Capital Gains Tax in Canada: What to Know

Understanding Capital Gains and Losses

Capital gains occur when you sell or dispose of a capital property, such as stocks, real estate, or other investments, for a profit. The adjusted cost base (ACB) is the original cost of the property, plus any improvements or expenses incurred. When you sell the property, the proceeds of disposition are the amount you receive from the sale. Your capital gain or loss is calculated as the proceeds of disposition minus the ACB and any outlays or expenses.

Tax Rates and Calculation

In Canada, only 50% of capital gains are taxable. This means that if you sell a property for $100,000 and your ACB is $50,000, you will have a capital gain of $50,000. However, only $25,000 of this gain will be taxed. The tax rate will depend on your marginal tax rate, which varies depending on your income and province of residence.

Steps for Calculating Capital Gains

1. Determine the proceeds of disposition.
2. Calculate the adjusted cost base.
3. Subtract any outlays or expenses.
4. Calculate the capital gain or loss.
5. Multiply the gain by 50%.
6. Include the taxable gain in your income for the year.

Strategies to Reduce Tax

There are several strategies you can use to reduce your capital gains tax, such as:

• Investing in registered accounts.
• Holding your investments for a longer period.
• Reporting capital losses to offset gains.
• Exploring tax-deferred options like installment sales.

Recent Changes

In 2023, the government announced changes to capital gains tax laws. These include increasing the lifetime capital gains exemption for business owners to $1.25 million and expanding the eligibility for the principal residence exemption.