Canada is delaying its capital gains tax hike — Here's what it means for your tax return

The federal government is officially hitting pause on its controversial plan to hike the capital gains tax inclusion rate — at least for now.

Originally set to take effect on June 25, 2024, the change will now be deferred until January 1, 2026, according to an announcement from Finance Minister Dominic LeBlanc on Friday.

The Canada Revenue Agency (CRA) has confirmed that, in the meantime, all capital gains realized before 2026 are reverting back to being taxed at the current rate of one-half rather than the proposed two-thirds inclusion rate.

The CRA says it will issue forms with the proper rates in the coming weeks, as it had been operating under the assumption that the proposed inclusion rate hike would go forward for the 2024 tax season.

This move comes after months of backlash from business owners, entrepreneurs and even doctors who argued the tax hike would disproportionately affect them. The Canadian Medical Association issued a statement on Friday praising the postponement, reiterating concerns that physicians, many of whom are self-employed, would see significantly higher tax bills because they have to incorporate to cover business costs.

Meanwhile, Conservative MPs recently sent an open letter to LeBlanc urging him to hold off on collecting the tax until after the next election — a request that now seems to have had some influence.

The decision to delay the increase doesn't mean the tax hike is dead in the water, but it does cast serious doubt on whether it will ever happen.

With a federal election on the horizon and the Conservatives leading in the polls, the odds of this tax hike making it past the finish line are looking slim — especially as Conservative Leader Pierre Poilievre has already vowed to scrap it if he wins.

LeBlanc framed the delay as a responsible move, saying it provides "certainty to Canadians" as the 2024 tax season approaches. The government also emphasized that it intends to maintain certain exemptions to protect middle-class taxpayers, including the proposed increase to the lifetime capital gains exemption, which will rise to $1.25 million as planned on June 25, 2024.

For now, taxpayers can breathe a sigh of relief — if only temporarily. If the Liberals remain in power, the tax hike could still be implemented in 2026. If the Conservatives win, though, this might be the last we hear of it.

Either way, anyone with significant capital gains might want to keep a close eye on what happens next.

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