What is capital gains tax?

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The sale or gift of an asset which has increased in value while it was held by an individual or organization will attract capital gains tax (or loss) on disposition. The gain or loss is the difference between any proceeds received on disposition and the purchase price (less any costs associated with the disposition).

How are capital gains taxed?

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

What is exempt from capital gains tax?

Capital gains are not generally taxed on the sale following items in Canada:

  • The principal residence of an individual
  • Transactions in tax-sheltered plans such as Tax-Free Savings Accounts (TFSAs) or Registered Retirement Savings Plans (RRSP’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 consult a TEP.

Disclaimer

An article of this kind can never provide a complete guide to the law in these areas, which may be subject to change from time to time. The opinions and suggestions made within this article should not be interpreted as specific advice in relation to any particular individual or individuals. Neither STEP, the article author or their firm accept responsibility for any loss occasioned by someone acting or refraining to act on the basis of the opinions and suggestions contained in this article. More