How to Calculate Capital Gains Tax


In Canada, capital gains are considered taxable income and are subject to tax at a rate of 50% of the individual’s marginal tax rate. The capital gain is calculated by subtracting the “adjusted cost base” (ACB) of the asset from the proceeds of disposition. The ACB is generally the original cost of the asset, plus any costs associated with acquiring or disposing of the asset, such as legal fees.

There are some exceptions to the general rule for capital gains in Canada. For example, the principal residence exemption allows an individual to exclude the capital gain on the sale of their principal residence from income. Additionally, capital gains from selling certain types of assets, such as qualified small business corporation shares and farm or fishing property may have special tax rules.

It is important to consult with a tax professional or the Canada Revenue Agency to ensure that you are properly reporting and paying taxes on any capital gains you may have.

Example of Capital Tax Gain Calculation

Here is an example of how to calculate a capital gain for tax purposes in Canada:

Let’s say an individual purchased a stock for $10,000 and later sold it for $15,000. The individual also paid $500 in legal fees to acquire the stock.

The adjusted cost base (ACB) of the stock is calculated as follows: Original cost of stock: $10,000 Additional costs: $500 Total ACB: $10,500

To calculate the capital gain, we subtract the ACB from the proceeds of disposition: Proceeds of disposition: $15,000 ACB: $10,500 Capital gain: $4,500

This $4,500 capital gain is subject to tax at 50% of the individual’s marginal tax rate. It’s important to note that this is just an example and there may be other factors or exemptions that would affect the final calculation of a capital gain.

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