Capital Gains Tax in Canada: The 50% Rule, Explained With Numbers
By Jordan Ellis · Published
Quick Answer
In Canada, 50% of a capital gain is added to your taxable income and taxed at your marginal rate — a $20,000 gain at a 40% marginal rate costs $4,000 (an effective 20% on the gain). Your principal residence is fully exempt, gains inside TFSAs/RRSPs are never capital gains, and the proposed 2024 increase to two-thirds inclusion was cancelled in 2025.
Capital gains are the most favourably taxed money in Canada — half of them aren’t taxed at all. Here’s how the half that is actually works.
The 50% rule
Sell an investment for more than its adjusted cost base and half the gain lands on your tax return as income:
| Gain | Marginal rate | Tax owed | Effective rate on gain |
|---|---|---|---|
| $10,000 | 30% | $1,500 | 15% |
| $10,000 | 40% | $2,000 | 20% |
| $50,000 | 45% | $11,250 | 22.5% |
Your marginal rate decides everything — find yours with the income tax calculator. The two-thirds inclusion rate proposed in 2024 was cancelled in 2025; it never applied.
The exemptions and shelters
- Principal residence: 100% exempt. The house you live in is the last great tax shelter — one reason the rent vs buy math tilts the way it does
- TFSA: gains never taxed, ever (see what that’s worth)
- RRSP: no capital gains — but withdrawals are fully taxed as income, so the “50% off” benefit is lost; growth assets often belong in the TFSA first
- Lifetime Capital Gains Exemption: ~$1.25M for qualifying small business shares and farm/fishing property
Losses are an asset
Capital losses offset capital gains — current year first, then back three years, or forward indefinitely. Two rules bite:
- The superficial loss rule: rebuy within 30 days (you, your spouse, or your registered accounts) and the loss is denied
- Losses can’t offset regular income — only gains. A loss year with no gains to offset still banks the loss for later
Tax-loss harvesting in December — selling losers to offset the year’s winners — is standard practice; just respect the 31-day window.
The timing lever
Because gains are taxed at your rate in the year you sell, spreading a large gain across two December/January sales can keep both halves in lower brackets. Retirees with a low-income year before OAS starts can realize gains at rock-bottom rates — the same logic as the RRSP meltdown and OAS clawback planning.
The 60-second version
Half your gain is taxed at your marginal rate; your home is exempt; TFSAs beat everything; losses only count if you stay out for 31 days. Run the tax on your income — with or without a gain — on the income tax calculator.
Official sources
Rules and dollar limits change. Confirm current amounts with the official pages below before you act · Last reviewed .
- Capital gains (Guide T4037) (Canada Revenue Agency)