Capital gains tax in Canada affects virtually all investment decisions, from selling stocks and mutual funds to disposing of rental properties or business assets. The 50% inclusion rate remains in effect for 2025, though proposed increases to 66.67% for gains above $250,000 have been deferred until January 2026.
This guide provides detailed provincial tax rate tables, calculation methods, tax reduction strategies, and answers to frequently asked questions about capital gains in Canada. Understanding Canada’s capital gains tax system will help you make tax-efficient decisions in 2025 and beyond.
What Is a Capital Gain?
A capital gain happens when you sell, or are considered to have sold, a capital property for more than its adjusted cost base plus any selling expenses incurred. The Canada Revenue Agency (CRA) classifies various assets as capital property, including stocks, bonds, real estate (beyond your principal residence), and business assets.
Capital property differs from trading assets like inventory. Capital assets are typically held for investment purposes or personal use, while inventory is property held primarily for sale in the ordinary course of business operations.
When discussing capital gains, it’s important to distinguish between realized gains and unrealized gains. A realized capital gain occurs when you actually sell an asset for more than you paid. An unrealized capital gain happens when your investments increase in value but haven’t been sold yet. Only realized capital gains trigger tax consequences.
Example: If you purchased shares for $10,000 and later sold them for $10,000 and later sold them for $15,000, you’ve realized a capital gain of $5,000.
Capital Gains vs. Capital Losses
When you sell capital property for less than its adjusted cost base plus expenses incurred for the sale, you have a capital loss. While capital losses may seem unfortunate, they provide a valuable tax advantage.
Capital losses can be used to offset capital gains, reducing your overall tax liability. If your capital losses exceed your capital gains in a given tax year, the net capital loss can be:
- Applied against capital gains from any of the three preceding tax years
- Carried forward indefinitely to offset future capital gains
Capital losses cannot be used to reduce other types of income; they can only offset capital gains.
What Is Capital Gains Tax in Canada?
Capital gains tax in Canada isn’t a separate tax but an addition to your income tax based on your marginal tax rate. For 2025, the inclusion rate remains at 50%, meaning only half of your capital gains are added to your taxable income.
In 2024, the federal government announced an increase to the inclusion rate from 50% to 66.67% for individuals with capital gains exceeding $250,000 annually and for all corporations and trusts. However, following a January 31, 2025, announcement from the Department of Finance, this change has been deferred until January 1, 2026.
It’s worth noting that capital gains taxation may change following the 2025 federal election, making it essential to stay informed about potential policy adjustments. (Source)
How Do You Calculate Tax on Capital Gains?
Calculating capital gains tax requires understanding 2 important components.
Adjusted Cost Base (ACB)
The adjusted cost base (ACB) is the cost of a capital property, including any costs related to its acquisition and improvement. ACB represents your investment in the property for tax purposes.
For financial instruments like stocks:
- ACB = (Number of shares × Purchase price per share) + Acquisition costs (commissions, fees)
- If you purchase additional shares later, your ACB becomes the average cost of all shares
For real estate:
- ACB = Purchase price + Closing costs + Capital expenditures on the property
- Closing costs include land transfer taxes, legal fees, home inspection fees, etc.
- Capital expenditures are improvements that provide long-term benefits (new HVAC, waterproofing, etc)
Proceeds of Disposition
Proceeds of disposition are what you receive when selling capital property, minus any outlays and expenses related to the sale.
- For stocks: Proceeds = Sale price – Trading fees
- For real estate: Proceeds = Sale price – Selling costs (commissions, legal fees)
If you sell property in a foreign currency, you must convert to Canadian dollars using the Bank of Canada’s daily exchange rate on the sale date.
Based on these two factors, the formula for calculating capital gains tax is:
- Total Capital Gain = Proceeds of Disposition – (Adjusted Cost Base + Expenses)
- Capital Gains Tax = Taxable Capital Gain × Your Marginal Income Tax Rate x Inclusion Rate (50% for 2025)
What Are the Current Capital Gains Tax Rates in Canada?
Capital gains tax rates depend on your province of residence and your overall income level, as capital gains are taxed at your marginal tax rate. Below are the detailed capital gains tax rates (marginal) by province for 2025.
Capital Gains Tax Rates in Ontario 2025
| Tax rate | Lower – Upper Limit ($) |
|---|---|
| 0% | 0 – 12,747 |
| 2.53% | 12,748 – 16,129 |
| 10.03% | 16,130 – 52,886 |
| 12.07% | 52,887 – 57,375 |
| 14.82% | 57,376 – 93,132 |
| 15.74% | 93,133 – 105,775 |
| 16.95% | 105,776 – 109,727 |
| 18.95% | 109,728 – 114,750 |
| 21.70% | 114,751 – 150,000 |
| 22.48% | 150,001 – 177,882 |
| 24.14% | 177,883 – 220,000 |
| 24.92% | 220,001 – 253,414 |
| 26.76% | 253,415 and over |
Capital Gains Tax Rates in British Columbia 2025
| Tax rate | Lower – Upper Limit ($) |
|---|---|
| 0% | 0 – 12,932 |
| 2.53% | 12,933 – 16,129 |
| 10.03% | 16,130 – 49,279 |
| 11.35% | 49,280 – 57,375 |
| 14.10% | 57,376 – 98,560 |
| 15.50% | 98,561 – 113,158 |
| 16.40% | 113,159 – 114,750 |
| 19.15% | 114,751 – 137,407 |
| 20.35% | 137,408 – 177,882 |
| 22.01% | 177,883 – 186,306 |
| 23.06% | 186,307 – 253,414 |
| 24.90% | 253,415 – 259,829 |
| 26.75% | 259,830 and over |
Capital Gains Tax Rates in Alberta 2025
| Tax rate | Lower – Upper Limit ($) |
|---|---|
| 0.00% | 0 – 16,129 |
| 7.50% | 16,130 – 22,323 |
| 12.50% | 22,324 – 57,375 |
| 15.25% | 57,376 – 114,750 |
| 18.00% | 114,751 – 151,234 |
| 19.00% | 151,235 – 177,882 |
| 20.66% | 177,883 – 181,481 |
| 21.16% | 181,482 – 241,974 |
| 21.66% | 241,975 – 253,414 |
| 23.50% | 253,415 – 362,961 |
| 24.00% | 362,962 and over |
Capital Gains Tax Rates in Manitoba 2025
| Capital Gains Tax Rate | Lower – Upper Limit ($) |
|---|---|
| 0.00% | 0 – 15,969 |
| 5.40% | 15,970 – 16,129 |
| 12.90% | 16,130 – 47,564 |
| 13.88% | 47,565 – 57,375 |
| 16.63% | 57,376 – 101,200 |
| 18.95% | 101,201 – 114,750 |
| 21.70% | 114,751 – 177,882 |
| 23.36% | 177,883 – 200,000 |
| 23.79% | 200,001 – 253,414 |
| 25.63% | 253,415 – 400,000 |
| 25.20% | 400,001 and over |
Capital Gains Tax Rates in Saskatchewan 2025
| Capital Gains Tax Rate | Lower – Upper Limit ($) |
|---|---|
| 0.00% | 0 – 16,129 |
| 7.50% | 16,130 – 19,491 |
| 12.75% | 19,492 – 53,463 |
| 13.75% | 53,464 – 57,375 |
| 16.50% | 57,376 – 114,750 |
| 19.25% | 114,751 – 152,750 |
| 20.25% | 152,751 – 177,882 |
| 21.91% | 177,883 – 253,414 |
| 23.75% | 253,415 and over |
Capital Gains Tax Rates in Quebec 2025
| Capital Gains Tax Rate | Lower – Upper Limit ($) |
|---|---|
| 0.00% | 0 – 16,129 |
| 6.26% | 16,130 – 18,571 |
| 13.26% | 18,572 – 53,255 |
| 15.76% | 53,256 – 57,375 |
| 18.06% | 57,376 – 106,495 |
| 20.56% | 106,496 – 114,750 |
| 22.86% | 114,751 – 129,590 |
| 23.73% | 129,591 – 177,882 |
| 25.11% | 177,883 – 253,414 |
| 26.65% | 253,415 and over |
Capital Gains Tax Rates in New Brunswick 2025
| Capital Gains Tax Rate (%) | Lower – Upper Limit ($) |
|---|---|
| 0.00% | 0 – 13,396 |
| 4.70% | 13,397 – 16,129 |
| 12.20% | 16,130 – 51,306 |
| 14.50% | 51,307 – 57,375 |
| 17.25% | 57,376 – 102,614 |
| 18.25% | 102,615 – 114,750 |
| 21.00% | 114,751 – 177,882 |
| 22.66% | 177,883 – 190,060 |
| 24.41% | 190,061 – 253,414 |
| 26.25% | 253,415 and over |
Capital Gains Tax Rates in Nova Scotia 2025
| Capital Gains Tax Rate (%) | Lower – Upper Limit ($) |
|---|---|
| 0.00% | 0 – 11,744 |
| 4.40% | 11,745 – 16,129 |
| 11.90% | 16,130 – 25,000 |
| 12.16% | 25,001 – 30,507 |
| 15.24% | 30,508 – 57,375 |
| 17.99% | 57,376 – 61,015 |
| 18.85% | 61,016 – 74,999 |
| 18.59% | 75,000 – 95,883 |
| 19.00% | 95,884 – 114,750 |
| 21.75% | 114,751 – 154,650 |
| 23.50% | 154,651 – 177,882 |
| 25.16% | 177,883 – 253,414 |
| 27.00% | 253,415 and over |
Capital Gains Tax Rates in Prince Edward Island 2025
| Capital Gains Tax Rate (%) | Lower – Upper Limit ($) |
|---|---|
| 0.00% | 0 – 14,250 |
| 4.75% | 14,251 – 16,129 |
| 12.25% | 16,130 – 33,328 |
| 14.24% | 33,329 – 57,375 |
| 16.99% | 57,376 – 64,656 |
| 18.55% | 64,657 – 105,000 |
| 19.06% | 105,001 – 114,750 |
| 21.81% | 114,751 – 140,000 |
| 22.50% | 140,001 – 177,882 |
| 24.16% | 177,883 – 253,414 |
| 26.00% | 253,415 amd over |
Capital Gains Tax Rates in Newfoundland & Labrador 2025
| Capital Gains Tax Rate (%) | Lower – Upper Limit ($) |
|---|---|
| 0.00% | 0 – 11,067 |
| 4.35% | 11,068 – 16,129 |
| 11.85% | 16,130 – 44,192 |
| 14.75% | 44,193 – 57,375 |
| 17.50% | 57,376 – 88,382 |
| 18.15% | 88,383 – 114,750 |
| 20.90% | 114,751 – 157,792 |
| 21.90% | 157,793 – 177,882 |
| 23.56% | 177,883 – 220,910 |
| 24.56% | 220,911 – 253,414 |
| 26.40% | 253,415 – 282,214 |
| 26.90% | 282,215 – 564,429 |
| 27.15% | 564,430 – 1,128,858 |
| 27.40% | 1,128,859 and over |
These provincial tax rates show the percentage of your capital gains that will be taxed after applying the 50% inclusion rate. The actual amount of tax you’ll pay depends on your total taxable income, including the taxable portion of your capital gains.
Are there any Capital Gains exemptions in Canada?
Canada offers necessary exemptions that can significantly reduce or eliminate capital gains tax in certain situations.
Principal Residence Exemption (PRE)
The principal residence exemption eliminates capital gains tax on the sale of your primary home.
To qualify for the full exemption:
- The property must be your principal residence
- You can only designate one property as a principal residence at a time
- Since January 1, 2023, you must have owned the home for at least 12 months (with exceptions for death, divorce, disability, birth of a child, or new job)
If you only used the property as your principal residence for part of the ownership period, the exemption is prorated based on the years it qualified. Similarly, if only a portion of your home was used as your principal residence (e.g., you rented out part of it), the exemption applies only to the portion you inhabited.
Lifetime Capital Gains Exemption (LCGE)
The Lifetime Capital Gains Exemption provides significant tax relief for owners of small businesses, farms, and fishing properties.
Effective June 25, 2024, the LCGE limit for qualified small business corporation shares and qualified farm or fishing property increased from $1,016,836 to $1.250.000. This new limit is indexed to inflation going forward.
Exemptions for Charitable Donations
When you donate certain types of capital property to registered charities or qualified donees, you may be exempt from paying capital gains tax. Eligible assets include:
- Shares of mutual fund corporations or units of mutual fund trusts
- Shares, debt obligations, or rights listed on a stock exchange
- Interests in segregated fund trusts
- Ecologically sensitive land
This exemption eliminates capital gains tax and provides a charitable donation tax credit based on the fair market value of the donated property.
How Do Capital Gains Taxes Apply to Investment Properties?
Investment properties, including rental properties and second homes, are subject to capital gains tax when sold.
- 50% of the capital gain is included in your taxable income
- The gain is calculated as: Sale price (minus selling costs) less Purchase price (plus acquisition costs and capital improvements)
- Capital Cost Allowance claimed over the years may be “recaptured” and fully taxed as income
Capital Cost Allowance (CCA) is a tax deduction that accounts for the depreciation of capital assets over time. For depreciable capital property used in a business or for income-generating purposes, CAA affects how capital gains are calculated and taxed.
If you convert a principal residence to a rental property (or vice versa), the CRA considers this a “deemed disposition” at fair market value. This could trigger capital gains tax or allow you to reset the cost base of the property.
You can elect to defer this deemed disposition by filing the appropriate election with your tax return. This can provide valuable tax deferral but comes with certain restrictions, including not being able to claim CCA on the property.
Tax planning tip: Keep detailed records with receipts for all capital improvements, as these will directly reduce your taxable gain when you sell.
7 Tips to Reduce Capital Gains Tax in Canada
Minimizing capital gains tax requires deliberate planning and strategy. Here are the most effective approaches to reduce your tax liability:
1. Maximize registered accounts
Shelter your investments from capital gains tax by utilizing:
- Tax-Free Savings Accounts (TFSAs): All growth and withdrawals are completely tax-free
- Registered Retirement Savings Plans (RRSPs): Growth is tax-deferred until withdrawal, typically at a lower tax rate in retirement
- Registered Education Savings Plans (RESPs): Enjoy tax-deferred growth for education funding
- First Home Savings Accounts (FHSAs): Combine RRSP tax advantages for contributions with TFSA tax-free withdrawals for first-time home purchases
2. Reduce taxable income using RRSP contributions
Since capital gains are taxed as income, contributing to your RRSP can effectively offset gains:
- Use available RRSP contribution room to deposit proceeds from capital gains
- Lower your overall taxable income, potentially dropping you into a lower tax bracket
- Benefit from immediate tax deductions while deferring tax on the contributed amount
3. Offset gains with capital losses
Strategic use of capital losses can significantly reduce your tax bill:
- Sell underperforming investments to realize losses that offset gains in the same year
- Carry losses forward indefinitely to offset future capital gains
- Apply losses retroactively against capital gains from the previous three tax years
- Avoid the “superficial loss” rule by not repurchasing the same or identical property within 30 days
4. Leverage available exemptions
Maximize the principal residence exemption and Lifetime Capital Gains Exemption when applicable.
5. Time your asset sales
Carefully plan when you realize capital gains:
- Spread large dispositions across multiple tax years to avoid exceeding income thresholds
- Consider selling in years when your income is lower (sabbaticals, parental leave, retirement)
- If retirement is approaching, defer significant sales until your income drops
6. Direct charitable donations
Instead of selling appreciated securities and donating cash:
- Donate the securities directly to qualified charities
- Eliminate capital gains tax completely
- Receive a tax receipt for the full market value of the donated securities
7. Income splitting
Plan asset ownership with tax implications in mind:
- Hold income-producing investments in the name of the lower-income spouse
- Consider joint ownership structures to split future capital gains between family members
- Use prescribed rate loans to family members to facilitate income splitting while avoiding attribution rules
Given the potential for legislative changes after the 2025 federal election, staying informed about capital gains tax developments is particularly important. It is highly recommended that you consult with a qualified tax professional for personalized advice based on your specific financial situation.
FAQs on Capital Gains Tax
What is the Alternative Minimum Tax (AMT), and how does it affect capital gains?
The Alternative Minimum Tax is a parallel tax calculation designed to ensure high-income individuals pay a minimum amount of tax, regardless of deductions and credits. AMT may apply if you claim significant deductions against large capital gains, particularly when using the Lifetime Capital Gains Exemption.
How does property flipping affect capital gains taxation?
Since 2023, profits from real estate sold within 12 months of purchase are considered business income, not capital gains. This means 100% (not 50%) of the profit is taxable, and the principal residence exemption doesn't apply. Exceptions exist for sales due to death, disability, birth of a child, job relocation, or divorce.
How do I report capital gains on my tax return?
Capital gains and losses must be reported on Schedule 3 of your T1 Income Tax Return. For properties designated as a principal residence, you must also complete Form T2091(IND). Detailed information about the property, purchase date, sale date, and related costs must be provided.
Can I split capital gains with my spouse?
While you cannot simply transfer a realized capital gain to your spouse, you can structure ownership of investments to split future capital gains. Strategies include proper attribution of investments, spousal loans at prescribed interest rates, and joint ownership of property.
