Canada Capital Gains Tax

Quick reference

Item	Value
Inclusion rate (individuals, first $250k)	50% of gain included in income
Inclusion rate (individuals, above $250k)	2/3 (66.67%) of gain included in income
Inclusion rate (corporations/trusts)	2/3 at all levels (from 25 June 2024)
Federal top marginal rate on included gain	~26.8% (50% inclusion × 53.53% top rate)
LCGE — small business shares (2025)	$1,250,000 lifetime exemption
LCGE — farming/fishing property	$1,250,000
Principal residence	Fully exempt (one per family unit per year)
Form	Schedule 3 (T1 return)
Legislation	ITA §38–§55

Adjusted Cost Base (ACB)

Capital gain = Proceeds of disposition − ACB − Outlays and expenses

ACB = original purchase price + costs of acquisition + capital improvements. For identical properties (e.g. shares of same class): ACB is averaged across all units.

Track ACB meticulously — errors are common and CRA audits ACB claims.

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Principal Residence Exemption

A property that is the taxpayer's principal residence for each year of ownership is fully exempt from capital gains tax.

Only one property per family unit (taxpayer, spouse/common-law, minor children) can be designated as principal residence for any given year.

For years it was both a principal residence and a rental: the exemption is prorated. The +1 formula provides a year of grace for the year of purchase.

File CRA Form T2091 on sale to designate.

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Lifetime Capital Gains Exemption (LCGE)

Individuals resident in Canada can claim the LCGE to shelter gains on:

1. Qualified Small Business Corporation (QSBC) shares — company must be a Canadian- controlled private corporation (CCPC); all/substantially all (90%) assets used in active business in Canada
2. Qualified farm property or qualified fishing property

2025 LCGE limit: $1,250,000 (indexed annually).

The LCGE is a cumulative lifetime limit — once used up, no further exemption available.

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Capital losses

• Capital losses can only offset capital gains (not other income)
• Net capital losses carry back 3 years and carry forward indefinitely
• Superficial loss rule: loss disallowed if same property acquired within 30 days before or after the sale by the taxpayer or an affiliated person

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State-equivalent: provincial tax

Capital gains are included in income and taxed at combined federal + provincial rates. Top combined rates on the 2/3 portion (above $250k): approximately 26%–27% federal + 13%–17% provincial = ~39%–44% combined effective rate on the included 2/3.

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Sources

• Income Tax Act (Canada), §38–§55
• CRA: canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains.html
• Schedule 3, Form T2091

Working paper only. The 2024 inclusion rate change requires split-period calculations for the 2024 tax year. LCGE eligibility requires detailed analysis of the QSBC conditions. Have a qualified Canadian CPA review before filing.