After nearly a year of planning around a tax change that kept moving, BC owners finally have a stable answer: capital gains will continue to be taxed at the 50 per cent inclusion rate. The proposed increase to two-thirds — announced in the 2024 federal budget, then deferred to January 2026 — has now been cancelled outright. For companies that spent 2024 contorting their affairs to beat a deadline that no longer exists, the right question is no longer "how do I avoid the higher rate?" but "what do I do now that the ground has stopped shifting?"
What actually happened, and when
The timeline matters, because it explains why so many owners feel whiplash:
- June 2024 — The federal budget proposed raising the capital gains inclusion rate from 50 per cent to two-thirds (66.67 per cent) on corporate and trust gains, and on individual gains above $250,000, effective June 25, 2024. The Lifetime Capital Gains Exemption was raised to $1.25 million.
- January 31, 2025 — Facing legislative uncertainty, the government deferred the increase's effective date to January 1, 2026, while keeping the higher LCGE.
- March 21, 2025 — The government cancelled the proposed inclusion-rate increase entirely. All capital gains continue to be subject to the enacted 50 per cent inclusion rate, and the increase in the LCGE to $1,250,000 on qualifying small business shares and farming and fishing property is retained.
So as of this month, two things are true and settled. First, the inclusion rate is back to a stable 50 per cent for everyone — individuals, corporations, and trusts. Second, the enhanced $1.25 million Lifetime Capital Gains Exemption survives. That second point is the quiet gift in all of this, and it is the one most owners underweight.
Why the 50 per cent rate matters in dollars
Inclusion rate is the share of a capital gain that is taxable. At 50 per cent, half of a gain enters income; at two-thirds, two-thirds would have. The difference is not academic. Consider a BC holding company realizing a $1,000,000 capital gain on an investment property or a portfolio position.
Under the cancelled two-thirds rate, $666,667 of that gain would have been taxable. Inside a CCPC, investment income is taxed at a high combined rate (roughly 50 per cent in BC before the refundable portion). The corporate tax on the taxable portion would have been in the order of $333,000.
Under the surviving 50 per cent rate, only $500,000 is taxable, producing corporate tax of roughly $250,000 on the same gain.
That is an $83,000 swing on a single million-dollar gain — money that stays in the company to reinvest, distribute, or hold. Multiply that across a portfolio or a building sale and the cancellation is worth real, planable money. Just as importantly, the capital dividend account treatment of the non-taxable half is preserved, which keeps the mechanism for moving tax-free capital out to shareholders intact and predictable.
The $1.25 million LCGE: the part you should not forget
For owners thinking about an eventual exit, the retained $1.25 million LCGE is the headline, not a footnote. On a sale of qualifying small business corporation shares, an individual can shelter up to $1,250,000 of capital gain from tax, provided the share and corporate tests are met. With family members who each hold qualifying shares, that exemption can be multiplied across a household.
Picture an owner selling qualifying shares for a $1,250,000 gain. Fully sheltered by the LCGE, the federal and BC tax on that gain can be brought to nil. The same gain realized as an ordinary disposition, with half included at a roughly 25 per cent effective personal rate on the taxable portion, would cost in the order of $150,000 in tax. The exemption is, quite literally, one of the most valuable tax attributes a BC owner controls — and qualifying for it is not automatic.
What should BC owners actually do now?
The cancellation does not mean "do nothing." It means redirect the energy that went into rate-avoidance toward durable structure.
- Unwind reactive 2024 moves carefully. If you crystallized gains, accelerated a sale, or triggered dispositions in 2024 purely to beat the proposed June 25 date, review whether those transactions still serve you — and whether any unwind is possible or advisable. Do not compound a rushed decision with a second rushed reversal; model it.
- Re-test LCGE qualification. The exemption applies only to qualifying small business corporation shares. The tests — the asset-use test at the time of sale, and the 24-month holding and use tests — often fail because of passive assets sitting on the balance sheet. "Purifying" the company by removing excess cash, investments, or non-active assets ahead of a sale can be the difference between sheltering $1.25 million and sheltering nothing.
- Plan dispositions on their economic merits. With the rate stable at 50 per cent, timing a sale is now a business and cash-flow decision, not a tax-deadline scramble. That is healthier.
- Revisit your estate and freeze planning. Estate freezes, family trusts, and multiplication of the LCGE across family members are back on solid, predictable footing. If a freeze was paused amid the uncertainty, it can now proceed with a known rule set.
- Reconcile any 2024 filings affected by the proposed rules. Some 2024 returns and slips were prepared in the shadow of the proposed change. Ensure your filings reflect the enacted 50 per cent rate and that nothing is over-reported.
A worked example: the value of purifying before a sale
Let me make the LCGE point concrete. An owner plans to sell her operating company shares in roughly 18 months for a $1,250,000 gain. Today, the company carries $400,000 of surplus cash and marketable securities — passive assets that are not used in the active business.
Scenario A — sell as-is. At sale, the passive assets push the company offside the "all or substantially all" active-asset test. The shares fail to qualify as small business corporation shares. The LCGE is lost. Tax on the gain runs to roughly $150,000.
Scenario B — purify first. Over the 18-month runway, the owner moves the $400,000 of surplus into a connected holding company through a clean reorganization, restoring the operating company's active-asset profile and satisfying the holding-period tests by the sale date. The shares qualify. The LCGE shelters the full $1,250,000 gain. Tax: near nil.
Same company, same buyer, same price. The $150,000 difference is structure and lead time — neither of which can be created on the day of closing.
A word on what "settled" really means
It is worth being precise about the nature of this certainty. The inclusion-rate increase is cancelled as a policy direction, and the enacted 50 per cent rate is what applies. That is a real and reliable basis for planning today. But owners should remember that tax policy is never permanently fixed — future governments and budgets can revisit any measure. The lesson of the 2024–2025 saga is not that you can now stop paying attention; it is that you should build plans robust enough to survive policy change, rather than plans that depend on a single rate staying exactly where it is. Structures like the LCGE, estate freezes, and family trusts derive their value from sound fundamentals, not from a particular inclusion rate, which is precisely why they are the right place to focus now.
Key takeaways
- The capital gains inclusion-rate increase is cancelled; gains stay at the enacted 50 per cent for individuals, corporations, and trusts.
- The enhanced $1.25 million Lifetime Capital Gains Exemption on qualifying small business shares is retained — treat it as a headline asset, not a footnote.
- A stable rate turns disposition timing back into a business decision rather than a deadline scramble.
- LCGE qualification is not automatic; passive assets on the balance sheet can disqualify your shares, so purify with lead time.
- Review any 2024 transactions or filings made purely to beat the proposed change, and ensure filings reflect the 50 per cent rate.
Certainty is itself a form of return; now that the rules have stopped moving, the advantage shifts to owners who build durable structure instead of chasing deadlines.
If you are weighing a sale, an estate freeze, or whether your shares would actually qualify for the $1.25 million exemption, RN Canada provides fractional CFO and advisory support to BC owners. Let us help you build the structure now, while the rules are settled and the runway is still open.