Understanding Capital Gains Tax in Canada (2024)

FAQs

Understanding Capital Gains Tax in Canada? ›

In Canada, taxpayers are liable for paying income taxes on 50% of the value of their capital gains in a given year. This means that you must take half of whatever you made in capital gains, add that amount to your income, and then subject that total income to income tax.

What is the capital gains tax rate in Canada? In Canada, there's no specific separate tax relating to your capital gains. Instead, you pay additional income tax (at your marginal rate) on a portion of your capital gains. Currently, you pay tax on 50% of your capital gains, no matter what your total gains are.

The full $500,000 capital gain would be exempted from tax under the principal residence exemption. Since they had no taxable capital gains in the current and prior three tax years, the $75,000 net capital losses can be applied without adjustment to offset pension income from 2025 and 2026 (i.e., $37,500 in each year).

As a U.S person living in Canada, you are taxed on money earned in Canada. This can be from investment interest or capital gains, employment income, or if you take money out of your IRA or 401(k).

The lifetime capital gains exemption (LCGE) for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property has been part of the Canadian income tax system for over a generation. The amount of the LCGE is an indexed amount and is $1,016,836 in 2024.

The six-year rule for capital gains tax in Canada allows you to claim the principal residence exemption for a property you did not live in for the entire time you owned it.

The capital gains tax changes in Canada took effect starting June 25, 2024. These changes include increasing the capital gains inclusion rate from 50% to 66.67% for capital gains over $250,000 annually for individuals and for all capital gains for corporations and most trusts.

Outlays and expenses – These are amounts that you incurred to sell a capital property. You can deduct outlays and expenses from your proceeds of disposition when calculating your capital gain or loss. You cannot reduce your other income by claiming a deduction for these outlays and expenses.

How can I save capital gains tax in Canada? ›

One of the easiest ways to avoid paying taxes on capital gains is to hold your investments in a registered account, such as a registered retirement savings plan (RRSP), tax-free savings account (TFSA), first home savings accounts (FHSA) or registered education savings plan (RESP).

CGT 6-Year Rule

Allows temporary renting of PPOR for up to 6 years while still claiming main residence exemption. – Each 6-year absence period is treated individually. - No limit on number of times you can use this exemption. - Property must have been your main residence before renting out.

If you're married or are in a common-law relationship, you can transfer the ownership of the property to avoid paying capital gains taxes. However, the person receiving ownership must live in the property as their principal residence.

Capital gains tax in Canada for individuals will realize 50% of the value of any capital gains as taxable income for amounts up to $250,000. Any amount above $250,000 will realize capital gains of ⅔ or 67% as taxable income.

The Form T2062 calculates tax that is owed to the CRA, which is generally 25% (or 35% for transactions on or after January 1, 2025) of the capital gain, after consideration of the principal residence exemption, if available to a former tax resident.

25% of the sale price of non-depreciable property (e.g. land) and 50% of depreciable property (e.g. a rental building) is required to be withheld on the sale of Canadian real estate owned by a non-resident of Canada. In practice, you may find 25% is commonly withheld on the total sales price of residential real estate.

Capital gains: In Canada, only 50% of the total capital gains is taxable. It is included in your annual taxable income and taxed at your marginal tax rate.

Because of the principal residence exemption, if you inherit real estate and it is a primary place of residence, you will not owe capital gains tax if you sell it later on. But if you inherit property and sell it for a profit without it being your primary residence, then the rules of capital gains tax apply.

Capital Gains Taxes on Property

Your basis in your home is what you paid for it, plus closing costs and non-decorative investments you made in the property, like a new roof. You can also add sales expenses like real estate agent fees to your basis. Subtract that from the sale price and you get the capital gains.