July 24, 2026 · Updated July 27, 2026

The capital gains increase was cancelled. Your estate tax bill wasn't.

By Boota Sidhu · Wealth coach and educator, Surrey, BC

If you're an incorporated business owner or a professional family in British Columbia, the last two years of capital gains headlines probably cost you some sleep — and possibly some rushed decisions.

Here's where things actually stand in 2026, and why the most important parts of your planning were never about the inclusion rate at all.

A short history of the tax increase that never happened

In April 2024, the federal budget proposed raising the capital gains inclusion rate — the portion of a capital gain that's taxable — from one-half to two-thirds for corporations, most trusts, and individuals on annual gains above $250,000.

What followed was a case study in policy whiplash. The Canada Revenue Agency began administering the proposed rules before they were law. In January 2025, the government deferred the effective date to January 1, 2026. Then, in March 2025, the new government cancelled the increase entirely.

The result: in 2026, the capital gains inclusion rate is 50% for everyone — individuals, corporations, and trusts. No $250,000 threshold. No two-tier system.

What actually changed — and what was quietly dropped

A few measures from that same reform package moved forward, and one more was cancelled along the way. All of it matters for business-owning families:

• The Lifetime Capital Gains Exemption (LCGE) survived, and it’s indexed again. The 2024 budget raised it to $1.25 million for dispositions of qualified small business corporation shares and qualified farm or fishing property on or after June 25, 2024, and that increase is now law. Annual indexation resumed in 2026, bringing the limit to $1,275,000 for dispositions this year. For a couple who both qualify, that can shelter a meaningful portion of a business sale.
• The Canadian Entrepreneurs' Incentive (CEI) was cancelled. Proposed in 2024 as a reduced one-third inclusion rate building toward a $2 million lifetime maximum, it was dropped in Budget 2025 and will not proceed. If your sale planning assumed CEI relief, it needs a fresh look.
• The Alternative Minimum Tax rules were expanded. Large-gain years — a business sale, a property disposition, a big LCGE claim — can now trigger AMT in situations that wouldn't have before. It's a parallel calculation many owners only discover when their accountant delivers the news.

There's also a development for families using trusts: bare trust reporting now begins with taxation years ending on or after December 31, 2026, and legislation enacted in March 2026 exempts small trusts (under $50,000 in assets) from T3 filing. If your family uses trusts for wealth transfer or privacy, your reporting obligations have shifted more than once — another reason to review annually with your accountant.

What never changed: the two certainties in every Canadian estate

While everyone watched the inclusion-rate drama, the two features of the system that create the largest bills at death sat quietly unchanged:

1. Deemed disposition. When you pass away, the CRA generally treats your capital assets — investment portfolios, rental properties, shares of your private corporation — as if you sold them at fair market value the moment before death. The resulting gain lands on your final tax return. For an owner whose corporation has grown for decades, this is often the single largest tax event of their lifetime.

2. Registered account collapse. Unless rolled to a surviving spouse or a financially dependent child, the full value of an RRSP or RRIF is generally added as income on the final return — frequently at the top marginal rate.

Layer BC probate fees on top (a tiered schedule reaching roughly 1.4% on estate assets over $50,000), and a family can face a substantial cash requirement at exactly the moment their wealth is least liquid — tied up in a business, a farm, or real estate.

The real question: where does the cash come from?

This is the question the capital gains saga should leave every business-owning family asking.

Families address this liquidity question in several ways — holding liquid reserves, planning staged sales, using the spousal rollover to defer, structuring corporate assets, and in many cases, using permanent life insurance as a funding tool, since a death benefit paid to named beneficiaries is generally received tax-free and outside the probate process. For incorporated owners, corporate structures add further considerations around how proceeds flow to the family.

None of these is automatically right for you. Which combination fits depends on your corporate structure, your family's intentions, your timeline, and advice from your own tax and legal professionals. The point of this article is simpler: the cancellation of the rate increase was not a cancellation of estate tax exposure. If you paused your planning during the uncertainty, 2026 is the year to restart it — deliberately, with a coordinated team.