Capital gains tax in Canada: how it works

Canada taxes half of a capital gain. The CRA’s capital gains guide sets the inclusion rate at 50%, as it has been every year since 2001. Half the gain is added to your income and taxed at your normal rate, federal plus provincial. Sell shares for C$20,000 more than you paid and C$10,000 goes on your return. A 2024 proposal to raise the rate to two-thirds for larger gains was cancelled in March 2025; the CRA’s current guide applies one-half.

Gains inside an RRSP, RRIF, TFSA or FHSA aren’t reported as capital gains at all. This guide is about everything else: non-registered investment accounts, rental property, a cottage, a business.

How the tax is worked out

The steps:

1. Proceeds are what you sold for.
2. Subtract the adjusted cost base (ACB), which is what you paid plus the costs of buying, and the costs of selling, such as commissions and legal fees.
3. The result is your capital gain or loss. Half of a gain is your taxable capital gain; half of a loss is your allowable capital loss.

Example: you bought shares for C$30,000 and sell for C$50,000, paying C$100 in commission. The gain is C$19,900 and the taxable part is C$9,950.

Two details trip people up:

• Identical shares are averaged. If you bought the same fund at different prices, your ACB is the average cost of all the units, recalculated with every purchase. Selling doesn’t change the average.
• Foreign investments are converted on each date. The CRA’s general rule is to convert the cost and the sale price at the Bank of Canada rate on the day of each transaction, not one rate for both.

How losses work

• Losses offset gains first. Allowable capital losses reduce taxable capital gains in the same year.
• Unused losses carry back three years or forward forever. A 2025 net capital loss can be applied to gains in 2022, 2023 or 2024, or held for any future year.
• They generally can’t reduce other income. Salary, interest and pension income aren’t offset by capital losses.
• Losses on personal-use property don’t count. A car or a boat sold at a loss gives you nothing.
• Superficial losses are denied. If you, or someone affiliated with you such as your spouse, buy the same or an identical property in the 30 days before or after you sell, and still own it 30 days after the sale, the loss is denied for now and added to the cost of the replacement.

Your home

A gain on your principal residence is usually tax-free. For a year to count, the property has to be a housing unit you own, alone or jointly; you, your spouse or partner, a former spouse or partner, or your child must have lived in it at some time that year; and you must designate it. A family can designate only one home per year, which matters if you own a house and a cottage.

You must report the sale. If you sell a principal residence, report it on Schedule 3 and complete Form T2091(IND). The CRA allows the exemption only if you report the sale and the designation.

Flipping is taxed in full. A home you owned for less than 365 consecutive days before selling is generally treated as business income, fully taxed and with no principal residence exemption. There are exceptions for life events, including death, separation, serious illness or disability, insolvency, an eligible relocation, and threats to personal safety.

Selling a business or farm

The lifetime capital gains exemption shelters gains on qualified small business corporation shares and qualified farm or fishing property. It was C$1,250,000 for 2025 dispositions and is C$1,275,000 for 2026, after indexation, according to the CRA. Qualifying takes planning years ahead; our guide to selling a business in Canada covers the conditions and the planning.

Common mistakes

• Losing track of your ACB. Reinvested distributions and purchases over many years all change the average cost. Without records, you can overstate your gain and overpay.
• Selling for a loss and buying back within 30 days. The superficial loss rule denies the loss. A spouse’s purchase counts too.
• Not reporting the sale of your home. The exemption isn’t automatic.
• Designating the wrong property. With a house and a cottage, the choice of which home to designate for which years matters most when both have grown in value.
• Selling a property within a year. Unless an exception applies, the whole gain is taxed as business income.
• Taking a large gain in one year by default. Half the gain lands in a single year’s income and can push you into a higher bracket or into the OAS clawback. Spreading sales across years, or pairing them with losses, can lower the bill.
• Holding growth investments in a non-registered account while TFSA room sits empty. Gains in a TFSA are never taxed. See how TFSA contribution room works.

Questions to ask

1. What’s my ACB, and do I have the records to back it up?
2. Should I sell this year, next year, or spread it out?
3. Do I have losses this year or carried forward that can offset the gain?
4. If I own two homes, which should I designate for which years?
5. Does my business qualify for the lifetime capital gains exemption, and what has to change if it doesn’t?
6. Could I donate appreciated shares instead of cash? The CRA’s guide provides a 0% inclusion rate for some gifts of listed securities to charity.

For any advisor, also ask: “Do you or your firm earn anything from the products you’d recommend?” A fee-only planner answers no.

When a fee-only planner is worth it

You don’t need a planner to report a small gain from one fund. A planner earns the fee before a large or unusual sale: a rental property, a cottage, a business, a big concentrated position, or a year when you’ll also start a pension or RRIF withdrawals. The value is in the timing and order of sales, which a tax preparer filing your return after the fact can’t change. Many planners work with your accountant on this; our guide to tax preparers vs tax planners explains who does what.

In Canada, advice-only planners who publish prices charge a median C$1,900 for a one-time plan (middle half C$950 to C$3,000), C$250 an hour (middle half C$170 to C$298), or C$2,300 a year for ongoing planning. Those medians come from 46, 15 and 21 firms, so get two quotes. On a sale with a six-figure gain, a one-time plan that moves part of it into a lower-income year can more than cover its cost. Our guide to what fee-only advisors charge in Canada explains what each price buys.

Where to look

Browse fee-only planners by province in the public graph: Ontario, British Columbia, Alberta, Quebec, Manitoba, Saskatchewan and Nova Scotia. You can also start from the tax planning, real estate investors or small business owners specialties, or the lists of advisors for real estate investors, advisors for small business owners and fee-only advisors in Ontario.

If you live or invest across the border, read cross-border advisors first, because the US taxes gains differently. For where new savings should go, see RRSP vs TFSA.