What You Need to Know About the Capital Gains Tax in 2025

What are capital gains?

Let's say you decide to buy a secondary property such as a cabin. This counts as capital property: assets you own, aside from a principal residence, that is considered an investment and can be sold later—ideally, for a profit.

Then let's say that you decide to sell that cabin. The good news is that hopefully it has increased in value and made you some money. The bad news is that you do have to pay tax on the profit you made. That profit, or the difference between what you paid for it and what you sold it for is called capital gains. Conversely, if the cabin decreases in value from what you originally paid for, this loss, called a capital loss, can sometimes be used to offset other taxable gains.

What kinds of investments incur a capital gain?

Capital gains in Canada are taxed based on the change in value of an asset as a result of a sale, transfer, gift, or death. There are several types of capital property that incur capital gains when you sell them. Common ones include:

• Stocks and bonds
• Units of a mutual fund trust
• Land
• Buildings
• Equipment used for a business
• Recreational properties
• Antiques

How does capital gains tax work in Canada?

First off, understand that you only pay tax on realized capital gains. In other words, in most cases, even if you estimate your property is worth more than you paid for it, you don't have to pay tax until the land is sold or transferred and the capital gains are received. Don't forget you only pay tax on the profit you make from selling an asset, not the entire sale price. You also won't be taxed on your capital gains if the asset has lost value and is being sold than what you initially paid for. For example, if you sell your old car, chances are good you're selling it for less than you paid for it. That means no capital gains, and no capital gains tax.

Capital gains must be reported in the year they are realized. You can apply your net capital losses from previous years to offset any capital gains you incur, generally lessening your overall tax liability.

How is capital gains tax calculated in 2025?

Now that the legislation for an increase has been deferred you continue to only pay tax on 50% of any capital gains.

The amount of tax payable depends on a number of factors, including your total income and tax bracket and your province of residence.

A few things are exempt from capital gains tax, including your principal residence, and investments held in some registered accounts, like an RRSP.

Here's the math:

Cabin purchased in 2015: $300,000

Cabin sold in 2024: $500,000

Capital gain (the difference between the selling price and the cost of the cabin purchased): $500,000 - $300,000 = $200,000

Taxable amount on capital gain: $200,000 x 50% = $100,000

Now, imagine that you have an annual income of $75,000, on your tax return, your total income would be $175,000 (your income plus the taxable portion of the capital gain). You would calculate your total tax payable based on that number.

What are the other capital gains changes that were announced?

The Canadian government also announced an increase in the Lifetime Capital Gains Exemption (LCGE) to $1.25 million, effective June 25, 2024, from the current amount of $1,016,836 on the sale of small business shares and farming and fishing property. The LCGE prevents a certain amount of your capital gains from being taxed.

Also, a new Canadian Entrepreneurs' Incentive, will take effect in the 2025 tax year. It reduces the capital gains rate to one-third for a lifetime maximum of $2 million for qualifying businesses. This maximum would increase by $400,000 each year, reaching $2 million in 2029, providing a valuable tax relief opportunity.

How will the deferral of the capital gains increase affect your tax return?

Thus far, capital gains remains at a 50% inclusion rate when filing your tax return for the April 30th, 2025 deadline. However, the CRA will grant relief in regards to late-filing penalties and interest until June 2, 2025. This will provide additional time for taxpayers reporting capital gains or losses to meet their tax filing obligations due to the changes. Additionally, the CRA is noting that their systems will only be ready to accept tax filings with capital gains or losses in late March. We're keeping an eye on official announcements from the CRA to keep you informed of any further changes.

Where can you get answers about capital gains?

Tax policy changes constantly and staying informed can help you make the best financial decisions. These changes can affect your tax return, even as you are in the process of filing. TurboTax experts keep abreast of these changes and can help you with any questions you may have about how these changes affect your taxes and your financial picture.

Need more than just answers? TurboTax offers full service tax filing, handling your return from start to finish accurately and efficiently for you.

Designed for all levels of investing, TurboTax is up-to-date with the latest capital gains rates and covers nearly every investment tax situation, including stocks, bonds, ESPPs, crypto, rental properties, and more.

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