What are capital gains?
You have a capital gain when you sell an asset or investment for more than it cost you to acquire it. If you purchased $100 worth of stock and then sold those shares for $150 two years later, for example, you would have a capital gain of $50. On the other hand, when you sell an asset for less than its original purchase price, that’s called a capital loss.
Capital gains and losses can occur with many types of investments and property, including stocks, bonds, shares in mutual funds and exchange-traded funds (ETFs), rental properties, cottages and business assets. Capital gains generally do not apply to some types of personal-use property, such as cars and boats, whose value tends to decrease over time. They also don’t apply to the property you live in—your principal residence.
Capital gains are taxable in Canada. The value of a capital gain is treated as income earned during the tax year in which it was realized. There are, however, important exceptions to these rules, which we’ll run through below.
Watch: Capital gains tax, explained
What is the capital gains tax rate in Canada?
Many Canadians mistakenly believe that the entire capital gain is taxed at a rate of 50%. In fact, only 50% of a capital gain is taxable, and the rate depends on where you fall within the federal and provincial income tax brackets in the year you report the gain. The gain is added to your taxable income. There’s no single “capital gains tax rate” in Canada, because the rate depends on how much you earn. The higher your total income (including employment) is for the year, the more tax you can expect to owe on a capital gain.
Also important to know: A capital gain is taxed only once it is “realized,” meaning the asset has been sold. As long as the gain is “unrealized,” meaning the asset’s value has increased on paper but the asset remains in your possession, you do not have to pay taxes on it.
Let’s say you realize a capital gain of $50,000 this year. Half of that amount ($25,000) must be reported as income on your tax return when you file next year. If you fall in a 33% marginal tax bracket—the highest federal tax rate in 2023—the additional $25,000 in income results in $8,250 in taxes owing. The remaining $41,750 is yours to keep. And if you fall within a 26% marginal tax bracket, the same capital gain results in $6,500 in taxes owing—meaning you keep $43,500.
With the tax rates we currently have in Canada, and the fact that only half of a capital gain must be reported as income, no one is paying more than 27% in capital gains tax. Most people pay much less.
How to calculate capital gains and losses
You can calculate whether you have a capital gain or loss by subtracting the asset’s net cost of acquisition from the net proceeds of its sale.
As simple as that may sound, there’s a bit more to it. To ensure you follow capital gains tax rules as set out by the Canada Revenue Agency (CRA), you’ll need to know the adjusted cost base (ACB), outlays and expenses, and proceeds of disposition.
