Preparing for Canada’s Wealth Transfer: What the Upcoming Capital Gains Tax Changes Could Mean for Your Family
Canada is on the brink of a historic financial shift. Between 2023 and 2026, it is estimated that nearly $1 trillion in generational wealth will transfer from baby boomers to younger generations, particularly Gen X and Millennials. For many families, this transfer involves significant assets such as investment properties, family businesses, and other income-producing holdings. As the federal government prepares to implement changes to the capital gains tax, Canadians must begin planning strategically to safeguard their family’s financial future and the legacy their parents and grandparents have worked so hard to protect.
What’s Changing with Capital Gains Tax?
Honourable Dominic LeBlanc, Minister of Finance and Intergovernmental Affairs and the Canadian federal government confirmed a deferral in the implementation of its proposed increase to the capital gains inclusion rate. Initially planned for June 25, 2024, the new inclusion rate will now take effect on January 1, 2026. Until then, capital gains will continue to be taxed at the current 50% inclusion rate, offering a window of opportunity for strategic tax and estate planning.
“The deferral of the increase to the capital gains inclusion rate will provide certainty to Canadians, whether they be individuals or business owners, as we quickly approach tax season. Given the current context, our government felt that it was the responsible thing to do. I look forward to further conversations with Canadians on how we can ensure Canada’s fiscal policy encourages robust and sustained economic activity in every region of our country.”
– The Honourable Dominic LeBlanc,
Minister of Finance and Intergovernmental Affairs
THIS IS A MUST READ FROM THE GOVERNMENT OF CANADA – https://www.canada.ca/en/department-finance/news/2025/01/government-of-canada-announces-deferral-in-implementation-of-change-to-capital-gains-inclusion-rate.html
Under the forthcoming legislation, the inclusion rate will increase from 50% to 66.67% for:
- Individuals with annual capital gains exceeding $250,000
- All capital gains realized by corporations and most types of trusts
These changes are subject to legislative approval but are expected to impact higher-net-worth individuals, real estate investors, and business owners most significantly.
A Closer Look at Related Government Measures
In tandem with the inclusion rate changes, the government has proposed two notable incentives:
- An increase to the Lifetime Capital Gains Exemption (LCGE) to $1.25 million, effective June 25, 2024 – https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-25400-capital-gains-deduction/what-deduction-limit.html
- The introduction of the Canadian Entrepreneurs’ Incentive, beginning January 1, 2025, which aims to reduce the tax burden on entrepreneurs selling eligible small businesses – https://www.canada.ca/en/department-finance/news/2024/04/the-new-canadian-entrepreneurs-incentive.html
Although the federal government states that only 0.1% of Canadians will be affected by the higher inclusion rate, the impact on individuals holding investment properties, rental income portfolios, or inherited family businesses could be substantial.
Why This Matters for Families
For many baby boomers, retirement planning has been tied to the appreciation of real estate and other long-term investments. These assets are often intended as legacies for their children and grandchildren.
However, if sold after January 1, 2026 — particularly if gains exceed the $250,000 threshold, the tax implications could be significant.
This is especially concerning for families planning to transfer property through estate settlements. If not carefully structured, a substantial portion of inherited wealth could be lost to taxes, eroding what may have taken decades to build.
How Families Can Protect Their Wealth
Now more than ever, families must adopt proactive financial and estate planning strategies. Here are several ways to protect your wealth amid these upcoming changes:
1. Consider Triggering Gains Before 2026
If you’re planning to sell a property or investment, doing so before January 1, 2026, could allow you to benefit from the current 50% inclusion rate. This strategy could significantly reduce your overall tax bill, especially if capital gains are expected to exceed the $250,000 threshold.
2. Use the Lifetime Capital Gains Exemption (LCGE)
If you own a qualifying small business or farm property, take full advantage of the LCGE. With the threshold increasing to $1.25 million, there is a greater opportunity to transfer wealth tax-free. Proper legal and accounting guidance is essential to ensure eligibility.
3. Transfer Assets Gradually
Rather than transferring large assets all at once, which could trigger high capital gains, consider staggered gifting or estate freeze techniques. These strategies can help lock in current asset values and shift future appreciation to the next generation, reducing your taxable estate.
4. Incorporate Trusts for Asset Protection
Family trusts can provide control over how assets are distributed and offer potential tax planning advantages, especially when structured before the rule changes. However, changes to trust taxation rules mean these must be carefully reviewed with an advisor.
5. Work Closely with a Tax Professional
Navigating the tax implications of real estate sales, business succession, and estate transfers is complex. A Chartered Professional Accountant (CPA) or tax lawyer can help you structure your affairs efficiently, considering the new tax environment.
Looking Ahead: A Time for Informed Decision-Making
The coming years represent both a challenge and an opportunity for Canadian families. The anticipated $1 trillion wealth transfer is unprecedented, but without thoughtful planning, much of it could be diminished by rising tax obligations.
The upcoming capital gains inclusion rate increase should serve as a catalyst for families to revisit their financial strategies. By acting before January 1, 2026, and leveraging the current rules, Canadians can ensure more of their hard-earned wealth remains within their families, where it belongs.
We encourage all property owners, entrepreneurs, and families with significant investments to speak with their financial, tax, insurance and legal advisors to get the right information that could impact your financial integrity. The right guidance today could preserve your legacy for generations to com
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