Capital gains taxes, explained
Learn how capital gains are taxed and how to keep more of that money for yourself.
Learn how capital gains are taxed and how to keep more of that money for yourself.
Photo by Binyamin Mellish from Pexels
Capital gains can be an afterthought after selling your home, or any property, stocks or shares. But it sure comes up around tax time.
You have a capital gain when you have sold, what the Canada Revenue Agency deems “capital property” (including securities in the form of shares and stocks as well as real estate, like a cottage) for more than you paid for it (called the adjusted cost base) less any legitimate expenses associated with its sale.
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 whose taxable capital gain falls into in a 33% marginal tax bracket for example, the gain in the above example would result in $8,250 taxes owing. The remaining $41,750 is the investors’ to keep. (There are rumours that the rates capital gains taxes may change due to the COVID pandemic.)
To calculate any capital gain or loss on recently sold property/stocks, according to the CRA, you need the following amounts:
Proceeds of disposition – (ACB + outlays and expenses) = capital gain/loss
There are several ways to legally reduce, and in some cases avoid, capital gains tax. Some of the more common exceptions are detailed here:
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.
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I have two properties standing next to each other, one is on the Corporate Business Account and one the other has three owners and is used as a rental for income tax. The Corporate was also a rental. The city has approved the subdivision of the two lots to three lots for construction purposes. The directors of the corporation and the same as the co-owners of the personal rental. What action can be taken to transfer one property to a combined ownership. The personal one has a mortgage but the corporate house does not. How can this be resolved without capital gains being paid.
Hi Alex, thanks for the question.
Due
to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected],
where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
My wife and I have two properties one a home, in both our names and the other a cottage that is in her name. We are considering renting the home out and designating the cottage as our full time residence. The cottage has a capital gain exceeding $1 million so there would a financial impact. By applying 50% of the gain or $500K to my wife’s income we could re-establish the threshold value of the cottage as our principal residence. My wife is currently receiving OAS, CPP and a small pension thus she is an extremely low marginal tax bracket. Am i right in assuming the capital gain won’t move her up in tax brackets and she’ll have a relatively small tax bill with CRA?
Response from the MoneySense editorial team:
Hi Jim, thanks for your question.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected],
where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
I have unused net capital losses from prior years. Can I use them for capital gains tax by withdrawing from RRSP?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
Recently sold a rental property and part of proceeds was used to pay off the outstanding mortgage balance on the property. Could this amount be used to reduce capital gains on the sale?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
If your job currently laid you off and you are collecting unemployment, do capital gains effect your benefits? If I sell a stock in a company at higher price then what I bought the shares for, are those gains considered income and need to be reported to unemployment? Thank you for your time
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
I live in Québec province. I Bougot a house in Toronto and sold It recently. Should i have to file capital appriciation in both provincial and federal?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
I am the sole owner of a house in BC. I want to add my son to the title to avoid probate fees if I should pass, have medical issues. This is not his principal residence so I understand captial gains may affect him when he sells the house. My question is, will it cost more in probabe fees or capital gains for my son.
Thank You
Thank you for the question. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.