Half the gain is taxable.
Only 50% of a capital gain enters your income in Canada. This works out what that costs at your real marginal rate — and what you keep.
Inclusion rate per Income Tax Act, para. 38(a). The proposed increase to 66.67% was cancelled on 21 March 2025 and never took effect.
| Capital gain | $0 |
| Taxable portion, 50% inclusion | $0 |
| Federal tax | $0 |
| Provincial tax | $0 |
| Total tax owing | $0 |
Your adjusted cost base is what you paid plus purchase commissions and capital improvements. For identical shares bought at different times, Canada requires the weighted average cost of all units — not first-in-first-out.
How capital gains are taxed here
You do not pay tax on the full gain. Under paragraph 38(a) of the Income Tax Act the inclusion rate is 50% — half the gain is added to your income and taxed at your marginal rate; the other half is tax-free. That is why the effective rate on a capital gain is always exactly half your marginal income tax rate.
The 2024 federal budget proposed raising the inclusion rate to 66.67% on individual gains above $250,000. It was deferred to 1 January 2026, then cancelled outright on 21 March 2025. The rate is 50%.
Gains you never pay tax on
- Your principal residence. Fully exempt for every year it was designated as such, though the sale must still be reported on Schedule 3.
- Anything inside a TFSA, RRSP, RRIF, FHSA or RESP. TFSA and FHSA gains are never taxed; RRSP and RRIF gains are taxed as ordinary income on withdrawal, not as capital gains.
- The Lifetime Capital Gains Exemption — $1,275,000 for 2026 — on qualified small business corporation shares and qualified farm or fishing property.
Offsetting with losses
Capital losses apply only against capital gains, never against employment income. Unused losses carry back three years or forward indefinitely. Watch the superficial loss rule: if you or an affiliated person repurchase the same security within 30 days before or after the sale, the loss is denied and added to your ACB instead.
Effective rate by province
Top marginal rates — the capital gains column is half the combined rate
| Province or territory | Provincial | Combined | On capital gains |
|---|---|---|---|
| Ontario | 13.16% | 46.16% | 23.08% |
| Quebec | 25.75% | 53.30% | 26.65% |
| British Columbia | 20.50% | 53.50% | 26.75% |
| Alberta | 15.00% | 48.00% | 24.00% |
| Manitoba | 17.40% | 50.40% | 25.20% |
| Saskatchewan | 14.50% | 47.50% | 23.75% |
| Nova Scotia | 21.00% | 54.00% | 27.00% |
| New Brunswick | 19.50% | 52.50% | 26.25% |
| Newfoundland and Labrador | 21.80% | 54.80% | 27.40% |
| Prince Edward Island | 20.00% | 53.00% | 26.50% |
| Northwest Territories | 14.05% | 47.05% | 23.52% |
| Nunavut | 11.50% | 44.50% | 22.25% |
| Yukon | 15.00% | 48.00% | 24.00% |
These are top-bracket rates. If your income sits lower, your own capital gains rate is lower — which is exactly why timing a sale into a low-income year, or splitting a large disposition across two calendar years, can be worth real money.
Three timing moves that work
- Sell in a low-income year — a sabbatical, parental leave, the first year of retirement before pensions start.
- Split a large disposition across 31 December and 2 January to use two years of lower brackets.
- Harvest losses in December against gains realised earlier in the same year, respecting the 30-day rule.