Compute Canadian capital gains tax with split inclusion rate.
Tax due
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Taxable gain (inclusion)
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Net after tax
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Worked example
Say you sell shares and realize a $100,000 capital gain, and your combined federal plus provincial marginal rate is 43 percent. Only half of a capital gain is taxable in Canada, so the inclusion rate of 50 percent turns the $100,000 gain into a $50,000 taxable amount. That $50,000 is added to your income and taxed at your 43 percent marginal rate, producing tax of $21,500. You keep the other $78,500 of the gain. Spread across the whole $100,000, the effective tax rate on the gain is just 21.5 percent, exactly half of your marginal rate, which is why capital gains are taxed more lightly than ordinary employment income at the same marginal rate.
Step
Amount (CAD)
How it is calculated
The method is two steps: apply the inclusion rate, then tax the result at your marginal rate. The CRA applies a flat 50 percent inclusion rate to capital gains for individuals. Budget 2024 proposed raising it to two-thirds on annual gains above $250,000, but the federal government confirmed in March 2025 that it would not proceed, so this tool keeps the rate at 50 percent across the board. The included half is not taxed at a special capital-gains rate; it is simply added to your other income and taxed at whatever marginal bracket that income reaches. Because only half is ever included, the effective rate on the full gain is always half your marginal rate. Gains inside a TFSA, RRSP, or FHSA are not taxed at all under these rules.
Frequently asked questions
Is the inclusion rate 50% or 66.7%?
A flat 50%. Budget 2024 proposed raising it to 66.7% on annual gains above $250,000, but the federal government announced in March 2025 it would not proceed. Half of your capital gain is added to taxable income and taxed at your marginal rate.
Do capital gains inside a TFSA or RRSP get taxed?
No. Gains realized inside a Tax-Free Savings Account are completely tax-free, including on withdrawal. Gains inside an RRSP are sheltered while in the account, though withdrawals are taxed as ordinary income at your marginal rate when you take the money out.
What is the principal residence exemption?
If you sell a property that was your principal residence for every year you owned it, the full capital gain is exempt from tax. You must designate the property as your principal residence on your tax return for the years it qualifies, and only one property per family unit can be designated per year.
How do capital losses affect the tax owed?
Capital losses can be used to offset capital gains in the same tax year, reducing the taxable gain dollar for dollar. If losses exceed gains in a year, the net capital loss can be carried back up to three years or carried forward indefinitely to offset future capital gains.