Reporting Capital Gains (or Losses)

What are capital gains?

Capital gains are the profits generated from the sale of investments such as stocks, real estate, or other type of assets. In Canada, capital gains are subject to taxation. One exception where capital gains are not taxable is when you hold investments in tax-sheltered accounts, such as an RRSP or TFSA.

In Canada, there are two types of capital gains:

• Taxable capital gains:

These are the gains you are required to pay tax on and must report to Canada Revenue Agency (CRA), and Revenue Quebec if you reside in the province of Quebec. The inclusion rate for taxable capital gains is 50%. This means that only half of the profit you made will be added to your taxable income.

• Non-taxable capital gains:

Some types of capital gains may be exempt from taxation. A common capital gain in Canada you don’t pay any taxes on are profits from the sale of your primary residence.

Process of calculating and reporting capital gains in Canada

Understand the terminologies:

Year of acquisition = Note the year you bought your stocks

Adjusted cost base (ACB) = Purchase cost of the asset (e.g., stocks), adjusted for any additional investments

Proceeds of disposition = How much you got when you sold the asset

Outlays and expenses = Any expenses (e.g., fees to buy the stocks)

Calculate the capital gains:

• Subtract the ACB of the asset from the selling cost and remove the outlays and expenses.
• Take 50% of the resulting capital gain, and this would be the taxable portion.

Example

You bought 50 shares of RBC (RY.TO) at $100/share, and another 50 shares at $120/share. You subsequently sold your stocks (100 shares) for $130/shares. You had to pay transaction/trading fees of $9.95 to buy and $9.95 again to sell.

Your capital gain will be calculated as follow:

Adjusted cost base (ACB): 50*$100 + 50*$120 = $11,000

Proceeds of disposition: 100*$130 = $13,000

Outlays and expenses: $9.95*2 = $19.90

Capital gain = (13,000 – $11,000) – $19.90 = $1,980.1

Taxable capital gain = 50%*$1,980.1 = $990.05

In the example above, $990.05 will be added to your taxable income.

Report capital gains on your tax return:

Schedule 3 is the Canada Revenue Agency (CRA) tax form used to report your capitals gains or losses. If you want to report capital gains (or losses) for stocks, section 3 is what you want to fill out.

Carrying capital losses for future years

Capital losses can be carried forward to use against capital gains in future years.

FAQs

Are cryptocurrencies subject to capital gains?

Yes