Canada's capital gains inclusion rate in 2026 — what actually changed and what didn't

Most Canadian investors spent 2024 and early 2025 restructuring portfolios, delaying asset sales, and booking accountant appointments — all to prepare for a tax increase that was cancelled before it ever took effect. The federal government proposed raising the capital gains inclusion rate from 50% to 66.67% for gains above $250,000. Then deferred it to January 2026. Then scrapped it entirely in March 2025. As of right now, the capital gains inclusion rate is still 50% — exactly where it has been for years. If you changed your investment behaviour based on the proposed change, here is what actually matters for your 2026 tax year.

Why this confused so many Canadian investors

The 2024 federal budget was unambiguous: the capital gains inclusion rate would rise from one-half to two-thirds for individuals on annual gains above $250,000, and for corporations and most trusts on all gains. For a Canadian investor converting a growth portfolio to dividend income — a move that typically triggers capital gains — this threatened to add real money to the tax bill.

Consider an investor with $300,000 in capital gains from selling growth ETFs. Under the proposed rules, the first $250,000 would be taxed at the 50% inclusion rate and the remaining $50,000 at 66.67%. That difference adds $8,333 in extra taxable income compared to the current flat 50% rate. At a 43.41% marginal rate — Ontario, income over $100,000 — the difference works out to roughly $3,617 in additional tax owed. Not catastrophic, but real enough to change timing decisions.

Many investors delayed planned sales, restructured corporate holdings, and sought tax advice specifically around the proposed threshold. The confusion that followed is understandable: the rule changed direction three times in less than twelve months.

The full timeline — what actually happened

Understanding where things stand today requires knowing the sequence of events in order.

April 2024: The federal budget proposes raising the capital gains inclusion rate from 50% to 66.67%, effective June 25, 2024. Corporations and most trusts face the higher rate on all gains. Individuals face it only on annual gains above $250,000.

September 2024: A Notice of Ways and Means Motion is tabled in Parliament and the CRA begins administering the proposed higher rate. Some corporations file using the 66.67% rate.

January 31, 2025: The Department of Finance defers the effective date from June 25, 2024 to January 1, 2026. The CRA reverts to administering the 50% inclusion rate for all 2024 gains. Corporations that filed at the higher rate receive corrective reassessments.

March 21, 2025: Prime Minister Mark Carney cancels the proposed increase entirely. The inclusion rate will remain at 50%. Budget 2025, tabled in fall 2025, formally accounts for the cancellation.

2026: The capital gains inclusion rate is 50%. The proposed 66.67% rate never became law.

What the inclusion rate means for your tax bill

The inclusion rate determines how much of a capital gain is added to your taxable income. At 50%, half of every gain counts. Capital gains are not taxed at a flat rate — they are added to your other income for the year and taxed at your marginal rate.

Here is a worked example. Marie sells $280,000 worth of growth ETFs she originally purchased for $140,000. Her capital gain is $140,000. At the 50% inclusion rate, $70,000 is added to her taxable income. Her other employment income puts her in Ontario's 43.41% bracket, so the tax on the capital gain is approximately $30,387. She keeps roughly $109,613 of her $140,000 gain after tax.

Had the 66.67% rate applied, Marie's gain would fall entirely below the $250,000 individual threshold — so in her case, nothing would have changed. The threshold only mattered for investors triggering more than $250,000 in capital gains in a single calendar year. For most Canadians converting a mid-sized growth portfolio, the proposed change would have had zero impact.

What did actually change — the LCGE increase

While the inclusion rate increase was cancelled, one significant change did go through. The Lifetime Capital Gains Exemption (LCGE) for qualified small business corporation shares and qualified farming and fishing property was increased from approximately $1,016,836 to $1.25 million, retroactive to June 25, 2024. This was confirmed in Budget 2025 and is now in effect.

For most dividend investors building a portfolio of publicly traded stocks and ETFs, the LCGE does not apply — it is specific to eligible private business shares and certain agricultural property. But for investors who also hold shares in a qualifying small business, the higher exemption represents meaningful tax relief on an eventual sale. At $1.25 million, a couple selling a qualifying business for a $2.5 million gain could shelter the entire amount between them — paying no capital gains tax on the sale.

The Canadian Entrepreneurs' Incentive — which would have reduced the inclusion rate to one-third on up to $2 million in eligible gains — was cancelled in Budget 2025 and will not proceed.

What this means if you delayed a sale to avoid the higher rate

If you held off selling assets in 2024 or early 2025 specifically because of the proposed inclusion rate increase, the timing decision no longer carries a penalty. The 50% rate applies whether you sold then or sell now. The cancellation does not reduce your tax exposure — it simply keeps it where it was before the 2024 budget announcement.

Investors who were planning to convert a growth portfolio to dividend income and delayed for tax reasons can revisit that plan. The conversion math — how much of your gain becomes taxable, what you owe at your marginal rate, and whether the income jump justifies the tax drag — has not changed from what it was before the saga began.

Run your own numbers before converting

If you are considering selling growth assets to move into dividend income, the tax cost of the conversion is the number that matters most before you act. The calculate the tax on this sale at Prospyr lets you enter your original cost, current value, and province to see exactly how much of your gain becomes taxable income and what you will owe at your marginal rate. Run those numbers before deciding on timing or whether to spread the conversion across multiple tax years.

The takeaway

Three things to hold from this post. First, the capital gains inclusion rate in Canada is 50% in 2026 — the proposed increase to 66.67% was cancelled by Prime Minister Carney in March 2025 and was never enacted into law. Second, the LCGE for qualified small business shares and farming and fishing property is now $1.25 million, retroactive to June 25, 2024 — this is the one concrete change that did go through. Third, if you are triggering capital gains as part of a portfolio conversion from growth to income, the tax math is exactly what it was before the 2024 budget: 50% of your gain counts as taxable income, taxed at your marginal rate.

The next question most investors ask after working out the tax cost is whether the income jump from the converted portfolio justifies the one-time hit — and over what time horizon the new dividend income makes up the ground. That is a portfolio conversion question, and the numbers look different for every investor depending on their current yield, target income, and tax bracket.