Capital Gains Tax (Summary & Web Links)
A capital gains tax (CGT) is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.
For equities, an example of a popular and liquid asset, each national or state legislation, have a large array of fiscal obligations that must be respected regarding capital gains. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market. However, these fiscal obligations may vary from jurisdiction to jurisdiction because, among other reasons, it could be assumed that taxation is already incorporated into the stock price through the different taxes companies pay to the state, or that tax-free stock market operations are useful to boost economic growth.
Currently 50.00% of realized capital gains are taxed in Canada at an individual’s tax rate. Some exceptions apply, such as selling one’s primary residence which may be exempt from taxation. Capital gains made by investments in a Tax-Free Savings Account (TFSA), are not taxed.
For example, if your capital gains (profit) is $100, you’re only taxed on $50 at your marginal tax rate. That is, if you were in the top tax bracket you’d be taxed at approx 43%. Formula for this example using the top tax bracket would be as follows:
Capital gain x 50.00% x marginal tax rate = capital gain tax
= $100 x 50.00% x 43%
= $50 x 43%
In this example your capital gains tax on $100 is $21.50, leaving you with $78.50.
The formula is the same for capital losses and these can be carried forward indefinitely to offset future years’ capital gains; capital losses not used in the current year can also be carried back to the previous three tax years to offset capital gains tax paid in those years.
Corporations who earn capital gains are taxed at their full marginal rate – there is no 50% deduction for them as in the case of individuals. If more than 50% of a small business’s income is derived from specified investment business activities (which include income from capital gains) they are not even allowed to claim the small business deduction.
Capital gains earned on income in an RRSP are not taxed at the time the gain is realized (i.e. when the holder sells a stock that has appreciated inside of their RRSP) but they are taxed when the funds are withdrawn from the registered plan (usually after converting to a registered income fund.) These gains are then taxed at the individual’s full marginal rate.Unrealized capital gains are not taxed.
I am a buyer I am a seller
Topics about Line 127 – Capital gains
|Calculating and reporting
How to calculate your capital gains and losses, and complete line 127 and schedule 3 of your return.
|Capital losses and deductions
You may be able to reduce your taxable income by claiming capital losses, deferrals, reserves and the cumulative capital gains deduction.
|Shares, funds and other units
Publicly-traded shares, bonds, mutual fund and trust units, stock options, flow-through entities, and identical properties.
|Capital gains (or losses) from information slips
How to report your capital gains (or losses) from T3, T4PS, T5, T5008, T5013 and T5013A information slips.
|Principal residence and other real estate
Designation, change of use and disposition of a principal residence, which can be a house, apartment, cottage, mobile home or houseboat.
|Transfers of capital property
Transfers to a spouse or common-law partner, or to a trust, corporation or partnership.
|Capital gains and losses from business and partnerships
Information for individuals whose capital gain or loss arises from a business or partnership.
|Gifts of shares, stock options, and other capital property
Donations of Canadian cultural property, ecologically sensitive land, and other capital property such as bonds, shares or stock options.
You cannot file your income tax return using Telefile if you are reporting capital gains (or losses) on Schedule 3, Capital gains (or losses).
Questions and Answers about capital gains.
Forms and publications
Forms and publications you may need for capital gains.
- Line 217 and 228 – Business investment loss
- Line 252 – Non-capital losses of other years
- Line 253 – Net capital losses of other years
- Line 254 – Capital gains deduction
- Non-resident dispositions
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