What is Capital Gains Tax in Canada?
A capital gain occurs when you sell an investment — such as stocks, mutual funds, ETFs, or real estate — for more than it originally cost to purchase. The profit from the sale is subject to capital gains tax. This tax is owed in the year the capital gain is realized, meaning when the asset is actually sold or disposed of.
If the investment has not been sold, the gain is considered unrealized and no tax is owed. If a sale results in a loss (the value decreased since purchase), this is a capital loss, which can be used to offset other capital gains and reduce your tax bill.
How Capital Gains Are Taxed in Canada
In Canada, only a portion of your capital gain — called the inclusion rate — is added to your taxable income. The taxable portion is then taxed at your marginal tax rate.
Capital Gains Inclusion Rate (2026)
| Capital Gains Amount | Inclusion Rate | Taxable Portion |
|---|---|---|
| All capital gains (individuals) | 50% | Half of the gain is taxed |
There was a proposed change in the 2024 federal budget to increase the capital gains inclusion rate from 50% to 66.67% (two-thirds) for gains exceeding $250,000 in a single year. This change was set to take effect on January 1, 2026. However, on March 21, 2025, the Government of Canada announced that this proposed increase was cancelled. The inclusion rate remains at 50% for all capital gains.
Worked Example: Selling Stocks for a Capital Gain
Suppose you bought 500 shares of a Canadian stock at $20 per share and sold them at $35 per share:
| Step | Calculation | Amount |
|---|---|---|
| Proceeds of disposition | 500 × $35 | $17,500 |
| Adjusted cost base (ACB) | 500 × $20 | $10,000 |
| Selling expenses (commission) | — | $50 |
| Total capital gain | $17,500 − $10,000 − $50 | $7,450 |
| Taxable capital gain (50%) | $7,450 × 50% | $3,725 |
| Tax owed (at 30% marginal rate) | $3,725 × 30% | $1,117.50 |
In this example, your effective tax rate on the capital gain is $1,117.50 ÷ $7,450 = 15%, significantly lower than the 30% marginal rate because only half the gain is included in income.
Effective Capital Gains Tax Rates by Income Level
Because capital gains are taxed at your marginal rate with a 50% inclusion, the effective tax rate on capital gains varies by province and income:
| Marginal Tax Rate | Effective Capital Gains Tax Rate |
|---|---|
| 20% | 10.0% |
| 25% | 12.5% |
| 30% | 15.0% |
| 35% | 17.5% |
| 40% | 20.0% |
| 45% | 22.5% |
| 50% | 25.0% |
| 53.53% (top rate in ON) | 26.77% |
Even at the highest combined federal-provincial tax bracket, you never pay more than approximately 27% on capital gains — making them one of the most tax-efficient forms of investment income.
Capital Gains Tax Exemption on Principal Residence
If the property you are selling is your principal residence, it is fully exempt from capital gains tax under the principal residence exemption (PRE). This allows you to sell your home without paying tax on any profit, which can then be used to purchase another property.
To qualify for the principal residence exemption, the CRA requires:
- The property was your primary place of residence for each year you designate it
- The property is a housing unit (house, condo, cottage, mobile home, or houseboat)
- You ordinarily inhabited the property (or your spouse or child did)
- You designate the property as your principal residence on your tax return in the year of sale (Form T2091)
Each family unit (you, your spouse, and minor children) can designate only one property as a principal residence for any given year. If you own a cottage and a city home, only one can be your principal residence each year. Any years not covered by the designation may result in a partial capital gain. See our land transfer tax calculator for costs related to purchasing a new property.
Lifetime Capital Gains Exemption (LCGE)
The Lifetime Capital Gains Exemption provides a significant tax break on the sale of certain qualifying assets:
| Qualifying Asset | LCGE Limit (2025) |
|---|---|
| Qualified small business corporation (QSBC) shares | $1,250,000 |
| Qualified farm property | $1,250,000 |
| Qualified fishing property | $1,250,000 |
The LCGE is a cumulative lifetime limit — once used, it is not replenished. The exemption amount is indexed to inflation and increases annually. To qualify, the shares or property must meet specific criteria set by the CRA, including holding period and active business use requirements.
Capital Losses: Offsetting Your Gains
A capital loss occurs when you sell an asset for less than your adjusted cost base. Capital losses are valuable because they can be used to offset capital gains and reduce your tax bill.
Key rules for capital losses in Canada:
- Capital losses can only be applied against capital gains (not other types of income)
- Net capital losses (losses exceeding gains) can be carried back 3 years to offset gains in prior years
- Net capital losses can be carried forward indefinitely to offset future capital gains
- In the year of death, net capital losses can be applied against any income
- Superficial loss rule: If you sell an investment at a loss and repurchase the same or identical investment within 30 days (before or after the sale), the CRA will deny the loss
Capital Loss Example
| Year | Capital Gains | Capital Losses | Net Position | Tax Treatment |
|---|---|---|---|---|
| 2024 | $15,000 | $20,000 | −$5,000 | $5,000 loss carried forward or back |
| 2025 | $12,000 | $2,000 | +$10,000 | Apply $5,000 carried forward loss → taxable gain of $5,000 |
Capital Gains Tax Calculation Formula
The formula for calculating your capital gains tax is:
- Proceeds of Disposition − Adjusted Cost Base − Selling Expenses = Total Capital Gain
- Total Capital Gain × Inclusion Rate (50%) = Taxable Capital Gain
- Taxable Capital Gain × Marginal Income Tax Rate = Capital Gains Tax
Proceeds of Disposition
This is the amount you receive when you sell your capital property. You may deduct expenses directly related to the sale, such as real estate commissions, legal fees, or brokerage commissions.
Adjusted Cost Base (ACB)
Your adjusted cost base is the original purchase price of the asset plus any costs incurred to acquire it (such as legal fees or commissions on purchase). For real estate, capital expenditures that improve the property (such as a new roof or major renovation) can also be added to the ACB. Ongoing maintenance costs cannot be included.
Tax-Efficient Strategies for Managing Capital Gains
1. Use Tax-Sheltered Accounts
Investments held in a TFSA, RRSP, FHSA, or RESP are completely sheltered from capital gains tax while inside the account. Prioritize holding investments with high growth potential in these registered accounts.
2. Tax-Loss Harvesting
Strategically sell losing investments to realize capital losses that offset your capital gains. Replace poor performers with similar (but not identical) investments to maintain your portfolio allocation while generating a tax benefit.
3. Time Your Dispositions
If you have a large capital gain, consider splitting the sale across two calendar years to avoid pushing all the gain into a single high-income year.
4. Donate Appreciated Securities
Donating publicly traded securities directly to a registered charity eliminates the capital gains tax entirely (0% inclusion rate) and provides a charitable donation tax credit. This is far more tax-efficient than selling the security and donating the cash.
5. Claim the Principal Residence Exemption
Ensure you properly designate your home as your principal residence when selling to claim the full exemption. File Form T2091 with your tax return.
Registered vs Non-Registered Accounts for Capital Gains
| Feature | TFSA | RRSP | Non-Registered |
|---|---|---|---|
| Capital gains tax | None | Deferred (taxed as income on withdrawal) | 50% inclusion rate |
| Capital losses | Cannot be claimed | Cannot be claimed | Can offset gains |
| Contribution limits | $7,000/year (2025) | 18% of income (max $32,490) | Unlimited |
| Withdrawal tax | None | Taxed as income | Capital gains tax applies |
| Best for | Tax-free growth on high-growth investments | Tax deduction now, income later | Amounts exceeding registered room |
For most Canadians, the optimal strategy is to maximize contributions to registered accounts first, then invest in non-registered accounts. Use our investment calculator to project growth in different account types.
Capital Gains Tax by Province
Capital gains tax rates vary by province because each province has its own income tax brackets. Select your province for a detailed breakdown of capital gains tax rates, brackets, and a worked example specific to your province:
| Province / Territory | Top Combined Rate | Effective CG Rate |
|---|---|---|
| Ontario | 53.53% | 26.77% |
| Alberta | 48.00% | 24.00% |
| British Columbia | 53.50% | 26.75% |
| Quebec | 58.75% | 29.38% |
| Manitoba | 50.40% | 25.20% |
| Saskatchewan | 47.50% | 23.75% |
| New Brunswick | 52.50% | 26.25% |
| Nova Scotia | 54.00% | 27.00% |
| Prince Edward Island | 52.00% | 26.00% |
| Newfoundland and Labrador | 54.80% | 27.40% |
| Northwest Territories | 47.05% | 23.53% |
| Nunavut | 44.50% | 22.25% |
| Yukon | 48.00% | 24.00% |
Related Calculators
- Income Tax Calculator — Calculate your combined federal and provincial tax
- TFSA Calculator — Plan tax-free investment growth
- RRSP Calculator — Estimate RRSP contribution room and tax deductions
- Investment Calculator — Project long-term portfolio growth
- Dividend Calculator — Calculate dividend income and tax credits
- Land Transfer Tax Calculator — Estimate property purchase taxes
- Inflation Calculator — Understand how inflation affects real returns
- Tax Brackets — View all federal and provincial tax brackets
Reduce Your Capital Gains Tax With Registered Accounts
Investments held in a TFSA or FHSA are completely sheltered from capital gains tax. You can start investing in these tax-advantaged accounts commission-free and get a $25 bonus when you open an account. Learn how to start investing with our step-by-step guide.