Capital Gains Inclusion Rate
Percentage of a capital gain added to taxable income. In Canada, the rate has historically been 50%. The federal government proposed in 2024 to raise it to 66.7% for gains above $250,000 (individuals) and for all corporate gains, but that change has been suspended.
Definition
The capital gains inclusion rate determines what share of your capital gain is added to your taxable income. If you realize a $1 million gain on the sale of your shares and the inclusion rate is 50%, then $500,000 is added to your taxable income. You pay tax on that included amount at your marginal rate.
In French-language Quebec documentation, you’ll see taux d’inclusion du gain en capital used for the same concept.
Historically set at 50% in Canada since 2000, the inclusion rate has been the subject of significant proposed changes. The federal government announced in 2024 its intention to raise the rate to 66.7% (two-thirds) for gains above $250,000 for individuals, and for all gains realized by corporations. If those changes become law, they have a direct and major impact on the net proceeds you keep after the sale of your business.
Why the inclusion rate matters in a business sale
For an SME owner selling their business, the inclusion rate is one of the factors that determine how much tax you pay on the gain. Take a concrete example: you sell your shares for $3 million and your adjusted cost base (ACB) is $100. Your capital gain is $2,999,900.
At a 50% inclusion rate, the taxable gain is $1,499,950. At a 66.7% rate, the taxable gain rises to roughly $2,001,933. The difference in tax payable can run to several hundred thousand dollars, depending on your marginal rate and province.
That’s why the Lifetime Capital Gains Exemption (LCGE) is so valuable: it removes a portion of the gain from inclusion, regardless of the rate. If you can shelter $1,250,000 of gain through the LCGE, that portion escapes tax entirely. Crystallizing the exemption and multiplying it across family members take on even greater importance in a context where the inclusion rate might rise.
The legislative uncertainty around the inclusion rate adds urgency to pre-sale planning. An owner who indefinitely defers structuring the sale runs the risk of facing a higher rate if the law changes in the meantime. Several tax specialists recommend crystallizing the exemption and restructuring ownership while the current rules are still in force.
What every seller should know
- A 50% inclusion rate means your effective tax rate on a capital gain is about half your marginal rate. If your marginal rate is 53% (top bracket in Quebec), you pay roughly 26.5% on the capital gain.
- A 66.7% inclusion rate would push that effective rate to about 35.4% in the top bracket — a substantial increase on gains above $250,000.
- The Lifetime Capital Gains Exemption (LCGE) removes inclusion on the sheltered portion. Maximizing LCGE use (crystallization, family multiplication) is the most direct strategy to offset an inclusion-rate hike.
- Gains realized inside a corporation are also affected by the inclusion rate, through the capital dividend account (CDA) mechanism. A higher rate reduces the tax-free portion you can extract from the corporation after the sale.
This content is informational. Consult a tax specialist for your specific situation.