Canada’s Capital Gains Inclusion Rate Change: What Every XEQT Investor Needs to Know in 2026

I will never forget the afternoon I first saw the headline. It was mid-2024, and I was scrolling through Reddit during my lunch break when I saw it: “Canada increasing capital gains inclusion rate to 66.67%.” My stomach dropped. I had been building my XEQT position for years. Had the government just decided to take a bigger chunk of my returns?

I spent the next hour reading panicked comments and half-formed opinions. Then I closed my laptop, opened a spreadsheet, and actually ran the numbers. That is when I realized something: for the vast majority of Canadian retail investors – myself included – this change barely moves the needle. For those of us investing primarily through registered accounts, it does not move the needle at all.

So let me walk you through exactly what changed, who it actually affects, and what (if anything) you need to do differently with your XEQT strategy in 2026.

1. What Actually Changed

For decades, Canada has taxed capital gains using an inclusion rate – the percentage of your capital gain that gets added to your taxable income. You then pay tax on that included portion at your marginal tax rate. For most of Canadian tax history, the inclusion rate for individuals has been 50%. Sell an investment, make a $10,000 profit, and only $5,000 gets added to your taxable income. Simple.

In the 2024 federal budget, the government proposed increasing the inclusion rate from 50% to 66.67% (two-thirds) for the portion of annual capital gains exceeding $250,000 for individuals. For corporations and trusts, the 66.67% rate would apply to all capital gains from the first dollar. The proposal had a bumpy legislative journey – announced, delayed, debated, and treated as a political football. Here is the key structure:

• First $250,000 in annual capital gains: Still taxed at the 50% inclusion rate for individuals
• Anything above $250,000 in annual capital gains: Taxed at the 66.67% inclusion rate for individuals
• Corporations and trusts: 66.67% inclusion rate on all capital gains

Important caveat: Tax law can change. The specifics of this measure have been subject to political and legislative developments. Always verify the current rules with the CRA or a qualified tax professional before making decisions. For the purposes of this guide, I am explaining the structure as proposed and enacted.

2. Old Rules vs. New Rules: Side by Side

Here is a clean comparison so you can see the difference at a glance:

The critical takeaway: nothing changed for gains under $250,000 per year. If you do not realize more than $250,000 in capital gains in a single year, your tax treatment is identical to what it was before.

3. How Capital Gains Work with XEQT

A lot of people assume holding XEQT means they are constantly generating capital gains. That is not how it works.

You Only Trigger Capital Gains When You Sell

If you buy XEQT at $30 and it grows to $50, you have an unrealized gain of $20 per share. You owe zero tax on that. The CRA does not care about unrealized gains. You could hold XEQT for 30 years, watch it triple, and never owe a cent in capital gains tax – as long as you do not sell.

Capital gains tax kicks in when you dispose of your shares:

• Selling XEQT on the open market
• Transferring XEQT to another person (with certain exceptions for spousal transfers)
• Deemed disposition at death (CRA treats you as having sold everything at fair market value)

Year-End Capital Gains Distributions

One exception: XEQT itself may distribute small capital gains at year-end when its underlying ETFs rebalance. These are taxable in non-registered accounts even if you did not sell anything. However, XEQT’s capital gains distributions have historically been very small due to low index turnover. For more, see our guide on XEQT distributions and tax efficiency by account type.

The Bottom Line on Triggering Gains

Buying XEQT does not create a taxable event. Holding does not create a taxable event. Only selling (or certain distributions) does. You have significant control over when you realize gains – and therefore whether you ever cross the $250,000 threshold.

4. The $250,000 Threshold: Why Most XEQT Investors Are Fine

Let me put that $250,000 threshold into real-world context. To realize $250,000 in capital gains in a single year, you need to sell enough XEQT that the difference between your selling price and your adjusted cost base totals $250,000. That is not $250,000 in sales – it is $250,000 in profit.

Portfolio Size Needed to Generate $250K in Annual Capital Gains

Assume you sell your entire non-registered XEQT position in a single year:

A few things jump out:

• If your non-registered XEQT portfolio is under $500,000, it is virtually impossible to exceed the threshold even if you sell everything at once – your gains cannot exceed $250,000 unless the portfolio has more than doubled.
• Even with a $1,000,000 portfolio, you need growth above 25% before the threshold matters.
• Most importantly, you would need to sell your entire position in a single year. Spread sales across multiple years and you get a fresh $250,000 threshold each time.

The median Canadian household has a total net worth of roughly $400,000-$500,000 (including their home). If you are contributing a few hundred or a few thousand dollars a month to XEQT, the higher inclusion rate is extremely unlikely to ever affect you.

5. Registered Accounts: Your Complete Free Pass

The capital gains inclusion rate – whether it is 50%, 66.67%, or 99% – has absolutely zero relevance if you hold XEQT in a registered account.

TFSA: Total Tax Freedom

In a TFSA, all investment growth is permanently and completely tax-free. Buy XEQT at $30, it grows to $100, sell, and keep every dollar. No inclusion rate applies because the CRA does not tax TFSA growth. Period.

RRSP: Tax-Deferred, Inclusion Rate Irrelevant

In an RRSP, your XEQT grows tax-deferred. You do not pay capital gains tax inside the account. Withdrawals are taxed as ordinary income – not as capital gains – so the inclusion rate never enters the picture.

FHSA: The Best of Both Worlds

The FHSA gives you a tax deduction on contributions (like an RRSP) and tax-free withdrawals for a qualifying first home purchase (like a TFSA). Capital gains inside an FHSA are completely tax-free. The inclusion rate is irrelevant.

RESP: Sheltered Too

Growth inside an RESP is tax-deferred. Payments are taxed in the hands of the student, who typically has little or no income.

If your XEQT is in registered accounts, the inclusion rate change is not your problem. And if you are still building your portfolio, this is yet another reason to prioritize filling your registered accounts first.

6. Non-Registered Accounts: Where It Actually Matters

If you hold XEQT in a non-registered (taxable) account and you realize more than $250,000 in capital gains in a single year, the higher inclusion rate will increase your tax bill. Who does this affect?

• Investors with large non-registered portfolios (generally $500,000+ with significant accumulated gains)
• Anyone planning a major one-time liquidation (downsizing in retirement, funding a major purchase, estate settlement)
• Business owners who hold investments inside a corporation (66.67% rate applies from the first dollar)

How Much More Tax Are We Talking About?

Say you realize $400,000 in capital gains in a single year by selling a large chunk of your non-registered XEQT position.

Under the old rules (50% inclusion on everything):

• Taxable capital gain: $400,000 x 50% = $200,000
• At a 45% combined marginal rate: $90,000 in tax

Under the new rules (50% on first $250K, 66.67% on the rest):

• First $250,000: $250,000 x 50% = $125,000 taxable
• Remaining $150,000: $150,000 x 66.67% = $100,005 taxable
• Total taxable: $225,005
• At a 45% combined marginal rate: $101,252 in tax

The difference: approximately $11,250 more in tax. Meaningful, but not the catastrophe the headlines suggested. Your effective tax rate on the total gain went from 22.5% to 25.3%. If you are in this situation, plan for it. But if you are not – and most readers are not – this does not change your XEQT strategy.

7. Five Strategies to Minimize the Impact

Even if the higher inclusion rate applies to you (or might in the future), there are practical steps to reduce or avoid the additional tax.

Strategy 1: Max Out Your Registered Accounts First

I say it in almost every post because it is true every single time. Every dollar of XEQT in a TFSA, RRSP, or FHSA is completely sheltered from capital gains tax, regardless of the inclusion rate.

The priority for most Canadians:

1. TFSA – tax-free growth forever
2. FHSA – if you qualify as a first-time home buyer
3. RRSP – tax-deferred growth with an upfront deduction
4. Non-registered – only after all the above are maxed

For a detailed breakdown, see our guide on TFSA vs FHSA vs RRSP priority.

Strategy 2: Tax-Loss Harvesting

Sell investments that have declined in value to realize a capital loss. Capital losses offset capital gains dollar for dollar, which can keep you under the $250,000 threshold.

Example: you realize $300,000 in capital gains from selling XEQT but also realize $75,000 in capital losses from other investments. Your net capital gain is $225,000 – safely below the threshold, all at the 50% inclusion rate.

Capital losses can be carried back three years or forward indefinitely. For a detailed walkthrough, see our guide on tax-loss harvesting for XEQT investors. Just remember the superficial loss rule: repurchasing the same security within 30 days denies the loss.

Strategy 3: Spread Realizations Across Tax Years

The $250,000 threshold resets every calendar year. If you need to liquidate a large XEQT position, spread sales across two or more years.

Example with $500,000 in unrealized gains:

• Sell all at once: $250,000 at 50% inclusion + $250,000 at 66.67% inclusion
• Sell over two years: $250,000 each year, all at 50% inclusion

By splitting into two calendar years, you avoid the higher rate entirely. You maintain market exposure for an additional year, but the tax savings can be substantial.

Strategy 4: Track Your Adjusted Cost Base Religiously

Your adjusted cost base (ACB) determines how large your capital gain is when you sell. A higher ACB means a lower capital gain. Many investors forget to include certain items that increase their ACB:

• DRIP purchases: Every reinvested distribution buys more shares at a specific price, increasing your total ACB
• Return of capital: ROC distributions reduce your ACB (this one works against you, so track it carefully)
• Buying commissions: On platforms like Wealthsimple, commissions are zero for Canadian ETFs, but if you used other platforms in the past, those commissions increase your ACB

An inaccurate ACB can mean you report a larger gain than you actually realized, potentially pushing you over the $250,000 threshold unnecessarily. Use a tool like AdjustedCostBase.ca or a spreadsheet, and update it every time you transact. For more on common errors, see our post on tax mistakes XEQT investors make.

Strategy 5: Spousal Income Splitting and Attribution Planning

If your spouse is in a lower tax bracket, there are legal ways to distribute investment income more tax-efficiently:

• Spousal RRSP contributions: You contribute to your spouse’s RRSP, getting the deduction at your higher marginal rate
• Prescribed-rate spousal loans: Lend money to a lower-income spouse at the CRA prescribed rate to invest – income is attributed to them as long as interest is paid by January 30 of the following year
• Separate non-registered portfolios: If both spouses invest separately, each gets their own $250,000 threshold

The attribution rules are complex – this is an area where professional tax advice pays for itself.

8. How Much More Tax Would You Actually Pay?

Let me put concrete numbers on this so you can see the real-world impact at different gain levels and marginal rates.

Tax on a $300,000 Capital Gain: Old Rules vs. New Rules

Tax on a $500,000 Capital Gain: Old Rules vs. New Rules

Even in the worst case – a $500,000 gain at a 53% marginal rate – the additional tax is about 4.4% of the gain. Capital gains remain the most tax-efficient form of investment income in Canada, even after this change.

9. What This Means for Your XEQT Strategy Going Forward

For most Canadian retail investors, this changes nothing about how you should invest in XEQT. The core strategy remains the same:

• Buy XEQT consistently – monthly, biweekly, or whenever you have money to invest
• Hold in registered accounts first – TFSA, FHSA, RRSP, in that order
• Hold for the long term – the longer you hold, the longer your gains compound untaxed
• Only sell when you actually need the money – not because of tax headlines

What the inclusion rate change does reinforce is something I have been saying for years: registered accounts are incredibly valuable. If you were on the fence about prioritizing your TFSA over a non-registered account, the math just tilted even further in favour of registered accounts. The tax you avoid on capital gains is now potentially higher than it used to be.

This change should motivate you to:

1. Maximize your TFSA contributions every year without exception
2. Open and fund an FHSA if you are a first-time home buyer
3. Use your RRSP room, especially if you are a high-income earner
4. Only invest in a non-registered account after all registered room is exhausted

That is not new advice. But the inclusion rate change makes it even more relevant than before.

10. The Bottom Line

Let me leave you with the same realization I had back when I first saw that panicky headline in 2024.

The capital gains inclusion rate change sounds dramatic. “66.67% inclusion rate” is a bigger, scarier number than “50% inclusion rate.” And the media – and Reddit – did an excellent job of making it sound like the sky was falling.

But here is the reality:

• If you invest in a TFSA, RRSP, FHSA, or RESP, the change does not affect you at all. Not one cent.
• If you invest in a non-registered account but realize less than $250,000 in capital gains per year, the change does not affect you at all.
• If you are one of the relatively few investors who realizes more than $250,000 in annual capital gains, the additional tax is meaningful but manageable – and there are strategies to reduce or avoid it.
• Capital gains are still the most favourably taxed form of investment income in Canada. Even at the 66.67% inclusion rate, you are paying less tax than you would on the same amount of employment income, interest income, or foreign income.

The worst thing you can do is let a tax headline change your investment strategy. I have watched people panic-sell, stop investing, or make rash decisions because they read a scary headline and did not run the numbers. Do not be that person.

Keep buying XEQT. Keep maxing out your registered accounts. Keep holding for the long term. Keep it simple. The tax code will change again – it always does. But the fundamentals of building wealth through low-cost, globally diversified index investing do not change.

Your future self will not remember what the capital gains inclusion rate was in 2026. But they will absolutely remember whether you stayed invested.

Related Reading

• Capital Gains Tax and XEQT: Complete Guide
• XEQT Distribution Tax Efficiency by Account Type
• Tax Mistakes XEQT Investors Make
• Tax-Loss Harvesting for XEQT Investors
• TFSA vs FHSA vs RRSP Priority
• Why Wealthsimple Is the Best Platform to Buy XEQT
• What Is XEQT?

Disclosure: This post contains referral links. I may receive compensation if you sign up through these links, but this does not affect my honest assessment. I genuinely believe XEQT is an excellent choice for Canadian investors seeking simple, low-cost, globally diversified growth. Tax rules can change — consult a qualified tax professional for personalized advice. This is not financial or tax advice.