What "inclusion rate" means in Canada
Canada does NOT have a separate capital gains tax rate. Instead, you include a PORTION of the gain in your ORDINARY taxable income, taxed at your marginal rate.
Pre-June 25, 2024: 50% inclusion across all gains. So $100 capital gain = $50 taxable income, taxed at marginal rate.
| Post-June 25, 2024: tiered inclusion | Worked example - $200K gain, post-June 24, 2024 | Worked example - $500K gain | Worked example - $1.5M gain (corporate or large personal) |
|---|---|---|---|
| First $250,000 of annual personal capital gains: 50% inclusion | Under $250K threshold | First $250K: 50% inclusion = $125K taxable | Personal: first $250K at 50% = $125K; next $1.25M at 66.67% = $833,375. Total taxable: $958,375. Tax at top: $513,032. Effective rate 34.2%. |
| Above $250,000: 66.67% inclusion | Inclusion: 50% = $100K | Next $250K: 66.67% inclusion = $166,675 taxable | Corporate: 66.67% inclusion on full $1.5M = $1M taxable. Corporate tax rate 26.5% (Ontario). Tax: $265,000. Plus when distributed to shareholder via dividend - additional personal tax. |
| Corporations and trusts: 66.67% on ALL gains (no $250K threshold) | At top combined Ontario marginal rate (53.53%): $53,530 tax | Total taxable income from gain: $291,675 | |
| Effective rate on gain: 26.76% | At top marginal: $156,154 tax | ||
| Effective rate on $500K gain: 31.23% |
This policy change makes large gains more expensive but leaves typical retail investor (gains under $250K/year) unaffected. Affects: senior tech employees with large RSU vests, business sellers, real estate flippers, retirees liquidating large portfolios in one year.
Strategy: spread large dispositions across multiple tax years to stay under $250K each year.
Principal residence + Lifetime Capital Gains Exemption
| Principal Residence Exemption (PRE) | Who cannot use PRE | Lifetime Capital Gains Exemption (LCGE) | LCGE qualifications for QSBC shares | Worked example - small business sale |
|---|---|---|---|---|
| 100% exemption from capital gains on your principal residence | Non-residents of Canada (NRCGT-like rules) | $1,016,836 lifetime exemption (2026 indexed value) | Must be Canadian Controlled Private Corporation (CCPC) | Liam sells his ConsultingCo shares for $1,500,000 |
| Cap: ONE property per family per year designated as principal residence | Multiple-property owners must choose which to designate (typically the higher-gain one) | Available for: Qualified Small Business Corporation (QSBC) shares + qualified farm/fishing property | 90%+ of fair market value of assets used in active business in Canada | ACB: $200,000 |
| Property must have been ordinarily inhabited by you, spouse, or dependent | Pre-2016 grandfathered: did not have to report, but post-2016 must report | One-time lifetime limit per individual | You owned shares 24+ months at time of sale | Capital gain: $1,300,000 |
| Reporting required since 2016: file T2091 even if exempt (failure can trigger reassessment) | Can be staged over multiple dispositions until cap reached | Owner must be active in the business | LCGE: $1,016,836 | |
| Properties held + sold while you OR your spouse were resident in Canada and lived there | Taxable gain after LCGE: $283,164 | |||
| First $250K at 50% inclusion: $125K taxable | ||||
| Next $33,164 at 66.67%: $22,107 taxable | ||||
| Total taxable: $147,107 | ||||
| At top marginal 53.53%: $78,765 tax owed | ||||
| Net: $1,221,235 after-tax on the sale (vs $1,500K gross) |
Without LCGE, Liam would owe massive tax. With LCGE + tiered inclusion: 5.25% effective rate on $1.5M sale.
Qualified Farm/Fishing Property: same LCGE available. Family farm transfers can use rollover provisions to defer.
| Gain size | Inclusion rate | Effective tax (top bracket) |
|---|---|---|
| Personal under $250K | 50% | 26.76% |
| Personal $250K - $500K | 66.67% | 35.69% |
| Personal $500K+ | 66.67% | 35.69% |
| Corporation (all gains) | 66.67% | 35.69% |
| Inside RRSP/TFSA | 0% | 0% |
| Principal residence | 0% (PRE) | 0% |
| LCGE on QSBC ($1.016M) | 0% | 0% |
Crypto, NFTs, and digital assets
CRA treats crypto-currency as a COMMODITY (not currency) for tax purposes.
Taxable events:
1. Sell crypto for fiat (CAD/USD): capital gain or loss
2. Trade crypto for another crypto: capital gain or loss (each token exchange)
3. Buy goods/services with crypto: capital gain on disposition of the spent crypto
4. Lending or staking rewards: ORDINARY income at receipt + capital gain on sale
5. Mining: ordinary income (if business) or hobby income
6. Crypto-to-crypto airdrops or hard forks: ordinary income at FMV at receipt
| Non-taxable events | Calculation |
|---|---|
| Buy crypto with cash (cost basis established) | Average cost basis method: all lots of same coin averaged |
| Move crypto between your own wallets/exchanges | Sale proceeds in CAD at trade date |
| Hold (HODL) - no sale = no tax | Gain = Proceeds - ACB |
Worked example:
Maya buys 1 BTC for $30,000 in 2024 and 1 BTC for $50,000 in 2025. ACB per BTC = $40,000 average.
2026 sells 0.5 BTC for $60,000.
- Proceeds: $60,000 * 0.5 = $30,000
- ACB: $40,000 * 0.5 = $20,000
- Gain: $10,000
- 50% inclusion (under $250K threshold): $5,000 taxable
- Tax at 30% marginal: $1,500
Superficial Loss Rule (similar to US wash sale): if you sell and rebuy the same crypto within 30 days, the loss is denied and added to ACB of new position.
CRA + crypto exchange data sharing
- Canadian exchanges (Bitbuy, Coinsmart, Wealthsimple Crypto) submit T1 information to CRA
- US/international exchanges (Coinbase, Binance) increasingly comply via reporting agreements
- Mismatch on tax return: triggers CRA review or audit
Report crypto on Schedule 3. Keep detailed transaction records for 6 years.
Common Canadian CGT mistakes
- Treating crypto as currency. CRA classifies as commodity; every trade is a disposition for tax purposes.
- Selling stock + immediately rebuying (superficial loss). Loss denied; ACB of new shares increased.
- Not reporting principal residence sale post-2016. Even if fully exempt, T2091 reporting required.
- Forgetting allowable costs. Commission, legal, accounting fees reduce gain.
- Missing LCGE on small business sale. $1M-plus tax-free gain available for QSBC shares.
- Triggering all gains in one year. Spread across multiple years if approaching $250K threshold to avoid 66.67% inclusion.
- Using FIFO instead of average cost basis. Canada uses average cost for identical properties.
- Forgetting that inheritance triggers deemed disposition at FMV. Estate planning matters.
- Not tracking corporate vs personal investments. Holding company sales have 66.67% inclusion on ALL gains (no $250K threshold).
- Missing capital loss carryforward. Excess losses carry forward indefinitely to offset future gains. Track on Schedule 3.
Tax-loss harvesting + strategy
Tax-loss harvesting: sell losing positions to offset gains in same year. Excess losses carry forward indefinitely (or carry back 3 years to amend prior returns).
Mechanics
- December: review portfolio for net losses
- Sell losing positions before December 31
- Realized loss offsets year's gains (or carries forward/back)
- Rebuy after 30 days to avoid superficial loss rule
- Or rebuy similar (not "identical") security immediately
Worked example - 2026 harvest:
Aria has unrealized gain on Apple shares $200K (long-held).
Aria has unrealized loss on Tesla shares $80K.
Without harvesting: $200K Apple gain. Inclusion at 50% = $100K taxable. At 40% marginal = $40K tax.
With harvesting:
- Sell $80K Tesla loss in December 2026
- Sell $200K Apple gain in 2026
- Net 2026 capital gain: $120K
- 50% inclusion: $60K taxable
- Tax at 40%: $24K
- Saving: $16K
- Buy Tesla back January 5, 2027 (after 30-day window)
| Corporate vs personal account placement | For entrepreneurs | Charitable giving with appreciated stock |
|---|---|---|
| Personal: 50% inclusion first $250K | Time crystallization of QSBC LCGE against expected later capital gain accumulation | Donate stock directly (NOT cash) - eliminates capital gain on the donated portion |
| Holding company: 66.67% on all gains | Use LCGE early on a business sale (or partial sale to family member at FMV) before $1M+ gain accumulates | Plus full FMV charitable receipt for tax purposes |
| Conclusion: personal name typically better for retail investor | Eligible for "Lifetime Capital Gains Reserve" to spread gain over multiple years (max 5) | Double tax benefit: no gain on donation + full deduction |
| Avoids the 50% / 66.67% inclusion entirely on donated portion |
Run the math for your situation
Use our 🇨🇦 Canada calculator to plug in your own numbers.