Budget 2024’s proposal to increase the capital gains inclusion rate, which was ultimately scrapped, helped boost government coffers that year, as both corporations and individuals realized gains before the proposal’s original effective date.
In 2024–25, government revenues were up $51.4 billion year over year, or about 11%, to $511 billion, the government’s annual financial report for that year says.
Corporate income tax revenues increased by $14.5 billion, or about 18%, to $97 billion, the report said, likely reflecting taxpayers’ reaction to the capital gains tax proposal, “particularly in the financial sector.” (In comparison, the 2026 spring economic update projected an increase in corporate income tax revenues of 4.6% for 2025–26, attributable to steady profits. The long-term historical trend is 4% growth per year.)
Based on the 2024 increase, “there was a lot of real activity” as corporations triggered capital gains, said Ryan Minor, tax director with CPA Canada in Sudbury, Ont. The capital gains tax proposal had no exemption threshold for corporations, he noted.
The tax measure, announced on April 16, 2024, and slated to be effective on June 25 of that year, proposed increasing the capital gains inclusion rate to two-thirds from one-half on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most trusts.
Judith Charbonneau Kaplan, vice-president of advanced wealth planning strategy and services with Wellington-Altus Private Wealth Inc. in Kelowna, B.C., said she took a “fairly conservative” approach to the proposal when advising clients but leaned “a little bit more aggressively on the corporate side, because the change in rules was impacting [corporations] from the first dollar of gain.”
Personal income tax revenues increased by $16.6 billion in 2024, or about 8%, to $234.3 billion, with gains in investment income providing support, the government’s financial report says. (The 2026 spring economic update projected an increase of 2.4% in 2025–26 and an average of 4.4% per year thereafter through 2030–31.)
The proposal had been expected to generate more revenue from corporations than individuals. A Parliamentary Budget Officer (PBO) report from August 2024 had assumed a 15% increase in capital gains realizations for corporations in 2024–25, and a 10% increase for individuals, given an analysis of taxpayers’ asset types, several of which were illiquid.
A Finance briefing on the proposal projected “significant” 2024–25 revenue of $6.9 billon, including $4.9 billion from corporations, assuming that taxpayers would accelerate dispositions. (The PBO’s revenue estimate was $5 billion, including $3 billion from corporate income tax, based on the short timeframe to realize gains before the proposal’s effective date and illiquidity of some holdings.)
Anecdotally, “the number of clients intentionally realizing gains for tax-planning purposes ahead of the June 25 deadline was noticeably higher than in a typical year,” said Carson Hamill, associate portfolio manager with Snowbirds Wealth Management, Raymond James Ltd., in Coquitlam, B.C., in an email.
Laura Paglia, president and CEO of the Canadian Forum for Financial Markets (CFFiM) in Toronto, said the 2024–25 revenue results are “direct evidence of a large timing response, a very real [behavioural] sensitivity” to the taxation of capital.
Planning and potential opportunity costs
A notice of ways and means motion for the tax proposal was tabled on June 10, 2024. No relief was provided for transactions that were arranged before June 25 but closed on or after that date. Nor could taxpayers elect to realize a gain at the 50% rate without selling or gifting the asset.
Charbonneau Kaplan noted the “huge cost in terms of effort and planning” by taxpayers and tax practitioners as they attempted to understand the proposal and its impact on clients under a tight timeline amid legislative and political uncertainty, given the minority government. Triggering gains before the proposal’s effective date was generally considered only for clients who had already planned to realize gains in the short term anyway, she said. For such clients, the cost of triggering gains before June 25 versus later — over the next two to three years — was calculated. “It was imperative to … walk [clients] through the numbers,” she said.
A common course of action was realizing gains in non-registered investment portfolios, if gains were going to exceed the proposal’s $250,000 threshold for individuals, Hamill said.
Minor said that, anecdotally, the two main courses of action were accelerating transactions with signficant gains, as with investment portfolios and real estate, and Section 85 rollovers, which allow taxpayers to transfer eligible property to a corporation, later electing for the transfer to be on a tax-deferred or taxable basis. (Section 85 rollovers wouldn’t be reflected in the government’s 2024–25 revenues.)
The “hardest hit” taxpayers may have been those planning real estate sales, Charbonneau Kaplan said, because buyers were aware of the pressure to sell. She also noted that clients wouldn’t have had to plan for accelerated transactions or reorganizations “if there was simply a [filing] election” built into the proposal to realize a gain at the 50% rate without selling.
Other client scenarios considered for triggering gains before June 25 included businesses with impending sales — a buyer was in place, and the sale was driving toward closing, she said.
In an interview in spring 2025, Dan Kelly, CEO of the Canadian Federation of Independent Business, said about 4% of members triggered sales of their corporations in response to the proposal, potentially doing so faster than they otherwise would have, and about 6% of members sold investments held corporately.
In January 2025 following the prorogation of Parliament, the proposal was deferred to 2026, then scrapped entirely in March 2025 ahead of a federal election being called. (A court challenge to the provisional implementation of the tax proposal, filed before the deferral, was dismissed in July 2026, with the court finding there was no CRA decision or policy to review.)
In an email, Jamie Golombek, managing director and head of tax and estate planning with CIBC Private Wealth in Toronto, said clients who prepaid capital gains tax are “out the time value of money associated with the tax prepayment, which may be immaterial depending on the holding period of the underlying asset had it not been sold.”
A “real” opportunity cost may have been incurred by clients who realized significant gains and “who otherwise would have continued holding the investments,” Hamill said. “Had they not realized the gain, that tax liability could have remained deferred, allowing that capital to remain invested and potentially generate additional returns until the gain was eventually realized.”
Economic costs
More broadly, the taxation of capital discourages investment, and thus weighs on economic growth. The government’s 2024–25 financial report doesn’t quantify how much capital investment was lost in 2024 because of the proposal, Paglia said, “and it doesn’t go further to quantify the long-term economic costs” of that potential loss.
Canada already has a weak track record on capital investment, which impedes the country’s productivity and competitiveness — a pressing challenge amid the U.S. trade war that the government is attempting to address.
Well-designed tax policy incentivizes “where and how capital is invested for the positive, for the good,” Paglia said. And a well-designed tax system should raise government revenues while minimizing “distortions to productive financial behaviour and … the resources … used to administer tax.”
Fred O’Riordan, EY Canada’s national leader of tax policy in Ottawa, said the burden of tax reporting and compliance can be large relative to net government revenues generated. He referenced the EIFEL rules for certain corporations and trusts, which restrict the tax-deductible amount of interest and financing expenses.
Generally, “poorly thought out, poorly designed” tax policy has a “cumulative effect” on tax reporting that costs businesses and contributes to Canada’s lack of productivity, he said.
“As a country, we should spend more effort asking whether the tax rules produce enough public benefit to justify [the] private economic costs that they impose,” Paglia said.
A “comprehensive” review of the corporate tax system was part of the Liberals’ 2025 election campaign, but no review is currently in the works despite continued calls for one from groups such as the the Conference for Advanced Life Underwriting (CALU) and the C.D. Howe Institute and experts such as O’Riordan.
O’Riordan said he sees no “strong appetite in the short term” from the government for such a review, “although there may be interest longer term.”
As things stand, the federal budget coming this fall should have a “strong” focus on tax, he said. He expects “piecemeal” changes — ideally, “well-thought-out ones … that will address our continuing productivity problem and lack of capital investment.”
In pre-budget submissions, CALU calls for the federal government to simplify the tax on split income rules, and the CFFiM suggests several tax reforms such as cutting both personal and corporate income taxes, and rebalancing tax revenue sources toward consumption taxes.