Capital Gains Tax Canada (2026): The Rate Didn't Change
The inclusion rate is still one-half — the increase to two-thirds was deferred, then cancelled. What you actually pay, why a large gain stacks through brackets, and what the exemption is worth.
CreditCardGuru Editorial Team
Rewards & Cards Research · October 1, 2026 · 7 min read
The capital gains inclusion rate in Canada is still one-half. The increase to two-thirds was deferred, then cancelled — Budget 2025 confirmed the government would not proceed — so half of every capital gain is taxable and half is not. The CRA's own worked example still reads "Fifty percent of the capital gain would be taxable."
That matters because the proposal generated two years of headlines and a lot of panic selling. The rule people were bracing for never arrived.
What you actually pay on a capital gain
Half your marginal rate. Because only half the gain enters your income, the effective federal rate on a capital gain is exactly half the bracket rate it lands in.
| Your federal bracket (2026) | Effective federal rate on a capital gain |
|---|---|
| 14% | 7.0% |
| 20.5% | 10.25% |
| 26% | 13.0% |
| 29% | 14.5% |
| 33% | 16.5% |
Provincial tax applies on the same taxable half, so your combined effective rate is half your combined marginal rate. That is why capital gains remain the most lightly taxed form of investment income in Canada — more lightly than interest, which is fully included.
How to calculate it
Proceeds, minus what you paid, minus the costs of selling. Half of what is left is taxable.
The CRA's formula is proceeds of disposition less the adjusted cost base and less any outlays and expenses of the sale. Its own example: $6,500 − ($4,000 + $60) = $2,440 of capital gain, of which $1,220 is the taxable capital gain reported on line 12700.
Two parts of that are easy to get wrong. The adjusted cost base includes what you paid plus capital improvements and acquisition costs, not just the purchase price. And outlays and expenses means the real cost of selling — commission, legal fees, transfer taxes — all of which reduce the gain.
The gain stacks on top of your income
The taxable half is added to your other income, so a large gain can push you through several brackets in one year.
Take someone earning $90,000 who realises a $200,000 gain. The taxable half is $100,000, which sits on top of their salary and runs from $90,000 to $190,000 of taxable income.
| Slice of the taxable gain | Federal rate | Federal tax |
|---|---|---|
| $90,000 to $117,045 | 20.5% | $5,544 |
| $117,045 to $181,440 | 26% | $16,743 |
| $181,440 to $190,000 | 29% | $2,482 |
| Federal tax on a $200,000 gain | $24,769 | |
That is an effective federal rate of 12.4% on the full $200,000, even though the seller finished the year in the 29% bracket. Add your province on the same taxable half.
The stacking effect is also the argument for spreading dispositions across calendar years where you have the choice. Two $100,000 gains in consecutive years can be taxed less than one $200,000 gain, because each one climbs fewer brackets. See our 2026 tax brackets guide for where those thresholds sit.
What is not taxed
Your home, registered accounts, and certain donated securities.
- A principal residence. The principal residence exemption can eliminate the gain on the home you designate, subject to the CRA's designation rules and the years you occupied it. You still have to report the disposition.
- Gains inside a TFSA, RRSP or RRIF. These are not capital gains for tax purposes at all — nothing is reported, and nothing is included.
- Qualifying donations to qualified donees. The CRA applies a zero inclusion rate to certain donated property. Where you receive an advantage from the gift, the one-half rate applies to part of the gain instead.
The lifetime capital gains exemption
$1.25 million on qualified small business corporation shares and qualified farm or fishing property.
Budget 2025 confirmed the government intends to maintain the increase in the lifetime capital gains exemption to $1.25 million of eligible capital gains. Before that increase the limit was $1,016,836 and indexed annually to inflation.
A September 2026 Finance Canada release refers to a further increase, to $1.275 million for eligible entrepreneurs. We could not establish its effective date or exactly how it relates to the $1.25 million figure, so we are not stating it as the operative number. If you are planning a disposition that depends on the exemption, get the current limit confirmed before you sign anything — this is a figure where being a year out of date costs real money.
Capital losses
They offset capital gains, not ordinary income.
A capital loss can be applied against capital gains in the same year, carried back three years, or carried forward indefinitely. It cannot be used to reduce salary or interest income. The CRA notes that the zero inclusion rate on qualifying donations does not extend to capital losses arising from those donations.
What changed, and what did not
Nothing, in the end — and that is the story.
The two-thirds inclusion rate was announced, deferred to 1 January 2026, and then cancelled. The CRA has said the one-half rate applies to gains realised before 1 January 2026, and Budget 2025 confirmed the increase would not proceed. Canada's 2026 Budget Update even attributes part of its softer personal income tax revenue growth to the cancellation.
If you sold an asset in 2024 or 2025 expecting a higher rate, it is worth checking what was actually assessed.
Every figure above comes from the CRA's own capital gains pages and the federal budget and tax expenditure documents, read on 10 October 2026; the effective-rate table and the worked example are our arithmetic on the CRA's published 2026 brackets and the one-half inclusion rate. One figure we have deliberately not asserted: the $1.275 million exemption referred to in a September 2026 release, whose effective date we could not confirm.
Frequently asked questions
What is the capital gains inclusion rate in Canada for 2026?
One-half. Fifty percent of a capital gain is taxable and fifty percent is not. The proposed increase to two-thirds was deferred and then cancelled, with Budget 2025 confirming the government would not proceed with the change.
What tax rate do I pay on capital gains?
Exactly half your marginal rate, because only half the gain is included in income. In the 26% federal bracket that is an effective 13% federally, before provincial tax. Your province taxes the same taxable half at its own rates.
Did the capital gains tax increase actually happen?
No. The increase to a two-thirds inclusion rate was deferred to 1 January 2026 and then cancelled. The CRA has confirmed the one-half rate applies to gains realised before that date, and the change was never brought into force afterwards.
How do I calculate a capital gain?
Proceeds of disposition minus the adjusted cost base minus outlays and expenses of selling. The CRA's example is $6,500 − ($4,000 + $60) = $2,440. Half of that, $1,220, is the taxable capital gain you report on line 12700 of your return.
Do I pay capital gains tax when I sell my house?
Usually not, if it qualifies as your principal residence for every year you owned it. The principal residence exemption can eliminate the gain, subject to the CRA's designation rules. You must still report the disposition on your return even when no tax is owed.
Are capital gains inside a TFSA or RRSP taxed?
No. Gains realised inside registered accounts are not capital gains for tax purposes — there is nothing to include and nothing to report. RRSP and RRIF withdrawals are taxed as ordinary income when you take them out, not as capital gains.
Should I spread a large sale across two tax years?
Often yes, where you have the choice. The taxable half of a gain stacks on top of your other income, so one very large gain climbs through more brackets than two smaller ones in consecutive years. The saving depends on where the thresholds fall relative to your income.
What is the lifetime capital gains exemption?
An exemption on gains from qualified small business corporation shares and qualified farm or fishing property. Budget 2025 confirmed maintaining the limit at $1.25 million of eligible capital gains, up from $1,016,836. Confirm the current figure before relying on it for a planned disposition.
Can capital losses reduce my employment income?
No. Capital losses offset capital gains only. You can apply them against gains in the same year, carry them back up to three years, or carry them forward indefinitely, but they cannot reduce salary, interest or other ordinary income.
Is a capital gain taxed less than interest income?
Yes, considerably. Interest is fully included in income, while only half of a capital gain is. At the same marginal rate, a dollar of capital gain attracts half the tax of a dollar of interest — which is why the inclusion rate matters more to investors than the headline bracket does.