Capital gains tax is the fee you pay on a portion of the profit made from selling an asset. <\/p>\n\n\n\n
Generally, a capital gains tax will apply to any investments purchased with the goal of earning income.<\/p>\n\n\n\n
A capital gain is any profit made from the sale of an investment asset<\/a>. The gain is the difference between how much you paid for an investment and how much you received when you sold it and realized a profit. Depending on your circumstances, the Canada Revenue Agency (CRA) will likely require you to pay some tax on your gain.<\/p>\n<\/div>\n\n\n\n A capital loss happens when you sell your investment for less than you bought it for. You can use these losses to offset capital gains on your tax return<\/a>, but not other types of income you\u2019ve received. <\/p>\n\n\n\n In cases where you have more capital losses than gains, the CRA will let you carry capital losses forward to future tax years or even apply them to capital gains from the previous three tax years. <\/p>\n<\/div>\n<\/div>\n<\/div>\n\n\n\n Capital gains tax usually applies after you sell investments such as stocks, bonds<\/a> and mutual funds held in non-registered accounts. It can also apply when you sell property other than your principal residence, including investment properties<\/a> such as a cottage or even a piece of land. <\/p>\n\n\n\n Your obligation to pay capital gains tax takes effect once you\u2019ve realized the capital gain, which means after the asset has been sold, so it\u2019s clear how much of a gain you earned.<\/p>\n\n\n\n When you sell an investment, 50% of your gain is considered taxable and will be taxed at your marginal tax rate<\/a> based on your income. The other half is not taxable \u2014 unless the CRA considers you a day trader or you sold a housing property that you owned for less than 365 days. In both cases, 100% of your profits will be considered business income, and you\u2019ll be taxed at your current tax rate. <\/p>\n\n\n\n After you\u2019ve sold an investment, you\u2019re required to calculate your capital gain and report it as income<\/a> to the CRA on your tax return (via form 5000-S3 Schedule 3) for the tax year in which you sold the asset.If your investment was in a mutual fund trust or exchange-traded fund (ETF)<\/a>, your financial institution or broker<\/a> will issue you a T3 tax slip detailing the amount of capital gain.<\/p>\n\n\n\n There are three amounts you need to know before calculating a capital gain or loss, according to the CRA[1]<\/a>:<\/p>\n\n\n\n When you have those amounts, here\u2019s the calculation to figure out your capital gain:<\/p>\n\n\n\n Proceeds of disposition \u2013 (ACB + expenses incurred to sell asset) = capital gain<\/strong><\/p>\n\n\n\n For example, let\u2019s say you decided to start investing in stocks<\/a> and purchased 100 shares of Company XYZ for $20 per share five years ago and paid a $50 commission. The amount you initially paid was $2,000, and the ACB, including the commission, was $2,050.<\/p>\n\n\n\n When you sold the 100 shares this year, you received $50 per share and paid a $50 commission. The total amount you received when you sold the shares was $5,000.<\/p>\n\n\n\n Your capital gain is $5,000 \u2013 ($2,050 + $50) <\/strong>= $2,900.<\/p>\n\n\n\n You would then report half of that amount, or $1,450, as your taxable capital gain.<\/p>\n<\/div>\n\n\n\n One way to avoid or minimize capital gains tax is to hold investments in registered accounts, such as a registered retirement savings plan (RRSP)<\/a> or tax-free savings account (TFSA)<\/a>, rather than in a non-registered account.\u00a0<\/p>\n\n\n\n In a registered account, your investments \u2014 as well as any gains, interest<\/a> or dividends they generate \u2014 can grow and be withdrawn either on a tax-free basis (in a TFSA) or on a tax-deferred basis (in an RRSP).<\/p>\n\n\n\n In some cases, you may also be able to offset your capital gains by using capital losses to help reduce your capital gains tax payable through a strategy called tax loss harvesting. In this strategy, you sell an investment that has fallen below its original purchase price, triggering a capital loss. You then apply this loss to another investment that is likely to generate a capital gain, reducing the total amount you owe in capital gains tax.<\/p>\n\n\n\n Donating investments, such as shares or units of a mutual fund<\/a>, is another way to reduce or eliminate your capital gains tax. Gains on investments donated to a registered charity are not subject to capital gains tax or required to be included as income on your tax return. You\u2019ll even receive a charitable tax credit for your donation.<\/p>\n\n\n\n Dividends are taxed differently than capital gains. Dividend income is added to your taxable income and includes a gross-up amount of 38% on eligible dividends and 15% on non-eligible dividends. You can claim the non-refundable federal dividend tax credit<\/a> to offset the taxes you\u2019ll have to pay on the gross-up amount.<\/p>\n\n\n\n Each year, you\u2019ll have to report the taxable amount of eligible dividends and the dividend tax credit on your income tax return. Your broker or financial institution will issue you a T5 Statement of Investment Income detailing these amounts before tax time.<\/p>\n\n\n\n Any profit earned when you sell stock<\/a> outside a registered plan is a capital gain, and half of that profit will be taxed at your marginal tax rate.<\/p>\n\n\n\n Investors must report capital gains to the CRA on their tax returns<\/a> for the tax year in which they sold the stock.<\/p>\n<\/div><\/div><\/div>\n\n\n\n Yes, 50% of your capital gain is considered taxable and will be added to your taxable income<\/a> for the year. You will be taxed on that amount at your individual tax rate.<\/p>\n<\/div><\/div><\/div>\n<\/div><\/div><\/div>\n<\/div><\/div><\/div>\n\n\n\nCapital loss definition<\/h3>\n\n\n\n
When do you pay a capital gains tax?<\/h3>\n\n\n\n
How much is capital gains tax in Canada?<\/h3>\n\n\n\n
How to calculate capital gains tax<\/h2>\n\n\n\n
\n
How to avoid capital gains tax<\/h2>\n\n\n\n
Use a registered account<\/h3>\n\n\n\n
Try tax loss harvesting<\/h3>\n\n\n\n
Donate investments<\/h3>\n\n\n\n
Claim a dividend tax credit<\/h3>\n\n\n\n
<\/h2><\/div>
Frequently asked questions about capital gains tax<\/h3><\/div>
\n\t\t\t\tArticle Sources\t\t\t<\/h2>\n\t\t<\/div>\n\t\t