Understanding Capital Gains Tax in Canada: A Complete Guide for 2025

Navigating the Canadian tax system can be daunting, particularly in the area of capital gains tax. Regardless of whether you are selling stocks, real estate, or even cryptocurrency, capital gains tax is an important concept to know about when planning your finances. This is a guide on the fundamentals of capital gains tax in Canada in 2025, including what it is, how to calculate it, exemptions, reporting, and how to reduce your tax bill. Stay informed with the latest updates to make smart financial decisions, and learn how to integrate these strategies into a broader investment plan with our guide on building a diversified investment portfolio in Canada.    

What is Capital Gains Tax?

A capital gain occurs when you sell an asset—like stocks, bonds, property, or cryptocurrency—for more than its adjusted cost base (ACB), which is the original purchase price plus associated costs (e.g., commissions). This profit is regarded as a capital gain, and in Canada, part of it is taxed.  Conversely, a capital loss occurs when you sell an asset for less than its ACB, which can offset taxable gains. The Canada Revenue Agency (CRA) notes that capital gains tax is applicable on a range of assets, although certain assets, such as your principal residence, may be tax-exempt. The first step in managing your tax obligations is to understand what constitutes a capital gain.

How to Calculate Capital Gains Tax in Canada

In Canada, it is easy to compute capital gains tax. Follow these steps:

• Identify Proceeds of Disposition: This is the price of the sale of the asset.
• Compute the Adjusted Cost Base (ACB): Include the purchase price, and add other costs such as legal fees or brokerage commissions.
• Calculate the Capital Gain: Subtract the ACB from the proceeds of disposition.
• Apply the Inclusion Rate: In 2025, the inclusion rate will be 50%, meaning half of the capital gain is taxable.
• Compute Taxable Income: Multiply the capital gain by the inclusion rate.
• Apply Your Marginal Tax Rate: The amount that is taxable is added to your income and is then taxed at your marginal rate, which depends on the province and the amount of income you have.

Example: You purchased shares at a cost of $10,000 (ACB) and sold them at a price of $15,000. The capital gain is $5,000. At an inclusion rate of 50 per cent, the taxable amount is $2500. Assuming that your marginal tax rate is 30 per cent, you would pay $750 in taxes. Utilize calculators such as TurboTax Canada to make calculations easier. For a smoother filing experience, check out our stress-free tax filing tips for Canadians.

Current Inclusion Rate and Tax Rates in 2025

As of 2025, the inclusion rate on capital gains is 50 per cent for individuals, after a proposed increase to 66.67 per cent was cancelled on March 21, 2025, by the Department of Finance. However, corporations and trusts can be subject to other regulations, so check with a tax expert.

The rate of tax you pay is based on your income and province. For instance, the combined federal-provincial marginal tax rate on high-income earners (above $246,752) in Ontario is about 53.53%. Therefore, a capital gain of $10,000 would lead to $2500 taxable income, which would be taxed at your marginal rate. 

Key Exemptions and Deductions

There are a number of exemptions that can minimize your capital gains tax in Canada:

• Principal Residence Exemption: The sale of your primary residence is normally tax-free, as long as it satisfies CRA requirements. Find out more at the CRA’s guide. If you’re saving for a home, explore the benefits of the Tax-Free First Home Savings Account (FHSA).
• Lifetime Capital Gains Exemption (LCGE): For small business owners, the LCGE allows tax-free gains up to $1.25 million (as of June 25, 2024) when selling qualified small business corporation shares or farm/fishing property.
• Incentive to Canadian Entrepreneurs: As of 2025, qualifying entrepreneurs will be able to enjoy an inclusion rate of 33.33% on the first 2 million in lifetime gains, which lowers the tax burden on the sale of a business. 

Gains can also be offset by capital losses, but watch out for the superficial loss rule, which denies losses when you buy the same asset within 30 days.

Reporting Capital Gains to CRA

Capital gains have to be reported on your T1 Income Tax Return, on Schedule 3 Capital Gains (or Losses). List all dispositions, including exempt ones, to avoid CRA scrutiny. Maintain detailed records of your ACB, proceeds of sale, and expenses. The CRA provides specific guidelines in their T4037 Capital Gains Guide. Failure to meet deadlines or failure to report correctly may result in penalties, so it might be worth seeking the help of a professional or using tax software. For more on avoiding penalties, see our guide on stress-free tax filing in Canada.

Strategies to Minimize Your Tax Bill

The following are some of the strategies that can be used to minimize capital gains tax in Canada:

• Use Tax-Advantaged Accounts: Hold investments in a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) to defer or avoid taxes on gains. Learn more about maximizing these accounts in our guide on understanding TFSA types for smarter saving.  
• Time Your Sales: Sell assets in years when your income is lower so that you can benefit from a lower marginal tax rate.
• Offset with Losses: Sell assets that are not performing well to realize capital losses, which can be used to offset gains in the same year or carried back/forward.
• Gift Assets to Family: Transfer assets to a spouse or common-law partner to postpone taxes, but seek tax advice to ensure you’re in compliance with the requirements.

For additional tips, check out the visit PolicyAdvisor’s guide or explore broader investment strategies in our article on building a diversified portfolio.

Recent Changes and Updates

The federal government proposed to raise the inclusion rate to 66.67 per cent on gains above 250,000 in 2024, but this was deferred in 2025 because of business and public concerns. The LCGE was increased to 1.25 million, and the Canadian Entrepreneurs Incentive was established to assist small businesses. Keep yourself informed by checking on announcements provided by the Department of Finance.

Final Thoughts

Knowledge of the capital gains tax in Canada will enable you to make wise investment choices. You can reduce your tax liability by taking advantage of exemptions, planning your sales strategically, and maintaining proper records. You should always seek the advice of a tax professional to get personalized advice and refer to official sources such as the CRA website to get updates. Ready to manage your finances? Find out more at Global Investor or dive into our resources on TFSA strategies and tax filing tips to build a stronger financial future.