Capital Income & Investment Taxation — Canada

Half of any capital gain is included in taxable income. The proposed increase to 66.67% was cancelled in March 2025. Effective federal rate: 7%–16.5% depending on bracket. Combined federal-provincial: approximately 12%–27%.

Gains on the sale of your principal residence are completely exempt from capital gains tax. Must be designated as principal residence. Only one property per family per year. Must report the sale on Schedule 3.

Increased to $1.25 million for sales of qualified small business shares and farming/fishing property. Indexed to inflation starting 2026. Significant benefit for business owners at retirement.

Capital losses can only offset capital gains (not other income). Net capital losses can be carried back 3 years or forward indefinitely. In the year of death, losses can be applied against any income.

Most individual crypto investors: selling, trading, or spending crypto triggers capital gains. 50% of gain included in income. Must track adjusted cost base for all holdings.

Frequent traders, day traders, or those with commercial intent may be assessed as business income — 100% taxable. CRA looks at frequency, holding period, and profit motive. Significant difference in tax treatment.

Exchanging one cryptocurrency for another is a taxable disposition. Must calculate gain/loss based on fair market value at time of trade in Canadian dollars.

All crypto transactions must be reported. CRA has been auditing crypto holders and working with exchanges to obtain user data. Penalties for non-reporting can be severe.

From large Canadian corporations (CCPCs with high rate income, public companies). Grossed up by 38%, then federal dividend tax credit of 15.02% of grossed-up amount. Effective combined rates: ~15%–36% depending on province and income.

From Canadian small businesses taxed at the small business rate. Grossed up by 15%, with 9.03% federal dividend tax credit. Higher effective tax rate than eligible dividends.

Foreign dividends do not qualify for the Canadian dividend tax credit. Taxed as regular income at full marginal rates. Foreign withholding tax may generate a Foreign Tax Credit.

All capital property deemed sold at fair market value at death. Capital gains tax applies to unrealized gains. Principal residence exempt. Spousal rollover defers tax until surviving spouse sells or dies.

Full value of RRSP/RRIF included in deceased's final income. Can be rolled over tax-free to a surviving spouse, minor/dependent child, or financially dependent infirm child.

Provincial probate fees (estate administration tax) vary: Quebec 0%, Alberta flat fee, Ontario ~1.5% on assets over $50,000, BC 1.4% on assets over $50,000. Not technically a tax but a cost of estate settlement.

Canada has no annual wealth tax on net worth. No requirement to report total assets for wealth tax purposes. Only income and realized gains are taxed.