Capital gains tax in Canada (2026)

What is a capital gain?

A capital gain occurs when you sell a "capital property" for more than it cost you. Capital properties include:

• Real estate (other than your principal residence)
• Stocks, ETFs, mutual funds, and other investments held outside a registered account (RRSP, TFSA)
• Cryptocurrency (CRA treats crypto as a commodity, not currency)
• Business equipment, goodwill, and other depreciable property (though these have their own recapture rules)
• Personal-use property over $1,000 (art, collectibles, cars sold at a profit)
• Foreign property

A capital loss is the opposite — you sold for less than you paid. Capital losses can only be applied against capital gains, not against other income. Unused capital losses can be carried back 3 years or carried forward indefinitely.

The inclusion rate: how gains are taxed

In 2026, the capital gains inclusion rate is 50% for individuals. This means:

What is the adjusted cost base (ACB)?

The ACB is your cost for tax purposes. For most assets, it's what you paid. But it includes:

• Investments: purchase price plus commissions and fees paid to acquire the asset. For stocks purchased in multiple lots at different prices, you must use the average cost method.
• Real estate: purchase price plus closing costs, legal fees, land transfer taxes, and the cost of capital improvements (not repairs).
• Inherited property: ACB is the fair market value at the date of death (deemed disposition).
• Gifts: the fair market value at the time of the gift (gifts trigger a deemed disposition for the giver).

Tracking your ACB correctly is one of the most common areas where Canadians make errors — especially for stocks with dividend reinvestment plans (DRIPs) or for accounts held with multiple brokers.

Principal residence exemption

Your principal residence is usually fully exempt from capital gains tax. This is one of the most valuable tax breaks for Canadians.

To qualify, the home must:

• Be designated as your principal residence for each year you want to shelter (you designate on Schedule 3 and Form T2091 when you sell)
• Have been ordinarily inhabited by you, your spouse, or your children at some point during the year
• Be a housing unit — house, condo, cottage, or even a mobile home

You can only designate one property per year (as a family unit). If you own both a house and a cottage, you must choose which one gets the exemption for any given year — usually the one with the larger gain per year of ownership.

What reduces the principal residence exemption

• Renting out part of your home — the rental portion is not eligible for the full exemption. If you rent out a basement suite, a portion of the gain is taxable.
• Home office CCA — if you claimed CCA on your home for business purposes, the CCA-claimed portion loses the principal residence exemption and triggers recaptured CCA on sale.
• Non-residents — CRA requires non-residents to withhold tax under Part XIII when selling Canadian real estate. Non-residents can file to apply the principal residence exemption, but only if they qualify.

The lifetime capital gains exemption (LCGE)

The LCGE shields gains from certain property from tax, up to a lifetime limit. In 2026, the limit is $1,250,000 per individual.

It applies to:

• Qualified small business corporation (QSBC) shares — shares of a Canadian-controlled private corporation (CCPC) that meets tests for at least 2 years before sale. This is the most common use — business owners selling their company.
• Qualified farm property — farmland, farm buildings, farming shares, and interests in family farm partnerships or trusts.
• Qualified fishing property — similar rules to farm property.

A business owner selling $1,500,000 of qualifying shares (ACB of $0) would have a $1,500,000 gain. The LCGE shelters $1,250,000 of it. The remaining $250,000 gain is 50% included = $125,000 added to income.

Superficial loss rule

If you sell a security at a loss and you (or an affiliated person) repurchase the same or identical security within 30 days before or after the sale, the loss is "superficial" and denied.

The denied loss is added to the ACB of the repurchased shares, so it's not permanently lost — it's deferred until you sell those shares without rebuying.

Example: You sell 100 shares of XYZ at a $5,000 loss on December 15. You buy 100 shares of XYZ on January 5. The $5,000 loss is denied. The ACB of the new shares increases by $5,000. When you eventually sell those shares, the loss will be recognized then.

"Affiliated person" includes your spouse or common-law partner, a corporation controlled by either of you, and a trust of which either of you is a majority-interest beneficiary.

Deemed dispositions

A disposition for tax purposes doesn't require an actual sale. CRA deems a disposal in several situations:

• Death — all capital property is deemed sold at fair market value at death. The estate or the deceased's final return must report any resulting gains.
• Leaving Canada — if you emigrate from Canada, you're deemed to have sold most of your capital property at fair market value on the day you leave ("departure tax").
• Gifts — giving property to anyone other than your spouse triggers a deemed disposition at fair market value.
• Converting property from personal to business use (or vice versa) — changing the use triggers a deemed disposition.

Reporting capital gains

Capital gains are reported on Schedule 3 of your T1 General return. You list each disposition:

• Description of the property
• Year of acquisition
• Proceeds of disposition
• ACB
• Outlays and expenses (selling costs)
• Gain or loss

For real estate sales, you are required to report even if the principal residence exemption applies in full. This has been required since 2016 — many people are still unaware. CRA can assess you if you fail to report a disposition.

For mutual funds and ETFs, your fund manager will provide you with a T3 or T5 slip showing capital gains distributions. These are separate from gains on redemption/sale of the fund units themselves.

Strategies to reduce capital gains tax

• TFSA — hold growth investments inside your TFSA. Gains inside a TFSA are completely tax-free, forever.
• Timing of sale — if you're in a lower tax bracket in a future year (retirement, parental leave), deferring a sale to that year reduces the effective rate.
• Capital loss harvesting — sell underperforming positions to realize losses that offset other gains. Watch the superficial loss rule when rebalancing.
• Spousal transfers — transfers between spouses are done at ACB by default (no gain triggered). This can be used for tax planning, though watch for the attribution rules.
• Estate freeze — business owners can freeze the value of their shares and shift future growth to children, capping their own eventual capital gain. Complex — requires a tax lawyer or experienced CPA.
• Charitable donation of securities — donating publicly traded securities directly to charity generates a charitable receipt for full fair market value AND no capital gains tax on the accrued gain. This is usually better than selling and donating the cash.