In Alberta, not all personal income is taxed the same. While most people get the most of their personal income from labour – their full-time job – other forms of income typically include capital gains. If you are an Alberta resident with income coming from multiple sources, here’s what you need to know about capital gains.
A Brief Overview of Capital Gains
A capital gain is an increase in the value of an investment or real estate holding from the original purchase price. Examples of investments include mutual funds, stocks or an exchange-traded fund. Conversely, a capital loss is when there is a decrease in value. If the value of the asset increases, you will be required to pay tax on it.
When a capital gain is ‘realized’ versus ‘unrealized’ it means that the capital gain essentially went into your pocket, rather than existing just within the investment form.
Occasionally individuals can claim capital gains as a gift, which changes the way that capital gains are treated, but doesn’t guarantee that the individual will save any money. For example, if you sold your property for way below property value or gave it away altogether, the Canadian Revenue Agency (CRA) considers that asset at its Fair Market Value and compares that number to determine if the capital gain was realized.
Capital Gains Tax in Alberta
As mentioned, income from labour (or employment) is taxed differently from capital gains or dividends would be. The highest-taxed form of income in Alberta is employment income, which is taxed at your marginal tax rate. Only 50% of your capital gains are taxed at your marginal rate.
Capital Gains Tax in Alberta and Your Return
Like every other form of personal income, it’s important to keep as much documentation as possible throughout the year so you can accurately refer to and present supporting documentation to your personal income claims.
The amount gained will be added to the amount of income that you will claim on your personal tax return. To calculate how much tax you will be paying as a result of your capital gains over the year, determine your personal income for the year and then add 50% of the amount of capital gained in the year to create one complete personal income total.
This total is now your new personal income amount and, therefore, you will be taxed on your capital gains according to the tax bracket that you are in. Alberta tax rates for 2019 are the following:
- 10% on the portion of your taxable income that is $131,220 or less
- 12% on the portion of your taxable income that is more than $131,220 but not more than $157,464
- 13% on the portion of your taxable income that is more than $157,464 but not more than $209,952
- 14% on the portion of your taxable income that is more than $209,952 but not more than $314,928
- 15% on the portion of your taxable income that is more than $314,928.
As you can see, Alberta’s personal income taxes are staggered and require some detailed exploration to calculate the amount of tax payable to the government.
Don’t forget though, that there are also Federal tax rates that you must consider when calculating your total taxes on your taxable income. Read our blog on Federal tax rates for more information.
How to Claim Capital Gains in Alberta
There are two ways that an individual can go about reporting his or her capital gains, which all depends on factors related to your specific situation. You can either claim a capital gains deduction or declare a capital gains reserve, which applies to you if you are receiving payments over a period of time, rather than all at once.
To report eligible capital gains from all sources, a Schedule 3 form must be filled out.
Remember, you can also reduce your capital gains if you also have capital losses from other investments.
TurboTax: Your Personal Tax Expert
Avoid tax season stress and file your personal income taxes with confidence. TurboTax offers a wide variety of tax filing options to accommodate different comfort levels as well as varying levels of hands-on involvement in each individual. For a complete overview of the super simple and easy-to-use TurboTax solutions, click here.
And, for more about capital gains and how capital gains are claimed in your personal taxes, visit our other blog post here.