Capital Gains Tax in Canada

Overview

In Canada, only 50% of a capital gain is taxable. The taxable portion is added to your income for the year in which the gain was realized.

Types of Capital Gains

You generally have a capital gain or loss whenever you sell or are considered to have sold capital property. Capital property includes:

• Real estate
• Stocks and bonds
• Mutual funds
• Businesses
• Art and collectibles

Calculating Capital Gains

To calculate your capital gain, you need to subtract the adjusted cost base (ACB) of the property from the proceeds of sale.

The ACB is the original cost of the property plus any improvements or expenses that have been made to it.

Tax Rates

The taxable portion of your capital gain is added to your income and taxed at your marginal tax rate. The marginal tax rate is the rate of tax that applies to the last dollar of your income.

The following table shows the federal marginal tax rates for 2023:

| Taxable Income | Marginal Tax Rate | |---|---| | $0 - $53,305 | 15% | | $53,306 - $106,623 | 20.5% | | $106,624 - $165,423 | 26% | | $165,424 - $235,675 | 29% | | $235,676 - $418,710 | 33% | | $418,711 and over | 35% |

Exemptions

There are a number of exemptions from capital gains tax, including:

• The principal residence exemption
• The lifetime capital gains exemption
• The small business capital gains exemption

Planning for Capital Gains Tax

There are a number of strategies that you can use to minimize your capital gains tax liability, including:

• Holding on to your investments for the long term
• Taking advantage of capital gains exemptions
• Utilizing tax-loss selling
• Using a spousal loan