On March 21, 2025, the Government of Canada brought long-awaited clarity for Canadians who have been confused by nearly a year of uncertainty over capital gains tax changes.
After months of speculation, planning, and in some cases panic-selling, the government officially announced that it will not move forward with the proposed increase to the capital gains inclusion rate—at least not for 2024 or 2025.
No Capital Gains Inclusion Rate Hike (For Now)
The much-discussed change that would have increased the capital gains inclusion rate from 50% to 66.67% is off the table for now. This means that for the 2024 tax year and beyond, the inclusion rate remains at one-half, the same as in previous years.
The Canada Revenue Agency (CRA) has updated its systems, and certified tax software is ready. Tax returns can now be filed using the 50% inclusion rate, and regular tax planning can proceed as usual.
What Is Going Ahead?
While the inclusion rate hike is not happening, a few other measures are still moving forward.
Lifetime Capital Gains Exemption Increased
The Lifetime Capital Gains Exemption (LCGE) on the sale of small business shares, as well as farming and fishing properties, will be increased to $1.25 million starting June 25, 2024. The government plans to introduce legislation to make this official.
New Canadian Entrepreneurs’ Incentive
Starting in 2025, a new incentive will apply to eligible entrepreneurs. The inclusion rate on up to $400,000 of eligible capital gains will be reduced to one-third. More details are expected once the legislation is introduced.
CRA Relief Period for Late Filers
Recognizing the confusion caused by the proposed changes, the CRA is offering relief:
- Individual (T1) filers have until June 2, 2025, to file without late penalties or interest
- Trust (T3) filers have until May 1, 2025
This relief also applies to related forms and elections such as Form T1135 (foreign income reporting) and trust schedules.
The Alternate Minimum Tax (AMT)
Even though the inclusion rate remains the same, taxpayers should still be cautious. The new Alternate Minimum Tax (AMT) rules could add up to 5% in personal tax for those realizing large capital gains in 2024.
What This Means for Taxpayers
If you paused your 2024 tax filing due to the capital gains uncertainty, you can now proceed with confidence. The CRA’s systems are ready, and the 50% inclusion rate is in place.
If you made any changes, such as rollovers or early sales, you may need to revisit your plans or complete additional paperwork. Some Canadians made big decisions—like selling property or even leaving the country—based on the proposed increase. Now, some of those choices may need to be reassessed.
Key Takeaways
- The capital gains inclusion rate will not increase in 2024 or 2025
- The inclusion rate remains 50% for individuals on capital gains up to $250,000
- The Lifetime Capital Gains Exemption will increase to $1.25 million as of June 25, 2024
- The Canadian Entrepreneurs’ Incentive will move forward in 2025 with a one-third inclusion rate on up to $400,000 of eligible capital gains
- The CRA is offering filing relief until May/June 2025 for affected taxpayers
- AMT may still impact individuals and trusts with large capital gains
Still Some Uncertainty Ahead
While this announcement offers relief, it doesn’t mean the issue is fully resolved. A new bill will be required to make the proposed changes law, and with a federal election on the horizon, the outcome could shift again depending on who forms the next government.
In short, the capital gains confusion is not over—but at least for 2024, Canadians can move forward with clarity.
Source: CRA website
Koroll & Company is an accounting firm located in Newmarket, Ontario. We provide a full range of services including accounting, auditing, taxation and business advisory services. Our clients represent a broad cross section of small to large owner managed business and not-for-profit organizations. Contact us today!
