Capital Gains Inclusion: Rate Increase

As we move into 2025, Canadian investors, business owners, and high-net-worth individuals need to prepare for a significant tax change coming in 2026. The federal government has announced an increase in the capital gains inclusion rate, which will impact those with annual gains exceeding $250,000.

What Is Changing?

Effective January 1, 2026, the capital gains inclusion rate will increase from one-half (50%) to two-thirds (66.67%) for individuals on capital gains that exceed $250,000 annually. This means that a greater portion of your capital gains will be subject to taxation, potentially increasing your overall tax liability.

Who Will Be Affected?

• High-income individuals: If your total capital gains exceed $250,000 in a single year, the additional gains will be taxed at a higher inclusion rate.

• Business owners: Those selling significant business assets should consider tax planning strategies to mitigate increased tax exposure.

• Real estate investors: If you are selling investment properties or land with substantial appreciation, you may face higher tax liabilities.

• Stock market investors: Individuals realizing large capital gains from stock investments need to assess their portfolios and consider tax-efficient strategies.

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How Will This Impact You?

To understand the financial implications, consider the following example:

• Before January 1, 2026: If you realize a capital gain of $500,000, only $250,000 (50%) is taxable.

• After January 1, 2026: The first $250,000 remains at 50% inclusion, but the next $250,000 will be taxed at 66.67% inclusion, leading to a higher taxable amount.

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Planning Strategies to Consider

With this change on the horizon, proper tax planning is crucial. Here are some strategies to mitigate your exposure:

• Consider realizing gains before 2026: If you anticipate large capital gains, selling assets before the new rate takes effect may reduce your tax burden.

• Utilize capital losses: Offset your gains with any available capital losses to minimize taxable income.

• Explore tax deferral options: Consider investment vehicles such as tax-free savings accounts (TFSA) and registered retirement savings plans (RRSP) to shelter gains.

• Reassess your investment strategy: Work with a financial advisor or tax professional to adjust your portfolio and minimize unnecessary tax exposure.

The increase in the capital gains inclusion rate marks a significant shift in tax policy, particularly for individuals with high-value assets. While the change takes effect in 2026, early planning is key to reducing potential tax liabilities.

At Jayce LLP, we are here to help you navigate these changes and develop tax-efficient strategies tailored to your financial goals.

If you have questions about how this change impacts you or need guidance on optimizing your tax strategy, contact our team today!