In Canada, capital gains are taxed at your marginal income tax rate — but only a portion of the gain is included in taxable income. For 2026, individuals include 50% of capital gains in their income. There is no separate, lower capital gains rate like in the US — instead, the “inclusion rate” determines how much of your gain becomes taxable income, and that income is taxed at your regular tax bracket.
Key takeaway: On a $10,000 capital gain in Canada in 2026, you add $5,000 (50%) to your taxable income. If your combined federal and provincial marginal rate is 43%, your actual tax on the gain is $2,150 — an effective capital gains tax rate of 21.5%. Gains on your principal residence are exempt. Small business owners selling qualifying shares may shelter up to $1,250,000 of gains through the Lifetime Capital Gains Exemption.
How Capital Gains Tax Works in Canada — 2026
| Concept | Details |
|---|---|
| Inclusion rate (individuals) | 50% of the capital gain |
| Federal tax brackets | 15% to 33% (marginal) |
| Combined federal + provincial rate | Ranges from ~20% to ~55% depending on province |
| Effective capital gains tax rate | Approximately 10%–27% (50% of marginal rate) |
| Principal residence | Fully exempt (Principal Residence Exemption) |
| Lifetime Capital Gains Exemption (QSBC/farms) | $1,250,000 in 2026 |
| TFSA capital gains | Exempt (no tax on gains inside TFSA) |
| RRSP/RRIF capital gains | Deferred (taxed as income when withdrawn) |
Capital Gains Tax Calculation — Step by Step
Formula: $$ ext{Capital Gains Tax} = ( ext{Capital Gain} imes 50%) imes ext{Marginal Rate}$$
Worked example — BC resident in the $111,733–$155,625 federal bracket:
- Sold stocks for $30,000 profit (capital gain)
- Inclusion rate: 50%
- Taxable capital gain: $30,000 × 50% = $15,000
- Federal tax rate on this income: 26%
- BC provincial rate on this income: 14.7%
- Combined marginal rate: 40.7%
- Tax on the included gain: $15,000 × 40.7% = $6,105
- Effective tax rate on the $30,000 gain: 20.35%
Federal Capital Gains Tax Rates by Bracket (2026)
| Taxable income (total including gain) | Federal marginal rate | Inclusion at 50% |
|---|---|---|
| Up to $57,375 | 15% | 7.5% effective |
| $57,375–$114,750 | 20.5% | 10.25% effective |
| $114,750–$158,519 | 26% | 13% effective |
| $158,519–$220,000 | 29% | 14.5% effective |
| Above $220,000 | 33% | 16.5% effective |
Add your provincial rate to get your combined effective rate on capital gains.
Types of Capital Property and How They’re Treated
| Asset type | Tax treatment |
|---|---|
| Stocks, ETFs, mutual funds | 50% inclusion — taxed as above |
| Rental properties | 50% inclusion; depreciation recapture at 100% |
| Principal residence | Exempt via Principal Residence Exemption |
| Second property / vacation home | 50% inclusion |
| Cryptocurrency | Taxed as capital gain or income (depending on activity) |
| Small business shares (QSBC) | Up to $1,250,000 exempt via LCGE |
| Collectibles, precious metals | 50% inclusion |
The Principal Residence Exemption
The Principal Residence Exemption (PRE) shelters all capital gains from the sale of your home if it was your principal residence for each year you owned it.
Rules:
- You, your spouse, or your children must have lived in the property ordinarily for each year you designate
- You can designate only one property per family unit per year as a principal residence
- Since 2016, you must report the sale on your T1 return (Schedule 3) and claim the designation — the exemption is NOT automatic
Partial exemption: If you owned the property for 10 years but it was your principal residence for only 8 years, you can exempt 8/10 of the gain.
The Lifetime Capital Gains Exemption (LCGE)
The LCGE allows eligible Canadians to shelter up to $1,250,000 of capital gains from tax in their lifetime from:
- Qualified Small Business Corporation Shares (QSBC): Shares in a Canadian-controlled private corporation where 90%+ of assets are used in an active Canadian business
- Qualified Farm Property: Farm property used in carrying on a farming business in Canada
- Qualified Fishing Property: Fishing property used in carrying on a fishing business
The LCGE is available to individuals only (not corporations). It is indexed to inflation annually.
Note: A Professional Corporation selling shares may not qualify. Eligibility is complex — consult a tax professional if you’re planning a business sale.
Capital Losses
Capital losses can only be applied against capital gains — not other income:
- Current year: Apply losses against any capital gains in the year
- Carry back: Carry losses back up to 3 years to offset past capital gains
- Carry forward: Carry losses forward indefinitely to offset future gains
Superficial loss rule: If you sell an investment at a loss and buy it back within 30 days (before or after the sale), the loss is denied. This prevents tax-loss harvesting with immediate repurchase of the same security.
TFSA — Earn Capital Gains Tax-Free
Capital gains, dividends, and interest earned inside a TFSA are completely tax-free — they don’t count as income and don’t appear on your tax return. Withdrawing gains from a TFSA has no tax consequences. This makes the TFSA the most efficient vehicle for holding investments that generate capital gains.
See the TFSA contribution limit guide to maximize your TFSA room.
Related Resources
- TFSA Contribution Limit 2026 — build the tax-free investment account
- OAS Clawback Guide — how capital gains affect OAS recovery tax
- RRSP Guide — tax-deferred investment for capital gains and income
- CA Taxes Hub — federal and provincial tax guides for Canadians
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy