How to Calculate Capital Gains in Canada

The first step to calculating capital gains in Canada is to determine whether or not you sold capital property and then determine if the proceeds of the disposition exceed the sum of the adjusted cost base, ACB, plus the expenses incurred during the sale. Claiming a reserve or a capital gains deduction may affect your capital gain reporting and capital gain tax amount. Claiming a reserve allows you to report capital gains from only the portion of the proceeds of disposition received during that year, if payment is to be received over a span of several years. Claiming a capital gains deduction allows you to reduce your taxable income by up to a lifetime limit of $250,000.

Instructions

Difficulty: Moderate

Calculate the Adjusted Cost Base and the Proceeds of the Disposition

1. Calculate the adjusted cost base by increasing or decreasing the initial investment by amounts resulting from additional contributions, reinvested distributions, previous redemptions or any number of other special rules.
2. Start with the amount received as proceeds of the distribution. This can vary with different types of assets and there are many applicable adjustments, but it is generally the sales price.
3. Subtract the outlays and expenses incurred during the disposition from the proceeds of the disposition.

Claim a Reserve or a Capital Gains Deduction

4. Claim a reserve if the payment for the capital asset is going to be spread over several years. You need only report the income received in the current year.
5. Claim a capital gains deduction if you had income from the disposition of either qualified small business shares or qualified farm property and you were a resident of Canada.

Calculate a Capital Gain in Canada

6. Subtract the adjusted cost base and deduction from the proceeds from disposition.
7. Subtract the portion of the reserve that will not be applied this year to calculate a capital gain in Canada.

Tips & Warnings

• Special rules may apply when you calculate capital gains in Canada. Research all government publications related to capital gains for more information.
• Get professional legal and real estate advice to prevent errors and maximize your gains.