Prime Minister Mark Carney has announced his government will cancel the Liberal government’s planned hike in the capital gains inclusion rate.
In a statement released on March 21, the Prime Minister’s Office said this cancellation is part of a “recognition of the vital role that builders and small businesses play,” adding that the change would allow for more private investment to create jobs and opportunities for Canadians.
The statement also said the Liberal government will maintain the increase in the lifetime capital gains exemption rate to $1.25 million for small business shares, and farming, and fishing property. The statement added that the government will introduce legislation to formalize the changes to the exemption limit “in due course.”
The increase to the share of taxable capital gains was introduced last year and included in the federal budget of April 2024. The change meant that Canadians with annual capital gains over $250,000 would have 66.7 percent of those gains taxed, up from the current level of 50 percent.
This legislation was still being debated in the House of Commons when Parliament was prorogued on Jan. 6, which meant the legislation died and would need to be reintroduced from scratch at the next session of Parliament.
The proposed capital gains increase had proved to be a controversial policy, with groups like the Canadian Federation for Independent Business and the Canadian Chamber of Commerce saying in a May 9 letter that the change would make Canada “less competitive and less innovative.”
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The Canadian Medical Association also opposed the tax changes, saying it would make recruitment and retention of doctors more difficult.
The Conservative Party vowed to scrap the capital gains tax increase if it formed government after the next election, with Leader Pierre Poilievre saying the tax policy was “outright insanity” when combined with the threat of 25 percent tariffs by U.S. President Donald Trump.
Then-Prime Minister Justin Trudeau had defended the tax changes as a way to provide “more fairness for every generation,” and said the tax would impact less than 1 percent of Canadians. The Liberal government also estimated that the higher inclusion rate would bring in an additional $19.4 billion in revenue over the next five years.
On Jan. 31, 2025, the Liberal government announced it was deferring the date on which the capital gains inclusion rate would increase to 66.7 percent to Jan. 1, 2026, instead of June 25, 2024.
During the Liberal leadership race, former Deputy Prime Minister and Minister of Finance Chrystia Freeland and former House Leader Karina Gould had also pledged to scrap the capital gains tax increase if they became the leader of the party.
