As part of the 2024 Federal Budget the Government of Canada proposed to increase the capital gains inclusion rate (“CGIR”) from 50% to 66.67%, effective June 25, 2024. The CGIR determines the portion of a capital gain that is subject to tax in Canada. The proposed increase was expected to result in higher taxable income for many Canadians.

Following the release of draft legislation on June 10, 2024, Canada Revenue Agency (“CRA”) began assessing taxpayers in accordance with the proposed changes. However, after initially deferring implementation to January 2026, Prime Minister Mark Carney announced in March 2025 that the proposed CGIR increase would be cancelled. This reversal has created significant uncertainty, particularly for Canadians who may have taken proactive steps to mitigate the impact of the anticipated change.

Impact of the Proposed Changes

Under the proposal, individuals would have been subject to the increase CGIR on capital gains realized in excess of $250,000 after June 25, 2024. Corporations would have been subject to the 66.67% inclusion rate on all capital gains.

This change would have affected a wide range of assets, including the sale of cottages, vacation homes, rental properties, and shares. In anticipation, many taxpayers accelerated the realization of gains or undertook other tax planning measures to take advantage of the lower 50% inclusion rate, effectively pre-paying taxes to avoid the potential higher tax in the future.

Impact of the Reversal

Prior to Prime Minister Mark Carney’s announcement of the cancellation, CRA had already begun assessing taxpayers based on the proposed CGIR changes consistent with CRA policy. For gains realized after June 24, 2024, returns were processed using a 66.67% inclusion rate, which also impacted the calculation of the Capital Dividend Account (“CDA”) which includes the non-taxable portion of capital gains for private corporations.

Individuals and corporations who estimated taxes payable or filed tax returns for fiscal periods ending after June 24, 2024 and based on the increased CGIR should consider revisiting these estimates and tax filings. Special attention should be given to reported capital gains and losses and CDA balances to determine whether it may be necessary to amend tax returns. The CDA generated from dispositions after June 24, 2025 may have increased as a result of the cancellation and accordingly, additional tax planning opportunities may be available.

CRA has provided relief of some interest and penalties for “impacted T1 individual filers” until June 2, 2025. As a result, CRA is not expected to assess late-filing penalties or arrears interest for these specific individuals if the tax return and payments are completed prior to June 2, 2025. While the definition of impacted T1 individual filers remains vague, it is expected those who reported capital gains or losses in the period after June 24, 2025 would qualify.

It should be noted that while CRA initially announced relief for Corporations, it has since stated relief will no longer apply.

Next Steps

The proposed changes and the subsequent cancellation have created confusion for many Canadians. For those who engaged in early tax planning or impacted filers, we recommend consulting with your tax advisor to evaluate if additional steps and tax planning may be beneficial for your specific situation.