Canada

When you sell an asset (stocks, real estate, cryptocurrency, business assets) for more than you paid, you have a capital gain. Canada taxes only a portion of that gain — the inclusion rate determines how much is added to your taxable income.

Current rule (as of 2025):

50% inclusion rate applies to all capital gains for individuals

If you sell shares for a $100,000 gain, you add $50,000 to your taxable income. That $50,000 is then taxed at your marginal rate — not a flat 50% rate on the gain itself. The actual tax depends on your total income and province.

Example for Ontario resident at $120,000 income:

Capital gain: $100,000
Taxable inclusion (50%): $50,000
Marginal federal rate: 26%
Combined federal + Ontario marginal rate: approximately 43.41%
Tax on the capital gain: approximately $21,705
Effective rate on the $100,000 gain: 21.7%

What the Government Proposed in 2024

The 2024 federal budget proposed raising the inclusion rate to two-thirds (66.67%) for:

Individuals: gains above $250,000 per year (50% inclusion on the first $250,000 retained)
Corporations and trusts: all capital gains at 66.67% (no $250,000 threshold)

This would have been the largest change to capital gains taxation in Canada since the inclusion rate was reduced from 75% to 50% in 2000.

The legislation to implement these changes was introduced in a Notice of Ways and Means Motion and CRA indicated it would administer the new rates even before formal legislation passed — an unusual step that created significant confusion.

Current Status of the Proposed Changes (Early 2026)

As of early 2026, the proposed 66.67% inclusion rate increase has not been enacted into law. The minority Liberal government fell in late 2024, triggering an election. The new government — elected in early 2025 — has indicated it will not proceed with the higher inclusion rate increase as proposed.

As a result, the 50% inclusion rate remains in effect for all capital gains in 2025, both for individuals and corporations.

Key practical implication: Taxpayers who crystallized gains in 2024 anticipating the higher rate (and paying tax earlier than necessary) did so without the change ultimately taking effect in the same form. Those who deferred gains are in a simpler situation — the standard 50% rate applies.

Lifetime Capital Gains Exemption (LCGE)

Certain capital gains remain sheltered by the Lifetime Capital Gains Exemption, regardless of inclusion rate debates:

Type of Gain	2025 LCGE
Qualified small business corporation (QSBC) shares	$1,250,000
Qualified farm and fishing property	$1,250,000

The LCGE was increased to $1.25 million in the 2024 budget — this change did pass and took effect June 25, 2024. For entrepreneurs selling a qualifying business, this exemption shelters the first $1.25 million of gain entirely from income tax.

Principal Residence Exemption

Your principal residence is still exempt from capital gains tax under the Principal Residence Exemption (PRE). You can designate one property per family unit per year as your principal residence. When sold, the full gain attributable to the years of principal residence designation is exempt. No dollar cap applies.

Capital Losses and Carry-Overs

Capital losses can only offset capital gains — they cannot reduce other income. The rules for carrying losses:

Current year: Losses offset gains dollar for dollar
Carry back: Losses can be carried back 3 years to offset prior year gains (use Form T1A)
Carry forward: Losses carry forward indefinitely

With a 50% inclusion rate, losses are also calculated on the 50% inclusion basis — losses and gains must use the same inclusion rate in the same year.

Tax Planning Strategies for Capital Gains

1. Use the $250,000 threshold planning (if inclusion rate ever rises)

Even under the proposed (now shelved) changes, the first $250,000 of individual gains remained at 50%. For married couples, both spouses have a separate $250,000 threshold — meaning up to $500,000 in annual household gains at 50% inclusion. Spreading large asset dispositions across spouses and across multiple tax years could reduce the impact of any future inclusion rate increase.

2. Capital gains harvesting

If you have unrealized gains and also have capital loss carry-forwards, harvesting gains can use up those losses at a 0% net inclusion. This works especially well in low-income years when your marginal rate is lower.

3. Capital loss harvesting

Near year-end, review your portfolio for unrealized losses. Crystallizing losses before December 31 creates deductions against 2025 gains. Be aware of the superficial loss rule: if you (or an affiliated person) repurchases the same — or identical — security within 30 days before or after the sale, the loss is denied and added to the ACB of the new security.

4. Instalment sales and earnouts

For business sales, structuring proceeds as an earnout (performance-based future payments) can spread the gain over multiple years, allowing you to use the $250,000 low-rate threshold in multiple years if a higher rate ever applies.

5. Donations of publicly listed securities

Donating appreciated securities directly to a registered charity (rather than selling them first) eliminates the capital gain entirely. The capital gains inclusion rate on donated listed securities is 0%, and you still receive a donation tax credit for the full fair market value. This can be highly efficient for large, low-adjusted-cost-base positions.

Adjusted Cost Base (ACB) Record-Keeping

Accurate record-keeping of your ACB is critical. Mistakes in ACB calculations — especially for:

Stocks bought in multiple tranches
Reinvested distributions (DRIPs)
Return of capital distributions from funds
Foreign property with currency conversions

…frequently result in over-reporting gains (and overpaying tax) or under-reporting (and owing penalties). Use brokerage software, spreadsheets, or services like Adjustedcostbase.ca to track ACB carefully.

Summary

Item	Current Rule (2025)
Individual inclusion rate	50% on all gains
Corporate inclusion rate	50% on all gains
First $250,000 threshold	Not applicable (50% flat)
LCGE — QSBC shares	$1,250,000
LCGE — Farm/fishing property	$1,250,000
Principal residence	Fully exempt (PRE)

The capital gains landscape is simpler in 2025 than many anticipated. The 50% inclusion rate continues to be the rule for all Canadians. However, with federal deficits and ongoing tax policy discussions, it would not be surprising if inclusion rate changes resurface in future budgets — staying informed remains important.