A capital gain arises when a capital property is sold for more than its adjusted cost base (ACB) plus any selling expenses. In Canada, a portion of the gain is included in taxable income and taxed at the seller’s marginal rate. For individuals, the first $250,000 of net capital gains per calendar year is subject to a 50% inclusion rate. Gains above $250,000 in the same year are subject to a 66.67% inclusion rate. Corporations and trusts pay the 66.67% rate on all capital gains with no per-year threshold. The calculator above computes the estimated tax on a specific transaction.
How much tax is owed on a $200,000 capital gain in Ontario?
A $200,000 capital gain falls entirely below the $250,000 annual threshold, so the 50% inclusion rate applies. The taxable capital gain is $100,000. At Ontario’s combined federal-provincial marginal rate of 53.53% on income above $246,752, the tax on the taxable portion is approximately $53,530. At the 43.41% combined rate on income between $111,733 and $155,625, the tax is approximately $43,410. The rate used depends on the seller’s total income in the year of disposition.
How capital gains tax is calculated
Step 1: calculate the capital gain
The capital gain equals proceeds of disposition minus the adjusted cost base (ACB) minus any selling costs (commissions, legal fees, transfer taxes paid by the seller). The ACB is the original purchase price plus any capital improvements, share reinvestment plan units, and other qualifying additions. ACB does not include repair and maintenance costs, which are deductible as expenses only if the property was used in a business or to earn rental income.
Step 2: apply the inclusion rate
For individuals, compare the capital gain to the $250,000 annual threshold. The threshold is per person per year and resets to zero on January 1. Other capital gains realized earlier in the same calendar year reduce the available threshold. Capital losses from the same year reduce the net gain before the threshold test is applied.
- Gain at or below remaining threshold: 50% of the gain is included in taxable income
- Gain above the threshold: 50% of the portion up to the threshold plus 66.67% of the excess is included in taxable income
Step 3: add to income and apply marginal rate
The taxable capital gain is added to other income on the T1 return. The tax owed is calculated at the combined federal-provincial marginal rate applicable to the total income in that year. Capital gains income does not have a separate tax bracket: it competes with employment income, RRIF withdrawals, dividends, and all other sources for position within the bracket stack.
Capital losses
A capital loss arises when the ACB plus selling costs exceed the proceeds of disposition. Capital losses may be applied against capital gains in the same year. Net capital losses remaining after this offset may be carried back three years or carried forward indefinitely to apply against capital gains in other years. Capital losses cannot be applied against employment income, interest, or dividends.
Verified against source
Capital gains inclusion rate and the $250,000 threshold for individuals: ITA section 38(a)(i) and 38(a)(ii) as amended by 2024 Budget measures. Definition of adjusted cost base: ITA section 54. Superficial loss rules: ITA section 54, definition of “superficial loss” and ITA section 40(2)(g). Capital gains exemption for principal residences: ITA section 54, definition of “principal residence,” and ITA section 40(2)(b). Lifetime capital gains exemption: ITA section 110.6. CRA administrative guide: T4037, Capital Gains. CRA folio: S3-F9-C1 (Lottery Winnings, Miscellaneous Receipts, and Income from Crime) is often confused with capital gains; the correct folio is S1-F3-C2 (Principal Residence) for property and T4037 for transactions generally.
Capital gains inclusion rate reference
| Taxpayer type | Gain up to $250,000 | Gain above $250,000 |
|---|---|---|
| Individual (net annual gains) | 50% inclusion | 66.67% inclusion |
| Canadian corporation | 66.67% inclusion (no threshold) | 66.67% inclusion |
| Trust (other than qualifying) | 66.67% inclusion (no threshold) | 66.67% inclusion |
| Qualified small business corporation shares (LCGE) | Exempt up to $1,250,000 lifetime cap | 50% on the excess above LCGE |
| Qualified farm and fishing property (LCGE) | Exempt up to $1,250,000 lifetime cap | 50% on the excess above LCGE |
Worked example: selling a rental property in British Columbia
An individual in British Columbia sells a rental property in April 2026 for $850,000. The ACB was $400,000 and real estate commissions and legal fees total $35,000. The capital gain is $850,000 minus $400,000 minus $35,000 = $415,000. The individual has no other capital gains in 2026. The $250,000 threshold absorbs the first portion: 50% of $250,000 = $125,000 taxable. The remaining $165,000 is above the threshold: 66.67% of $165,000 = $110,000 taxable. Total taxable capital gain: $235,000. At BC’s combined federal-provincial marginal rate of 53.50% on income above $246,752, the tax on the taxable gain is approximately $125,725, leaving an after-tax gain of approximately $289,275.
Rules and edge cases
Principal residence exemption
A capital gain on the sale of a property designated as a principal residence is exempt from tax under ITA section 40(2)(b). The exemption formula is: gain times (1 plus the number of years designated as principal residence) divided by the total number of years the property was owned. A property can be designated as a principal residence for a year in which the owner or their spouse, former spouse, or child ordinarily inhabited it. Only one property per family unit may be designated for any given tax year after 1981.
Superficial loss rule
A capital loss is “superficial” and cannot be deducted if the same or an identical property is acquired by the taxpayer or an affiliated person (including a spouse, corporation controlled by the taxpayer, or RRSP) within 30 days before or after the date of the disposition. The disallowed loss is added to the ACB of the reacquired property. This rule prevents loss-harvesting by selling and immediately repurchasing the same security.
Lifetime capital gains exemption
Individuals may claim a lifetime capital gains exemption (LCGE) on gains from qualified small business corporation (QSBC) shares, qualified farm property, and qualified fishing property. The 2026 LCGE limit for QSBC shares is $1,250,000. Gains within the exemption are not taxable. Claiming the exemption requires Form T657 and may trigger alternative minimum tax (AMT) under the 2024 revised AMT rules.
Disposition of foreign property
Gains on foreign property (non-Canadian stocks, US real estate, foreign rental property) are capital gains for Canadian tax purposes. The gain is calculated in Canadian dollars using the exchange rate at the date of each transaction. A Canadian resident may also owe tax in the foreign jurisdiction, and a foreign tax credit on Form T2209 reduces the Canadian tax payable by the lesser of the foreign tax paid and the Canadian tax on that income.
Attribution rules on capital gains
When a taxpayer loans or gifts funds to a spouse or minor child and the recipient earns capital gains on those funds, the gains are attributed back to the transferor under ITA sections 74.1 and 74.2. Attribution continues until the loan is repaid at a prescribed interest rate (currently 3% annually on amounts established before that rate changed), the relationship ends, or the child reaches 18. Planning strategies that bypass attribution include the prescribed-rate loan structure where interest is paid by January 30 of the following year.
Shares of a Canadian-controlled private corporation
A gain on the sale of CCPC shares may qualify for the LCGE if the corporation meets the active business asset test (90% of assets used in an active business in Canada at the time of sale) and the holding period test (the seller must have held the shares for at least 24 months). If the shares do not qualify for the exemption, the gain is treated as an ordinary capital gain subject to the standard inclusion rate rules.
Frequently asked questions
- What is the capital gains inclusion rate in Canada for 2026?
- For individuals, the inclusion rate is 50% on the first $250,000 of net capital gains per calendar year and 66.67% on the portion above $250,000. Corporations and most trusts pay the 66.67% rate on all capital gains. The taxable portion is added to other income and taxed at the applicable marginal rate.
- How is the adjusted cost base of a property calculated?
- The adjusted cost base (ACB) is the original purchase price plus any capital expenditures (improvements that extend the life or increase the value of the property). It does not include ongoing repair and maintenance costs. For publicly listed shares, the ACB is the average cost of all shares acquired over time, including reinvested dividends and superficial loss adjustments.
- Is the sale of a principal residence subject to capital gains tax?
- A property sale is exempt from capital gains tax for each year it is designated as the taxpayer's principal residence. If the property was used partly for rental or business, the exempt portion is calculated using the years designated as principal residence divided by total years of ownership. The sale must still be reported on Schedule 3 of the T1 return.
- Can capital losses offset other types of income?
- No. Capital losses can only offset capital gains. Net capital losses in the current year can be carried back three years or forward indefinitely. Allowable capital losses cannot reduce employment income, pension income, interest, or eligible dividends. Business losses, not capital losses, are available to offset other income.
- What is the lifetime capital gains exemption?
- The lifetime capital gains exemption (LCGE) is a cumulative exemption on gains from qualified small business corporation (QSBC) shares, qualified farm property, and qualified fishing property. The 2026 LCGE limit for QSBC shares is $1,250,000 per individual. Gains within the limit are excluded from taxable income. The exemption is claimed on Form T657 and may trigger alternative minimum tax.
- Does the $250,000 threshold reset each year?
- Yes. The $250,000 threshold for the 50% inclusion rate is a per-calendar-year limit that resets to zero on January 1. Capital gains realized in previous years do not reduce the threshold in the current year. Capital losses realized in the same year reduce net capital gains before the threshold is applied.
- What is a superficial loss and when does it apply?
- A superficial loss is a capital loss on a property disposed of when the same or an identical property is acquired by the taxpayer or an affiliated person within 30 days before or after the sale. The loss is denied and added to the ACB of the reacquired property. This rule prevents wash sales, where an investor sells a security at a loss and immediately repurchases it to generate a deductible loss.
- Are capital gains on foreign investments taxable in Canada?
- Yes. Canadian residents are taxed on worldwide income, including capital gains on foreign property such as US stocks, US real estate, and foreign ETFs. The gain is calculated in Canadian dollars at the exchange rate applicable to each transaction date. A foreign tax credit (Form T2209) reduces Canadian tax by the lesser of the foreign tax paid or the Canadian tax on that income.
- How does the two-thirds inclusion rate affect corporations?
- Canadian-controlled private corporations (CCPCs) and other corporations are subject to the 66.67% inclusion rate on all capital gains, with no $250,000 threshold. This rate applies to gains realized on or after June 25, 2024. The affected taxable capital gain flows through the corporation and, on distribution as a dividend, passes through the GRIP or LRIP mechanism for integration.
- What is the tax on a $500,000 capital gain for an individual in Alberta?
- The first $250,000 is subject to 50% inclusion: $125,000 taxable. The next $250,000 is subject to 66.67% inclusion: $166,675 taxable. Total taxable capital gain: $291,675. At Alberta's top combined federal-provincial marginal rate of 48.00%, the estimated tax on the taxable portion is approximately $139,984, leaving an after-tax gain of approximately $360,016.