Madam Speaker, in the spring, we outlined, in budget 2024, our plan to build a Canada that works better for every generation; a Canada where younger generations can get ahead, where their hard work pays off and where they can buy or rent their own home. To support this, we are also making Canada's tax system fairer by asking the very wealthiest to pay a bit more so that we can make investments in prosperity for every generation.
Today, Canadians pay tax on the income from their job, which is fair. What is not so fair is that, currently, they only pay taxes on 50% of capital gains, which is the profit generally made when an asset, such as stocks or rental property, is sold. Increasing the capital gains inclusion rate from one-half to two-thirds on capital gains realized annually for above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts will create a fairer tax system and one that does not disproportionately benefit the wealthy.
To ensure that middle-class Canadians and Canadian entrepreneurs do not pay higher taxes, the government is maintaining existing capital gains exemptions and even creating new ones. This includes ensuring that people pay no capital gains tax when they sell their principal residence. In addition, we will introduce a new $250,000 annual threshold for individuals so that those with a modest capital gain will continue to benefit from the 50% inclusion rate. We will increase the lifetime capital gains exemption to $1.25 million from the current maximum of about $1 million on the sale of small business shares or farm or fishing property. We are also introducing a new Canadian entrepreneur incentive that reduces the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains.
Recently announced enhancements, from eliminating the founder and reducing ownership requirements to expand the eligibility to more small businesses, will further ensure innovators and small business owners, including farmers, are rewarded for their hard work. Combined with the $1.25 million lifetime capital gains exemption, when this incentive is fully rolled out, entrepreneurs will pay less tax and be better off on capital gains up to $6.25 million.