Canada's capital gains tax rules changed significantly in 2024 — and for 2026, the two-tier inclusion rate system is now fully in effect. Whether you're selling stocks, real estate, or a small business, understanding how capital gains are taxed is essential for accurate financial planning.

📌 Quick Answer: In 2026, capital gains up to $250,000/year are taxed using a 50% inclusion rate. Gains above $250,000 use a 66.67% inclusion rate. Use the Canada Capital Gains Calculator to see your exact tax owed.

What Is Capital Gains Tax in Canada?

When you sell an asset (stocks, a second property, cryptocurrency, or a business) for more than you paid, the profit is a capital gain. Canada does not tax 100% of that gain — only a portion called the taxable capital gain is added to your income and taxed at your marginal rate.

Taxable Capital Gain = Capital Gain × Inclusion Rate
Tax Owed = Taxable Capital Gain × Marginal Tax Rate

The 2024 Inclusion Rate Change — What You Need to Know

The Federal Budget 2024 introduced a tiered inclusion rate effective June 25, 2024. Before this date, all capital gains used a 50% inclusion rate regardless of amount.

Period Gain Amount Inclusion Rate Taxable Portion
Before June 25, 2024 All amounts 50% Half of gain added to income
June 25, 2024 onwards First $250,000/year 50% Half of gain added to income
June 25, 2024 onwards Above $250,000/year 66.67% (2/3) Two-thirds of gain added to income

Worked Example: Selling Stocks for a $300,000 Gain

Suppose you sell investments in 2026 and realize a capital gain of $300,000. Here's how the tax calculation works for an Ontario resident in the top bracket (53.53% combined):

Portion of GainInclusion RateTaxable AmountTax @ 53.53%
First $250,00050%$125,000$66,913
Remaining $50,00066.67%$33,335$17,847
Total Tax—$158,335$84,760

Principal Residence Exemption

One of the most valuable tax exemptions in Canada is the Principal Residence Exemption (PRE). If you sell a property that was your principal residence for every year you owned it, the entire capital gain is tax-free — regardless of the amount.

You must designate the property as your principal residence each year on Form T2091. You can only designate one property per year, per household family unit (yourself, spouse, and minor children).

Lifetime Capital Gains Exemption (LCGE)

The Lifetime Capital Gains Exemption allows eligible individuals to shelter a significant amount of capital gains from tax when selling:

  • Qualified small business corporation shares
  • Qualified farm or fishing property

For 2026, the LCGE limit is $1,250,000 for qualified property. This is a lifetime limit — any amount used in previous years reduces what remains available.

💡 Planning Tip: If you expect capital gains near or above $250,000, consider timing your dispositions across multiple tax years to keep each year's gain under the $250,000 threshold and benefit from the lower 50% inclusion rate throughout. Use the Capital Gains Calculator to model different scenarios.

Frequently Asked Questions

What is the capital gains inclusion rate in Canada for 2026?

In 2026, the first $250,000 of capital gains per year uses a 50% inclusion rate. Any amount above $250,000 uses a 66.67% (two-thirds) inclusion rate. The included amount is added to your regular income and taxed at your marginal rate.

How do I report capital gains in Canada?

Capital gains are reported on Schedule 3 of your T1 General income tax return. You list each disposition (sale), the adjusted cost base (ACB), and the proceeds, and the CRA calculates your net capital gain.

Is there a capital gains tax exemption for primary residence?

Yes. The Principal Residence Exemption (PRE) allows you to sell your primary home completely tax-free if it was your principal residence for every year you owned it. You must file a designation on your tax return to claim it.

Do I pay capital gains tax on cryptocurrency in Canada?

Yes. The CRA treats cryptocurrency as a commodity, not currency. Any profit from selling, trading, or converting crypto is a capital gain subject to the same inclusion rate rules as stocks and real estate.

What is the adjusted cost base (ACB)?

The ACB is the original purchase price of an asset plus any costs of acquisition (commissions, legal fees). Your capital gain = proceeds minus ACB. If you purchased the same investment multiple times, the ACB is averaged across all units.

For your overall income tax including capital gains, use the Canada Income Tax Calculator.

Sources & Citations: Content verified against official guidelines from the IRS (US), HMRC (UK), and ATO (AU). Information is reviewed for accuracy prior to publication.

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