New Canada Capital Gains Tax Changes: Who Pays More, Who’s Exempt, and What to Do Next

The Canadian government has announced significant changes to the **capital gains tax regime**, shaking up how investment profits are taxed across the country. These adjustments, coming into effect on **June 25, 2024**, will have far-reaching consequences for investors, home sellers, and business owners. While the goal is to increase tax fairness and boost federal revenues, the alterations have sparked debate among financial professionals and everyday Canadians alike.

At the heart of the change is an increase in the **capital gains inclusion rate**—the portion of capital gains that must be included as taxable income. For individuals and corporations with higher capital gains, this translates into a noticeably higher tax bill. However, some groups will benefit from exemptions or increased thresholds, creating a more nuanced landscape of winners and losers.

What changed this year

Who qualifies and why it matters

Not everyone will be negatively affected by these changes. In fact, for many **individual taxpayers**, the situation will remain unchanged—so long as their annual **taxable capital gains remain below $250,000**. The changes mainly target high-income individuals and corporate entities that regularly realize large capital gains. For real estate investors, business owners, tech entrepreneurs, and wealthy individuals, these tax hikes could significantly reduce net proceeds from asset sales.

On the other hand, **small business owners and farmers** may benefit from increased exemptions. The extension of the **Lifetime Capital Gains Exemption (LCGE)** to **$1.25 million** greatly enhances retirement planning for those selling qualified small businesses or farm properties. Additionally, the newly announced **Canadian Entrepreneurs’ Incentive** provides tax relief for founders of innovative companies meeting specific criteria.

Who pays more and who pays less

How the higher inclusion rate affects taxes

Capital gains tax in Canada operates by including a percentage of your gains in your taxable income. That percentage is called the **inclusion rate**. For years, that rate was 50% for all taxpayers. Under the new rules, anyone realizing more than $250,000 in annual capital gains as of June 25, 2024, will be subject to a **66.7% inclusion rate on the surplus**.

For high-earning professionals or real estate investors, this means a jump in **effective tax rates**. For example, in provinces like Ontario and British Columbia, top marginal tax rates on capital gains could jump from around 27% to over 35% once the higher inclusion rate kicks in.

“People in the top tax bracket could see their capital gains tax liabilities jump by thousands of dollars. This is no small change—it affects retirement strategies dramatically.”
— Julia Cartwright, CPA and Financial Tax Advisor

Details on trusts and corporations

Unlike individual taxpayers, **corporations and trusts** don’t benefit from a $250,000 threshold. For these entities, the **66.7% inclusion rate applies to all gains realized after June 25**—no exemptions apply. This is a significant change for companies that own and trade real estate, stock portfolios, or other appreciating assets.

Trusts, often used for estate planning or tax efficiency, will similarly face higher tax burdens. Advisors warn trustees and corporations to consider **triggering capital gains before June 25** to take advantage of the lower rate where possible.

Enhanced Lifetime Capital Gains Exemption (LCGE)

The good news for entrepreneurs and family business owners is a generous increase in the **LCGE**. The cap rises to **$1.25 million** in 2024 and will be indexed to inflation thereafter. Individuals who sell a **qualified small business corporation (QSBC)**, or eligible farm or fishing property, can shelter up to $1.25 million in gains from taxation altogether.

This exemption is especially beneficial for **retiring entrepreneurs**. For couples co-owning a business, that translates into **$2.5 million** in tax-free capital gains—provided both meet the eligibility criteria.

The Canadian Entrepreneurs’ Incentive: How it works

Designed to support innovation and homegrown tech, this incentive introduces a reduced **inclusion rate of 33.3%** on up to $2 million of qualifying capital gains from the sale of shares in an innovative Canadian business. However, the full benefit is phased in over ten years and subject to conditions:

• You must be a founder with active roles in the company for at least five years
• The business must be a Canadian-controlled private corporation (CCPC)
• Certain industries like finance, real estate, consulting are excluded

Once fully implemented, this could result in massive tax savings for founders exiting successful ventures. However, critics argue the policy could be too restrictive and subjective in assessing eligibility.

“This new incentive is a welcome reward for startup founders who take real risks. But it needs clarity and fairness in its application.”
— Dr. Michael Chen, Professor of Tax Policy

Strategies to minimize tax liabilities

With the new tax regime starting **mid-year**, taxpayers have a unique window of opportunity to **realize gains before June 25** at the lower 50% inclusion rate. Financial advisors are already recommending that clients review portfolios, consider crystallizing gains, and scrutinize business exit plans.

Some possible strategies include:

• Advance sales of appreciated securities or real estate
• Transferring assets into a spouse’s account to distribute income
• Using trusts effectively while rates remain lower
• Structuring business exits to leverage LCGE and new start-up incentives

However, these decisions should always be made with the guidance of tax professionals, as missteps could result in penalties or unintended consequences.

Financial planning beyond the changes

The capital gains tax change marks a **notable shift in Canadian tax policy**, leaning toward progressive taxation of investment income. While it could correct perceived imbalances in income distribution, the effect on investment behavior, retirement plans, and small business dynamics could be complex.

As with all major tax reforms, **long-term planning becomes critical**. Canadians must not only understand the rules themselves but carefully align their financial decisions with these updated realities. Details are still being clarified at the federal level, so staying informed is also essential.

Frequently Asked Questions (FAQs)

When does the new capital gains tax rule take effect?

The updated rules, including the increased inclusion rate for annual capital gains over $250,000, take effect on **June 25, 2024**.

Do I have to pay more tax if my capital gains are under $250,000?

No. If your taxable capital gains in a calendar year are under $250,000, your inclusion rate remains at 50%, the same as before.

Who can claim the Lifetime Capital Gains Exemption (LCGE)?

Eligible individuals who own Qualified Small Business Corporation shares or qualified farm/fishing property can claim the LCGE, which rises to $1.25 million in 2024.

What is included in the $250,000 threshold?

The threshold applies to **net capital gains** realized in the year, not gross. Offsetting capital losses and carryforwards can be used to lower taxable gains.

What kind of businesses qualify for the Canadian Entrepreneurs’ Incentive?

Only companies in **innovative sectors** like tech and biotech qualify. Industries such as real estate, finance, consulting or hospitality are excluded.

Can I split gains across years to stay under the limit?

Possibly. Strategic sales planning and income splitting may help remain below the $250,000 threshold, but timing and asset performance play a crucial role.