Canada has no separate capital gains tax rate. For 2026, you add half of a capital gain to your taxable income and pay tax at your combined federal and provincial or territorial marginal rates. A proposal to raise that share to two-thirds was cancelled and never took effect.

In Canada, a capital gain is generally the amount left after you subtract an asset’s adjusted cost base and eligible selling expenses from its proceeds of disposition. For 2026, 50% of a net capital gain is included in taxable income and taxed at your combined federal and provincial or territorial marginal income-tax rates. This guide explains how to calculate a capital gain manually, when the principal residence exemption may apply, how capital losses work, and how to report a sale to the Canada Revenue Agency (CRA).

The province and territory tables below provide estimates based on the 50% inclusion rate and your selected province or territory. They do not account for every credit, deduction, election, or special tax rule. Nesto provides mortgage guidance, not tax advice, so use the results as a starting point for a conversation with a licensed tax professional.

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Key Takeaways

• The capital gains inclusion rate is 50% for 2026, and half of a realised gain is added to taxable income.
• The tax owed depends on your other income and your province or territory of residence.
• The principal residence exemption can remove the tax on a home, but you must still report the sale.
• Capital losses offset capital gains only, not employment or other income.

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How Is Capital Gains Tax Calculated in Canada?

Capital gains tax is calculated by subtracting the adjusted cost base (ACB) and selling expenses from the proceeds of disposition, including 50% of the result in taxable income, and then applying your marginal income tax rates to that amount.

• Find the capital gain: proceeds of disposition minus the ACB and eligible selling expenses.
• Remove any exempt part, such as the principal residence exemption (PRE).
• Offset the gain with capital losses from the same year, and from other years if you have them.
• Include 50% of the net gain in your taxable income for the year.
• Pay tax on that amount at the combined federal and provincial or territorial rates that apply to your total income.

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 (ACB) plus the expenses of selling it. In simple terms, it is the increase in an asset’s value between acquisition and disposal.

Capital property is a tax term that covers many assets held for investment or long-term use, not only real estate.

Common types of capital property include:

• cottages and other second properties
• land
• buildings and equipment used in a business or rental operation
• stocks, bonds and units of a mutual fund or investment trust

Note: Capital property does not include a business’s trading assets, such as inventory.

Adjusted Cost Base (ACB)

The adjusted cost base (ACB) is the total amount you invested in acquiring the property. For most assets, it includes the purchase price plus costs such as legal fees, commissions and land transfer taxes. In real estate, the ACB can also include capital improvements that permanently add value, such as a major renovation. You cannot add routine maintenance and repairs to the ACB.

Proceeds of Disposition

The proceeds of disposition are the amount you received, or will receive, for the property. Usually that is the sale price. It also includes compensation for property that was destroyed, expropriated or stolen.

Selling Expenses

Selling expenses are the costs you incur to sell capital property. You can deduct costs such as renovation expenses, finders’ fees, commissions, brokers’ fees, inspector’s fees, surveyors’ fees, legal fees, transfer taxes and advertising from your proceeds. You cannot use these expenses to reduce your other income.

What Is the Capital Gains Inclusion Rate in 2026?

The capital gains inclusion rate for 2026 is 50%. Half of a realised capital gain is added to your taxable income, and the other half is not taxed.

The federal government had proposed raising the rate to two-thirds for individual gains above $250,000 and for most corporate and trust gains. It deferred that change in January 2025 and cancelled it on March 21, 2025. The $250,000 threshold never took effect, so the two-tier system doesn’t apply.

How Do You Calculate Tax on Capital Gains?

To calculate your capital gains tax, add the taxable portion of the gain to your other income and use your marginal tax rates to calculate your total income tax. Your total income tax depends on your combined income, with federal and provincial (where you reside and file) brackets both applying. As a result, the same gain can lead to different tax bills for different people.

For example, suppose you earn a salary of $60,000 and realise a capital gain of $40,000 from selling an investment. Half of the gain, or $20,000, is included in taxable income, so your total taxable income becomes $80,000. As the gain adds to your income, part of it may push you into a higher tax bracket than your salary alone, increasing the income tax you owe.

Example of How Capital Gains Are Calculated

You bought a vacation property for $200,000. Eligible acquisition costs, such as legal fees, added $5,000 to its adjusted cost base, so the ACB is $205,000. You later sold the property for $600,000 and paid $10,000 in eligible selling expenses.

Proceeds of disposition − adjusted cost base − selling expenses = capital gain

$600,000 − $205,000 − $10,000 = $385,000

Only half of the gain is taxable, so you multiply it by the 50% inclusion rate:

$385,000 × 50% = $192,500

You add $192,500 to your taxable income for the year. The other $192,500 is not taxed.

Estimating the Tax: A Step-by-Step Example for Ontario

Consider a homeowner in Ontario with $100,000 of other taxable income who sells the property above. The taxable gain of $192,500 sits on top of your other income, so it fills the Ontario bands from $100,000 up to $292,500. Each slice is taxed at the combined marginal rate for its band. That tax rate is twice the rate in the Ontario table below, since the table applies to the full capital gain.

Income Band	Part of the Taxable Gain in the Band	Combined Marginal Rate	Tax
$94,902 to $107,785	$7,785	31.48%	$2,451
$107,786 to $111,810	$4,025	33.90%	$1,364
$111,811 to $117,045	$5,235	37.90%	$1,984
$117,046 to $150,000	$32,955	43.40%	$14,302
$150,001 to $181,440	$31,440	44.96%	$14,135
$181,441 to $220,000	$38,560	48.26%	$18,609
$220,001 to $258,482	$38,482	49.82%	$19,172
$258,483 to no limit	$34,018	53.52%	$18,206
Total	$192,500		$90,223

The extra tax is about $90,223. That is about 23.4% of the $385,000 gain, and you keep about $499,777 after selling expenses and tax ($600,000 − $10,000 − $90,223).

A Shortcut When the Gain Stays in One Band

If your income plus the taxable gain stays within a single band, you can skip the band-by-band steps. Multiply the full capital gain by the table rate for that band.

Picture a homeowner in Quebec who earns $60,000 and sells a rental property for $450,000. Its adjusted cost base is $350,000, and your selling expenses are $20,000, so the capital gain is $450,000 − $350,000 − $20,000 = $80,000. The taxable half is $40,000, which takes your income from $60,000 to $100,000. That range sits entirely inside the Quebec band from $58,524 to $108,680, where the table rate is 18.06%.

$80,000 × 18.06% = $14,448

Method: capital gain × table rate. The table rate is 50% of the 36.12% combined marginal rate, so the calculation matches 50% × $80,000 = $40,000 taxable, then $40,000 × 36.12% = $14,448.

Important: This is an illustrative calculation. It is wise to speak with a licensed tax professional before you file, particularly in a year when you have realised capital gains.

Calculating Capital Gains on Foreign Currency Transactions

To calculate a gain on a sale made in a foreign currency, convert each amount to Canadian dollars at the exchange rate in effect on its own date. Convert the proceeds at the rate on the sale date, convert the ACB at the rate on the date you acquired the property, and convert each selling expense at the rate on the date you paid it.

Say you bought a US property for US$100,000 when the exchange rate was 1.30 Canadian dollars per US dollar. You sold it for US$150,000 when the rate was 1.40 and paid US$5,000 in selling expenses when the rate was 1.38. These rates are for example purposes.

Proceeds: US$150,000 × 1.40 = $210,000. ACB: US$100,000 × 1.30 = $130,000. Expenses: US$5,000 × 1.38 = $6,900.

$210,000 − $130,000 − $6,900 = $73,100 capital gain

Method: each US amount is multiplied by the exchange rate on its own date to get Canadian dollars, then the usual formula applies: proceeds minus ACB minus selling expenses. The taxable half would be $36,550.

Note: Use the exchange rate stated on your dated receipt where possible. If none is stated, use the Bank of Canada rate. If the exact date is unavailable, you may use the CRA’s annual reference rate.

What Are Canada’s Capital Gains Tax Exemptions?

Canadian tax rules can exclude all or part of a capital gain from tax in specific situations. These exemptions depend on the asset type, how you used it and how long you owned it.

Principal Residence Exemption (PRE)

The principal residence exemption can remove the tax on the gain from selling your home, but you must still report the sale on your tax return. A property qualifies for a given year only if it meets every CRA condition: it is a housing unit you own, you or your spouse, common-law partner or child lived in it at some point in the year, and you designate it as your principal residence. A cottage can qualify in a year when it meets those conditions. The CRA explains the rules on its principal residence page.

Only one property per family unit can generally be designated as the principal residence for each year. If the property was not your principal residence for every year you owned it, the exemption is partial. The exempt share of the gain is (1 + the number of years designated) ÷ the number of years you owned the property, capped at 100%. The extra year is the CRA’s “plus 1” rule. It helps when you sell one home and buy another in the same year.

Take a property you owned for 10 years and designated as your principal residence for 7 of them, with a capital gain of $200,000. The exempt share is (1 + 7) ÷ 10, or 80%, so $160,000 of the gain is exempt. The remaining $40,000 is a capital gain, and 50% of it, or $20,000, is added to your taxable income.

Method: exempt share = (1 + 7 designated years) ÷ 10 years owned = 80%. Exempt gain = $200,000 × 80% = $160,000. Taxable gain = $200,000 − $160,000 = $40,000. Amount added to income = $40,000 × 50% = $20,000.

Selling a Canadian property you owned for less than 365 consecutive days is treated as a property flip. The gain is generally taxed as business income, and the exemption does not apply. Some exceptions apply if you sell within a year because of an event such as a death, the breakdown of a relationship or the loss of a job.

Lifetime Capital Gains Exemption (LCGE)

The lifetime capital gains exemption (LCGE) is a cumulative lifetime limit that can reduce or remove tax on gains from qualified small business corporation shares and qualified farm or fishing property. It does not apply to a principal residence, cottage, rental property or publicly traded shares. The LCGE is $1,250,000, so the capital gains deduction limit is half of that, or $625,000 of taxable gains. The limit is indexed to inflation starting in 2026, and the CRA publishes the exact amount for each year on its capital gains deduction page.

Exemptions on Capital Gains Tax for Donations

Donating publicly listed securities, or certain other property, to a registered charity or other qualified donee can reduce or remove the tax on the capital gain, and you also receive a donation receipt. Eligibility and reporting rules apply, so confirm them before you donate.

Transfers of Capital Property

You may transfer capital property to your spouse or common-law partner, to a spousal or common-law partner trust or to an alter ego trust. Depending on the property, it passes at the adjusted cost base (ACB) or the undepreciated capital cost (UCC). No capital gains tax is due at the time of transfer, but the tax is deferred, not eliminated. It can apply when the new owner sells. However, attribution rules may still attribute gains from the transferred property back to you while you remain spouses or common-law partners.

Are There Capital Gains Taxes on Second Properties?

Yes, capital gains tax applies when you sell a second property for more than your adjusted cost base, unless you can designate it as your principal residence for the years in question. Second properties include cottages, vacation homes, investment properties and inherited properties that are not your principal residence.

How you treat a capital loss depends on how you used the property. If you use it personally, such as a cottage used only for enjoyment, you cannot claim a capital loss. If you rent it or use it for income, you can offset a loss on the sale against capital gains.

Rental Use, Change of Use and Recapture

Renting part of your home, or moving out and renting the whole property, can affect the principal residence exemption. If you rent a room or basement suite while living there, the CRA generally treats the entire property as your principal residence if the rental use is small, no structural changes are made, and you do not claim capital cost allowance (CCA) on the rented part.

Otherwise, the CRA may treat the rented portion as a change in use. This is a deemed disposition: the CRA treats you as having sold and immediately repurchased that portion at fair market value, even though no money changed hands. You may have options to defer the resulting capital gain, but the rules differ depending on whether you convert a home to a rental property or move back into a former rental.

If you claimed CCA on the rental property, selling it may also trigger recaptured CCA. Recapture adds some or all of the CCA previously claimed back to income. It is taxed at your marginal tax rate, not as a capital gain, and the principal residence exemption does not reduce it.

Inherited Property and Death

When someone dies, they are generally treated as having sold their capital property at fair market value (FMV) immediately before death. The estate may owe tax on the capital gain unless the property passes to a spouse or common-law partner on a tax-deferred basis. Inherited property takes its fair market value on the date of death as the heir’s cost.

Non-Resident Sellers

Non-residents who sell Canadian real estate generally must notify the CRA and may face withholding on the sale proceeds. The rules differ from those for residents, so a non-resident seller should get professional tax advice before the sale closes.

What Are Capital Losses?

A capital loss occurs when you sell, or are considered to have sold, a capital property for less than its adjusted cost base plus the expenses of selling it. You record the loss in the tax year it occurs. Capital losses can offset capital gains, but they cannot reduce employment income or any other income.

If your losses exceed your gains in a year, the difference is a net capital loss. You can carry a net capital loss back up to 3 years or forward indefinitely to offset capital gains in other years.

Say you realised a net capital loss of $6,000 in 2025, the amount shown on your notice of assessment (NOA). In 2026, you sell shares at a $30,000 gain. Half of that gain, or $15,000, is your taxable capital gain, and you subtract the $6,000 carried forward.

$30,000 × 50% = $15,000 taxable capital gain; $15,000 − $6,000 = $9,000 added to your taxable income

Method: current-year gains and losses offset each other first. A net capital loss from another year is already in taxable amount terms, so you subtract it from the taxable capital gain, not the full gain.

The Superficial Loss Rule

The CRA denies a loss if you, or someone affiliated with you, buy the same or identical property within 30 days before or after the sale and still hold it at the end of that period. The denied loss is generally added to the cost base of the repurchased property instead.

How Do You Report a Capital Gain or Loss?

Report a capital gain or loss on Schedule 3 of your income tax return, and enter the taxable capital gain on line 12700. The CRA’s capital gains guide explains each step.

• Schedule 3 (Capital Gains or Losses) calculates your taxable capital gains or net capital loss.
• Form T2091(IND) designates a property as your principal residence, and you must file it even when the whole gain is exempt.
• A T5008 slip reports sales of certain securities, such as stocks and units of a mutual fund, when held in non-registered accounts.
• A capital gains reserve lets you spread the tax on a gain over up to five years when you receive the sale proceeds over time.

Keep records that support your adjusted cost base, such as purchase agreements, closing statements, renovation invoices and brokerage statements. Alternative minimum tax applies to some large gains and is separate from this calculation, so ask a licensed tax professional whether it could affect you.

Combined Marginal Tax Rates on Taxable Capital Gains by Province

Canada does not have a separate capital gains tax rate. Instead, 50% of a net capital gain is included in taxable income, and that taxable capital gain is taxed at your combined federal and provincial or territorial marginal income-tax rates.

The tables below show EY’s estimated 2026 combined marginal tax rate on capital gains for each province and territory. These rates already reflect the 50% inclusion rate, so you can apply the rate directly to your full net capital gain. Your applicable rate depends on your total taxable income and where you live.

To use a table, find your province or territory, then find the income band that matches your taxable income before adding the gain. If the taxable capital gain stays within that band, multiply the full capital gain by the rate shown. If it pushes you into a higher band, split the gain across the bands and apply each band’s rate to the portion that falls within it. The Ontario example above shows how to calculate this.

Combined Marginal Tax Rates on Taxable Capital Gains by Province

Canada does not have a separate capital gains tax rate. Instead, 50% of a net capital gain is included in taxable income, and that taxable capital gain is taxed at your combined federal and provincial or territorial marginal income-tax rates.

The tables below show the combined marginal tax rate on capital gains for each province and territory in 2026, taken from EY’s Canadian personal tax rates, which include all rate changes announced up to June 15, 2026. These rates already reflect the 50% inclusion rate, so you can apply the rate directly to your full net capital gain. Your applicable rate depends on your total taxable income and where you live. Some rates rise and fall from one band to the next because EY includes the clawback of low-income tax reductions and of basic personal amounts.

To use a table, find your province or territory, then find the income band that matches your taxable income before adding the gain. If the taxable capital gain stays within that band, multiply the full capital gain by the rate shown. If it pushes you into a higher band, split the gain across the bands and apply each band’s rate to the portion that falls within it. The Ontario example above shows how to calculate this.

Ways to Reduce Capital Gains Tax in Canada

Capital gains tax is often unavoidable, but several legitimate steps can reduce how much you owe. None removes the tax on a gain you have already realised, and each has rules, so confirm the details with a qualified tax professional.

Consider the Timing of a Sale

Since the taxable part of a gain is added to your income, a large gain can push you into a higher bracket. If your income is lower in a particular year, for example after a job loss or a leave, selling that year may mean the gain is taxed at lower rates. Timing changes which rates apply, but it does not remove the tax.

Offsetting Capital Gains With Capital Losses

Capital losses can offset capital gains from the same year. If you made a $10,000 gain selling shares and lost $5,000 selling other shares, you pay tax on a net gain of $5,000. Since only half is included, you add $2,500 to your income instead of $5,000. The superficial loss rule above can deny a loss if you buy the same property back too soon.

Using a TFSA for Future Tax-Free Growth

Investors sometimes move an investment from a non-registered account to a Tax-Free Savings Account (TFSA) to shelter future growth. The transfer is treated as a sale at fair market value on the transfer date, so it can trigger a taxable gain, and you can’t claim a loss on the transfer. A TFSA does not remove the tax on a gain you already hold. It can help with long-term planning because income and gains inside the account are not taxed later, provided you have contribution room and the investment is eligible.

Know When to Speak With a Tax Professional

A licensed tax professional can help if you sold a second property, claimed rental losses, changed how you use a property, are a non-resident, inherited property or are using the lifetime capital gains exemption (LCGE). Nesto’s mortgage professionals can explain how financing and cash flow fit into a sale, but they can’t provide tax advice because they aren’t qualified to do so.

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

Final Thoughts

A capital gain is not taxed all at once. You first calculate the gain by subtracting your adjusted cost base (ACB) and eligible selling expenses from the proceeds of disposition. Then you include 50% of a net capital gain in taxable income and pay tax at the combined federal and provincial or territorial marginal income tax rates that apply to you.

The principal residence exemption (PRE), capital losses, the lifetime capital gains exemption (LCGE) and the timing of a sale can all change your net resulting income tax. Use our province and territory marginal tax tables to help estimate the tax effect, but they cannot replace advice based on your full tax situation.

If a sale, refinance, renewal or purchase is part of the picture, the way you structure your mortgage can affect your cash flow, equity and flexibility. Speak with nesto mortgage experts to compare options, review your mortgage strategy and find the approach that best fits your needs.

The information in our blog is for general discussion only and is not tax advice. Nesto provides mortgage guidance, not tax advice. Consult a qualified & licensed tax professional to ensure you report capital gains correctly and use any exemptions available to you.

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