Capital Gains Inclusion Rate in Canada Explained
The one-half inclusion, the cancelled two-thirds proposal, and the comparison with U.S. rates
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Canada taxes only part of a capital gain: the inclusion rate is the share of the gain added to income, currently one-half, taxed at the person's marginal rate. A 2024 proposal to raise it to two-thirds for larger gains and for corporations was deferred and then cancelled in March 2025.
On this page
How it works
| Item | Rule (2026) |
|---|---|
| Inclusion rate | One-half of the capital gain |
| Taxable capital gain | Gain × inclusion rate, taxed at marginal rates |
| Capital losses | Allowable capital losses (one-half) offset taxable capital gains; carried back three years or forward indefinitely |
| Effective top rate | Half the top combined rate — about 26.8 percent in Ontario for 2026 (half of 53.53 percent), and roughly 22 to 27.4 percent across provinces and territories |
The 2024–2025 history
Budget 2024 (April 16, 2024) proposed raising the inclusion rate to two-thirds — on an individual's annual gains above C$250,000 and on all gains of corporations and most trusts — effective June 25, 2024. On January 31, 2025, the start was deferred to January 1, 2026, and on March 21, 2025, the increase was cancelled; it never became law. The lifetime capital gains exemption increase to C$1.25 million that accompanied it was retained (the LCGE guide).
The cross-border comparison
| Canada | United States | |
|---|---|---|
| Method | Include half the gain at ordinary rates | Separate long-term capital gains rates (0, 15, 20 percent) plus the 3.8 percent net investment income tax above income thresholds |
| Holding period | None | More than one year for long-term rates |
| Currency | Canadian dollars | U.S. dollars — the gains can differ (the ACB guide) |
A Canadian resident selling U.S. property pays U.S. tax and credits it in Canada; the different computations mean one country's tax may exceed the other's. For a U.S. citizen or resident, the 3.8 percent net investment income tax can't be offset by a foreign tax credit for Canadian tax — the Federal Circuit held in Estate of Bruyea v. United States (August 31, 2026) that neither the Internal Revenue Code nor the treaty allows it — so a U.S. citizen in Canada with modified adjusted gross income above US$200,000 (US$250,000 married filing jointly) who sells investments or real estate not sheltered by the home-sale exclusion can owe it even after crediting Canadian tax.
Frequently asked questions
What is the capital gains inclusion rate in Canada?
One-half — half of a capital gain is added to taxable income.
Did Canada raise the inclusion rate to two-thirds?
It was proposed in Budget 2024 and cancelled on March 21, 2025, before it took effect — the rate remains one-half.
How does it compare with U.S. capital gains tax?
Canada taxes half the gain at ordinary rates; the U.S. uses separate rates for long-term gains, so results differ.
Can capital losses offset gains?
Yes — carried back three years or forward indefinitely against capital gains.
Official sources
The Canada Revenue Agency explains: “The inclusion rate (IR) is the fraction by which you multiply your capital gain, capital loss, or business investment loss for the year to determine your taxable capital gain, allowable capital loss, or allowable business investment loss. Generally, the IR for 2025 is 1/2.” — Canada Revenue Agency, Line 12700 – Taxable capital gains, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains.html
The Federal Circuit held: “In sum, we agree with the government: the Code does not allow Bruyea to apply a foreign tax credit for the taxes he paid to Canada (on the income he realized for his sale of property in Canada) as an offset to the net investment income tax he owes the U.S. under Code § 1411.” — U.S. Court of Appeals for the Federal Circuit, Estate of Bruyea v. United States, No. 2025-1563 (Aug. 31, 2026), https://www.cafc.uscourts.gov/opinions-orders/25-1563.OPINION.8-31-2026_2747795.pdf
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle capital gains computations in both countries, currency-adjusted basis, and foreign tax credit planning on cross-border sales. See pricing or book a call.
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