On April 16, 2024, Chrystia Freeland (then Minister of Finance) presented Budget 2024. For a summary of tax measures announced, please refer to our newsletter dated April 17, 2024 here: https://www.dhgroup.ca/2024/04/17/2024-federal-budget-summary .
The Budget proposed to increase the capital gains inclusion rate from ½ to ⅔ for certain capital gains realized on or after June 25, 2024, which would increase the tax rate on such capital gains.
There were a series of corresponding measures to integrate the change, including proposed changes to the taxation of employee stock options, and measures to soften the blow including a proposed increase the lifetime capital gains exemption on the sale of shares of a “qualified small business corporation” (“QSBC”) from $1,016,836 in 2024 to $1.25 million gains realized on or after June 25, 2024, and the creation of the “Canadian Entrepreneurs’ Incentive” which would partially exempt some capital gains from tax on the sale of QSBC shares.
The capital gains changes were not included in the Budget legislation but were instead introduced in a separate package of draft legislation. This draft legislation has not been voted on by Parliament and, because the prorogation of Parliament on January 6, 2025 terminated all draft legislation, this draft legislation will need to be re-introduced in the next session of Parliament (after the end of prorogation) to be voted on by Parliament. This has created considerable uncertainty, because the proposed amendments are not yet law but would, if enacted, apply to gains realized after June 24, 2024.
On January 31, 2025, the Minister of Finance announced the Government’s intention to delay the implementation of the capital gains inclusion rate changes from June 25, 2024 to January 1, 2026. This ends the uncertainty for the 2024 tax year. The announcement states that the Government will preserve the 2024 effective date for the increase the lifetime capital gains exemption on the sale of QSBC shares and the creation of the new Canadian Entrepreneurs’ Incentive.
This means that the existing 50% capital gains inclusion rate will apply to all capital gains realized in 2024 and 2025.
The announcement is here: 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). There was no revised draft legislation released by the Government to provide detailed information on these changes.
We note that the opposition parties have announced their intention to trigger a confidence motion in the House of Commons, and to vote non-confidence in the Government, at their first opportunity. This would trigger the dissolution of Parliament and a Federal election (presumably before the capital gains legislation could be re-introduced in Parliament and be enacted).
We also note that:
This leads us to conclude that it is unlikely that the proposals to increase capital gains tax rates in 2026 will ever become law.
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