The capital gains inclusion rate: what changed, what did not, and what owners should do now

The capital gains inclusion rate in Canada is one-half. It was one-half before April 2024, it never legally changed, and after the March 2025 cancellation it remains one-half for individuals, corporations and trusts alike. That is the short version. The longer version matters because for the better part of a year many business owners sold, restructured and paid tax on the assumption that the rate would be two-thirds, and some of those decisions cannot be reversed. This post sets out the timeline, what actually became law, and how we are now advising holding company owners, corporations with investment portfolios and owners preparing a sale.

Timeline: proposed, tabled, deferred, cancelled

• April 16, 2024: the federal budget proposed raising the inclusion rate from one-half to two-thirds on all capital gains realized by corporations and trusts, and on the portion of an individual's gains above $250,000 in a year, effective June 25, 2024.
• June 10, 2024: a notice of ways and means motion was tabled. It never became a bill that passed Parliament. The CRA began administering the higher rate anyway, as it customarily does for tabled measures.
• June 24, 2024: the last day of the old regime as proposed. A wave of sales, crystallizations and corporate reorganizations closed on or before this date.
• January 31, 2025: the Minister of Finance deferred the effective date to January 1, 2026. The CRA reverted its forms and systems to one-half and granted relief from late-filing penalties and interest for affected 2024 returns.
• March 21, 2025: the government announced the increase would not proceed at all.

The practical residue is this: anyone who triggered a gain before June 25, 2024 to lock in the old rate paid real tax on a real disposition, and there was no mechanism to undo it. A crystallized gain did step up the adjusted cost base, so tax paid then is tax not owed later, but the money left early, and inside a corporation it also ran through the refundable tax accounts sooner than it needed to. If a 2024 return was prepared during the window when the CRA's systems applied two-thirds, confirm the assessment used one-half. We re-checked ours at the time and still see returns from that period prepared elsewhere that were never revisited.

What survived: the $1.25 million lifetime capital gains exemption

The same budget raised the lifetime capital gains exemption on qualified small business corporation shares and qualified farm or fishing property from roughly $1.016 million to $1.25 million for dispositions on or after June 25, 2024, with indexation resuming in 2026. When the rate increase was dropped in March 2025, the government said the exemption increase would go ahead. As at the time of writing the CRA is administering the $1.25 million figure; confirm the indexed amount and the legislative status for the year of your sale before relying on it. The qualification tests did not change: 90% or more of the company's assets in active business use at the time of sale, more than 50% throughout the prior 24 months, and shares held by you or a related person for those 24 months. Our answer on qualifying for the lifetime capital gains exemption walks through each one.

What did not: the Canadian Entrepreneurs' Incentive

Budget 2024 also promised a Canadian Entrepreneurs' Incentive: a one-third inclusion rate on up to $2 million of lifetime gains for founders meeting ownership and activity tests, phased in over several years from 2025 and stacked on top of the exemption. It was designed to soften the two-thirds rate for people selling the business they built. With the rate change cancelled, the incentive lost its reason to exist, and it was never enacted. As at the time of writing we treat it as unavailable and do not build any sale plan around it; confirm its status with the CRA or with us before it appears in a projection. The proposed cut to the employee stock option deduction was tied to the same package and, as we understand it, fell with it.

What quietly did become law: the AMT changes

One piece of the 2024 package that passed and remains in force is the redesigned alternative minimum tax. The AMT rate rose to 20.5%, the basic exemption climbed to roughly the start of the fourth federal bracket, and 100% of capital gains now enter the AMT base, up from 80%. Gains sheltered by the lifetime exemption are included at 30%. For an owner selling shares under the exemption in a year with little other income, AMT can produce a tax bill where the regular calculation shows none. The AMT paid is recoverable against regular tax over the following seven years, but only if there is regular tax to recover it against, which is why we now run an AMT projection on every business sale.

Planning for holding companies and corporate portfolios

For a holdco, or an operating company with an investment account, the cancellation means the arithmetic that has applied for decades still applies. Half of a capital gain is taxable at the corporate investment rate, with the refundable portion tracked in the RDTOH accounts and released as taxable dividends are paid; the other half is credited to the capital dividend account and can be paid to shareholders tax-free. Under the two-thirds proposal only one-third would have reached the CDA, permanently raising the cost of earning gains inside a corporation. That threat is gone; see how the capital dividend account works and how RDTOH works.

Illustrative example: a holding company sells a position for a $400,000 gain. Today, $200,000 is taxable investment income and $200,000 is added to the CDA. Under the cancelled proposal, roughly $266,667 would have been taxable and only $133,333 available as a tax-free capital dividend. The gap on a single transaction was large enough to explain why so many holdcos crystallized in June 2024.

Three things still deserve attention in a holdco:

• The passive income grind. Taxable capital gains count toward the $50,000 adjusted aggregate investment income threshold that erodes an associated operating company's small business deduction. Timing gains for years when the opco is below the limit anyway, or spreading them across years, was never affected by the rate saga and remains the main lever. Details are in how passive income reduces the small business deduction.
• Losses realized after the 2024 rush. Some corporations sold winners before June 25, 2024 and losers afterward. Check that net capital losses were carried back or forward correctly and that the CDA balance reflects them, because a capital dividend paid on an overstated balance is penalised at 60% of the excess.
• Structures built in a hurry. Reorganizations completed in the spring of 2024 to crystallize gains sometimes left behind share classes, promissory notes or trusts that no longer serve a purpose and carry an annual cost. Review whether they should be collapsed.

We work with many owners of investment holding companies, and our holding company tax services page describes how we run the T2, the CDA tracking and the shareholder planning as one file. Whether a holdco is worth having at all is a separate question, covered in holding companies: when they help and when they add cost.

Planning for individuals and business sales

For individuals, the $250,000 annual threshold that was to separate one-half from two-thirds never took effect, so there is no longer any reason to spread a personal gain across calendar years purely to stay beneath it. The capital gains reserve, which spreads a gain over up to five years when the proceeds arrive over time, still exists on its own merits and is useful whenever a buyer pays in instalments. For a business sale, the questions that decide the tax bill are the ones that existed before 2024: whether the shares pass the QSBC tests, whether family members can each claim the exemption, whether a share sale or asset sale suits both sides, and how AMT and the cumulative net investment loss balance interact. Our post on selling your business with the lifetime capital gains exemption covers the two-year runway a clean sale needs, and succession planning for family businesses covers the intergenerational transfer rules that took effect in 2024 and did become law.

One habit worth unlearning: through 2024 many owners were told to accelerate gains just in case. Accelerating a gain means paying tax earlier, and the deferral value of holding an appreciated asset is real. Absent a specific reason, such as a sale that is happening anyway, a deemed disposition on death or emigration, or a loss available to absorb it, we do not recommend triggering gains on speculation about future rates. See when the CRA applies a deemed disposition for the events that force the issue.

What to do now

1. Confirm every 2024 return with a capital gain was assessed at one-half, and request an adjustment if it was not.
2. If you crystallized in 2024, update your adjusted cost base records and the corporation's CDA and RDTOH schedules so the step-up is not lost at the next sale.
3. If a business sale is within two years, start the QSBC purification review and the AMT projection now, using $1.25 million as the working exemption figure and no Canadian Entrepreneurs' Incentive.
4. Revisit any structure created in 2024 and ask whether it still earns its keep.
5. Treat the next rate announcement the same way: nothing changes until legislation passes, and the CRA's administrative practice can reverse, as it did here.

Our tax services team handles the personal and corporate sides of capital gains planning together, which is the only way the CDA, the exemption and AMT can be seen in one picture.

Source: CRA — Line 12700, Capital gains.