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Capital gains tax in Canada has no rate of its own. Half of your gain joins the rest of your income for the year and gets taxed along with it, so a $40,000 gain costs an Ontario employee earning $60,000 about $6,080 in extra tax. Sell at a loss and you owe nothing, though the loss has a use later.
How is a capital gain worked out?
Start with what you sold the property for. Subtract what it cost you, plus anything you paid to buy it that belongs in the cost, and then subtract selling costs such as commissions and legal fees. The CRA’s guide calls the first part the adjusted cost base, and describes it as usually the cost of the property plus the expenses to acquire it. What’s left is your capital gain.
A small example. Sam in Halifax buys 100 shares for $5,000 and pays a $10 commission, so the cost base is $5,010. Later he sells them for $8,000 and pays another $10 commission. The gain is $8,000 minus $5,010 minus $10, which is $2,980. Half of that, $1,490, is what gets taxed.
That half is the taxable capital gain, and it goes on line 12700 of your return using Schedule 3. The CRA’s guide T4037, Capital Gains gives one half as the inclusion rate for 2024 and 2025. For 2026 it’s a little less tidy. The federal government proposed a rise to two-thirds on gains above $250,000, delayed it to 1 January 2026, and then announced on 21 March 2025 that it was cancelling that increase. We couldn’t find a 2026 CRA guide page yet, so read the line 12700 instructions when the 2026 forms come out. Everything below uses one half.
What does capital gains tax cost on a $40,000 gain?
That turns on what else you earned, which is the part most people miss. The gain stacks on your salary or other earnings, so the same sale costs more in a strong income year. These figures come from our capital gains tax calculator, using employment income as the other income.
| Situation | Gain | Taxable half | Extra tax |
|---|---|---|---|
| Ontario, $40,000 other income | $40,000 | $20,000 | $4,268 |
| Ontario, $60,000 other income | $40,000 | $20,000 | $6,080 |
| Ontario, $90,000 other income | $40,000 | $20,000 | $6,165 |
| Alberta, $90,000 other income | $40,000 | $20,000 | $6,100 |
| Ontario, $60,000 other income | $100,000 | $50,000 | $15,243 |
| Ontario, $90,000 other income | $100,000 | $50,000 | $18,536 |
Notice how little the $60,000 and $90,000 rows differ on the smaller gain. Both sit inside the same Ontario and federal bracket, so the extra half is taxed at roughly the same rate. The gap opens on the $100,000 gain, because part of it pushes the higher earner into the next bracket.
Can I use a loss to cut the bill?
Yes, and you’ll want to know how before year end. A capital loss first cancels capital gains in the same year. If losses are bigger, the CRA says you can apply a net capital loss to taxable capital gains of the three previous years and to any future year. That can mean amending an earlier return to get tax back.
Say you’re sitting on a $12,000 gain from one stock and a $5,000 loss on another. Selling both in the same year leaves a $7,000 gain, and half of that is taxable. Sell only the winner and you’re taxed on half of $12,000.
What do people get wrong on capital gains?
Forgetting costs is the big one. If you leave out commissions or the money you spent to buy the property, you report a bigger gain than you have. Using the purchase price and ignoring what’s been added to it since is nearly as common. Ordinary upkeep such as repairs and maintenance doesn’t go into the cost base, so don’t add it back in.
The second mistake is assuming your home is always exempt. A principal residence is usually exempt, but you still have to report the sale and name the home as your principal residence. The home sale proceeds calculator shows what you’d actually clear, and our marginal tax rate calculator shows what the next dollar of income costs. Our own tool has limits too: it doesn’t carry a loss to another year, and the lifetime exemption for qualified small business shares and farm or fishing property is an option you switch on with the amount you have left. The CRA’s guide lists that exemption at $1,250,000 for 2025, though it describes the figure as based on proposed changes.
Foreign currency, partial sales and shares bought at different prices all need an adjusted cost base you work out first. It’s tedious, but do it before you touch any calculator.
When do you actually pay, and what should you keep?
The tax on a gain is settled on the return for the year you sold, so a sale in 2026 shows up when you file in the spring of 2027. A big gain can leave you owing a lump sum at filing, and it may mean instalments the following year. The tax instalments calculator is there for planning those. Set a chunk aside from the sale proceeds when the money lands, because spending all of it and facing the bill in April is a rough surprise.
Keep the purchase confirmation, commission slips and any receipts for costs you counted in the cost base, along with the sale paperwork. If the CRA asks, those papers are your proof, and the figures are easy to forget after a few years.
Where the numbers come from
The gain formula, the inclusion rate for 2024 and 2025, loss carryover rules and the exemption amount come from the CRA guide T4037 Capital Gains. The 2026 status of the proposed increase comes from Department of Finance Canada announcements dated January 2025 and a Prime Minister’s release of 21 March 2025. Tax rates in our calculator are the 2026 federal and provincial figures, and the result is an estimate. We’re an independent site, and no government body is behind it.
Frequently asked questions
What is the capital gains inclusion rate in Canada?
The CRA gives 50% for 2025, so half of a gain is taxable. The proposed rise to two-thirds was cancelled according to the Prime Minister's release of 21 March 2025.
Where do I report a capital gain?
On Schedule 3, Capital Gains or Losses, with the taxable amount going on line 12700 of your return.
Can I carry a capital loss back?
Yes. The CRA says a net capital loss can be applied to taxable capital gains of the three previous years and to future years.
Is there a flat rate on capital gains?
No. The taxable half joins your other income and is taxed at your normal federal and provincial rates.
What is the lifetime capital gains exemption?
For qualified small business shares and farm or fishing property, the CRA lists a $1,250,000 exemption for 2025. It does not cover ordinary investments.
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