A capital gain is the profit from selling a capital asset, such as shares, real estate or a business, for more than its adjusted cost base.
When you sell a capital property for more than you paid, the difference is a capital gain. In Canada only a portion of a capital gain is taxable, the inclusion rate, rather than the whole amount. Historically the rate has been one-half, meaning half the gain is added to income and taxed at your normal rate.
Certain gains get special treatment. Your principal residence is generally exempt, and gains on qualifying small business corporation shares can be sheltered by the lifetime capital gains exemption, which shelters over $1.25 million per person. Capital losses can offset capital gains but generally not other income.
You buy shares for $20,000 and sell them for $50,000. Your $30,000 capital gain is subject to the inclusion rate, so a portion is added to your taxable income while the rest is received tax-free.
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