Capital gains explained

What is a capital gain, how is it taxed and how to keep more for yourself

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What is it?

You have a capital gain when you sell, or are considered to have sold, what the Canada Revenue Agency deems “capital property” (including securities in the form of shares and stocks as well as real estate) for more than you paid for it (the adjusted cost base) less any legitimate expenses associated with its sale.

How is it taxed?

Contrary to popular belief, capital gains are not taxed at your marginal tax rate. Only half (50%) of the capital gain on any given sale is taxed all at your marginal tax rate (which varies by province). On a capital gain of $50,000 for instance, only half of that, or $25,000, would be taxable. For a Canadian in a 35% tax bracket for example, a $25,000 taxable capital gain would result in $8,750 taxes owing. The remaining $41,250 is the investors’ to keep.

The CRA offers step-by-step instructions on how to calculate capital gains.

How to keep more of it for yourself

There are several ways to legally reduce, and in some cases avoid, capital gains tax. Some of the more common exceptions are detailed here:

  • Capital gains can be offset with capital losses from other investments. In the case you have no taxable capital gains however, a capital loss cannot be claimed against regular income except for some small business corporations.
  • The sale of your principal residence is not subject to capital gains tax. For more information on capital gains as it relates to income properties, vacation homes and other types of real estate, read “Can you avoid capital gains tax?
  • A donation of securities to a registered charity or private foundation does not trigger a capital gain.
  • If you sell an asset for a capital gain but do not expect to receive the money right away, you may be able to claim a reserve or defer the capital gain until a later time.

If you are a farmer or a newcomer to Canada, they are special capital gains rules for you. The specifics can be found at the CRA website.

For more specific questions and stories on this topic, see our capital gains section.

20 comments on “Capital gains explained

  1. Capital gains relating to Listed Personal Property such as jewelery, stamps, paintings and coins may only be offset against losses from Listed Personal Property.

    Allan Madan and Team

    Reply

  2. In June of 2013 my mother past away. In her will she left to me the summer cottage. Doing her taxes for 2013 she payed the capital on the cottage valued at 162,000. A few month later I sold the cottage for 162,000 .Will I have to pay capital gain on this when I do my taxes for 2014? Thank You

    Reply

    • Please keep in mind that capital losses on personal use property are denied.

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      • Additionally, you may be able to use your principal residence exemption if you are selling your home which you ordinarily maintained.

        Allan Madan, CPA, CA

        Reply

  3. In June 2012, my parents purchased a home for me and my growing family. I was unable to purchase the home on my own due to my credit score. Myself and my parents have decided to sell the property, and use the funds to pay off some of my debt and use some of it as a down payment to purchase a home on my own.

    If my parents gift me the capital gain on this property, will they have to pay any taxes?

    Reply

  4. This is excellent information. However, my Father-In-Law had purchased shares in Bell-Aliant as an employee through a payroll deduction plan. He opted, upon privatization of Bell-Aliant by BCE, to transfer his shares to BCE. I understand from your information that he can defer the tax on the capital gains (Bell-Aliant shares are deemed to be sold) as he plans to hold the stocks until cash may be needed in the future. BCE has informed him that he must complete a ‘tax form’ to do this. However, in order to complete this tax form he has to know the ACB (Adjusted Cost Base) on the Bell-Aliant shares. We are at a loss as to how to determine this as he has no way of knowing what the stocks were purchased for. BCE, the big monster, has said that in no way they will help shareholder with this.
    It make one wish he had sold his shares and looked into buying something else. It’s frustrating that BCE feel this way about individual investors, especially those who worked most of their lives at MT&T/Bell Aliant only to be given the middle finger by BCE.

    Reply

  5. i am considering selling my rental home to my son.this will then be his principal residence.since I purchases the unit I have spent considerable time and money to bring it up to standard.problem now is I would have to sell above my original purchase price to recover my costs.would this be considered a taxable gain to me or could it be written off?

    Reply

  6. My mother owns 2 pieces of property and has a small business in which she operates her small business. She wants to leave the property and business to the family on her passing. Her principle residents is located on one piece of property and one of her Adult children lives on the other piece of property in a modular home. The Adult child has lived on this property for more than 15 years and has lived there and worked the business with no wages other than the cost of utilities , The Adult child owns the modular home out right.
    We are trying to find out how much capital gains tax would be payable at the time of her passing on property valued at 4 million dollars. Is it taxed on the entire FMV or is she entitled to the 50%.. and is the principle residence taxable, and what about the Adult child’s principle residents is this entitled to anything?

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    • We are wanting to sell our 10 acre rural property in B.C., we are currently residents over seas, based on the examples shown I am a bit unclear as to which formula or what percent is applicable in our situation

      Reply

  7. Very helpful, thank you!!

    Reply

  8. It’s not quite clear to me…
    First, where is the reference that it’s only “taxed” at 50%? Because it is my understanding that there is a chance of an employee to be claiming one half of the taxable benefit if they meet certain criteria under the Income Tax Act s.110(1)(d).
    Second of all; what do you mean by “35 tax bracket”? Do you mean it’s a combined federal and provincial rate? When you state that $41,250 is “investor’s to keep” are you suggesting it’s tax free? If so, could you provide back-up for this?
    Thank you,
    E.

    Reply

  9. I am going thru divorce my spouse has not lived at the residence that is being sold for 11 years and 8 months but I have lived at the residence since we built the home in 1992 we took a original mortgage out for 90,000.00 and later refinanced again because of debt back up to 90000.00 and we are now selling it for 285,000.00 we have a current mortgage for 81000.00 and then we will split the difference of 105000.00 How are the capitals gains going to effect each of us Thank you

    Reply

  10. I’m writing you this e-mail because I need to ask you a question on ” Capital Gains. “ The building I own as you know is a Triplex I purchased it in 1991, since 1992 to 2008 my parents lived in the first floor of the unit without paying any rent, after they died, I have renovated and rent it out finally in 2012, The second floor and the third floor are used for my living space as one unit, for the past 20 years, as you see the hole building have been used as a family unit without generating any income, I would like to know how to recalculate the capital gains if I sale this property.

    I think in my case I should pay only one third in taxes and no two thirds of capital gains, because I rented one unit only out of three from 2012 until today, I would like to know exactly how to calculate in my case the capital gains formula that will apply to my situation.

    Any advice or any suggestions will be greater appreciated, I have spoken to different people, and all of them have different opinions so I guess It will be better to have yours and to get ready to understand how to manage my building, before I rent a second unit, which it may play against me.

    Reply

  11. I purchased a rural property in 1979 for $22,000. I built a cabin, rented it out for years, now I have moved into the cabin, it’s value now is $330,000. I have another property that is my principal residence ( which has a higher value)
    I have declared the rental income each year, what amount would I have to pay capital gains on my rural property.

    Reply

  12. As a real estate investor, what’s the difference between capital gains or taxes as an investment flip ? Which one applies in case of a short term buying and selling ? ( not primary residence)
    Thanks in advance.

    Reply

  13. I am going to sell my residential house in my country.I may realize capital gain of $60000. How to reduce or minimize gain tax payable. If one has room for RRSP can he deposit fund and save the Canadian tax payable.

    Reply

  14. I have a principal residence I want to help my daughter buy a condo. If I put my name along with hers on the deed and when she decides to sell it who is responsible for paying the capital gain. Example it goes up 40k in 5 yrs and we are both co-owners. She has no other property

    Reply

  15. On 37000 capital gains, at a 15% tax bracket what will I pay revenue Canada

    Reply

  16. Hi, I am just beginning the process of selling our family cottage and I have been advised that I can deduct all, or most, of the taxes that have been paid on this property, thus reducing the capital gains tax. Is this a realistic opportunity? Your response will be appreciated. Thank you.

    Reply

  17. We just bought a home and are wanting to sell. We have owned it for 8months. Question is : is there an amount of time that we have to own it before we don’t have to pay capital gains

    Reply

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