In Canada, a capital gain is taxed by including 50% of the gain in your income and taxing that half at your marginal tax rate — the other half is tax-free. As of the 2026 tax year the inclusion rate is 50% for everyone: the proposed increase to a two-thirds inclusion rate, announced in the 2024 federal budget, was deferred and then formally cancelled in March 2025, a cancellation the 2025 federal budget (tabled November 4, 2025) confirmed. No higher inclusion rate has taken effect at any point. Sellers of qualifying small-business shares may also shelter gains using the Lifetime Capital Gains Exemption (LCGE), which is $1,275,000 for 2026 dispositions after indexation resumed in 2026.
This guide explains how the 50% rule works, provincial marginal rates on gains, personal versus corporate treatment, the principal-residence exemption, the LCGE and QSBC rules, and how capital losses work.
The 50% inclusion rate, and the increase that was cancelled
A capital gain arises when you sell (or are deemed to sell) a capital asset — shares, a rental property, a business, mutual funds — for more than its adjusted cost base (ACB). Canada does not tax the whole gain; under the inclusion rate, only a portion is added to taxable income.
The 2024 federal budget proposed raising the inclusion rate from one-half to two-thirds on gains above $250,000 per year for individuals, and on all gains for corporations and most trusts, effective June 25, 2024. That change was first deferred to January 1, 2026, and then, in March 2025, cancelled entirely before ever coming into force. The 2025 federal budget confirmed the cancellation. The result for the 2026 tax year: the inclusion rate is 50% across the board, the rate that has applied for decades. Source: Prime Minister of Canada — cancellation of the proposed capital gains increase.
How to calculate capital gains tax
The calculation has three steps.
- Capital gain = Proceeds of disposition − Adjusted cost base − Outlays and expenses of selling.
- Taxable capital gain = Capital gain × 50% inclusion rate.
- Tax = Taxable capital gain × your marginal tax rate.
| Item | Example |
|---|---|
| Proceeds of disposition | $400,000 |
| Adjusted cost base (ACB) | $290,000 |
| Selling costs (e.g., commission, legal) | $10,000 |
| Capital gain | $100,000 |
| Inclusion rate (2026) | 50% |
| Taxable capital gain | $50,000 |
| Marginal rate (illustrative) | 40% |
| Tax payable | $20,000 |
To run your own numbers, use our capital gains tax calculator.
Combined marginal rates on capital gains by province (2026)
Because only half a gain is taxable, the effective rate on a capital gain is roughly half your top ordinary marginal rate. Using each province's approximate 2026 top combined federal-plus-provincial personal rate:
| Province | Approx. top personal marginal rate | Approx. top marginal rate on a capital gain |
|---|---|---|
| Alberta | ~48% | ~24% |
| British Columbia | ~53.5% | ~26.75% |
| Ontario | ~53.5% | ~26.75% |
These are top-bracket approximations — most taxpayers realize a gain while sitting below the top bracket, so their actual rate on the gain is lower. Our Alberta vs BC business tax comparison and Ontario corporate tax guide cover the corresponding corporate-side rates.
Personal versus corporate capital gains
The 50% inclusion rate is identical whether the gain is realized personally or inside a corporation, but what happens to the two halves differs sharply:
- Personally, the taxable half is simply added to your income and taxed at your marginal rate for the year — no special corporate mechanics apply.
- Inside a corporation, the non-taxable half is credited to the company's capital dividend account (CDA) and can be paid to shareholders as a tax-free capital dividend. The taxable half is subject to corporate tax, and for a CCPC earning investment income, part of that tax is refundable through the RDTOH mechanism once the corporation pays a taxable dividend — see our holding company passive income guide for the full RDTOH and refund mechanics.
This integration is why the decision to hold an appreciating asset personally or in a corporation — and how to extract the gain afterward — is closely tied to the salary vs dividends decision and to holding-company planning.
The principal residence exemption
The principal residence exemption (PRE) can eliminate the capital gain on your home for the years it qualified as your principal residence. A family unit can designate one property per year. Even when the gain is fully exempt, you must report the sale and designate the property on your return (Schedule 3 and Form T2091 where required). The CRA has enforced this reporting requirement since 2016; missing it can mean penalties and denial of the exemption.
The Lifetime Capital Gains Exemption (LCGE)
The LCGE is one of the most valuable planning tools for Canadian business owners. It lets an individual shelter capital gains realized on the sale of:
- Qualified small business corporation (QSBC) shares, and
- Qualified farm or fishing property.
The lifetime limit was increased to $1.25 million for dispositions on or after June 25, 2024, and indexation to inflation resumed in 2026, bringing it to $1,275,000 for 2026 dispositions. It is a cumulative lifetime pool, not an annual amount — once used, it is gone, though it can be claimed in pieces across multiple qualifying sales.
Because only 50% of a gain is taxable, the $1,275,000 exemption shelters up to roughly $637,500 of taxable capital gain from tax. For a couple who each own shares, the exemption can potentially be multiplied — a core reason owner-managers structure share ownership, and consider a holdco-based purification, well before a sale. See our holding company in Alberta guide for how purification protects QSBC status.
QSBC shares: the qualification tests
To use the LCGE on a share sale, the shares must be QSBC shares. Three tests matter:
- Small business corporation test (at the time of sale): the company must be a Canadian-controlled private corporation (CCPC) with all or substantially all (generally 90%+) of its assets used in an active business carried on primarily in Canada.
- Holding-period test: you (or a related person) must have owned the shares for at least 24 months before the sale.
- Asset-use test (throughout the 24 months): more than 50% of the company's assets were used in active business during that period.
These tests are technical, and a company can be "purified" before a sale (removing excess passive assets such as surplus cash or investments, often into a holdco) to qualify. Because purification and timing must be planned well ahead of a transaction, eligibility should be confirmed long before you have a buyer.
How capital losses work
A capital loss is calculated the same way as a gain — proceeds minus ACB minus selling costs — and 50% of the loss becomes an allowable capital loss. It can only be applied against taxable capital gains, never against employment, business or other income. An allowable capital loss you cannot use this year can be carried back three years or carried forward indefinitely to offset a taxable capital gain in another year.
One trap to know: the superficial loss rule. If you sell an investment at a loss and you (or an affiliated person, such as a spouse or a corporation you control) buy an identical property within 30 days before or after the sale and still hold it 30 days later, the loss is denied and instead added to the adjusted cost base of the repurchased property — deferring, not eliminating, the tax benefit.
How RN Canada helps
RN Canada advises Alberta and BC business owners on capital-gains planning around the events that matter most: selling a business, transferring shares to family, restructuring, or selling a rental or investment property. We assess LCGE and QSBC eligibility, model the after-tax outcome of asset sales versus share sales, plan corporate purification ahead of a transaction, and coordinate the capital dividend account so the tax-free portion reaches shareholders correctly. Our tax return preparation and corporate finance and capital restructuring services cover both the compliance and the structuring. For quick answers, see our corporate tax FAQ.
This is general information, not personalized tax advice. Speak to us about your specific situation through our contact page.
Frequently asked questions
The inclusion rate is 50% for the 2026 tax year, for everyone. That means one-half of a capital gain is added to taxable income and taxed at the taxpayer's marginal rate; the other half is tax-free. The proposed increase to a two-thirds inclusion rate, announced in the 2024 federal budget, was deferred to 2026 and then formally cancelled in March 2025 — confirmed again in the 2025 federal budget tabled November 4, 2025 — so no higher rate applies. Do not rely on sources that still describe the two-thirds rate as current; it never took effect.
Take your proceeds of disposition, subtract the adjusted cost base (what you paid plus eligible costs) and any selling expenses to get the capital gain. Multiply by the 50% inclusion rate to get the taxable capital gain, then apply your marginal tax rate. On a $100,000 gain, $50,000 is taxable; at a 40% marginal rate that is roughly $20,000 of tax.
Because only half a gain is taxed, the effective rate on a capital gain is roughly half the taxpayer's top ordinary marginal rate. Using each province's approximate 2026 top combined federal-plus-provincial personal rate, that works out to roughly 24% in Alberta (top rate near 48%), roughly 26.75% in BC (top rate near 53.5%), and roughly 26.75% in Ontario (top rate near 53.5%). These are top-bracket approximations; your actual rate depends on your full income and bracket.
The LCGE lets an individual shelter capital gains on the sale of qualified small business corporation (QSBC) shares and qualified farm or fishing property from tax, up to a lifetime limit. The limit was raised to $1.25 million for dispositions on or after June 25, 2024, and with indexation resuming in 2026 it is $1,275,000 for 2026 dispositions. It is a once-in-a-lifetime cumulative pool, not an annual allowance.
Generally no. The principal residence exemption can eliminate the capital gain on the sale of your home for the years it qualified as your principal residence. You must still report the sale on your tax return and designate the property, even when the full gain is exempt. Failing to report can result in penalties and loss of the exemption.
A capital loss is calculated the same way as a gain, and 50% of it becomes an allowable capital loss. It can only be applied against taxable capital gains, not other income, though an unused loss can be carried back three years or forward indefinitely. A superficial loss — selling an investment at a loss and having you or an affiliated person buy an identical property within 30 days before or after — is denied and added to the cost base of the repurchased property instead.