How are capital gains taxed in Canada? Only half of a capital gain is added to your income and taxed at your regular marginal rate — the 50% inclusion rate. Despite the headlines, that rate is unchanged for 2026: the proposed increase to a two-thirds rate, announced in 2024, was cancelled in March 2025 and never became law, so there’s no $250,000 two-tier system. Here’s how a capital gain is calculated, what your capital gains tax actually works out to, what’s exempt, and how to plan the timing.
Table of contents
- What is a capital gain, and how is it taxed in Canada?
- Did the capital gains inclusion rate change? (the 2024–2025 story)
- How do you calculate capital gains tax? (worked examples)
- What capital gains are exempt or reduced?
- Capital gains on common assets: property, stocks, crypto, a business
- How do you plan around capital gains tax? (the levers that actually help)
- Capital gains and your corporation (brief)
- Is a capital gain in your future? (quick decision box)
- Frequently asked questions
What is a capital gain, and how is it taxed in Canada?
Capital gain = proceeds − adjusted cost base (ACB) − outlays
A capital gain is the profit you make when you sell (or are considered to have sold) a capital property — real estate, stocks, a business, crypto — for more than it cost you. The formula is plain-English arithmetic: proceeds of disposition (what you sold it for), minus your adjusted cost base (ACB) — generally what you paid, plus certain capital additions and adjustments — minus outlays and expenses (legal fees, commissions, and the like) directly tied to the sale. What’s left is your capital gain. Sell for less than your ACB plus outlays, and you have a capital loss instead.
The 50% inclusion rate: only half your gain is taxable
Canada doesn’t tax the whole gain. The inclusion rate is the fraction of a capital gain that counts as income for tax purposes, and for 2026 it’s 50% — one-half. Realize a $60,000 capital gain and $30,000 of it — the taxable capital gain — gets added to your income; the other $30,000 is never taxed. That’s the rule CRA’s rules on taxable capital gains (line 12700) spell out, and it’s reported on Schedule 3 of your T1, flowing to line 12700.
Your “capital gains tax rate” is really your marginal rate on the taxable half
There is no separate flat capital-gains tax rate in Canada. The taxable half of your gain is simply added on top of your other income for the year and taxed at your ordinary marginal tax rate — whatever bracket that extra income lands in. A retiree with modest income and a high-earning professional with the same-size gain pay very different amounts, because the taxable half is taxed exactly like any other dollar of income once it’s added in. For an Ontario taxpayer already in the top bracket, a combined federal-provincial marginal rate of roughly 53.5% on the taxable half works out to an effective rate of about 26.75% on the whole gain — illustrative only; confirm the current rate before relying on it.
Did the capital gains inclusion rate change? (the 2024–2025 story)
What was proposed
Budget 2024 (25 June 2024) proposed raising the inclusion rate from one-half to two-thirds — on individual gains above $250,000 a year, and on all capital gains realized by corporations and most trusts, regardless of amount. It was the single biggest capital-gains change floated in years, and it drove a wave of searches that hasn’t fully settled since.
What actually happened
The change was never legislated. The government first deferred the start date to 1 January 2026 — announced in the Government of Canada’s announcement on the inclusion-rate change (January 2025) — and then cancelled the proposal entirely in March 2025, as confirmed by CRA’s “What’s new for corporations” and the Department of Finance’s Report on Federal Tax Expenditures 2026, which records that Budget 2025 confirmed the government would not proceed. It never passed into law at any rate, on any date.
Where the rate stands for 2026
For 2026, the inclusion rate is 50% for everyone — individuals, corporations, and trusts alike — with no $250,000 two-tier system and no higher rate on large gains. CRA’s “What’s new” for capital gains confirms the rate that actually applies. One detail that survived the reversal: the lifetime capital gains exemption (LCGE) increase — now $1,275,000 for 2026 after indexation — covered in our companion guide to the lifetime capital gains exemption, was kept.
*”In Canada, the capital gains inclusion rate is 50% for 2026 — only half of a capital gain is taxable — and the proposed increase to two-thirds was cancelled in 2025 and never became law.”*
The table below settles the “which rate applies” question at a glance.
| Proposed (Budget 2024) | Actual, for 2026 | |
|---|---|---|
| Inclusion rate | Two-thirds (66.67%) | One-half (50%) |
| Who it applied to | Individuals over $250,000/year; all corporate and most trust gains | Everyone — no exceptions |
| $250,000 individual threshold | Yes, proposed | No — never in effect |
| Status | Deferred (Jan 2025), then cancelled (Mar 2025) | In force since before 2024, unchanged |
| Legal effect | Never became law | Current rule |
How do you calculate capital gains tax? (worked examples)
Step 1: Find your adjusted cost base (ACB)
Start with what you paid for the property, plus certain additions — renovations to a rental property, a brokerage’s reinvested distributions, or legal costs on the purchase. That total is your ACB. CRA’s Capital Gains guide (T4037) walks through ACB adjustments property type by property type.
Step 2: Subtract ACB and selling costs from proceeds
Take what you sold the property for (proceeds of disposition), subtract your ACB, then subtract outlays and expenses — commissions, legal fees, and similar selling costs. The result is your capital gain (or loss).
Step 3: Apply the 50% inclusion rate
Multiply the gain by 50%. That’s your taxable capital gain — the amount that actually lands on your return.
Step 4: Add the taxable half to income and apply your marginal rate
Add the taxable capital gain to your other income for the year, then apply your marginal tax rate to work out the extra tax owing.
The table below illustrates the math at a few gain sizes, using an Ontario top combined marginal rate of roughly 53.5% — your own rate will depend on your total income for the year.
| Capital gain | Taxable half (50%) | Approx. tax at an Ontario top marginal rate (illustrative) |
|---|---|---|
| $10,000 | $5,000 | ~$2,675 |
| $50,000 | $25,000 | ~$13,375 |
| $100,000 | $50,000 | ~$26,750 |
| $250,000 | $125,000 | ~$66,875 |
*Figures are illustrative only — confirm the current combined marginal rate for your income level and province before relying on them. Most taxpayers pay less than the top rate; the taxable half is taxed at whatever bracket it falls into once added to your other income.*
Once you’ve run the math, the next step is making sure it’s reported correctly — that’s exactly what our personal tax filing service handles on your T1, Schedule 3 and all. If you’d rather talk through a sale before it happens, book a free 30-minute call — timing a disposition is far easier to plan ahead of the sale than to fix afterward.
What capital gains are exempt or reduced?
Your principal residence
The principal residence exemption can eliminate the taxable gain on your home for the years it qualified as your principal residence — see the principal residence exemption. You still have to report the sale on Schedule 3 and, if it wasn’t your principal residence for every year you owned it, file Form T2091 — skipping the reporting step, even when no tax is owing, can draw a penalty on its own.
Registered accounts (RRSP, TFSA, FHSA)
Gains earned inside a registered account — an RRSP, TFSA, or FHSA — aren’t taxed as capital gains at all. A TFSA’s growth and withdrawals are entirely tax-free; an RRSP or FHSA defers tax until you withdraw, at which point it’s taxed as ordinary income, not as a capital gain.
The lifetime capital gains exemption (LCGE) on qualifying business or farm shares
Selling shares of a qualifying small business, or qualifying farm or fishing property, can shelter up to $1,275,000 of the gain for 2026 under the LCGE — a separate, larger exemption than anything available on investments or real estate. It has its own qualifying tests (share type, holding period, active-business use), which our guide to the lifetime capital gains exemption covers in full.
Capital losses
A capital loss offsets a capital gain in the same year, and unused losses carry back three years or forward indefinitely against future gains. Watch the superficial-loss rule: sell an investment at a loss and buy back the same or identical property within 30 days before or after the sale (including in a spouse’s account), and CRA denies the loss.
Capital gains on common assets: property, stocks, crypto, a business
Real estate and the cottage
A second property — a cottage, rental, or investment condo — is fully taxable on its gain; there’s no principal-residence shelter unless you actually designate it as such (and you can only designate one property per family per year). At death, property is generally subject to a deemed disposition, which is where cottage succession planning most often meets capital-gains tax; our estate and succession planning team works through that alongside the tax return.
Stocks, ETFs, and mutual funds
Track your ACB carefully across every purchase, and remember that reinvested distributions — dividends or capital-gains distributions used to buy more units — increase your ACB. Miss that adjustment and you’ll overstate your gain (and overpay tax) when you eventually sell.
Cryptocurrency
Disposing of cryptocurrency — selling it, trading it for another coin, or spending it — is usually a capital gain or loss, calculated the same way as any other property. If you’re trading frequently and commercially, CRA may instead treat it as business income, taxed on the full amount rather than the taxable half; our cryptocurrency tax help walks through which side of that line your activity falls on.
Selling a business
A sale of business shares is a capital gain like any other — proceeds minus ACB — but qualifying small-business shares can draw on the LCGE, sheltering a substantial slice of the gain. Getting the share structure and timing right before a sale, not after, is most of the planning work here.
How do you plan around capital gains tax? (the levers that actually help)
Time your dispositions
Which tax year you realize a gain matters — spreading dispositions across years, or deferring a sale into a lower-income year, can keep more of the gain out of your top bracket.
Use capital losses
Deliberately selling an investment that’s underwater — tax-loss selling — to offset a gain elsewhere is a routine year-end move, most common in Q4. Just respect the 30-day superficial-loss window on either side of the sale.
Keep good ACB records
Poor ACB records are the single most common source of an over- or under-reported gain we see. Keep purchase confirmations, renovation receipts, and distribution statements for as long as you hold the property, not just the year you sell it.
Use your exemptions
Between the principal residence exemption, registered-account room, and the LCGE where you qualify, most taxpayers have more sheltering room available than they realize — but only if it’s claimed correctly and on time.
Capital gains and your corporation (brief)
The 50% inclusion applies to corporations too
The same half-taxable mechanics apply inside a corporation: only 50% of a corporate capital gain is taxable, added to the corporation’s income for the year.
The non-taxable half and the capital dividend account (CDA)
The non-taxable half of a corporate gain flows into the capital dividend account (CDA) — a notional account that lets the corporation pay that portion out to shareholders as a tax-free capital dividend, rather than a taxable one.
Corporate capital gains count toward passive income (AAII)
A corporation’s taxable capital gains also count toward adjusted aggregate investment income (AAII) — the passive-income measure that can grind down the small business deduction once it passes $50,000 a year. Our guide to the $50,000 passive-income rule and holding companies covers that mechanic in detail. For the corporate-return side of reporting a gain, our corporate tax filing services handle the T2 and Schedule 7 together.
Is a capital gain in your future? (quick decision box)
Selling property, investments, crypto, or a business?
→ Estimate the taxable half and plan the timing before you sell. Book a free 30-minute call and we’ll run the numbers with you.
Only principal-residence or registered-account gains involved?
→ Likely little or no tax — but still report the home sale and confirm the details apply to your situation.
Frequently asked questions
It’s 50% — only half of a capital gain is taxable, added to your income and taxed at your marginal rate. The proposed increase to a two-thirds rate was cancelled in March 2025 and never became law, so there’s no $250,000 two-tier system.
Subtract your adjusted cost base and selling costs from the proceeds to get the gain, include 50% of it in income, then apply your marginal tax rate. For example, a $100,000 gain adds $50,000 to income, taxed at your rate — roughly $26,750 at an Ontario top rate.
No. A rise from one-half to two-thirds was proposed in Budget 2024, deferred to 2026, then cancelled in March 2025. The inclusion rate stayed at 50% for individuals, corporations, and trusts — the same rate that has applied for years.
Usually not on your principal residence — the principal residence exemption can eliminate the gain for the years it was your main home. You still have to report the sale on Schedule 3. A second property or cottage is generally taxable on the gain.
Use capital losses to offset gains, time when you realize a gain, keep accurate adjusted cost base records, hold investments in registered accounts, and use exemptions like the principal residence exemption or the lifetime capital gains exemption where you qualify. Plan it with a CPA.
No — gains earned inside registered accounts like a TFSA, RRSP, or FHSA aren’t taxed as capital gains. TFSA withdrawals are tax-free; RRSP withdrawals are taxed as ordinary income later, but the growth itself isn’t taxed as a capital gain.
The same 50% inclusion applies. The taxable half is taxed in the corporation and counts as passive income (AAII) that can grind the small business deduction; the non-taxable half can be paid to shareholders tax-free through the capital dividend account (CDA).
Get your capital gains reported right — and planned ahead
None of this is a reason to panic about a sale — it’s routine reporting and timing, the kind we handle for individuals and incorporated owners across Toronto, Markham, and Richmond Hill every filing season. Whether it’s a property, a portfolio, crypto, or a business, our personal tax filing service makes sure your capital gain is calculated and reported correctly, and — where a sale is still ahead of you — book a free 30-minute call and we’ll help you plan the timing before you sell, not after.
Disclaimer: This article is general information, not personal tax advice. Your capital gains tax depends on your adjusted cost base, your other income, and which exemptions apply, so confirm your situation with a CPA before you sell or file.