How Are Capital Gains Taxed in Canada?
In Canada, only a portion of capital gains is taxable. The "inclusion rate" determines how much of your gain is added to income. 2024 and prior: 50% inclusion rate on all capital gains. 2025 onwards: 50% inclusion rate on the first $250,000 of gains annually, 66.67% inclusion rate on gains above $250,000.
What Is the Principal Residence Exemption?
Your principal residence is exempt from capital gains tax when sold. To qualify: You must have ordinarily inhabited the property, you can only designate one property per year per family unit, you should report the sale on your tax return even if fully exempt.
What Is the Lifetime Capital Gains Exemption?
The LCGE applies to qualifying small business corporation shares and qualified farm/fishing property. 2025 LCGE limit: $1.25 million (increased from $1 million in 2024). This means up to $1.25 million in gains can be completely tax-free on qualifying dispositions.
Capital Gains vs. Income
Capital gains receive preferential tax treatment compared to regular income. At the 50% inclusion rate, a $100,000 capital gain results in $50,000 of taxable income. At a 40% marginal tax rate, this means only $20,000 in tax (effective rate of 20% on the gain).