Capital Gains Tax Calculator

How Capital Gains Tax Works in Canada

In Canada, when you sell a capital property (stocks, real estate, or other investments) for more than you paid for it, the profit is called a capital gain. Only 50% of your capital gain is included in your taxable income. This is known as the inclusion rate. The taxable portion is then taxed at your marginal tax rate, which depends on your total income and province of residence.

The 50% Inclusion Rate

Canada currently taxes only half of your capital gains. For example, if you have a $100,000 capital gain, only $50,000 (the taxable capital gain) is added to your income for that tax year. This makes capital gains one of the most tax-efficient forms of investment income in Canada, compared to interest income (which is 100% taxable) or Canadian dividends (which receive a dividend tax credit).

Adjusted Cost Base (ACB) Explained

The Adjusted Cost Base (ACB) is the original cost of your property plus any expenses that increase its value. For stocks, the ACB includes the purchase price plus trading commissions. For real estate, it includes the purchase price plus legal fees, land transfer tax, and the cost of capital improvements (renovations that add value, not general repairs). Calculating your ACB accurately is critical because it directly affects your capital gain amount.

Principal Residence Exemption

If you sell your home and it was your principal residence for every year you owned it, the entire capital gain is tax-free under the Principal Residence Exemption. You can only designate one property per year as your principal residence. If the property was your principal residence for only some of the years you owned it, you can claim a partial exemption using the formula: (1 + number of years designated) / number of years owned.

Lifetime Capital Gains Exemption (LCGE)

The Lifetime Capital Gains Exemption (LCGE) allows Canadian residents to shelter up to $1,016,836 (2024 limit) in capital gains from tax on the disposition of qualified small business corporation (QSBC) shares. This is a lifetime cumulative limit that is indexed to inflation. To qualify, the shares must meet specific conditions related to the Canadian-controlled private corporation (CCPC) and its business activities. The LCGE also applies to qualified farm and fishing property.

Superficial Loss Rule

The superficial loss rule prevents you from claiming a capital loss if you (or an affiliated person) buy back the same or identical property within 30 calendar days before or after the sale. If the rule applies, the denied loss is added to the ACB of the repurchased property. This rule is important to keep in mind when considering tax-loss harvesting strategies.

Capital Losses Can Offset Capital Gains

Capital losses can only be used to offset capital gains, not other types of income. If your capital losses exceed your capital gains in a given year, the excess becomes a net capital loss that can be carried back 3 years or carried forward indefinitely to offset capital gains in those years. Only the taxable portion (50%) of the loss is used to offset the taxable portion of gains.

Tax-Loss Harvesting Strategy

Tax-loss harvesting is a strategy where you sell investments at a loss to offset capital gains realized elsewhere in your portfolio. This can reduce or eliminate your capital gains tax for the year. When harvesting losses, be mindful of the superficial loss rule -- you must wait at least 30 days before repurchasing the same security. Many investors use this strategy near year-end to manage their tax liability.