Capital Gains Tax in Canada

What Is a Capital Gain?

A capital gain occurs when you sell capital property for more than you paid for it:

• Stocks and shares
• Real estate (except principal residence)
• Bonds and mutual funds
• Cryptocurrency
• Art, collectibles, jewelry
• Business assets

How Capital Gains Are Taxed

The Inclusion Rate

• 50% inclusion: Only half of your gain is taxable
• Added to your other income
• Taxed at your marginal rate

Example Calculation

• Buy shares for $10,000
• Sell for $15,000
• Capital gain: $5,000
• Taxable capital gain: $2,500 (50%)
• If marginal rate is 40%: Tax = $1,000

Adjusted Cost Base (ACB)

The ACB is your cost for tax purposes:

What's Included in ACB

• Purchase price
• Commissions and fees (buying and selling)
• Legal fees
• Transfer taxes

ACB for Multiple Purchases

When you buy the same security at different prices:

• Calculate weighted average cost
• Total cost ÷ Total shares = ACB per share
• Must track separately for each security

Example

• Buy 100 shares at $10 = $1,000
• Buy 100 shares at $15 = $1,500
• Total: 200 shares, $2,500 cost
• ACB per share: $12.50

Capital Losses

Using Capital Losses

• Offset capital gains in the same year
• Carry back 3 years
• Carry forward indefinitely
• Only 50% of loss is deductible (matches inclusion)

Superficial Loss Rule

Loss denied if:

• Buy same or identical property
• Within 30 days before or after sale
• You or affiliated person acquires it
• Loss added to ACB of new shares

Capital Gains Exemptions

Principal Residence Exemption

• Gains on your home are tax-free
• One principal residence per family per year
• Must designate on Schedule 3
• Partial exemption if not always principal residence

Lifetime Capital Gains Exemption (LCGE)

For qualified small business shares and farm/fishing property:

• 2024 limit: $1,016,836
• Indexed to inflation annually
• Strict qualification rules
• Professional advice recommended

Reporting Capital Gains

Schedule 3

Report on Schedule 3 of your T1:

• Shares of corporations
• Real estate
• Other capital property
• Principal residence designation

Information You Need

• Description of property
• Date acquired
• Proceeds of disposition
• ACB
• Outlays and expenses

Special Situations

Deemed Dispositions

Capital gains can be triggered without selling:

• Death (deemed disposition at FMV)
• Leaving Canada
• Gift of property
• Transfer to/from trust

Foreign Property

• Same rules apply to foreign investments
• Convert to CAD at transaction dates
• May have foreign tax credits
• T1135 if cost over $100,000

Mutual Funds and ETFs

• May receive capital gains distributions
• Reported on T3 or T5 slips
• Also have gains when you sell
• Track ACB including reinvested distributions

Capital Gains Strategies

Tax-Loss Harvesting

• Sell losing investments to offset gains
• Respect superficial loss rule
• Year-end planning opportunity

Timing of Sales

• Defer gains to lower-income years
• Realize gains in retirement
• Spread gains over multiple years

Use Tax-Sheltered Accounts

• TFSA: No capital gains tax ever
• RRSP: Tax-deferred growth
• RESP: Tax-free growth for education

Donate Appreciated Securities

• No capital gains tax on donated securities
• Receive donation receipt for FMV
• Must donate directly to charity

Capital Gains vs. Income

CRA may characterize gains as business income if:

• Frequent trading
• Short holding periods
• Trading is your business
• Borrowed money to invest

Business income is 100% taxable (not 50%).

Record Keeping

Keep records for at least 6 years:

• Purchase confirmations
• Sale confirmations
• ACB calculations
• Dividend reinvestment records
• Return of capital adjustments