Capital Gains Inclusion Rate 2026: Was It Cancelled?

Quick answer

Why so many Canadians still think the increase is happening

If you thought the 2/3 capital gains inclusion rate was coming into force in 2026, you are far from alone. The original Budget 2024 announcement drew weeks of headlines. The cancellation, announced eleven months later, drew a fraction of that coverage.

So Canadians selling a rental property, weighing whether to crystallize stock gains, or planning a small-business exit are still searching for clarity on a rule that no longer exists.

This article corrects the record. It explains what actually changed, what stayed the same, and what the 50% rate means in real dollar terms. For complex situations, our personal tax services team can walk you through it directly.

Quick start: which scenario applies to you

How we got from increase coming to increase cancelled

Five federal announcements moved capital gains from “tax going up” to “tax staying the same” in just over eighteen months. The sequence explains the lingering confusion.

It started with Budget 2024, tabled April 16, 2024. The federal government proposed raising the inclusion rate from one-half to two-thirds, effective June 25, 2024. For individuals, the higher rate would apply only to gains over $250,000 a year. For corporations and most trusts, it would apply to every dollar of gain.

The Canada Revenue Agency began administering the proposed rate on June 25, 2024, even though the legislation had not yet passed Parliament.

Then the reversals came. On January 31, 2025, the Minister of Finance deferred the effective date to January 1, 2026 and instructed the CRA to revert to the 50% rate. On March 21, 2025, the federal government cancelled the proposed increase outright. The November 4, 2025 federal budget confirmed the 50% rate would stay.

What the 50% inclusion rate actually means in plain English

Confusion about the term is widespread, so it is worth unpacking with real numbers.

Suppose you bought shares for $100,000 and sold them in 2026 for $200,000. Your capital gain is $100,000. The 50% inclusion rate means $50,000 is added to your taxable income. If your Ontario top combined marginal rate is approximately 53.5%, the tax owed on that $50,000 is roughly $26,750.

On a $100,000 gain, a top-bracket Ontario filer typically owes about 26.75 cents on the dollar. This is governed by section 38 of the Income Tax Act and has applied unchanged since 2000.

What did survive: the LCGE, the Entrepreneurs Incentive, and AMT

Cancellation was not total. Four Budget 2024 capital-gains measures have separate fates, and conflating them is one of the most common 2026 mistakes.

The Lifetime Capital Gains Exemption rose from roughly $1.016 million to $1.25 million effective June 25, 2024, and the increase remains in effect after the cancellation. It applies to qualified small business corporation shares and to qualified farm and fishing property. Indexation to inflation resumed in 2026. For business owners planning a sale, this is the headline change. Our small business and corporate tax planning team helps structure transactions so the full exemption can be claimed.

The Canadian Entrepreneurs Incentive is also phasing in. It gradually lowers the effective inclusion rate to one-third on up to $2 million of eligible lifetime gains, with full implementation by 2029.

The Alternative Minimum Tax rules were expanded effective 2024. Even at the 50% rate, very large gains realized in a single year can still trigger AMT at higher income levels.

Three real Ontario scenarios in dollar figures

All figures use the approximate Ontario top combined marginal rate of 53.5% as of early 2026. Real outcomes depend on your full income picture; targeted tax planning services often improve the result.

Selling a cottage with a $300,000 gain

You sell a family cottage in 2026 for $300,000 more than your adjusted cost base. Only your principal residence is fully exempt, so the cottage gain is fully taxable. At the 50% inclusion rate, $150,000 becomes taxable income. At approximately 53.5%, the tax owed is roughly $80,250.

Selling a Toronto rental property with a $400,000 gain

A Toronto landlord sells a rental property with a $400,000 capital gain. The principal residence exemption does not apply. At the 50% rate, $200,000 is taxable. At roughly 53.5%, the tax owed is approximately $107,000. Capital cost allowance recapture can add further taxable income.

Selling qualified small business shares with a $1.4 million gain

A business owner sells qualified small business corporation shares with a $1.4 million capital gain. If full Lifetime Capital Gains Exemption room is available, the first $1.25 million may be sheltered, leaving $150,000 taxable. At the 50% rate, $75,000 is added to income, producing roughly $40,125 in tax versus over $370,000 if the exemption were not available.

Step by step: how to report a capital gain on your 2026 return

Reporting a capital gain is mostly form completion, but the order matters.

1. 1
   Identify the disposition Capital gains are reported in the tax year the sale occurred, even if proceeds are paid in installments.
2. 2
   Calculate your adjusted cost base Adjusted cost base, or ACB, is what you originally paid plus eligible improvements and commissions. For inherited property, ACB is generally the fair market value at the date of inheritance.
3. 3
   Subtract ACB from proceeds The difference is your capital gain or loss for that property.
4. 4
   Apply the 50% inclusion rate Half of your net capital gain becomes a taxable capital gain.
5. 5
   Report on Schedule 3 of your T1 General Capital gains flow from Schedule 3 to line 12700 of your return. For complex dispositions, contact a ClearWealth advisor before filing.

Six mistakes Canadians are making about capital gains in 2026

• →Assuming the 2/3 rate took effect because the original budget proposed it. It never did, and the 50% rate has applied throughout 2024, 2025, and 2026.
• →Confusing the inclusion rate with a tax rate. The inclusion rate sets how much of a gain is taxable; your marginal income-tax rate is then applied to that taxable half.
• →Treating a cottage or rental sale the same as a principal residence sale. Only your designated principal residence is exempt; secondary real estate triggers a fully taxable gain.
• →Forgetting to apply the Lifetime Capital Gains Exemption when selling qualified small business shares. Failing to claim it can leave up to $1.25 million of gain unsheltered.
• →Ignoring the Alternative Minimum Tax on very large gains. AMT was expanded in 2024 and can apply even at the 50% inclusion rate at higher income levels.
• →Believing a 2024 return reporting the 2/3 rate cannot be revisited. The CRA reverted to the 50% rate, and amended returns or adjustments may be available.

Could the increase come back in a future federal budget

The cancellation does not bind future Parliaments. Federal capital gains policy has shifted several times since the inclusion rate was first introduced, including the proposal-and-reversal cycle of 2024 to 2025.

What can be said is that the 50% rate is current law, the November 2025 federal budget reaffirmed it, and no fresh proposal has been tabled. Planning around the 50% rate is reasonable for now, but it is not guaranteed. If you have a significant unrealized gain, watching future federal budgets is sensible.

Frequently asked questions about Canadian capital gains in 2026

Sources & References

1. 1.Government of Canada announces deferral in implementation of change to capital gains inclusion rate (Jan 31, 2025) — https://www.canada.ca/en/department-finance/news/2025/01/government-of-canada-announces-deferral-in-implementation-of-change-to-capital-gains-inclusion-rate.html
2. 2.CRA — Update on the administration of the proposed capital gains taxation changes (Jan 31, 2025) — https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html
3. 3.Prime Minister Carney cancels proposed capital gains tax increase (Mar 21, 2025) — https://www.pm.gc.ca/en/news/news-releases/2025/03/21/prime-minister-cancels-proposed-capital-gains-tax-increase
4. 4.CRA Guide T4037 — Capital Gains — https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037.html
5. 5.Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) — sections 38, 40(2)(b), 110.6, 127.5 — https://laws-lois.justice.gc.ca/eng/acts/i-3.3/
6. 6.Fair and Predictable Capital Gains Taxation — LCGE increase backgrounder (Jun 2024) — https://www.canada.ca/en/department-finance/news/2024/06/fair-and-predictable-capital-gains-taxation.html
7. 7.Federal Budget 2025 (Nov 4, 2025) — https://www.budget.canada.ca/2025/home-accueil-en.html