Capital gains are monies earned when we sell an investment for more than we paid for it. The most common capital gains are realized from the sale of stocks, bonds, precious metals, and property. The profit from a sale - the difference between the purchase price and the sale price - is a capital gain. If we purchase a building for $100 000, and then sell it at $150 000, the capital gain is $50 000. A capital gain is not realized until the asset is sold.

In 2017 in Canada, we pay taxes on 50% of our realized capital gains. If the realized capital gain on the sale of our building is $50 000, we would pay taxes on $25 000.


Notable exceptions to the capital gains tax are the capital gains earned on the sale of a primary residence, or the interest accumulated in a Tax-Free Savings Account (TFSA).

However, if you sell your valuable antique pocket watch for a profit, for example, you must pay tax on the capital gains.


Think about this...

Your grandparents plan to move into an assisted living facility and are about to sell their two biggest assets: a house in Red Deer worth $400 000 and a cottage at Sylvan Lake worth $550 000. From a capital gains point of view, which should they list as their primary residence? Why?

This depends on how much capital gain is made on the sale of each residence. For example:

Red Deer house

Purchase price: $100 000
Sale price: $400 000
Realized capital gain: $300 000

Potential taxable amount (50% of capital gain): $150 000
Sylvan Lake cottage

Purchase price: $500 000
Sale price: $550 000
Realized capital gain: $50 000

Potential taxable amount (50% of capital gain): $25 000

In this case, your grandparents should list as their primary residence the home that earns the most in capital gains. As the primary residence, your grandparents will not have to pay tax on this amount. Your grandparents should list the cottage as their secondary residence.