Capital gains tax in Canada: what expats need to know
In Canada, capital gains tax applies when you sell investments or property for more than you paid, with only half of the profit included in income. For US expats, these rules matter because gains are also reported at home, making careful planning key to avoid double taxation. Active trading can shift treatment from capital gains to business income, while unrealized increases in value are not taxed until the asset is sold.
This article is brought to you by Taxes for Expats – we help Americans abroad navigate Canada’s capital gains rules with clarity and confidence. Whether you’re preparing to sell or balancing both tax systems, our team ensures you stay compliant while reducing stress.
What you should know about capital gains
Capital gains tax in Canada starts with a straightforward idea that links gains, losses, and how they’re taxed. A capital gain is the profit when you sell capital property – think stocks, ETFs, or crypto – for more than your adjusted cost base. It also covers tangible assets like real estate when the sale price exceeds what you paid, plus selling costs.
Use the quick guide below to calculate the basic difference under the current 2025 rules.
| Capital gains | Capital losses | |
|---|---|---|
| What it is | Sale proceeds above ACB (profit) | Sale proceeds below ACB (loss) |
| Tax treatment (2025) | 50% of net gain included in income; taxed at your tax bracket | 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?
Understanding how gains are taxed helps you plan smarter before selling assets. For 2025, the inclusion rate is 50% – only half of your net gain counts toward income under the capital gains tax in Canada. That taxable half is then taxed at your combined federal and provincial rates, not a special capital rate.
Below, we show how to calculate capital gains and how those taxes apply across provinces, with a quick example.
How do federal and provincial taxes apply?
Your taxable capital gain is the included half of assets, such as property or securities. It is taxed using your marginal federal rate plus your province’s rate.
- Inclusion rate – 50% for 2025.
- Federal – progressive brackets set annually.
- Province – added on top; varies by province.
- Report – Schedule 3 → line 12700.
Sell stocks for C$60,000 with ACB C$40,000 → gain C$20,000; taxable half is C$10,000. Multiply C$10,000 by your combined rate to estimate the bill – your tax bracket drives the final amount.
Rules & reliefs that can reduce your capital gains tax
These reliefs can erase or soften gains, but each comes with strict paperwork and tests. Canada doesn’t offer a lower long term capital gains bracket; your effective capital gains tax rate depends on your federal-provincial bracket after the inclusion rules apply.
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)
Claim up to C$1.25 million over your lifetime on qualified small business corporation shares and qualified farm/fishing property. You claim the related deduction at line 25400, with supporting LCGE forms and QSBC/QFFP tests. Verify eligibility well before a sale to avoid last-minute surprises.
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% inclusion when you give shares or fund units in-kind to a qualified donee; use Form T1170 for the calculation. This can be more efficient than donating cash.
- Spread the gain with a reserve – If you’re paid over time, a capital gains reserve can let you report over up to five years (and up to ten in specific situations). File T2017 to support the reserve each year.
- Canadian Entrepreneurs’ Incentive (CEI) – Eligible founder shares may get a 33.33% inclusion up to a phased lifetime $2 million limit starting in 2025. Check industry and ownership conditions early.
How expats and non-residents face capital gains
Canada still taxes only half of most gains in 2025, with any inclusion-rate change deferred to January 1, 2026. Below, you’ll find what to do when selling, how the CRA wants it reported, and where tax treaties fit in.
Selling Canadian property as a non-resident – what’s required?
Non-resident sellers face purchaser withholding unless a CRA clearance certificate is in hand. Plan early to keep more cash at closing.
- Apply for clearance – File T2062/T2062A at least 30 days before closing or within 10 days after; CRA can issue T2064/T2068 to cap withholding.
- Expect withholding – Purchasers generally withhold 25% of gross proceeds (or 50% on certain property) and remit within 30 days after month-end; a certificate can reduce this to tax on the gain.
- Mind UHT compliance – CRA may refuse the certificate if the seller hasn’t met the Underused Housing Tax filing or payment duties.
- 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, as half 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. In Canada, capital gains follow the 50% inclusion rule for 2025, so keep that in mind.
A section 116 clearance doesn’t replace return filing for non-residents; it only manages withholding. Purchasers remain liable to 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 Article XIII, gains from real property are taxed where the property sits. Many other gains are taxed in the seller’s country of residence. Shares deriving their value mainly from Canadian real estate can be taxed by Canada.
- 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. Capital gains tax rate discussions often mask this timing issue.
How to reduce Canadian capital gains tax
You can shrink what you pay in capital gains tax by using the right accounts, pairing gains with losses, and smart timing. Below is a fast, 2025-ready playbook that also sets you up for the 2026 rule shift.
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Using RRSPs, TFSAs, and other registered accounts.
RRSP contributions are deductible and shelter growth; the 2025 RRSP dollar limit is $32,490 or 18% of prior-year earned income, whichever is lower. In a TFSA, gains and withdrawals are tax-free. The 2025 TFSA limit is $7,000, so use registered plans first to keep future gains off your return. -
Offsetting gains with losses (tax-loss harvesting).
Realize capital losses to offset current-year gains; excess losses can be carried back 3 years or forward indefinitely. Calculate adjusted cost base carefully and respect the 30-day superficial loss window that looks 30 days before and after the sale, including affiliated accounts. -
Timing strategies for asset sales.
The inclusion rate stays 50% through December 31, 2025, with a 2/3 rate from January 1, 2026, for corporations and for individuals above a $250,000 annual gains threshold, so consider crystallizing in 2025 if appropriate. For real property, align closing dates and tranche dispositions across tax years to manage brackets and thresholds without forcing a sale.
Also read. Capital gains and losses - tax info
What is needed when reporting capital gains in Canada
Filing capital gains tax is straightforward once you know which forms feed line 12700 and when they’re due. Use this quick guide to connect your records to the right Canada Revenue Agency steps other sections cover exemptions, loss use, and timing.
Start with Schedule 3 and support slips, then add any special forms that fit your situation.
- 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).
- T657 Calculation of Capital Gains Deduction → claim the LCGE for QSBC shares or farm/fishing property.
- 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 next business day if on a weekend/holiday).
OBBBA & its effect on expats with Canadian capital gains
The One Big Beautiful Bill Act, signed on July 4, 2025, creates a 1% excise on certain outbound remittance transfers from the US, effective for transfers after December 31, 2025. Many bank-to-bank and debit or credit card–funded transfers are excluded, while cash-like channels may fall in scope.
It doesn’t change capital gains rules in Canada, but it can affect how you fund purchases or repatriate proceeds – and how your US return reconciles fees and credits alongside Canadian reporting.
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.
That’s why our specialists at Taxes for Expats provide year-round guidance – so you can meet every tax compliance requirement with confidence.
FAQ
Canada taxes capital gains by including 50% of the gain in your income – it’s then taxed at your marginal rates.
US citizens report worldwide gains, but the foreign tax credit – usually via Form 1116 – generally 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 – but you must report the sale and file T2091.
