Capital Gains Inclusion Rate: Is it 50% or 66% in 2026? (The Final Verdict)

Executive Summary: The “Zero-Click” Answer

• The Rate: The capital gains inclusion rate remains at 50% for 2025 and 2026.
• The Change: The controversial proposal to increase the rate to 66.67% (for gains over $250k) was cancelled by the federal government on March 21, 2025.
• The Good News: You do not need to rush to sell your cottage or business to beat a tax hike.
• The Bonus: The Lifetime Capital Gains Exemption (LCGE) for small business owners did increase to $1.25 Million and remains in effect.

If you are confused about the capital gains tax in Canada right now, you are not alone. For the past 18 months, Canadian taxpayers have been on a legislative rollercoaster.

First, the government proposed a massive tax hike (from 50% to 66.67%) effective June 2024. Then, they deferred it to 2026. Finally, in March 2025, the proposal was scrapped entirely.

At BOMCAS Canada, we have been fielding calls from worried clients asking if they should sell their assets now to avoid higher taxes later. Here is the definitive guide to the rules for the 2025 and 2026 tax years.

1. The Timeline of Confusion: How We Got Here

To understand the current rules, it helps to briefly look at the timeline that caused this confusion:

• April 2024 Budget: Government proposes increasing the inclusion rate to 66.67% on capital gains over $250,000 for individuals (and on all gains for corporations).
• January 2025: Government announces a deferral of the hike until January 1, 2026.
• March 21, 2025: The government announces the cancellation of the rate hike.
• Today (Late 2025): We are back to the status quo. The standard inclusion rate is 50% for everyone, regardless of income level or gain amount.

Verdict: The “tax hike” is dead. You can proceed with your financial planning using the traditional 50% rule.

2. Selling a Cottage or Second Home in 2025/2026

This cancellation is a massive win for Canadians who own vacation properties.

Under the proposed (now cancelled) rules, if you sold a family cottage for a $500,000 profit, the first $250,000 would have been taxed at 50%, and the remaining $250,000 at 66.67%. This would have resulted in thousands of dollars in extra tax.

The Current Rule (50% Flat): If you sell your cottage in late 2025 or 2026, only 50% of the gain is taxable, even if the profit is in the millions.

Example: Selling a Muskoka Cottage

• Purchase Price: $300,000
• Sale Price: $800,000
• Capital Gain: $500,000
• Taxable Amount (50%): $250,000

This $250,000 is added to your income and taxed at your marginal rate. Under the cancelled proposal, the taxable amount would have been significantly higher. You do not need to rush a sale before 2026.

3. For Business Owners: The LCGE is $1.25 Million

While the bad news (the rate hike) was cancelled, the good news from the 2024 budget was kept.

The Lifetime Capital Gains Exemption (LCGE) for Qualified Small Business Corporation (QSBC) shares and Qualified Farm/Fishing Property was increased to $1.25 million (effective June 25, 2024).

• What this means: If you sell your small business in 2025 or 2026, the first $1.25 million of capital gains can be tax-free.
• Indexation: Starting in 2026, this limit will be indexed to inflation, meaning it will likely rise slightly above $1.25M.

This is a critical planning opportunity for business owners looking to retire. The gap between the old limit ($1M) and the new limit ($1.25M) represents significant tax savings.

4. What About the “Canadian Entrepreneurs’ Incentive” (CEI)?

There was another proposal called the Canadian Entrepreneurs’ Incentive (CEI), which promised to reduce the inclusion rate to 33.3% on a lifetime maximum of $2 million in eligible gains.

Status: Uncertain. With the cancellation of the main rate hike (back to 50%), the urgency of the CEI (33.3%) is less critical, though still valuable. As of late 2025, the implementation of the CEI is in legislative limbo.

• Our Advice: Do not bank on the 33.3% rate just yet. Plan for 50%, and treat anything lower as a bonus if the legislation passes.

5. Summary Table: 2025 vs. 2026 Rules

6. Planning Your Next Move

The “fear of missing out” (FOMO) drove many poor financial decisions in 2024. Now that clarity has been restored, it is time to look at your portfolio with a calm, strategic eye.

• Don’t Panic Sell: You are not racing against a ticking tax clock anymore.
• Review Your Corporate Structure: With the LCGE at $1.25M, ensure your business shares “purify” to meet the Qualified Small Business Corporation (QSBC) tests well before you sell.
• Estate Planning: The 50% rate stability makes estate freezes and succession planning predictable again.

Confused by the Flip-Flopping Rules?

Tax laws change, but our commitment to your financial health doesn’t. If you are planning a major sale—whether it’s a business, a rental property, or a portfolio—contact BOMCAS Canada first. We will run the numbers based on the current law to ensure you keep more of what you earned.

Call us: 780-667-5250

Email: info@bomcas.ca

Book a Consultation: www.bomcas.ca