Capital gains tax in Canada is payable on 50% of your investment profits. This amount is added to your income for the year, and the amount of tax you’ll pay depends on your income tax bracket.
You must pay tax on capital gains that are "realized," or that generate income and profit. There are some exemptions to the capital gains tax in Canada, including the primary residence exemption.
The rules are changing in 2025/2026, so it’s important to keep up with the official guidelines. Below, you'll find an overview of how capital gains tax works in Canada.
Key Takeaways
- Capital gains tax in Canada is based on 50% of your profit when selling capital assets, and this is added to your income for the year.
- As of January 2025, Canadians pay 66.67% on profits over $250,000.
- The amount of overall tax you have to pay depends on your tax bracket (including your investment profits).
- You only need to pay capital gains tax on investments you've realized – and your primary residence is exempt.
- You can reduce capital gains tax by offsetting with capital losses and holding your investments in registered accounts.
What is the capital gains tax?
Capital gains tax is the tax you pay on profits earned from selling capital assets, such as investments or properties. If you’re trying to save money on taxes, you need to understand this.
Capital gain definition: The profit you gain when you sell capital assets.
Capital loss definition: The loss experienced when you sell a capital asset for less than you paid for it.
In Canada, you pay capital gains tax on 50% of your profits up to $250,000 and 66.67% of profits over $250,000.
This is called an inclusion rate. The rate is not 50% or 66.7% on your profit – instead, that portion of your gains is considered taxable at your marginal tax rate (which is based on your income). Businesses and trusts always have the higher rate.
Capital gains tax applies to:
- Stocks
- Bonds
- Mutual funds
- ETFs
- Cryptocurrency
- NFTs
- Rental properties
- Cottages
- Business assets
Capital gains tax does not usually apply to:
- Cars
- Boats
- Your principal residence
- Other personal-use properties that depreciate over time
Some personal-use items, like rare cars or coins, may be subject to capital gains tax.
There are some exemptions to capital gains tax, as discussed below.
How the capital gains tax works in Canada
In Canada, capital gains tax is part of the country’s progressive tax system.
Canada’s progressive tax system: Every person is taxed differently according to the amount and source of their income (employment, capital gains, etc.). The amount determines your tax bracket.
Capital gains = income: Any capital gains are added to your income to be taxed when the tax deadline comes around.
You only pay a portion: Only a portion of your capital gains are taxable, whereas your employment income is fully taxable. This is also called a capital gains inclusion rate.
It's possible to defer taxes on capital gains. One way is to keep the asset or profits in your possession – for instance, you could sell a number of stocks and then immediately reinvest those profits. This is called an "unrealized" gain.
Another way to defer capital gains tax is to claim a capital gains reserve. This allows you to defer that tax for up to four years, ideally until your income bracket is lower and you’d pay less overall tax.
The 50% and 66.67% rates have been the practice in Canada since the summer of 2024 when the CRA announced the change on the heels of legislation. While the policy was never officially passed, these rates were accepted and put into use by the CRA.
Rates for the capital gains tax in Canada may change after the 2025 federal election.
Example of capital gains tax in Canada
Let’s say you decide to sell some stocks from your investment portfolio to pay for a home project.
To find out how much of your gain is taxable under capital gains tax, you must first calculate your profit. Some institutions calculate this for you, but self-directed investors may have to do their own math. It’s up to you whether to use tax software or an accountant.
Here’s the equation you need to know:
Proceeds of disposition – (ACB + expenses to sell asset) = capital gain
Proceeds are just your profit. ACB means adjusted cost base, which is basically your original cost plus any commissions.
Here’s an example:
When you bought it: 40 shares for $50 each (value then) = $2,000
When you sold it: 40 shares for $75 each (value now) = $3,000
So, in this case, your profit is $1,000.
If you were a self-directed investor and paid no commission to buy or sell, your ACB would be $2,000 (the original value).
In this case, $2,000 – $1,000 = $1,000
Because your capital gain is under $250,000, only 50% of this is subject to capital gains tax. So, you would report 50% of that profit ($500) as taxable capital gains.
Exemptions: When you sell assets within registered accounts like RRSPs, TFSAs, RESPs, and FHSAs, those profits are exempt or deferred from the capital gains tax. That’s why they’re called "tax-advantaged" accounts.
The sale of your principal residence is also exempt from capital gains tax.
Free tax software varies in quality – sometimes it will struggle with exemptions, so be thoughtful.
How to calculate your capital gains tax
The Canada Revenue Agency has a detailed guide for calculating your capital gains tax.
Here are some common examples of capital gains tax in Canada – notice how rates vary by province and by income bracket:
| Area in Canada | Income (excluding gain) | Capital gain | Capital gains tax rate | Tax owed on capital gain |
|---|---|---|---|---|
| British Columbia | $45,000 | $5,000 | 10.03% | $501.50 |
| Newfoundland & Labrador | $100,000 | $100,000 | 20.21% | $20,209 |
| Ontario | $60,000 | $1,000 | 14.83% | $148.30 |
| Quebec | $75,000 | $400,000 | 26.95% | $107,783 |
We haven’t seen any announcements for 2025 changes yet, so these are all based on 2024 rates.
Remember to include all applicable expenses and outlays, such as transfer taxes and legal fees.
The new 2025 rules for capital gains tax in Canada
In June 2024, the inclusion rate changed for capital gains tax in Canada:
- Individuals: 66.67% on all capital gains over $250,000
- Businesses and trusts: 66.67% on all capital gains
But that’s no longer the case – for 2025, that is.
On January 31, 2025, the new inclusion rate has been officially deferred until January 2026. Right now and for the rest of 2025, the rate will still be 50% for individuals on capital gains under $250,000.
However, other 2024 changes will be maintained in 2025 and going forward. These include:
- The lifetime capital gains exemption is increased from $1,015,836 to $1.25 million on the sale of small business shares and farming and fishing property.
- The Canadian Entrepreneurs’ Incentive reduces the inclusion rate for a progressively greater lifetime maximum amount, reaching $2M in 2029, to encourage entrepreneurship.
In 2026, all Canadians will have a $250,000 annual threshold for capital gains.
As it stands, no Canadian pays more than 27% capital gains tax on gains less than $250,000.
The federal government's announcement on the subject says that these changes will create a fairer tax system in Canada by making taxation more income-neutral. They reduce the tax gap between capital gains and other types of income, especially wages.
How to lower your capital gains tax
To lower your capital gains tax in Canada, you can offset losses, keep your gains in a tax shelter, or donate your assets.
- Tax loss harvesting: Sell an investment that's currently worth less than when you bought it. This triggers a capital loss, which can be applied to a capital gain to reduce the amount you owe.
- Tax shelter: Keep your profits inside a tax-sheltered account like an RRSP.
- Co-own assets: Thresholds are different for couples than individuals. You can divide a capital gain between 2 people.
- Donate: You don't pay tax on donated assets and securities.
- Sell your home: You’re exempt on the first $250,000 of profits when you sell your principal residence, or $500,000 if you file jointly with a partner.
It’s always best to consult with a tax professional about your specific situation, though you can start with tax software like H&R Block or TurboTax.
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What are capital gains?
Capital gains are the profit you make on an investment that increases in value after you buy it, considering any fees you pay when buying and selling. They're considered to be realized (taxable) once you sell the share.
What is the new capital gains tax in Canada?
Starting in 2026, individuals will pay tax on 66.67% of their capital gains over $250,000. Businesses and trusts will pay on 66.67% of their capital gains. These rules are meant to make tax rules fairer.
What are realized vs. unrealized capital gains?
Capital gains are unrealized when you own an investment that has gone up in value since you bought it. When you sell your share and cash out on your profit, your capital gains become realized and tax is triggered.
What is the $500,000 capital gains exemption in Canada?
$500,000 is exempt from capital gains when selling a principal residence. The new rule allows a couple to avoid $500,000 capital gains tax when selling a secondary property because of the $250,000 per person annual threshold.
How do I calculate capital gains on a property?
To calculate capital gains on a property, subtract the selling price (and associated expenses) from the purchase price. 50% of profits under $250,000 will be subject to capital gains tax. Your primary residence is exempt.
What’s the standard capital gains tax rate?
There is not one standard capital gains tax rate. Capital gains only determine what percentage of your capital gains will be taxable (aka added to your employment income). This sum is calculated based on your income and your tax bracket.
How does the capital gains tax work with property flipping?
Capital gains on flipped properties are considered business income and are thus fully taxable. In 2025, 50% of profits under $250,000 are subject to this tax. In 2025, that will rise to 66.67% for businesses.
How do I avoid capital gains tax in Canada?
One of the best ways to avoid or defer capital gains tax is by investing in a tax-sheltered account, like an RRSP or TFSA. Donating assets and selling your home can also help lower your capital gains taxes.
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