After months of speculation, implementation delays and questions around if—or when—it would become law—the federal government on Friday cancelled the proposed increase to the capital gains inclusion rate.

The measure—the implementation date for which was recently delayed until January 1^st, 2026, from the original proposed date of June 25^th, 2024—would have seen the capital gains inclusion rate increase to two-thirds from one-half on all capital gains realized by corporations and most trusts, along with individual capital gains exceeding $250,000 in a calendar year. In its announcement, Ottawa said the decision is a “… recognition of the vital role that builders and small businesses play in shaping Canada’s future. It will strengthen Canada’s ability to catalyze the enormous private investment needed to create jobs and opportunities and to build a stronger future.”

The proposed increase was met with disapproval by many in the business community when it was first tabled in the 2024 federal budget. Entrepreneurs and business leaders argued it would impair innovation and discourage investment in Canada. The criticism became even more widespread earlier this year when the CRA confirmed that it would administer the proposal despite the implementing legislation not yet receiving royal assent.

In the announcement, the federal government also confirmed its intention to move forward with a measure popular with entrepreneurs: the increase to the Lifetime Capital Gains Exemption limit. As we noted in an earlier blog, the proposal would increase the capital gains exemption limit to $1,250,000 from the current $1,016,836, on the sale of small business shares and farming and fishing property.

With the federal election set for April 28^th, 2025, the legislation to implement the increase could only be tabled after Canadians cast their ballots, and its future would depend on which federal party forms the next government. While the Liberals favour the change, it is not clear if the other parties support or oppose the exemption limit increase, or plan to propose a similar policy in their election platforms.

In the meantime, Canadian taxpayers can rest assured that the taxes they pay on capital gains will remain unchanged for the foreseeable future, notwithstanding any future tax policy shifts at the federal level.

The RH Partners Tax Team

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