Capital Gains Tax Canada 2026: Complete Guide to New Inclusion Rates

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What Are Capital Gains in Canada?

A capital gain occurs when you sell a capital property for more than you paid for it. Capital properties include stocks, bonds, mutual funds, ETFs, real estate other than your principal residence, cryptocurrency, and most other investments.

The capital gain is calculated as your proceeds of disposition minus your adjusted cost base (ACB) minus any selling expenses. The ACB is typically what you paid for the asset plus any related costs such as commissions, legal fees, and improvements in the case of real estate.

Capital gains are not fully taxable in Canada — only a portion called the inclusion amount is added to your taxable income. The proportion included is determined by the inclusion rate, which changed significantly in 2024 and continues to affect Canadian investors in 2026.

Principal Residence Exemption: The sale of your principal residence in Canada is completely exempt from capital gains tax. You must designate the property as your principal residence for each year you owned it. This exemption is one of the most valuable tax benefits available to Canadian homeowners and can shelter hundreds of thousands of dollars in gains tax-free.

The 2024 Inclusion Rate Change: What It Means for Canadians in 2026

The 2024 federal budget introduced a significant change to capital gains taxation that affects Canadian investors, business owners, and anyone selling appreciated assets. Understanding this change is essential for accurate tax planning in 2026.

The New Two-Tier Inclusion Rate System

For individuals, the inclusion rate is now:

50% on the first $250,000 of capital gains in a calendar year — unchanged from the previous rate
66.67% on capital gains above $250,000 in a calendar year — increased from the previous 50%

For corporations and most trusts, all capital gains are now subject to the 66.67% inclusion rate with no $250,000 threshold at the lower rate.

In practical terms, if you are an Ontario resident earning $80,000 in employment income and sell investments with a $100,000 capital gain, the $50,000 included amount (50% of $100,000) is added to your taxable income and taxed at your marginal rate — approximately $21,400 in combined federal and Ontario tax in this example.

2026 Capital Gains Example: Sale proceeds $500,000 — Original cost $200,000 = Capital gain $300,000. First $250,000 at 50% inclusion = $125,000 taxable. Remaining $50,000 at 66.67% inclusion = $33,335 taxable. Total taxable amount = $158,335. At a 43% marginal rate in Ontario, estimated tax = approximately $68,000.

Capital Gains on Different Types of Canadian Assets

Stocks and Investment Funds

When you sell shares or units of a mutual fund or ETF in a non-registered account, the difference between your proceeds and ACB is a capital gain or loss. Your ACB for multiple purchases of the same security is the average cost of all purchases — you cannot choose which shares you sell first in Canada as you can in some other countries.

Real Estate

Investment properties, cottages, and rental properties are subject to capital gains tax when sold. The ACB includes the original purchase price plus capital improvements made over the years. Renovation receipts are extremely valuable — keep them all. In addition to capital gains, recaptured depreciation (CCA recapture) may also be added to your income when selling a rental property.

Cryptocurrency

The CRA treats cryptocurrency as a commodity not a currency. Every disposition of cryptocurrency — selling, trading, or using it to purchase goods — is a taxable event that may trigger capital gains. Crypto investors must track the ACB of every purchase to calculate gains accurately. The CRA has significantly increased cryptocurrency tax enforcement in recent years.

💡 Pro Tips to Reduce Capital Gains Tax in Canada

Use your TFSA and RRSP for investments: Capital gains inside a TFSA are completely tax-free. Capital gains inside an RRSP are tax-deferred. Holding your highest-growth investments in registered accounts eliminates or defers capital gains tax entirely — the single most powerful capital gains reduction strategy available to Canadians.
Harvest capital losses: If you have investments sitting at a loss, selling them before year-end crystallizes a capital loss that can offset capital gains in the current year or carried back up to 3 years or forward indefinitely. This strategy is called tax-loss harvesting and can save significant taxes when implemented strategically.
Spread large dispositions across calendar years: Because the lower 50% inclusion rate applies to the first $250,000 of gains per year, timing large asset sales across multiple tax years can keep your annual gains below the $250,000 threshold and avoid the higher 66.67% inclusion rate.
Use the Lifetime Capital Gains Exemption: The Lifetime Capital Gains Exemption (LCGE) allows qualifying small business owners and farmers to shelter a significant amount of capital gains from qualifying small business corporation shares, qualified farm property, and qualified fishing property. The 2026 LCGE limit for qualifying small business shares is approximately $1.25 million.
Gift appreciated securities to charity: Donating publicly traded securities directly to a registered charity eliminates the capital gains tax on the donated securities entirely while generating a charitable donation receipt for the full fair market value. This is far more tax-efficient than selling the securities and donating the cash proceeds.

⚠️ Common Capital Gains Mistakes Canadians Make

Not tracking ACB accurately: Failing to maintain accurate records of your adjusted cost base — especially for securities purchased at multiple times — leads to incorrect capital gains calculations and potential CRA reassessments. Use a spreadsheet or portfolio tracking software to maintain ACB records for every investment.
Forgetting about deemed dispositions: Certain events trigger capital gains without an actual sale. Ceasing to be a Canadian resident triggers a deemed disposition of most assets at fair market value. Transferring assets to a corporation or trust may also trigger capital gains. Always consult a tax professional before significant ownership changes.
Ignoring superficial loss rules: If you sell a security at a loss and repurchase the same or identical security within 30 days before or after the sale, the CRA disallows the capital loss under the superficial loss rules. This rule is frequently triggered by investors who sell for tax purposes and immediately rebuy.

Capital Gains and Your Other Income: The Interaction Effect

Because included capital gains are added to your taxable income, a large capital gain can push you into a higher marginal tax bracket and affect other income-tested benefits. In Ontario, large capital gains can trigger the OAS clawback if you are a senior, reduce your Canada Child Benefit if you have children, and increase your provincial surtax.

For retirees planning to sell a cottage, investment property, or large investment portfolio, timing the disposition in a year with lower regular income — such as the year after retiring — can significantly reduce the effective tax rate on the capital gain. A financial planner or tax accountant can model different scenarios to find the optimal timing for your situation.

Connect to our Salary Calculator: Use our free Canadian salary calculator to understand your marginal tax rate — this helps you estimate the tax on any capital gains you realize. Also check our investment calculator to model the growth of your portfolio inside a TFSA versus a taxable account.

❓ Frequently Asked Questions

Q: Do I have to report capital gains under $200 in Canada?

A: Yes. All capital gains must be reported on your Canadian tax return regardless of the amount. There is no minimum threshold below which capital gains are exempt from reporting. Even small gains from selling a few shares must be reported on Schedule 3 of your T1 tax return.

Q: Can I deduct capital losses against other income in Canada?

A: No. Capital losses can only be deducted against capital gains — not against employment income, business income, or other types of income. Net capital losses in the current year can be carried back 3 years or carried forward indefinitely to offset future capital gains. The one exception is allowable business investment losses (ABILs) which can be deducted against all income.

Q: Is cryptocurrency taxed as capital gains in Canada?

A: It depends on your activity. The CRA treats most cryptocurrency transactions as capital gains for investors who buy and hold. However frequent traders may be treated as carrying on a business, making gains fully taxable as business income rather than at the lower capital gains inclusion rate. Mining and staking income is typically treated as business income. The CRA has published guidance on cryptocurrency taxation and is actively auditing Canadian crypto investors.

Calculate Your Capital Gains Tax

Use our free Canadian capital gains tax calculator to estimate exactly what you owe in 2026.

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