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Updated 2mo ago.
Updated 2mo ago.
A capital gain occurs when you sell an investment for more than its purchase price. In Canada, only a portion of the gain (the inclusion rate) is added to your taxable income. Capital gains inside a TFSA or RRSP are not taxed.
You bought 100 units of XIC.TO at $30 (total cost: $3,000) and sell them at $40 (proceeds: $4,000). Your capital gain is $1,000. With a 50% inclusion rate on the first $250,000, you add $500 to your taxable income. If your marginal rate is 30%, the actual tax on this gain is $150.
Capital gains are the most tax-efficient type of investment income in Canada. Understanding how they are taxed helps you make better decisions — for example, selling in a non-registered account may be more advantageous than withdrawing from an RRSP.