The capital gains inclusion rate determines how much of your investment profits the government counts as taxable income. It’s one of the most important numbers in Canadian tax planning, and it almost changed dramatically in 2024-2025. Here’s where things actually stand in 2026.
What the inclusion rate is
When you sell an investment for more than you paid, the difference is a “capital gain.” Canadian tax law doesn’t tax 100% of the gain — only an “inclusion rate” portion. The rest is essentially free.
Current inclusion rate (2026): 50%. If you make a $100,000 capital gain, $50,000 gets added to your taxable income and taxed at your marginal rate. The other $50,000 is tax-free.
Worked example: $100K gain on a stock
- Bought Apple shares for $50,000 in 2018
- Sold them in 2026 for $150,000
- Capital gain: $100,000
- 50% inclusion: $50,000 added to your taxable income that year
- Ontario top marginal rate: 53.53%
- Tax owed: $50,000 × 53.53% = $26,765
- Net keep: $73,235 of the $100,000 gain (or ~27% effective tax)
Compare to salary income — the same $100K of regular income at top Ontario rate would mean $53,530 in tax. Capital gains are taxed at HALF the rate of salary, even at the top marginal rate.
What happened with the 66.67% proposal
In the 2024 federal budget, the government proposed raising the inclusion rate to 66.67% on:
- All capital gains by corporations
- All capital gains by trusts
- Individual capital gains ABOVE $250,000 per year
The change was scheduled for June 25, 2024 but never legislated. The deadline kept getting pushed back. After the change in government in 2025, the proposal was formally scrapped in early 2026. The inclusion rate stays at 50% for all individuals and corporations.
What does NOT count as a capital gain
- Gains in registered accounts (TFSA, RRSP, RRIF, RESP, FHSA) — tax-free or tax-deferred, no inclusion rate applies
- Principal residence sales — fully exempt under the Principal Residence Exemption
- Gifts to spouse — transferred at cost (no gain triggered)
- Donations of publicly-traded securities to charity — 0% inclusion rate (effectively no tax)
What DOES count
- Stocks, ETFs, mutual funds sold in NON-registered accounts
- Rental properties (not your principal residence)
- Cottages and vacation homes (above what the principal residence exemption covers)
- Cryptocurrency sold or used to buy goods (CRA treats crypto as property)
- Sale of a business or shares in a private corporation
- Foreign stocks held in non-registered accounts
The Lifetime Capital Gains Exemption (LCGE)
Sale of qualifying small business shares (and qualified farm or fishing property) gets a lifetime exemption of $1,016,836 in 2026. This means a business owner can sell their company and shelter the first ~$1M of gain entirely from tax — no inclusion at all.
Strict eligibility tests apply — the business must be a Canadian-controlled private corporation, most assets must be used in active business in Canada, and the shares must have been held 24+ months. Most business owners need a tax accountant to verify eligibility BEFORE selling.
Capital loss strategies
- Tax-loss harvesting: Sell losing investments to crystallize capital losses, offset them against gains. Reduces taxable income this year.
- Carry-back 3 years: If this year’s losses exceed gains, carry the excess back to recover tax paid in any of the prior 3 years.
- Carry-forward indefinitely: Any unused losses carry forward forever, available to offset future gains.
- Watch the superficial loss rule: You can’t buy the same security within 30 days (before or after) of selling at a loss — CRA disallows the loss.
Why all this matters for ordinary investors
If you only invest in TFSA and RRSP, capital gains tax doesn’t apply to you — those accounts shelter everything. The inclusion rate only matters once you’ve maxed those AND have additional money in a non-registered account.
Many Canadians never hit that threshold. For those who do (mostly higher-income earners or people with inherited investment portfolios), capital gains tax is one of the most favourable forms of income tax in Canada — taxed at half the rate of salary, deferred until you sell, and offsettable with losses.
When to realize gains intentionally
The 50% inclusion rate is so favourable that many investors strategically realize gains in low-income years even when they don’t need the cash. The classic moves: realize gains during sabbatical years, in the year you become a non-resident (Canada loses jurisdiction on subsequent appreciation), or right after retirement when employment income drops to zero. Each “free” use of low brackets locks in the favourable inclusion rate at lower marginal rates. The opposite trap: realizing gains in your highest-income year, paying maximum tax, then watching the price fall back. Plan capital-gain triggers around your tax-life events, not your investment-life events.
Frequently asked questions
Do I pay capital gains tax on cryptocurrency?
Yes — CRA treats crypto as a commodity. Every time you sell, trade, or use crypto to buy something, you trigger a capital gain or loss based on the difference between your acquisition cost (in CAD) and disposal value. 50% inclusion applies. Keep records of every transaction; CRA has been ramping up crypto enforcement since 2022.
Are capital gains on my house taxable?
If it’s your designated principal residence for every year you owned it, gains are 100% tax-free under the Principal Residence Exemption. You still must report the sale on your tax return (Form T2091). Investment properties + second homes are NOT exempt and are fully taxable as capital gains. See our principal residence exemption guide.
What’s the difference between capital gains and dividend income?
Capital gains = profit from selling an asset (taxed at 50% inclusion rate). Dividends = quarterly income from holding the stock (taxed via the dividend tax credit system). For Canadian eligible dividends, the effective rate is similar to capital gains (often slightly lower in lower income brackets). For foreign dividends (US stocks), full income inclusion + no Canadian credit — significantly higher tax. See our dividend tax credit guide.
Can I avoid capital gains by holding forever?
Yes during your life — you pay tax when you sell. At death, CRA treats everything as if you sold it the day before death (“deemed disposition”) — capital gains accrued over your lifetime hit on your final tax return. Major exception: assets transferred to a surviving spouse roll over at cost, deferring tax until the spouse sells or dies. This is why estate planning around capital gains is critical for older wealthy investors.
Will the 66.67% inclusion rate come back?
No active proposal exists in 2026. The previous government’s plan was scrapped after the 2025 election. Tax policy can change with future governments, but the current 50% rate is settled. If a future change is proposed, it would typically apply prospectively (to future gains) rather than retroactively — investors usually get warning.
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