When you sell an investment property, dispose of shares, or exit a business, the profit you earn is called a capital gain — and in Canada, that gain is subject to tax. Understanding exactly how capital gains tax works in 2025 is more important than ever, because the inclusion rate changed in 2024 and those changes carry forward into 2025. This guide breaks down the rules, the numbers, and nine practical strategies to reduce what you owe.
A capital gain arises when you sell a capital property for more than you paid for it. Capital properties include:
The formula is straightforward:
Proceeds of Disposition − Adjusted Cost Base (ACB) − Selling Costs = Capital Gain
If the result is negative, you have a capital loss, which carries its own set of rules covered below.
Canada does not tax 100% of a capital gain. Instead, only a portion — the "inclusion rate" — is added to your income and taxed at your marginal rate. That inclusion rate changed significantly starting in 2024 and continues through 2025.
The $250,000 annual threshold applies only to individuals. Because corporations are not individuals, every dollar of capital gain inside a corporation is subject to the two-thirds inclusion.
Suppose an individual sells a cottage and realises a $300,000 capital gain in 2025:
At a 48% marginal rate (Alberta's top combined federal-provincial rate), the estimated tax owing is approximately $76,000. Had the entire $300,000 been below the $250,000 threshold, the tax would have been closer to $72,000 — a meaningful difference that grows sharply with larger gains.
The ACB is what you paid for the asset, adjusted upward for legitimate additions. A higher ACB means a smaller gain and less tax.
Allowable additions to ACB include:
Many investors fail to track reinvested distributions, which means they inadvertently overstate their capital gain and overpay tax. Keeping clean, year-by-year ACB records is essential for every long-term investor.
Capital gains and losses are reported on Schedule 3 of your T1 personal income tax return. You list each disposition separately, including the proceeds, ACB, and any outlays or selling costs. The net taxable capital gain flows to Line 12700 of your T1 and is added to your other income for the year.
If your proceeds are less than your ACB, the result is a capital loss. Only 50% of a capital loss is deductible, and it can only offset capital gains — not other income. If your capital losses exceed your gains in a given year, the excess becomes a net capital loss, which you can carry back three years or carry forward indefinitely to offset future capital gains.
The Lifetime Capital Gains Exemption (LCGE) is one of the most powerful tax shelters available to Canadian individuals. In 2025, the exemption sits at $1,250,000 and applies to:
When the LCGE applies, it eliminates the capital gain from your income entirely. With proper share structure planning, a family of four — two adults and two adult children who each hold shares — could potentially shelter up to $5,000,000 in gains on a business sale. This kind of planning requires advance preparation, ideally years before a transaction, which is why business owners should be talking to advisors at Swift Accounting Calgary long before they list a company for sale.
The sale of a home designated as your principal residence is exempt from capital gains tax entirely. Each family unit can designate one property per year. If you own a cottage and a house, only one can be designated for any given year — so mixed-use scenarios require careful analysis before a sale.
Gains realised inside an RRSP or TFSA are sheltered from capital gains tax. Placing high-growth investments — equities, ETFs — inside registered accounts and holding lower-growth or income-producing assets outside is a foundational piece of tax-efficient investing.
Sell investments that are sitting at a loss to offset gains you have realised elsewhere in the same year. The losses reduce your net capital gain. Watch the superficial loss rules: if you repurchase the same or identical security within 30 days before or after the sale, CRA will deny the loss.
Business owners whose shares have appreciated should consider triggering accrued gains before they grow beyond the $1,250,000 LCGE. By crystallising gains now, you lock in the exemption and reset your ACB, so future growth is sheltered from tax at a higher base.
If a buyer pays for a property over several years rather than all at once, you do not have to report the entire gain in the year of sale. CRA allows you to recognise the gain proportionally as proceeds are received, up to a maximum of five years (or ten years for QSBC shares). This deferral can keep annual income — and the applicable inclusion rate — lower each year.
Gifting capital property to a lower-income spouse generally triggers attribution rules, which attribute gains back to you. However, a properly structured spousal loan at the CRA's prescribed interest rate allows the lower-income spouse to hold the investment and report future gains at their own marginal rate. The loan interest must actually be paid by January 30 each year.
Section 85 of the Income Tax Act lets you transfer appreciated property to a corporation on a tax-deferred basis by electing to transfer at a chosen value within a prescribed range. This defers the gain rather than eliminating it, but creates planning flexibility — including access to the small business deduction on future income and estate planning structures.
An estate freeze crystallises the current value of a business in the hands of a parent or founder, who exchanges their common shares for fixed-value preferred shares. Future growth accrues on new common shares held by children or a family trust. This limits the gain that will be triggered on the founder's deemed disposition at death and allows the next generation's shares to potentially access their own LCGE.
Donating publicly listed shares directly to a registered charity, rather than selling them and donating cash, eliminates the capital gain entirely. You receive a donation receipt for the full fair market value of the shares, and no capital gains tax is triggered on the accrued appreciation. This is one of the most tax-efficient forms of charitable giving available in Canada.
If you expect to realise a large gain, consider whether you can trigger it in a year when your income is lower — for example, a year in which you have retired, taken a leave, or have carry-forward capital losses available to offset. Timing a gain to fall within a year where you stay under the $250,000 individual threshold can also avoid the 2/3 inclusion rate.
Capital gains planning is not a one-size-fits-all exercise. The right combination of strategies depends on your personal situation, the nature of the assets, and how your overall income looks in a given year. The team at Swift Accounting Calgary works with individuals, business owners, and investors across Alberta to structure dispositions and build proactive tax plans before gains are triggered — not after.
For individuals, the inclusion rate is 50% on the first $250,000 of net capital gains per year and 66.67% (two-thirds) on gains above that threshold. For corporations and most trusts, the two-thirds inclusion rate applies to all capital gains with no $250,000 threshold. These rates have been in place since mid-2024 and continue through 2025.
Not if the home qualifies as your principal residence for every year you owned it. You must designate the property as your principal residence on Schedule 3 of your T1 return in the year of sale. If you own more than one property, only one can be designated per year, and a partial exemption may apply if the home was not your principal residence for all years of ownership.
Net capital losses can be carried back three years to offset capital gains in prior years, generating a refund of taxes paid. They can also be carried forward indefinitely to offset capital gains in future years. Capital losses can only be applied against capital gains — they cannot reduce other types of income such as employment or rental income.
The LCGE is $1,250,000 in 2025 for both qualified small business corporation shares and qualified farm or fishing property. This exemption is available to Canadian resident individuals only — not corporations or trusts. When the exemption applies, it removes the capital gain from your taxable income entirely, which can eliminate a very significant tax liability on the sale of a qualifying business or farm.
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