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Canada Capital Gains Tax Guide

the capital gains taxation in Canada. The capital gains tax in Canada is not a separate tax — the capital gains are included in the ordinary income at the inclusion rate. For the 2025 tax year (and as of the 2024 Federal Budget proposals under Bill C-69, enacted in 2025), the inclusion rate for the individuals is 50% on the first $250,000 of the capital gains realized in the year (the annual threshold) and 66.67% on the gains above $250,000. For the corporations and the trusts, the inclusion rate is 66.67% on all the capital gains (no $250,000 threshold). The principal residence exemption makes the sale of the primary home fully tax-free (if the home was the principal residence for all the years of the ownership). The capital gains reserve allows the taxpayer to spread the gain over up to 5 years (or 10 years for the farm and the fishing property) when the sale price is received over multiple years. The superficial loss rule disallows the capital loss when the taxpayer (or the affiliated person) buys the same property within 30 days before or after the sale. The capital loss can be carried back 3 years (or carried forward indefinitely) against the capital gains. The deemed disposition at the death (the taxpayer is deemed to have sold all the capital property at the fair market value) or at the emigration (the "departure tax"). The T5008 (Statement of Securities Transactions) is issued by the broker and must be reported on the Schedule 3.

Inclusion Rates (2025 Tax Year)

• Individuals — first $250,000 of the gains: The inclusion rate is 50% on the annual capital gains up to $250,000 (the "basic inclusion rate"). The $250,000 threshold applies to the total net capital gains for the year (the gains minus the losses). The gain of $100,000 results in the taxable capital gain of $50,000.
• Individuals — gains above $250,000: The inclusion rate is 66.67% on the annual capital gains exceeding $250,000. The gain of $500,000 results in the taxable capital gain of $250,000 (the first $250,000 at 50% plus the remaining $250,000 at 66.67%).
• Corporations and trusts: The inclusion rate is 66.67% on all the capital gains (no $250,000 threshold). The corporate capital gains are taxed at the corporate rate (the passive income at the higher refundable rate).
• Effective date: The proposed 66.67% rate applies to the capital gains realized on or after June 25, 2024 (the date of the 2024 Federal Budget announcement). The gains realized before June 25, 2024, are taxed at the 50% inclusion rate.
• Transitional rule: For the taxation years that straddle June 25, 2024, the taxpayer must prorate the gains between the period before and after June 25, 2024. The $250,000 threshold is also prorated for the 2024 taxation year (the threshold for the 2024 individual return is $125,000 — half of $250,000 — for the gains realized after June 25, 2024).

Principal Residence Exemption

• Full exemption: The sale of the principal residence (the primary home) is fully exempt from the capital gains tax. The taxpayer or the family must "ordinarily inhabit" the home in the year. The home cannot be used primarily for the business or the rental income.
• Principal residence designation: The family (the spouse and the minor children) can designate ONE property per year as the principal residence. The designation is made on the tax return (the Form T2091) for the year of the sale.
• Land limit: The principal residence exemption covers the home and up to 0.5 hectares (1.24 acres) of the land. The excess land (the "superficies") is NOT covered by the exemption and is subject to the capital gains tax.
• Change of use: When the principal residence is converted to the rental property (or vice versa), the taxpayer is deemed to have sold the property at the fair market value (and can elect the "change of use" exemption under s. 45(2) or s. 45(3) of the Income Tax Act). The election can defer the deemed disposition for up to 4 years (or 7 years for the employment relocation).
• Trust ownership: If the principal residence is owned by the trust (the family trust), the trust must be a "personal trust" and the beneficiary must be the "beneficiary of the trust" for the exemption to apply. The trust-owned properties are subject to the complex rules.
• Reporting requirement: From the 2016 tax year onward, the sale of the principal residence must be reported on the tax return (even if the gain is fully exempt). The penalty for the non-reporting is $100 per year (up to $8,000).

Capital Losses

• Carry-forward: The net capital losses (the unused losses) can be carried forward indefinitely (no time limit). The losses can be applied against the future capital gains.
• Carry-back: The net capital losses can be carried back 3 years (the taxpayer can amend the prior returns to apply the losses against the gains of the prior 3 years). The loss carry-back can generate the tax refund.
• Allowable Business Investment Loss (ABIL): The loss from the sale of the small business corporation shares (or the debt of the small business corporation) is the "allowable business investment loss" — the ABIL is deductible at the 50% inclusion rate against the ordinary income (not just the capital gains).
• Superficial loss: The loss is denied when the taxpayer (or the affiliated person — the spouse, the minor children, the controlled corporation) buys the same or the identical property within 30 days before or after the sale. The denied loss is added to the cost base of the repurchased property.

Deemed Disposition & Special Situations

• Death: At the death of the taxpayer, all the capital property is deemed to have been sold at the fair market value (the "deemed disposition"). The capital gain (or the loss) is reported on the final tax return. The property that passes to the spouse (or the qualifying spouse trust) is exempt from the deemed disposition (the "spousal rollover" at the cost base).
• Emigration: The taxpayer who ceases to be the Canadian resident is deemed to have disposed of all the capital property at the fair market value (the "departure tax"). The taxpayer can elect to defer the tax on the certain property (the Canadian real estate, the business property, and the pension property) by posting the security to the CRA.
• Capital gains on the mutual funds and the ETFs: The mutual funds and the ETFs distribute the capital gains to the unitholders annually (the T3 slip). The unitholder pays the tax on the distributed gains at the personal inclusion rate. The sale of the fund units also triggers the capital gain or the loss (the Schedule 3).
• Capital gains on the options: The option premiums are included in the capital gain or the loss at the time the option is exercised, allowed to expire, or closed (the "cash-settlement"). The gain on the covered call writing is the capital gain (not the business income) for the typical retail investor.
• Capital gains on the cryptocurrency: The CRA treats the cryptocurrency as the commodity (the "digital asset") — the capital gain or the loss arises when the cryptocurrency is sold, exchanged for the other cryptocurrency, or used for the goods/services. The 2024 Budget proposed the mandatory reporting for the crypto transactions (the "crypto reporting framework").

For the dividend taxation and the dividend tax credit, see our Dividend Tax Credit Guide →. For the principal residence exemption and the property tax rules, see our Property Tax Guide →.