When you sell an investment, property, stocks, or other assets in Canada for more than you paid for them, you may have a capital gain.
Capital gains are not taxed like regular income from a job. Instead, only a portion of your gain is added to your income for tax purposes.
The percentage of your capital gain that is taxable is called the capital gains inclusion rate. It determines how much tax you pay on your profit.
What Is the Capital Gains Inclusion Rate in Canada?
The capital gains inclusion rate is the share of your profit that the government counts as taxable income. As of the most recent official updates, Canadians include 50 percent of their capital gain in taxable income for the year.
This means if you have a capital gain of $100, only $50 is added to your taxable income. The tax you owe on that $50 depends on your income tax bracket.
The inclusion rate does not mean a special capital gains tax. Instead, the taxable portion is taxed at the same rates as your other income.
Canada does not have a separate capital gains tax rate like some other countries.
Why Is Capital Gains Taxed at 50 Percent?
Canada’s tax system gives individuals a tax advantage for capital gains. This means you pay tax on only half of your profit, not the entire amount.
The reason is to encourage investment and economic growth. This rule applies to most capital gains earned by individuals and many trusts.
Registered plans, like a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA), can let you defer or eliminate capital gains taxes entirely.
Gains inside a TFSA are not taxed at all.
Is the Capital Gains Inclusion Rate Changing?
In the 2024 federal budget, the government proposed increasing the inclusion rate from 50 percent to 66.67 percent (two thirds) for certain gains. That change would mean more of your profit is included as taxable income.
Under the proposal, corporations and most trusts would be affected first. For individuals, the increase would apply only to the portion of capital gains above $250,000 in a year. Gains under that threshold would stay at the 50 percent rate.
However, in early 2025, the new government canceled the proposed increase. The government confirmed that the 50 percent inclusion rate remains in effect for the foreseeable future.
Official CRA forms and guidance reflect this continued 50 percent inclusion rate.
How Do You Calculate Taxable Capital Gains?
To find your taxable capital gain, you first calculate your total capital gain. This is the difference between what you sold an asset for and its adjusted cost base (ACB) plus any selling costs. After finding your capital gain, you multiply it by the inclusion rate.
For example, if you sell an investment and make a $10,000 profit:
- Capital gain: $10,000
- Inclusion rate: 50 percent
- Taxable capital gain: $5,000
You would report $5,000 as income on your tax return and pay tax at your marginal tax rate on that amount.
How Does Capital Gains Tax Work for Corporations and Trusts?
For corporations and most trusts, the inclusion rate also stays at 50 percent under current law. This applies when they sell capital assets and make a profit.
If there are any future changes passed into law, the CRA will update its forms and guidance.
Are There Special Rules for Small Business or Farm Sales?
Some capital gains from selling eligible small business shares, farming property, or fishing property may qualify for a Lifetime Capital Gains Exemption (LCGE).
The LCGE lets certain individuals exclude a large amount of capital gains from income tax.
Because the inclusion rate directly affects how much exemption you get, changes to the rate can affect the LCGE amount, but the exemption itself remains under current tax rules.
What Happens If You Have Capital Losses?
You can use capital losses to reduce your taxable capital gains. If your losses are more than your gains in a year, you may carry the losses back up to three years or forward indefinitely to offset future gains.
The amount of the loss you can claim depends on the same inclusion rate rules as gains.
Does Canada Tax Capital Gains on Your Home?
The gain from selling your primary residence may be exempt from capital gains tax under the principal residence exemption.
You must meet certain conditions, and you still need to report the sale on your tax return.
How Do Provincial Taxes Affect Capital Gains?
In Canada, income tax on capital gains includes both federal and provincial tax. Each province has its own tax rates and brackets.
The inclusion rate (50 percent) is federal policy, but the total tax you pay depends on where you live.
Does Every Capital Gain Get Taxed?
No tax applies if the capital gain is inside certain registered plans.
For example, capital gains inside a TFSA are not taxable, and RRSP gains are taxed only when you withdraw funds.