Starting June 25, 2024, Canada implemented a significant change to how capital gains are taxed. The capital gains inclusion rate—the portion of capital gains that is taxable—was increased from 50% to 66.67% for individuals with capital gains over $250,000 annually. For corporations and most trusts, the new rate applies to all gains.
For Canadian investors, this change has real financial implications. Whether you hold stocks, real estate, or a small business, understanding how this inclusion rate hike affects you is crucial for future planning.
What Is the Capital Gains Inclusion Rate?
Capital gains occur when you sell an asset—such as shares, real estate, or business interests—for more than what you paid. The inclusion rate determines how much of that gain is subject to tax.
Until June 24, 2024, only 50% of capital gains were taxable in Canada. With the change:
- Individuals: Still pay tax on 50% of their annual gains up to $250,000, but for gains exceeding that, the taxable portion jumps to 66.67%.
- Corporations and most trusts: Pay tax on 66.67% of all capital gains, regardless of amount.
Why Was This Change Introduced?
The federal government introduced this change as part of its 2024 Budget to help fund healthcare and housing programs. Officials claim the new policy ensures “fairness,” by targeting wealthier Canadians who make significant profits from capital investments.
Who Is Most Affected?
The capital gains inclusion rate hike primarily affects:
- High-net-worth individuals selling investments or real estate with significant gains
- Business owners are planning to exit or sell their businesses.
- Real estate investors with large portfolios
- Corporations with significant investment income
Examples: How the Change Impacts Tax Owed
Let’s break this down with a simple example:
Before the Change:
You sell shares for a $300,000 gain.
Taxable portion = 50% of $300,000 = $150,000
If you're in a 40% marginal tax bracket, tax = $60,000
After the Change:
First $250,000 still at 50% = $125,000 taxable
Remaining $50,000 at 66.67% = $33,335 taxable
Total taxable = $158,335
Tax at 40% = $63,334
You pay $3,334 more for the same gain.
For larger gains, the difference becomes much bigger.
What About Real Estate?
Principal residences are still exempt, but:
- Cottages, vacation homes, or rental properties fall under this new rule
- Flipping a property? Your gain might be taxed as business income, which can be higher than capital gains.
What This Means for Your Investment Strategy
This inclusion rate hike makes tax planning more important than ever.
Consider These Adjustments:
- Use Capital Losses
Offset gains by selling underperforming assets to trigger capital losses. - Split Gains Across Tax Years
If possible, split your sales to stay under the $250,000 limit annually. - Review Corporate Structures
Business owners and investors using holding corporations should revisit their structure with a professional to reduce exposure. - Reassess Real Estate Holdings
If you hold properties in hot markets, consider timing and structuring future sales wisely. - Utilise the Lifetime Capital Gains Exemption (LCGE)
Eligible small business owners may still claim the LCGE—currently $1,016,836 in 2024—on qualifying gains.
How to Prepare for the Inclusion Rate Increase
Even though the change has already taken effect, the impact will show up on 2024 and 2025 tax returns, depending on when gains were realised.
Here’s what you should do now:
1. Talk to a Tax Advisor
Don’t assume your past strategy still works. Every investor should get a personalised assessment of their tax exposure.
2. Rebalance Your Portfolio
Focus on tax-efficient investments, like dividend-paying stocks or assets with deferred gains.
3. Reconsider Business Exit Timing
If you’re selling your business or commercial property, proper structuring can significantly reduce tax payable.
Common Misconceptions
Let’s clear up some confusion:
- My tax rate went up
False. Your marginal tax rate is unchanged; it’s the taxable portion of your gain that increased. - This affects everyone equally.
False. Lower- to middle-income investors are unlikely to hit the $250,000 threshold, so they’ll see no difference.
Why Tax Planning Matters Now
If you live in Ontario, British Columbia, or elsewhere in Canada, your combined federal and provincial tax rates can reach 50% or more. With more of your gains now being taxable, your effective tax cost on investments has gone up.
For example, a high-income investor in Ontario now faces:
- An effective tax rate of over 33% on capital gains above $250,000
- This makes professional tax planning essential.
How GTA Accounting Can Help
At GTA Accounting, we’ve helped thousands of clients across Canada—especially in Toronto, Mississauga, Vancouver, and Calgary—understand how the latest tax laws affect their wealth.
We offer:
- Capital gains tax planning
- Real estate tax optimisation
- Small business tax strategies
- Corporate tax filings
- Lifetime Capital Gains Exemption planning
In Summary
The 2025 capital gains inclusion rate hike is a significant shift for Canadian investors, particularly those with large investment gains or real estate portfolios. While it may not affect every taxpayer, those it does affect could see thousands or even millions in additional taxes over time.
Now is the time to review your strategy, minimise your exposure, and make sure your tax plan aligns with your investment goals.
Need help navigating these changes? Contact GTA Accounting today for tailored tax advice and peace of mind.