The capital gains inclusion rate in Canada is 50% on the first $250,000 of personal capital gains in a year, and 66.67% (two-thirds) on amounts above $250,000. The increase from a uniform 50% rate took effect January 1, 2026 after the federal government deferred the original June 2024 implementation date by one year. For corporations and trusts, the inclusion rate is 66.67% on all capital gains realized after January 1, 2026.
2026 capital gains inclusion rates
| Taxpayer type | First $250,000 of annual gains | Above $250,000 |
|---|---|---|
| Individuals | 50% | 66.67% |
| Most graduated rate estates and qualified disability trusts | 50% | 66.67% |
| Other trusts and corporations | 66.67% | 66.67% |
Status as of the writing of this article reflects the legislation deferring the inclusion rate increase to January 1, 2026 and confirming the $250,000 annual threshold for individuals. A taxpayer should verify current rules with CRA or a tax professional before filing, because the inclusion rate has been politically contested and is subject to potential further changes through legislation or regulation.
How a capital gain is taxed
The taxable capital gain is the inclusion rate multiplied by the gain. The taxable amount is added to income and taxed at the marginal rate. A taxpayer in the 30% combined marginal bracket who realizes a $10,000 capital gain pays tax of: $10,000 multiplied by 50% (inclusion rate, below $250,000 threshold) multiplied by 30% (marginal rate) = $1,500 tax. Effective tax on the gain is 15% in this scenario.
For a high-income taxpayer in the top combined marginal bracket (around 53% in Ontario) realizing $400,000 of gains in a single year: the first $250,000 is included at 50% ($125,000 taxable), the remaining $150,000 is included at 66.67% ($100,000 taxable). Total taxable capital gain is $225,000, taxed at marginal rates up to 53%. Maximum tax is approximately $119,250 on the $400,000 gain (29.8% effective).
Lifetime Capital Gains Exemption (LCGE)
Canadians selling qualified small business corporation shares or qualified farm and fishing property can claim the Lifetime Capital Gains Exemption to shelter a portion of the gain from tax. The 2026 LCGE limit for QSBC shares is $1,250,000. For qualified farm and fishing property, the limit is also $1,250,000, with an additional incremental exemption to $1,000,000 above the indexed limit (for total exemption of $1,016,836 in 2024, increasing to $1,250,000 in 2025 and 2026 figures may be higher pending indexation).
Principal residence exemption
A taxpayer’s principal residence is exempt from capital gains tax for years it qualifies as principal residence. A family unit can designate one property as principal residence per year. Selling a principal residence in 2026 typically requires reporting the sale on the T1 return (Schedule 3) but no tax is owed if the property was the principal residence for all years of ownership. A property used partly as a principal residence and partly for rental or business use is partially exempt.
Capital losses
Capital losses can offset capital gains in the same year. Net capital losses can be carried back three years or forward indefinitely to offset future capital gains. The same inclusion rate that applies to gains also applies to losses: a $50,000 capital loss generates a $25,000 deductible loss at 50% inclusion or $33,333 at 66.67% inclusion. Losses can only offset capital gains, not other income (with limited exceptions for allowable business investment losses).
Common triggers of capital gains
Capital gains are realized when a capital property is sold, deemed sold (death, emigration, change of use), or gifted. Common triggers include: selling investments in non-registered accounts (mutual funds, ETFs, stocks), selling a rental property or cottage, selling shares in a private corporation, change of use of a property from principal residence to rental, and emigration from Canada (deemed disposition of most property at fair market value).
Strategies to manage capital gains tax
Common strategies include: realizing gains in low-income years, holding investments in registered accounts (TFSA, RRSP, FHSA) where capital gains are tax-deferred or tax-free, using capital losses to offset gains, splitting income with a spouse where possible, claiming the Lifetime Capital Gains Exemption on qualifying business or farm property sales, and timing large dispositions across multiple tax years to stay below the $250,000 personal annual threshold.
Frequently asked questions
- What is the capital gains inclusion rate in 2026?
- For individuals, 50% on the first $250,000 of annual gains and 66.67% above. For most corporations and trusts, 66.67% on all gains.
- How is a capital gain taxed?
- The taxable amount equals the inclusion rate times the gain, added to income, taxed at the marginal rate.
- What is the $250,000 threshold?
- Annual per-individual amount below which gains are at 50% inclusion. Resets each calendar year.
- What is the Lifetime Capital Gains Exemption for 2026?
- $1,250,000 per person, for qualified small business corporation shares or qualified farm and fishing property.
- Is the sale of my principal residence taxable?
- No, when the property qualifies as principal residence for all years of ownership. The sale is still reported on Schedule 3.
- How do capital losses work?
- Offset gains in the same year, then carry back three years or forward indefinitely. Losses can only offset capital gains, not other income.
- Can I avoid capital gains by reinvesting?
- No. The taxable event is the disposition itself, regardless of what happens with proceeds. Holding inside TFSA, RRSP, or FHSA defers or eliminates the tax.