Capital Gains and Investment Income Tax in Canada
Investment returns are taxed differently depending on what you earned. Here is what every Canadian investor needs to know.
Capital gains, dividends, interest, and rental income are all taxed differently in Canada. Misreporting investment income is one of the most common areas the CRA audits. Our accountants and our tax software handle investment income returns and apply every rule correctly.
File My Investment Income Return With T.U.AEvery Income Type Covered
Stocks, real estate, dividends, interest, and foreign investments all handled on one return through T.U.A.
Adjusted Cost Base Calculated
Our accountants and our tax software calculate your ACB correctly so you report the right gain.
Principal Residence Exemption Applied
If your home qualifies, our accountants apply the exemption to eliminate or reduce your capital gains tax.
What Is Capital Gains Tax in Canada?
When you sell an asset for more than you paid, the profit is a capital gain. This is not fully taxable. Only the inclusion rate portion is added to your income and taxed at your marginal rate.
For individuals with gains up to $250,000, the inclusion rate is one half. This means 50% of the gain is added to your taxable income. Note that this rate has been subject to recent legislative proposals, so you should verify the current rate with T.U.A or the CRA. Taxable assets include stocks, mutual funds, non-principal-residence real estate, and investment property.
How Is Capital Gains Tax Calculated in Canada?
Your gain equals the proceeds of the sale minus your Adjusted Cost Base (ACB) minus your selling expenses. The ACB is your original purchase price plus acquisition costs like brokerage commissions. For inherited assets, the ACB is the fair market value at the date of inheritance.
If you made multiple share purchases, your ACB is the average cost per share across all purchases. Our accountants and our tax software calculate your ACB from your transaction records.
Is There Capital Gains Tax When You Sell Your Home in Canada?
The principal residence exemption eliminates capital gains tax on a home that qualifies as your principal residence for all the years you owned it. This must be reported and designated on your return. It is not automatic.
If you owned more than one property, or rented part of your home, the calculation becomes more complex. T.U.A's accountants and our tax software calculate the correct exemption claim for you.
Half of all capital gains on Canadian investments are added to your income and taxed at your marginal rate. On a $100,000 gain, a Canadian in a 40 percent tax bracket pays approximately $20,000 in capital gains tax.
How Are Dividends Taxed in Canada?
Canadian eligible dividends receive the dividend tax credit, which gives you a significantly lower effective rate than regular income. Non-eligible dividends from private corporations receive a smaller credit. Foreign dividends are taxed as regular income at your full marginal rate with no credit.
Your T5 slip shows your dividend type and amount. The dividend gross-up and credit system is one of the most misunderstood areas of Canadian tax. Our accountants ensure these are handled correctly.
What Investment Income Looks Like Inside a Corporation?
Corporate passive investment income like interest, non-connected dividends, and capital gains is taxed at approximately 50.67% federally. A portion of this is refundable when dividends are paid to shareholders. Active business income is taxed at 9% to 15%.
Holding investments personally versus corporately has significant tax implications. This is a core topic covered in T.U.A's consultation service for incorporated business owners.
How T.U.A Reports Your Investment Income and Capital Gains
T.U.A intake for investment clients captures your brokerage statements, T5 and T3 slips, records of property sales, and foreign investment income. Your accountant and our tax software calculate the ACB for shares and other assets, identify applicable exemptions, and determine the correct treatment for each income type.
Investment Taxes Are Complex. Get Them Filed Right.
Misreporting investment income is one of the most common CRA audit triggers. T.U.A's accountants handle your complete return accurately.
File My Investment Income Return With T.U.AFrequently Asked Questions
Common questions about investment taxes in Canada.
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