What is capital gains tax in Canada?

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Capital gains tax is a type of type imposed on any profit that is realized after selling assets like stocks or personal property for example. In many countries around the world, capital gains tax is typically imposed if a person profited from a sales transaction involving stocks or property. When a person bought a property at 10,000 dollars for example and sells it several years later at 15,000 dollars, this simply means that this particular person is liable to declare 5000 dollars as profit and this profit will then be subject to capital gains tax. In Canada, under most circumstances, capital gains tax is applied only to 50% of the actual profit after the sale of stocks or property. In the same example given above, with a profit of 5000 dollars, only 2500 dollars will be computed for the capital gains tax.

The actual computation for capital gains tax in Canada also depends on the individual’s income or so-called tax bracket. The higher the income, the higher percentage will also be imposed as part of an individual’s capital gains tax. In the case of top earners or top income bracket, the capital gains tax is pegged at 43%. Using 2500 dollars as the sample taxable profit, the capital gains tax will be 1,075 dollars. At a 5000 dollar profit, this leaves the individual with 3,925 dollars net of capital gains tax.

For many Canadians, the taxation imposed on capital gains is quite high and this is the very reason that many of them will try to find ways to reduce such taxation. One way to reduce capital gains tax is by way of donation to charity or family members. Instead of selling stock or property, the same value may instead be donated to a family member for example and qualify for a charitable receipt which can be deducted from one’s capital gains tax. Some people also reduce their capital gains tax by delaying the sale of stock or property while those with businesses may avail of the lifetime exemption to reduce capital gains taxation.

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