Understanding Capital Gains

(and why they matter to your bottom line) 

Whether you're selling stocks, mutual funds, ETFs, or other investments in a non-registered account, knowing when and how gains are taxed, and how losses can help reduce your tax bill, can make a meaningful difference in your financial outcomes.

In this post, we’ll break down what capital gains and losses are, how they’re taxed in Canada, and the planning strategies that can help you keep more of your money working for you. Let’s dive in. 

What are capital gains? 

A capital gain occurs when you sell an investment for more than you paid for it. 

• Example: You buy shares for $5,000 and later sell them for $8,000 - that’s a $3,000 capital gain. 

How are capital gains taxed? 

In Canada, only 50% of the capital gain is taxable. This taxable portion is added to your income for the year. 

• If your gain is $3,000, only $1,500 is taxed at your marginal tax rate. 

Key points: 

• Capital gains are not taxed until the investment is sold, this is referred to as a realized capital gain, meaning the gain becomes taxable only once the profit is locked in through a sale. Until that point, any increase in value is considered an unrealized gain (also known as a paper profit) and is not subject to tax. 

• Can be managed through tax planning and loss harvesting by triggering gains strategically (e.g., in a lower-income year). 

• Gains can be offset by capital losses in the same or other years. 

• Only half the gain is taxed, making them more tax-friendly than interest income, which is 100% taxable. 

What are capital losses? 

A capital loss occurs when you sell an investment for less than you paid for it. 

• For example, if you buy a stock for $5,000 and sell it for $3,000, you have a $2,000 capital loss. 

How capital losses work in a non-registered account: 

Capital losses can be used to offset capital gains, reducing your overall tax bill. Here are some scenarios where this would apply: 

Offset current-year capital gains 

• If you had capital gains this year, you could use any available capital losses to reduce or eliminate the taxable portion (50%) of those gains. 

Carry forward indefinitely 

• Didn’t use the full loss this year? No problem, you can carry capital losses forward indefinitely to apply against capital gains in future years.  

Carry back up to 3 years 

• You can also carry capital losses back up to 3 years to recover taxes previously paid on gains. 

Key points 

Capital losses only apply against capital gains, not other types of income like interest or dividends. 

• Losses must be realized; you must sell the asset to claim the loss. 

• Beware of the “superficial loss” rule, if you or your spouse buys back the same security within 30 days, the loss may be denied by CRA. 

Transferring securities in-kind from a non-registered to a registered account 

It’s important to know that you can transfer securities “in kind” (meaning in their current form) without selling them from a non-registered account into a registered account, such as a TFSA or RRSP. 

This strategy is often used when an investor wants to contribute to a registered account but doesn’t have available cash. Instead of liquidating investments, they can transfer them directly. 

Key tax implications for in kind contributions 

When transferring securities in kind from a non-registered account, it triggers a capital gain event, as if you sold the asset at its fair market value on the date of transfer.  This is referred to as a “Deemed Disposition” and will be treated as follows: 

• If there is a capital gain, it will be taxable. 

• If there is a capital loss, it cannot be claimed due to the superficial loss rule, because you still effectively “own” the security in the registered account. 

• If your security is at a loss, you may want to consider selling it in your non-registered account, therefore realizing the loss. You could then contribute the cash proceeds instead. 

Navigating capital gains and losses with confidence 

Understanding how capital gains and losses work is essential for making tax-efficient investment decisions. While the rules can be straightforward in theory, applying them effectively in your unique financial situation requires careful planning. 

This is where working with a financial professional can make a real difference. They can help you strategize when to realize gains or losses, how to make the most of tax rules like carry-forwards and transfers in-kind and ensure your overall investment approach aligns with your long-term goals. 

Whether you’re building wealth, minimizing taxes, or planning contributions, we can provide tailored advice and clarity in an increasingly complex financial landscape. Smart planning today leads to stronger outcomes tomorrow.  

Let’s talk about how we can help you make the most of your investment strategy. 

Click here to book your review 

TL;DR: 

• Capital Gain = Sell investment for more than you paid. 
  Only 50% is taxable at your marginal rate. 

• Capital Loss = Sell for less than you paid. 
  Can offset capital gains, carried forward indefinitely, or back 3 years. 

• Tax Timing: 

• Gains/losses only taxed when realized (sold). Unrealized gains aren’t taxed. 

  Strategic Planning: 

• Time gains in low-income years. 

• Use losses to reduce taxable gains. 

• Beware “superficial loss” rule (buying same investment within 30 days). 

  In-Kind Transfers to TFSA/RRSP: 

• Triggers capital gain if value has gone up (taxable). 

• Cannot claim capital loss if value is down. 

Tip: A financial professional can help optimize gain/loss timing and minimize tax through personalized strategies. 

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