Update on CRA Administration of Capital Gains Changes: What You Need to Know
If you’ve been following the news about proposed capital gains changes in Canada, you might be feeling a bit confused right now. On January 31, 2025, the Canada Revenue Agency (CRA) announced an important update on how it’s administering the proposed capital gains taxation changes. The good news? Things just got simpler for your 2024 and 2025 tax returns.
Let’s break down what this update means for you in plain English, whether you’re an individual investor, a business owner, or a trustee.
What Changed with the CRA Administration of Capital Gains?
The Department of Finance announced that it will introduce legislation to change the capital gains inclusion rate, but with a new effective date: January 1, 2026. This is a significant shift from the original proposal.
Here’s what you need to know: the CRA has now reverted to using the current capital gains inclusion rate of one-half for all dispositions before January 1, 2026.
What Is a Capital Gains Inclusion Rate?
When you sell an asset (like stocks, real estate, or business property) for more than you paid for it, you have a capital gain. The inclusion rate determines what portion of that gain is added to your taxable income.
Currently, the inclusion rate is one-half (50%). This means if you make a $10,000 capital gain, only $5,000 is added to your taxable income.
The proposed change would increase this rate to two-thirds (66.67%) for certain capital gains, but that won’t happen until 2026 at the earliest.
How the Proposed Capital Gains Changes Will Work in 2026
Starting January 1, 2026, if the legislation passes, here’s what the government intends:
- For individuals: Capital gains above $250,000 in a year will be taxed at the higher two-thirds inclusion rate. Gains under $250,000 will stay at the one-half rate.
- For corporations: All capital gains will be subject to the two-thirds inclusion rate, regardless of the amount.
- For most trusts: All capital gains will be subject to the two-thirds inclusion rate.
But remember, this only applies to dispositions (sales) that happen on or after January 1, 2026. Everything before that date uses the current one-half rate.
What This Means for Your 2024 and 2025 Tax Returns
This update is actually great news if you’re filing your taxes soon. All capital gains you realized in 2024 and 2025 will be taxed at the familiar one-half inclusion rate.
You don’t need to worry about calculating different rates or splitting your gains into different categories. The CRA has made it simple by sticking with the current rules for these years.
Filing Deadline Relief for Individuals and Trusts
The CRA recognizes that the back-and-forth on these rules has created confusion. To help taxpayers, they’re offering relief from late-filing penalties and interest charges:
- Individual (T1) filers: Relief until June 2, 2025
- Trust (T3) filers: Relief until May 1, 2025
This extra time gives you breathing room to properly report your capital dispositions without worrying about penalties if you need more time.
Good News About the Lifetime Capital Gains Exemption
There’s one piece of good news in all of this: the increase to the Lifetime Capital Gains Exemption (LCGE) is still moving forward as originally planned.
The LCGE is a valuable tax break that lets you shelter capital gains from tax when you sell qualified small business shares or farming and fishing property.
The LCGE Increase Details
The LCGE limit is increasing to $1.25 million for eligible capital gains, and this applies to dispositions that occurred on or after June 25, 2024. The CRA is continuing to administer this increase.
Starting in 2026, the LCGE will also resume indexation, meaning it will increase with inflation each year.
If you sold qualified property in 2024 or plan to in 2025, this higher exemption limit could save you significant tax dollars.
What Corporate Tax Filers Need to Know
If your business is incorporated, the CRA administration update makes things straightforward. You can continue using existing tax forms and software with the one-half inclusion rate for all capital gains realized before January 1, 2026.
There’s no need to make any adjustments or file amended returns unless you were one of the few corporations that filed early based on the September 2024 proposed rules.
Corrective Reassessments for Early Filers
A small number of corporations followed the CRA’s earlier guidance and filed using the proposed two-thirds inclusion rate. If your corporation did this, don’t worry.
The CRA will coordinate corrective reassessments to reverse the application of the higher rate. You’ll be switched back to the one-half rate automatically.
Planning Ahead for the 2026 Changes
Even though the new rules won’t take effect until 2026, it’s smart to start planning now, especially if you’re considering selling assets that will trigger large capital gains.
For individuals, if you’re planning a large disposition that would result in gains over $250,000, you might want to consider the timing. Selling before January 1, 2026 means the entire gain is taxed at the one-half rate.
For corporations and trusts, the timing consideration is even more important since all capital gains would be subject to the higher rate starting in 2026.
Updated Forms Are Coming Soon
The CRA is working to update its forms and systems to reflect these changes. They’ve promised to release revised forms “in the coming weeks.”
If you’re ready to file your return but are waiting for updated forms, keep checking the CRA website or speak with your tax professional. The CRA is working as quickly as possible to get everything updated.
Why Working with a Tax Professional Matters
Capital gains taxation can be complex, especially with proposed changes and shifting effective dates. The rules around what qualifies for exemptions, how to calculate adjusted cost base, and how to optimize your tax situation require expertise.
A qualified tax professional stays current on all CRA announcements and can help you understand how these changes affect your specific situation. They can also help you plan strategically for future dispositions to minimize your tax liability.
Whether you’re selling investment property, business assets, or planning your retirement, professional guidance ensures you’re taking advantage of all available deductions and exemptions while staying fully compliant with CRA requirements.
At JHG Corporate and Tax Services Inc., we’re monitoring all CRA updates and are ready to help you navigate these capital gains changes. We can review your situation, help you understand your options, and ensure your returns are filed correctly and on time.
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When it comes to taxes, they are always changing, always being updated!
That’s why it’s always smart to work with professionals like JHG Corporate and Tax Services Inc.
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Frequently Asked Questions
What is the current CRA administration policy on capital gains for 2024 and 2025?
The CRA has reverted to administering the currently enacted capital gains inclusion rate of one-half for all dispositions before January 1, 2026. This means all capital gains realized in 2024 and 2025 will be taxed at the familiar 50% inclusion rate, unless an exemption applies.
When will the proposed capital gains inclusion rate increase take effect?
The proposed increase to a two-thirds capital gains inclusion rate is now scheduled to take effect on January 1, 2026, not June 25, 2024 as originally proposed. The CRA administration will continue using the one-half rate for all dispositions before this date.
What filing deadline relief is the CRA offering for capital gains reporting?
The CRA is granting relief from late-filing penalties and arrears interest until June 2, 2025 for individual (T1) filers and until May 1, 2025 for trust (T3) filers who are reporting capital dispositions. This provides extra time to meet tax filing obligations given the recent changes.
Has the Lifetime Capital Gains Exemption increase been affected by the CRA administration update?
No, the LCGE increase to $1.25 million remains unchanged and applies to dispositions on or after June 25, 2024. The CRA will continue to administer this proposed increase, and indexation of the LCGE will resume in 2026.
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When it comes to taxes, they are always changing, always being updated!
That is why it is always recommended to use a professional like JHG Corporate and Tax Services Inc to get your taxes done to ensure you are getting the most out of your tax return.
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