Big Tax Changes Deferred: What This Means for Your Investments and Financial Future

In 2024, the Canadian federal government proposed a major change to capital gains taxation: increasing the inclusion rate from 50% to 66.67% for corporations and trusts, and for individuals on annual capital gains over $250,000. The change was originally intended to take effect on June 25, 2024.

However, as of August 2025, this proposed legislation has not received Royal Assent and is not currently in force. The capital gains inclusion rate remains at 50% for all taxpayers — including individuals, corporations, and most trusts.

This deferral has given investors and small business owners a reprieve — but also a signal: tax policy can shift quickly. Strategic planning now can help you prepare, whether or not the inclusion rate increases in the future.

This blog will guide you through:

1. The current rules for capital gains taxation.
2. Strategic examples of how capital gains taxation impacts individuals and businesses.
3. Forward-looking strategies in the face of uncertainty.

What Are Capital Gains?

Definition of Capital Gains

Capital gains are the profits realized from the sale of an asset or investment. These gains occur when the selling price of the asset exceeds its purchase price, or adjusted cost base (ACB). Capital gains can be realized from various types of capital properties, such as stocks, real estate, and business interests. In Canada, a portion of these gains is included in the taxpayer’s income and subjected to taxation, which is referred to as the capital gains inclusion rate.

The ACB includes the original purchase price plus any additional costs incurred to acquire the asset, such as commissions or legal fees. When you sell the asset, the capital gain is calculated by subtracting the ACB from the proceeds of disposition (the selling price). For instance, if you bought a piece of land for $200,000 and sold it for $300,000, your capital gain would be $100,000.

Types of Capital Property

Capital property encompasses a wide range of assets, each subject to capital gains tax when sold at a profit. The primary types of capital property include:

1. Stocks and Securities: Investments in publicly traded companies’ shares or bonds fall into this category. These are among the most common forms of capital property for individual investors.
2. Real Estate: This includes residential properties, commercial buildings, and land. Real estate investments often yield significant capital gains, especially in markets with rising property values.
3. Business Interests: Ownership stakes in private businesses or partnerships are also considered capital property. Selling a business or shares in a private company can generate substantial capital gains.
4. Collectibles and Personal Use Property: Items such as artwork, rare coins, and other collectibles can appreciate in value over time. Personal use property, like a second home or vacation property, can also result in capital gains when sold.
5. Mutual Funds and ETFs: Investments in mutual funds and exchange-traded funds (ETFs) are treated as capital property. Gains realized from selling these investments are subject to capital gains tax.

Importance of Capital Gains in Investment and Business

Capital gains play a crucial role in investment and business strategies for several reasons:

1. Wealth Accumulation: Capital gains represent a primary avenue for wealth accumulation. Investors purchase assets with the expectation that their value will increase over time, allowing them to sell at a profit. This growth contributes significantly to the overall net worth of individuals and businesses.
2. Tax Efficiency: In many tax systems, including Canada’s, capital gains are taxed at a lower rate than ordinary income. This preferential treatment encourages long-term investment and strategic asset allocation. By focusing on investments that appreciate in value, individuals and businesses can optimize their tax liabilities.
3. Economic Growth: Capital gains are indicative of economic growth and prosperity. Rising asset values reflect a healthy economy where businesses are expanding, property values are increasing, and investor confidence is high. This growth fuels further investment and spending, driving the broader economy forward.
4. Investment Incentives: The potential for capital gains incentivizes investment in various sectors, including technology, real estate, and small businesses. Investors are more likely to fund startups and innovative projects when they anticipate significant returns on their investments. This influx of capital supports entrepreneurship, job creation, and technological advancement.
5. Retirement Planning: For many individuals, capital gains form a key component of retirement planning. Investments in real estate, stocks, and mutual funds are expected to appreciate over time, providing a financial cushion for retirement. Managing capital gains effectively through tax planning and strategic asset sales ensures a stable income during retirement years.

In summary, capital gains are a fundamental aspect of financial growth and stability. They represent the profit from strategic investments and play a vital role in wealth accumulation, tax planning, and economic development. By understanding the types of capital property and the implications of capital gains, investors can make informed decisions that support their financial goals and contribute to broader economic prosperity.

 

Calculating Capital Gains: Tax Impact on Personal and Corporate Investments

Understanding the true impact of taxes on investments requires analyzing both the initial tax on earned income and the capital gains tax upon investment growth. Below, we illustrate how $100,000 of pre-tax income is taxed and grown under two scenarios:

• Personal Investment
• General Corporate Investment (non-CCPC)

We include calculations for the Capital Dividend Account (CDA) and personal dividend tax where applicable.  We have assumed that Part IV tax does not apply.

 

Scenario 1: Personal Investment

Step 1: Tax on Earned Income

• Earned Income: $100,000
• Marginal Personal Tax Rate (Alberta, 2025): 48%
• Tax Paid: $100,000 × 48% = $48,000
• After-Tax Income Available for Investment: $100,000 – $48,000 = $52,000

Step 2: Investment and Capital Gain

• Investment Value Doubles: $52,000 × 2 = $104,000
• Capital Gain: $104,000 – $52,000 = $52,000
• Inclusion Rate: 50%
• Taxable Capital Gain: $52,000 × 50% = $26,000
• Tax on Gain: $26,000 × 48% = $12,480

Summary

• Total Tax Paid: $48,000 + $12,480 = $60,480
• Net After-Tax Amount: $104,000 – $12,480 = $91,520

 

Scenario 2: General Corporate Investment

Step 1: Corporate Tax on Earned Income

• Corporate Income: $100,000
• General Corporate Tax Rate (Alberta, 2025): 23%
• Corporate Tax Paid: $100,000 × 23% = $23,000
• After-Tax Income Available for Investment: $100,000 – $23,000 = $77,000

Step 2: Investment and Capital Gain

• Investment Value Doubles: $77,000 × 2 = $154,000
• Capital Gain: $154,000 – $77,000 = $77,000
• Inclusion Rate: 50%
• Taxable Capital Gain: $77,000 × 50% = $38,500
• Corporate Tax on Gain: $38,500 × 23% = $8,855
• CDA Addition (Non-Taxable Portion): $38,500 (1/2 of capital gain)

Step 3: Distribution to Shareholder

• Tax-Free Capital Dividend (via CDA): $38,500
• Remaining After-Tax Proceeds for Distribution: $154,000 – $23,000 – $8,855 – $38,500 = $83,645
• Personal Tax on Dividend (Alberta eligible dividend rate ~31.71%): $83,645 × 31.71% = $26,527

Summary

• Total Tax Paid:
  • Corporate Tax on Earned Income: $23,000
  • Corporate Tax on Capital Gain: $8,855
  • Personal Tax on Dividend: $26,527
  • Total: $58,382
• Net After-Tax Amount: $154,000 – $58,382 = $95,618

 

Comparison Summary

Scenario	Total Tax Paid	Net After-Tax Amount
Personal Investment	$60,480	$91,520
General Corporate Investment	$58,382	$95,618

 

Conclusion

Surprisingly, under the current rules, investing through a corporation results in a slightly higher net after-tax return in this scenario, primarily due to the Capital Dividend Account (CDA) allowing for tax-free distributions of the non-taxable portion of capital gains. However, individual circumstances, corporate structure, and investment strategy may shift these outcomes significantly.

To structure your investments tax-efficiently, consider working with professionals who understand how to leverage these rules. Shajani CPA can help you align your investment strategies with your long-term financial goals.

 

Conclusion: Prepare Now, Prosper Later

The deferral of the proposed capital gains inclusion rate increase offers more than just a temporary tax break—it offers opportunity. For individuals, corporations, and trusts, the current 50% inclusion rate remains in effect, allowing for continued use of long-standing planning strategies such as tax-efficient investment through a corporation, leveraging the Capital Dividend Account (CDA), and optimizing dividend distribution methods.

But if this episode has taught us anything, it’s that tax legislation can shift swiftly—and retroactively. What’s deferred today may be enacted tomorrow. Investors and business owners cannot afford to be reactive. Now is the time to proactively assess your structure, optimize your investment strategies, and build flexibility into your long-term plans.

At Shajani CPA, we specialize in translating complex tax rules into practical, profitable strategies tailored for Canadian families and their enterprises. Whether you’re managing retained earnings, preparing for succession, or evaluating corporate versus personal investment vehicles, our team brings clarity and expertise.

Tell us your ambitions, and we will guide you there.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2025 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.

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