For 18 months, Canadian investors and business owners lived in a state of limbo. The federal government announced a massive hike to the Capital Gains Tax, then quietly hit the “Pause” button.
That pause ended on New Year’s Day.
As of January 1, 2026, the new inclusion rate of 66.67% is officially the law of the land. If you are planning to sell a cottage, a rental property, or a small business this year, your math just changed dramatically.
Here is the technical breakdown of the new rules, the “Safe Zone” for individuals, and the new Canadian Entrepreneurs’ Incentive (CEI) that might be your only parachute.
The New Math: 50% vs. 66.67%
The core change is the “Inclusion Rate”—the percentage of your profit that is taxable.
For Corporations & Trusts: There is no mercy. 100% of capital gains realized by corporations and trusts are now subject to the 66.67% inclusion rate.
The Impact: If your holding company sells a property for a $100,000 profit, $66,670 is now taxable income (up from $50,000 previously). This effectively raises the corporate tax bill on investments by roughly 8-10%.
For Individuals (The $250k Safe Zone):
Regular Canadians get a buffer. The first $250,000 of capital gains you earn in a year is still taxed at the old 50% rate. Only the profit above $250,000 gets hit with the new 66.67% rate.
The Trap: This sounds high, but selling a family cottage or a rental property in Toronto or Vancouver easily triggers this threshold, pushing mom-and-pop investors into the higher tax bracket.
The Parachute: The Canadian Entrepreneurs’ Incentive (CEI)
To stop a revolt from the business community, Ottawa introduced the CEI, which also activated in 2026 (phased in).
How it Works: If you sell shares of a qualifying small business, the inclusion rate is slashed to just 33.3% (half of the new standard).
The Catch: It is highly restricted.
- Excluded Sectors: Professional corporations (doctors, lawyers), financial services, insurance, real estate, and hospitality (restaurants/hotels) are generally ineligible.
- The Cap: For 2026, the incentive only applies to the first $400,000 of lifetime gains. This cap rises by $400k/year until it hits $2 million in 2029.
The Scorecard: Selling in 2025 vs. 2026
For those who held onto assets hoping the law would be repealed, the window has closed.
| Scenario | Old Rules (Pre-2026) | New Rules (Jan 1, 2026) |
|---|---|---|
| Corporate Capital Gains | 50% Inclusion Rate | 66.67% Inclusion Rate (First Dollar) |
| Individual Selling Cottage | 50% Inclusion Rate | 50% on first $250k 66.67% on excess |
| Lifetime Exemption (LCGE) | ~$1 Million | $1.25 Million (Indexed) |
| Entrepreneur Rate (CEI) | N/A | 33.3% (On qualifying shares) |
People Also Ask
When did the capital gains tax increase start in Canada?
The increase was originally scheduled for June 2024 but was deferred. It officially came into effect on January 1, 2026. All dispositions (sales) occurring on or after this date are subject to the new rules.
What is the capital gains exemption for 2026?
The Lifetime Capital Gains Exemption (LCGE) for qualified small business corporation shares and qualified farm/fishing property has been increased to $1.25 million. This exemption creates a tax-free buffer for business owners selling their companies.
Does the capital gains hike apply to my principal residence?
No. The Principal Residence Exemption (PRE) remains unchanged. You do not pay capital gains tax on the sale of your primary home, regardless of the profit amount. The new rules primarily affect secondary properties (cottages, rentals) and investments.
What is the Canadian Entrepreneurs’ Incentive (CEI)?
The CEI is a new tax break introduced to offset the hike. It reduces the inclusion rate to 33.3% on eligible capital gains. In 2026, it applies to the first $400,000 of lifetime gains, and the cap will increase by $400,000 annually until 2029.
Worried about how these taxes impact your business? Read our analysis on the Canada Productivity Crisis. Or, see how the new Mortgage Rules might help you keep your property.