Capital Gains and Losses
Income Tax Act s. 3(b), 38(a), 248(1)
A capital gain or loss is the gain or loss resulting from
the sale of property, such as stocks, bonds, art, stamp
collections, real estate, and promissory notes. Gains or losses
from bad debts, foreign exchange and call
and put options are also normally considered
capital gains or losses. Some assets are considered
personal-use property, such as cottages, cars, boats, and furniture (unless
these are business assets).
Some personal-use property is considered listed personal property (LPP),
such as works of art, and stamp collections. The gains and losses for
personal-use property and LPP are calculated separately from gains and
losses on other capital assets. See our articles on Listed
Personal Property and Personal-use
Property for more information.
A loss on shares or debt may be considered a
business investment loss instead of a capital loss, in certain
circumstances. See our link below to the article on business
A taxable capital gain is 50% of a capital
gain. The capital gain or loss is calculated by deducting the
original cost of the asset from the proceeds received on the sale of
the asset. Because only 50% of the gain is
taxable, less tax is paid on capital gains than on
income such as interest.
An allowable capital loss is 50% of a capital
loss. It can only be used to reduce or
eliminate taxable capital gains, except in the
year of a taxpayer's death or the immediately
preceding year, when it can be used to reduce
Capital gains and losses are recorded on Schedule
3 of the personal income tax return, by reporting the proceeds of
disposition less the adjusted cost base. When allowable capital losses exceed taxable capital gains in a
year, the difference is the net capital loss for the year.
When a capital property is owned by more than 1 person,
such as a taxpayer and spouse, the proceeds of sale would normally be
allocated to each owner based on their percentage ownership.
When a Canadian controlled private corporation (CCPC) has a
capital gain, the non-taxable portion of the capital gain can be paid out to
shareholders as a capital dividend.
Capital gains can be reduced, deferred, or eliminated by: