Capital Gains Tax in Canada 2026: What the Inclusion Rate Change Means for You

If you started investing in a non-registered account over the last couple of years — maybe through Wealthsimple or Questrade — you might have heard that Canada was going to raise something called the capital gains inclusion rate. Maybe you saw the headlines, maybe your parents brought it up, or maybe you got a CRA notice that made absolutely no sense. The federal government proposed hiking the rate in 2024, it caused an enormous uproar among investors, incorporated professionals, and small business owners, and then the plan was reversed before it ever became law. In 2026, the inclusion rate is back to where it has been for decades. But if you have any money in non-registered accounts, understanding how capital gains tax works — and how to minimize it — is one of the more genuinely useful things you can learn.

Quick answer: A capital gain is the profit you make when you sell an investment for more than you paid. In Canada, only a portion of that profit is added to your taxable income — that portion is controlled by the inclusion rate. In 2026, the inclusion rate for individuals is 50%, meaning half of your capital gain is taxed at your marginal rate. A proposal to raise it to two-thirds for gains over $250,000 was reversed before becoming law.

What is a capital gain in Canada?

A capital gain is the profit you make when you sell a capital asset — a stock, ETF, mutual fund, real estate (other than your principal residence), or cryptocurrency — for more than you paid. The CRA calculates your gain by subtracting your adjusted cost base (basically, what you originally paid plus any transaction costs) from your sale proceeds. If you bought 50 shares of a Canadian ETF at $40 each and sold them at $70 each, your capital gain is $1,500.

Capital gains are taxed differently from employment income or interest income. You do not pay tax on a gain until you actually sell — that is called tax deferral, and it is one reason long-term investing is structurally advantageous in Canada. The flip side — a capital loss — occurs when you sell for less than you paid. Capital losses can be used to offset capital gains in the same year, carried back up to three previous years, or carried forward indefinitely against future gains.

Capital gains are also different from dividends, which have their own tax credit system, and from interest income, which is fully added to your taxable income at 100%.

How does the capital gains inclusion rate actually work?

The inclusion rate is the percentage of your capital gain that gets added to your taxable income. At the current 50% inclusion rate, if you sell an ETF for a $10,000 profit, only $5,000 is added to your income for that year. You then pay tax on that $5,000 at your marginal rate — not a flat tax, and not on the full $10,000.

In practice, this makes capital gains one of the more tax-efficient forms of investment income in Canada. Compare it to interest income: every dollar of interest from a GIC or savings account is added fully to your taxable income. A $10,000 capital gain at 50% inclusion costs roughly half as much tax as $10,000 in interest, assuming the same marginal rate.

This gap is why many investors favour growth-oriented investments held in non-registered accounts over high-interest products held outside of sheltered accounts. That said, the right strategy depends on what accounts you have available, your tax bracket, and your timeline. If you have TFSA room left, that almost always comes first — because inside a TFSA, the inclusion rate is irrelevant.

Quick tip: Capital gains earned inside a TFSA are completely tax-free. You never report them to the CRA, and they do not affect your contribution room. If you expect to sell investments at a profit, keeping those investments inside your TFSA is one of the simplest tax moves available to you as a young Canadian investor.

What was the 2024 inclusion rate change — and what happened?

In its 2024 federal budget, the Trudeau Liberal government proposed raising the capital gains inclusion rate from 50% to two-thirds (roughly 66.67%) for certain gains. For individuals, the higher rate would have applied only to capital gains exceeding $250,000 in a single year. For corporations and trusts, the higher rate would have applied to all capital gains with no threshold.

The announcement triggered significant alarm — particularly among incorporated small business owners, doctors, and other professionals who hold retirement savings inside corporations. Many investors rushed to realize gains before June 25, 2024, the proposed effective date. The CRA began administering under the new rates before formal legislation was passed.

Then things unravelled politically. Parliament was prorogued in January 2025. The Liberal Party chose Mark Carney as its new leader, and in the lead-up to the April 2025 federal election, Carney announced that the Liberals would not proceed with the capital gains inclusion rate increase. The proposed legislation never became law. The inclusion rate for individuals remained at 50%.

For most young Canadians with modest investment portfolios, the proposed change would not have affected them at all — few 20-somethings are generating more than $250,000 in capital gains in a year. But understanding what happened gives you important context for the political environment around investing and tax in Canada.

How does capital gains tax affect you as a young investor in 2026?

Where you hold your investments matters as much as what you hold. Here is how capital gains tax breaks down across account types in 2026.

Inside a TFSA: Capital gains are completely tax-free. You can buy, sell, and compound your returns with no CRA reporting and no tax. If you are not sure how much contribution room you have accumulated, our guide to TFSA contribution room in 2026 covers it clearly. Max this out before opening a non-registered account.

Inside an RRSP: Capital gains are sheltered from tax while they grow. You pay tax only when you withdraw, and withdrawals are taxed as ordinary income — not at the capital gains inclusion rate. This makes RRSPs more powerful for income-generating assets than for growth assets, depending on your situation.

In a non-registered account: This is where capital gains tax applies. If you sell an ETF and make a $4,000 profit, $2,000 gets added to your taxable income at the 50% inclusion rate. The actual tax owed depends on your marginal rate. For a deeper look at how marginal rates work in Canada, see our post on marginal vs effective tax rates. For most young Canadians, the tax hit is manageable — but it is real, and it is worth factoring in before you sell.

Crypto and other assets: Cryptocurrency is treated as a capital asset by the CRA, not as currency. Selling crypto for a gain — even trading one coin for another — can trigger a capital gain. If you’re investing in ETFs through Wealthsimple or Questrade, your platform will generally provide a tax summary, but the responsibility for accurate reporting is always yours.

Frequently Asked Questions

What is the capital gains inclusion rate in Canada in 2026?

The capital gains inclusion rate for individuals in Canada is 50% in 2026. This means half of any capital gain you realize is added to your taxable income and taxed at your marginal rate. A 2024 proposal to raise this to two-thirds for gains over $250,000 per year was reversed by the Carney government and never became law.

Do you pay capital gains tax on TFSA investments in Canada?

No. Capital gains earned inside a Tax-Free Savings Account are completely tax-free in Canada. You do not need to report them to the CRA, and they do not affect your TFSA contribution room. This is one of the most significant tax advantages available to Canadian investors, which is why maximizing TFSA room before investing in a non-registered account is almost always the right move.

What is the adjusted cost base and why does it matter for capital gains?

Your adjusted cost base (ACB) is what you paid for an investment, including brokerage commissions and fees. When you sell, the CRA calculates your capital gain as your proceeds minus your ACB. If you buy the same security multiple times at different prices, you need to track a weighted average ACB. Wealthsimple and Questrade often provide an ACB estimate, but always verify it — accurate ACB tracking is your responsibility, not your broker’s.

Can capital losses be carried forward in Canada?

Yes. If your capital losses exceed your capital gains in a given year, you can carry the net loss back up to three years to offset past gains and potentially receive a refund, or carry it forward indefinitely to offset future capital gains. Losses can only ever offset capital gains — they cannot be applied against employment income or other types of income.

Is your primary home subject to capital gains tax when you sell it in Canada?

Generally, no. The CRA offers a principal residence exemption, which means the profit from selling the home you live in is typically tax-free. You do need to report the sale on your tax return, even if no tax is owed. If you own more than one property (such as a rental or cottage), only one can be designated your principal residence for any given year, and any gains on the other property are subject to capital gains tax at the 50% inclusion rate.

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