Capital gains tax in Canada

Capital gains arise when property is sold for more than its adjusted cost base. Canada does not impose a separate capital gains tax. Instead, the Income Tax Act (ITA) requires a portion of each capital gain to be included in taxable income, where it is subject to ordinary federal and provincial marginal rates. That portion is the inclusion rate, which has been 50 percent since 2000 (Canada Revenue Agency, T4037 Capital Gains guide, 2025 edition).

See also the Canada country overview for the full individual income-tax rate structure.

How are capital gains taxed in Canada?

When a capital property is sold, the capital gain is calculated as proceeds of disposition minus the adjusted cost base and any outlays or expenses of sale. One half of that gain — the taxable capital gain — is added to other income on T1 Schedule 3 and then to line 12700 of the T1 return (CRA, Completing Schedule 3, canada.ca). The resulting income stacks on top of employment or business income and is taxed at whatever combined federal-provincial marginal bracket applies.

The federal rates for 2025 range from 14.5 percent on income below CAD 57,375 to 33 percent on income above CAD 253,414, with four intermediate brackets (PwC Worldwide Tax Summaries, Canada individual income taxes on personal income, 2025). A filer in the top federal bracket with a CAD 100,000 capital gain reports CAD 50,000 of taxable capital gain, adding CAD 16,500 in federal tax at 33 percent before provincial tax.

What is the inclusion rate, and is it 50 percent or 66.67 percent?

The inclusion rate is 50 percent for all capital gains realized by individuals, corporations, and trusts for 2025 and 2026. The April 2024 federal budget proposed raising the rate to 66.67 percent on individual gains above CAD 250,000 per year and on all corporate and trust gains effective June 25, 2024. The Canada Revenue Agency began administering the proposed higher rate in mid-2024. On January 31, 2025, the Department of Finance deferred implementation to January 1, 2026. On March 21, 2025, Prime Minister Mark Carney's government cancelled the proposal entirely (Finance Canada, January 2025 deferral announcement; PwC Worldwide Tax Summaries, Canada income determination, 2025). The 50 percent rate was restored retroactively, and no individual faces the 66.67 percent rate for any period.

The effective capital gains tax rate at the top combined federal-provincial bracket varies by province. With a 50 percent inclusion rate, the effective rate is exactly half the top combined marginal rate for ordinary income.

Source: TaxTips.ca, Canada top marginal tax rates by province, 2025 (citing CRA and Finance Canada data).

Did the proposed 2024 inclusion-rate increase take effect?

No. The 66.67 percent inclusion rate never became law. The full legislative sequence: the April 2024 federal budget introduced a Notice of Ways and Means Motion proposing the increase; the CRA administratively treated the higher rate as applicable beginning June 25, 2024; draft legislation was released; Parliament prorogued in January 2025 before the legislation passed; the Department of Finance announced a deferral to January 1, 2026 on January 31, 2025; and the incoming Carney government formally cancelled the measure on March 21, 2025 (PwC Worldwide Tax Summaries, Canada income determination, 2025, noting the cancellation of both the individual-threshold variant and the corporate/trust variant). The CRA reverted to 50 percent for all periods. Filers who submitted returns or instalments based on the 66.67 percent rate were entitled to adjustment or refund.

The Lifetime Capital Gains Exemption increase to CAD 1.25 million — a separate measure announced in the same 2024 budget — was preserved and did take effect (PwC, 2025).

Is the gain on my home exempt from tax?

A capital gain on the disposition of a qualifying principal residence is generally fully exempt under ITA section 40(2)(b), the Principal Residence Exemption (PRE). The key conditions, as set out by the CRA on its Principal Residence and Other Real Estate page, are:

• The property was ordinarily inhabited during the year by the taxpayer, their spouse or common-law partner, former spouse, or child.
• Only one property per family unit can be designated as principal residence for any given year. A family unit includes the taxpayer plus spouse or common-law partner plus unmarried children under 18.
• The exempt land area is generally limited to the building plus up to 0.5 hectares; larger lots may claim only the portion necessary for the use and enjoyment of the housing unit.
• The PRE must be claimed by completing Form T2091 (Designation of a Property as a Principal Residence) attached to T1 Schedule 3 in the year of sale. This reporting has been mandatory since the 2016 tax year.

A partial PRE applies when the property was not designated for every year of ownership — for example, where it was rented for a period. The exempt portion of the gain is calculated as: (years designated plus 1) divided by total years owned, multiplied by the total gain. The additional year accounts for the year of acquisition.

Since January 1, 2023, a gain on a residential property held for fewer than 365 days is generally treated as fully taxable business income, not a capital gain, unless a listed life-event exception applies (CRA, Principal Residence page). Eligible exceptions include death, divorce, birth of a child, disability, or employment relocation.

A qualified tax professional familiar with Canadian real estate transactions can review whether a specific disposition meets PRE eligibility. Browse the Canada tax-pros directory to find a CPA in your province.