Canadian Prime Minister Mark Carney has officially announced the cancellation of a proposed increase to the capital gains inclusion rate, reversing a widely criticized tax plan that had been looming over businesses and investors since early 2024.
The move aligns with Carney’s broader efforts to reshape the Liberal Party’s image after a steep drop in support under former Prime Minister Justin Trudeau.
Backpedaling on a Tax Plan That Never Launched
Originally announced in April 2024, the proposal would have raised the taxable portion of capital gains from 50% to two-thirds for individuals and businesses earning over C$250,000 in capital gains. Although it was supposed to take effect on June 25, the legislation was never passed into law.
Instead, following a wave of backlash from economists, entrepreneurs, and political opponents, the new administration has opted to scrap the measure entirely.
Stimulating Business Confidence
Carney’s office framed the reversal as a pro-growth policy shift.
“Cancelling the hike in capital gains tax will catalyze investment across our communities and incentivize builders, innovators, and entrepreneurs to grow their businesses in Canada,” Carney said.
The federal government also confirmed that it would maintain the previously announced increase in the lifetime capital gains exemption, now set at C$1.25 million, for the sale of small business shares and farming or fishing property.
Opposition and Economic Concerns Prompted Change
The proposed tax hike had been a flashpoint for months. Business leaders warned that increasing the capital gains tax would deter investment, push entrepreneurs to relocate, and ultimately harm economic competitiveness.
Despite the financial rationale behind the original plan — to raise an estimated C$19.4 billion over five years — the Trudeau government’s deficit continued to grow. The most recent fiscal year overshot budget targets by C$20 billion, sparking concerns that the tax hike would do more harm than good.
Balancing Growth and Fiscal Responsibility
While the tax reversal may improve investor sentiment, it leaves a significant funding gap. The additional revenue was intended in part to support affordable housing initiatives — a top priority for the Liberal Party.
Nevertheless, Carney appears to be betting on economic growth as a better long-term revenue strategy than tax increases. With his party’s poll numbers rebounding and potential elections on the horizon, the decision could prove politically strategic as well.