On March 21, 2025, Prime Minister Mark Carney's government announced that the proposed increase to Canada's capital-gains inclusion rate — from 50% to 66.67% — would not proceed. The 50% inclusion rate is confirmed for dispositions in 2025 and beyond. The Lifetime Capital Gains Exemption (LCGE) limit for qualified small business corporation (QSBC) shares is $1,250,000 for dispositions occurring on or after June 25, 2024, with annual indexation resuming in 2026. The March 21 announcement was silent on the Canadian Entrepreneurs' Incentive (CEI), which had been proposed alongside the inclusion-rate increase in Budget 2024; its status should be confirmed with an advisor before relying on it.
For Alberta business owners who spent 2024 pausing or postponing a share sale, a business reorganization, an estate freeze, or an owner-buyout transaction specifically because of the proposed 2/3 inclusion rate, the uncertainty is resolved. The tax parameters under which you can now plan an exit or restructuring are the most favourable they have been since the LCGE was last increased.
What was proposed, and why it caused deferrals
The 2024 federal budget proposed that capital gains realized on or after June 25, 2024 would face a 2/3 inclusion rate for corporations, trusts, and for individuals on gains exceeding $250,000. For a business owner selling QSBC shares, the cost was material: a $2 million gain above the LCGE would have been taxed on $1.33 million of income under the proposed rate versus $1 million at 50% — roughly $100,000–$130,000 in additional federal-provincial tax.
Many deals did not close in time to beat the June 25 date. Parliament was prorogued in January 2025, and on January 31 the government deferred the effective date to January 1, 2026. Seven weeks later, the new Prime Minister cancelled the increase entirely. Alberta owners who spent 12 months in planning limbo are now unblocked — but the analytical work needs to be refreshed for the confirmed rules.
The confirmed rules as of May 2025
Inclusion rate: 50% for all individuals, corporations, and trusts, on all capital-gains amounts, with no $250,000 annual threshold. The two-tier system proposed in 2024 is not happening.
LCGE for QSBC shares: $1,250,000 per individual, for dispositions of qualifying small business corporation shares on or after June 25, 2024. Indexed to inflation beginning in 2026. On a per-individual basis, the first $1.25 million of capital gain on a qualifying share sale is completely sheltered from tax.
CEI: The March 21 announcement was silent on the Canadian Entrepreneurs' Incentive. The proposed incentive would have reduced the inclusion rate to 33.33% on up to $2,000,000 of eligible capital gains for qualifying entrepreneurs. Since the CEI was proposed as a companion to the 2/3 inclusion-rate increase, its status following the inclusion-rate reversal had not been formally confirmed as of May 2025; owners who may have been eligible for the CEI should confirm its current status with a tax advisor before relying on it.
QSBC qualification requirements are unchanged: the corporation must be a Canadian-controlled private corporation; at the time of disposition, at least 90% of the fair market value of the corporation's assets must be used in an active business primarily carried on in Canada; and throughout the 24 months preceding the disposition, the shares must have been owned by the individual (or a related person), and more than 50% of the fair market value of the corporation's assets must have been used principally in an active business in Canada.
Pairing the LCGE with a share sale or pipeline transaction
The LCGE is a per-individual lifetime exemption. For a married couple who each own shares directly in a QSBC, two LCGEs are available — potentially $2.5 million of capital gains sheltered from tax. Estate planning and corporate structuring work done in advance of a sale can multiply this.
A common Alberta scenario: an owner holds all shares personally, with a spouse who has not previously used their LCGE. A Section 86 reorganization (exchange of shares) or a Section 85 rollover creating a new share class can position the spouse's shares to qualify for QSBC treatment, subject to the 24-month ownership requirement and the asset-use tests. If the sale is 18 months away, there is still time to structure for dual LCGE access.
This is not a transaction to do informally or without proper tax counsel. The QSBC tests are strict, and a failed test — for example, a corporation holding excess cash or passive investments at the wrong moment — disqualifies the shares from LCGE treatment. Pre-transaction corporate cleanup (distributing excess cash as a dividend before the sale, ensuring the 90% active-asset test is met throughout the holding period) is often the most valuable work done before a letter of intent is signed.
The estate freeze: the most commonly deferred transaction
The estate freeze was among the transactions most commonly stalled by the proposed inclusion-rate increase. In a classical freeze, the founding owner exchanges common shares for fixed-value preferred shares while new common shares are issued to a family trust or the next generation — future appreciation accrues to the new shares. Under the proposed 2/3 rate, unwinding or extending a freeze would have been more expensive. With 50% confirmed, the cost calculus reverts to the pre-2024 framework.
For Alberta owners who accelerated a freeze in early 2024 under deadline pressure, it is worth confirming that the structure is still optimally designed. Freezes built under time pressure sometimes have cleaner alternatives available now that the urgency has passed.
Energy-sector note: shares versus assets
For Alberta owner-managers whose CCPC holds working interests, royalty interests, or oilfield equipment, the LCGE applies only to QSBC shares — not to asset sales. A direct asset sale is sheltered only by the 50% inclusion rate and the corporate structure, not by the personal exemption. Energy-sector owners who want to maximize LCGE access must ensure the transaction is structured as a share sale and that the QSBC tests are met at disposition. With TMX providing diversified export markets and WTI at current levels, valuations for qualifying energy CCPCs are supportive.
Practical next steps for deferred transactions
If you are an Alberta business owner who paused a transaction in 2024 due to the proposed inclusion-rate increase, the re-engagement checklist is:
- Confirm current QSBC qualification. Passive-income accumulation, foreign assets, and holding-company structures can trip the asset-use tests. Have your CPA verify that the corporation still qualifies at today's asset composition.
- Update your valuation. Valuations done in 2023 or early 2024 are stale. A current enterprise value is needed for any share sale, estate freeze, or minority buyout.
- Assess dual-LCGE availability. If a spouse or family member has not used their LCGE, review whether the corporate structure can support a share transfer that preserves that exemption with sufficient lead time before the disposition.
- Re-evaluate the estate freeze. If a freeze was accelerated or modified in 2024, review whether the preferred-share terms and the trust structure are aligned with your estate plan at current valuations.
- Model the AT1 and T1 implications. A capital gain on a QSBC share sale reduces the shareholder's Alberta taxable income by the LCGE, but the AT1 (Alberta Corporate Income Tax Return) reflects the corporate side of any associated transactions. Ensure both returns are modeled before the transaction closes.
Key takeaways
- The proposed capital-gains inclusion-rate increase to 2/3 was cancelled on March 21, 2025; the 50% inclusion rate is confirmed.
- The LCGE is $1,250,000 on qualified small business corporation (QSBC) shares for dispositions on or after June 25, 2024, with indexation resuming in 2026.
- The March 21 announcement was silent on the Canadian Entrepreneurs' Incentive (CEI); its status was not confirmed in that announcement and should be verified with a tax advisor before relying on it.
- Alberta owners who deferred share sales, estate freezes, or corporate reorganizations in 2024 now have certainty to re-engage on the pre-2024 tax framework.
- The most time-sensitive action is verifying QSBC qualification at current asset composition and reviewing whether structures put in place under 2024 deadline pressure are optimally designed.
- Where two LCGEs are accessible (spouses, family members), a 24-month ownership requirement applies — review timing carefully if you expect to sell within two years.
The cancellation of the inclusion-rate increase restores predictability. The best exits are the ones designed methodically, not under deadline pressure. For Alberta owners, that window is now open again.
RN Canada Accounting & Advisory works with Alberta owner-managers on share sales, estate freezes, QSBC structuring, and exit planning. If you want to assess whether your corporation qualifies for LCGE treatment and what a share sale looks like at today's parameters, we can model the transaction with you.