Your 2025 Canadian tax return uses the standard 50% capital gains inclusion rate. The proposed increase to 66.67% was cancelled in March 2025 before ever becoming law. Nothing changed. Most Canadians with no investment accounts or secondary properties won't have any capital gains to report at all.
What Are Capital Gains — and Who Actually Has Them?
Before diving into the policy drama, let's make sure we're on the same page about what capital gains actually are — because there's a lot of confusion here.
A capital gain is the profit you make when you sell a capital property for more than you paid for it. Capital properties include:
- Stocks, ETFs, mutual funds, and other investments held outside a registered account (TFSA, RRSP, FHSA don't apply)
- A second property — cottage, rental home, investment property
- Cryptocurrency (yes, it's a capital property in Canada)
- A business or shares in a private company
- Collectibles, artwork, and other valuables above certain thresholds
Crucially, your primary residence is exempt from capital gains tax when you sell it (under the Principal Residence Exemption), provided you lived in it as your primary home throughout your ownership. Selling the house you live in almost never triggers capital gains.
Also important: money inside your TFSA, RRSP, FHSA, or RRIF grows tax-free. Capital gains inside those accounts are invisible to the CRA. Only gains on non-registered (taxable) accounts count.
If you only have a TFSA and/or RRSP, earn employment income, and own only the home you live in — you almost certainly have zero capital gains to report. This whole issue doesn't apply to you. Skip ahead to the calculator CTA at the bottom.
What Is the "Inclusion Rate"?
Canada doesn't tax 100% of a capital gain. Instead, a portion — the inclusion rate — is added to your taxable income and taxed at your marginal rate. The rest is yours tax-free.
For decades, the inclusion rate has been 50%. This means if you sell stocks for a $10,000 gain, only $5,000 gets added to your income. If you're in a 40% combined (federal + Ontario) marginal rate bracket, your actual tax on that gain is $2,000 — an effective rate of 20% on the original $10,000.
This 50% rate was what the 2024 federal budget proposed to change — and why there was so much noise.
The Timeline: What Actually Happened
April 16, 2024 — Budget Day
The federal government introduced Budget 2024, which included a proposal to raise the capital gains inclusion rate from 1/2 (50%) to 2/3 (66.67%). The proposed rules:
- Individuals would get an annual $250,000 threshold — gains up to that amount per year would still use the 50% rate
- Gains above $250,000 per year would be taxed at the 2/3 rate
- Corporations and most trusts would face the 2/3 rate on all capital gains with no threshold
- The effective date was set to June 25, 2024
June–December 2024 — Uncertainty and Confusion
The enabling legislation was never actually passed in Parliament. Despite this, the CRA began updating its administrative guidance to reflect the higher rate — causing confusion among accountants, financial advisors, and ordinary Canadians who had sold assets in the summer or fall of 2024 and didn't know which rate to use.
Many people rushed to sell assets before June 25, 2024 to lock in the lower rate — only to later discover the change might not stick.
January 6, 2025 — The Deferral
With Parliament prorogued and a federal election on the horizon, the government announced it was deferring the capital gains inclusion rate change to January 1, 2026. The 2024 gains realized after June 25 would not face the higher rate after all. The 50% inclusion rate would apply for the entire 2024 tax year.
March 2025 — The Cancellation
Following the federal election and change in government, the new Liberal administration under PM Mark Carney formally cancelled the proposed inclusion rate increase entirely. The 2/3 rate was never passed, never took effect, and will not be revived under the current government's plans.
The 50% inclusion rate applies to all your capital gains on your 2025 T1 return. There is no $250,000 threshold to worry about, no 2/3 rate, no distinction by source. File as you always have.
The Numbers: How Capital Gains Tax Actually Calculates
Let's walk through a realistic example so you can see what the inclusion rate means for your wallet.
Say you held ETFs in a non-registered (taxable) account and sold them in 2025 for a $20,000 gain. Here's how the math works at the 50% inclusion rate:
| Step | Amount | Notes |
|---|---|---|
| Capital gain (sale price − ACB) | $20,000 | ACB = adjusted cost base (what you paid) |
| Taxable capital gain (× 50%) | $10,000 | This gets added to your other income |
| Combined marginal rate (example: 43.41%) | 43.41% | Federal + Ontario, $100k–$111k bracket |
| Tax on the capital gain | $4,341 | Effective rate: 21.7% on the original $20k gain |
This is why so many Canadians found the capital gains inclusion rate debate confusing — the "67%" everyone heard about would have applied to the taxable portion, not the gain itself. At 67%, the same $20,000 gain would produce a tax bill of $5,815 — an increase of about $1,474. Significant, but not the dramatic doubling that some headlines implied.
Common Scenarios: Does This Affect You?
Scenario 1: You Sold Stocks or ETFs in a Non-Registered Account
You'll need to report a capital gain (or loss). Calculate your Adjusted Cost Base (ACB) — the total you paid for the shares, including commissions — and subtract it from your total proceeds. If positive, it's a gain. Apply 50% to get the taxable capital gain, add it to your income on line 12700 of your T1.
Your broker should send a T5008 (Statement of Securities Transactions) showing proceeds for each sale. You're responsible for tracking your own ACB.
Scenario 2: You Sold a Cottage or Vacation Property
This is one of the most common and largest capital gains events for Canadians. Your gain is the sale price minus what you originally paid, minus any capital improvements you made over the years (keep those receipts!).
Unlike your primary residence, a cottage or recreational property is not exempt from capital gains tax (unless you elect to designate it as your principal residence for years you didn't live in your main home — a strategy worth discussing with a tax professional).
On a $300,000 cottage gain, the 50% inclusion means $150,000 gets added to your income. That's a material tax hit, making good tax planning essential before the sale closes.
Scenario 3: You Sold Crypto
The CRA treats cryptocurrency as a capital property, not currency. Every time you sell, exchange, or use crypto to buy something, it's a taxable event. Track your ACB carefully — the gains accumulate across multiple transactions and many platforms don't provide consolidated tax slips.
Crypto mining and staking income is generally treated as business income (100% taxable), not a capital gain — a common misunderstanding.
Scenario 4: You Hold Everything in a TFSA or RRSP
Nothing to do here. Gains inside registered accounts are not reported anywhere on your T1. The capital gains inclusion rate has zero impact on you.
Scenario 5: You Have Capital Losses
Capital losses can be applied against capital gains in the current year. If you have more losses than gains, you get a net capital loss — which can be carried back three years or carried forward indefinitely to offset future gains. This is reported on Schedule 3 of your T1.
The Adjusted Cost Base: The Most Common Mistake
The single most frequent error Canadians make with capital gains is miscalculating the Adjusted Cost Base (ACB). Your ACB is not simply what you paid for an asset when you first bought it. It includes:
- All purchases of the same security (you must average them)
- Reinvested distributions — when an ETF or mutual fund pays a distribution that gets automatically reinvested, your ACB increases. Failing to track this leads to double-taxing yourself
- Return of capital distributions — these reduce your ACB, increasing your future gain
- Commissions and fees paid at purchase (add to ACB) and sale (subtract from proceeds)
If you've held a Canadian ETF for several years, your fund likely paid annual distributions that were automatically reinvested. Each reinvestment increases your ACB. If you ignore this and only use your original purchase price, you'll report a larger capital gain than you actually have — and overpay your taxes. Check your brokerage's "adjusted cost base" reporting, but verify it against CRA guidance.
Capital Gains on Your 2025 T1: Where to Report It
Capital gains are reported on Schedule 3 (Capital Gains or Losses) of your T1 return. The net taxable capital gain then flows to line 12700 of your main T1 form.
The key lines on Schedule 3 include sections for:
- Qualified small business corporation shares
- Qualified farm and fishing property
- Real property, depreciable property, and other properties
- Publicly traded shares, mutual fund units, and other securities
- Capital loss carryover from prior years
For most Canadians selling stocks or ETFs, you'll be completing the "Publicly traded shares" section with data from your T5008 slips, adjusted for your ACB.
How Tax Friend Handles Capital Gains
Tax Friend's calculator applies the 50% inclusion rate to all capital gains you enter — consistent with the current law for the 2025 tax year. You can enter your total net capital gain in the "Other income" section and see how it affects your combined federal and Ontario tax, your marginal rate, and your estimated refund or balance owing.
The calculator shows the tax impact in real time, so you can explore scenarios like: "What if I realized $30,000 in gains vs. $15,000?" — useful if you're planning asset sales over multiple years to manage your bracket exposure.
Calculate your capital gains tax in seconds
Enter your employment income and capital gains together — see your full 2025 Ontario tax estimate, including how the gain pushes your marginal rate.
Key Dates for the 2025 Tax Season
- March 3, 2026 — RRSP contribution deadline for the 2025 tax year
- April 30, 2026 — Deadline to file your 2025 T1 return and pay any balance owing (if applicable)
- June 16, 2026 — Extended filing deadline for self-employed individuals (and their spouses/partners) — but any balance owing was still due April 30
Frequently Asked Questions
Does the $250,000 threshold apply to my 2025 return?
No. The $250,000 annual threshold was part of the proposed (and cancelled) increase to 2/3. It never became law. For 2025, the 50% rate applies to all your capital gains regardless of amount.
If I sold a property in summer 2024, which rate applies?
50%. The deferral announced January 6, 2025 — and the subsequent full cancellation — means the 50% inclusion rate applies retroactively throughout 2024. If you filed your 2024 return using the higher 2/3 rate (as some advisors recommended during the uncertainty), you may be able to amend your return. Consult a tax professional.
My mutual fund T3 slip shows a capital gains distribution. Is that different?
Capital gains distributions from mutual funds and ETFs appear on your T3 slip (or occasionally T5). These are your share of the fund's capital gains — already calculated at the fund level and passed to you. You include 50% of the amount shown as "capital gains" on your T3 in your income on line 12700, just like any other capital gain. This is separate from gains you realize by selling the fund units themselves.
Do I need to report capital gains if I didn't receive a T5008?
Yes. You're required to report capital gains regardless of whether you received a slip. The T5008 reports proceeds only — the CRA uses it to cross-reference, but the gain (proceeds minus ACB) is your responsibility to calculate and report accurately.
What about the principal residence exemption?
If you sold your home in 2025, you generally won't owe capital gains tax — but you must designate the property as your principal residence on your T1 (using form T2091) even though no tax is owing. The CRA requires this designation to formally apply the exemption. Failing to file it can result in penalties.