If you've been dreading the proposed capital gains tax increase, we have good news: it was cancelled. The 2024 proposal to increase the inclusion rate to 66.7% never went through. Capital gains in Canada are still taxed at the 50% inclusion rate — meaning only half of your gain is subject to tax.
How Capital Gains Tax Works in Canada
The Formula (2026)
What This Means for You
If you're in a 40% tax bracket and you make a $100,000 capital gain, only $50,000 is taxable. You pay $20,000 in tax (40% of $50,000), which is an effective rate of 20% on the full gain. This is significantly better than regular income, which would be taxed at the full 40%.
Calculate Your Capital Gains Tax
Use our calculator to see exactly how much tax you'll owe on your capital gain and what you'll keep.
Capital Gains Tax Calculator
Calculate how much tax you'll owe on your capital gain and what you'll actually keep.
Not including capital gain
Good news! The proposed increase to 66.7% inclusion rate was cancelled. Capital gains are still taxed at 50% inclusion rate, meaning only half of your gain is taxable. Your effective tax rate of 14.8% is calculated as: $25,000 (taxable) × 29.6% (marginal rate) = $7,413 tax.
Major Tax Exemptions
Principal Residence Exemption
Zero tax on your primary home sale
- ✓Sell your principal residence for any amount — pay $0 tax
- ✓Must be your primary home for every year owned
- ✓One principal residence per family unit at a time
- ✓No lifetime limit — sell multiple homes over your lifetime tax-free
Lifetime Capital Gains Exemption (LCGE)
$1.25 million tax shelter for business owners
- •Applies to qualified small business corporation shares
- •Applies to qualified farm and fishing property
- •Can shelter up to $1.25M in gains completely tax-free
- •Complex qualification rules — consult a tax professional
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Real-World Examples
Let's look at three common scenarios to see how capital gains tax works in practice:
Stock Portfolio Sale
Selling stocks in a non-registered account
Scenario:
- •David, Ontario: Sold stocks for $80,000 profit
- •Annual income: $95,000 from employment
- •Capital gain: $80,000
Result:
Effective tax rate of 19% on the gain — much better than the 38% he'd pay on regular income!
Cryptocurrency Gains
Bitcoin long-term hold and sale
Scenario:
- •Sarah, BC: Bought Bitcoin in 2020 for $15,000
- •Sold in 2026: For $120,000
- •Annual income: $65,000 from employment
Result:
By holding long-term and treating it as an investment (not day trading), Sarah benefits from capital gains treatment.
Small Business Sale (Using LCGE)
Lifetime capital gains exemption in action
Scenario:
- •Michael, Alberta: Selling his tech consulting business
- •Sale price: $2,000,000
- •Original cost: $50,000 (startup costs)
- •Qualifies for LCGE: Yes (qualified small business shares)
Result:
The LCGE saved him approximately $300,000 in taxes. Without it, he'd owe ~$468,000 total. This is why proper business structuring and planning is crucial!
Strategies to Minimize Capital Gains Tax
Time Your Sales
Realize gains in low-income years (between jobs, retirement, sabbatical) to stay in a lower tax bracket. Your marginal rate determines the tax you pay.
Offset Gains with Losses
Harvest capital losses to offset gains in the same year. Losses can be carried back 3 years or forward indefinitely.
Use Your TFSA & RRSP
Investments in TFSAs grow completely tax-free (no capital gains tax). RRSPs defer tax until withdrawal. Max these out before investing in non-registered accounts.
Donate Appreciated Securities
Donating stocks/ETFs directly to charity eliminates capital gains tax AND gives you a donation tax credit. Better than selling and donating cash.
Frequently Asked Questions
Frequently Asked Questions
Q:What counts as a capital gain?
A:A capital gain is the profit you make when you sell an asset for more than you paid for it. This includes stocks, bonds, mutual funds, ETFs, investment properties (not your principal residence), cryptocurrencies, and business assets. For example, if you bought shares for $10,000 and sold them for $15,000, you have a $5,000 capital gain.
Q:How are stocks taxed in Canada?
A:When you sell stocks for a profit, you pay capital gains tax on 50% of the gain. For example, if you made $10,000 profit on stocks, only $5,000 is taxable income added to your return. You then pay tax at your marginal rate on that $5,000. If you're in a 30% tax bracket, you'd pay $1,500 in tax (30% of $5,000), for an effective rate of 15% on the full $10,000 gain.
Q:What is the principal residence exemption?
A:The principal residence exemption allows you to sell your primary home completely tax-free, regardless of how much profit you make. To qualify, the property must be your principal residence for every year you owned it. You can only have one principal residence at a time (per family unit). This means you can buy a home for $500,000, sell it 10 years later for $1,200,000, and pay zero capital gains tax on the $700,000 profit.
Q:What is the lifetime capital gains exemption?
A:The Lifetime Capital Gains Exemption (LCGE) allows you to shelter up to $1,250,000 (for 2025 and 2026) in capital gains from the sale of qualified small business shares or qualified farm/fishing property. This means you can potentially sell a qualifying business for a significant profit and pay zero tax on gains up to this amount. The exemption is indexed to inflation and increases each year.
Q:What about cryptocurrency - is that taxed as capital gains?
A:Yes, cryptocurrency is taxed as a capital gain (or loss) when you sell it or trade it for another cryptocurrency. Buying Bitcoin for $5,000 and selling it for $15,000 results in a $10,000 capital gain, with $5,000 being taxable. However, if you're mining crypto or trading frequently, the CRA may consider it business income (100% taxable), not capital gains. Keep detailed records of all transactions.
Q:How do I calculate capital gains on inherited property?
A:When you inherit property, you acquire it at its fair market value on the date of death. The deceased's estate pays capital gains tax on any appreciation up to that point. When you later sell the property, your capital gain is calculated from the inherited value to your sale price. For example, if you inherit a cottage valued at $400,000 and sell it for $450,000, you have a $50,000 capital gain.
Question: What counts as a capital gain?
Answer: A capital gain is the profit you make when you sell an asset for more than you paid for it. This includes stocks, bonds, mutual funds, ETFs, investment properties (not your principal residence), cryptocurrencies, and business assets. For example, if you bought shares for $10,000 and sold them for $15,000, you have a $5,000 capital gain.
Question: How are stocks taxed in Canada?
Answer: When you sell stocks for a profit, you pay capital gains tax on 50% of the gain. For example, if you made $10,000 profit on stocks, only $5,000 is taxable income added to your return. You then pay tax at your marginal rate on that $5,000. If you're in a 30% tax bracket, you'd pay $1,500 in tax (30% of $5,000), for an effective rate of 15% on the full $10,000 gain.
Question: What is the principal residence exemption?
Answer: The principal residence exemption allows you to sell your primary home completely tax-free, regardless of how much profit you make. To qualify, the property must be your principal residence for every year you owned it. You can only have one principal residence at a time (per family unit). This means you can buy a home for $500,000, sell it 10 years later for $1,200,000, and pay zero capital gains tax on the $700,000 profit.
Question: What is the lifetime capital gains exemption?
Answer: The Lifetime Capital Gains Exemption (LCGE) allows you to shelter up to $1,250,000 (for 2025 and 2026) in capital gains from the sale of qualified small business shares or qualified farm/fishing property. This means you can potentially sell a qualifying business for a significant profit and pay zero tax on gains up to this amount. The exemption is indexed to inflation and increases each year.
Question: What about cryptocurrency - is that taxed as capital gains?
Answer: Yes, cryptocurrency is taxed as a capital gain (or loss) when you sell it or trade it for another cryptocurrency. Buying Bitcoin for $5,000 and selling it for $15,000 results in a $10,000 capital gain, with $5,000 being taxable. However, if you're mining crypto or trading frequently, the CRA may consider it business income (100% taxable), not capital gains. Keep detailed records of all transactions.
Question: How do I calculate capital gains on inherited property?
Answer: When you inherit property, you acquire it at its fair market value on the date of death. The deceased's estate pays capital gains tax on any appreciation up to that point. When you later sell the property, your capital gain is calculated from the inherited value to your sale price. For example, if you inherit a cottage valued at $400,000 and sell it for $450,000, you have a $50,000 capital gain.
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FHSA Guide
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Need Personalized Tax Planning?
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