Capital Gains Tax in Canada: 2025 Complete Guide
TaxCalc Canada Editorial
Published May 8, 2025 · Sourced from CRA Schedule 3 guidance
You bought $10,000 worth of shares five years ago. They are now worth $30,000. The CRA does not tax the full $20,000 gain — it taxes a portion of it, at your regular income tax rate. Understanding which portion is the entire subject of this article.
Canada does not have a separate capital gains tax rate. There is no flat “20% capital gains rate” as exists in some countries. Instead, a percentage of the gain is added to your regular income — the inclusion rate — and taxed at whatever marginal rate applies to your total income.
In 2025, that inclusion rate is 50% for most individuals. If you make $20,000 on a stock sale, $10,000 gets added to your taxable income. If your marginal rate is 30%, you pay $3,000 in tax on the gain. Not $6,000. Not zero.
Quick Answer
Capital gains tax in Canada, 2025: There is no separate tax rate. 50% of capital gains under $250,000 per year are added to your income and taxed at your marginal rate. On a $20,000 capital gain at a 30% marginal rate, you pay $3,000 in tax ($20,000 × 50% × 30%). Your principal residence is fully exempt. Check the CRA website for the latest inclusion rate guidance.
What Is a Capital Gain?
A capital gain arises when you sell a capital property for more than its adjusted cost base (ACB) — what you paid for it plus eligible acquisition costs. Common capital properties include:
- Shares and securities: Stocks, ETFs, mutual funds, bonds held in non-registered accounts.
- Real estate (non-principal residence): Rental properties, vacation homes, investment properties.
- Business assets: Goodwill, equipment sold above book value, small business corporation shares.
- Cryptocurrency: CRA treats crypto as a commodity. Gains on disposal are capital gains or business income depending on your activity.
Capital losses — selling for less than your ACB — can be used to offset capital gains in the same year, the three prior years, or carried forward indefinitely.
The Capital Gains Inclusion Rate in 2025
The 2024 federal budget proposed increasing the inclusion rate from 50% to 2/3 for gains exceeding $250,000 per year for individuals, effective June 25, 2024. CRA is administering 2025 tax returns on this basis.
Individual — first $250,000/yr
50%
Gains included in income
Individual — above $250,000/yr
2/3 (66.7%)
Higher inclusion for large gains
Corporations — all gains
2/3 (66.7%)
All corporate capital gains
TFSA gains
0%
Fully exempt — no reporting required
How to Calculate Capital Gains Tax in Canada
The calculation has three steps: find the gain, apply the inclusion rate, tax the result.
Example: Sale of shares for $50,000, ACB $30,000
Your marginal rate depends on your province and total income. An Ontario resident at $80,000 in employment income pays a marginal rate of 29.65% on the next dollar earned. Add a $20,000 capital gain: the $10,000 included amount would be taxed at 29.65%, costing $2,965 in additional tax.
The Principal Residence Exemption
If you sell your home and it was your principal residence for every year you owned it, the entire capital gain is exempt from tax. No limit. No income test. This is the most valuable tax exemption most Canadians will ever use, and most people only think about it the day they sell.
There are conditions. You can only designate one property as your principal residence per year. If you own a home and a cottage, one of them will not be exempt for any years you designate the other. CRA requires you to report the sale on Schedule 3, even if no tax is owing — a reporting requirement that existed before 2016 but was not enforced.
Lifetime Capital Gains Exemption (LCGE)
The 2025 LCGE is $1,016,602 for qualifying small business corporation shares and qualified farming or fishing property. This exemption eliminates capital gains tax on up to that amount of qualifying gains over your lifetime.
To qualify, the shares must be from a Canadian-controlled private corporation (CCPC) where 90% of assets are used in active business at the time of sale. The rules are specific and the stakes are high — at a 30% marginal rate, the tax savings on a $1,016,602 gain are roughly $152,490.
For business owners planning an exit, the LCGE is worth structured advice. The qualification rules require multi-year planning, not a decision made the week before closing.
How to Reduce Capital Gains Tax
The most straightforward strategy: hold appreciating assets inside a TFSA. Capital gains inside a TFSA are completely exempt. The 2025 contribution room is $7,000, with cumulative room of up to $95,000 for eligible Canadians. This is the single most effective legal tool for sheltering investment gains.
- TFSA: All gains are tax-free. Best for high-growth assets.
- RRSP: Shelters gains from current tax; taxed as income on withdrawal. Effective for deferral.
- Capital loss harvesting: Sell losing positions to offset gains in the same year. Superficial loss rules apply if you rebuy within 30 days.
- Timing of disposition: If your income will be lower next year (sabbatical, retirement), defer the sale to reduce the marginal rate on the gain.
- Spousal transfers: Assets transferred to a spouse are done at ACB (no immediate gain), deferring tax until the spouse sells.
See your marginal rate by province
Use the calculator to find the exact rate that applies to your capital gains this year.
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Frequently Asked Questions
What is the capital gains tax rate in Canada for 2025?
There is no separate capital gains tax rate. In 2025, 50% of capital gains under $250,000 per year are included in your taxable income and taxed at your marginal rate. For gains over $250,000, the inclusion rate is 2/3. A $20,000 gain at a 30% marginal rate costs $3,000 in tax.
Do I pay capital gains tax when I sell my house in Canada?
If the home was your principal residence for every year owned, the gain is fully exempt. You must still report the sale on Schedule 3 (T2091). Failure to report can result in CRA denying the exemption.
How do I calculate capital gains tax in Canada?
Subtract ACB from sale proceeds to get the gain. Multiply by 50% (inclusion rate) to get taxable capital gain. Multiply by your marginal rate for the tax owing. Example: $20,000 gain × 50% × 30% marginal = $3,000 tax.
What is the lifetime capital gains exemption for 2025?
The 2025 LCGE is $1,016,602 for qualifying small business corporation shares and qualified farming or fishing property. At a 30% marginal rate, this saves roughly $152,490 in capital gains tax for eligible business owners.
Is the inclusion rate 50% or 2/3 in 2025?
For individuals: 50% on the first $250,000 of capital gains in the year, and 2/3 on gains above $250,000. For corporations: 2/3 on all capital gains. CRA is administering returns on this basis; check the Finance Canada website for current legislative status.
Can I use TFSA to avoid capital gains tax?
Yes. Capital gains inside a TFSA are completely tax-free. The 2025 annual contribution limit is $7,000, with cumulative room up to $95,000 for eligible Canadians who were 18+ in 2009.
What is the adjusted cost base (ACB)?
The ACB is what you paid for the investment, including acquisition costs. For shares purchased at different prices, it is the weighted average of all purchases. It is subtracted from proceeds of sale to determine the capital gain.
How does capital gains tax differ by province?
The federal inclusion rate and exemptions apply equally across Canada. What differs by province is the marginal tax rate applied to the included gain. The same $10,000 taxable capital gain costs roughly $2,965 in Ontario (29.65% marginal) versus $3,575 in Quebec (35.75% combined marginal).
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TaxCalc Canada Editorial Team
Our editorial team reviews Canadian federal and provincial tax rules annually. All rates are sourced directly from CRA publications and verified against our tax engine before publication.