If you sold an investment property, some shares, or a business over the past two years, you were probably bracing for a bigger tax bill. For most of 2024 and 2025, the federal government had signalled that the amount of a gain subject to tax would climb sharply. That plan is gone. The short version: the capital gains inclusion rate in 2026 is unchanged at one-half, and the proposed increase to two-thirds was cancelled outright.
What the capital gains inclusion rate 2026 rules actually say
In Canada, you are not taxed on the full amount of a capital gain. Instead, a set percentage of the gain, called the inclusion rate, is added to your income and taxed at your normal rates. For decades that rate has been one-half. So if you realize a $100,000 gain, $50,000 is included in your income and the other $50,000 is tax-free.
In 2024 the federal government proposed raising the inclusion rate to two-thirds on gains above $250,000 per year for individuals, and on every dollar of gain for most corporations and trusts. That change was deferred, then in early 2025 it was cancelled entirely. For 2026, the one-half inclusion rate continues to apply to everyone, at every level of gain. There is no $250,000 threshold to track and no higher rate lurking above it.
Why this reversal matters
The cancelled proposal would have meaningfully increased tax on larger, one-time gains, the kind that show up when someone sells a rental property, a cottage, a stock portfolio, or a company. Under the two-thirds plan, a $1,000,000 corporate gain would have added roughly $667,000 to taxable income instead of $500,000. Keeping the rate at one-half removes that extra layer.
It also removes a planning headache. Through 2024 and into 2025, many owners rushed to trigger gains early to lock in the lower rate before the expected increase. Some of those decisions may now look premature. If you accelerated a sale purely to beat the change, it is worth reviewing whether the timing still serves you.
The rate did not go up. The real risk now is making a permanent tax decision based on a rule that no longer exists.
The Lifetime Capital Gains Exemption is still generous
Alongside the inclusion rate, the Lifetime Capital Gains Exemption (LCGE) remains an important shelter. It lets you exempt a large amount of gain when you sell qualified small business corporation shares or qualified farm or fishing property. The LCGE rose to $1.25 million in 2024 and continues to apply, indexed over time.
For an owner-manager, this is often the single most valuable tax planning tool available at exit. But the shares have to qualify, and the tests are strict:
- The company must generally be a Canadian-controlled private corporation using most of its assets in an active business.
- You typically must have held the shares for at least 24 months.
- An asset composition test applies both at sale and over the holding period.
Because these conditions can be broken by something as ordinary as too much cash or investments sitting in the company, the exemption is best confirmed well before you sign a deal, not after.
Who should pay closest attention
Business owners planning an exit
If you expect to sell your company in the next few years, the combination of the one-half inclusion rate and the $1.25 million LCGE can dramatically lower the tax on a sale, sometimes to very little on the first portion of the gain. Structuring the sale as a share sale rather than an asset sale is often what unlocks the exemption, so the planning has to start early.
Investors and property owners
For a second property, a cottage, or a taxable investment account, the math is simpler than the headlines suggested. Half of your gain is taxable at your marginal rate. There is no special surcharge on gains over $250,000 anymore. That makes it easier to model the after-tax result of a sale before you commit.
Incorporated professionals and holding companies
Corporations never had the $250,000 lower threshold under the proposal, so they stood to lose the most from the increase. The cancellation is especially welcome here. Gains realized inside a corporation are still taxed on the one-half basis, and the non-taxable half can generally be paid out to shareholders through the capital dividend account.
Common mistakes to avoid in 2026
- Assuming the rate went up. It did not. Do not overpay or over-withhold based on the cancelled proposal.
- Forgetting to report a gain. The exemption on the non-taxable half is automatic, but you still have to report the disposition on your return.
- Selling qualifying shares without checking the LCGE tests. A last-minute deal can disqualify shares that would otherwise have been exempt.
- Ignoring the principal residence exemption. Your main home can still be fully or partly exempt, but the sale must be reported.
What to do next
If you triggered gains early expecting a rate increase, or you are planning a sale in the next couple of years, this is a good moment to revisit the numbers with current rules in hand. The stability in the capital gains inclusion rate for 2026 makes long-term planning more predictable than it has been in a while, which is exactly the environment in which good structuring pays off.
Key takeaways
- The capital gains inclusion rate for 2026 stays at one-half; the two-thirds increase was cancelled.
- There is no longer a $250,000 threshold or a higher rate above it for individuals.
- The Lifetime Capital Gains Exemption remains at $1.25 million for qualifying shares and farm or fishing property.
- Corporations benefit most from the cancellation, since they never had the lower threshold.
- You must still report every disposition, even when part or all of the gain is exempt.
- If you rushed a sale to beat the increase, review whether that timing still works for you.
Capital gains rules have shifted a lot in a short time, and it is easy to be working from outdated advice. If you are weighing a sale, structuring an exit, or simply want to confirm how a gain will be taxed, book a consultation with us, or learn more about our corporate tax planning services. We will help you make the decision on the rules as they actually stand in 2026.
This article is general information, not tax, legal, or financial advice. Rules and figures are current as of 2026 and can change. Please confirm your own situation with Lewis Partners.