How Capital Gains Tax in Canada Works & How to Pay Less (2026)

Most Canadians assume selling their home is completely tax-free. It usually is, but not always. And for rental properties, investment portfolios, or a cottage you've held for decades, the bill can be far larger than expected.

In Canada, capital gains tax applies when you sell a capital asset for more than you paid. Currently, 50% of your capital gain is added to your total income and taxed at your marginal rate. There's no flat "capital gains rate" — what you owe depends on your income bracket and province.

This article is for informational purposes only and does not constitute tax or financial advice. Consult a qualified tax professional for guidance specific to your situation.

P.S. — Selling a property and suddenly facing a five-figure tax bill is more common than you'd think. If you need funds to bridge the gap, Lotly's secured home loans let Ontario homeowners access cash from existing home equity, regardless of credit score or income type. See your options here.

What is capital gains tax in Canada?

Capital gains tax is the tax you pay on the profit from selling a capital asset — stocks, mutual funds, real estate, crypto — for more than you originally paid. Only a portion of that profit gets added to your income, and that portion is taxed at your regular marginal rate.

The distinction that matters is realized versus unrealized. A realized gain means you've actually sold and pocketed the profit, and tax applies. An unrealized gain means your investment has gone up in value but you haven't sold, so there's no tax yet.

Capital gains tax applies to stocks, bonds, mutual funds, ETFs, real estate (excluding your principal residence in most cases), crypto assets, and other capital property. It does not apply to assets held inside a TFSA, and gains inside an RRSP are deferred until withdrawal. If you're saving for a first home, the First Home Savings Account (FHSA) also shelters investment growth.

The formula: Capital Gain = Proceeds of Disposition − Adjusted Cost Base (ACB) − Selling Costs.

What is the capital gains inclusion rate?

The inclusion rate is the percentage of your capital gain that becomes taxable income; in Canada, that rate is 50% for individuals. Only half your gain is subject to tax.

If you realize a $10,000 capital gain, $5,000 gets added to your income. At a 30% marginal rate, you owe $1,500 — not $3,000.

What happened to the proposed increase? Budget 2024 proposed raising the inclusion rate to two-thirds for gains above $250,000. That proposal was cancelled in March 2025 and never legislated. The 50% inclusion rate remains in effect.

The Lifetime Capital Gains Exemption (LCGE) passed. It increased to $1.25 million (from $1,016,836) effective June 25, 2024, and became indexed to inflation starting in 2026. Confirm the current indexed figure with the CRA before relying on it for planning. The proposed Canadian Entrepreneurs' Incentive remains unlegislated and is not being administered.

What is the capital gains tax rate in Canada?

Canada has no standalone capital gains tax rate. What you owe depends on the 50% inclusion rate and your marginal income tax rate, which varies by income and province.

The 2026 federal brackets are:

The lowest bracket dropped from 15% to 14% effective July 1, 2025, making 2026 the first full year at the reduced rate.

Provincial rates stack on top. In Ontario, the combined marginal rate at the top bracket reaches 53.53% once the provincial surtax is factored in, putting the maximum effective capital gains rate at 26.76% (53.53% × 50%).

Here's roughly how that plays out across Ontario income levels for 2026:

Ontario applies a 20% surtax on provincial tax over roughly $5,800 and an additional 36% over roughly $7,400, which is why combined rates climb faster than the bracket table alone suggests. Verify current figures against CRA and Ontario tax tables before acting.

A capital gain doesn't just cost you the "capital gains rate." It adds to your total income for the year, which can push other income into a higher bracket. Land transfer tax in Ontario is a separate obligation that affects your adjusted cost base, not your capital gain directly.

How do you calculate capital gains tax in Canada?

Four steps, and once you know your adjusted cost base the rest follows. The CRA's T4037 Capital Gains guide is the authoritative reference.

• Step 1 — Determine your adjusted cost base (ACB). Purchase price plus acquisition costs: legal fees on purchase, land transfer tax, and capital improvements (a new roof or an addition, not routine maintenance). For securities bought at different times, use the weighted average per unit — 100 shares at $20 plus 50 at $26 gives $3,300 ÷ 150 = $22 per share.
• Step 2 — Calculate your gain. Proceeds minus ACB minus selling costs (agent commissions, closing legal fees, staging directly tied to the sale).
• Step 3 — Apply the 50% inclusion rate. That amount is added to your income for the year.
• Step 4 — Apply your marginal rate. The gain stacks on top of your other income, so the applicable rate is the one for the top slice of your total income.

Worked example — rental property sale:

Illustrative only. Actual tax depends on your full income picture.

Why does CCA recapture catch landlords off guard?

If you claimed Capital Cost Allowance on a rental property, selling doesn't just trigger a capital gain — it also triggers recapture. That portion is taxed at 100% as regular income, not at the 50% inclusion rate.

Say you bought a rental for $400,000, claimed $50,000 in CCA, and sold for $600,000:

Many landlords budget for capital gains tax and then get blindsided by recapture on top. The CRA's T4036 Rental Income guide covers the mechanics, and Lotly's guide to calculating your Undepreciated Capital Cost walks through tracking it over time.

Is selling your principal residence always tax-free?

Usually, but not always. Your primary home is generally fully exempt for every year you designate it as your principal residence, using this formula:

Exempt Gain = Total Gain × (1 + Years Designated) ÷ Total Years Owned

Four situations break the exemption:

1. You rented part of your home. A basement suite or rented spare bedroom makes a proportionate share of the gain taxable.
2. You ran a business from a dedicated space. A home office used exclusively for business can trigger a partial change of use.
3. You owned two properties at once. Only one property per family unit can be designated per year. A city condo and a cottage means one of them accumulates taxable gains for every undesignated year.
4. You sold within 12 months of buying. Under the anti-flipping rule (effective January 1, 2023), the entire profit is treated as business income — 100% taxable, no 50% inclusion. Exceptions exist for documented life events like death, divorce, or job relocation.

You must report the sale on your return even when the gain is fully exempt, using Form T2091(IND). That's been mandatory since 2016.

What capital gains exemptions can you claim?

Beyond the principal residence exemption, two others matter for most Canadians.

The Lifetime Capital Gains Exemption shelters gains on qualifying small business corporation shares and qualifying farm or fishing property. It does not apply to rental properties or investment real estate. The limit is $1.25 million, indexed annually beginning 2026.

Tax-sheltered accounts eliminate the problem entirely for eligible investments. TFSA gains are permanently tax-free. RRSP gains are deferred until withdrawal, and the Home Buyers' Plan lets first-time buyers withdraw for a purchase without immediate tax, subject to repayment rules. The FHSA combines features of both. None of these shelter real estate held outside the account.

How can you reduce or defer capital gains tax?

You can't eliminate capital gains tax outside the exemptions above, but you can legally minimize or defer it — and the planning has to happen before you sell.

• Use tax-sheltered accounts. An $80,000 gain inside a TFSA costs nothing. The same gain in a non-registered account could cost $12,000+ in Ontario.
• Time your dispositions. Selling in a low-income year — a sabbatical, early retirement, between jobs — can cut your effective rate roughly in half.
• Harvest capital losses. Sell losing positions in the same year to offset gains, watching the superficial loss rule.
• Track your principal residence designation. Missing even one year reduces your exemption, and most Canadians never actively track this.
• Donate appreciated securities. Donating publicly traded shares directly to a registered charity eliminates the capital gains tax entirely and generates a receipt for full market value — one of the most underused strategies in Canada.
• Use the capital gains reserve. If proceeds arrive over multiple years, such as through a vendor take-back mortgage, you can spread the taxable gain over up to five years.
• Transfer to a spouse at ACB. Spousal rollover defers the gain, though attribution rules mean it's eventually taxed in the original owner's hands.

How do you report capital gains on your tax return?

All capital dispositions go on Schedule 3 (Capital Gains or Losses), and reporting is required even when your gain is fully exempt. Stocks, real estate, crypto, and gains flowing through T3 or T5 slips all land there. A principal residence sale needs Schedule 3 plus Form T2091(IND). Losses you want to carry back go on Form T1A.

Two timing notes: net capital losses carry back three years or forward indefinitely, and if you're self-employed your filing deadline is June 15, but any tax owing is still due April 30.

What happens if you have a capital loss?

A capital loss occurs when you sell for less than your ACB, and only 50% of the loss is "allowable" — mirroring the inclusion rate. That allowable loss first offsets taxable capital gains in the same year. Excess losses can be carried back three years to recover tax already paid, or carry them forward indefinitely.

The superficial loss rule denies your loss if you or an affiliated person (spouse, a corporation you control) repurchase the same or identical property within 30 days before or after the sale. The window runs in both directions.

Allowable Business Investment Losses (ABILs) are a special category covering shares or debt of a qualifying small business corporation. Unlike regular capital losses, 50% of an ABIL is deductible against all income, not just capital gains, making it considerably more valuable.

How can Lotly help with a capital gains tax bill?

Most guides tell you what you'll owe. Almost none address what to do when the cash to pay it isn't there — which happens more often than you'd expect. You sell a rental, and the proceeds are already committed elsewhere. You inherit a property, and the deemed disposition triggers a gain, but you want to keep it. You're mid-divorce, and a transfer triggers a gain while liquid cash is tight.

Three things to keep in mind:

• CCA recapture is the bill people forget to budget for. If you've claimed depreciation on a rental, that portion is taxed at 100% as regular income on top of your capital gain. Model both before you list.
• Your principal residence isn't automatically exempt. Partial rental use, dedicated business space, owning two properties at once, and the 12-month anti-flipping rule all create taxable exposure. Confirm your designation history before assuming a clean exemption.
• Home equity can cover the bill without liquidating other assets. Ontario homeowners can use a secured home loan through Lotly to cover a tax obligation without selling investments at a bad time or taking on high-interest unsecured debt. Loans range from $10,000 to $1,000,000; all credit scores and income types are accepted, including self-employed property investors, and most approvals happen within about two weeks.

If you're facing a property sale, an unexpected tax bill, or a transitional life stage and need access to funds, see your secured home loan options →

Frequently asked questions about capital gains tax in Canada

Do I pay capital gains tax when I sell my home in Canada?

Generally no, if the property is your principal residence and you've designated it as such for all years of ownership. You still need to report the sale using Form T2091(IND). Exceptions apply if you rented part of the home, ran a business from a dedicated space, or owned two properties simultaneously.

How much capital gains tax will I pay on $100,000 in Canada?

At the 50% inclusion rate, $50,000 is added to your taxable income. In Ontario, the resulting tax ranges from roughly $9,500 at the lowest bracket to about $26,800 at the top combined rate of 53.53%. The gain stacks on your other income, so the applicable rate is the one for the top slice of your income that year.

Is the capital gains inclusion rate changing?

No. The proposed increase to two-thirds was cancelled in March 2025 and never legislated. The 50% inclusion rate remains in effect for individuals, corporations, and trusts.

Are capital gains on crypto taxable in Canada?

Yes. The CRA treats cryptocurrency as a commodity. Selling, trading, converting, or using crypto to buy goods or services can all trigger a gain or loss, reported on Schedule 3.

Can I offset capital gains with capital losses?

Yes. Allowable capital losses (50% of your total loss) offset taxable capital gains in the same year. Unused losses carry back three years or forward indefinitely. Watch the superficial loss rule if you plan to repurchase within 30 days.