Understanding the Capital Gains Inclusion Rate in 2025

In its 2024 Federal Budget, the Government of Canada announced plans to increase the capital gains inclusion rate (CGIR) from 50% to 66.67%, effective June 25, 2024. Naturally, many taxpayers, trusts and corporations who anticipated being affected took steps to either divest assets before the deadline or account for the higher inclusion rate in their tax planning. A subsequent deferral of CGIR implementation to January 1, 2026, followed by its cancellation altogether, caused confusion among taxpayers regarding their overall liability.

This article aims to clarify the current state of affairs and explore what they mean for investor portfolios going forward.

Capital gains inclusion rate in Canada

On April 16, 2024, the Government of Canada released its 2024 Budget. Among the items outlined, the government addressed the CGIR, which is the percentage of capital gains subject to taxation as income each year. The government proceeded to increase the inclusion rate from one-half to two-thirds on all capital gains exceeding $250,000 for individuals, and on all gains realized by corporations and trusts. The measure was expected to raise an estimated $19 billion in revenue over five years.

At the time, the CGIR was 50%, meaning that if you earned a capital gain of $10,000, half—$5,000—would be included in your taxable income. That $5,000 would then be taxed at your marginal tax rate.

However, the change was short lived.

On January 31, 2025, the Department of Finance announced the deferral of the capital gains inclusion rate increase to a new effective date of January 1, 2026. The proposal, part of the 2024 federal budget, had been introduced in a Notice of Ways and Means Motion tabled in Parliament on September 23, 2024, and was being administered by the Canada Revenue Agency (CRA) on that basis.

The goalposts shifted for a final time on March 21, 2025, as new Prime Minister Mark Carney cancelled the proposed capital gains inclusion rate hike altogether. The stated goal was to “catalyze investment across our communities and incentivize builders, innovators, and entrepreneurs to grow their businesses in Canada, creating more higher paying jobs.”

Impact of capital gains tax

Given the timing of both the Canadian capital gains tax deferral and subsequent cancellation, a couple of distinct issues are at play.

First, many individuals sold assets in advance of the June 25, 2024, deadline to lock in gains at the lower inclusion rate. Once these transactions were completed, they became irreversible regardless of subsequent policy changes. In other words, if you divested assets to avoid the anticipated tax hike, there is no remedy to undo asset sales you may have held if the CGIR hadn’t changed. Such commonly held assets may include:

1) Stocks, exchange traded funds (ETFs), mutual funds, options and bonds.

2) Units in Real Estate Investment Trusts (REITs).

3) Physical assets like cottages, second homes and collectables.

The second issue has to do with the timing of your income tax returns. For early birds who filed Canadian capital gains tax filings before the CGIR deferral announcement on January 31, 2025, you may have sent the government too much money. In such cases, you are entitled to a refund of the excess amount. If you filed your tax return between the deferral and cancellation dates, the CRA automatically reassess returns at the 50% CGIR and issued a refund for any overpayment.

Additionally, the CRA granted relief from late-filing penalties and arrears interest until June 2, 2025, for individuals, and until May 1, 2025, for trusts. This provides additional time to file or amend returns without incurring penalties.

Lifetime Capital Gains Exemption (LCGE)

The 2024 Budget also saw the Lifetime Capital Gains Exemption (LCGE) increase from $1,016,836 to $1.25 million for qualifying dispositions made on or after June 25, 2024. The LCGE allows individuals to exempt a portion of capital gains from taxation when disposing of specific types of property, like qualified small business corporation shares, farm and fishing properties. The LCGE does not apply to publicly traded securities, rental properties, or personal-use assets.

Despite the eventual reversion of the CGIR back from 66.67% to 50%, changes in the LCGE made during the 2024 budget remain unchanged. For the first time since its introduction in 1985, the LCGE was raised twice in one year—first from $971,190 before the federal budget, and again on June 25, 2024. Over the past decade, it had typically increased only once annually, indexed to inflation.

For Skyline investors, changes in the LCGE do not apply to real estate investment trusts (REITs), whether private or public, which are structured as trusts and not as Qualified Small Business Corporation Shares (QSBCS). It also does not apply to most private investments, such as Skyline’s Clean Energy Fund.

However, the increased LCGE exemption limit allows individuals who qualify to retain more after-tax gains from eligible dispositions, providing more capital to reinvest in other wealth preservation strategies.

About Skyline

Skyline is a capital management company that acquires, develops, and manages real estate properties and renewable infrastructure assets, and offers them as private alternative investment products.

Skyline currently manages more than $9 billion* in assets across its real estate and renewable infrastructure platforms.

With approximately 1,000 employees across Canada, Skyline works to provide safe, clean, and comfortable places for tenants to call home, great places to do business, sustainable solutions for a greener future, and an engaging experience for its investors.

For more information about Skyline, please visit SkylineGroupOfCompanies.ca.

*As at March 31, 2025

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