Finance Defers Implementation of Proposed Capital Gain Inclusion Rate Changes

Published by Thorsteinssons LLP

On Friday, in the face of mounting pressure – including a court application launched by Thorsteinssons LLP – the Department of Finance (Finance) announced that the implementation date for the proposed capital gains inclusion rate changes would be deferred to January 1, 2026. The Canada Revenue Agency (CRA) quickly followed suit and announced that it would administer the Income Tax Act (Canada) on the basis of the current, one-half inclusion rate.

Although limited in details, Finance’s announcement indicated that:

  • the annual $250,000 threshold for individuals would remain (for dispositions on or after January 1, 2026);
  • the exemption limit for the “lifetime capital gains exemption” would still increase to $1.25 million as of June 25, 2024; and
  • the “Canadian Entrepreneurs’ Incentive”(discussed in our previous blog post) would still take effect for 2025.

The CRA’s announcement echoed those comments, while also indicating that limited interest and penalty relief would be granted to affected taxpayers. The CRA also indicated that for the “small number of corporations” that followed the CRA’s guidance to file returns on the basis of the two-thirds inclusion rate, corrective reassessments will be issued. Affected corporations will want to ensure that they receive such a corrective reassessment in short order or look to file a Notice of Objection on a timely basis to protect their rights.

Finance stated that updated draft legislation implementing the proposed inclusion rate changes will be released in due course.