What Is the Capital Gains Inclusion Rate—And Why Should You Care?
If you’ve sold an investment property, stocks, or other assets in Canada for more than you paid, you’ve likely triggered a capital gain. But did you know that not all of that gain is taxed? That’s where the capital gains inclusion rate comes in—a key concept that determines how much of your profit is taxable.
Whether you’re an individual investor, small business owner, or preparing for retirement, understanding the inclusion rate is essential to optimizing your tax strategy. And when it comes to maximizing your return and minimizing your tax burden, few professionals are as well-equipped to guide you as a trusted accountant.
In this post, we’ll break down what the capital gains inclusion rate is, how it works in Canada, how changes to it can affect your tax bill—and how a professional accountant can help you plan smarter.
What Is Capital Gains Tax?
Capital gains tax is the tax you pay on profits from the sale of certain types of capital assets. Common examples include:
- Stocks and mutual funds
- Real estate not considered your principal residence
- Business assets
- Cryptocurrency
- Bonds and other investment vehicles
When you sell these assets for more than their adjusted cost base (ACB), the difference is your capital gain.
What Is the Capital Gains Inclusion Rate?
The capital gains inclusion rate is the percentage of your capital gain that is subject to income tax. In Canada, the current inclusion rate is 50%, meaning only half of your capital gain is taxable.
Example:
If you sold shares and made a $20,000 profit, only $10,000 would be included in your taxable income.
The inclusion rate is applied before your marginal tax rate. So while you don’t pay tax on the full gain, the portion that is included is taxed at your personal or corporate income tax rate.
Why the Capital Gains Inclusion Rate Matters
The inclusion rate significantly affects your overall tax liability. Here’s why it’s important:
- Influences after-tax returns on investments
- Affects decisions on when and how to sell assets
- Impacts estate planning and intergenerational wealth transfers
- Plays a role in retirement income strategy for investors
Small changes to the inclusion rate—like the potential for it to rise in the federal budget—can have a big impact on your financial picture.
A Look at Inclusion Rate Changes Over Time
The current 50% rate hasn’t always been the norm. Here’s a brief timeline:
- 1972–1987: 50% inclusion rate
- 1988–1989: 66.67%
- 1990–1999: 75%
- 2000: Reduced back to 50%
There’s always speculation about whether the government will increase the inclusion rate again, especially during federal budget announcements. That’s why staying informed—and having a proactive accountant—is key.
How Your Accountant Helps You Navigate Capital Gains Tax
Understanding the concept is one thing—applying it effectively is another. Here’s how a professional accountant can guide you through capital gains planning and keep your finances optimized.
1. Strategic Tax Planning Before You Sell
Accountants can help you assess the timing of your asset sale. Sometimes, deferring the sale to a different tax year or spreading it across multiple years could minimize your tax impact.
They help you:
- Choose the most tax-efficient year to realize gains
- Harvest capital losses to offset gains
- Defer gains through alternative planning strategies
2. Maximizing Capital Losses
A great accountant will ensure you’re not leaving money on the table. Capital losses can offset capital gains, reducing your taxable income.
They ensure proper use of:
- Realized losses to offset gains in the same year
- Carry-back losses to apply to previous years’ gains
- Carry-forward losses for future years
3. Principal Residence Exemption and Real Estate Planning
If you’re selling a property, your accountant can help determine whether it qualifies for the Principal Residence Exemption—which may eliminate or reduce the taxable capital gain entirely.
For other real estate investments:
- They ensure proper calculation of adjusted cost base
- Advise on holding vs. flipping classification (which affects tax treatment)
- Help document all capital improvements for deduction
4. Incorporating Capital Gains into Retirement or Estate Planning
Capital gains often surface when people are drawing from investments in retirement or passing assets to heirs.
An accountant can help:
- Structure RRSP/RRIF withdrawals to minimize tax
- Use capital gains exemptions for small business shares
- Create a tax-efficient estate plan to reduce taxes for beneficiaries
5. Staying Compliant with CRA Reporting Requirements
Misreporting capital gains is a common trigger for CRA reviews or audits. Accountants ensure:
- Accurate reporting of gains and losses
- Correct ACB tracking
- Proper application of the inclusion rate
- Timely filing of elections and disclosures
6. Advising on the Impact of Changing Legislation
Tax rules aren’t static. When there are proposed or actual changes to the inclusion rate (as speculated in budget updates), your accountant can:
- Evaluate how the change impacts your portfolio
- Recommend whether to accelerate or delay asset sales
- Recalculate projections for retirement or investments
In short, your accountant acts as a forward-thinking partner who helps you adjust as legislation evolves.
The Capital Gains Inclusion Rate for Businesses
For businesses and corporations, capital gains have additional implications:
- Passive investment income within a corporation is taxed differently
- Capital dividends can be issued from the non-taxable portion of a gain
- Sale of business shares may qualify for the Lifetime Capital Gains Exemption (LCGE)
A knowledgeable business accountant can guide entrepreneurs through complex rules that maximize tax efficiency during asset sales or business transitions.
Common Mistakes to Avoid Without Professional Guidance
Not working with an accountant often results in missed opportunities or costly errors. Here are common mistakes people make:
- Failing to apply capital losses properly
- Misreporting ACB (Adjusted Cost Base)
- Ignoring future tax implications when selling large assets
- Missing out on exemptions for qualifying small business shares
- Underestimating the impact of a rate increase on long-term planning
These issues can lead to overpaying tax or triggering audits—problems a good accountant will help you avoid.
Who Should Be Paying Close Attention to the Capital Gains Inclusion Rate?
Understanding the inclusion rate isn’t just for the ultra-wealthy. You should pay attention if:
- You’re a real estate investor or frequent property seller
- You trade in stocks, mutual funds, or ETFs
- You’re nearing retirement and planning asset withdrawals
- You own a business or plan to sell one
- You want to pass assets to your heirs efficiently
A professional accountant will customize their advice to your financial situation, ensuring you get the best outcomes.
Get the Most from Your Investments with Expert Help
The capital gains inclusion rate might sound technical, but it has a direct impact on your wealth, investments, and tax bill. Whether rates stay the same or increase in the future, understanding how to navigate capital gains is essential.
With the help of an experienced accountant, you can make informed decisions, legally reduce your tax burden, and ensure your financial strategy is aligned with current laws and your personal goals.
Need Help Navigating Capital Gains Tax?
At IBB Accounting & Tax Services, we offer expert advice tailored to your investments and financial plans. Whether you’re planning to sell, reinvest, or retire, our accountants are here to help you make tax-smart choices. Book a consultation today and stay one step ahead of capital gains tax changes.
