Capital Gains Inclusion Rate Canada 2026 | Changes Explained

The inclusion rate is the share of a capital gain that is counted as income for tax. In Canada it is 50%, for every kind of taxpayer and every size of gain. This page covers where that rate comes from, what happened to the proposed two-thirds rate, how the rate has changed over time, and how it applies to gains, losses and the main exemptions. It is part of the investment tax hub.

The current rate

Section 38 of the Income Tax Act says a taxpayer’s taxable capital gain from the disposition of any property “is ½ of the taxpayer’s capital gain”, and an allowable capital loss is the same fraction of a capital loss. “Taxpayer” covers individuals, corporations and trusts, so all three include 50% of their gains, with no threshold and no second tier.

What happened to the two-thirds proposal

Budget 2024 proposed raising the inclusion rate from one-half to two-thirds (66.67%) on capital gains realized each year above $250,000 by individuals, and on all capital gains of corporations and most types of trusts. Many articles at the time described it as settled. It never applied:

Because the deferred start date was later than the cancellation, the two-thirds rate never took effect for anyone, and section 38 still reads one-half. The same announcement kept a related measure, the higher lifetime capital gains exemption (see below).

Inclusion rate history

The rate has changed several times. The CRA’s Guide T4037 lists the rate by period, because a net capital loss carried from one year to another must be adjusted when the two years’ rates differ:

In 2000 the rate changed twice. According to the Department of Finance’s Tax Expenditures and Evaluations 2001, the 2000 budget reduced it from three-quarters to two-thirds, effective February 28, 2000, and the October 2000 Economic Statement and Budget Update reduced it from two-thirds to one-half, effective October 18, 2000. So gains realized before February 28, 2000 were three-quarters taxable, gains from that date until the second cut two-thirds, and gains from October 18, 2000 on one-half; each taxpayer’s 2000 return worked out a blended rate.

That history still matters for old losses: A loss carried to a year with a different inclusion rate is adjusted to that year's rate.

When you have a capital gain

The inclusion rate applies in the year you have the gain, which the CRA’s Guide T4037 sets out this way:

• You usually have a capital gain or loss when you sell capital property or are considered to have sold it.
• You are considered to have sold property when you exchange it for another property or give it (other than cash) as a gift.
• You are considered to have sold shares or other securities when they are converted or when the corporation redeems or cancels them (usually also treated as receiving a dividend), and an option you hold to buy or sell property is disposed of when it expires.
• Settling or cancelling a debt owed to you, or transferring certain property to a trust, is also a sale for tax purposes.
• So is property being expropriated, stolen or destroyed.
• You are also considered to have sold property when you change all or part of its use, when you leave Canada, and when the owner of the property dies.
• The sale is reported for the calendar year (January to December) in which you sell or are considered to have sold the property.

A rise in value you haven’t realized isn’t taxed.

How the rate is applied

The capital gain is the proceeds of disposition minus the adjusted cost base and the costs of selling. The taxable capital gain is that amount times the inclusion rate, and it is added to the rest of your income for the year.

The capital gains tax calculator runs the same calculation by province.

Capital losses

A capital loss is included at the same rate: half of it is an allowable capital loss. A capital loss is first applied against your taxable capital gains of the same year; what is left becomes a net capital loss, which can reduce taxable capital gains in any of the three years before or in any future year, but usually can't be deducted from other income. You report it on Schedule 3, and request a carry-back on Form T1A rather than amending the earlier return. Selling at a loss to use it this way is tax-loss harvesting, and buying the same investment back too soon makes the loss a superficial loss.

Gains taxed differently

Your home

The gain on a home is tax-free for each year you designate it as your principal residence: you or your family must have ordinarily lived in it that year, a family can designate only one home a year, and you report the sale on Schedule 3 and Form T2091; the exempt share is the years designated (while resident in Canada), plus one if you were resident in the year you bought it, divided by the years owned. The principal residence exemption guide covers the designation and the formula.

Small business shares, farms and fishing property

The lifetime capital gains exemption shelters gains on qualifying property up to $1,275,000 for 2026; the limit is indexed to inflation, so it changes each year. A gain on qualified small business corporation shares can be sheltered by the lifetime capital gains exemption ($1,275,000 for 2026) if, when you sell, the corporation is a CCPC using 90% or more of its assets (by fair market value) mainly in an active business carried on primarily in Canada, no one other than you, your partnership or a related person owned the shares in the 24 months before the sale, more than 50% of its assets met that test throughout those 24 months, and you were resident in Canada throughout the year.

The exemption was raised from $1,016,836 to $1,250,000 for dispositions from June 25, 2024. That increase was announced alongside the inclusion-rate proposal but kept when the proposal was cancelled, and it was enacted by the Budget 2025 Implementation Act, No. 1 (Bill C-15, S.C. 2026, c. 3), which received royal assent on March 26, 2026.

Donated securities

Under s. 38(a.1), the taxable capital gain is zero when you donate listed shares, mutual fund units and certain other securities to a qualified donee. The CRA’s T4037 calls this an inclusion rate of zero, and Form T1170 is still filed to report the gift.

Gains paid out over time

When you sell capital property and are paid over several years, you may be able to claim a capital gains reserve on Form T2017, so the gain is included in income as the payments come in. The CRA says most reserves result in the whole gain being included in income over five years.

Related guides

• Investment tax hub
• Lifetime capital gains exemption
• Adjusted cost base (ACB): how to calculate it
• Tax-loss harvesting in Canada
• Superficial loss rules in Canada
• Capital gains tax calculator
• Principal residence exemption guide
• Marginal tax rate calculator