Start with the number, because the number is where most commentary on this subject goes wrong, including an earlier version of this argument.
In 2026 the capital gains inclusion rate in Canada is one half. It was one half in 2023, in 2010 and in 1990. A top bracket Ontario filer pays a combined federal and provincial rate of roughly 26.76 percent on a capital gain, exactly half the 53.53 percent applied to ordinary income.
Compare that honestly. An American investor pays 20 percent federal on long term gains plus the 3.8 percent net investment income tax, and then whatever the state takes. A resident of Texas or Florida pays 23.8 percent, slightly less than Ontario. A resident of California pays close to 37 percent, considerably more. Canada sits in the middle of its peer group on the taxation of investment returns, and any argument premised on a punitive Canadian capital gains rate is simply false.
The problem is real, but it is not the rate. It is that for eleven months nobody could tell you what the rate was going to be, and that this was the third announced change to the treatment of business gains in two years, of which exactly one survived.
What actually happened between April 2024 and March 2025
The 2024 federal budget proposed raising the inclusion rate from one half to two thirds on individual gains above $250,000 and on all corporate and most trust gains, effective 25 June 2024. The measure was never enacted. The Canada Revenue Agency nonetheless began administering it, following its longstanding practice of applying proposed legislation, which meant taxpayers were assessed under a rule Parliament had not passed. A court challenge followed.
On 31 January 2025 the government deferred the effective date to 1 January 2026. Corporations that had already filed on the higher basis were reassessed. On 21 March 2025 the incoming government cancelled the increase outright. Budget 2025 formally accounted for the cancellation.
Two related measures moved in parallel. The Lifetime Capital Gains Exemption for qualified small business corporation shares and qualified farm or fishing property rose from roughly $1.02 million to $1.25 million effective 25 June 2024, and that increase was kept. It is indexed and sits at $1,275,000 for 2026. The Canadian Entrepreneurs' Incentive, announced alongside the inclusion rate increase and intended to reduce the inclusion rate to one third on up to $2 million of lifetime gains phased in through 2029, was cancelled in Budget 2025 and is not available for 2026 dispositions.
So: announced, administered without legal authority, deferred, cancelled. And a companion relief measure announced, partially phased in, then withdrawn. The regime ended where it began, and everyone who planned around it in the interval planned around nothing.
The cost of a change that never happened
It is tempting to treat the reversal as a happy ending. It was not costless, and the costs fell in places that do not appear in any fiscal table.
Owners accelerated dispositions into the spring of 2024 to realise gains before 25 June. That is a permanent, irreversible decision taken on the basis of a rule that turned out not to exist. Nobody unwinds a sale. Estate freezes were executed on the same assumption. Corporate reorganisations were restructured, and professional fees were incurred on all of it. Those fees were real money spent to comply with nothing.
The more durable damage is to expectations. The relevant question for anyone deciding whether to build a company in Canada is not what the rate is today. It is what the rate will be in the seven to twelve years between founding and exit. What the 2024 episode demonstrated is that a Canadian government can propose a material change to the taxation of business gains, have the revenue agency enforce it before it is law, and reverse itself entirely, all within a single parliamentary cycle. That is information about variance, and variance is priced.
This is the part the eventual cancellation does not repair. A founder in 2026 knows the rate is one half. They also know what happened the last time, and they cannot know whether the next budget will try again.
The structural issue nobody reversed
Beneath the noise sits a problem that has been there for decades and attracts almost no attention, because it was never announced and therefore never had to be cancelled. Canada taxes nominal gains. It does not index the adjusted cost base for inflation.
Consider a commercial property bought in Toronto for $500,000 in 2004 and sold in 2024 for $1,200,000. The nominal gain is $700,000. Over those twenty years, general price inflation ran to roughly 55 percent, meaning about $275,000 of that gain is the dollar changing size rather than the asset changing value. Canada taxes the full $700,000 at the statutory inclusion rate regardless.
The effect is that the true rate on a long held asset is materially higher than the posted one, and rises with the holding period. The system therefore taxes patience. An asset flipped within a year faces close to the nominal rate. An asset held for twenty five years faces something considerably worse, and the penalty grows in exactly the circumstances a productivity focused policy would want to reward. In a genuinely high inflation stretch the effective rate on a modest real gain can exceed one hundred percent.
Indexing the cost base is not a novel idea and it is not ideological. The United Kingdom operated an indexation allowance for individuals for years. The case against it is administrative complexity and revenue cost, both of which are arguable. What is not arguable is that the current treatment is arbitrary: two investors with identical real returns pay materially different tax depending on when they bought.
The exit tax nobody mentions
One further feature deserves attention given how much of Canadian policy discussion now concerns skilled people leaving. On ceasing Canadian residency, an individual is deemed to have disposed of most capital property at fair market value and is taxed on the accrued gain, whether or not anything was sold.
The policy logic is sound. Canada taxes gains accrued while a person was resident, and without the rule a departing taxpayer could simply leave before realising. But the interaction is worth naming plainly. A founder who builds a company here, watches it appreciate, and then takes a role abroad faces a tax bill on paper gains at the moment of departure. Security can be posted to defer payment, which helps with cash flow and not with the underlying liability. For a country that has already lost, by the Bank of Canada's own estimate, roughly 40 percent of the people who would rank among its top one percent of earners, it is worth asking whether the last thing they encounter on the way out should be a tax on money they have not received.
What would actually help
Not a rate cut. The rate is competitive and cutting it would invite exactly the accusation that discredits the broader argument.
Three things instead. First, index the adjusted cost base to inflation for assets held beyond some threshold period, so that Canada taxes real gains rather than the depreciation of its own currency. Second, restrict the CRA's practice of administering unenacted proposals in cases where the proposal increases a taxpayer's liability, so that Canadians are assessed under law rather than under intention. Third, adopt a stated convention that material changes to the taxation of business gains take effect prospectively from Royal Assent rather than from budget day, removing the incentive for the panic disposition window that the 2024 measure created.
None of that costs much revenue. All of it addresses the actual complaint, which was never that Canada taxes gains too heavily. It is that Canada cannot be relied upon to tax them the same way twice.