Capital Gains Tax Canada 2026: The Inclusion Rate Saga Explained

The capital gains inclusion rate for 2026 is 50%. For everyone — individuals, corporations, trusts. The proposed increase to 66.67% that dominated tax headlines throughout 2024 was deferred, then cancelled in March 2025, and Budget 2025 confirmed the government won’t proceed with it. If you held off selling assets because of the uncertainty, the coast is clear.

Here’s how capital gains actually work in Canada and what you owe when you sell.

How Capital Gains Tax Works

You only pay tax when you dispose of an asset. Buying and holding triggers nothing. The tax hits when you sell.

The formula is simple:

Capital Gain = Sale Price - Adjusted Cost Base (ACB) - Selling Costs

Then you take 50% of that gain — the “taxable capital gain” — and add it to your regular income for the year. It gets taxed at your marginal rate, so your effective rate on the gain is half your marginal rate. An Ontario employee earning $100,000 in 2026 has a marginal rate of 31.48% on regular income, so each extra dollar of capital gains costs them about 15.7 cents. In the top bracket, capital gains are taxed at between 22.25% (Nunavut) and 27.40% (Newfoundland and Labrador).

Example: You bought shares for $10,000 and sold them for $25,000, paying $100 in commission. Your capital gain is $14,900. The taxable portion is $7,450, which gets added to your income and taxed at whatever bracket that pushes you into. If you live in Ontario and earn $75,000 from your job in 2026, the sale adds $2,209 to your tax bill — about 14.8% of the gain.

Calculate your tax on investment income —>

The Inclusion Rate Saga

A quick recap for anyone who spent 2024 confused. The 2024 federal budget proposed increasing the inclusion rate from 50% to 66.67% for individuals on gains exceeding $250,000 in a year, and on all gains for corporations and trusts. The effective date was supposed to be June 25, 2024.

The legislation never passed. Parliament was prorogued, the government deferred the change to January 1, 2026, and then on March 21, 2025 it cancelled the increase outright. Budget 2025 confirmed it. The inclusion rate was 50% for 2024 and 2025, and it’s 50% for 2026. No threshold. No two-tier system.

The Canadian Entrepreneurs’ Incentive — a proposed lower inclusion rate on up to $2 million of gains from selling a business, announced alongside the increase — is gone too. Budget 2025 confirmed the government won’t proceed with it.

What Triggers a Capital Gain

Not every financial event creates a taxable gain. Here’s what does:

Selling stocks, ETFs, or mutual funds in a non-registered account (taxable brokerage account)
Selling real estate other than your principal residence
Selling cryptocurrency if treated as a capital asset (more on this below)
Deemed disposition at death — when someone dies, the CRA treats all their assets as if they were sold at fair market value
Emigrating from Canada — leaving the country triggers a deemed disposition on most assets

And here’s what does not trigger capital gains:

Selling investments inside a TFSA — completely tax-free, always
Selling investments inside an RRSP or RRIF — no capital gains tax, but withdrawals are taxed as regular income. See how RRSP contributions affect your tax —>
Selling your principal residence — fully exempt under the principal residence exemption
Transferring assets to a spouse at cost (rollover provisions apply)

The Principal Residence Exemption

Your primary home is exempt from capital gains tax. If you bought a house for $400,000 and sold it for $900,000, that $500,000 gain is tax-free as long as it was your principal residence for every year you owned it.

You can only designate one property as your principal residence per year. If you own a cottage and a city home, you’ll need to choose which one to designate for each year of ownership. Getting this wrong can create an unexpected tax bill in the hundreds of thousands.

You must report the sale of your principal residence on your tax return, even though the gain is exempt. Failing to report it can result in penalties and the CRA may deny the exemption.

Lifetime Capital Gains Exemption

If you sell qualifying small business shares, you can shelter up to $1,275,000 in capital gains in 2026. The limit rose to $1.25 million for sales after June 24, 2024 (from $1,016,836), and indexation to inflation resumed in 2026. At a 50% inclusion rate, that’s $637,500 of taxable gains kept off your return — for an Ontario resident already in the top bracket, about $341,000 in tax savings. A large claim can trigger the alternative minimum tax, though, so the real saving can be smaller.

To qualify, the shares must be of a Canadian-controlled private corporation (CCPC) that meets specific tests regarding active business use of its assets. This isn’t something you figure out on your own. Get professional advice before claiming it.

Qualifying farm and fishing property is also eligible, but it shares the same lifetime limit — it’s one combined exemption, not a second one.

Capital Losses and How to Use Them

Capital losses offset capital gains dollar for dollar. If you made $30,000 in gains and $12,000 in losses in 2026, you only pay tax on $18,000 in net gains (with the 50% inclusion applied to that net figure, so $9,000 is added to your income).

If your losses exceed your gains in a given year, you have a net capital loss. You can carry that loss back three years or forward indefinitely to offset gains in other years. This makes timing your sales strategically worthwhile — if you had a big gain in 2025, you could crystallize a loss in 2026 and carry it back.

One trap to watch for: the superficial loss rule. If you sell a security at a loss and buy the identical security back within 30 days — before or after the sale — the CRA denies the loss entirely. The denied loss gets added to the ACB of the repurchased shares, so it’s not permanently lost, but you can’t use it now. This also applies if your spouse or a corporation you control buys the same security within the 30-day window.

See how capital gains affect your total tax —>

Crypto and Capital Gains

Cryptocurrency dispositions are generally treated as capital gains for most Canadians. If you bought Bitcoin as an investment and sold it later at a profit, the 50% inclusion rate applies to the gain. However, if you trade frequently or crypto trading is your business, the CRA may classify your profits as business income — which is 100% taxable. The distinction matters a lot. We cover this in detail in our crypto tax guide.