Capital gains tax calculator

What is a capital gain?

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.

What is capital gains tax?

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.

How do I calculate capital gains tax?

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.

What is a capital loss?

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

Are there any capital gains tax exemptions?

• • Lifetime capital gains exemption (LCGE)
    Also known as the capital gains deduction, if you are eligible, you are entitled to a cumulative lifetime capital gains exemption (LCGE) on net gains realized on the disposition of qualified property. This exemption also applies to reserves from these properties brought into income in a tax year. Capital properties eligible for the LCGE can include qualified small business corporation shares and qualified farm or fishing property. The lifetime limit refers to the total amount of LCGE you can claim throughout your lifetime. As of 2023, the LCGE amount is $971,190.

• • Principal residence exemption
    This income tax benefit provides you with an exemption from tax on the capital gain when you sell the property that is your principal residence. To be eligible, you can only have one principal residence at a time. If you have a spouse, you may only have one principal residence between the both of you. Another important thing to note is that if there was a time in your ownership where the property was not your principal residence, you won’t be eligible to receive the full tax exemption. The exemption will be calculated based on the number of years that your property was your principal residence.However, if you sell a primary residence that you have owned for less than 12 months will be considered as property flipping, and you will not be eligible for the capital gains tax exemption that normally applies. Property flipping is when an individual purchases a houses and sells it within a short period of time so that they can make profit over the original purchase price. Instead, the profits from the sale will be taxed as business income. This new law applies to property sold on or after January 1, 2023.There are exceptions to the new anti-flipping measure which includes:
    • Death
    • Addition to household (including birth, adoption, or of elderly parent)
    • Breakdown of marriage or common-law partnership
    • Threat to personal safety
    • Serious illness or disability
    • Work relocation (new home must be at least 40 kilometres closer to new work location)
    • Involuntary termination of employment
    • Insolvency
    • Involuntary disposition (e.g., due to natural disaster)

• Exemptions on capital gains for donations
  You might be exempt from paying capital gains tax on certain assets that you donate to a registered charity or other organizations. Some assets that are eligible for this exemption would be:
  • a share of the capital stock of a mutual fund corporation
  • a unit of a mutual fund trust
  • a prescribed debt obligation
  • an interest in a related segregated fund trust
  • ecologically sensitive land

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:

• the undepreciated capital cost for depreciable property
• the adjusted cost base for other types of capital property

What is the capital gains deduction limit?

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.

• The lifetime capital gains exemption for qualified farm or fishing property and qualified small business corporation shares is $971,190 in 2023, up from $913,630 in 2022.
• If you sell qualifying shares of a Canadian business in 2022, the LCGE is $913,630. However, as only half of the realized capital gains is taxable, the deduction limit is in fact $456,815.
• For 2021, if you disposed of qualified small business corporation shares (QSBCS), you may be eligible for the $892,218 lifetime capital gains exemption. Because you only include one half of the capital gains from these properties in your taxable income, your cumulative capital gains deduction is $446,109, which is half of a LCGE of $892,218.
• For 2016 to 2021, for dispositions of qualified farm or fishing property (QFFP) the LCGE is $1,000,000. Your cumulative capital gains deduction is $500,000 which is half of a LCGE of $1,000,000.
• The capital gains deduction limit on gains arising from dispositions of QSBCS in 2020 is $441,692, which is half of a LCGE of $883,384.
• The capital gains deduction limit on gains arising from dispositions of QSBCS in 2019 is $433,456 which is half of a LCGE of $866,912.
• The capital gains deduction limit on gains arising from dispositions of QSBCS in 2018 is $424,126 which is half of a LCGE of $848,252.
• The capital gains deduction limit on gains arising from dispositions of QSBCS in 2017 is $417,858 which is half of a LCGE of $835,716.
• The capital gains deduction limit on gains arising from dispositions of QSBCS in 2016 is $412,088 which is half of a LCGE of $824,176.
• The limit on gains arising from dispositions of QSBCS and QFFP in 2015 is $406,800 which is half of a LCGE of $813,600. For dispositions of QFFP after April 20, 2015, the LCGE is $1,000,000. The additional deduction is calculated as the difference between $500,000 (1/2 of a LCGE of $1,000,000) and the $406,800 limit.
• The limit on gains arising from dispositions of QSBCS and QFFP in 2014 is $400,000, which is half of a LCGE of $800,000.
• The limit on gains arising from dispositions of qualified farm property, qualified fishing property or QSBCS after March 18, 2007 and before 2014 is $375,000, which is half of a LCGE of $750,000.

Am I qualified for the lifetime capital gain deduction limit?

• Your company must be a small business corporation (SBC) at the time of the sale.
• It must be a share sale of your business (sole proprietorships and partnerships do not qualify).
• More than 50% of the business’s assets must have been used in an active business in Canada for 24 months prior to the sale.
• The shares must not have been owned by anyone other than you or someone related to you in the 24-month period before the sale.

Are there capital gains tax on a second property?

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.

What if I inherit a second property?

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.

Should I keep track of the cost of my secondary property?

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.

What happens if I sell my secondary property?

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.

Are there ways to reduce capital gains tax?

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).

What is the difference between a short term and long term capital gain or loss?

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.

What is the alternative minimum tax (ATM) and how does it relate to capital gains tax?

The alternative minimum tax (ATM) 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 ATM 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.

Terms to know

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.

How often do you report capital gains tax? 

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.

What investments are subject to capital gains 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.

How do I calculate capital gains on a rental property?

To calculate capital gains on a rental property:

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%.

To learn more about capital gain calculations, click here.

How does capital gains work on an inherited property?

When you inherit a home, you will not have to pay any taxes immediately unless it was a second property or vacation home of the deceased. However, you will have to pay capital tax when you sell an inherited home. You will be responsible for 50% of the amount of the increase and if the home increases in value between the time you inherit it and the time you sell it.

Keep in mind that this should not be treated as accounting or legal advice. Everyone’s situation will differ and we highly recommend that you consult a professional to get advice that fits your profile.

How do capital gains work on a property I own outside of Canada?

All Canadian resident taxpayers must report and include in their income for Canadian tax purposes all the income they earn if they sell a foreign property. If you hold a property outside Canada worth more than $100,000, you may be required to report that to the Government using form T1135 even if no income was generated.

Do I need to pay capital gains on a property if I’m getting divorced?

Capital gains applies to any investment or property that has increased in value since purchase and includes family home, stocks or rental properties. If and how the capital gains tax affects you during divorce will depend on what you both intend on doing with the house. Generally, if there is a transfer of property between divorcing spouses, the transaction is nontaxable. So if a divorcing spouse decides to buy out the property, the selling spouse will not need to worry about capital gains tax since the sale will be a part of the divorce settlement. However, if you both decide to sell your house at divorce, the capital gain tax applies. You are both able to exclude a total of $500,000 of gain tax if you both lived in the home for two of the five years before the sale.

Both parties can claim a principal residence exemption for the matrimonial home to avoid capital gains tax, but this will only work if you have not claimed any other property as your principal residence during the years you have owned it. Capital gains and other tax liabilities will be handled by a family lawyer as these are typically considered a part of your separation or divorce settlement.

Keep in mind that this should not be treated as accounting or legal advice. Everyone’s situation will differ and we highly recommend that you consult a professional to get advice that fits your profile.

Is there a way to reduce capital gains on a rental property?

One way to reduce the capital gain tax in Canada is to sell your property during a low income year. Your income establishes which tax bracket you fall under and will determine your capital gains tax rate. To reduce capital gains taxes, you can also consider carrying your losses to the following year. This will allow you to extend a current-year taxable loss to a future year. Everyone’s situation will differ and we highly recommend that you consult a professional to get advice that fits your profile.