Update prepared by Kody Wilson and Émilie Tremblay.
What You Need to Know for Your 2024 Tax Filing
Making Sense of the Confusion
If you’ve been trying to follow the back-and-forth on the changes to the capital gain inclusion rate in Canada over the last few months, you’re not alone. Between Budget announcements, government prorogation, and shifting CRA guidance, taxpayers and businesses have been left wondering how to plan and file.
The changes to capital gains taxation were first proposed on April 16, 2024 in Budget 2024. Initially, the plan was to increase the inclusion rate from 50% to 66.67% for corporations, trusts, and individuals with over $250,000 in annual capital gains, effective June 25, 2024. The issue was that the legislation to enact this change sat in draft mode well after the planned implementation date of June 25, 2024.
CRA also confirmed they would be assessing taxpayers on the basis that the proposed changes were in effect, as is their policy in situations like this.
After months of uncertainty, on January 31st, 2025, the Department of Finance announced that they will be deferring the implementation of the capital gains inclusion rate of one-half to two-thirds from June 25, 2024, to January 1, 2026. The Department of Finance also confirmed that the increase in the Lifetime Capital Gains Exemption to $1.25 million is still effective June 25, 2024, from the current amount of $1,016,836, on the sale of small business shares and farming and fishing property. Indexation of this exemption will resume in 2026.
However, the capital gains tax debate is far from over, with uncertainties and proposed changes looming in 2026. This, of course, is dependant on the political party in power at the time, tabling and approving legislation to this effect. At this point, the Conservative party and some of the Liberal leader candidates have already stated they would not proceed with this legislation. Proactive tax planning remains critical for investors, business owners, and anyone with significant capital assets.
Essential Things to Know for the 2024 Tax Year
After months of uncertainty on how capital gains would be taxed in 2024, taxpayers can now file their tax returns knowing that:
- The 50% inclusion rate still applies, regardless of the amount of gains realized;
- Individuals who sold qualified small business corporation shares and qualified farming or fishing property on or after June 24, 2024, will benefit from the increase to the LCGE to $1.25 million;
- Separately, the deadline for making charitable donations eligible for a tax credit in the 2024 tax year has been extended from December 31, 2024 to February 28, 2025 (a one-time exception based on the postal strike in late 2024).
For taxpayers reporting capital dispositions, the government has provided relief to allow additional time for impacted taxpayers to fulfill their tax obligations. - Impacted Individuals: no late-filing penalties and arrears interest will be charged if their 2024 T1 returns are filed on or before June 2, 2025
- Impacted Trusts: no late-filing penalties and arrears interest will be charged if their 2024 T3 returns are filed on or before May 1, 2025.
- Corporations: CRA had already announced last fall that no late-filing penalties and interest would be charged to corporations with a year-end between June 25, 2024 and September 3, 2024, who filed their T2 return on or before March 3, 2025. No additional relief has been granted. However, the CRA will coordinate corrective reassessments to reverse the application of the two-thirds inclusion rate for corporations that already filed their tax returns and reported gains with the increase inclusion rate of 2/3.
Looking Ahead: What Should Taxpayers Do in 2025?
Reassessing investment and succession planning on a regular basis continues to be important. Our tax team is here to help you explore disposition strategies and tax-efficient structures, such as trusts or estate freezes, that may be beneficial in the short and long-term.
Be sure to monitor government announcements. The capital gains inclusion rate increase is not off the table—only delayed to January 1, 2026. Other Budget 2024 proposals remain uncertain, like the Canadian Entrepreneurs’ Incentive (CEI), which offers a reduced one-third inclusion rate on a lifetime maximum of $2 million in capital gains, and the proposed stock option deduction change, meant to mirror the increase in the capital gains inclusion rate. The return of Parliament in March, the timing of the election, and the policy platforms announced during the election campaign will be closely monitored.
Stay tuned to our LinkedIn page for immediate updates.
