If you spent the back half of 2024 bracing for a higher capital gains tax bill, you can exhale — for now. On 31 January 2025, the federal government announced that it is deferring the proposed increase in the capital gains inclusion rate from one-half to two-thirds, pushing the effective date from 25 June 2024 all the way out to 1 January 2026. For British Columbia business owners who were weighing reactive dispositions to "beat" the change, this is a meaningful reset. Just as importantly, one piece of the original package survives the deferral: the enhanced Lifetime Capital Gains Exemption stays in place. This post explains what actually changed, what did not, and how BC owners should reposition their planning.
What exactly was deferred, and what stays?
Let us be precise, because the details drive the decisions.
The federal government had proposed raising the capital gains inclusion rate from one-half to two-thirds — on gains above $250,000 per year for individuals, and on all capital gains realized by corporations and most trusts — with an original effective date of 25 June 2024. Throughout the latter half of 2024 the Canada Revenue Agency was administering this proposal even though it had not been enacted into law, which left owners and advisors planning around a rule that was real in practice but unsettled in statute.
The 31 January 2025 announcement defers that increase to 1 January 2026. In plain terms: for dispositions in 2024 and 2025, the inclusion rate reverts to the long-standing one-half treatment. The two-thirds rate is now a 2026 question, not a 2024 or 2025 one.
Critically, the government confirmed that the Lifetime Capital Gains Exemption increase to $1.25 million — up from roughly $1.02 million on qualifying small-business shares and farm or fishing property — remains in place, effective as of 25 June 2024. The deferral applies to the inclusion-rate hike, not to the enhanced exemption. So the lever that most directly benefits owners selling a qualifying small business survives intact.
Why does this matter for BC owners specifically?
Through the autumn of 2024, I saw owners contemplating decisions they would not otherwise have made — accelerating a sale, crystallizing a gain inside a holding company, triggering accrued gains on investments — purely to lock in the one-half rate before the proposed June 2024 cut-over. Some of that was prudent given the CRA was administering the change. But a good deal of it was tax-tail-wagging-the-dog: making an irreversible commercial decision to chase a rate that had never actually become law.
The deferral vindicates caution. Anyone who held off on a discretionary crystallization now has their original one-half inclusion rate confirmed for 2024 and 2025. Anyone who did trigger a gain reactively may now be sitting on a tax bill they accelerated for no benefit. The lesson for the year ahead is the same one that should have governed all along: let genuine commercial logic, not a not-yet-enacted rate, drive the timing of dispositions.
A worked example: the cost of reacting versus waiting
Consider the owner of a Coquitlam-based holding company sitting on a marketable-securities portfolio with about $500,000 of accrued, unrealized capital gains, who in late 2024 was deciding whether to sell and re-buy to "lock in" the one-half rate ahead of the proposed increase.
Scenario A — reacted in 2024 and crystallized. The owner sold to trigger the full $500,000 gain inside the corporation in late 2024. At the one-half inclusion rate, $250,000 became taxable, and at the corporation's roughly 50% combined rate on investment income, that produced an immediate tax cost on the order of $125,000 — a liability pulled forward by years, paid out of corporate cash, in exchange for "certainty" against a rate that, as it turns out, was never going to apply in 2024 or 2025. The owner also incurred trading costs and reset the cost base, with the cash tax leaving the company that much sooner.
Scenario B — waited and did nothing. A comparable owner across town held the position, declined to crystallize on tax-timing grounds alone, and kept the $125,000 inside the business earning a return. With the deferral, that owner retains full flexibility: the gain remains unrealized, the one-half rate is confirmed through 2025, and the disposition can now be timed around actual commercial need — or, if 2026 brings a real two-thirds rate, planned deliberately with a year's notice rather than in a panic. The roughly $125,000 of tax deferred is, in effect, an interest-free loan from the government for as long as the position is held.
The gap between the two owners is not skill or information available at the time — it is temperament. One let an unsettled proposal force an irreversible decision; the other required a real reason to act. The deferral rewards the second posture.
How should BC owners reposition their planning now?
The deferral is a planning gift, but only if you use the window deliberately. Here is how to reset:
- Stand down reactive 2024-style crystallization. With the one-half rate confirmed for 2024 and 2025, there is no rate-driven urgency to trigger gains. Time dispositions around commercial logic, liquidity, and genuine need.
- Keep using the enhanced $1.25M LCGE. It survived the deferral and remains the most reliable capital gains lever for owners selling qualifying small-business shares. If a sale or reorganization is on your horizon, confirm your shares qualify and that your structure positions you to claim it.
- Treat 2026 as a planning horizon, not a threat. If the two-thirds rate does take effect on 1 January 2026, you now have lead time. Build it into multi-year disposition and succession planning rather than reacting at the last minute — and review it again as the legislative picture firms up.
- Revisit anyone who already crystallized. If you triggered a gain reactively, work with your advisor on the consequences and whether any of the structure can be optimized going forward.
- Watch the legislative status. A deferral is not a cancellation. The proposal still exists with a new effective date; plan on the basis that it could proceed in 2026, while staying alert to further change.
Key takeaways
- On 31 January 2025, the government deferred the capital gains inclusion-rate increase from 25 June 2024 to 1 January 2026 — the one-half rate is confirmed for 2024 and 2025 dispositions.
- The enhanced $1.25 million Lifetime Capital Gains Exemption stays in place (effective 25 June 2024); only the inclusion-rate hike was deferred.
- Stand down reactive crystallization — there is no longer a rate-driven reason to trigger gains in 2024 or 2025; let commercial logic set the timing.
- Treat 2026 as a planning horizon: the two-thirds rate could still take effect, so build it into multi-year disposition and succession plans rather than reacting late.
- A deferral is not a cancellation — keep watching the legislative status as it develops.
The owners who came through this episode best were not the ones who guessed the policy right; they were the ones who refused to let an unsettled proposal stampede them into an irreversible decision. Patience, this time, paid a dividend measured in deferred tax.
If you crystallized gains reactively last year, or want your disposition and succession plans reset around the deferral and the enhanced LCGE, RN Canada can review your position and map the path forward. We act as a fractional CFO partner to established BC business owners — reach out and let us help you plan with the clarity the deferral now allows.