The federal government has just announced some important capital gains tax news: the increase in the capital gains inclusion rate from 50% to 66.7%, for which new capital gains legislation had been released in the fall of 2024, has been postponed until January 1st, 2026.
The provincial government will also apply the increased capital gains inclusion rate as of January 1st, 2026.
What does this mean for you?
This change in the timing of the measure has led to adjustments in the processing of tax returns. The result? The Canada Revenue Agency (CRA) and Revenu Québec have to modify their computer systems in order to properly process tax returns containing capital gains, which is currently causing some delays.
Impact on 2024 tax returns
For the time being, it is not possible to submit certain income tax returns for the year 2024, including:
- Individual declarations
- Trust declarations
According to the information currently available, these documents can be processed by the tax authorities from the following dates:
- March 11, 2025 for trusts
- March 12, 2025 for residential customers
Change: extension of deadlines without penalty
According to the information currently available, these documents can be processed by the tax authorities from the following dates:
For Canadian employers and financial institutions
- These tax breaks apply only to federal slips, as Revenu Québec has not harmonized.
- T4 (pay statements) and T5 (investment income) slips can be filed until March 7, 2025 without penalty.
- Capital gains documents can be submitted until March 17, 2025
For individuals and trusts with capital gains
- Trusts have until May 1st, 2025 to file their tax returns without penalty.
- Individuals have until June 2, 2025.
- Important: these extensions apply only if you have capital gains to declare.
Beware of deadlines! It’s crucial to respect the new deadlines. For example, if a trust files its return on May 1st, 2025, it will pay no penalty or interest. But if it files on May 2, 2025, it will be considered 32 days late (calculated from the normal filing date of March 31).
For corporations and partnerships
- The usual deadlines are maintained
- Companies must continue to file their returns as usual
Important point about the capital gains deduction
In its 2024 budget, the Department of Finance Canada announced that the capital gains deduction limit would increase to $1.25 million on June 25, 2024. Despite the postponement of the effective date of the increase in the capital gains inclusion rate, the increase in the deduction limit has been in effect since June 25, 2024.
One change remains in effect: as of June 25, 2024, the capital gains deduction limit has increased to $1.25 million. For this reason, capital gains realized in 2024 will be split into two periods for reporting purposess :
- From January 1st to June 24, 2024
- June 25 to December 31, 2024
Services currently available
You can already:
- Transmit the usual tax forms (T4, T5, Relevé 1)
- Submitting declarations for years prior to 2024
- Use the “Connect” service to download your federal and provincial tax slips
In summary, these capital gains tax changes require special attention from taxpayers. With this in mind, the tax authorities have announced interest and penalty relief for trusts and individuals with a capital gain in 2024 who file their tax returns by May 1 and June 2, 2025 respectively.
Despite the relief, we recommend that you prepare your tax returns or provide the relevant information to your professional as soon as possible.
Our team is at your disposal to help you through this transition period and ensure that your returns comply with the new tax requirements. Please do not hesitate to contact us if you have any questions about your particular situation.
More questions? We have the answer.
How do you calculate capital gains tax?
The taxable capital gain is calculated by first determining the difference between the sale price and the adjusted cost base of the property. For transactions carried out in 2025, you multiply this difference by the 50% inclusion rate for the first $250,000 of gains, then by 66.67% for the excess. This amount is added to your taxable income and taxed at your marginal tax rate.
What are the new rules for 2024-2025 (new law)?
Major capital gains tax reform capital gains substantially modifies their treatment as of June 25, 2024. Businesses and trusts now see all gains taxed at two-thirds, while individuals benefit from an annual threshold of $250,000 taxed at 50%. The lifetime capital gains exemption increases to $1.25 million for the sale of qualifying small business shares or farm and fishing property. These measures apply to transactions carried out after this date.
How can I save tax on a capital gain?
Several tax optimization strategies are available to minimize your capital gains. The judicious use of accumulated capital losses can offset your gains, while the strategic sale of investments at year-end can defer taxation until the following year. Maximum contributions to your RRSP reduce your taxable income, and staggering sales over several years avoids exceeding the annual threshold of $250,000 taxed at 50%.
When do I report my 2024 taxable capital gains?
You must declare your capital gains on your income tax return for the year of sale, even if you have not received full payment. For the 2023 tax period, the deadline is April 30, 2024. Taxpayers using a brokerage account generally receive their T5008 tax slip detailing their transactions towards the end of February, facilitating the declaration of gains realized on their investments.
What is the capital gains tax rate?
Canada’s capital gains tax rate operates on a two-tier system:
For the 2024 and 2025 tax years:
- Inclusion rate remains at 50% for all capital gains
- This rate means that half of your capital gains are added to your taxable income.
- The taxable amount is then taxed at your combined marginal tax rate (federal and provincial).
From January 1st, 2026 :
- For private customers:
- 50% inclusion on the first $250,000 of earnings
- 66.67% inclusion on earnings over $250,000
- For companies and trusts:
- 66.67% inclusion on all earnings
Important to note:
- Cumulative capital gains exemption now $1.25 million
- This exemption applies to the sale of eligible small business shares and farm or fishing property.
- Principal residence remains exempt from capital gains tax (principal residence exemption)
Practical example: If you realize a capital gain of $100,000 in 2024:
- Taxable amount: $50,000 (50% of gain)
- This amount is added to your taxable income for the year.
- Your final tax bill will depend on your marginal tax rate
