What counts as a capital gain or loss
Meaning of capital gain and capital loss
Section 39 defines a capital gain as the gain from a disposition of any property other than an excluded property (e.g., depreciable property, eligible capital property, inventory).
Plain-language explanation
Section 39 defines the two key terms used by s.38:
Capital gain: The excess of proceeds of disposition over the adjusted cost base (ACB) of property plus any outlays and expenses to dispose of it.
Capital loss: The excess of ACB plus disposal costs over the proceeds.
What is excluded from capital gains treatment? - Depreciable property (assets eligible for CCA like equipment and buildings) — gains on depreciable property create recaptured CCA, not capital gains. Losses are terminal losses. - Inventory held for sale in a business — gains are business income, not capital gains. - Foreign exchange gains on Canadian dollar transactions are generally on income account.
Adventure in the nature of trade: If you buy and sell property with a profit-making intention (flipping houses, frequent stock trading), CRA may characterize your gains as business income (100% taxable) rather than capital gains (50% inclusion). This is a significant audit risk for real estate flippers and active day-traders.
Example
David bought 1,000 shares of a public company for $25,000 in 2020 and sold them for $40,000 in 2026. His capital gain is $40,000 − $25,000 = $15,000. His taxable capital gain (s.38) is $7,500.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
CRA updated its position on cryptocurrency: digital assets held primarily for trading are on income account (business income under s.9/39); occasional investors may be on capital account. Extensive audit program launched targeting unreported crypto gains.
Before
No specific CRA guidance; most crypto treated as capital property by default
After
CRA formally treats active crypto trading as business income (100% taxable); capital account only for long-term holders
Common questions
What is the adjusted cost base (ACB)? +
The ACB is generally what you paid for an asset plus any costs to acquire it (commissions, legal fees) and any improvements (for real property). For stocks held in multiple purchases, the ACB is the average cost of all identical shares held.
Are crypto gains capital gains or business income? +
CRA says it depends on the facts. Occasional investors holding crypto long-term are usually on capital account. Frequent traders using crypto for speculative profit are likely on business income account (100% taxable). CRA has been auditing this aggressively.
What is the "adventure in the nature of trade" doctrine? +
If you buy property with the intention of reselling it at a profit (even as a one-time deal), CRA may treat the gain as business income rather than a capital gain. This is common for real estate flippers. The key factor is your intention at the time of purchase.
Key terms
Related sections
Related calculators
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 39. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.