The sale or gift of an asset that is capital property which has increased (or decreased) in value while it was held by an individual will attract capital gains tax (or a capital loss) on disposition. The gain or loss is the difference between any proceeds received (or deemed received) on disposition and the purchase price (less any costs associated with the disposition). The deemed proceeds for a gift is equal to the property’s fair value at that time.

How are capital gains taxed?

Only 50% of all capital gains (or losses) are taxable (deductible) in Canada. This 50% is added (or deducted, in the case of a loss, against any capital gains) to personal income and taxed at an individual’s marginal income tax rate.

What is exempt from capital gains tax?

Capital gains are not generally taxed (and capital losses are not available) on the following items in Canada:

• The principal residence of an individual
• Transactions in tax-sheltered plans such as Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSP’s) and Registered Retirement Income Funds (RRIF’s)

What is a lifetime capital gains exemption and am I eligible?

A lifetime capital gains exemption may apply to the gains on dispositions of farm or fishing property, as well as shares of a qualified small business corporation. There are lifetime limits to the exemption which are calculated by individual.

For further information, or assistance with tax planning, please contact a TEP.