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Updated 2mo ago.
Updated 2mo ago.
The inclusion rate determines what portion of a capital gain is added to your taxable income. In Canada, the rate is 50% on the first $250,000 of annual gains for individuals, and 66.67% above that threshold.
You realize a $10,000 capital gain selling units of XEQT.TO in your non-registered account. With the 50% inclusion rate, only $5,000 is added to your taxable income. If your marginal rate is 35%, you pay $1,750 in tax on a $10,000 gain — an effective rate of 17.5%.
The inclusion rate makes capital gains more tax-efficient than interest income (taxed at 100%) or foreign dividends. This is one reason why growth-oriented ETFs (which generate capital gains rather than distributions) are popular in non-registered accounts.