Canada Capital Gains Tax Calculator 2026

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Capital gains taxes apply when a capital property is sold for more than its purchase price. In Canada, only a portion of a capital gain is included in taxable income and taxed at your marginal income tax rate.

Understanding how capital gains are calculated makes it easier to estimate their impact on taxable income. Below, we break down what qualifies as a capital gain, how it’s calculated, which exemptions may apply, and how provincial marginal tax rates influence the final amount owed.

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Key Takeaways

• Only 50% of a capital gain is included in taxable income in Canada.
• The tax owed on a capital gain depends on your income level and province of residence.
• Certain exemptions, such as the principal residence exemption, may eliminate or reduce capital gains tax.

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What Is a Capital Gain in Canada?

A capital gain occurs when you sell, or are considered to have sold, a capital property for more than its adjusted cost base and the expenses incurred to sell the property. In simple terms, a capital gain reflects the increase in value of an asset between the time it was acquired and the time it was disposed of. 

In this context, capital property does not refer only to real estate. Capital property is a tax term that includes a wide range of assets held for investment or long-term use. 

Some common types of capital property are: 

• cottages,
• land,
• buildings and equipment used in a business or rental operation,
• and securities such as stocks, bonds and units of a mutual fund or investment trust. 

Note: Capital property doesn’t include trading assets of a business, such as inventory.

Adjusted Cost Base (ACB)

The adjusted cost base (ACB) represents the total amount invested in acquiring the property. For most capital assets, this includes the original purchase price plus certain costs such as legal fees, commissions, and land transfer taxes. In real estate, the ACB may also include the cost of capital improvements that permanently increase the property’s value, such as major renovations. Routine maintenance and repair costs cannot be added to the adjusted cost base. 

Proceeds of Disposition

The proceeds of disposition are the amount you received, or will receive, for your property. In most cases, this refers to the sale price, including any compensation you received for property that was destroyed, expropriated, or stolen.

Expenses

Expenses are the amounts you incur to sell a capital property. You can deduct expenses such as repair costs, finders’ fees, commissions, brokers’ fees, surveyors’ fees, legal fees, transfer taxes, and advertising costs from your proceeds of disposition. You cannot reduce any of your other income by claiming these expenses. 

What Is Capital Gains Tax in Canada?

Rather than taxing the entire capital gain, only a portion is taxable. This is known as the inclusion rate. Under current federal tax rules in Canada, 50% (inclusion rate) of a realized capital gain must be included in taxable income. 

The remaining 50% of the gain is not taxed. Essentially, if a capital property is sold at a profit, half of that profit is added to income in the year it is sold. The actual tax payable depends on the taxpayer’s marginal tax rate and the province where taxes are filed. 

How Do You Calculate Tax on Capital Gains? 

Only the taxable portion of the gain is added to income, and that amount is taxed in the same way as other income earned during the year. The total tax owed depends on your combined income and the province where you file your return, since both federal and provincial tax brackets apply. This means the same capital gain can result in very different tax outcomes depending on a person’s income level and location.

For example, if you earn a salary of $60,000 and realize a capital gain of $40,000 from selling an investment, 50% of the gain (inclusion rate), or $20,000, is included in taxable income. Your total taxable income for the year would increase to $80,000. Because the gain increases your total income, part of it may fall into a higher tax bracket than your regular salary, increasing the overall tax owed.

Example of How Capital Gains Are Calculated

You have just sold a vacation property you originally purchased for $200,000 Canadian. The sale was completed for $600,000 Canadian. Assume you had $5,000 in legal and other expenses to include, and had an additional $10,000 in expenses incurred when you sold the property. Capital gains are calculated as follows:

Proceeds of disposition – (ACB + Expenses) = Capital Gains 

$600,000 – ($200,000+$5,000+10,000) = $385,000

Since the full capital gain is not taxable, you can calculate the inclusion rate, the amount you will need to claim as income at tax time, as follows:

$385,000 x 0.5 = $192,500

You must add $192,500 to your personal income at tax time to be taxed at your marginal tax rate. The other $192,500 is considered non-taxable. 

Important: It’s always wise to speak with an income tax specialist before filing your taxes, particularly in a year when you’ve realized capital gains.

Calculating Capital Gains on Foreign Currency Transactions

To calculate a capital gain on a sale made in foreign currency, you need to convert the proceeds of the disposition to Canadian dollars using the exchange rate in effect at the time of sale. Convert the ACB to Canadian dollars using the exchange rate in effect when the disposition was acquired, and convert the expenses incurred to sell the disposition to Canadian dollars using the exchange rate in effect when the expense was incurred. 

Note: The exchange rate used should be the one stated on your receipt as proof, dated at the time of sale. If not stated, use the Bank of Canada standard (if the exact date is unavailable, use the CRA’s annual reference).

What Are Canada’s Capital Gains Tax Exemptions? 

In some situations, Canadian tax rules allow all or part of a capital gain to be excluded from taxation. These exemptions apply only under specific conditions and often depend on the type of asset sold, its use, and its ownership duration.

Principal Residence Exemption (PRE)

When you sell a property, you may be exempt from paying capital gains tax if the property was your principal residence, though you will still need to report the sale of the property on your taxes. You’re only allowed to have one principal residence at a time, and if you have a spouse, there can only be one principal residence between you. 

If there were a period where the property was not your principal residence during your time of ownership, you wouldn’t be eligible to receive the full tax exemption amount. In this case, the exemption will be calculated proportionally on the number of tax years during which you held the property as your principal residence. Selling a home you have owned for less than a year is considered property flipping, with the capital gains treated as business income. This would make the property, even if it were your principal residence during that time, ineligible for the principal residence exemption. Some exclusions to this rule apply if the property is disposed of within a year due to an event such as death, breakdown of marriage, loss of employment, etc.

Lifetime Capital Gains Exemption (LCGE)

Also known as the capital gains deduction limit, Canadian residents are entitled to a cumulative lifetime LCGE on net gains realized from the disposition of eligible capital property.

Exemptions on Capital Gains Tax for Donations

Donating certain types of capital property to a registered charity or other qualified organization may exempt you from paying capital gains tax on any capital gains realized.

Transfers of Capital Property

You may transfer capital property to your spouse or common-law partner, a spousal or common-law partner trust, a joint spousal or common-law partner trust, or an alter ego trust. Depending on the property type, ownership will be transferred at either the adjusted cost base (ACB) or the undepreciated capital cost (UCC). While no capital gains tax is payable at the time of transfer, the tax is deferred, not eliminated. Capital gains tax may apply when the recipient later sells the property.

What Are Capital Losses?

You realize a capital loss when you sell or are considered to have sold a capital property for less than its adjusted cost base plus any expenses involved in selling the property. A capital loss must be recorded in the same tax year in which the loss occurred. Capital losses can be used to offset capital gains, but cannot be used to offset or reduce employment income or any other income sources. If the loss exceeds the gains in a year, the difference is treated as a net capital loss. Net capital losses can be carried back up to 3 years or carried forward indefinitely to offset capital gains in other tax years.

Are There Capital Gain Taxes on Second Properties?

Second properties are considered taxable assets and subject to capital gains taxes when a capital gain is realized upon sale. These types of properties include cottages, vacation homes, investment properties, and inherited properties that are not used as primary residences. 

Capital loss treatment depends on how the property was used. If the second property is considered personal-use property, such as a cottage used exclusively for personal enjoyment, a capital loss cannot be claimed. If the second property is used as a rental or income-producing property, different rules apply, and capital losses realized on the sale of a rental property may be claimed and used to offset capital gains.

Capital Gain Tax Rates By Canadian Province

The tables below outline the combined federal and provincial marginal tax rates for each province. These rates are based on personal income tax brackets and show how much tax may apply to the portion of a capital gain that is taxable. Because capital gains are added to your other income for the year, the rate that applies will depend on your total income and where you live. These tables illustrate how capital gains are taxed differently across provinces and income levels.

Ways to Reduce Capital Gains Tax in Canada

While capital gains tax is often unavoidable, there are several legitimate ways to reduce how much tax you will owe at tax time. 

Sell During Lower-Income Years

Timing capital property sales for periods when your income is lowest can minimize your tax liability. Since capital gains are added to your income and taxed according to your personal tax bracket, these gains could push your income for the year into a higher bracket. This means you will pay more tax not only on your income but also on capital gains. If you have a reduced income for the year, say in the event of job loss, you can use this opportunity to sell and realize capital gains while you fall into a lower tax bracket. This effectively reduces the amount of tax you will pay on capital gains.  

Offsetting Capital Gains With Capital Losses

Offsetting capital gains with capital losses can be another effective way to reduce the taxes you will pay on capital gains. If you made a $10,000 profit from selling shares in the same tax year but lost $5,000 selling other shares, you can use the loss to offset your capital gains. This means instead of paying tax on capital gains of $5,000 ($10,000 / 2), you will only pay tax on capital gains of $2,500 ($10,000 – $5,000 = $5,000 / 2 = $2,500). 

Using a TFSA for Future Tax-Free Growth

In some cases, investors may transfer an investment from a non-registered account to a Tax-Free Savings Account (TFSA) to shelter future growth from tax. When this happens, the investment is treated as sold at fair market value on the transfer date. While this strategy does not reduce capital gains tax in the year of transfer or allow you to claim capital losses, it can still be helpful for long-term planning. Any future income or gains on the investment once it is in the TFSA are not subject to tax, provided sufficient contribution room is available, and the investment is eligible for a TFSA.

Frequently Asked Questions  (FAQ) About Capital Gains Taxes in Canada

Final Thoughts

Understanding how capital gains are calculated, taxed, and reported is an important part of financial planning for Canadians who own investments, real estate, or business assets. Knowing how gains and losses are treated, when exemptions apply, and how they affect taxable income helps individuals optimize their tax planning and potentially reduce their overall tax liability.

Capital gains taxes are only part of the equation. How and when you structure your mortgage can affect cash flow, equity, and tax liabilities. Speak with nesto mortgage experts to ensure your mortgage strategy is working with your unique financial circumstances.

The suggestions in our blog are for discourse purposes only and should not be considered tax advice. It’s essential to consult with a qualified tax professional to ensure that you are reporting capital gains correctly and utilizing any available exemptions. 

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