The Canadian government has postponed its planned increase to the capital gains inclusion rate, offering relief to businesses and individuals.
The Canadian federal government has announced a deferral of its planned increase to the capital gains inclusion rate. Initially set to take effect on June 25th of this year, the implementation has been pushed back to January 1st, 2026. This decision comes amidst concerns about the impact of the tax hike on the economy. The government emphasizes its commitment to maintaining and enhancing existing exemptions while introducing new incentives to encourage investment.
The capital gains inclusion rate, currently at 50 percent for companies and individuals earning above $250,000 from capital gains, would have increased to 66.67 percent under the original plan. The deferral provides much-needed clarity for individuals and businesses who faced uncertainty about the tax changes.The government highlighted several key exemptions being maintained or implemented. These include: the principal residence exception, ensuring Canadians don't pay capital gains taxes when selling their primary home; a new $250,000 annual threshold for Canadians beginning January 1st, 2026, designed to benefit individuals with modest capital gains; an increase in the lifetime capital gains exemption to $1.25 million from $1,016,836 for the sale of small business shares, farming, and fishing property, effective June 25th, 2024; and a new Canadian entrepreneurs' incentive, reducing the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains, effective in the 2025 tax year.The government's move comes after the proposed changes to the capital gains tax were introduced in a ways and means motion but not yet passed in parliament, which is prorogued until March 24th. The Canadian Chamber of Commerce had raised concerns about the government's intent to implement the tax changes without parliamentary approval, calling it unprecedented and harmful to investment and entrepreneurship. The deferral aims to address these concerns and create a more stable environment for businesses and individuals
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