The Capital Gains Inclusion Rate: What Is Settled, What Moved, and What to Check Before You Sell

The inclusion rate is the fraction of a capital gain that goes into taxable income. It is not a tax rate. A gain is not taxed at the inclusion rate: the included portion is added to income and taxed at your marginal rate like any other dollar.

That distinction matters more than usual right now, because the number itself has been proposed, deferred, and then reversed since 2024, and a great deal of published Canadian content still states whichever version was current when it was written.

What actually happened

Budget 2024 proposed raising the inclusion rate from one-half to two-thirds, on gains above a $250,000 annual threshold for individuals and on all gains realised by corporations and most trusts. The measure is described in the Department of Finance’s backgrounder.

In January 2025 the government deferred the start date from 25 June 2024 to 1 January 2026, and the CRA reverted to administering the enacted one-half rate in the meantime.

Then, on 21 March 2025, the government cancelled the proposed increase outright. It was not deferred again, it was withdrawn, and subsequent federal budget material refers to the cancellation of the proposed increase as a completed fact rather than a pending decision.

So the answer is simple, even though the route to it was not. The inclusion rate is one-half. It is one-half for individuals, for corporations and for trusts, on the first dollar of gain and on every dollar after it. There is no $250,000 threshold, because the threshold only ever existed inside the proposal.

The table below is history, not current law. It is here because so much published material was written at one of these points and never updated.

One habit is still worth keeping. Confirm the inclusion rate for the year of your disposition before you compute anything, from the CRA’s line 12700 page or the current T4037 Capital Gains guide. Anyone quoting a rate from memory, including tax software that was updated mid-story and never updated again, may be quoting a rate from a specific moment rather than the law.

The threshold was annual, not lifetime

This is the single most common error in circulation, and it is worth correcting even in a period where the higher rate may not apply at all.

Under the proposal, the $250,000 figure was an annual threshold for individuals. It was not a lifetime allowance. A great deal of commentary in 2024 and 2025 described it as lifetime, which produced planning advice that was exactly backwards: people were told to accelerate everything into one year when the design rewarded spreading gains across years.

Corporations and most trusts had no threshold at all under the proposal. That asymmetry is the reason so much of the 2024 planning conversation was about whether an asset should sit inside a company or outside it.

What is genuinely settled

Several things did not move, and they are where most of the real planning value sits.

The lifetime capital gains exemption was increased, and it is indexed again. It applies to qualified small business corporation shares and qualified farm or fishing property, and CRA’s indexation table puts it at $1,275,000 for 2026, up from $1,250,000 for 2025. That is a large, real shelter, and the qualification conditions are demanding and time-sensitive. See the capital gains exemption on small business shares.

The Canadian Entrepreneurs’ Incentive did not go ahead. It was proposed in 2024 as a one-third inclusion rate on up to $2 million of lifetime eligible gains. A footnote to the Budget 2025, Annex 1 states, in a footnote, that cancelling the capital gains increase also cancels the incentive. If an older article, or an advisor, still plans around it, ask for the source.

The principal residence exemption is untouched. The gain on a qualifying home is exempt regardless of what the inclusion rate is, which is discussed in the principal residence exemption.

Losses track gains. An allowable capital loss is the same fraction of a capital loss that the inclusion rate applies to a gain.

The loss carryforward trap

If you are carrying net capital losses from earlier years, this one is easy to get wrong and expensive.

Net capital losses can be carried back three years and forward indefinitely. When the inclusion rate in the year the loss arose differs from the rate in the year you apply it, the loss must be adjusted to match the current year’s rate. The CRA sets this out at line 25300.

Anyone who realised losses in a period administered at one rate and gains in a period administered at another needs the adjustment done properly. Software will often carry the raw balance forward without it.

Planning that works whatever the rate is

The most useful response to rate uncertainty is to lean on the levers that do not depend on the rate.

Spread dispositions across calendar years. This lowers the marginal rate applied to the included portion whatever the inclusion rate happens to be. It is the single most robust move available, and it is the one the 2024 commentary told a great many people to do the opposite of.

Use the capital gains reserve where proceeds are deferred. If you sell a property and are paid over several years, a reserve lets you bring the gain into income as the money arrives. The maximum reserve period for most property is four years, so the gain is included over five, with a longer period for certain transfers of farm, fishing and small business corporation property to a child. The mechanics are on the CRA’s capital gains reserve page and Form T2017.

Harvest losses against realised gains in the same year, watching the superficial loss rule. The approach for volatile assets is set out in crypto tax loss harvesting, and the mechanics apply equally to securities.

Check the alternative minimum tax before crystallising a large gain. A big capital gain in a single year with substantial deductions against it is exactly the profile AMT is designed to catch, and it has caught people who executed a crystallisation perfectly on the regular tax rules. See the AMT changes.

Document the cost base now, not at sale. Improvements to real property, fees on acquisition, and reinvested distributions all move the adjusted cost base and all get forgotten. Reducing the gain is worth more than optimising the rate applied to it.

What not to do

Do not accelerate a disposition purely to beat an announced rate change. The 2024 to 2026 sequence produced a group of taxpayers who triggered gains early, paid tax years sooner than they needed to, and then watched the trigger disappear. The tax cost of a year of unnecessary acceleration is real and immediate. The rate you were avoiding may not be.

Do not assume a corporation is now the wrong place to hold appreciating assets, or the right one, on the strength of a rate that may not be in force. Structure decisions should be driven by creditor protection, income splitting, succession and the small business deduction, all of which outlast any single rate change.

What does move between budgets is the arithmetic on the return itself, and keeping that current is part of the tax work rather than something you should have to track yourself.

If you have a large disposition coming, or you are sitting on net capital losses from the last few years and are not sure they have been adjusted correctly, it is worth modelling before you sign anything. The arithmetic is straightforward once the current rate is confirmed, and the number attached to getting it wrong is not small.