Was the Capital Gains Inclusion Rate Increase Cancelled in Canada?

If you followed the news in 2024 and 2025, you may remember a plan to tax more of your capital gains. The dates kept moving, and many people are still unsure whether anything changed for the sales they made or are planning.

This article explains what was proposed, what happened to it, which rate applies now, and what you may still want to do. Tax rules can change in a future budget, so it is worth confirming the current position before you act on a large sale.

This article covers Canadian federal tax law, which applies in every province.

What the proposal would have changed

The Income Tax Act sets the taxable capital gain at one-half of the capital gain, and the allowable capital loss at one-half of the capital loss. The 2024 proposal would have raised that to two-thirds, for individuals on annual gains above $250,000 and for corporations and most trusts on all gains.

It was first set to start on June 25, 2024, and was then deferred to dispositions on or after January 1, 2026. The Government of Canada announced that deferral on January 31, 2025.

What happened to it

The increase was later cancelled. Finance Canada says the government confirmed in Budget 2025 that it would not proceed with the changes, including for corporations. The CRA's page for corporations also says the proposed increase was cancelled.

The CRA says it has reverted to administering the currently enacted inclusion rate of one-half.

Which rate applies to your gains

Because the increase never took effect, the one-half inclusion rate applies to gains realized in 2024, 2025 and 2026. That is subject to any exemption that applies to your situation.

The CRA reversed the two-thirds rate for corporations that had filed on the September 2024 basis, using corrective reassessments. It also gave late-filing penalty and interest relief to T1 and T3 filers.

The exemption increase is a separate matter

The Lifetime Capital Gains Exemption increase was not cancelled. Budget 2025 confirmed the limit of $1.25 million of eligible capital gains for dispositions after June 24, 2024, and indexation resumes in 2026. The exemption applies only to qualified small business corporation shares and qualified farm or fishing property, and it can be reduced by earlier claims and by cumulative net investment loss.

Whether the legislation for this increase has been fully enacted is worth confirming with an accountant or lawyer if a large claim depends on it.

How a gain is worked out and reported

To work out a gain, subtract the property's adjusted cost base and the outlays and expenses of selling from the proceeds of disposition. The CRA gives an example: 400 shares sold for $6,500 with a $60 commission and a $4,000 adjusted cost base give a gain of $2,440, of which half ($1,220) is the taxable capital gain reported on line 12700. If your taxable capital gains exceed your allowable capital losses, the difference is added to your other income and taxed at your marginal rates, so it is not a separate flat tax.

• Schedule 3 Part 3 reports each disposition in columns: proceeds of disposition (column 2), adjusted cost base (column 3), outlays and expenses (column 4) and gain or loss (column 5). A positive result goes to line 12700, and a negative result does not.
• Capital gains or losses shown on T3, T4PS, T5 or T5013 slips are generally reported on line 17400 or 17600 of Schedule 3.
• Report amounts in Canadian dollars. For a foreign-currency sale, convert the proceeds at the rate in effect at the time of the sale, the adjusted cost base at the rate when the property was acquired, and outlays at the rate when they were incurred.
• File a return even if no tax is owing.

Some situations work differently. If you sold your principal residence or part of it, include Form T2091(IND) with your return and report the sale on Schedule 3. A gain on a Canadian housing unit owned for less than 365 consecutive days is deemed to be business income rather than a capital gain, unless the sale is due to a qualifying life event such as death, relationship breakdown (at least 90 days of separation), serious illness or involuntary job termination.

If you have capital losses, net capital losses can be applied only against taxable capital gains. A net capital loss can be carried back three years and carried forward indefinitely.

What to do next

• Confirm the year in which your sale or deemed sale occurred, because you report it in that calendar year.
• Work out your gain: proceeds, less adjusted cost base and selling costs.
• Remember that half of the gain is added to your other income and taxed at your marginal rates.
• Check whether you amended or delayed a filing because of the proposal, and ask about the CRA's relief if you are unsure.
• Before a large sale, have a lawyer or accountant confirm the current rules, since a future budget could change them.

Frequently asked questions