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Taxes

Capital Gains Tax in Canada: How It Works

Only half of a capital gain is taxable: one-half of the gain is added to your income and taxed at your normal rate. The proposed increase to two-thirds was cancelled. Gains on a home that was your principal residence for every year you owned it remain tax-free.

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How the gain is calculated

Capital gain = what you sold it for, minus its adjusted cost base (what you paid plus certain costs), minus selling expenses. Half of that gain is your taxable capital gain.

The inclusion rate

A change to raise the inclusion rate from one-half to two-thirds was announced, then deferred and finally cancelled. The one-half rate applies.

Your home

The government confirmed that gains on selling your principal residence stay tax-free when the home is designated as your principal residence for every year you owned it.

Rental property and investments

Selling a rental property or investments outside a TFSA or RRSP can create a taxable capital gain. Gains inside a TFSA are not taxed.

Related

How Rental Income Is Taxed in Canada (Form T776) Report rental income on Form T776 and deduct reasonable expenses you paid to earn it, such as property taxes, insurance, interest and utilities for the rented space. Repairs that restore the property are deducted in the year; improvements are claimed over several years through capital cost allowance. Is There an Inheritance Tax in Canada? No. Canada has no inheritance tax on what you receive. Instead, when someone dies they are treated as having sold their property just before death, and any capital gain is taxed on their final return. Property left to a surviving spouse or common-law partner can usually pass at cost, with no gain. Do You Have to Claim a TFSA on Your Tax Return? Generally no. Investment income earned in a TFSA isn't taxed, and withdrawals aren't taxable income, so they don't go on your return. The 2026 TFSA dollar limit is $7,000. Withdrawals are added back to your contribution room on January 1 of the next year.

Sources

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