Capital gains inclusion rate change delayed to 2026

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The federal government has partially changed its mind and is deferring the increase to the capital gains tax inclusion rate that took effect last June.

Finance Minister Dominic LeBlanc announced on Friday that the implementation date of the inclusion rate increase from one-half to two-thirds will be delayed from June 25, 2024 to January 1, 2026.

“The deferral of the increase to the capital gains inclusion rate will provide certainty to Canadians, whether they be individuals or business owners, as we quickly approach tax season. Given the current context, our government felt that it was the responsible thing to do,” said LeBlanc, in a statement.

In the meantime, Finance Canada says it is maintaining the coinciding increase to the Lifetime Capital Gains Exemption at $1.25 million, effective June 25, 2024, as well as the new Canadian Entrepreneurs’ Incentive and the new $250 thousand annual threshold at the lower one-half inclusion rate for individuals. The exemption for the sale of primary residences will also remain in effect.

The Canada Revenue Agency previously said it was enforcing the increase to the inclusion rate based on the Liberals’ introduction of a ways and means motion in Parliament, but the legislation to make the change to the tax code was not introduced prior to Parliament being prorogued. With opposition parties publicly committed to defeating the minority Liberal government when Parliament resumes at the end of March, it’s highly unlikely the legislation will be passed.

While the change to the inclusion rate has been delayed, farm groups are among many voices calling for a reversal due to the increased tax cost in farm ownership transitions and the political uncertainty surrounding the change.

“Delaying bad policy doesn’t fix bad policy – it just drags out uncertainty, derails succession planning, and challenges the future of family farms. When this tax hike takes effect, it will also target farmers’ retirement plans, move the goalposts for the next generation of producers, and further complicate the tax code, driving up accounting and legal expenses for all farmers,” says Grain Growers of Canada executive director Kyle Larkin, responding to LeBlanc’s announcement on Friday.

Larkin says they continue to call on the government to completely reverse the inclusion rate increase.

The Conservatives have said they would reverse the changes if elected in the upcoming federal election. Former finance minister — now Liberal leadership candidate — Chrystia Freeland, who introduced and advocated for the capital gains changes just last year, has also said she would scrap them if given the opportunity.

Related: Farm groups call for reversal of capital gains inclusion rate increase

 

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