Three kinds of income
| Type | How it's taxed | When |
|---|---|---|
| Interest | Fully taxable, like wages | Every year |
| Dividends from Canadian companies | Taxable, with a dividend tax credit that lowers the bill | Every year |
| Dividends from foreign companies | Taxable, with no dividend tax credit | Every year |
| Capital gains | Half of the gain is taxable | Only when you sell |
The one-half inclusion rate is from CRA's capital gains guide for 2025. None of this applies inside a TFSA, FHSA or RRSP.
Adjusted cost base: what you really paid
A capital gain is what you sold for, minus your adjusted cost base (ACB). The ACB is usually what you paid plus costs to buy, such as commissions. When you buy the same investment at different prices, CRA has you use the average cost.
| Buy 100 units at $20 | $2,000 |
| Buy 100 more at $30 | $3,000 |
| Average cost: $5,000 ÷ 200 units | $25 a unit |
| Sell 50 units at $40 | $2,000 |
| Cost of those 50 units (50 × $25) | $1,250 |
| Capital gain | $750 |
| Taxable part (half) | $375 |
Commissions left out to keep it simple. The $375 is added to your income and taxed at your own rate.
Your brokerage reports what you sold for. It doesn't always know your true ACB, especially if you've moved accounts or received return of capital, which lowers it. Keeping the record is your job.
Losses, and the 30-day rule
A capital loss can offset capital gains. Unused losses can be carried back three years or forward indefinitely.
But CRA won't let you sell at a loss and stay invested in the same thing. A loss is "superficial", and can't be claimed, when you or someone affiliated with you (such as your spouse) buys the same investment in the period from 30 days before to 30 days after the sale and still holds it at the end of that period. The denied loss isn't gone. It's added to the cost of the replacement units.
Where this fits
For most people the order is simple: use the registered accounts first, because inside them none of this bookkeeping exists. A non-registered account comes into play when the room is used up, or when you need flexibility the registered accounts don't give.
Do this before the next lesson
- Check whether you hold any investments outside a TFSA, FHSA or RRSP.
- If you do, find your record of what you paid for each one, including every purchase date and amount.
- If you have no record, start one today with your brokerage's transaction history.
You sell a fund at a $1,000 loss and buy it back two weeks later. What happens to the loss?
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