The capital gains tax formula

Every capital gains calculation follows the same three steps. The formula is:

The key point that surprises many Canadians: only half of a capital gain is taxable. That taxable half is then taxed like ordinary income, not at a special low rate. To skip the manual math, you can use our capital gains tax calculator to get the result instantly, but it is worth understanding each step so you know where the numbers come from.

Step 1: Calculate your capital gain

Your capital gain is the profit on the sale, after accounting for what you paid and the costs of buying and selling:

• Proceeds of disposition — the amount you sold the asset for.
• Adjusted cost base (ACB) — what you originally paid, including purchase commissions and, for things like reinvested dividends or fund distributions, any amounts already taxed that increase your cost base.
• Outlays and expenses — selling costs such as brokerage commissions, legal fees, or real-estate agent commissions.

Subtract the ACB and selling costs from the proceeds. If the result is positive, you have a capital gain. If it is negative, you have a capital loss, which can offset gains (more on that below).

One common point of confusion: if you bought the same security at different prices over time, your ACB is the average cost of all units, not the price of any single purchase. For example, 100 shares bought at $40 and another 100 at $60 give an ACB of $50 per share across all 200 shares. You use that average when you sell part of the holding.

Step 2: Apply the 50% inclusion rate

Canada taxes only a portion of a capital gain, known as the inclusion rate. The long-standing inclusion rate is 50%, so half of your gain becomes a taxable capital gain and the other half is tax-free. A $20,000 gain produces a $10,000 taxable capital gain.

Note that an increase to the inclusion rate for larger gains (to 66.67% on the portion of gains above $250,000) was proposed in 2024 and later cancelled, so the 50% rate continues to apply. Because tax rules can change, confirm the current inclusion rate on the CRA capital gains page before filing. The examples here use the 50% rate.

Step 3: Apply your marginal tax rate

The taxable capital gain is added to your other income for the year and taxed at your marginal tax rate — the combined federal and provincial rate on your highest dollars of income. There is no separate capital gains tax rate in Canada.

This is why two people with the same gain can owe very different amounts: someone in a 25% combined bracket pays far less than someone in a 50% bracket on the same taxable capital gain. Your province matters too, because provincial rates vary, which is covered below.

One nuance for larger gains: because the taxable capital gain stacks on top of your other income, a big gain can push part of it into a higher bracket. The first portion may be taxed at your current marginal rate and the rest at a higher one, so a very large gain is not all taxed at a single rate. Our calculator handles this bracket by bracket; for a quick estimate, using your top marginal rate is close enough.

A worked example: selling stocks

Suppose you bought 100 shares at $40 and later sold them at $70, paying a $10 commission on each trade.

So on a $2,980 profit, the actual tax is $447 at a 30% marginal rate, because only half the gain is taxable. Change the marginal rate and the tax changes proportionally: at 45%, the same gain would cost about $671.

How your province changes the result

Capital gains tax in Canada is federal plus provincial. The 50% inclusion rate is the same everywhere, but the marginal rate applied to your taxable capital gain depends on where you live. A taxable capital gain in British Columbia, Ontario, or Alberta is taxed at that province’s combined rate for your income bracket.

For example, the same $1,490 taxable capital gain costs more for a high earner in a province with steeper top rates than for someone in a lower-rate province or a lower bracket. Our calculator applies the correct combined federal and provincial brackets for each province automatically, so you do not have to look up the rates yourself.

Capital losses: reducing the tax

If you sold other investments at a loss in the same year, those capital losses are subtracted from your capital gains before the inclusion rate is applied. Net capital losses you cannot use this year can be carried back up to three years or carried forward indefinitely to offset future gains. This is a common and legitimate way to lower capital gains tax.

When you do not pay capital gains tax

• Your principal residence. The principal residence exemption generally means no capital gains tax on the home you live in, though you still report the sale.
• Registered accounts. Gains inside a TFSA are tax-free, and gains inside an RRSP are tax-deferred until withdrawal. Holding growth investments in registered accounts is the simplest way to avoid capital gains tax — see our guide on whether to use a TFSA or RRSP.

Does it work the same for stocks, crypto, and real estate?

The three-step formula applies to most investments. Stocks, ETFs, mutual funds, and cryptocurrency are all treated as capital property, so the 50% inclusion rate and your marginal tax rate work the same way. Two differences are worth knowing. First, a crypto-to-crypto trade is a disposition for tax purposes, so it can trigger a capital gain even if you never converted to dollars. Second, real estate other than your principal residence — a cottage, rental, or second property — is taxable and often involves much larger gains, so the same percentages translate into a far bigger tax bill.

Whatever the asset, the math is identical, so you can run any scenario in our capital gains tax calculator or explore our other free financial calculators.

Frequently asked questions

Last updated: June 2026 · Based on the 50% capital gains inclusion rate. Confirm current rules with the CRA.