--- title: "How Capital Gains Tax Works in Canada (2025)" description: "A complete plain-English guide to Canadian capital gains tax for 2025. Covers the inclusion rate, ACB, Schedule 3, exemptions, and how to calculate what you owe." canonical_url: "https://www.themoneypocket.com/articles/how-capital-gains-tax-works-canada-2025" last_updated: "2026-05-01T16:53:21.219Z" --- Capital gains tax is one of the most misunderstood parts of the Canadian tax system — not because it is complicated, but because most people only encounter it a few times in their life, usually at the worst possible time (right after selling a house, stock portfolio, or business). This guide explains how it works in 2025, step by step, with no jargon. ## What is a capital gain? A capital gain happens when you sell (or are considered to have sold) a capital property for more than it cost you. Capital property includes: - Stocks, ETFs, mutual funds, and bonds - Real estate (other than your principal residence — more on that below) - Business assets - Cryptocurrency - Artwork, jewellery, and collectibles The gain equals your **proceeds of disposition** minus your **adjusted cost base (ACB)** and any costs you incurred to sell the property (commissions, legal fees). > Capital gain = Selling price − Selling costs − ACB If the result is negative, you have a **capital loss**, which can be used to offset other gains. ## The 50% inclusion rate for 2025 Canada does not tax 100% of your capital gain. Only half of it — called the **taxable capital gain** — is added to your income for the year. > Taxable capital gain = Capital gain × 50% This taxable amount goes on line 12700 of your T1 return and is taxed at the same marginal rates as your other income. For example: a $40,000 capital gain → $20,000 taxable capital gain → taxed at your marginal rate (say 43%) → **$8,600 in tax**. Your effective tax rate on the actual gain is 21.5% — exactly half your marginal rate. The 50% inclusion rate has been in place since 2000 and remains unchanged for 2025. ## What is the adjusted cost base? The ACB is your "cost" of the property — the number that gets subtracted from the selling price to determine the gain. For most assets, the ACB includes: - The original purchase price - Commissions and fees paid to acquire it - Any capital improvements (for real estate) For stocks purchased in multiple lots, the CRA requires a **weighted average ACB** across all shares of the same security. You cannot choose which lot you're selling. Use the [ACB calculator](/tools/acb-calculator) to track this automatically. ## Schedule 3 — Capital Gains or Losses All capital dispositions must be reported on **Schedule 3** of your T1 return, regardless of whether you have a gain, a loss, or no tax to pay. Schedule 3 has separate sections for: - Qualified small business corporation shares - Qualified farm and fishing property - Real estate, depreciable property, and other properties - Bonds, debentures, and similar properties - Mutual funds and trust units - **Crypto-assets** (Line 7 — added for crypto) - Stocks and other publicly traded securities Even if the gain is fully exempt (like a principal residence), you must still report the disposition. ## Major exemptions ### Principal residence exemption If you sell your home and it qualifies as your **principal residence** for every year you owned it, the entire gain is tax-free. If it was your principal residence for only some of those years, you get a partial exemption. The exemption is calculated by the formula: Capital gain × (1 + years designated as PR) ÷ total years owned. Use the [principal residence exemption calculator](/tools/principal-residence-exemption-calculator) to see exactly how much is exempt and how much is taxable. ### Lifetime Capital Gains Exemption (LCGE) The LCGE shields **up to $1,250,000** of capital gains on the sale of: - Qualified small business corporation shares (QSBCS) - Qualified farm property - Qualified fishing property This is one of the most powerful tax breaks available to Canadian small business owners and farmers. See the [LCGE guide](/articles/lifetime-capital-gains-exemption-canada-2025) for the full details. ## Capital losses Net capital losses in the current year offset gains from the same year. If losses exceed gains, the net capital loss can be: - **Carried back** up to 3 years (to recover taxes paid in 2022, 2023, or 2024) - **Carried forward** indefinitely to future years Capital losses can only reduce capital gains — they cannot offset employment income, rental income, or any other type of income. Use the [capital loss planner](/tools/canada-capital-loss-planner) to calculate how losses affect your 2025 tax bill. ## When to report a disposition Always report in the calendar year the sale occurs — not when cash is received. If you sold stock on December 15, 2025, it goes on your 2025 return even if settlement is in early January 2026. ## Related guides and tools - [Canadian Capital Gains Tax Calculator](/tools/canada-capital-gains-tax-calculator) - [Capital Gains Inclusion Rate — History & 2025](/articles/capital-gains-inclusion-rate-canada) - [How to Calculate Adjusted Cost Base (ACB)](/articles/how-to-calculate-acb-canada) - [Principal Residence Exemption Guide](/articles/principal-residence-exemption-canada) - [Lifetime Capital Gains Exemption 2025](/articles/lifetime-capital-gains-exemption-canada-2025) - [Capital Losses — Carryback & Carryforward](/articles/capital-losses-canada-carryback-carryforward) - [Capital Gains Tax on Crypto in Canada](/articles/capital-gains-tax-crypto-canada-2025) - [ACB Calculator](/tools/acb-calculator) - [Principal Residence Exemption Calculator](/tools/principal-residence-exemption-calculator) - [Capital Loss Planner](/tools/canada-capital-loss-planner)