Key Takeaway

In June 2024, Canada increased the capital gains inclusion rate from 50% to 66.67% for gains exceeding $250,000 annually for individuals, while corporations and most trusts now face the higher rate on all capital gains. The first $250,000 of annual gains for individuals remains taxed at the 50% inclusion rate. These changes increase the tax burden on larger investment gains, making tax-efficient strategies and registered accounts more valuable than ever.

What Are Capital Gains and Why the Changes Matter

A capital gain occurs when you sell an investment, property, or other capital asset for more than you paid for it. In Canada, only a portion of that gain is added to your taxable income; this portion is called the inclusion rate. For decades, the inclusion rate held steady at 50%, meaning that if you realized a $10,000 capital gain, only $5,000 was added to your income and taxed at your marginal rate.

The federal government changed this structure in June 2024, introducing a two-tier inclusion rate system for individuals and raising the rate outright for corporations and most trusts. According to foundational texts such as Principles of Finance, capital gains taxation directly affects investor behaviour, portfolio construction, and the after-tax return on investment. The 2024 changes represent the most significant adjustment to capital gains taxation in Canada in decades, and they materially affect how investors plan dispositions, manage portfolios, and evaluate the true cost of realizing gains.

What Changed: The New Inclusion Rate Structure

Before June 2024, all capital gains were subject to a 50% inclusion rate, regardless of the amount realized or the type of taxpayer. The new rules introduce complexity and a steeper tax burden for higher earners and corporations.

For individuals, the first $250,000 of net capital gains realized in a calendar year continues to be taxed at the 50% inclusion rate. Any amount above that threshold is taxed at a 66.67% inclusion rate. This means that on a $300,000 capital gain, the first $250,000 contributes $125,000 to taxable income (at 50%), while the remaining $50,000 contributes approximately $33,333 (at 66.67%), for a total taxable addition of roughly $158,333.

Corporations and most trusts face the 66.67% inclusion rate on all capital gains from the first dollar, with no $250,000 threshold. This change significantly affects business owners who hold investments inside a corporation, family trusts distributing capital gains, and estate planning structures.

The $250,000 annual threshold is per individual, not per family or per account. Married couples each have their own threshold, which creates planning opportunities for income splitting on asset sales, subject to attribution rules and the type of property involved.

How Investors Are Affected

Individual Investors

Most individual investors realizing gains below $250,000 per year see no change. A typical investor selling a position in a non-registered account for a $50,000 gain still reports $25,000 as taxable income, just as before.

Investors who trigger large capital gains in a single year (selling a rental property, a business, a large equity position, or crystallizing gains before retirement) now face a higher effective tax rate on the portion above the threshold. Combined federal and provincial marginal rates vary by province, but in Ontario, for example, the top marginal rate on capital gains above $250,000 can exceed 33%, compared to roughly 26.7% on gains within the threshold (as of 2026; verify current combined rates with a CPA before planning).

Corporate and Trust Structures

Corporations holding investment portfolios are hit hardest. The entire capital gain is now taxed at the 66.67% inclusion rate, increasing the corporate tax burden and reducing the after-tax proceeds available for reinvestment or distribution as dividends. Business owners who have traditionally used holding companies to shelter investment income must revisit their strategies and evaluate whether the tax efficiency of the corporate structure still justifies the administrative cost.

Family trusts that distribute capital gains to beneficiaries are similarly affected. Trusts that do not distribute gains to beneficiaries within the year are taxed at the trust level at the highest marginal rate, and the higher inclusion rate magnifies that cost.

Read also: Four 2026 Tax Dates for Investors in Canada

What Has Not Changed

Critical tax shelters remain intact. Capital gains realized inside a TFSA or RRSP are not subject to tax, regardless of the inclusion rate in non-registered accounts. The changes apply only to taxable accounts, making registered accounts even more valuable as a shelter for high-growth assets (CRA, 2024).

The principal residence exemption also remains unchanged. Gains on the sale of your principal residence continue to be fully exempt from tax, with no inclusion rate applied. This exemption is one of the most significant tax breaks available to Canadian homeowners and was not touched by the 2024 reforms.

The Lifetime Capital Gains Exemption (LCGE), which allows qualifying individuals to shelter a portion of gains on the sale of qualified small business shares, qualified farm property, and qualified fishing property, also remains in place. The exemption limit is indexed annually (verify the current limit on the CRA website before relying on it).

Strategies to Manage the Higher Inclusion Rate

Investors can take several steps to reduce the impact of the higher inclusion rate:

Maximize registered account contributions. TFSA and RRSP contributions shelter gains entirely. Prioritize holding high-growth, high-turnover investments inside registered accounts where gains compound tax-free or tax-deferred.

Harvest tax losses. Offsetting capital gains with capital losses remains a powerful tool. Selling losing positions in the same year as large gains reduces your net gain and may keep you below the $250,000 threshold. Losses can also be carried back three years or forward indefinitely.

Time your dispositions. Spreading the realization of large gains across multiple tax years allows you to use the $250,000 threshold each year. Selling a $500,000 position over two years (rather than in one) can reduce the total tax burden significantly.

Consider spousal planning. If one spouse has realized gains while the other has not, transferring assets (subject to attribution rules and fair market value transfers) may allow both spouses to access their own $250,000 thresholds.

Review corporate structures. Business owners holding investments in a corporation should consult a CPA to evaluate whether the increased inclusion rate justifies restructuring or distributing assets to personal accounts before disposition.

Conclusion

The June 2024 capital gains tax changes introduce a two-tier inclusion rate for individuals and a uniform higher rate for corporations and trusts, marking a significant shift in how investment income is taxed in Canada. While most individual investors realizing modest annual gains remain unaffected, those with large dispositions, corporate portfolios, or trust structures face a materially higher tax burden. Tax-efficient planning (maximizing registered accounts, harvesting losses, timing dispositions, and evaluating spousal transfers) is now more important than ever. Tax rules and rates change annually; verify current inclusion rates, thresholds, and combined federal-provincial rates on the CRA website and consult a Chartered Professional Accountant for advice tailored to your personal situation. This article provides general educational information and does not constitute personalized tax or investment advice.