How Capital Gains Tax Works in Canada
A capital gain is the profit you make when you sell an investment (or property) for more than you paid. In Canada, capital gains get favourable tax treatment: only half of the gain is taxable.
The 50% inclusion rate
Canada taxes capital gains using an inclusion rate of 50%. That means half of your gain is added to your taxable income for the year and taxed at your normal marginal rate — the other half is tax-free.
A note on the 2024 proposal: the federal government proposed raising the inclusion rate to two-thirds on larger gains, but that increase was cancelled in 2025. For 2026 the inclusion rate is 50% for everyone, with no 50,000 threshold.
You're only taxed when you sell
A gain is only realized — and taxable — when you actually sell. An investment that has risen on paper but that you still hold triggers no tax. And capital losses (selling for less than you paid) can be used to offset capital gains, reducing your tax.
Dividends and interest are taxed differently
- Eligible Canadian dividends get the dividend tax credit, which makes them quite tax-efficient outside registered accounts. See what a dividend is.
- Interest (from bonds, GICs, savings) is taxed as ordinary income — the least favourable treatment.
- Foreign dividends (e.g. from US stocks) are generally taxed as ordinary income and may face foreign withholding tax.
The big shortcut: registered accounts
Here's the punchline for most Canadians: inside a registered account, none of this applies year to year. Gains and dividends earned in a TFSA or FHSA are never taxed, and inside an RRSP they grow tax-deferred until withdrawal. That's why filling your registered accounts first is the simplest way to legally avoid capital gains tax. Your principal residence (the home you live in) is also generally exempt from capital gains tax when you sell.
This explains the general rules, not personal tax advice. Tax situations vary — check the CRA or a tax professional for your own circumstances.
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Frequently asked
How are capital gains taxed in Canada?
Canada uses a 50% inclusion rate: only half of a capital gain is added to your taxable income and taxed at your marginal rate. The other half is tax-free, which makes capital gains more tax-efficient than employment or interest income.
What is the capital gains inclusion rate for 2026?
It is 50% for all taxpayers in 2026. The 2024 proposal to raise it to two-thirds on larger gains was cancelled in 2025, so there is no 50,000 threshold or two-tier system.
Do you pay capital gains tax in a TFSA or RRSP?
No. Gains and dividends earned inside a TFSA or FHSA are never taxed, and inside an RRSP they grow tax-deferred until you withdraw. Holding investments in registered accounts is the simplest way to shelter gains from tax.
When do you pay capital gains tax?
Only when you sell and realize the gain. An investment that has risen in value but that you still hold is not taxed, and capital losses can offset capital gains to lower your tax.
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