Capital gains tax in Canada: 2026 guide for US expats
In Canada, capital gains tax applies when you sell investments or property for more than your adjusted cost base (ACB). For tax year 2025 (filed in 2026), the capital gains inclusion rate is 50%: half of the net gain is added to your income and taxed at your marginal federal and provincial rate.
The proposed increase to 66.67% was later cancelled, so the inclusion rate remains 50% for tax years 2025 and 2026.
Canada includes 50% of a capital gain in income. US citizens still report the full gain to the IRS, and Form 1116 can reduce or eliminate double tax only to the extent allowed by the foreign tax credit rules
Capital gains tax in Canada: key facts for 2026
- Inclusion rate: 50% (proposed 66.67% increase later cancelled; rate remains 50% for tax year 2025 and 2026)
- How it's taxed: 50% of net gain added to income, then taxed at the marginal federal plus provincial rate
- Principal residence exemption: full shelter available; sale must still be reported on Schedule 3 and Form T2091 when required
- LCGE tax year 2025: $1,250,000 for qualifying QSBC shares, qualified farm property, and qualified fishing property only – maximum capital gains deduction on line 25400: $625,000
- US expat rule: worldwide gains reported to the IRS; Canadian tax paid may reduce US liability via Form 1116, subject to foreign tax credit limits
- Key form: Schedule 3, with the result flowing to line 12700 of the T1 return
- Filing deadline: April 30 for most individuals; June 15 for self-employed (balance owing still due April 30)
What you should know about capital gains tax in Canada
A capital gain is generally the profit when you sell capital property for more than your adjusted cost base. Capital property includes tangible assets like real estate when the sale price exceeds what you paid, plus selling costs. Crypto-asset transactions can produce either capital gains (or losses) or business income (or losses), depending on the facts.
The table below shows the basic difference under the tax year 2025 (filed in 2026) rules.
| Capital gains | Capital losses | |
|---|---|---|
| What it is | Sale proceeds above ACB (profit) | Sale proceeds below ACB (loss) |
| Tax treatment (tax year 2025, filed in 2026) | 50% of net capital gains included in income; taxed at the marginal rate | Offsets taxable capital gains; carry back 3 years, forward indefinitely |
| Example | Buy C$400k, sell C$500k → net gain C$100k, taxable C$50k | Buy C$10k, sell C$7k → net loss C$3k, carry forward |
How does capital gains tax work in Canada?
Canada taxes capital gains by including 50% of the net gain in income. The taxable portion is added to your other income and taxed at your marginal federal rate plus your provincial rate – there is no separate, lower "capital gains rate" in Canada.
How do federal and provincial taxes apply?
Your taxable capital gain (the 50% inclusion) flows through the regular brackets. The mechanics:
- Inclusion rate: 50% for tax year 2025 (filed in 2026)
- Federal: five progressive brackets
- Provincial: added on top; varies by province
- Reported on: Schedule 3 → line 12700
Canada's 2025 federal brackets (tax year 2025, filed in 2026) apply to the taxable half of the gain; combined federal and provincial rates determine your effective Canada capital gains tax rate for 2025 (Ontario shown).
| Federal taxable income (C$) | Federal rate | Approx. combined rate (Ontario) |
|---|---|---|
| Up to $57,375 | 14.5% | ∼19.55% |
| $57,375.01 – $114,750 | 20.5% | ∼29.65% |
| $114,750.01 – $177,882 | 26% | ∼37.16% |
| $177,882.01 – $220,000 | 29% | ∼41.16% |
| $220,000.01 – $253,414 | 29% | ∼46.16% |
| Over $253,414 | 33% | ∼53.53% |
Sources: CRA 2025 indexation, Ontario 2025 brackets. Ontario example rates are approximate; the 41.16% combined rate applies from $177,882.01 to $220,000, and 46.16% applies above $220,000. The lowest federal rate was 14.5% for 2025, prorated under Bill C-4, which lowered the rate mid-year (full 14% applies from 2026 onward).
See the CRA's published federal income tax rates for the underlying schedule.
The taxable capital gain (50% of the net gain) is added to income and taxed at the rate of the bracket it falls into, not at a flat rate.
Worked example: You sell stocks for C$60,000 with an ACB of C$40,000. Net gain: C$20,000. Taxable half: C$10,000. Multiply C$10,000 by your combined marginal rate to estimate the bill. Use this calculation as a quick capital gains tax calculator for Canada – plug in your own proceeds and ACB to estimate your liability.
Canada vs US capital gains – key differences for expats
The US taxes 100% of capital gains; Canada taxes only 50%.
The US distinguishes short-term gains (held one year or less, taxed as ordinary income at 10–37%) from long-term gains (0%, 15%, or 20%; some taxpayers also owe 3.8% NIIT). Canada applies no such short/long distinction – the 50% inclusion rule applies regardless of holding period.
Many US expats in Canada can use the foreign tax credit to reduce US tax on the same gain, but Form 1116 is subject to the foreign tax credit limitation, so it does not always eliminate all US tax.
| Feature | Canada (tax year 2025, filed in 2026) | US (tax year 2025, filed in 2026) |
|---|---|---|
| Inclusion rate | 50% | 100% |
| Short vs long-term distinction | No | Yes (1-year threshold) |
| Top effective federal rate | 33% × 50% = 16.5% | Long-term gains taxed at 0%, 15%, or 20%; 3.8% NIIT may apply; short-term gains taxed as ordinary income |
| Primary residence relief | Full exemption (principal residence) | Up to $250k / $500k exclusion (§121) |
| Crypto treatment | Capital property, 50% inclusion | Capital asset, short/long-term rates |
| Double-tax prevention for expats | Foreign tax credit via Form 1116 | Foreign tax credit via Form 1116 |
| Key reporting form | Schedule 3 → line 12700 | Schedule D → Form 8949 |
TFX client scenario
A US citizen living in Toronto sells Canadian index fund units for C$150,000 (ACB: C$90,000). Net gain: C$60,000. Taxable amount at 50% inclusion: C$30,000. Canadian federal and Ontario tax at the 37.16% marginal rate: roughly C$11,148. US long-term capital gains tax at 15% on the USD-equivalent gain: roughly US$6,600.
Form 1116 reduces the residual US capital gains liability for the expat in this scenario – net US tax in this example: $0, though results vary depending on each taxpayer's foreign tax credit limitation.
For the wider tax picture, see our Canada vs US tax system comparison for 2026.
Rules and reliefs that can reduce your capital gains tax
Canadian tax law provides four mechanisms that may reduce capital gains tax: the principal residence exemption, the Lifetime Capital Gains Exemption (LCGE, $1,250,000 for tax year 2025), capital loss harvesting, and registered accounts such as RRSPs and TFSAs.
Principal residence exemption
Your home can be fully tax-free when properly designated as your principal residence. You must still report the sale on Schedule 3 and, when required, file Form T2091. Mixed use or a change of use can reduce the shelter on the property.
Lifetime Capital Gains Exemption (LCGE)
The lifetime capital gains exemption allows Canadian residents to shelter a cumulative lifetime amount of capital gains on eligible property. It applies only to three property types: qualifying small business corporation (QSBC) shares, qualified farm property, and qualified fishing property.
Gains on real estate and publicly traded stocks do not qualify. The table below shows how the limit has changed; for tax year 2026, confirm the current CRA-indexed amount before filing.
| Tax year | LCGE limit |
|---|---|
| 2024 (before June 25) | $1,016,813 |
| 2024 (after June 24) | $1,250,000 |
| 2025 | $1,250,000 |
For 2025, the LCGE is $1,250,000, which means a maximum capital gains deduction of $625,000 on line 25400. Claim it using the CRA form or schedule that applies to the type of qualifying property or transaction.
QSBC shares must satisfy CRA's full set of conditions, including the 24-month ownership requirement and the active-business asset tests. The CRA outlines the mechanics under the capital gains deduction (line 25400).
Other key exceptions
Use these targeted breaks alongside timing and cross-border planning.
- Donate publicly listed securities. The taxable portion of the gain can be 0% when you donate shares or fund units in-kind to a qualified donee; use Form T1170 for the calculation. This is generally more tax-efficient than donating cash.
- Spread the gain with a reserve. If you're paid over time, a capital gains reserve may let you defer part of the gain. The reserve can generally be claimed for up to four years (gain recognized over five years total). File Form T2017 each year you claim a reserve.
- Capital loss harvesting. Realize capital losses to offset current-year gains; excess losses carry back three years or forward indefinitely. The superficial loss rule denies a loss if you or an affiliated person (spouse, controlled corporation) buys identical property within a 61-day window: 30 calendar days before through 30 calendar days after the settlement date of the disposition.
- Canadian Entrepreneurs' Incentive (CEI). The Canadian Entrepreneurs' Incentive was proposed in Budget 2024, but Budget 2025 confirmed the government would not proceed with it. Planning should focus on enacted relief such as the LCGE (where eligible) and the principal residence exemption.
How expats and non-residents face capital gains taxation
Non-residents selling Canadian property face mandatory withholding and clearance requirements. US expats residing in Canada report gains to both the CRA and the IRS – but treaty relief under Article XIII and Form 1116 may reduce or eliminate double taxation, subject to foreign tax credit limits.
If you're new to the system, our guide to US taxes in Canada covers the full filing picture; for the relocation side, see how to move to Canada from the US.
Selling Canadian property as a non-resident – what's required?
The following four steps apply to non-residents selling Canadian real estate or taxable Canadian property.
- Apply for clearance. File T2062/T2062A before closing whenever possible (proposed disposition). If filed after the sale, notify the CRA no later than 10 days after the actual disposition; late filing can trigger penalties. CRA issues certificates of compliance (for example, T2064 for proposed dispositions). Cross-border filers should also review US-Canada dual citizen tax filing for 2026.
- Expect withholding. If the seller is a non-resident and no CRA certificate is provided, the purchaser generally withholds 25% of the purchase price (50% in certain cases, such as some depreciable property) and remits it to the CRA within 30 days after the end of the month of transfer. A certificate can reduce the withholding to an amount closer to the expected tax on the gain.
- Mind UHT compliance. The CRA may refuse the certificate if the seller hasn't met the Underused Housing Tax filing or payment duties. Buyers on the other side should review buying property in Canada as an American.
- File a Canadian return. Report the actual gain and claim any refund of excess withholding after the sale.
CRA reporting requirements
Report dispositions on Schedule 3 and include the result on line 12700; there is no special capital gains tax rate in Canada because half of the gain is added to income. Designating a principal residence may fully shelter the gain, but you must still report the sale and file T2091 when required. The 50% inclusion rule applies for tax year 2025 (filed in 2026).
A Section 116 certificate manages withholding and purchaser liability; it does not automatically settle the final tax result. A non-resident may still need to file a Canadian return unless CRA's no-return conditions are met, including no Part I tax payable and eligible excluded or certificate-covered property.
Purchasers remain liable to the CRA if required withholding isn't remitted on time. Keep contracts, ACB support, and FX records for every property sale.
Tax treaties
Treaties decide which country may tax a gain and how the other gives relief. They matter most when you sell shares or cross-border real estate.
- Under the Canada-US tax treaty, Article XIII, gains from real property located in Canada – and gains from shares deriving their value primarily from Canadian real estate – may be taxed by Canada. Most other gains, including gains on publicly traded securities, are taxed only in the country of residence of the seller.
- Both countries provide credits, so the same gain isn't taxed twice. Coordinate filing to match recognition years.
- Canada generally grants a foreign tax credit for tax paid abroad on the same gain.
- US filers claim Form 1116 credits when Canada taxes a gain first.
- Time sales carefully if one country recognizes the gain in a different year than the other.
How to reduce Canadian capital gains tax
Four strategies reduce capital gains tax exposure in Canada for tax year 2025 (filed in 2026): registered accounts (RRSP, TFSA), capital loss harvesting, timing dispositions across tax years, and – where eligible – the LCGE ($1,250,000) or principal residence exemption.
- RRSP contributions are deductible and shelter growth; for tax year 2025, the RRSP dollar limit is $32,490, or 18% of prior-year earned income, whichever is lower, subject to your personal RRSP room (the 2026 RRSP dollar limit increases to $33,810). TFSA growth is tax-free on the Canadian side, but US expats should check US tax and reporting rules before treating a TFSA as a cross-border shelter. The 2025 TFSA dollar limit is $7,000, and remains $7,000 for 2026, added to your room on January 1.
- Offsetting gains with losses (tax-loss harvesting). Realize capital losses to offset current-year gains; excess losses can be carried back three years or forward indefinitely. Calculate ACB carefully and respect the 61-day superficial loss window (30 days before plus 30 days after the settlement date, including affiliated accounts).
- Timing strategies for asset sales. The 50% inclusion rate remains for both 2025 and 2026. Timing still matters for marginal brackets, loss planning, and cross-border mismatch years (Canada vs US), but there is no scheduled 2026 inclusion-rate increase in effect.
What is needed when reporting capital gains in Canada
Canadian residents report capital gains on Schedule 3 (capital gains in Canada), which feeds line 12700 of the T1 return. The filing deadline is April 30, 2026, for most individuals; self-employed individuals have until June 15, but the balance owing is still due April 30.
Use this quick guide to connect your records to the right CRA steps.
- Schedule 3 – Capital Gains or Losses → report capital gains; amounts flow to line 12700 (Taxable capital gains) on your T1.
- T2091 (IND) – Designation of a Property as a Principal Residence → file when you sell or designate a home.
- T1170 – Capital Gains on Gifts of Certain Capital Property → use for in-kind donations of listed securities (zero-inclusion rules may apply).
- Line 25400 (Capital gains deduction) → claim the capital gains deduction for qualifying property, using the CRA form or schedule that applies to the type of property or transaction.
- T1A – Request for Loss Carryback → carry back net capital losses up to three years.
- T5008 slip – Statement of Securities Transactions → reconcile broker-reported proceeds and dispositions.
- Non-resident sale of taxable Canadian property → notify CRA with T2062 within 10 days of disposition for a certificate of compliance.
- Deadlines → most individuals April 30; self-employed June 15; balance due April 30 (dates shift to the next business day if on a weekend or holiday).
US filers should pair this with US-side mechanics – our piece on capital gains reporting on Form 8949 and Schedule D walks through the IRS side.
Match every trade to your T5008 and broker statements; adjust ACB for commissions and reinvested distributions. Convert proceeds, ACB, and expenses to CAD using the transaction-date rate (or a CRA-accepted annual average for many small trades). Keep closing statements and property records with your return; you'll need them if the CRA asks for support.
OBBBA and its effect on expats with Canadian capital gains
The One Big Beautiful Bill Act, signed on July 4, 2025, creates a 1% excise tax on certain outbound remittance transfers from the US, effective for transfers made after December 31, 2025. Most bank-to-bank and debit-or-credit-card-funded transfers are excluded; cash-like channels may fall in scope.
Beginning January 1, 2026, the 1% excise applies to qualifying remittance transfers and is collected by the remittance transfer provider under IRC Section 4475. IRS guidance focuses on transfers funded with cash, money orders, cashier's checks, or similar physical instruments, and providers have specific deposit and filing obligations on Form 720.
This does not change Canadian capital gains tax rules, but it can affect how expats move sale proceeds and compare total transfer costs across channels in 2026.
Get clarity on cross-border taxes
Managing capital gains across borders can feel overwhelming – especially when Canadian and US rules don't always line up. From reporting real estate sales to making sure your income tax return reflects both countries' requirements, the details make all the difference.
This article is brought to you by Taxes for Expats. We help Americans abroad work through Canada's capital gains rules and the matching US filings, so you stay compliant on both sides without guesswork.
FAQ
Canada taxes capital gains by including 50% of the gain in your income, which is then taxed at your marginal federal and provincial rates. There is no separate capital gains rate.
US citizens report worldwide gains, but the foreign tax credit – generally claimed on Form 1116 – usually prevents double taxation, subject to limits.
If a home qualifies as your principal residence for the years you designate, the gain for those years is exempt. You still need to report the sale and file T2091 when required.
For tax year 2025, the LCGE is $1,250,000 for qualifying small business corporation shares and qualified farm or fishing property. For tax year 2026, check the current CRA-indexed amount before filing. Gains on investment real estate and publicly traded securities do not qualify.
Yes. The inclusion rate is 50% for 2026. The federal government proposed an increase to 66.67%, but the proposal was later cancelled. The 50% rate has applied without change since October 18, 2000.
US citizens in Canada pay Canadian capital gains tax first – 50% inclusion taxed at marginal federal-and-provincial rates. The same gain is reported to the IRS on Schedule D, but Canadian tax paid may reduce US liability via Form 1116, subject to foreign tax credit limits. Because the Canadian combined marginal rate on the taxable half typically equals or exceeds the US long-term capital gains rate (15–20%), residual US tax is often $0 – but this depends on each individual's tax situation.
The superficial loss rule in Canada denies a capital loss when you or an affiliated person (spouse or controlled corporation) repurchases identical property within a 61-day window: 30 calendar days before through 30 calendar days after the settlement date of the sale. The denied loss is not permanently lost; it is added to the ACB of the repurchased property.
The ACB is the original purchase price of a capital property plus buying commissions, reinvested distributions (for mutual funds and ETFs), and capital improvements (for real estate). Capital gain = proceeds − ACB − selling costs. For foreign-currency transactions, convert both proceeds and ACB to Canadian dollars at the Bank of Canada exchange rate on each transaction date.
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