The Canada Revenue Agency (CRA) has announced several updates to the capital gain inclusion rates for this filing year.
Capital Gain Inclusion Rate and Lifetime Capital Gains Exemption (LCGE) Updates
On January 31, 2025, the Department of Finance announced that starting January 1, 2026, the Capital Gains Inclusion Rate will increase from ½ to two-thirds for individuals on gains over $250,000 annually. This change was to apply to individuals, corporations and most trusts.
They also proposed an increase to the Lifetime Capital Gains Exemption (LCGE) limit, raising it from $1,016,836 to $1,250,000, resulting in an increase of $233,164 for eligible capital gains. This change would only apply to dispositions occurring on or after June 25, 2024. The indexation of the Lifetime Capital Gains Exemption is scheduled to resume in 2026.
Cancellations to Capital Gain Inclusion Rate Change
On March 21, 2025, the Government of Canada lead by Mark Carney announced that it does not intend to proceed with this increase to the inclusion rate and will maintain the proposed increase in the Lifetime Capital Gain Exemption limit to $1,250,000 on the sale of small business shares as well as farming and fishing property. Legislation affecting this change in Parliament is to be shared in time.
The Canada Revenue Agency (CRA) has reinstated the previously enacted ½ inclusion rate, and any affected returns due to this change are now eligible for submission and processing.
Furthermore, the CRA is providing relief from late-filing penalties and arrears interest until June 2, 2025, for impacted T1 Individual filers. For T3 trust filers affected by capital dispositions, the relief date is May 1, 2025, to allow additional time to fulfill tax filing obligations.
Lifetime Capital Gains Exemption claims filed for dispositions after June 24 assessed with lower CGE limit.
Tax filers are noticing a discrepancy that the enacted capital gains change to LCGE is not being reflected in capital gains exemption claims but rather are seeing a much lower number of $983,164.
Let’s break down the numbers:
- The LCGE amount on and before June 24, 2024, = $1,016,836
- The LCGE increased rate on and after June 25, 2024, = $1,250,000
- The increase between the previous LCGE limit and the new limit = $233,164
- The original LCGE Limit ($750,000) + the inflation increase rate of $233, 164 = $983, 164
It appears the rate is being calculated incorrectly on capital gains exemption claims (dated on and after June 25, 2024) based on the original LCGE limit of $750,000 plus the inflation increase of $233,164. This is resulting in an assessment rate of $983,164, rather than the intended limit of $1,250,000 and an increased tax liability for taxpayers.
The Bottom Line
The government announcements state the CGE limit should be $1,250,000 for dispositions on or after June 25, 2024, and yet we are getting wind of the CRA assessing them with the above setout lower LCGE amount. There are a few reasons this could be happening.
- There may be a system or processing issue currently affecting the CRA systems
- There is a discrepancy at the CRA while applying transitional rules
- The change has not been fully integrated into CRA’s assessment systems yet
The CRA has yet to comment on this issue and more details are expected to be released soon, addressing this discrepancy.
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Our team is here to help you. Please give us a call at 905-821-9215 or send an email to info@scpllp.com if you have any questions concerning the capital gain rate changes.
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