Canadians are investing more than ever, whether it’s in stocks, mutual funds, rental properties or small businesses, and the profits that come from selling these assets are subject to capital gains tax. This tax is different from regular income tax: only a portion of your profit is taxed, and many exemptions and planning strategies can reduce what you owe.
This guide explains capital gains tax in Canada in 2026, how the rules work, and what’s changing.
What Is a Capital Gain?
A capital gain occurs when you sell a capital asset (stocks, bonds, mutual funds, real estate, a business or other property) for more than you paid for it. According to the CRA, the difference between the sale proceeds and the asset’s adjusted cost base (ACB), which includes the purchase price and any acquisition costs such as commissions or legal fees, represents your capital gain. A capital loss is the opposite; it occurs when you sell for less than the ACB.
Why the Inclusion Rate Matters
Canada does not have a single capital gains tax rate. Instead, only a portion of your gain is taxable. For most individuals, the inclusion rate remains at 50 %; half of your net capital gain gets added to your income and is taxed at your marginal tax rate. For example, if your net gain is $10,000, your taxable capital gain is $5,000 and it will be taxed at whatever bracket you fall into. This makes capital gains more tax‑efficient than interest income, which is fully taxable.
Capital Gains vs. Interest and Dividend Income
Understanding how different types of investment income are taxed is critical to planning:
| Income type | Tax treatment (2026 rules) |
|---|---|
| Capital gains | Currently, only 50 % of the gain is taxable. |
| Interest income | Interest on non‑registered investments is fully taxed at your marginal rate. |
| Dividends | Dividends from Canadian corporations receive a dividend tax credit, so they’re taxed at a lower effective rate than interest. |
This table illustrates why capital gains are often preferred: only half of the profit is subject to tax, making them more efficient than many other forms of income.
How to Calculate Capital Gains Tax in Canada
Step 1: Determine the Adjusted Cost Base (ACB)
The adjusted cost base (ACB) is the total cost of acquiring an asset, including the purchase price plus commissions or legal fees. If you buy shares at different prices over time, you must average your costs. For example, Questrade explains that if you bought 100 shares for $15 plus a $5 commission and later bought 50 more shares at $12 plus a $5 commission, your total ACB would be $2,110 and your average cost per share $14.07.
Step 2: Calculate Your Capital Gain
Subtract the ACB and any selling costs from your sale proceeds. If you sold all 150 shares for $20 each, the proceeds would be $3,000, and your capital gain would be $3,000 – $2,110 = $890.
Step 3: Apply the Inclusion Rate
As of 2026, individuals generally include 50 % of capital gains in income. Using the example above, your taxable gain would be $890 × 50 % = $445. The taxable amount is then added to your total income and taxed at your marginal rate.
Note: Starting 1 January 2026, the federal government plans to raise the inclusion rate on annual capital gains above $250,000 (per individual) to two‑thirds (66.67 %). However, gains up to $250,000 per year will still be taxed at the 50 % rate. This change was originally set for 2024 but was deferred until 2026 to give taxpayers time to prepare.
What Are Capital Losses?
If you sell a capital asset for less than your ACB, you incur a capital loss. You can use capital losses to offset capital gains in the current year, or carry them back up to three years or forward indefinitely. However, losses in registered accounts (e.g., RRSPs) cannot be used to offset gains elsewhere.
When you use capital losses strategically to offset gains, it is known as tax‑loss harvesting. You should be aware of the “superficial loss” rule: you can’t claim a capital loss if you or someone affiliated with you repurchases the same investment within 30 days before or after the sale.
Reporting Capital Gains to the CRA
To report capital gains, you’ll need documents showing when you bought and sold the asset and the amounts involved. Brokers provide a T5008 slip showing the proceeds from a sale; you must also keep records of your purchase price (ACB) to determine the gain. When you file your tax return, you’ll enter the details on Schedule 3 of your T1 return. The CRA states that if you sell your principal residence, you must also complete Form T2091(IND) to designate the property as your principal residence.
For investments in foreign currency, the gain or loss must be calculated in Canadian dollars. Questrade emphasizes that the proceeds and cost base should be converted using the exchange rate on the transaction dates.
Capital Gains on Different Types of Assets
1. Stocks, ETFs, and Mutual Funds
Gains from selling securities in a non‑registered account are subject to the 50 % inclusion rate. Brokerage firms will issue a T5008 slip for the sale proceeds, but you must calculate your ACB to determine the gain.
Tax‑sheltered accounts – such as a Tax‑Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), First Home Savings Account (FHSA) or Registered Education Savings Plan (RESP) – shelter gains from immediate taxation.
- TFSA: Gains realized inside a TFSA are completely tax‑free. Withdrawals are also generally tax‑free, although over‑contributing will trigger penalty taxes.
- RRSP: Gains grow tax‑deferred in an RRSP. You pay tax only when you withdraw the funds, ideally when you’re in a lower tax bracket.
- FHSA & RESP: These accounts offer a mix of tax‑free or tax‑deferred growth for specific goals (home purchase or education).
2. Real Estate
Principal Residence
The principal residence exemption lets you avoid capital gains tax when you sell your main home. The CRA explains that if a property was your principal residence for every year you owned it, you do not pay tax on the gain. To qualify, the property must be a housing unit that you own and have lived in at some point during the year, and you must designate it as your principal residence upon sale. Only one property per family can be designated as the principal residence per year.
Secondary Residences and Rental Properties
Capital gains on cottages, rental properties or vacant land are taxable. Starting January 1 2026, the first $250,000 of gains per individual will still be subject to the 50 % inclusion rate, but gains above that amount will be taxed at the higher 66.67 % inclusion rate. You may also be able to claim expenses related to selling the property (legal fees, realtor commissions) against your gain.
Change of Use and Flipped Property
If you convert a principal residence to a rental property or vice‑versa, the CRA may treat the change as a deemed disposition. You will have to report a capital gain or elect to defer it. The rules are complex, so professional advice is recommended.
3. Business Shares and Small Business Exemption
Canada’s Lifetime Capital Gains Exemption (LCGE) allows you to shelter gains from the sale of qualified small business corporation shares or certain farm or fishing property. The exemption amount is indexed to inflation and will increase to $1.25 million for dispositions on or after June 25 2024. This means small business owners can sell eligible shares or property and pay no tax on the first $1.25 million of capital gains.
Additionally, the federal government announced a Canadian Entrepreneurs’ Incentive that will reduce the inclusion rate to one‑third on a lifetime maximum of $2 million in eligible gains. The incentive begins in the 2025 tax year and phases in by 2029.
4. Cryptocurrencies and Other Property
Cryptocurrencies and precious metals are treated like other capital assets. When you sell or trade them, any gain is subject to the capital gains inclusion rate. Keep detailed records of purchase price, sale price and transaction fees.
5. Foreign Stocks
Capital gains on U.S. or international stocks are fully taxable in Canada. You must convert both the purchase price and sale proceeds to Canadian dollars using the Bank of Canada exchange rate on the transaction date.
Changes to Capital Gains Tax in 2026
The 2024 federal budget proposed increasing the capital gains inclusion rate for high‑value gains. Initially scheduled for June 25 2024, the measure was deferred to January 1 2026. Here are the key points:
- Inclusion Rate Increase: The inclusion rate will rise from 50 % to 66.67 % for individuals on the portion of annual gains above $250,000. Gains up to $250,000 remain subject to the 50 % rate.
- Corporations and Most Trusts: For corporations and most trusts, all capital gains will be taxed at the 66.67 % rate starting 2026.
- $250,000 Annual Threshold: A new annual threshold for individuals ensures that modest investors still benefit from the lower inclusion rate. A couple selling a cottage with a $500,000 gain will still pay tax at the 50 % rate on the entire gain because each spouse receives a $250,000 threshold.
- Lifetime Capital Gains Exemption Increase: The LCGE rises to $1.25 million for qualifying small business shares and farm or fishing property.
- Canadian Entrepreneurs’ Incentive: Entrepreneurs may benefit from a one‑third inclusion rate on up to $2 million of eligible gains, starting in 2025.
These changes mean that high‑income investors and corporations will pay more tax on large gains, while middle‑class Canadians should largely be unaffected thanks to the $250,000 threshold and the principal residence exemption.
How to Minimize or Avoid Capital Gains Tax
While you can’t completely eliminate taxes on gains (except through exemptions), you can reduce them through careful planning:
- Use Tax‑Sheltered Accounts:
- Contribute to a TFSA to allow investments to grow and be withdrawn tax‑free.
- Use an RRSP to defer tax until retirement, when your income may be lower.
- FHSA and RESP accounts combine tax advantages for specific goals such as buying a first home or funding education.
- Harvest Capital Losses: Sell losing investments to offset gains. Remember the superficial loss rule: you or a related person cannot buy back the same security within 30 days.
- Time Your Dispositions: If possible, plan large sales over multiple years to stay under the $250,000 annual threshold once the new inclusion rate takes effect in 2026. You can also delay sales to a year when your income is lower.
- Record Keeping: Keep detailed records of purchase dates, prices, commissions and adjustments such as improvements to real property. You’ll need them to calculate ACB and substantiate your tax return.
- Principal Residence Exemption: Ensure that your property qualifies as your principal residence by living in it at some point every year and designating it on Form T2091. This exempts the full gain.
- Lifetime Capital Gains Exemption: If you own qualified small business shares or eligible farm/fishing property, consider structuring the sale to take advantage of the LCGE, now $1.25 million.
- Gift vs. Sale: When you gift property or sell it to a family member for less than fair market value, the CRA will deem you to have sold it at fair market value and tax the gain accordingly. Plan transfers carefully and seek professional advice to avoid unexpected taxes.
- Avoid Day Trading in Registered Accounts: If the CRA determines you’re carrying on a business, gains may be treated as 100 % taxable business income.
Capital Gains Tax Canada Calculator
While online calculators can estimate your tax, the basic formula is straightforward:
- Calculate the gain: Sale proceeds – ACB – selling expenses.
- Apply inclusion rate: For 2026, 50 % of gains up to $250,000 plus 66.67 % of gains above that amount (or 50 % for the entire amount if before 2026).
- Multiply by marginal tax rate: Add the taxable gain to your income and determine tax based on your provincial and federal brackets.
Online calculators from tax software or brokerage sites incorporate provincial tax rates and deductions. They’re useful for planning but rely on your inputs. Use them as a guide rather than a final determination.
Speak to a Tax Professional
Navigating capital gains tax rules, especially with upcoming changes, can be complex. Bestax’s experienced tax advisors can help you plan dispositions, maximize exemptions, and file your return correctly. Whether you’re selling shares, real estate, or a small business, we provide tailored guidance to reduce your tax bill and keep you compliant. Contact Bestax Accountants today for a consultation and peace of mind.
Quick FAQs
How much is the capital gains tax in Canada?
Canada doesn’t have a separate tax rate for capital gains. Instead, you include 50 % of your net capital gain in your income. Your actual tax depends on your marginal tax bracket and province of residence. Starting in 2026, gains above $250,000 per individual will have a 66.67 % inclusion rate.
What assets are subject to capital gains tax?
Capital gains tax applies to stocks, mutual funds, ETFs, rental property, cottages, vacant land, precious metals, cryptocurrencies and even collectibles. The sale of your principal residence is generally tax‑free.
How do I avoid paying capital gains tax on my property in Canada?
You cannot completely avoid tax on investment property, but you can minimize it. Use the principal residence exemption for your main home; keep good records of renovations and selling costs to increase the ACB; plan sales over multiple years to stay under the $250,000 annual threshold; and offset gains with losses.
Do I pay capital gains tax on my TFSA or RRSP?
No. Gains inside a TFSA are tax‑free. Gains inside an RRSP are deferred until withdrawal.
What happens to capital gains when I transfer property to a spouse?
Generally, you cannot split capital gains by transferring property to a spouse; attribution rules require you to report the gain. However, if both spouses jointly purchase property, you can split the gain according to your share.
How will the 2026 changes affect me?
If your annual gains exceed $250,000, the portion above that threshold will be taxed at a 66.67 % inclusion rate. Corporations and most trusts will pay the higher rate on all gains. The $250,000 threshold and the lifetime capital gains exemption will help protect smaller investors.
What is the lifetime capital gains exemption?
The LCGE shelters gains from the sale of qualified small business shares, farm and fishing property. It increases to $1.25 million for dispositions on or after June 25 2024 and will be indexed to inflation thereafter.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
