Taxable Capital Gains in Canada

Taxable Capital Gains

A capital gain is the profit realized when you sell or are deemed to have sold a capital property for more than its adjusted cost base (ACB) and any selling expenses. For Quebec residents, capital gains are reported on both the federal and provincial tax returns, with similar calculations but on different forms.

Examples of capital properties include:

• Real estate: This includes the sale of cottages, investment properties, rental properties, and land. The sale of your principal residence is generally exempt, but you must still report the sale.
• Investments: Securities such as stocks, bonds, and units of mutual funds or exchange-traded funds (ETFs) can result in capital gains.
• Business assets: The sale of land, buildings, or equipment used in a business or rental operation can generate a capital gain.
• Personal-use property (PUP): This includes items you own primarily for personal use, like cars, boats, or furniture. A capital gain may result if you sell the property for more than $1,000.
• Listed personal property (LPP): This is a type of personal-use property that tends to increase in value, such as paintings, jewelry, rare books, stamps, and coins.
• Other transactions: Capital gains can also be realized through other events where you are "deemed" to have sold capital property, including giving property as a gift, transferring property to a trust, having property stolen, destroyed, or expropriated, changing the use of a property, or the death of the owner.

Calculating a Capital Gain or Loss

The calculation involves the proceeds of disposition, the adjusted cost base (ACB), and any outlays and expenses. The calculation is the same for both federal (Canada Revenue Agency, or CRA) and Quebec (Revenu Québec) tax returns, though the results are reported on different forms:

The general formula is:

(Proceeds of Disposition) - (Adjusted Cost Base + Outlays and Expenses) = Capital Gain (or Loss)

Key Terms

• Proceeds of Disposition: The amount you received or are entitled to receive from selling the property. It can include:
  • The sale price of the property.
  • Compensation received if the property is stolen, destroyed, or expropriated.
• Adjusted Cost Base (ACB): The cost of acquiring the property, plus any costs incurred to acquire it, such as commissions, legal fees, or renovations. For stocks and mutual funds, the ACB is an average cost per unit.
• Outlays and Expenses: These are costs you incurred to sell the property. They can include real estate commissions, brokers' fees, legal fees, and advertising costs.

How to Report

The information is reported on Schedule 3, providing a detailed breakdown of the proceeds of disposition, adjusted cost base (ACB), and outlays and expenses. The resulting taxable capital gain is then entered on Line 12700 of the federal T1 return. For Quebec residents, the same information is carried over to Schedule G, and the resulting taxable capital gain is reported on Line 139 of the TP-1 return

Example : Calculating a Capital Gain

Antoine sells 100 shares of a publicly traded company.

• Acquisition cost: $5,000 (purchased in 2020)
• Selling price: $7,000 (sold in 2024)
• Commission to sell: $50

Calculation

• Proceeds of disposition: $7,000
• Adjusted cost base (ACB): $5,000
• Outlays and expenses: $50
• Capital gain: $7,000 - ($5,000 + $50) = $1,950
• Taxable capital gain (50%): $1,950 × 50% = $975

This $975 would then be reported on both your federal and Quebec tax returns.