In Canada, the capital gains tax inclusion rate is 50%, meaning only half of the profit from selling an asset is added to your taxable income and taxed at your marginal rate.1Department of Justice Canada. Income Tax Act – Section 38 A 2024 Federal Budget proposal would have raised that rate to two-thirds on larger gains, but Prime Minister Mark Carney cancelled the increase on March 21, 2025, so the 50% rate remains in place for 2025 and 2026.2Office of the Prime Minister of Canada. Prime Minister Carney Cancels Proposed Capital Gains Tax Increase On a $200,000 profit, $100,000 is included in income; the other $100,000 is never taxed.
How the 50% Rate Actually Works
Section 38 of the Income Tax Act defines your “taxable capital gain” as one-half of the gain you realize on a disposition. That included half is stacked on top of your other income for the year and taxed at whatever marginal rate applies. The remaining half never enters the tax system at all.
The rate is the same for individuals, corporations, and trusts. It is also the same regardless of holding period. Canada draws no distinction between short-term and long-term gains: a stock held two months and one held twenty years are treated identically. Your effective tax on a gain therefore depends entirely on your marginal bracket for the year you sell.
What Happened to the Proposed Increase
The 2024 Federal Budget would have kept the 50% rate for individuals on the first $250,000 of annual capital gains, then applied a two-thirds inclusion rate to the amount above that threshold. Corporations and most trusts would have moved to two-thirds on all gains, with no threshold.3Department of Finance Canada. Capital Gains Inclusion Rate The proposed effective date was June 25, 2024.
Parliament was prorogued in January 2025 before the legislation passed, though the Canada Revenue Agency had been administratively applying the higher rates to 2024 returns. Prime Minister Carney’s March 21, 2025 announcement cancelled the proposal entirely. If you filed a 2024 return under the proposed higher rates, check the CRA’s guidance on adjustments.
Calculating a Taxable Capital Gain
Three numbers do the work. Start with your proceeds of disposition, usually the sale price. Subtract your adjusted cost base, which is what you paid plus any capital improvements you made along the way. Then subtract outlays and expenses tied to the sale: real estate commissions, legal fees, transfer taxes, brokerage fees, advertising.4Canada Revenue Agency. Capital Gains – 2025 What remains is your capital gain. Multiply by 50% for the taxable capital gain that lands on your return.
A worked example: you bought shares for $50,000, paid $1,000 in brokerage fees on the way out, and sold for $80,000. Your capital gain is $29,000. Your taxable capital gain is $14,500. That $14,500 gets added to your employment income, business income, and everything else, and is taxed at your marginal rate.
When You Owe Nothing at All
Several dispositions escape the tax entirely.
The principal residence exemption is the biggest. Section 54 of the Income Tax Act defines a principal residence as a housing unit you or your family ordinarily inhabit during the years you own it.5Department of Justice Canada. Income Tax Act – Section 54 Sell your home at a profit and you owe nothing, provided the property qualifies for every year of ownership. You can only designate one property per year, so families with both a city home and a cottage need to choose strategically which years to shelter which property.
Gains inside a Tax-Free Savings Account are never taxed, even on withdrawal.6Canada Revenue Agency. Tax-Free Savings Account (TFSA) A Registered Retirement Savings Plan defers tax while investments grow inside it, but RRSP withdrawals are eventually taxed as ordinary income, not as capital gains. Donating publicly listed securities or ecological gifts to a qualified charity can reduce the taxable capital gain on those securities to zero.
The Lifetime Capital Gains Exemption shelters up to $1,250,000 (2025 figure) of gains on qualifying small business corporation shares or qualified farm or fishing property, and the limit is indexed to inflation starting in 2026.7Department of Finance Canada. Report on Federal Tax Expenditures – Concepts, Estimates and Evaluations 2026 Part 6 The exemption is claimed personally; corporations cannot use it. Qualifying small business shares must be in a Canadian-controlled private corporation where more than 50% of assets are used in an active Canadian business, and you or a related person must have held them for at least 24 months before the sale.8Canada Revenue Agency. Line 25395 – Capital Gains Deduction for Qualifying Business Transfer or Qualifying Cooperative Conversions The conditions are detailed and worth reviewing with an accountant before you rely on the exemption.
Using Losses to Reduce Gains
A capital loss (selling below your adjusted cost base) can only be applied against capital gains, not against employment income or other earnings. In any given year, you net your allowable capital losses (50% of your losses) against your taxable capital gains. If losses exceed gains, the net capital loss carries back three years or forward indefinitely to offset gains in other years.
One exception matters if you lose money on a small business. An Allowable Business Investment Loss, which arises on shares or debt of a qualifying small business corporation, can be deducted against any type of income, not just capital gains.9Canada Revenue Agency. Business Investment Loss The deductible ABIL equals the loss multiplied by the 50% inclusion rate, so a $100,000 business investment loss produces a $50,000 ABIL.
Deemed Dispositions: Death and Leaving Canada
Two events trigger the inclusion rate without any actual sale.
When someone dies, the CRA treats them as having sold all their property at fair market value immediately before death. The resulting capital gain, calculated the usual way and included at 50%, lands on the final tax return.10Canada Revenue Agency. Taxable Capital Gains on Property, Investments, and Belongings – Prepare Tax Returns for Someone Who Died Property passing to a surviving spouse or common-law partner resident in Canada rolls over tax-deferred: proceeds are deemed to equal the adjusted cost base, no gain arises, and the surviving spouse inherits the original cost base. The estate’s legal representative can elect out of this rollover on a property-by-property basis if triggering the gain on the final return makes better use of losses or the LCGE.
Emigrating from Canada triggers a similar deemed disposition, commonly called the departure tax. You are treated as selling your property at fair market value on the day you cease to be a resident.11Canada Revenue Agency. Dispositions of Property for Emigrants of Canada Several categories are carved out:
- Canadian real property, because Canada retains the right to tax it when you eventually sell.
- Registered accounts: RRSPs, RRIFs, TFSAs, RESPs, and other registered plans.
- Property you owned when you arrived (or inherited afterward) if you were a Canadian resident for 60 months or less in the 10 years before emigrating.
If the total fair market value of your property exceeds $25,000 at the time of departure, you must file Form T1161. Personal-use items worth under $10,000 each are excluded from that list.
Reporting and Deadlines
Individuals report on Schedule 3, categorizing dispositions by type. The taxable capital gain flows to line 12700 of the T1 return.12Canada Revenue Agency. Completing Schedule 3 Corporations report on Schedule 6 of the T2 return.13Canada Revenue Agency. T2 Corporation Income Tax Return – Schedule 6
Most individuals file by April 30. Self-employed taxpayers have until June 15, but any balance owing is still due April 30.14Canada Revenue Agency. Due Dates and Payment Dates – Personal Income Tax Late filing costs 5% of the unpaid balance plus 1% for each full month late, up to 12 months. If you were penalized for late filing in any of the three preceding years and the CRA sent a formal demand to file, the penalty doubles to 10% plus 2% per month for up to 20 months.15Department of Justice Canada. Income Tax Act – Section 162
A large gain can push you into quarterly instalments the following year. Instalments are required if your net tax owing exceeds $3,000 in the current year and also exceeded $3,000 in either of the two preceding years ($1,800 for Quebec residents).16Canada Revenue Agency. Required Tax Instalments for Individuals If a one-time gain doesn’t repeat and your tax owing drops back below $3,000, the obligation ends.
When the 50% Figure Isn’t the Full Story: AMT
The Alternative Minimum Tax runs on a broader definition of income. Under the reformed AMT rules in effect since 2024, capital gains are included at 100% when calculating minimum tax liability, not 50%. The AMT rate is 20.5%, applied after a basic exemption. You pay whichever is higher: regular tax or AMT. Any AMT paid above your regular tax can be carried forward and credited against regular tax in future years, so for most filers it operates as a timing charge rather than a permanent extra cost. Large one-time gains sheltered by deductions and credits are the situations most likely to bring it into play.