Capital Gains in Canada: What You Need to Know
The inclusion rate determines what portion of your capital gain gets added to your taxable income—it's not the tax rate itself.
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Key Takeaways
- 50% inclusion rate means only half of gains are taxable
- Principal residence exemption eliminates tax on home sale
- Capital losses offset gains (carry back 3, forward indefinitely)
- LCGE available for qualifying small business shares
How Capital Gains Are Taxed
When you sell an asset (stocks, property, business) for more than you paid, the profit is a capital gain. In Canada, only 50% of capital gains are included in your taxable income.
Example:
Purchase price: $50,000
Sale price: $100,000
Capital gain: $50,000
Taxable capital gain (50%): $25,000
Purchase price: $50,000
Sale price: $100,000
Capital gain: $50,000
Taxable capital gain (50%): $25,000
Principal Residence Exemption
Your primary home is completely exempt from capital gains tax. You must designate it as your principal residence when you sell.
Lifetime Capital Gains Exemption
Selling qualified small business shares? You may exempt up to $1.25 million in capital gains from taxation.
Using Capital Losses
- Offset capital gains in the same year
- Carry back 3 years to recover previous taxes
- Carry forward indefinitely for future gains
Superficial Loss Rule
If you sell at a loss and repurchase within 30 days, the loss is denied for tax purposes.
Managing Capital Gains?
Tax Punjabi can help you minimize taxes on your investments.