In Canada, 50% of realized capital gain is taxable at your marginal income tax rate. You pay tax on the taxable portion when you file your annual tax return for the year the gain was realized.
What Is a Capital Gain?
A capital gain occurs when you dispose of (sell or transfer) a capital property and the proceeds of disposition exceed the property’s adjusted cost base (ACB) plus any outlays and expenses incurred to sell it. Gain on capital assets includes real estate (other than your principal residence), stocks, bonds or mutual fund units.
Capital Gain Calculation: Capital Gain = Proceeds of Disposition – (ACB + Expenses)
Proceeds of Disposition: The total amount you receive when you dispose of the property, including cash, the fair market value of any property received and any additional benefits received at the time of disposition.
Adjusted Cost Base (ACB): The original cost of the property plus any costs related to its acquisition (e.g. commissions, legal fees) and any capital improvements made while you owned it.
How Much Is Capital Gains Tax in Canada
Capital Gains Inclusion Rate: 50% of the capital gain is included in taxable income.
Taxable Capital Gain calculation: Taxable Gain = Capital Gain x 50%
This amount is then added to your investment income and taxed at your combined federal and provincial marginal tax rate.
Let’s look at an example:
- Sold 400 shares for $6,500; commission $60; ACB $4,000
- Capital gain = $6,500 – ($4,000 + $60) = $2,440
- Taxable portion = 50% x $2,440 = $1,220
- If your marginal tax rate is 30%, tax payable on the taxable gain is $1,220 x 30% = $366
Marginal Tax Impact
The marginal tax rate determines the tax on the taxable capital gain. Since only 50% of the gain is included in income, the effective tax rate on the full gain is half your marginal rate.
Let’s look at a brief example of how to calculate tax on capital gain.
At a 40% marginal rate, taxable inclusion is 50% of the gain, and the effective rate on the full gain is 40% x 50% = 20%
Net Capital Losses
Current year losses offset current year gains. If you have capital losses that exceed your capital gains in a given year, the net loss can be applied to reduce taxable gains in other years:
- Carry-Back Losses: Apply to any of the three preceding tax years, against past taxable gains. For example, if you had a net capital loss of $5,000 in 2025 and had taxable capital gains of $3,000 in 2022. You can carry back $3,000 of the 2025 loss against the 2022 gains, so the 2022 gain would be reduced to zero, and you may get a refund of taxes paid on that gain.
- Carry-Forward: Apply to any future year indefinitely until fully utilized. Suppose you have a capital loss of $8,000 in 2025 but had no capital gains in 2025 or the previous three years. You can’t use the loss immediately or carry it back. Instead, you carry the $8,000 loss forward indefinitely. If in 2027 you have a $5,000 taxable capital gain, you can apply $5,000 of your previous loss to that gain, reducing taxable capital gains and thus taxes owed for 2027. The remaining $3,000 can be carried forward until used up.
Key Exemptions and Special Rules
- Principal Residence Exemption: Gains on your principal residence are fully exempt.
- Lifetime Capital Gains Exemption (LCGE): Up to $1.25 million of cumulative gains on qualified small business corporation shares and certain farming or fishing properties can be sheltered from tax under the Income Tax Act.
- Donations of certain publicly listed securities to qualified charities: Capital gains on donated public securities are fully exempt when donated in-kind to a registered charity.
- Gains within registered accounts: Dispositions inside registered plans (e.g., Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA)) do not trigger capital gains tax.
Provincial Variations
Your effective tax rate on capital gains depends on federal and provincial rates. Below is an illustrative comparison of combined top marginal rates for all Canadian provinces and territories. These rates apply to the taxable portion (50%) of capital gains in the highest tax brackets and represent the combined federal and provincial/territorial rates:
| Province/Territory | Combined Top Marginal Rate on Taxable Capital Gain (2025) |
| Alberta | 48.00% |
| British Columbia | 51.70% |
| Manitoba | 52.40% |
| New Brunswick | 54.30% |
| Newfoundland and Labrador | 54.30% |
| Northwest Territories | 47.05% |
| Nova Scotia | 58.79% |
| Nunavut | 44.50% |
| Ontario | 53.53% |
| Prince Edward Island | 53.37% |
| Quebec | 54.00% |
| Saskatchewan | 48.00% |
| Yukon | 48.32% |
50% of the rates above represent the capital gains tax rate for each province and territory.
Reporting and Payment Process
- Calculate Gains/Losses: Add up all dispositions on Schedule 3.
- Net Gains and Losses: Offset gains with allowable capital losses (carry-back or carry-forward).
- Transfer to Income: Report the taxable capital gain (50% of net gain) on Line 12700 of the T1.
- File and Pay: File by April 30 and pay any balance owing. Canada Revenue Agency (CRA) will issue assessments and may request instalments if applicable.
Planning Tips
- Timing Dispositions: Realize gains in lower-income years to reduce tax. For example, suppose you’re retiring in 2026 and your income will be much lower than in 2025. If you delay selling an investment with a big capital gain until 2026, your taxable gain will be taxed at a lower rate, reducing the tax bill on the gain.
- Using Losses: Harvest losses in high-gain years to offset taxable gains. For example, in the current year, you have a $5,000 capital gain from selling shares of XYZ Corp. You also have shares in ABC Inc. trading below your purchase price. By selling ABC Inc. shares for a $3,000 loss in the same tax year, that loss offsets part of your gain, and you only pay tax on the net $2,000 gain.
LCGE Strategies: Make sure your small business corporation shares (or farms/fishing property) meet the Lifetime Capital Gains Exemption (LCGE) criteria, which protects up to $1.25 million in capital gains from tax as of dispositions after June 25, 2024. For example, if you own shares in a qualifying Canadian-controlled private corporation (CCPC) and you sell the shares and realize a $1 million gain. If eligible, the LCGE can shelter the entire gain, and you will not pay capital gains tax for that transaction. - Principal Residence Designation: Designate your main home as your principal residence for each year you own it to ensure gains from its sale are tax-exempt. For example, let’s say you bought a house in 2015 for $400,000 and sold it in 2025 for $800,000. As long as you lived in the home as your primary residence throughout that period and designated it accordingly, the $400,000 gain is fully exempt from capital gains tax.
Now that you understand the 50% capital gains inclusion rate, marginal tax impact, and capital gains tax rules for losses and exemptions, you can manage your capital gains tax effectively.
Plan carefully when and how you realize gains, use losses and claim exemptions to reduce how much tax you owe. If you have a specific scenario in mind or want help with a particular strategy, consult a corporate tax accountant or a CPA tax consultant to optimize your capital gains tax.
