Canada Cancelled the Proposed Capital-Gains Inclusion Rate Increase. What Does That Mean for Business Owners Planning an Exit?
July 24, 2026
Due largely to business owner pushback, the federal government cancelled its proposed increase to the capital-gains inclusion rate back in 2025. The proposal would have increased the taxable portion of certain capital gains from one-half to two-thirds. On March 21, 2025, Prime Minister Mark Carney announced that the government would not proceed with the increase. The proposal never came into force, meaning the existing 50% inclusion rate remains in place.
For business owners, that is welcome news—but it is not a reason to postpone exit planning. The proposed tax deadline may have disappeared, but the operational, financial and personal work required for a successful transition has not.
First, “cancelled” does not mean capital gains are tax-free. Under the current rules, 50% of a taxable capital gain is generally included in income. The actual tax payable will depend on the size of the gain, the owner’s province of residence, other income, available deductions, the transaction structure and whether the sale qualifies for specialized tax relief.
Second, the Lifetime Capital Gains Exemption is not automatic. The government maintained its proposed increase in the exemption limit to $1.25 million for qualifying small-business shares, subject to the applicable legislation and eligibility requirements. An owner must have sufficient unused exemption available, and the shares being sold must qualify as Qualified Small Business Corporation shares.
Qualification involves more than simply owning an incorporated business. Among other requirements, the corporation must satisfy active-business asset tests at the time of sale and during the preceding 24 months. The shares must also meet specific ownership and holding-period requirements.
This is where many owners are caught off guard. Excess cash, marketable securities, investment properties and other passive assets can potentially interfere with qualification. “Purifying” the corporation may be possible, but it usually requires advance coordination with the company’s accountant and tax lawyer. It is rarely something that should first be addressed after a buyer has submitted an offer.
Third, cancellation of the proposed increase does not eliminate the importance of transaction structure. A seller may prefer a share transaction because of potential access to the exemption and capital-gains treatment. A buyer may prefer to purchase assets to establish a new tax cost in those assets and reduce exposure to the corporation’s historical liabilities. In a share purchase, ownership of the corporation changes, but the tax values of the assets held inside the corporation generally do not.
The final structure is therefore often negotiated. The headline purchase price does not necessarily indicate what the seller will retain after corporate tax, personal tax, transaction costs, working-capital adjustments and other closing obligations.
Finally, tax is only one component of exit timing. A rushed sale can cost far more through a weak valuation, poor financial reporting, customer concentration, owner dependence, unresolved leases, informal employment arrangements or inadequate documentation. These issues affect buyer confidence, financing, due diligence and transaction risk—and therefore the price, terms and probability of closing.
At EVCOR, exit planning begins by establishing what the business is worth today, what is driving or limiting that value, and how the company should be prepared before going to market. We work alongside an owner’s accounting and legal advisors to coordinate valuation, tax planning, corporate readiness, transaction structure and timing.
The looming capital-gains inclusion rate increase may be gone.
The cost of waiting without an exit plan is not.
Business owners considering a sale in the next three to five years should treat the added policy certainty as an opportunity—not an excuse to delay. The best exits are usually created well before the business is listed for sale.
This article provides general information only. Business owners should obtain transaction-specific tax and legal advice before implementing an exit strategy.
