RESOURCE
JAN. 2025

Explainer: Capital Gains Tax Rates are in Limbo in Canada. Here’s What You Need to Know

BY OPENING ROUND

Last Spring the Department of Finance Canada introduced a plan to increase inclusion the rate for capital gains taxes for Canadians. The plan was introduced by way of the Notice of Ways and Means Motion which was intended ‘to deliver greater tax fairness and implement the changes in capital gains taxation announced in Budget 2024’.

Canada’s former minister of finance, Christyia Freeland stated that the measure was introduced to make Canada’s tax system fairer and raise $19.4 billion over five years to pay for investments to build nearly 4 million new homes, to make life cost less, and to grow the economy for every generation, particularly Millennials and Gen Z.

Despite the fact that the changes were never approved in Parliament, the Department of Finance says it is already collecting capital gains taxes at the new, higher rate and will continue to do so.

Capital Gain

A capital gain is the profit made when a capital asset, like a property or stock, is sold for more than its purchase price.

Inclusion rate

The inclusion rate is the percentage of a capital gain that is included in a taxpayer's income. The Canada Revenue Agency (CRA) uses the inclusion rate to determine how much of a capital gain or loss is taxable. 

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How it works:

Under the old plan, Canadians paid taxes on 50 per cent of the profit (the capital gain) on the sale of assets. 

The New Plan

Under the new measure Canadians are to pay taxes on 67 per cent of the profit instead. The new rate would apply to all capital gains of more than $250,000 each year. 

  • For individuals, the new rate only applies to capital gains over $250,000. 

  • The $250,000 threshold applies to net capital gains. 

  • Taxpayers must separately identify capital gains and losses from before and after June 25, 2024. 

  • Under the new plan businesses would face the same inclusion rate, but the new tax would apply to all capital gains (not just gains above $250,000).

The proposal has sparked a fierce debate over the definition and generation of wealth. Trudeau’s administration say only the richest Canadians will be impacted, while critics say it will stifle growth and harm more Canadians.

As it stands, the amount Canadians pay in tax will be different for everyone. Capital gains taxes are based on your personal tax rates and the tax bracket you fall into.

The amount you’re being taxed on is added to your total taxable income, and you’ll be taxed at the marginal tax rate based on that total taxable income.

Federal Tax Rates in Canada

Tax Per Province (British Columbia)

Tax Per Province (Ontario)

Read: “Trudeau resigns citing ‘internal battles’ in governing party”, BBC - 1/6/2025

The current atmosphere in Ottawa creates even more confusion for Canadians. Dan Kelly president and CEO of the Canadian Federation of Independent Business told CBC news that his organization [isn’t even] sure who to lobby. 

Current Outlook

Any company that makes a profit on its investments, any entrepreneur who sells their business or any individual selling the family cottage will have to budget for the higher rate.

The CRA said it will grant arrears interest and penalty relief to corporations and trusts affected by the capital gains changes that have filing due dates on or before March 3.

Implications for the venture industry:

  1. Many tech leaders and venture capitalists have concerns about talent dispersion if this plan is upheld.

    High-potential entrepreneurs are mobile and there has been much speculation that founders with with significant exit potential and strong track records will leave the country to avoid the new rates.

    The calculus for founders to start a new, high-growth business changes dramatically and this measure adds to a pre-existing list of reasons to build ventures outside of Canada.

  2. Institutional investors now have to factor higher tax rates into their investment decisions through a "hurdle rate", which looks at the risk-adjusted return they need to make for an investment to be profitable.

    Industry leaders believe that with a higher capital gains tax change this equation enough that it could lead to a lot less investment into high-risk ventures like tech startups.