Capital Gains Tax in Canada 2025

What Is a Capital Gain?

A capital gain occurs when you sell capital property for more than you paid for it. Common examples include:

• Stocks and shares – publicly traded or private company shares
• Real estate – investment properties (principal residence is usually exempt)
• Bonds and mutual funds – including ETFs
• Cryptocurrency – Bitcoin, Ethereum, and other digital assets
• Art, collectibles, jewelry – valuable personal property
• Business assets – equipment, goodwill, etc.

How Capital Gains Are Taxed

The 50% Inclusion Rate

• 50% inclusion: Only half of your gain is added to taxable income
• Added to other income: Combined with employment, interest, etc.
• Taxed at marginal rate: Your highest tax bracket applies

Example Calculation

Adjusted Cost Base (ACB)

The ACB is your cost for tax purposes. It's crucial for calculating your actual capital gain or loss.

What's Included in ACB

• Purchase price – what you paid for the investment
• Commissions and fees – both buying and selling costs
• Legal fees – for real estate transactions
• Transfer taxes – land transfer tax, etc.

ACB for Multiple Purchases

When you buy the same security at different prices, you must calculate a weighted average:

• Calculate weighted average cost – across all purchases
• Formula: Total cost ÷ Total shares = ACB per share
• Track separately – for each security you own

ACB Example

Capital Losses

Using Capital Losses

• Offset gains same year: Deduct losses from gains
• Carry back 3 years: Apply to previous years' gains
• Carry forward indefinitely: Use against future gains
• 50% allowable: Only 50% of loss is deductible (matches inclusion rate)

Superficial Loss Rule

Your loss is denied if:

• You buy back: Same or identical property
• Timing: Within 30 days before or after the sale
• Affiliated persons: You, your spouse, or a corporation you control acquires it
• Loss preserved: Added to ACB of the new shares (recovered when you eventually sell)

Capital Gains Exemptions

Principal Residence Exemption (PRE)

• Tax-free gains: Profits on your home are not taxed
• One per family: Only one principal residence per family per year
• Designation required: Must designate on Schedule 3 when selling
• Partial exemption: Available if not always used as principal residence

Lifetime Capital Gains Exemption (LCGE)

For qualified small business corporation shares and farm/fishing property:

• 2025 limit: $1,016,836 (indexed annually)
• Qualification rules: Strict requirements must be met
• QSBC shares: Must be a Canadian-controlled private corporation
• Professional advice: Highly recommended for LCGE claims

Reporting Capital Gains

Schedule 3

Report all capital gains on Schedule 3 of your T1 tax return:

• Shares of corporations – stocks, ETFs, mutual funds
• Real estate – investment properties
• Other capital property – crypto, collectibles, etc.
• Principal residence designation – required when selling your home

Information You Need

• Description of property – what you sold
• Date acquired – when you bought it
• Proceeds of disposition – what you sold it for
• ACB – your cost base
• Outlays and expenses – selling costs

Special Situations

Deemed Dispositions

Capital gains can be triggered without actually selling:

• Death: Deemed disposition at FMV (rollover to spouse possible)
• Leaving Canada: Departure tax on most assets
• Gift of property: Deemed disposed at FMV
• Transfer to/from trust: May trigger gains

Foreign Property

• Same rules apply: To foreign investments
• Currency conversion: Convert to CAD at transaction dates
• Foreign tax credits: May be available
• T1135 required: If foreign property cost over $100,000

Mutual Funds and ETFs

• Capital gains distributions: You may receive these annually
• Tax slips: Reported on T3 or T5 slips
• Your own gains: When you sell units
• ACB tracking: Include reinvested distributions in your ACB

Capital Gains Tax Strategies

Tax-Loss Harvesting

• Sell losers: To offset gains
• Superficial loss rule: Wait 31 days before rebuying
• Year-end planning: Review portfolio in December

Timing of Sales

• Defer gains: To lower-income years
• Realize in retirement: When marginal rate is lower
• Spread gains: Over multiple years if possible

Use Tax-Sheltered Accounts

• TFSA: No capital gains tax ever – 100% tax-free
• RRSP: Tax-deferred growth until withdrawal
• RESP: Tax-free growth for education
• FHSA: Tax-free growth for first home

Donate Appreciated Securities

• Zero capital gains tax: On donated securities
• Donation receipt: For full fair market value
• Requirement: Must donate directly to registered charity

Capital Gains vs. Business Income

CRA may characterize your gains as 100% taxable business income if:

• Frequent trading: High volume of transactions
• Short holding periods: Day trading pattern
• Trading is your business: Primary income source
• Borrowed money: To invest heavily

Important: Business income is 100% taxable, not 50%. This can double your tax bill.

Record Keeping

Keep records for at least 6 years after selling:

• Purchase confirmations – original buy transactions
• Sale confirmations – all sell transactions
• ACB calculations – running totals
• Dividend reinvestment records – DRIP purchases
• Return of capital adjustments – reduce your ACB