Capital Gains and the Inclusion Rate in Canada: What Investors Need to Know

When you sell an investment for more than you paid, the profit is a capital gain. In Canada, though, you don’t pay tax on the full gain. Only a portion of it gets included in your taxable income, and that portion is set by the capital gains inclusion rate.

If you hold anything in a non-registered account, you should know how this works.

What Are Capital Gains and Losses?

A capital gain occurs when you dispose of a capital property (stocks, ETFs, mutual funds, real estate other than your principal residence, etc.) for more than its Adjusted Cost Base (ACB), plus any expenses of disposition.

Capital Gain = Proceeds of Disposition - (ACB + Selling Expenses)

A capital loss is the opposite: you sell for less than your ACB plus expenses. Capital losses can offset capital gains in the current year, or be carried back 3 years or forward indefinitely.

Quick Example

You bought 100 shares of a Canadian ETF at $50.00 each (total ACB: $5,000). You later sell all 100 shares at $70.00 each, netting $7,000 in proceeds after a $9.99 commission ($6,990.01).

Capital gain: $6,990.01 - $5,000.00 = $1,990.01

You won’t pay tax on the full $1,990.01, though. The inclusion rate determines how much of that gain actually gets taxed.

What Is the Inclusion Rate?

The inclusion rate is the percentage of your capital gain that gets added to your taxable income. As of 2025, the inclusion rate for individuals is 50% (one-half).

So only half of your capital gain is taxable. Using the example above:

Taxable capital gain: $1,990.01 x 50% = $995.01

That $995.01 is added to your other income for the year (employment income, interest, dividends, etc.) and taxed at your marginal tax rate.

The same inclusion rate applies to capital losses. Only 50% of a capital loss can be used to offset taxable capital gains.

When Does Capital Gains Tax Apply?

Capital gains tax only applies to assets held in non-registered accounts. You do not owe capital gains tax on investments held within:

TFSA (Tax-Free Savings Account)
RRSP (Registered Retirement Savings Plan)
FHSA (First Home Savings Account)
RESP (Registered Education Savings Plan)
RDSP (Registered Disability Savings Plan)

Within these registered accounts, your investments can grow without triggering any capital gains tax, though withdrawals from RRSPs and certain other accounts are taxed as income.

Your principal residence is also generally exempt from capital gains tax under the principal residence exemption.

What’s the Most Tax I Could Pay on Capital Gains?

The maximum capital gains tax rate depends on your province or territory, since you pay both federal and provincial income tax. With a 50% inclusion rate, the effective capital gains tax rate works out to half your top marginal income tax rate.

Top Capital Gains Tax Rates by Province/Territory (2024-2026)

Province/Territory	2024	2025	2026
Alberta	24.00%	24.00%	24.00%
British Columbia	26.75%	26.75%	26.75%
Manitoba	25.20%	25.20%	25.20%
New Brunswick	26.25%	26.25%	26.25%
Newfoundland and Labrador	27.40%	27.40%	27.40%
Northwest Territories	23.53%	23.53%	23.53%
Nova Scotia	27.00%	27.00%	27.00%
Nunavut	22.25%	22.25%	22.25%
Ontario	26.76%	23.08%	23.08%
Prince Edward Island	25.88%	26.00%	26.00%
Quebec	~26.65%	~26.65%	~26.65%
Saskatchewan	23.75%	23.75%	23.75%
Yukon	24.00%	24.00%	24.00%

*Quebec’s rate reflects the federal abatement for Quebec residents. See Revenu Quebec for details.

The highest rate in Canada is in Newfoundland and Labrador at 27.40%. That comes from a combined top marginal rate of 54.80% (21.80% provincial + 33.00% federal), multiplied by the 50% inclusion rate.

The lowest rate is in Nunavut at 22.25%.

Keep in mind that these rates only apply if you are in the top marginal tax bracket. Most Canadians will pay less, since capital gains are taxed at whatever marginal rate applies to their income level.

Worked Example

Say you live in Ontario, you’re in the top tax bracket (combined marginal rate of approximately 46.16% for 2025), and you realize a $10,000 capital gain:

Capital gain	$10,000.00
Inclusion rate	x 50%
Taxable capital gain	$5,000.00
Top marginal rate (Ontario, 2025)	x 46.16%
Approximate tax payable	$2,308.00

Your effective tax rate on the capital gain is about 23.08%, roughly half your marginal rate.

How Does Canada Compare Internationally?

Canada’s capital gains tax treatment is competitive but not the lowest globally. Some countries (like New Zealand and Switzerland for individual investors) have no capital gains tax at all, while others (like Denmark) tax capital gains at rates exceeding 40%.

For a comparison of capital gains tax rates around the world, see PwC’s Global Tax Summary.

Common Mistakes

Assuming all gains are fully taxed: Only 50% of your capital gain is included in income. Some investors overestimate their tax liability by applying their full marginal rate to the entire gain.
Forgetting about capital losses: Capital losses offset capital gains dollar for dollar (at the inclusion rate). Don’t overlook losses; they can be carried back 3 years or forward indefinitely.
Not considering the superficial loss rule: If you sell at a loss and repurchase the same or identical property within 30 days (before or after the sale), the CRA may deny the loss under the superficial loss rule.
Ignoring ACB adjustments: Your capital gain is only as accurate as your ACB. Distributions like return of capital and reinvested capital gains affect ACB and, by extension, your gain calculation.
Confusing capital gains with other income types: Dividends, interest, and capital gains are all taxed differently. Capital gains receive the most favorable treatment through the inclusion rate.

How to Report Capital Gains

Capital gains are reported on Schedule 3 of your T1 personal income tax return. You’ll need:

The date of acquisition and date of disposition
Proceeds of disposition (sale price minus selling expenses)
Adjusted cost base of the shares sold
The resulting capital gain or loss

The taxable capital gain (50% of the total gain) flows to line 12700 of your tax return.

For mutual funds and ETFs, your fund provider may issue a T3 slip showing capital gains distributions. These must also be reported even if you didn’t sell any units.

Frequently Asked Questions

Is the capital gains inclusion rate still 50% in 2025?

Yes. The inclusion rate for individuals remains at 50%. The federal government proposed increasing it to two-thirds (66.67%) in Budget 2024, but that proposal was cancelled in March 2025.

Do I pay capital gains tax on crypto in Canada?

Generally, yes. The CRA treats cryptocurrency as a commodity, and profits from selling or exchanging crypto are typically treated as capital gains (or business income, depending on the circumstances). The same inclusion rate and reporting rules apply.

Can I offset capital gains with capital losses from previous years?

Yes. Net capital losses can be carried back up to 3 years or carried forward indefinitely to offset taxable capital gains in other years. You apply for a loss carryback using Form T1A.

What if I have capital gains but no other income?

Capital gains are taxed at your marginal rate. If you have little or no other income, a large portion of your capital gains may fall into lower tax brackets, which can significantly reduce your effective tax rate, potentially well below the top rates shown above.

Do I pay capital gains on inherited investments?

When a person passes away, the CRA treats their capital property as if it were sold at fair market value immediately before death (a “deemed disposition”). Capital gains tax applies on the deceased’s final tax return, not when the beneficiary later receives the assets. The beneficiary’s ACB is generally the fair market value at the date of death.

This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules can change and individual circumstances vary. Consult a qualified tax professional for advice specific to your situation.