Last Updated: October 18, 2023
A capital gain refers to the increase in the value of a capital asset when you sell it for more than what you originally paid for it. Capital properties can include cottages, land, buildings, equipment used in a business or rental operation as well as stocks, bonds and units of a mutual fund trust.
Capital gains tax is a tax applied to capital gains or profits that you make from selling assets. The capital gains tax rates will vary depending on the province you live in since provincial tax brackets vary. In Canada, 50% of the value of any capital gains is taxable, so if you sell a property or investment for more than what you originally paid for it, you will have to add 50% of the capital gains to your income. You will then be taxed based on your tax bracket.
To calculate capital gains tax, the formula is as follows:
Proceeds of disposition – (adjusted cost base + expenses on disposition) = capital gain
Then to determine the amount to add to your income tax and benefit return, you will multiply your capital gains by 50%.
With the Perch capital gains tax calculator, you can easily determine the amount of capital gains tax you will have to pay. This will be based on your tax bracket as well as the province you live in. If you are still unsure, it’s best to speak with your mortgage advisor to learn more about capital gains tax. Whether you are a buyer or homeowner, Perch has tools to help you quickly do those complicated calculations so you can reach your goals faster.
A capital loss is when you sell a capital property for less than its adjusted cost base in addition to the outlays and expenses involved when selling the property. It must be recorded on the tax return for the year in which the losses occurred. This also applies when the losses exceed the gains and cannot be used in the current year. When the capital losses exceed capital gains in a year, the difference is the net capital loss.
Capital losses can normally only be used to reduce or eliminate capital gains and cannot be used to reduce other income. If you have capital losses that are more than capital gains in the current year, you can carry back the losses to any of the 3 previous taxation years so you can deduct against capital gains in those years. You can also carry forward capital losses indefinitely.
To calculate your capital loss, you will need to know the proceeds of disposition (the sale price of your property), the adjusted cost base and the outlays and expenses involved when selling your property.
You will subtract the total of your property’s adjusted cost base and any outlays or expenses from the proceeds of disposition
You will still be required to report any capital gains and losses of these donations on your capital gains tax forms and will need to fill out a separate form to receive the exemption.
Capital gains on gifted property
Generally, you don’t have a capital gain or loss if you give capital property to your spouse or common-law partner. You might be able to save on capital gains tax as a family if you transfer capital property to your spouse if they are in a lower income tax bracket.
At the time you give the gift, depending on the type of property you give, you are considered to receive an amount equal to one of the following:
When you make a profit from selling a small business, a farm property or a fishing property, the lifetime capital gains exemption (LCGE) could spare you from paying taxes on all or part of the profit you’ve earned. This exemption also applies to reserves from these properties brought into income in a tax year. This can be beneficial to small business owners as it serves as a tool to help them invest more in another small business or save for retirement.
For example:
If you make a $950,000 profit (also known as capital gains) after selling shares of a small business corporation in 2022, you would have to pay taxes on half of this amount ($475,000) without the LCGE. However, the LCGE allows you to subtract $913,630 from your profits in 2022, so you only pay taxes on ($950,000 – $913,630) x 50% = $18,185 rather than on $475,000.
The LCGE has a cumulative lifetime limit, so you can apply for the exemption multiple times, until you reach the cap.
For example:
If you sell shares of a small business in 2022 and make a profit of $400,000, you only use $400,000 of the LCGE at that time, but because the LCGE is cumulative, you can apply the remaining $513,630 ($913,630 – $500,000) the next time you make a profit.
In Canada, you don’t need to pay tax on the sale of your primary residence due to the principal residence exemption. However, secondary properties are considered taxable assets, which means that owners will be taxed for any property value increases upon the sale of the property, which also includes when the property is inherited. Properties considered as a secondary property can include cottages, second homes, vacant land, farm property or an investment property (rental or commercial).
When you sell a second property, you will be taxed on 50% of gains, which is also called an inclusion rate. You must report any capital gains or losses on Tax Form Schedule 3, the capital gains and losses form.
If you inherit a second property, there are tax considerations you need to plan for. A second home is part of the taxable assets a person is considered to have disposed of upon death. So, if a relative or friend has left you their home, any capital gains tax due must be paid before the property can be transferred to you.
The short answer is yes. It’s important that you keep track of the cost of your second property and your primary home and have a record of the adjusted cost base. Adjusted cost base includes the original purchase price and all of the costs related to the purchase, such as costs incurred before the property is available for use. If this property is a cottage and is your primary residence, your records can be used to calculate the gain on sale, as the principal residence exemption could apply.
When a secondary property is sold, tax is payable on any capital gain. However, if there is a capital loss, the loss is not deductible. Aside from listed personal property (LPP) losses which can be deducted from LPP gains, losses on personal-use properties are not deductible.
If you make an election to change your principal residence, you might be able to designate your second home as your principal residence. Keep in mind that there is a 4 year limit on making this election but can be extended if the property is proven to be used for work related purposes.
Another thing to keep in mind is that if you rent your second home, it will not qualify for the principal residence exemption. If you rented the home for a part of the time you’ve held it, you might be able to claim the property as your principal during the time you were living there. If so, you will be exempt from paying capital gains tax on the appreciation during the time you were living in the property.
For example:
If you buy a home for $600,000 and you sell it for $1 million 10 years later. For five years of that time, you’ve used the property as a personal second home and principal residence. For the other five years, it was rented out. The total capital gains would be $400,000, but you could potentially pay capital gains tax on only $2000,000 (or half of $400,000).
Capital gains and losses are generally handled according to how long you’ve had the asset you are selling, which is also known as the holding period. Short term capital gains are the profits you make from selling assets you have had for a year or less. Long term capital gains are the profits you get from selling an asset that you have had for more than a year. There are specific rules and different tax rates that apply for short and long term capital gains. Typically, you will pay less in taxes on long term capital gains compared to short term capital gains.
The alternative minimum tax (AMT) is intended to ensure that the highest-income Canadians cannot disproportionately lower their tax bill through advantages in the tax system. It ensures that individuals and corporations with high incomes and various tax deductions are still required to pay a minimum amount of tax and prevents individuals and businesses from using too many deductions to eliminate their tax liability completely.
When an individual sells stocks, real estate or other investments, they might be subject to capital gains tax on the profit made. Some taxpayers might have significant capital gains but can also take advantage of different deductions and exemptions which can reduce their normal tax liability. Under the AMT system, these deductions and exemptions are limited or not allowed, which will impact how capital gains are calculated and taxed.
On March 28, 2023, Chrystia Freeland, Deputy Prime Minister and Finance Minister, delivered the 2023 federal budget titled, “A Made-In-Canada Plan” (Budget 2023). Budget 2023 proposes new changes to broaden the Alternative Minimum Tax. The proposed changes would apply to tax years that begin after 2023. Additional details will be released later this year. Here are some of the proposed changes:
AMT Exemption Increase: The amount of income exempt from the Alternative Minimum Tax (AMT) would go up from $40,000 to around $173,000 (projected for 2024), with annual adjustments.
AMT Tax Rate Increase: The AMT tax rate would be raised from 15% to 20.5%.
Capital Gains Inclusion Rate: For AMT, the capital gains inclusion rate would go from 80% to 100%, while normally it’s 50%. This affects how much of your capital gains are subject to tax.
Capital Loss and Business Loss: Capital loss carry-forwards and allowable business investment losses would apply at 50%.
Employee Stock Options: 100% of the benefit from employee stock options would be considered for AMT, while normally it’s 50%.
Donation of Securities: For donated publicly listed securities eligible for zero tax, 30% of capital gains would be included in AMT. Same applies to employee stock options.
Non-Refundable Tax Credits: Only 50% of non-refundable tax credits can be used to offset AMT, with some exceptions. Currently, most can be fully credited.
Disallowing Deductions: Certain deductions would be disallowed at 50%, including interest for property income, non-capital loss carryovers, employment expenses (except commission-based), certain pension plan contributions, moving expenses, and more.
Maintained Inclusions: The 30% inclusion rate for capital gains eligible for lifetime capital gains exemption would remain.
Exempt Trusts: Trusts currently exempt from AMT would stay that way, and more types might be considered for exemption.
Expense Limits: Limits on expenses related to film property, rental property, resource property, and tax shelters would be maintained.
Adjusted cost base (ACB) – This refers to the change in an asset’s value or cost resulting from improvements, new purchases, sales, payouts or other factors. It is the cost of the property plus any expenses to acquire it, such as legal fees and commissions. However, you won’t be able to add current expenses like maintenance and repair costs to the cost base of the property.
Capital gains tax rate – In Canada, 50% of the value of any capital gains are taxable. So if you sell your investment at a higher price than you paid, you will need to add 50% of the capital gain to your income. The amount of additional tax you will pay will depend on how much you’re making and other sources of income you have.
Proceeds of disposition – This refers to the sale price of the property and is the amount you received for your property. This can also include compensation for destroyed or stolen property.
You are expected to report capital gain or loss in the tax year you sell, or are considered to have sold, the property. For example, if you sold a property in July 2022, you would be reporting it in early 2023 when you file your 2022 tax return.
Regardless of whether or not the sale of a capital property results in a capital gain or loss, you will have to file an income tax and benefit return to report the transaction. This applies even if you do not have to pay tax.
Capital gains taxes apply to capital assets which can include real estate, stocks, bonds, jewelry, coin collections and digital assets like crypto currencies and NFTs. Certain types of stock or collectibles can be taxed higher and real estate could be taxed as high as 25%.
It is recommended that you seek accounting or legal advice if you are unsure about which investments are subject to capital gains tax.
| Lower Limit | Upper Limit | Capital Gains Tax Rate |
|---|---|---|
| $0 | $13,229 | 0.00% |
| $13,230 | $15,714 | 7.50% |
| $15,714 | $20,644 | 12.55% |
| $20,645 | $44,740 | 10.03% |
| $44,741 | $48,535 | 12.08% |
| $48,536 | $78,786 | 14.83% |
| $78,787 | $89,482 | 15.74% |
| $89,483 | $92,827 | 16.95% |
| $92,828 | $97,069 | 18.95% |
| $97,070 | $150,000 | 21.70% |
| $150,001 | $150,473 | 22.48% |
| $150,474 | $214,368 | 24.09% |
| $214,369 | $220,000 | 25.98% |
| $220,001 | Infinity | 26.76% |
| Lower Limit | Upper Limit | Capital Gains Tax Rate |
|---|---|---|
| $0 | $13,229 | 0.00% |
| $13,230 | $20,698 | 7.50% |
| $20,699 | $34,556 | 11.81% |
| $34,557 | $41,725 | 10.03% |
| $41,726 | $48,535 | 11.35% |
| $48,536 | $83,451 | 14.10% |
| $83,452 | $95,812 | 15.50% |
| $95,813 | $97,069 | 16.40% |
| $97,070 | $116,344 | 19.15% |
| $116,345 | $150,473 | 20.35% |
| $150,474 | $157,748 | 21.96% |
| $157,749 | $214,368 | 23.01% |
| $214,369 | $220,000 | 24.90% |
| $220,001 | Infinity | 26.75% |
| Lower Limit | Upper Limit | Capital Gains Tax Rate |
|---|---|---|
| $0 | $13,229 | 0.00% |
| $13,230 | $19,369 | 7.50% |
| $19,370 | $48,535 | 12.50% |
| $48,536 | $97,069 | 15.25% |
| $97,070 | $131,220 | 18.00% |
| $131,221 | $150,473 | 19.00% |
| $150,474 | $157,464 | 20.61% |
| $157,465 | $209,952 | 21.11% |
| $209,953 | $214,368 | 21.61% |
| $214,369 | $314,928 | 23.50% |
| $314,929 | Infinity | 24.00% |
| Lower Limit | Upper Limit | Capital Gains Tax Rate |
|---|---|---|
| $0 | $9,838 | 0.00% |
| $9,839 | $13,229 | 5.40% |
| $13,230 | $33,389 | 12.90% |
| $33,390 | $48,535 | 13.88% |
| $48,536 | $72,164 | 16.63% |
| $72,165 | $97,069 | 18.95% |
| $97,070 | $150,473 | 21.70% |
| $150,474 | $214,368 | 23.31% |
| $214,369 | Infinity | 25.20% |
| Lower Limit | Upper Limit | Capital Gains Tax Rate |
|---|---|---|
| $0 | $11,894 | 0.00% |
| $11,895 | $13,229 | 4.40% |
| $13,230 | $15,000 | 11.90% |
| $15,001 | $21,000 | 14.40% |
| $21,001 | $29,590 | 11.90% |
| $29,591 | $48,535 | 14.98% |
| $48,536 | $59,180 | 17.73% |
| $59,181 | $93,000 | 18.59% |
| $93,001 | $97,069 | 19.00% |
| $97,070 | $150,000 | 21.75% |
| $150,001 | $150,473 | 23.50% |
| $150,474 | $214,368 | 25.11% |
| $214,369 | Infinity | 27.00% |
| Lower Limit | Upper Limit | Capital Gains Tax Rate |
|---|---|---|
| $0 | $13,229 | 0.00% |
| $13,230 | $17,463 | 7.50% |
| $17,464 | $40,063 | 13.84% |
| $40,064 | $43,401 | 12.34% |
| $43,402 | $48,535 | 14.91% |
| $48,536 | $86,803 | 17.66% |
| $86,804 | $97,069 | 18.51% |
| $97,070 | $141,122 | 21.26% |
| $141,123 | $150,473 | 21.92% |
| $150,474 | $160,776 | 23.53% |
| $160,777 | $214,368 | 24.76% |
| $214,369 | Infinity | 26.65% |
| Lower Limit | Upper Limit | Capital Gains Tax Rate |
|---|---|---|
| $0 | $13,229 | 0.00% |
| $13,230 | $16,065 | 7.50% |
| $16,066 | $45,225 | 12.75% |
| $45,226 | $48,535 | 13.75% |
| $48,536 | $97,069 | 16.50% |
| $97,070 | $129,214 | 19.25% |
| $129,215 | $150,473 | 20.25% |
| $150,474 | $214,368 | 21.86% |
| $214,369 | Infinity | 23.75% |
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