Budget 2026: Capital Gains and Property Tax Updates

Bottom Line Up Front

1. The 50% capital gains inclusion rate is now permanent. Budget 2024’s planned increase to 2/3 (for individual gains over $250K, effective 2024-06-25) was first deferred on 2025-01-31 to 2026-01-01, then cancelled outright on 2025-03-21 by Prime Minister Carney, and confirmed in Budget 2025 tabled on 2025-11-04. This is critical relief for the deemed-disposition spike at death, which often triggers a once-in-a-lifetime gain on accumulated property holdings.
2. The Lifetime Capital Gains Exemption (LCGE) rises and is preserved at $1,250,000. Retroactively effective 2024-06-25 for qualified small-business shares and farm/fishing property; indexed to inflation from 2026 onward. Note: LCGE does not apply to ordinary family homes or vacation properties.
3. The Underused Housing Tax (UHT) is repealed. Bill C-15 (Budget 2025 Implementation Act) received royal assent in March 2026; no UHT filings or payments are required for the 2025 tax year and onward. The UHT Act is held “dormant” and fully repealed on 2035-01-01. However, 2022–2024 historical filings and penalties still apply (individuals up to $1,000, corporations $2,000).
4. The federal Prohibition on the Purchase of Residential Property by Non-Canadians Act is extended to 2027-01-01. But inheritance, gift, divorce, and joint-tenancy survivorship do not qualify as “purchases” — non-resident heirs can lawfully take title.
5. BC’s Speculation and Vacancy Tax (SVT) accelerates again in 2026. Foreign owners / satellite families: 2% → 3%; Canadian citizens and PRs: 0.5% → 1%; foreign rate climbs to 4% on 2027-01-01. SVT now covers 59 communities (13 added in 2024). Inheritance does not exempt SVT during the holding period.
6. Provincial “foreign buyer taxes” generally don’t apply to genuine inheritance. Ontario NRST (25%) and BC’s additional foreign PTT (20%) apply to “purchases” only. In BC, claim PTT Act s. 14(3)(c)‘s “principal residence of deceased” exemption — code 40 – Related Individual – Deceased Estate. “Related individual” excludes siblings, aunts, uncles, nieces, nephews, and cousins.
7. Three secondary 2026 measures impact inheritance planning: ① The First-Time Home Buyers’ GST/HST rebate (Bill C-4, royal-assented 2026-03-12) saves up to $50,000 federally, plus $80,000 in Ontario, for a combined $130,000; ② the anti-flipping rule (ITA s. 12(12)–(14)) recharacterizes <365-day holdings as business income, but s. 12(13) explicitly exempts dispositions triggered by death; ③ the MHRTC (Multigenerational Home Renovation Tax Credit) remains in effect — once-in-a-lifetime up to $7,500 per family.

1. Capital Gains Inclusion Rate: From “Increase” to “Cancellation” — The Full Timeline

1. Budget 2024’s Original Proposal (2024-04-16)

On 2024-04-16, then-Finance Minister Chrystia Freeland tabled Budget 2024, proposing — effective 2024-06-25:

• Individuals: First $250,000 of annual gains at 1/2 inclusion; excess at 2/3;
• Corporations and trusts: All capital gains at 2/3 inclusion;
• Companion measures: ① LCGE raised from approximately $1,016,836 to $1,250,000 (effective 2024-06-25); ② new Canadian Entrepreneurs’ Incentive (CEI) phasing in a 1/3 inclusion rate for qualifying small-business shares; ③ employee stock-option deduction calibrated at 1/3.

Political context: Cleared the House via a Notice of Ways and Means Motion, but never received royal assent. CRA administered the change as if effective on 2024-06-25, forcing many corporations and trusts to file mid-2024 returns at the 2/3 rate.

2. The 2025-01-31 Deferral

On 2025-01-31, then-Deputy PM and Finance Minister Dominic LeBlanc announced — citing Parliament’s prorogation and ongoing uncertainty — that the inclusion-rate increase’s effective date would slide from 2024-06-25 to 2026-01-01. Same day: LCGE $1.25M was confirmed retained at the 2024-06-25 effective date.

3. The 2025-03-21 Carney Cancellation

Mark Carney took office as Prime Minister following internal Liberal succession. On 2025-03-21, an official PMO statement (pm.gc.ca) declared the inclusion-rate increase cancelled. All capital gains continue at the existing 1/2 inclusion rate. Same day: ① LCGE retained at $1,250,000; ② CEI scrapped; ③ proposed 1/3 employee stock-option deduction abandoned.

4. Budget 2025 (Status as of 2026-Q2)

After the April 2025 federal election, the Carney government continued in office. Budget 2025 was tabled on 2025-11-04 by Finance Minister François-Philippe Champagne under the banner “Canada Strong”; the House passed the principal motion on 2025-11-17; Bill C-15 (Budget 2025 Implementation Act) proceeded as the omnibus implementation vehicle.

2024-04-16  Budget 2024 proposes 1/2 → 2/3
            (effective date 2024-06-25)

2024-06-25  CRA administers as effective
            → industry files at 2/3 rate

2025-01-31  LeBlanc: deferred to 2026-01-01

2025-03-21  Carney: CANCELLED ✅
            → permanent 1/2 rate restored

2025-11-04  Budget 2025 (Champagne) confirms
2025-11-17  House motion passed
2026-03    Bill C-15 royal assent
            (UHT repeal, SR&ED reform, etc.)

Budget 2025 legislatively confirms: ① the capital gains inclusion rate is permanently 50%; ② LCGE = $1,250,000 (retroactive to 2024-06-25, indexed from 2026); ③ CEI is dropped; ④ the Digital Services Tax (DST) is cancelled.

As of 2026-Q2 (this article’s data cutoff), Budget 2026 has not been tabled — the next federal budget is expected in late spring or fall 2026. Inheritance families can plan based on the 50% inclusion rate.

5. Concrete Impact on Inheritance (with Numbers)

5.1 Deemed Disposition at Death — ITA s. 70(5)

When a Canadian resident dies, all capital property not transferred to a spouse is deemed disposed of at fair market value (FMV) immediately before death. The resulting capital gain is reported on the deceased’s final T1 and included at the current 50% rate. Why this matters disproportionately for inheritance families:

• The year of death is the “peak gain year” of one’s lifetime — 20–30 years of accumulated cost-base appreciation crystallize in a single year;
• For families holding multiple properties (principal residence + vacation home + rental), annual gains easily exceed the $250K threshold;
• Had the 2/3 inclusion rate been implemented, the marginal effective rate on gains above $250K would have jumped from ~26.76% to ~35.69% (using Ontario’s top rate of 53.53% × 1/2 vs × 2/3).

5.2 Limits of the Principal Residence Exemption (PRE)

• ITA s. 40(2)(b) + s. 54 define “principal residence”: a family unit (spouses + minor children) can designate only one property per year;
• Multi-property families must allocate years: exempt gain = total gain × (1 + designated years) ÷ years held;
• Common vacation-home pitfall: parents leave the city home to one child and the cottage to another. PRE gets exhausted on the first; the second has no eligible years left → fully taxable gain.

5.3 Numerical Example: $1M Vacation-Home Gain — 50% vs 66.67%

Assumption: BC vacation home purchased in 1995 at ACB $200,000; FMV $1,200,000 at parents’ death in 2026; never designated as principal residence; parents at BC top marginal rate (53.50%).

Item	50% Inclusion (current)	66.67% Inclusion (Budget 2024 proposal)
Capital gain (gross)	$1,000,000	$1,000,000
Taxable gain (included)	$500,000	$625,000 (first $250K × 1/2 + remainder $750K × 2/3)
Federal + BC tax (53.50%)	≈ $267,500	≈ $334,375
Savings from cancellation	$66,875 (≈ +25% cash tax)

Conclusion: $66,875 saved on this single property at the moment of death. For Chinese-Canadian families holding multiple properties, the cancellation is significant — and it’s why this article opens Series 4.

5.4 Spousal Rollover (ITA s. 70(6))

• A Canadian-resident spouse or Canadian-resident spousal trust inherits at ACB (not FMV); no capital gain triggered at death;
• Non-resident spouses cannot directly use the rollover — except in narrow treaty equivalent residence scenarios (rare in practice);
• For cross-border families (“spouse in China + spouse in Canada”), lock in ACB pre-mortem or use life insurance to cover the resulting tax bill.

2. The Underused Housing Tax (UHT) Repeal

1. History and Legislative Path

First announced in Budget 2021; legislated in Budget 2022 (Underused Housing Tax Act); effective 2022-01-01 at 1% per year on “non-resident, non-Canadian” owners of “underused” residential property. The 2022–2024 filing pool ballooned far beyond the original policy target — capturing private-corp shareholders, partners, and trustees alongside true non-resident owners.

Industry pushback from MNP, PwC, Doane Grant Thornton, and others highlighted that compliance cost dwarfed actual tax revenue. CRA twice extended filing deadlines (2023, 2024); 2024 saw late-filing penalties cut from $5,000 / $10,000 down to $1,000 / $2,000.

2. Bill C-15 and Royal Assent Timing

Bill C-15 (the Budget 2025 Implementation Act) bundles SR&ED reform, capital cost allowance changes, the UHT repeal, and luxury-tax adjustments. The House passed the principal motion on 2025-11-17; second/third readings and Senate review followed; royal assent came in March 2026. UHT’s legislative fate: amended to stop charging from 2025 onward, then fully repealed on 2035-01-01 (held “dormant” for 9 years).

3. 2025 Tax Year Onward

• No UHT filing or payment required — including all formerly “excluded owners” and “affected owners”;
• Accountants engaged to prepare 2025 UHT-2900 returns should stop and notify clients in writing;
• Historical exempt-owner determinations (Specified Canadian Corporation, Specified Canadian Partnership, Specified Canadian Trust) still need to be cleared for 2022–2024.

4. The Long Tail of Historical Filings

2022 / 2023 / 2024 UHT cleanup:

  ✗ Individual late-filing penalty   $1,000 / return
  ✗ Corporate late-filing penalty    $2,000 / return
  ✗ Late-payment + interest          (CRA prescribed compounding)

Executor's note:
  If the deceased non-resident parent held Canadian
  residential property → 2022–2024 UHT returns must
  be filed by the executor → required before applying
  for TX19 clearance certificate.

CRA Voluntary Disclosure Program (VDP):
  Self-disclose before CRA contact
  → 80% penalty relief + partial interest waiver

3. Foreign Buyer Ban Extension

1. Legal Framework and the Extension Decision

Statute: Prohibition on the Purchase of Residential Property by Non-Canadians Act (S.C. 2022, c. 10, s. 235); Regulations: SOR/2022-250, in force 2023-01-01. Geographic scope: Census Metropolitan Areas (CMAs) and Census Agglomerations (CAs) — 240+ jurisdictions.

2024-02-04: Finance Minister Freeland announced extension to 2027-01-01, citing housing supply tightness and overall affordability. Regulations amended on 2024-03-27 to include corporations with foreign ownership/control of ≥10%.

2. Inheritance / Gift / Divorce Exemptions in Practice

The legal definition of “purchase” requires consideration. Inheritance, gift, joint-tenancy survivorship, and divorce/separation transfers do not qualify as purchases — non-Canadians can lawfully take title.

4. BC Speculation and Vacancy Tax (SVT)

1. 2026 Rate Increases

Owner Category	2025 Rate	2026 Rate	2027 Rate
Canadian citizens / PRs	0.5%	1.0%	1.0%
Foreign owners / satellite families	2.0%	3.0%	4.0%

2. Geographic Expansion

13 communities added in 2024 (in scope from 2024-01-01, first declaration in early 2025): Vernon, Coldstream, Penticton, Summerland, Lake Country, Peachland, Courtenay, Comox, Cumberland, Parksville, Qualicum Beach, Salmon Arm, Kamloops. Now covers 59 communities. The BC government has stated openly that further expansion will follow if price/vacancy pressures spread.

3. Specific Impact on Non-Resident Heirs

Impact A — Canadian heirs of non-resident BC property:
  Title transferred → Canadian-resident owner status
  Self-occupied or long-term rental → exempt
  Vacant + non-principal + non-rental → 1%/yr (2026)

Impact B — Non-resident heirs of Canadian-parent BC vacation home:
  Registered as foreign owner
  No exemption → 3%/yr (2026) → 4%/yr (2027)
  $2M property = $60K/yr → $80K/yr
  Switch to long-term rental: exempt
    → at least 6 months continuous to non-family

Impact C — Trust or corporate ownership:
  "Satellite family" lookthrough is aggressive
  Many Chinese-Canadian families use holding companies
  → frequently classified as satellite family or
    "untaxed worldwide owner"

5. Ontario NRST and BC Foreign Buyer Tax

1. Current Rates

• Ontario NRST: 25% (since 2022-10-25, province-wide; originally 15% covering only GTA + Greater Golden Horseshoe from 2017);
• City of Toronto MNRST: additional 10% from 2025-01-01 (stacks with provincial NRST → 35% within Toronto city limits). [Refer to City of Toronto’s official guidance for detailed scope];
• BC Additional PTT (foreign buyer tax): 20% (since 2018-02-21; covers Metro Vancouver, Fraser Valley, Capital Regional District, Central Okanagan, Nanaimo Regional District).

2. Inheritance Exemptions: Required Documents

Ontario NRST and inheritance: NRST applies to “purchases” only — true inheritance / no-consideration gifts fall outside the tax base. Required documentation:

• Probate certificate copy;
• Copy of will;
• Solicitor’s Statement of Adjustments showing zero consideration;
• Identity of heir + proof of relationship to deceased.

BC Foreign Buyer Tax and inheritance (key rule):

PTT Act s. 14(3)(c) — Principal residence of deceased
(Exemption code 40 – Related Individual – Deceased Estate)

Conditions:
  ✓ Transferor = estate trustee or testamentary trustee
  ✓ Property = deceased's principal residence at death
        OR heir occupied as principal residence
        for 6 continuous months pre-death
  ✓ Heir = beneficiary of estate
  ✓ Heir CAN be a foreign person
    (the exemption was designed for this case)

"Related individual" definition:
  ✓ Spouse
  ✓ Children, grandchildren, great-grandchildren
  ✓ Parents, grandparents, great-grandparents
  ✓ Spouses of any of the above

  ✗ Siblings
  ✗ Aunts, uncles
  ✗ Nieces, nephews, cousins

→ This restriction matters significantly for traditional
  Chinese extended families (sibling-to-sibling transfers)

6. Other 2025-2026 Property-Related Tax Measures

1. Anti-Flipping Rule — ITA s. 12(12)–(14)

Effective: 2023-01-01; not amended in Budget 2025. Core rule: residential property held for fewer than 365 consecutive days before disposition produces fully taxable business income (no 1/2 capital gains inclusion, no PRE).

Death exemption (key for inheritance): ITA s. 12(13) “life events exception” expressly lists death of the taxpayer or a related person — so short holding periods triggered by inheritance are not caught by the anti-flipping rule.

What about the heir’s subsequent sale? The 365-day clock starts on the date of inheritance. Selling within 12 months after inheritance does not automatically trigger the anti-flipping rule (because death qualifies for the life-events exception), but CRA may still scrutinize “habitual trader” patterns. Practical advice: hold for at least 12 months after inheritance before considering sale.

2. First-Time Home Buyers’ GST Rebate

Bill C-4 Making Life More Affordable for Canadians Act, royal-assented 2026-03-12.

New Home Price	Federal GST Rebate (5%)	Ontario HST 8% Rebate (max)
≤ $1M	Full (up to $50,000)	$80,000
$1M – $1.5M	Phased rebate (linear decline to 0)	Pro-rated
> $1.5M	No rebate	No rebate
Maximum combined relief in Ontario	$130,000

Inheritance tie-in:

• A Canadian heir receiving cash from a non-resident parent’s estate can deploy the inheritance as a down payment on a first new home and stack the rebate;
• “First-time” definition: the buyer and spouse must not have owned/occupied a home in the current year and prior 4 years. Heirs who inherit the parents’ existing home no longer qualify, even if they never lived in it;
• Application window: within 2 years of taking possession.

3. MHRTC — Multigenerational Home Renovation Tax Credit

Line 45355 / Schedule 12 — federal refundable tax credit; effective from 2023. Credit value: qualifying renovation expenses × 15% on max $50,000 = $7,500 per project; once-in-a-lifetime per family.

Inheritance tie-in: a Canadian child bringing non-resident parents to live in Canada and building a self-contained secondary unit can claim the credit — provided: parents are 65+ (or qualify for the Disability Tax Credit); renovations completed within 12 months before parents move in; parents occupy the secondary unit after completion. Does not apply to luxury renovations (kitchen/bath upgrades, master-suite expansions); a true secondary unit must be created.

7. Tax Impact on Three Chinese-Canadian Family Scenarios

Scenario A: Non-Resident Chinese Parents → Canadian-Citizen Heir Inherits a Toronto Condo

• Year of death: parents (non-residents) are taxed only on Taxable Canadian Property (TCP) — including the condo — via deemed disposition (50% inclusion);
• Section 116 process: executor obtains an ITN (T1261) for the parents → files T2062 → CRA issues T2064 compliance certificate. Withholding rate: 35% (effective 2025-01-01);
• NRST / BC foreign buyer tax: inheritance is non-consideration → not triggered;
• UHT: repealed from 2025 — but if the parents owned + left the condo vacant for 12+ months in 2022–2024, 2022–2024 UHT returns must still be filed;
• Future sale by heir: ACB resets to FMV at inheritance; future sales taxed normally at 50% inclusion (heir is Canadian resident).

Scenario B: Canadian Parents → Non-Resident Chinese Heir Inherits a BC Vacation Home

• Year of death: parents’ final T1 reports full deemed disposition (no spousal rollover applicable, assuming surviving spouse is non-resident or predeceased);
• PRE: vacation home not designated as principal residence → full gain taxable;
• BC foreign buyer tax: vacation home likely fails s. 14(3)(c) “principal residence” test → 20% likely owed;
• Federal ban: inheritance is not a “purchase” → heir takes title legally (even within the ban period);
• BC SVT: heir is foreign owner + property vacant/non-rental → 3%/year (2026); 4%/year from 2027;
• Heir’s subsequent sale: triggers Section 116 35% withholding + non-resident T1;
• If converted to long-term rental: tenant/property manager withholds 25% Part XIII on gross rent; can elect NR6 + Section 216 to switch to net-rent withholding.

Tax conclusion: this is the most painful Chinese-Canadian family scenario — a $2M vacation home, retained by the heir, costs ~$60K/year SVT (more from 2027), 20% PTT at first transfer (likely), 35% withholding on sale, and 25% Part XIII on rents. Pre-mortem planning is the only effective remedy.

Scenario C: Mixed Assets (Vancouver + Shanghai), Two Canadian-Resident Heirs

• Vancouver home: parents’ final T1 reports deemed disposition; PRE applies if eligible; transfer to Canadian heirs does not trigger foreign buyer tax or SVT holding tax;
• Shanghai home: Canada side — no inheritance tax; T1135 reporting required (personal-use foreign home excluded from $100K threshold; rental property included with rent reported); China side — no inheritance tax in PRC; future sale triggers 20% individual income tax on the gain (cost basis = original purchase by deceased); contract tax (deed tax) generally exempt for heirs;
• Practical process: notarized inheritance (cross-border) + property registration + foreign exchange — Shanghai/Beijing cross-border notary offices typically take 3–6 months;
• Cross-border integration: when Canadian heirs eventually sell the Shanghai home, Canada taxes the gain (new ACB = inheritance FMV, 50% inclusion); PRC tax paid is creditable as a Foreign Tax Credit (FTC).

8. Bare Trust / T3 Reporting (Bridge to S4-2)

2025 tax year administrative exemption continues — unless CRA issues a written demand, no T3 + Schedule 15 filing is required for trusts ending before 2025-12-31. August 2025 Finance draft proposals would remove the broad bare-trust reporting requirement from ITA s. 150 and instead apply only to specific bare trusts that are express trusts under applicable law (and not within specific exemptions). The new rules apply to taxation years ending on or after 2026-12-31.

Penalties (still in place):
  Late filing (ITA s. 162(7)):
    $25/day, max $2,500

  Gross negligence (ITA s. 163(5)):
    $2,500 OR 5% of trust asset FMV
    (whichever is GREATER)

Example: parents put a $3M Vancouver property
         in adult child's name (typical bare trust)
         If determined to be wilful non-filing →
         Penalty = max($2,500, $150,000) = $150,000

Most common bare-trust patterns in Chinese-Canadian families:
  • Parents buy property registered in child's name ("nominee")
  • Canadian child holds the mortgage; parents fund the
    down payment (parents = beneficial owners)
  • Parents transfer property but reserve a life interest

→ Full coverage in S4-2

9. SiLaw’s “2026 Action Checklist” for Clients

1. Re-evaluate capital gains planning — Audit any 2024 spring/fall “rush transactions” for impact on death-year planning. With 50% confirmed permanent, plans to “gift early to avoid 2/3” should be revisited.
2. UHT 2022–2024 historical filings — Executors / heirs must clear the long tail first: use the Voluntary Disclosure Program (VDP) to file late, secure 80% penalty relief, and complete this before applying for a TX19 clearance certificate.
3. Audit BC vacation-home status — Owner structure (individual / trust / corporation) + use (occupied / long-term rental / vacant) + tax residency → determine 2026/2027 SVT exposure.
4. Audit PTT/NRST exemption viability — Especially BC’s s. 14(3)(c) “principal residence” test. If unmet, consider pre-mortem spousal rollover or family trust restructuring.
5. FTHB GST rebate vs inheritance cash — Canadian heirs about to inherit cash should prioritize first new-home down payments (eligible signing 2025-03-20 to 2031).
6. MHRTC and parents-moving-in plans — When non-resident parents relocate to Canada and live with heirs, design renovations as self-contained secondary units to capture the $7,500 credit.
7. Bare-trust exposure inventory — All “parents fund + child registered” or “nominee” arrangements should be cleaned up before year-end 2026, with legal characterization (express trust vs resulting trust) settled before the 2026-12-31 T3 rules take effect.

Frequently Asked Questions (FAQ)

Q: Will the 2/3 capital gains inclusion rate ever come back?
A: As of this article’s data cutoff (April 2026), Carney’s government has explicitly cancelled the increase, and Budget 2025 confirms the 50% rate as permanent. Budget 2026 is expected in late spring or fall 2026, with no public signals of a relaunch. However, Finance Canada may revisit the question in a future “housing affordability + high-net-worth” framework — inheritance families should complete major planning during the 2026–2027 window.

Q: What if my parents’ 2024 returns were filed at the 2/3 rate?
A: CRA has issued guidance — 2024 returns prepared at 2/3 can be amended via T1-ADJ (individuals) or T2 amendments (corporations / trusts) to recover overpaid tax. Engage a tax professional for the precise reclamation path.

Q: I am a Canadian resident, my parents are in China, and they will leave a Shanghai property to me at death. How much Canadian tax will I owe?
A: Inheritance itself does not produce immediate Canadian income tax. What you must do: ① if FMV ≥ CAD $100,000, file T1135 annually (personal-use property excluded); ② on future sale, calculate Canadian capital gain from inheritance-FMV to sale-price (50% inclusion); ③ Chinese tax paid is creditable as a Foreign Tax Credit; ④ if you subsequently buy a first new home in Canada, the inherited cash can fund the down payment and stack the GST rebate (up to $50K federal + $80K Ontario = $130K).

Q: Will BC SVT really climb to 4%?
A: Yes. The BC government has legislated: foreign owners 3% in 2026, then 4% from 2027; Canadian owners 1% from 2026. SVT now covers 59 communities (13 added in 2024). Inheritance does not exempt the holding-period tax — heirs not occupying or long-term-renting the property pay annually based on residency status. A $2M property held by a foreign heir will cost $80K/year from 2027.

Q: When exactly did Bill C-15 (UHT repeal) receive royal assent?
A: Bill C-15 received royal assent in March 2026; industry sources cite both 2026-03-12 and 2026-03-26. Practical impact for inheritance families is identical: UHT is repealed from the 2025 tax year, but 2022–2024 historical filings and penalties remain in place.

Q: If a deceased non-resident parent’s UHT history is non-compliant, does that block the inheritance?
A: It blocks the TX19 clearance certificate application — CRA reviews all historical tax obligations, including UHT, before issuing clearance. Executors should immediately use the Voluntary Disclosure Program (VDP) to file 2022–2024 UHT returns, target 80% penalty relief, then apply for the clearance certificate.

Disclaimer: This article is based on the April 2026 Canadian federal budget documents (Budget 2025), CRA announcements, provincial revenue ministry regulations, and Bill C-4 / Bill C-15 legislative records. Cross-border tax and inheritance law is highly complex and subject to change. This article does not constitute legal or tax advice. For tailored guidance, contact SiLaw’s lawyers and tax team.