Capital gains tax in 2026: how it works, with a worked example

Verified for tax year 2026: September 7, 2026Updated September 7, 2026By Nishant Malik

How this calculator works

Gain = sale price − adjusted cost base (what you paid plus capital improvements and purchase costs) − selling costs.
Exemptions: the principal residence exemption removes gain × (1 + years designated) ÷ years owned; the lifetime exemption removes up to $1,275,000 on qualified small business shares or farm property.
Taxable gain = 50% of what is left.
Tax = income tax on your other income plus the taxable gain, minus tax on your other income alone, using the 2026 federal and provincial brackets. This captures the higher brackets a large gain pushes you into.

Worked examples in Ontario with $90,000 of other income

Line	Rental sold for $500,000 (cost $300,000, costs $25,000)	Cottage sold for $900,000, designated 5 of 20 years
Capital gain	$175,000.00	$370,000.00
Principal residence exemption	—	− $111,000.00
Taxable capital gain (50%)	$87,500.00	$129,500.00
Tax	$35,226.09	$55,480.24
Effective rate on the gain	20.1%	21.4%

Assumptions

The gain is realized in one tax year by one individual; splitting a sale over years or between spouses can lower the tax.
Alternative minimum tax, the OAS clawback and benefit reductions caused by the gain are not included.
Depreciation recapture on a rental (CCA claimed) is fully taxable and must be added separately.

Questions people ask

How much tax do I pay on capital gains in Canada?: Half the gain is added to your income and taxed at your marginal rate, so the effective rate on the whole gain is half your marginal rate: roughly 10% to 27% depending on income and province. There is no separate capital gains rate.
Did the capital gains inclusion rate go up to two-thirds?: No. The increase proposed in Budget 2024 was deferred in January 2025 and cancelled in March 2025 without ever taking effect. The inclusion rate remains 50% for 2026.
How does the principal residence exemption work?: The exempt part of the gain is the gain × (1 + years designated as your principal residence) ÷ years owned. A home designated for every year you owned it is fully exempt. If you also own a cottage, you can designate only one property per year per family, so the years are worth allocating to the property with the bigger gain per year.
What is the lifetime capital gains exemption for 2026?: $1,275,000 of gains on qualified small business corporation shares and qualified farm or fishing property, indexed each year. It does not apply to real estate, stocks or crypto.
Can I deduct losses?: Capital losses offset capital gains in the same year; unused losses carry back three years or forward indefinitely, but only against capital gains. Losses on a principal residence or personal-use property are not deductible.
Is crypto a capital gain?: For most individuals, yes: 50% of the gain is taxable when you sell, trade one coin for another, or spend it. Frequent trading can be treated as business income (100% taxable).
What about a property sold within a year?: The anti-flipping rule treats gains on residential property held less than 365 days as fully taxable business income, with exceptions for death, divorce, job relocation and other life events.
How much tax do I pay on capital gains in 2026?: Half of the gain is added to your income and taxed at your marginal rate, so the effective tax is half your rate: about 25% of the gain at the top bracket in most provinces, less at lower incomes. The two-thirds inclusion rate proposed for 2024 was cancelled and never applied.
Can I use losses from other investments?: Yes. Capital losses in the same year offset gains first; net losses can be carried back three years or forward indefinitely, and unused losses from earlier returns appear on your notice of assessment. Enter them and the calculator reduces the gain before the 50% inclusion.
What is CCA recapture on a rental property?: If you claimed capital cost allowance (depreciation) against rental income, selling for more than the depreciated value recaptures the CCA you claimed, taxed in full as ordinary income on top of the capital gain. On $30,000 of claimed CCA that can be $12,000 or more of extra tax.
How are US stocks or a foreign property taxed?: Convert the purchase to Canadian dollars at the rate on the day you bought and the sale at the rate on the day you sold. The currency move is part of the gain: a US stock that went nowhere in US dollars can still have a taxable gain if the loonie fell. The foreign asset mode does that conversion.

How to report the sale

Gains go on Schedule 3 of your return; a home sale must be reported even when it is fully exempt.

Report the sale on Schedule 3 with the proceeds, adjusted cost base and outlays. Losses carry back three years or forward indefinitely.Schedule 3, capital gains or losses ↗
Selling a home: designate it as your principal residence on form T2091 (and Schedule 3) even if no tax is due. Unreported sales lose the exemption.Form T2091, principal residence designation ↗
A large gain can push you into instalments next year; the CRA will send a reminder.Paying your income tax by instalments ↗

Sources

Every figure on this page comes from one of these primary sources. Data last verified September 7, 2026.