Capital gains tax in Canada applies 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, and cryptocurrency. The 2024 federal budget introduced the most significant change to Canadian capital gains taxation in decades, creating a two-tier inclusion rate system. How the Two-Tier Inclusion Rate Works in 2026: For individual Canadians, the first $250,000 of capital gains realized in a calendar year is subject to the 50% inclusion rate. Capital gains above $250,000 are subject to the new 66.67% inclusion rate. For corporations and most trusts, the 66.67% rate applies to all capital gains with no lower-rate threshold. In Ontario, the top combined marginal rate is approximately 53.53%, meaning gains above the $250,000 threshold face an effective rate of approximately 35.7% on the gain itself. Calculating Your Capital Gains Tax: The capital gain is calculated as your proceeds of disposition minus your adjusted cost base minus any selling expenses. The ACB is what you originally paid for the asset plus related acquisition costs. For securities purchased multiple times, the ACB is the average cost of all purchases combined. The included portion of the gain is added to your other income for the year and taxed at your combined federal and provincial marginal rate. The 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 owned. This exemption can shelter hundreds of thousands of dollars in housing appreciation gains completely tax free. Investment properties, cottages, and rental properties do not qualify. Key Capital Gains Tax Reduction Strategies: Holding investments inside a TFSA eliminates capital gains tax entirely. RRSP investments defer capital gains tax until withdrawal. Tax-loss harvesting by selling investments at a loss to offset current year gains can significantly reduce your annual tax bill. Spreading large dispositions across multiple calendar years keeps annual gains below the $250,000 threshold where the more favourable 50% inclusion rate applies. Donating appreciated securities directly to charity eliminates capital gains tax on the donated amount entirely while generating a full charitable donation receipt. Always consult a qualified tax professional for large capital gain transactions. Run this calculator before selling any appreciated investment or property to understand the after-tax proceeds you will receive and whether spreading the disposition across two calendar years could keep your gains below the $250,000 threshold where the more favourable 50% inclusion rate applies. The difference between realizing $300,000 in gains in one year versus $150,000 in each of two consecutive years can save thousands in capital gains tax for Ontario investors.