The 2024/25 tax year has brought attention to capital gains tax rate Canada and how that affects your total income. The 2024 Federal Budget initially proposed some changes to how much of that profit would be taxed, particularly for higher amounts and for companies. However, these specific proposed increases to the capital gains inclusion rate have been postponed until 2026.
This guide will give you the essential details on Canada’s capital gains tax rules for 2024/2025. We’ll cover how these rules apply to different people and types of assets, and point out important ways you might be able to reduce your tax.
So let’s get right into it.
Contents
Understanding Capital Gains and Losses in Canada
A capital gain is the profit you make when you sell or dispose of a “capital property” for more than you paid for it. You might own that capital property for investment purposes or to produce income, like stocks, mutual funds, ETFs, rental properties, or land.
On the other hand, a capital loss occurs when you sell or dispose of a capital property for less than its original cost.
You only deal with capital gains or losses for tax purposes when you “realize” them through a “disposition” of the property. This most often means selling the asset, but can also include gifting or transferring ownership. The important thing is that you don’t pay tax on a gain until you actually dispose of the property.
How to Calculate Your Capital Gains or Losses
To figure out your capital gain or loss, you need two main numbers:
- Proceeds of Disposition: This is the amount you receive or will receive for the property when you dispose of it.
- Adjusted Cost Base (ACB): This is the original cost of the property, plus any expenses you incurred to acquire it (like commissions or legal fees), and the cost of any capital improvements you made to it over the years.
Your capital gain is calculated as: Proceeds of Disposition – Adjusted Cost Base.
Your capital loss is calculated using the same formula, but the result will be a negative number.
The Capital Gains Inclusion Rate for 2024 and 2025
For the vast majority of the 2024 and all of the 2025 tax year, the capital gains inclusion rate remains at 50%.
What does this 50% inclusion rate mean in practice? It’s quite straightforward: you only have to include half (50%) of your capital gain when calculating your taxable income. The other half is effectively tax-free.
For example, if you realize a capital gain of $10,000 from selling an investment, only $5,000 of that gain is added to your income for the year.
Addressing the Proposed Change and Its Deferral
The 2024 Federal Budget initially proposed increasing the capital gains inclusion rate from one-half (50%) to two-thirds (66.7%). This change was intended to apply to individuals on capital gains exceeding $250,000 in a year. It also applied to all capital gains for corporations and most trusts. The change was to be effective for dispositions on or after June 25, 2024.
However, the implementation of this proposed increase has since been DEFERRED to January 1, 2026.
This means that for any capital gains realized throughout the remainder of 2024 and all of 2025, the 50% inclusion rate generally still applies. The higher two-thirds inclusion rate is not in effect for these tax years.
Okay, let’s continue with the fourth section of your blog post:
Calculating Your Capital Gains Tax Payable
Once you’ve determined your taxable capital gain by applying the inclusion rate (which, as we clarified, is 50% for 2024 and 2025), this amount is then added to your other sources of income for the year. These other sources can include things like employment income, pension income, or interest income.
Your total income, including the taxable portion of your capital gains, is then used to determine your overall income tax payable for the year.
Keep in mind your provincial tax rate matters too. For example, for capital gains tax Ontario, the amount residents will pay depends on both federal and provincial income tax rates for their income level. Because the CGT rate is not the same everywhere in Canada.
Here’s a simple way to think about the calculation:
1. Calculate your total capital gains for the year.
2. Multiply your total capital gains by the inclusion rate (50% for 2024 and 2025) to find your taxable capital gain.
a. Example: If you have a $20,000 capital gain, your taxable capital gain is $20,000 * 50% = $10,000.
3. Add this $10,000 taxable income from capital gains to all your other income for the year.
4. The total income figure is then subjected to federal and provincial tax rates based on your tax bracket.
Capital Gains Tax Across Different Taxpayers and Investments
The rules around capital gains taxation in Canada apply broadly, but there are specific considerations depending on who the taxpayer is and the type of asset being disposed of.
Individuals (Taxpayers)
For individual Canadians, the capital gains inclusion rate remains at 50% for the 2024/25 tax year.
A benefit available to individuals is the Lifetime Capital Gains Exemption (LCGE). This allows eligible individuals to reduce or eliminate the taxation on capital gains arising from the disposition of qualified small business corporation shares and qualified farm or fishing property.
For dispositions that occur on or after June 25, 2024, the LCGE limit has increased to $1.25 million. The limit for dispositions before June 25, 2024, was $1,016,836.
However, you must meet specific criteria to qualify for this deduction. Annual indexation for the $1.25 million limit is set to resume in 2026.
Corporations (Capital Gains Tax Rate Canada Corporation)
When it comes to corporations, the calculation of a capital gain or loss is the same as for individuals: Proceeds of Disposition minus the Adjusted Cost Base. Corporations also apply the capital gains inclusion rate. For the 2024 and 2025 tax years, the inclusion rate for corporations is also 50%.
The main difference lies in how the resulting taxable capital gain is taxed. This amount is added to the corporation’s other income and is taxed at the applicable corporate income tax rate.
Private corporations can also benefit from the Capital Dividend Account (CDA). The non-taxable portion of a capital gain (the other 50%) can be credited to the CDA, allowing the corporation to pay tax-free capital dividends to its shareholders.
Stocks and Investments (Capital Gains Tax Rate Canada Stocks, Mutual Funds, ETFs)
Selling investments like stocks, mutual fund units, or ETFs is a very common way for individuals and corporations to realize capital gains or losses. When you sell these investments for more than their Adjusted Cost Base, you trigger a capital gain.
The calculation is straightforward: (Selling Price – Adjusted Cost Base) = Capital Gain (or Loss). The 50% inclusion rate then applies to this gain for tax purposes in 2024/25.
Important : Keep accurate records of your purchases (including commissions and fees to determine the Adjusted Cost Base) for correctly calculating your gains and losses.
Rental Properties (Capital Gains Tax Rate Canada Rental Property)
If you own a rental property or other real estate that is not your principal residence (like a cottage or vacant land) and you sell it for more than its Adjusted Cost Base, the resulting profit is a capital gain.
The calculation is the same as for other assets: Selling Price minus the Adjusted Cost Base (which can include the original purchase price, acquisition costs, and capital improvements) results in the capital gain. The 50% inclusion rate for 2024/25 applies to this gain, and the taxable portion is added to your income.
Learn how to reduce capital gains tax on property in Canada by reading our complete guide.
Exemptions, Deductions, and Special Cases
Beyond the basic capital gains rules, there are several other factors which can affect how much tax you owe. Let’s take a look at what they are:
Principal Residence Exemption
Your main home is generally exempt. You can usually sell the property you’ve designated as your principal residence for the years you lived there without paying capital gains tax. This is a major exemption and differs from how properties like rental properties are taxed.
Capital Losses
If you sell a capital property (like investments, but not generally personal items) for less than its cost, you have a capital loss. These losses can be used to offset capital gains, reducing your taxable income. If losses exceed gains in a year, you get a net capital loss you can carry back up to three years or forward indefinitely to use against future capital gains. This acts as a valuable deduction.
Tax-Sheltered Accounts (TFSA, RRSP, Registered Education Savings Plans)
Capital gains earned within a TFSA, RRSP, or Registered Education Savings Plans are NOT taxed. Growth in these registered accounts is tax-free, making them excellent tools for investment planning without triggering immediate taxation.
Alternative Minimum Tax (AMT)
Some individuals with a considerable amount of capital gains or certain deductions might face the Alternative Minimum Tax (AMT). This is a separate tax calculation. Changes to AMT rules from 2024 could impact more taxpayers with large gains. If AMT is higher than your regular tax, you pay the AMT, though you may be able to recover it in future years.
Stock Options
If you receive stock options from an employer, there are specific tax rules. While part of the benefit might be employment income, selling the shares later can result in a capital gain, calculated based on the shares’ Adjusted Cost Base after accounting for the initial benefit.
Partnerships
In a partnership, capital gains and losses are calculated at the partnership level. These are then passed on to the individual partners based on their share. Each partner reports their portion on their own income tax return, where the standard capital gains rules and their personal tax bracket apply.
Capital Gains Tax Rate Canada History
The capital gains inclusion rate in Canada hasn’t always been 50%; it has changed several times over the years based on the Government of Canada‘s economic and fiscal policies.
Here’s a brief look at some key periods in capital gains tax rate Canada history:
- Before 1972: There was generally no tax on capital gains in Canada.
- 1972 to May 22, 1985: The inclusion rate was first introduced at 50%.
- May 23, 1985, to 1987: The inclusion rate remained at 50%.
- 1988 and 1989: The inclusion rate increased to two-thirds (66.7%).
- 1990 to 1999: The inclusion rate rose further to three-quarters (75%).
- 2000: The rate decreased to two-thirds (66.7%).
- From 2001 to 2024: The inclusion rate was reduced back to one-half (50%).
Strategies for Managing Capital Gains Tax
While capital gains tax is a factor in investing and selling assets in Canada, there are legitimate approaches that can help you reduce it.
- Utilizing Registered Accounts: Holding investments within tax-sheltered accounts like a TFSA or RRSP means capital gains earned there are generally not taxed, allowing for tax-free growth.
- Tax-Loss Harvesting: Strategically using capital losses from certain investments can offset capital gains, potentially reducing your taxable income.
- Making Use of the LCGE: If you sell qualified small business shares or farm/fishing property, the Lifetime Capital Gains Exemption can reduce or eliminate the tax on eligible gains.
- Donating Appreciated Securities: Donating certain investments that have increased in value directly to charity can offer tax advantages related to the capital gain.
- Considering the Timing of Dispositions: When you choose to sell an asset can sometimes impact your tax situation for the year.
For personalized advice on how to integrate these strategies into your financial plan, consult with our personal tax accountants today!
FAQs
Capital property includes assets you own for investment purposes or to earn income. Common examples are stocks, bonds, mutual funds, ETFs, rental properties, land, and cottages. It does not include items you sell as part of your regular business income (like inventory) or most personal-use items.
If you inherit property, your ACB is considered to be the fair market value (FMV) of the property at the time of the person’s death. If you receive property as a gift, your ACB is generally the FMV at the time you received it. The person giving the gift is often considered to have sold it at that FMV, potentially triggering a capital gain for them.
Yes, certain costs can adjust your gain or loss. Capital expenditures (like major renovations that increase a property’s value) are added to your Adjusted Cost Base. Expenses incurred when selling property (like real estate commissions, legal fees, or advertising costs) are typically deducted from your Proceeds of Disposition. Keeping detailed records of these costs is essential.
Most personal-use property (items owned primarily for personal use) is subject to specific rules. Generally, if you sell a personal-use property for more than $1,000, you calculate the gain using $1,000 as your minimum ACB. If you sell for less than $1,000, you usually have no capital gain. Losses on most personal-use property cannot be deducted, with the exception of “listed personal property” (like jewelry, art, rare books, coins, or stamps).
No, in Canada, the capital gains inclusion rate (50% for 2024/25) and how the taxable gain is taxed (at your marginal income tax rate) does not depend on the length of time you owned the asset. Unlike in some other countries, there is no distinction between short-term and long-term capital gains for tax rate purposes.
Stay Informed and Plan Ahead with Legend Fusions
Dealing with capital gains rate in Canada can get confusing. Mismanagement can lead to unexpected tax bills, missed opportunities, and uncertainty about your financial future. Without a clear plan, you might pay more tax than necessary or fail to take advantage of the strategies available to you.
Legend Fusions’ CGT specialists can help you plan effectively, integrate your investments and assets into a comprehensive financial picture, and reduce your overall tax burdens.
Contact us today and stay tuned for more tax updates!
Reviewed by:
Jeffrey Ross
Jeffrey Ross is an experienced tax accountant focused on US-Canada cross-border taxation, with over three years in the industry, including a key role as client manager at a Canadian tax firm. He provides expertise in corporate and personal tax planning, specializing in non-resident tax, capital gains, CRA and IRS compliance, and retirement planning. Known for his personalized approach, Jeffrey is dedicated to guiding clients with clear, practical advice tailored to complex tax scenarios, aligned with the evolving tax laws.