Capital gains tax in Canada for 2026: the inclusion rate is still one-half

In 2026 half of a capital gain is included in income, and that taxable half is taxed at your normal marginal rate. The increase to a two-thirds inclusion rate on gains above $250,000, announced in Budget 2024 and originally meant to start on June 25, 2024, was cancelled in March 2025 and never became law, so gains realized in 2024, 2025 and 2026 are all taxed at the one-half rate. The higher lifetime capital gains exemption for qualified small business shares and farm or fishing property was kept, and is $1,275,000 for 2026 after indexation.

This guide sits in the 2026 overview. It is general information for individuals, not tax advice; business sales and estate situations need a professional.

How a capital gain is calculated

A capital gain arises when you dispose of capital property (shares, ETFs, mutual fund units, a cottage, a rental property, cryptocurrency held as an investment) for more than it cost you.

Capital gain = proceeds of disposition − adjusted cost base (ACB) − outlays and expenses of selling

• Proceeds: the sale price, or fair market value if you gift the property, give it to a relative below value or are deemed to dispose of it (for example, on death or emigration).
• ACB: what you paid plus purchase costs such as commissions; for funds, reinvested distributions increase the ACB. Average cost applies to identical shares bought at different times.
• Selling costs: commissions, legal fees and real estate commissions.

Taxable capital gain = capital gain × 1/2, reported on Schedule 3 and line 12700.

Worked example (illustrative, 2026)

An Ontario resident with $70,000 of employment income sells ETF units held in a non-registered account.

Watch the brackets: if the taxable half pushes income across a threshold, part is taxed at the next rate. In Ontario, income above $107,785 meets the 11.16% provincial band, and above $117,045 the 26% federal band. The capital gains tax estimator lets you plug in your own effective rate.

What changed and what did not

If you filed a 2024 return early using the two-thirds rate, software and CRA forms were later updated to the one-half rate; check your notice of assessment.

Capital losses and timing

Capital losses work in mirror image:

• An allowable capital loss (half the loss) first offsets taxable capital gains of the same year.
• Unused net capital losses can be carried back three years (Form T1A) or carried forward indefinitely, but only against capital gains, not against salary.
• Superficial loss rule: if you, your spouse or an entity you control buys the same or identical property within 30 days before or after the sale, and still holds it 30 days after, the loss is denied and added to the ACB of the new units.
• Losses on property held in a TFSA, RRSP or FHSA cannot be claimed, and gains there are not reported.

Legal planning ideas that follow from these rules:

1. Spread a large gain over two tax years (for example, sell part in December and part in January) to keep more of it in a lower band.
2. Realize losses in the same year as a planned gain.
3. Hold investments likely to generate large gains in a TFSA when room allows.
4. Donate publicly listed securities with accrued gains directly to a registered charity: the capital gain inclusion rate on such gifts is zero, and you still receive a donation receipt for fair market value.

Principal residence and second properties

A home you ordinarily inhabited can be designated as your principal residence for the years you owned it, which usually makes the whole gain tax-free. A family (you, your spouse and minor children) can designate only one property per year after 1981. A cottage and a city home therefore compete: the designation formula ((1 + years designated) ÷ years owned × gain) lets you choose which property gets which years. You must report the sale and the designation; failing to do so can lead to the exemption being denied or a penalty.

Rental properties are not principal residences, and the gain on sale is usually a capital gain, plus recapture of capital cost allowance claimed, which is fully taxable. Changing use of a property (moving out and renting it) creates a deemed disposition unless you make an election.

Quebec

Quebec residents report the same gains on both returns. On the TP-1, one-half of the gain is also included in income and taxed at Quebec rates, and the capital gains deduction for qualified property is claimed separately on the Quebec return. Revenu Québec publishes its own guide and schedules for capital gains; check them for specific cases.

Frequently asked questions

Do I pay tax on gains in my TFSA or RRSP?

No. Gains inside a TFSA are never taxed. Gains inside an RRSP are not taxed when they occur, but every dollar you withdraw is taxed as ordinary income, so the capital gain advantage is lost.

Is cryptocurrency taxed as a capital gain?

If you hold it as an investment, gains are usually capital gains. If your activity amounts to a business (frequent trading, mining as a business), gains can be business income, fully taxable. The CRA looks at the facts.

Is there an exemption for the first $250,000 of gains?

No. That $250,000 figure was the threshold below which the cancelled two-thirds rate would not have applied. Every capital gain is half taxable, with no general exemption apart from the principal residence and the LCGE on qualifying property.

When should I get professional help?

Selling a business, farm, rental or inherited property, emigrating, or dealing with a deceased person's final return all involve elections and deemed dispositions that are easy to get wrong.

Official sources

• CRA: calculating and reporting capital gains and losses — the one-half inclusion rate
• CRA: 2026 indexation and benefit amounts — LCGE of $1,275,000
• Department of Finance Canada — the March 2025 cancellation and Budget 2025
• Revenu Québec — Quebec treatment of capital gains