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Capital Gains – 2024

T4037(E) Rev. 24

Before you start

Find out if this guide is for you

The most common income tax situations are explained in this guide. Use this guide to get information on capital gains or capital losses in 2024.

You generally have a capital gain or loss whenever you sell, or are considered to have sold, capital property.

Use Schedule 3, Capital Gains or Losses, to calculate and report your taxable capital gains or net capital loss. If the property you sold is a flipped property, see Flipped property.

If your only capital gains or losses are those shown on information slips (T3, T4PS, T5 or T5013 slips) and you did not file Form T664 or T664 (Seniors), Election to Report a Capital Gain on Property Owned at the End of February 22, 1994, you do not have to read the entire guide. Instead, see Chart 1 – Reporting capital gains or losses and other amounts from tax slips to find out how to report these amounts.

If you sell units, shares or securities that you were issued a tax slip for, you must report a capital gain or loss. See Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares and other shares (line 4).

If you are a farmer who sold property included in capital cost allowance Class 14.1 (eligible capital property before January 1, 2017) that is qualified farm or fishing property or farmland in 2024 that includes your principal residence, see the following guides:

Guide RC4060 is applicable to AgriStability and AgriInvest Program participants in Ontario, Alberta, Saskatchewan, and Prince Edward Island.

Guide RC4408 applies to AgriStability and AgriInvest participants in British Columbia, Manitoba, New Brunswick, Nova Scotia, Newfoundland and Labrador, and the Yukon.

AgriStability and AgriInvest Program participants from Quebec use Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income.

If you are a non-resident, emigrant or newcomer to Canada, go to Individuals – Leaving or entering Canada and non-residents and refer to the section that applies to your situation.

New for 2024

This section generally includes updates to the CRA's services as well as proposed, announced and enacted tax changes for the year. When tax changes become law as proposed or announced, they will be effective for the tax year or as of the dates given. If draft legislation is finalized or new legislation is introduced after publishing in January 2025, information will be available at Lines 12700 – Taxable capital gains. The forms related to capital gains have been updated to reflect the changes noted in this section, as needed.

On January 31, 2025 the Government of Canada announced a change to the effective date for the capital gains inclusion rate increase from June 25, 2024 to January 1, 2026. This means that the inclusion rate for calendar year 2024 remains at 50%.

If you had a disposition of qualified farm or fishing property (QFFP), or qualified small business corporation shares (QSBCS), you must report dispositions of capital property, and business investment losses for transactions before June 25, 2024 (Period 1) and after June 24, 2024 (Period 2) in the fields provided. This is necessary to support the increase to the Lifetime Capital Gains Exemption (LCGE) limit to $1.25 million, effective June 25, 2024. Separate reporting for Period 1 and Period 2 may also be necessary also necessary if you received a tax slip reporting dispositions in Period 1 and Period 2 because some tax slips had already been issued prior to the Janurary 31, 2025 announcement.

Finally, please take note of the following administrative measures:

  • While line 12701 for the capital gains reduction and line 25999 for the capital gains reduction add-back remain on the return, no amount should be reported on those lines. They are no longer applicable since the inclusion rate of 50% applies for the entire 2024 calendar year.
  • T4 slips may be issued with amounts reported at boxes 91 and 92 for security options deductions after June 24, 2024 at a rate of 33.3333%. If that is the case, follow the instructions and report the amounts from the T4 slip at line 24900 of your return. Also claim the additional security options deduction at line 24901 to increase your total security options deduction to 50% of the security options benefits received in the year (see the Federal worksheet for the calculation)

New items are flagged with NEW! throughout this guide.

Capital gains deduction for qualifying business transfer

This new deduction is available to individuals on the sale of shares under a qualifying business transfer (QBT) where certain conditions are met.

An individual or individuals (other than a trust) who disposed of shares of the capital stock of a corporation to a trust (or to a purchaser corporation) under a qualifying business transfer (QBT) may jointly elect with the trust and, if applicable, a corporation wholly owned by the trust to claim a capital gains deduction. This deduction is for the taxable portion of up to $10 million of capital gains realized on the QBT. To apply the deduction to the shares:

Additionally, QBTs may benefit from an extended 9 year reserve. A minimum of 10% of the gain is required to be included in income each year allowing the capital gain to be reported over 10 years.

Lifetime capital gains exemption

Under proposed changes, the lifetime capital gains exemption (LCGE) limit for qualified small business corporation shares and qualified farm or fishing property will increase to $1.25 million for dispositions that occur after June 24, 2024. Annual indexation for the $1,250,000 lifetime limit will resume in 2026. For more information about the LCGE, see page What is the capital gains deduction limit.

The CRA's publications and personalized correspondence are available in braille, large print, e-text, and MP3. For more information, go to Order alternate formats or call 1-800-959-8281.

Table of contents

Definitions

This section generally describes the technical terms that are used in this guide. Where practical, technical terms are defined in detail in the applicable chapters.

Note

Throughout this guide, the terms sell, sold, buy and bought are used to describe most capital transactions. However, the information provided also applies to other dispositions or acquisitions, such as when you give or receive a gift. When reading this guide, you can substitute the terms disposed of or acquired for sold or bought, if they more accurately describe your situation.

Abbreviations – The following is a list of some of the abbreviations that are used in this guide:

Adjusted cost base (ACB) – This is usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.

The cost of a capital property is its actual or deemed cost, depending on the type of property and how you acquired it. It also includes capital expenditures, such as the cost of additions and improvements to the property. You cannot add current expenses, such as maintenance and repair costs, to the cost base of a property.

For more information on ACB, see Archived Interpretation Bulletin IT-456R, Capital Property – Some Adjustments to Cost Base, and its Special Release, archived IT-456RSR.

Advantage – This is generally the total value of any property, service, compensation, use or any other benefit that you are entitled to as partial consideration for, or in gratitude for, the gift. The advantage may be contingent or receivable in the future, either to you or a person or partnership not dealing at arm's length with you.

The advantage also includes any limited-recourse debt in respect of the gift at the time it was made. For example, there may be a limited-recourse debt if the property was acquired as part of a gifting arrangement that is a tax shelter. In this case, the eligible amount of the gift will be reported in box 13 of Form T5003, Statement of Tax Shelter Information. For more information on tax shelters and gifting arrangements, see Guide T4068, Guide for the Partnership Information Return (T5013 Forms).

Allowable capital loss – This is, for a tax year, your capital loss for the year multiplied by the inclusion rate for that year.

Arm's length – This refers to a relationship or transaction between unrelated persons who act in their own separate interests. An arm's length transaction is generally a transaction that reflects ordinary commercial dealings between unrelated parties acting in their own separate interests.

Related persons are not considered to deal with each other at arm's length. Related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons..

Unrelated persons may not be dealing with each other at arm's length at a particular time. Each case will depend upon its own facts. The following criteria will generally be used to determine if the parties to a transaction are not dealing at arm's length:

For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Business investment loss – See Allowable business investment loss.

Canadian-controlled private corporation – This is a private corporation that is a Canadian corporation other than any of the following:

  1. a corporation controlled, directly or indirectly in any way, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation), by one or more corporations described in paragraph c), or by any combination of the above
  2. a corporation that would be controlled by one person if that one person owned all the shares of capital stock of any corporation that are owned by any non-resident person, by any public corporation (other than a prescribed venture capital corporation), or by a corporation described in paragraph c)
  3. a corporation, a class of the shares of capital stock of which is listed on a designated stock exchange

Canadian security – This is any of the following:

Prescribed securities are not considered to be Canadian securities.

Capital cost allowance (CCA) – In the year that you buy a depreciable property, such as a building, you cannot deduct its full cost. However, since this type of property wears out or becomes obsolete over time, once the depreciable property becomes available for use, you can deduct its capital cost over a period of several years. This deduction is called CCA. You usually group depreciable properties into classes. You have to base your CCA claim on the rate assigned to each class of property.

Capital gain – You have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.

Capital loss – You have a capital loss when you sell, or are considered to have sold, a capital property for less than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.

Capital property – This includes depreciable property, and any property which, if sold, would result in a capital gain or a capital loss. You usually buy capital property for investment purposes or to earn income. Capital property does not include the trading assets of a business, such as inventory. Some common types of capital property include:

Common-law partner – This is a person who is not your married spouse, but with whom you are living in a conjugal relationship and at least one of the following conditions applies:

  1. This person has been living with you in a conjugal relationship for at least 12 continuous months

    Note
    In this definition, 12 continuous months includes any period where you were separated for less than 90 days because of a breakdown in the relationship.

  2. This person is the parent of your child by birth or adoption
  3. This person has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support

Deemed acquisition – This expression is used when you are considered to have acquired property, even though you did not actually buy it.

Deemed cost – This refers to the price of property you are considered to have acquired, even though you did not actually buy it.

Deemed disposition – This expression is used when you are considered to have disposed of property, even though you did not actually sell it.

Deemed proceeds of disposition – This expression is used when you are considered to have received an amount for the disposition of property, even though you did not actually receive the amount.

Depreciable property – This is usually capital property used to earn income from a business or property. The capital cost can be written off as capital cost allowance over a number of years.

Disposition (dispose of) – This is usually an event or transaction where you give up possession, control and all other aspects of property ownership.

Eligible amount of the gift – This is generally the amount by which the fair market value (FMV) of the gifted property is more than the amount of an advantage, if any, received or receivable for the gift. For more information, see Guide P113, Gifts and Income Tax.

Eligible active business corporation – Generally, this is a taxable Canadian corporation, where all or substantially all of the fair market value (FMV) of its assets are used principally in an active business carried on primarily in Canada by the corporation or a related active business corporation while the investor holds the shares, or for at least 730 days of the ownership period. It can also be shares of, or a debt issued by, other related active business corporations or a combination of such assets, shares or debt.

Note

An eligible active business corporation does not include:

  • a professional corporation
  • a specified financial institution
  • a corporation whose principal business is leasing, renting, developing, or selling real property that it owns or any combination of these activities
  • a corporation where more than 50% of the FMV of its property (net of debts incurred to acquire the property) is attributable to real property

Eligible capital property – This is property that does not physically exist but gives you a lasting economic benefit. Examples of this kind of property are goodwill, customer lists, trademarks, and milk quotas. For 2017 and following tax years, this property is included in capital cost allowance Class 14.1.

Eligible small business corporation – Generally, this is a Canadian-controlled private corporation, where all or substantially all of the fair market value (FMV) of its assets are used principally in an active business that is carried on primarily in Canada by the corporation or an eligible small business corporation related to it. It can also be shares of, or a debt issued by, other related eligible small business corporations or a combination of such assets, shares or debt. The issuing corporation must be an eligible small business corporation at the time the shares were issued.

Note

An eligible small business corporation does not include:

  • a professional corporation
  • a specified financial institution
  • a corporation whose principal business is leasing, renting, developing, or selling real property that it owns or any combination of these activities
  • a corporation where more than 50% of the FMV of its property (net of debts incurred to acquire the property) is attributable to real property

Excepted gift – This is a gift of a share you made to a donee with whom you deal at arm's length. The donee cannot be a private foundation. If the donee is a charitable organization or public foundation, it will be an excepted gift if you deal at arm's length with each director, trustee, officer, and official of the donee. For more information, go to Non-qualifying security.

Fair market value (FMV) – This is usually the highest dollar value you can get for your property in an open and unrestricted market, between a willing buyer and a willing seller who are acting independently of each other.

Flipped property – This is when property of a taxpayer is a housing unit (including rental properties) located in Canada, or a right to acquire a housing unit located in Canada, that is not already considered to be inventory of the taxpayer and was owned or held by the taxpayer for less than 365 consecutive days prior to the disposition unless the disposition can reasonably be considered to occur due to, or in anticipation of certain life events. 

For more information (including the list of life events), see Flipped property.

Flow-through entity – This is explained in What is a flow-through entity.

Inclusion rate – The inclusion rate (IR) is the fraction by which you multiply your capital gain, capital loss, or business investment loss for the year to determine your taxable capital gain, allowable capital loss, or allowable business investment loss. Generally, the IR for 2024 is 1/2. For previous year inclusion rates, see Inclusion rate for previous years.

Listed personal property (LPP) – This is a type of personal-use property. The principal difference between LPP and other personal-use properties is that LPP usually increases in value over time. LPP includes all or any part of any interest in, or any right to, the following properties:

Net capital loss – Generally, if your allowable capital losses are more than your taxable capital gains, the difference between the two becomes part of the calculation of your net capital loss for the year.

Non-arm's length – This generally refers to a relationship or transaction between persons who are related to each other. However, a non-arm's length relationship might also exist between unrelated individuals, partnerships, or corporations, depending on the circumstances. For more information, see the definition of arm's length.

Non-qualifying real property – Generally, this is real property that you or your partnership disposed of after February 1992 and before 1996.

It also generally includes any of the following properties you or your partnership disposed of after February 1992 and before 1996, if its fair market value is derived principally (more than 50%) from real property:

Non-qualifying securities – These are securities you donated to a qualified donee. Non-qualifying securities generally include:

Non-qualifying securities exclude:

For more information on non-qualifying securities, go to Non-qualifying security.

Outlays and expenses – These are amounts that you incurred to sell a capital property. You can deduct outlays and expenses from your proceeds of disposition when calculating your capital gain or loss. You cannot reduce your other income by claiming a deduction for these outlays and expenses. These types of expenses include fixing-up expenses, finders' fees, commissions, brokers' fees, surveyors' fees, legal fees, transfer taxes and advertising costs.

Personal-use property – This refers to items that you own primarily for the personal use or enjoyment of your family and yourself. It includes all personal and household items, such as furniture, automobiles, boats, a cottage and other similar properties.

Prescribed security – Generally, this includes the following:

A prescribed security is not considered to be a Canadian security.

Proceeds of disposition – This usually is the amount you received or will receive for your property. In most cases, it refers to the sale price of the property. This could also include compensation you received for property that has been destroyed, expropriated or stolen.

Public corporation – This is a corporation that is resident in Canada and meets one of the following conditions:

NEW!Qualifying business transfer – A type of transaction where, provided that certain conditions are met, an individual (other than a trust) disposes of shares of a Canadian–controlled private corporation to a trust that results in the business being controlled by the trust.  For more information, see Form T24EOT, Joint Election for Capital Gains Deduction in respect of a Qualifying Business Transfer.

Note
A disposition of shares of a qualified small business corporation, or family farm or fishing corporation may be transferred under a QBT.

Qualified donees – These are the following:

Note
If a university has applied for registration before February 27, 2018, and is registered by the Minister on or after that day, it is considered to have applied for registration. Any university named in Regulation Schedule VIII at the end of February 26, 2018, is also considered to have applied for registration.

Qualified farm or fishing property – This is certain property that you or your spouse or common-law partner owns. It is also certain property owned by a family-farm or fishing partnership in which you or your spouse or common-law partner holds an interest.

Qualified farm or fishing property (QFFP) includes the following:

For more information on what is considered to be qualified farm or fishing property, see the following guides:

Qualified small business corporation shares – A share of a corporation will be considered to be a qualified small business corporation share if all the following conditions are met:

Generally, when a corporation has issued shares after June 13, 1988, either to you, to a partnership of which you are a member, or to a person related to you, a special situation exists. The CRA considers that, immediately before the shares were issued, an unrelated person owned them. As a result, to meet the holding-period requirement, the shares cannot have been owned by any person other than you, a partnership of which you are a member, or a person related to you for a 24-month period that begins after the shares were issued and that ends when you sold them. However, this rule does not apply to shares issued in any of the following situations:

Real property – This is property that cannot be moved, such as land or buildings. The CRA commonly refers to such property as "real estate." This is also known as "immovable property."

Recapture – When you sell a depreciable property for less than its capital cost but for more than the undepreciated capital cost (UCC) in its class, you do not have a capital gain. However, if there is a negative UCC balance at the end of the year, this balance is a recapture of capital cost allowance. You have to include this amount in income for that year.

Small business corporation – This is a Canadian-controlled private corporation in which all or most (90% or more) of the fair market value of its assets:

Spouse – This applies only to a person to whom you are legally married.

Taxable capital gain – This is the portion of your capital gain that you have to report as income on your income tax and benefit return.

If you realize a capital gain when you donate certain properties to a qualified donee or make a donation of ecologically sensitive land, special rules will apply. For more information, see Calculating your capital gain or loss and Capital gains deferral for investment in small business.

Terminal loss – This occurs when you have an undepreciated balance in a class of depreciable property at the end of the tax year or fiscal year and you no longer own any property in that class. You can deduct the terminal loss when you calculate your income for the year. For more information on terminal losses, see Recapture of CCA and terminal losses.

Undepreciated capital cost (UCC) – Generally, UCC is equal to the total capital cost of all the properties of the class minus the total capital cost allowance you claimed in previous years. If you sell depreciable property in a year, you also have to subtract from the UCC one of the following two amounts, whichever is less:

Chapter 1 – General information

This chapter provides general information to help you report a capital gain or loss.

Generally, when you dispose of a property and end up with a gain or a loss, it may be treated in one of two ways:

When you dispose of a property, you need to determine if the transaction is a capital transaction or an income transaction. The facts surrounding the transaction determine the nature of the gain or loss.

For more information on the difference between capital and income transactions, see the following archived interpretation bulletins:

For information on how to report income transactions, see Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income.

Determining if you have a capital gain or loss

Usually, you have a capital gain or loss when you sell or are considered to have sold capital property. The following are examples of cases where you may be considered to have sold capital property:

Disposing of Canadian securities

If you dispose of Canadian securities, it's possible that you could have a gain or loss on income account (as opposed to the more likely capital gain or loss). However, in the year you dispose of Canadian securities, you can elect to report such a gain or loss as a capital gain or loss. If you make this election for a tax year, the CRA will consider every Canadian security you owned in that year and later years to be capital properties. A trader or dealer in securities (other than a mutual fund trust or a mutual fund corporation) or anyone who was a non-resident of Canada when the security was sold cannot make this election.

If a partnership owns Canadian securities, each partner is treated as owning the security. When the partnership disposes of the security, each partner can elect to treat the security as capital property. An election by one partner will not result in each partner being treated as having made the election.

To make this election, complete Form T123, Election on Disposition of Canadian Securities, and attach it to your 2024 income tax and benefit return. Once you make this election, you cannot reverse your decision.

For more information on this election as well as what constitutes a gain on income account versus a capital gain, see  archived Interpretation Bulletin IT-479R, Transactions in securities and its Special Release.

Disposing of personal-use property (including your principal residence)

Many people are not affected by the capital gains rules because the property they own is for their personal use or enjoyment, and the disposition of such property generally does not result in taxable income.

Personal-use property

When you sell personal-use property, such as cars and boats, in most cases you do not end up with a capital gain. This is because this type of property usually does not increase in value over the years. As a result, you may end up with a loss. Although you have to report any gain on the sale of personal-use property, generally you are not allowed to claim a loss. For more information, see Personal-use property.

Principal residence

If you sold, or you were considered to have sold, your home in 2024, you must report the sale on Schedule 3, Capital Gains or Losses and Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). For more information, see Chapter 6.

If you sell your home, or are considered to have sold it, for more than what it cost you, you usually do not have to pay tax on any gain if you meet all of the following conditions:

However, you must pay taxes if the property that is otherwise a principal residence meets the definition of a flipped property. For more information, see Flipped property.

For more information about principal residence, see Chapter 6.

When to report a capital gain or loss

Report the disposition of capital property in the calendar year (January to December) that you sell, or are considered to have sold, the property.

Note

Regardless of whether or not the sale of a capital property results in a capital gain or loss, you must file an income tax and benefit return to report the transaction (even if you do not have to pay tax). This rule also applies when you report the taxable part of any capital gains reserve that you deducted in 2023.

Business owner

If you own a business that has a fiscal year end other than December 31, you still report the sale of a capital property in the calendar year the sale takes place.

Example

You own a small business. The fiscal year end for your business is June 30, 2024. In August 2024, you sold a capital property that you used in your business. As a result of the sale, you had a capital gain. You must report the capital gain on your 2024 income tax and benefit return. You do this even though the sale took place after your business's fiscal year end date of June 30.

Member of a partnership

If you are a member of a partnership, it is possible that your partnership has a fiscal year end other than December 31. If the partnership sells capital property during its fiscal year, you generally report your share of any capital gain or loss in the calendar year in which that fiscal year ends.

Calculating your capital gain or loss

To calculate any capital gain or loss, you need to know the following three amounts:

To calculate your capital gain or loss, subtract the total of your property's ACB, and any outlays and expenses incurred to sell your property, from the proceeds of disposition.

Note

When calculating the capital gain or loss on the sale of capital property that was made in a foreign currency, you must convert:

  • the proceeds of disposition to Canadian dollars using the exchange rate in effect at the time of the sale
  • the ACB of the property to Canadian dollars using the exchange rate in effect at the time the property was acquired
  • the outlays and expenses to Canadian dollars using the exchange rate in effect at the time they were incurred

You have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its ACB and the outlays and expenses incurred to sell the property.

Example

On March 13, 2024, you sold 400 shares of XYZ Public Corporation of Canada for $6,500. You received the full amount of the proceeds of disposition at the time of the sale and paid a commission of $60. The ACB of the shares is $4,000. You calculate your capital gain as follows:

Proceeds of disposition

 
 
$6,500
A

Adjusted cost base

$4,000
B
 
 

Outlays and expenses on disposition

+ $60
C
 
 

Line B plus line C

= $4,060
►
− 4,060
D

Capital gain (line A minus line D)

 
 
= $2,440
E

50% of the capital gain would be taxable and you would report $1,220 as your taxable capital gain on line 12700 of your 2024 income tax and benefit return.

When you sell, or are considered to have sold, a capital property for less than its ACB plus the outlays and expenses incurred to sell the property, you have a capital loss. For more information on capital losses, see Chapter 5.

Complete Schedule 3, Capital Gains or Losses, to calculate and report all of your capital gains and losses. Do not include any capital gains or losses in your business or property income even if you used the property for your business. For more information on how to complete Schedule 3, see Chapter 2.

You may be entitled to an inclusion rate of zero on any capital gain resulting from the donation of any of the following properties to a qualified donee:

For donations of publicly traded securities, the inclusion rate of zero also applies to any capital gain realized on the exchange of shares of the capital stock of a corporation for those publicly listed securities donated. This treatment is subject to certain conditions. In cases where the exchanged securities are partnership interests, a special calculation is required to determine the capital gain to be reported. For more information on exchangeable securities, see Guide P113, Gifts and Income Tax.

Generally, if you donate property to a qualified donee that is, at the time of the donation, included in a flow-through share class of property, in addition to any capital gain that would otherwise be subject to the zero inclusion rate discussed earlier in this section, you may be deemed to have a capital gain from the disposition of another capital property. For more information including the calculation of the capital gain, see Guide P113, Gifts and Income Tax.

If you donated any of these properties, use Form T1170, Capital Gains on Gifts of Certain Capital Property, to calculate the capital gain to report on Schedule 3.

Even though, in most cases, the inclusion rate is reduced to zero for gifts of these properties, Form T1170 should still be completed to report these gifts.

However, in all cases, if you received an advantage in respect of the gift, part of the capital gain on the gifted property will be subject to the 1/2 inclusion rate. In addition, the inclusion rate of zero does not apply to capital losses you may have from such donations. For more information, see Guide P113, Gifts and Income Tax.

Note

Before 1972, capital gains were not taxed. Therefore, if you sold capital property in 2024 that you owned before 1972, you have to apply special rules when you calculate your capital gain or loss to remove any capital gains accrued before 1972. These rules are not explained in this guide. To calculate your gain or loss from selling property you owned before 1972, use Form T1105, Supplementary Schedule for Dispositions of Capital Property Acquired Before 1972.

What happens if you have a capital gain

If you have a capital gain, you may be able to do one of the following:

Claiming a reserve

When you sell a capital property, you usually receive full payment at that time. However, sometimes you receive the amount over a number of years. For example, you sell a capital property for $50,000 and receive $10,000 when you sell it and the remaining $40,000 over the next 4 years. If this happens, you may be able to claim a reserve. Usually, a reserve allows you to defer a portion of the capital gain from the disposition of property in the year based on the portion of the proceeds of disposition not yet received.

Who can claim a reserve

Most people can claim a reserve when they dispose of a capital property. Generally, you cannot claim a reserve in a tax year if you were in any of the following situations:

Calculating and reporting a reserve

If you claim a reserve, you still calculate your capital gain for the year as the proceeds of disposition minus the adjusted cost base and the outlays and expenses incurred to sell the property. From this, you deduct the amount of your reserve for the year. What you end up with is the part of the capital gain that you have to report in the year of disposition.

To deduct a reserve in any year, you have to complete Form T2017, Summary of Reserves on Dispositions of Capital Property. The information on the last page of Form T2017 explains how to calculate the maximum amount you can deduct as a reserve for a given year and the number of years for which you can claim the reserve.

Generally, the maximum period over which most reserves can be claimed is 4 years, resulting in the total capital gain included in income over 5 years.

However, a 9-year reserve period is provided for, resulting in the total capital gain included in income over 10 years:

Note

Your children include any of the following:

  • a person of whom you or your spouse or common-law partner is the legal parent
  • your grandchild or great-grandchild
  • your child's spouse or common-law partner
  • another person who is wholly dependent on you for support and who is, or was immediately before the age of 19, in your custody and under your control

If you claimed a reserve in the previous year, include that reserve in the calculation of your capital gains for the current year. For example, if you claimed a reserve in 2023, you have to include it in your capital gains calculation for 2024.  If you still have an amount that is payable to you after 2024, you may be able to calculate and claim a new reserve. However, you will have to include it in your capital gains calculation for 2025. 

If you are reporting a new capital gains reserve on a disposition related to an intergenerational business transfer, fill out the appropriate area on Form T2017, Summary of Reserves of Dispositions of Capital Property. If you had a qualifying intergenerational business transfer, you are required to file an election on or before the transferor’s filling-due date for the taxation year that includes the disposition. To file the election complete the Form T2066, Election for Immediate and Gradual Intergenerational Business Transfer.

A capital gain from a reserve brought into income qualifies for the capital gains deduction only if the original capital gain was from a property eligible for the deduction. For more information, see Capital gains that are eligible for the capital gains deduction.

Note

You do not have to claim the maximum reserve in a tax year (Year A). However, the amount you claim in a later year (Year B) cannot be more than the amount you claimed for that property in the previous year (Year A).

Reserve for a gift of non-qualifying securities

If you donate a non-qualifying security (other than an excepted gift) to a qualified donee and have a capital gain, you may be able to claim a reserve in order to postpone the inclusion of the capital gain in income.

For gifts of non-qualifying securities, the reserve you can claim cannot be greater than the eligible amount of the gift.

You can claim this reserve for any tax year ending within 60 months of the time you donated the security. However, you cannot claim a reserve if the donee disposes of the security or the security ceases to be a non-qualifying security before the end of the tax year. If this happens, you will be considered to have made a charitable donation in that year and can claim the charitable donation tax credit.

Where a qualified donee has received a gift of a non-qualifying security (other than an excepted gift), no tax receipt may be issued and therefore no charitable donation tax credit may be claimed by the donor unless, within the 60-month period, the non-qualifying security ceases to be a non-qualifying security or has been disposed of in exchange for property that is not another non qualifying security of the donor. For dispositions of non-qualifying securities by qualified donees, the disposition must be in exchange for property that is not another non-qualifying security of any party.

If the security is not disposed of within the 60-month period, you will not be required to bring the reserve back into income in the year following the end of that period.

To deduct this type of reserve, you have to complete Form T2017, Summary of Reserves on Dispositions of Capital Property.

Claiming a capital gains deduction

If you have a capital gain on the sale of certain properties, you may be eligible for the lifetime capital gains deduction (half of the lifetime capital gains exemption (LCGE)).

The deduction limit was increased on capital gains arising from dispositions of qualified property in 2024. For more information, see What is the capital gains deduction limit

Note

The limit is indexed to inflation, using the Consumer Price Index data as reported by Statistics Canada.

What is a capital gains deduction

It is a deduction that you can claim against taxable capital gains you realized from the disposition of certain capital properties. You can reduce your taxable income by claiming this deduction at line 25400 of your return.

Capital gains that are eligible for the capital gains deduction

You may be able to claim the capital gains deduction on taxable capital gains you have in 2024 from any of the following:

Note

Any capital gains from the disposition of these properties while you were a non-resident of Canada are not eligible for the capital gains deduction unless you meet the requirements explained in the next section.

Who is eligible to claim the capital gains deduction

You have to be a resident of Canada throughout 2024 to be eligible to claim the capital gains deduction.

For the purposes of this deduction, the CRA will also consider you to be a resident throughout 2024 if you meet both of the following conditions:

Residents of Canada include factual and deemed residents. For more information on factual and deemed residents, see the definitions under Before you file or Income Tax Folio S5-F1-C1, Determining an Individual's Residence Status.

What is the capital gains deduction limit

The LCGE depends on when you disposed of qualifying property in 2024. The LCGE is:

This means that the maximum capital gains deduction for qualifying properties is:

Claiming the capital gains deduction

Complete Form T657, Calculation of Capital Gains Deduction, to calculate your capital gains deduction. If you have investment income or investment expenses in any years from 1988 to 2024, you must also complete Form T936, Calculation of Cumulative Net Investment Loss (CNIL) to December 31, 2024.

Tax Tip

You can claim any amount of the capital gains deduction that you want to in a year, up to the maximum allowable amount that you calculated. In 2024, provided you disposed of QFFP or QSBCS in both periods, you can designate your capital gains deduction between Period 1 and Period 2, as long as the total does not exceed the maximum allowable deduction.

After you have completed Form T657, claim the amount, up to the maximum allowable amount, of the total capital gains deduction at line 25400.

If you are including a taxable capital gain in your income resulting from a reserve that relates to a disposition in a prior year of capital property that is QSBCS or QFFP, the amount of the capital gains deduction that you can claim is based on the year that the property was disposed of. This also applies to any taxable capital gain allocated and designated to you, by a trust which had claimed a capital gains reserve on a disposition of QSBCS or QFFP in a prior year of the trust. 

NEW!Capital gains deduction for qualifying business transfers

A qualifying business transfer is a type of transaction. If you have a capital gain from a qualifying business transfer (QBT), you may be eligible for a capital gains deduction. You can claim this deduction if certain conditions are met when shares of the capital stock of a corporation are disposed of to a trust (or to a corporation wholly owned by the trust) under a QBT. To find out if your QBT qualifies for this deduction, see “Additional information” on Form T24EOT.

Form T24EOT, Joint Election for Capital Gains Deduction in Respect of a Qualifying Business Transfer must be submitted to the CRA before you can claim the capital gains deduction for QBT. 

Use the elected amount and percentage allocated to you on Form T24EOT to complete Form T2048, Capital Gains Deduction for Qualifying Business Transfers and calculate the maximum amount of capital gains deduction for QBT that you can claim on line 25395 of your return.

Under proposed changes, you must claim any capital gains deduction for qualifying business transfers at line 25395 before you claim a capital gains deduction at line 25400 for a particular disposition.

If you have a capital loss

If you have a capital loss in 2024, you can use it to reduce any capital gains that you had in the year, to a balance of zero. If your capital losses are more than your capital gains, you may have a net capital loss for the year.

Generally, you can apply your net capital losses to taxable capital gains of the 3 preceding years and to any future years. For more information on capital losses, see Chapter 5.

Records you must keep

You will need information from your records or supporting documents to calculate your capital gains or capital losses for the year. You do not need to attach these documents with your income tax and benefit return as proof of any sale or purchase of capital property. However, it is important that you keep these documents in case the CRA asks to see them later.

If you own qualified farm or fishing property, or qualified small business corporation shares, you should also keep a record of your investment income and expenses in case you decide to claim a capital gains deduction in the year of sale.

You will need these amounts to calculate the cumulative net investment loss (CNIL) component of the capital gains deduction. To do this, complete Form T936, Calculation of Cumulative Net Investment Loss (CNIL) to December 31, 2024.

In addition, you should keep a record of the fair market value of the property on the date you:

Chapter 2 – Completing Schedule 3

This chapter provides information on how and where to report some of the more common capital transactions, and any additional information you are required to complete Schedule 3, Capital Gains or Losses. 

NEW!For 2024, Schedule 3 is a five-part form. You will need to report your capital gains or capital losses from dispositions before June 25, 2024 and after June 24, 2024.

To complete Schedule 3, refer to the instructions on page 1 to determine which parts you need to complete.

Dispositions are now reported in Part 3. Each disposition must be reported based on when you disposed of the property using lines 1 to 10 for "Period 1: Dispositions between January 1 and June 24, 2024" and lines 1 to 10 for "Period 2: Dispositions between June 25 and December 31, 2024".

In Part 4, calculate your total capital gains or losses for each period. Then, use Part 5 to determine your taxable capital gain or net capital loss for the year. If you have a taxable capital gain, report the amount on line 12700 of your return.

If you have a net capital loss, see Chapter 5 for information on how you can apply the loss.

Note

You may need to refer to Definitions for certain terms used in this chapter.

Qualified small business corporation shares (line 1)

Report dispositions of qualified small business corporation shares (QSBCS) on line 1 of Part 3. This includes dispositions of QSBCS under a qualifying business transfer (QBT).

For dispositions in Period 1, enter your total proceeds on line 10683 and your total gain or loss on line 10684.

For dispositions in Period 2, enter your total proceeds on line 10699 and your total gain or loss on line 10700.

Note

Do not report the following transactions:

Capital gains deduction

If you have a capital gain when you sell QSBCS, you may be eligible for the lifetime capital gains deduction. For more information, see Claiming a capital gains deduction.

Qualified farm or fishing property (line 2)

Generally, when you dispose of qualified farm or fishing property (QFFP), you report any capital gain or loss on line 2 of Part 3. This includes dispositions of certain QFFP under a QBT.

For dispositions in Period 1, enter your total proceeds on line 10685 and your total gain or loss on line 10686.

For dispositions in Period 2, enter your total proceeds on line 10999 and your total gain or loss on line 11000.

QFFP: Mortgage foreclosures and conditional sales repossessions (line 3)

If the capital gain or loss is from a mortgage foreclosure or conditional sales repossession, report it on line 3 of Part 3.

For dispositions in Period 1, enter your total proceeds on line 10687 and your total gain or loss on line 10688.

For dispositions in Period 2, enter your total proceeds on line 12399 and your total gain or loss on line 12400.

For more information, see Other mortgage foreclosures and conditional sales repossessions.

Note

If you dispose of farm or fishing property other than QFFP, report it on line 5 of Part 3. See Real estate, depreciable property and other properties.

Special reporting instructions apply to the disposition of property included in capital cost allowance Class 14.1 that is QFFP. For more information, see the following guides:

Capital gains deduction

If you have a capital gain when you sell QFFP, you may be eligible for the lifetime capital gains deduction. For more information, see Claiming a capital gains deduction.

Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares and other shares (line 4)

Report on line 4 of Part 3 any capital gain or loss when you sell shares or securities that are not described in any other section of Schedule 3, such as:

For dispositions of units or shares in Period 1, enter your total proceeds on line 10689 and your total gain or loss on line 10690.

For dispositions of units or shares in Period 2, enter your total proceeds on line 13199 and your total gain or loss on line 13200.

You should also use line 4 if you donate any of the following properties:

If you donated any of these properties to a qualified donee, complete Form T1170, Capital Gains on Gifts of Certain Capital Property, to calculate the capital gain to report on Schedule 3. For more information, see Guide P113, Gifts and Income Tax.

If you sold any of the shares or units listed above in 2024, you will receive a T5008 slip, Statement of Securities Transactions, or an account statement.

If you buy and sell the same type of property (for example, units of a mutual fund trust or publicly traded shares) over a period of time, you have to calculate the average cost of each property in the group at the time of each purchase to determine the adjusted cost base (ACB). For more information, see Adjusted cost base (ACB).

Notes

If you report a capital gain from the disposition of shares or other securities that you filed Form T664, Election to Report a Capital Gain on Property Owned at the End of February 22, 1994, for, see Chapter 4.

If you own shares or units of a mutual fund, you may have to report:

  • capital gains or losses you realized when you sold your shares or units of the mutual fund (report these amounts on line 4 in Part 3 of Schedule 3)
  • capital gains realized by the fund from its investment portfolio which are then flowed out to you

For more information on how to report these amounts, see Information slips – Capital gains or losses.

Tax Tip

If you exchanged mutual fund corporation shares where the only difference is the relative management fees or expenses paid by the investor in the classes of shares (switch is between different series of the same class of shares), there is no disposition. Otherwise, a disposition of the old shares or units could result in a capital gain or capital loss.

For more information, go to Tax treatment of mutual funds.

For information on the deferral of capital gains incurred on the disposition of small business investments, see Capital gains deferral for investment in small business.

Employee security options

An option is an opportunity to buy securities at a certain price. The securities under the option agreement may be shares of a corporation or units of a mutual fund trust. Generally, when you get an option to buy securities through your employer, it does not immediately affect your tax situation.

If you decide to exercise your option and buy the securities at less than fair market value (FMV), you will have a taxable benefit received through employment. The taxable benefit is generally the difference between what you paid for the securities and the FMV at the time that you exercised your option. You can reduce the amount of the taxable benefit by any amount that you paid to acquire the option rights.

Note

The taxable benefit included in your income in connection with an employee option agreement is not eligible for the capital gains deduction.

Eligible employee

Generally, you are an eligible employee if you meet all of the following conditions right after the option is granted:

Such an employee must also be a resident of Canada at the time the option is exercised to qualify for the deferral from the taxable benefit.

Eligible security

Generally, an eligible security is one of the following:

Generally, the total amount paid to acquire the eligible security, including any amount paid to acquire the rights under the option agreement, cannot be less than the FMV of the security at the time the option is granted.

If you buy shares through an employee security option granted to you by a Canadian-controlled private corporation (CCPC) that you deal at arm's length with, you do not include the taxable benefit in your income in the year that you acquire the securities. You wait until the year that you sell the securities.

For eligible securities under option agreements exercised up to and including 4 pm Eastern Time (ET) on March 4, 2010, that were not granted by a CCPC, an income deferral of the taxable benefit may have been allowable subject to an annual limit of $100,000 on the FMV of the eligible securities.

If this situation applies, the inclusion into income of the taxable benefit is deferred until the year that the first of the following events occurs:

If you exercised an option for eligible securities after 4 pm ET on March 4, 2010, that was not granted by a CCPC, the election to defer the security option benefit is no longer available.

If you qualify for a security option deduction on line 24900 of your income tax and benefit return, you can claim a portion of the amount recognized (and reported as income) as a taxable benefit from the sale of eligible securities in 2024.

NEW!The portion that you can claim at line 24900 for tax year 2024 depends on which box was used on your T4 slip to report the securities option deduction. For amounts reported in:

Please follow the instructions on your T4 slip.

NEW!Additional security option deduction

The additional security option deduction at line 24901 allows you to increase your security option deduction from line 24900 when the amount had been reported in box 91 and/or box 92 of your T4 slip so that only 1/2 (50%) of your taxable benefit is included in your income.

If you reported security option deductions on line 24900 of your return, use the Federal Worksheet to calculate the additional security option deduction.

Employee security option cash‑out rights

If you acquire securities under a security option agreement and meet certain conditions, you may be entitled to a security option deduction. In this case, your employer cannot claim a deduction for the issuance of the share.

Employee security option agreements can also be structured in such a way that you can dispose of your security option rights to your employer for a cash payment or other in-kind benefit.

For such transactions occurring after 4 pm ET on March 4, 2010, the security option deduction can only be claimed in one of the following situations:

Adjusted cost base (ACB) of eligible securities

Regardless of when the eligible security option was exercised, the ACB of the eligible security that you purchased through an employee eligible security option agreement is not the actual price that you paid for them. To calculate the ACB of your eligible securities, add the following two amounts:

Disposition of eligible securities

Report the capital gain or loss in the year that you exchange or sell the eligible securities purchased through an employee eligible security option agreement.

If the eligible securities are qualified small business corporation shares, report the transaction on line 1 of Part 3 for Period 1 or 2, whichever applies. In all other cases, report the transaction on line 4 of Part 3 for Period 1 or 2, whichever applies.

Remittance requirement

If you exercise your security options in 2024, your employer will be required to withhold and remit an amount in respect of the taxable security option benefit (less any security option deduction) in the same way as if the amount of the benefit had been paid to you as an employee bonus.

Donations under employee option agreements

If you donated shares or mutual fund units in 2024 under your employee option agreement to a qualified donee, complete Form T1170, Capital Gains on Gifts of Certain Capital Property, to calculate your capital gain.

For more information on these donations, see Guide P113, Gifts and Income Tax.

Stock splits and consolidations

Generally, a stock split takes place if a company's outstanding shares are divided into a larger number of shares without changing the total market value of the company's holdings. The total market value of each investor's holdings and their proportionate equity in the company are also not affected.

For example, in the case of a 2-for-1 stock split, the number of shares is doubled and the price per share is decreased by 50%. If, before the split, you owned 100 shares valued at $60 each, you would now own 200 shares worth $30 each. If the stock split was 5-for-1, your previous 100 shares valued at $60 would become 500 shares worth $12 each.

In each of these cases, the total market value is the same ($6,000). This also applies when a stock consolidation (reverse split) takes place, and the number of shares decreases and the price increases proportionally. For example, 600 shares worth $10 each that are consolidated 1-for-3 become 200 shares worth $30 each.

In each of the above cases, no stock dividend is considered to have been issued, no disposition or acquisition is considered to have occurred and the event is not taxable. However, the adjusted cost base (ACB) of the shares must be recalculated to reflect each split or consolidation, and when there is a disposition of the shares, the new ACB will be used to calculate the capital gain or loss.

This ACB is calculated by dividing the total cost of the shares purchased (usually including any expenses involved in acquiring them) by the total number of shares owned.

For example, if you owned 100 shares of XYZ Ltd. that cost $1,000 to purchase, the ACB of each share would be $10 ($1,000 ÷ 100). If the stocks subsequently split 2-for-1, you would now own 200 shares of XYZ Ltd. The ACB of each share must be recalculated and would now be $5 ($1,000 ÷ 200).

Real estate, depreciable property and other properties (line 5)

If you sold real estate or depreciable property in 2024, you must report your capital gain or loss on line 5 of Part 3.

For dispositions in Period 1, enter your total proceeds on line 10691 and your total gain or loss on line 10692.

For dispositions in Period 2, enter your total proceeds on line 13599 and your total gain or loss on line 13800.

For information related to dispositions of rental properties that are considered flipped property, see Flipped property.

Do not use line 5 to report the sale of personal‑use property (such as a cottage) or the sale of mortgages and other similar debt obligations on real property. Instead, report these transactions on line 8 and line 6 of Part 3, respectively.

Real estate

Real estate includes the following:

For each real property you sold in 2024 that includes land and a building, you must:

To help you understand how to report a disposition of real property that includes land and a building, see the example Disposing of a principal residence partly used for earning income.

Special rules

If you dispose of a building that results in a loss, you may have to consider your proceeds of disposition as an amount other than the actual proceeds. See Selling a building for the special rules that may apply.

Special rules may also apply if you dispose of, or are considered to have disposed of, a property that was your principal residence for 1994 and that you or your spouse or common-law partner filed Form T664 or T664 (Seniors), Election to Report a Capital Gain on Property Owned at the End of February 22, 1994, for, see Disposing of your principal residence.

The CRA may reassess an income tax and benefit return beyond the normal reassessment period if any of the following situations applies:

Under this extended reassessment period, the reassessment is limited to amounts reasonably relating to the unreported or previously unreported disposition of real estate. Where the disposition is by a corporation or partnership, the extended reassessment period applies only if the property is a capital property of the corporation or the partnership.

Depreciable property

When you dispose of depreciable property, you may have a capital gain. In addition, certain rules on capital cost allowance (CCA) may require that you add a recapture of CCA to your income or allow you to claim a terminal loss. You can find definitions of these and other terms used in this section in Definitions.

Capital gain

Usually, you will have a capital gain on depreciable property if you sell it for more than its adjusted cost base plus the outlays and expenses incurred to sell the property.

Note

A loss from the sale of depreciable property is not considered to be a capital loss. However, you may be able to claim a terminal loss.

Recapture of CCA and terminal losses

This section will provide you with a general look at the rules for the recapture of CCA and terminal losses.

Note

These rules do not apply to passenger vehicles in Class 10.1.

When you sell a depreciable property for less than its original capital cost but for more than the undepreciated capital cost (UCC) in its class, you do not have a capital gain.

Generally, the UCC of a depreciable property class is the total capital cost of all the properties of the class, minus the total CCA you claimed in previous years. If you sell depreciable property in a year, you must also subtract from the UCC whichever of the following amounts is less:

If the UCC of a class has a negative balance at the end of the year, this amount is considered to be a recapture of CCA. Include this recapture in your income for the year of sale.

If the UCC of a class has a positive balance at the end of the year and you do not have any properties left in that class, this amount is a terminal loss. Unlike a capital loss, you can deduct the full amount of the terminal loss from your income in that year.

If the balance for the UCC of a class is zero at the end of the year, then you do not have a recapture of CCA or a terminal loss.

For more information about CCA and how to report a recapture of CCA or a terminal loss, see "Capital Cost Allowance (CCA)" in any of the following guides:

Example

In 2018, you bought a piece of machinery at a cost of $10,000 for your business. It is the only property in its class at the beginning of 2024. The class has a UCC of $6,000. You sold the piece of machinery in 2024 and did not buy any other property in that class.

The following chart gives you three different selling prices (proceeds of disposition) to show how you would handle each situation (A, B and C).

Description A
($)		 B
($)		 C
($)
Calculation of capital gain:
Proceeds of disposition 4,000 8,000 12,000
Minus: Capital cost − 10,000 − 10,000 − 10,000
Capital gain = 0 = 0 = 2,000
Calculation of terminal loss (or recapture of CCA):
Capital cost 10,000 10,000 10,000
Minus : CCA 2018-2023 − 4,000 − 4,000 − 4,000
UCC at the beginning of 2024 = 6,000 = 6,000 = 6,000
Minus whichever is less:
Capital cost of $10,000 or proceeds of disposition − 4,000 − 8,000 − 10,000
Terminal loss (or recapture of CCA) = 2,000 = (2,000) = (4,000)

In situation A, you do not have a capital gain. However, you do have a terminal loss of $2,000 that you can deduct from your business income.

In situation B, you do not have a capital gain. However, you do have a recapture of CCA of $2,000 that you must include in your business income.

In situation C, you have a capital gain of $2,000. You also have a recapture of CCA of $4,000 that you must include in your business income.

Bonds, debentures, promissory notes, crypto-assets, and other similar properties (line 6)

Use line 6 of Part 3 to report capital gains or losses from the disposition of bonds, debentures, Treasury bills, promissory notes, crypto-assets, and other properties.

Other properties include bad debts, foreign currencies and options, as well as discounts, premiums, and bonuses on debt obligations.

For dispositions in Period 1, enter your total proceeds on line 10693 and your total gain or loss on line 10694.

For dispositions in Period 2, enter your total proceeds on line 15199 and your total gain or loss on line 15300. 

Capital gains arising from donations made to a qualified donee of a debt obligation or right listed on a designated stock exchange, or a prescribed debt obligation, are treated differently. If you made such a donation, complete Form T1170, Capital Gains on Gifts of Certain Capital Property. If you have a capital gain, report the amount calculated on Form T1170 on Schedule 3.

For more information on these donations, see Guide P113, Gifts and Income Tax.

If you sold any of the types of properties listed above in 2024, you will receive a T5008 slip or an account statement.

A linked note is a debt obligation, most often issued by a financial institution, the return on which is linked in some manner to the performance of one or more underlying assets or indexes over the term of the debt obligation.

For transfers of debt obligations (as described in paragraph 7000(1)(d) of the Income Tax Regulations), any gain realized at the time of the assignment or transfer of a linked note is treated as interest that accrued on the debt obligation for a period commencing before the time of the transfer and ending at the time of the transfer.

If you sold a linked note in 2024, you will receive a T5008 slip and a T5 slip, Statement of Investment Income. Box 30, Equity linked notes interest, of your T5 slip contains the amount of interest income that you have to report on line 12100 of your income tax and benefit return.

The T5008 slip contains information to help you calculate a capital gain or loss, if any. The box on the T5008 slip called "Proceeds of disposition or settlement amount" does not contain any interest income that is already reported on your T5 slip. For instructions on how to calculate your capital gain or loss, see Calculating your capital gain or loss.

If you bought and sold the same type of property over a period of time, a special rule may affect your capital gain or loss calculation. For more information, see Identical properties.

Treasury bills (T-bills) and stripped bonds

When a T-bill or stripped bond is issued at a discount and you keep it until it matures, the difference between the issue price and the amount you cash it in for is considered to be interest that accrued to you. However, if you sell the T-bill or stripped bond before it matures, you may have a capital gain or loss in addition to the interest accrued at that time.

Before you calculate your capital gain or loss, you must determine the amount of interest accumulated to the date of disposition. Subtract the interest from the proceeds of disposition and calculate the capital gain or loss in the usual way.

Example

You bought a T bill on May 1, 2024, for $49,500. The T bill's term is 91 days and its maturity value on August 1, 2024, is $50,000. However, you sold it on June 13, 2024, for $49,750. The effective yield rate was 4.05%.

You calculate interest on the T-bill as follows:

Purchase price
×
Effective yield rate
×
Number of days T-bill held ÷ Number of days in the year sold
=
Interest to be included in income
$49,500
×
4.05%
×

44 ÷ 365*

=

$241.67

You calculate your capital gain as follows:

Proceeds of disposition

$49,750.00

Minus: Interest

− 241.67

Net proceeds of disposition

$49,508.33

Minus: Adjusted cost base

− 49,500.00

Capital gain

= $8.33

*Divide by 366 for a leap year

Bad debts

If a debt (other than a debt under a mortgage or debt resulting from a conditional sales agreement) is owed to you and remains unpaid after you have exhausted all means to collect it, it becomes a bad debt.

The debt will be a capital loss if you acquired it in either of the following situations:

In most cases, the capital loss is equal to the adjusted cost base of the debt.

To claim a capital loss on a bad debt, you must file an election with your income tax and benefit return. To make this election, write and sign a letter stating that you want subsection 50(1) of the Income Tax Act to apply to the bad debt and attach the letter to your return.

If the debt is from the sale of personal-use property to a person you deal at arm's length with, the situation is different. You can claim the capital loss in the year that the debt becomes a bad debt. However, the capital loss cannot be more than the capital gain that you previously reported on the sale of the property that created the debt.

The recovery of any bad debt claimed as a capital loss will be treated as a capital gain in the year of recovery.

Note

If the bad debt involves a small business corporation, see Allowable business investment loss.

Foreign currencies

Foreign exchange gains or losses from capital transactions of foreign currencies (that is money) are considered to be capital gains or losses. However, you must only report the amount of your net gain or loss for the year that is more than $200. If the net amount is $200 or less, there is no capital gain or loss and you do not have to report it on your income tax and benefit return.

Report your net gain or loss in Canadian dollars. In general, the foreign currency amount should be converted using the Bank of Canada exchange rate in effect on the day of the transaction.

Alternatively, the CRA will also generally accept a rate for that day from another source if it is:

Other sources that the CRA would generally accept include rates from Bloomberg L.P., Thomson Reuters Corporation and OANDA Corporation. In certain circumstances described in the Income Tax Folio S5-F4-C1, Income Tax Reporting Currency, an average rate may be used to convert foreign currency amounts. Also refer to that Folio for more information about this or converting foreign amounts generally.

Crypto-assets

Crypto-assets can be described as a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions. Common examples include but are not limited to:

First, you must determine if the gains or losses from disposing crypto-currency is from conducting a business in the trading of crypto-currency or on account of capital. If the disposition is on account of capital, you may have a capital gain or capital loss. Report the disposition using the following instructions:

Report your capital gain or loss in Canadian dollars. 

Keep accurate records of your purchases and sales of crypto-assets, including records that show how you calculated the proceeds of disposition and the adjusted cost base.

Trading a crypto-asset for another type of crypto-asset

Generally, when you exchange one type of crypto-asset to acquire another crypto-asset, you must convert the value of the crypto-asset that you received into Canadian dollars. This transaction is considered a disposition of a crypto-asset and you must report it on your income tax return.

Note

You do not have to report any information under "Face value" or "Maturity date" for crypto assets. Leave these two areas blank when reporting dispositions of crypto assets.

For more information about crypto-assets, go to Information for crypto-asset users and tax professionals.

Other mortgage foreclosures and conditional sales repossessions (line 7)

You may have held a mortgage on a property but had to repossess the property later because you were not paid all or a part of the amount owed under the mortgage. In this case, you may have to report a capital gain or loss.

Report these dispositions on line 7 in Part 3.

For dispositions in Period 1, enter the total proceeds on line 10695 and total gain or loss on line 10696.

For dispositions in Period 2, enter the total proceeds on line 15499 and total gain or loss on line 15500.

The following rules also apply when property is repossessed under a conditional sales agreement:

Note

If the capital gain or loss is from the disposition of qualified farm or fishing property, report the capital gain or loss on line 3 in Part 3 of Schedule 3.

Other tax implications

Capital gains from a mortgage foreclosure or conditional sales repossession will be excluded from the capital gain reported on line 12700 for the purpose of determining your net income when calculating your claim for the goods and services tax/harmonized sales tax credit, Canada child benefit, refundable medical expenses supplement, Canada workers benefit, credits allowed under certain related provincial or territorial programs, and age amount. Also exclude this income when calculating your social benefits repayment.

Personal-use property (line 8)

Report dispositions of personal-use property (other than listed personal property) on line 8 in Part 3.

For dispositions in Period 1, enter your total gain only on line 10697. For dispositions in Period 2, enter your total gain only on line 15800. 

When you dispose of personal-use property, you may have a capital gain or loss. To calculate this gain or loss, follow these rules:

If you are disposing of your principal residence, see Chapter 6.

Note

If you acquire personal-use property for donation to a qualified donee, in circumstances where it is reasonable to conclude that the acquisition of the property relates to an arrangement, plan or scheme promoted by another person or partnership calculate your capital gain or loss using the actual ACB and proceeds of disposition as discussed in Calculating your capital gain or loss.

When you dispose of personal-use property that has an ACB or proceeds of disposition of more than $1,000, you may have a capital gain or loss. You must report any capital gain from disposing of personal-use property. However, if you have a capital loss, you usually cannot deduct that loss when you calculate your income for the year. In addition, you cannot use the loss to decrease capital gains on other personal-use property. This is because if a property depreciates through personal use, the resulting loss on its disposition is a personal expense.

Loss restrictions do not apply:

Example

You sold the following personal-use properties in March 2024.

Details regarding the sale of three personal-use properties
Property sold Proceeds of disposition Adjusted cost base Outlays and expenses
China cabinet $900 $500 $0
Boat $1,200 $850 $50
Personal computer $1,500 $3,200 $30

You calculate the capital gain or loss for each transaction as follows:

Calculation of capital gain (loss) of three different personal-use properties
Calculation of capital gain or loss China cabinet
($)		 Boat
($)		 Personal computer
($)
Proceeds of disposition (whichever is more: selling price or $1,000) 1,000 1,200 1,500
Minus:
ACB (whichever is more: cost or $1,000) plus outlays and expenses		 − 1,000 − 1,050 − 3,230
Capital gain or loss = 0 = 150 = (1,730)

China cabinet – For the proceeds of disposition and the ACB, you use $1,000, as both were less than that amount. As a result, there is no capital gain or loss for this transaction and you do not have to report it on Schedule 3.

Boat – Because the ACB of the boat is less than $1,000, it is considered to be $1,000. You report $150 as a capital gain.

Personal computer – Your capital loss is not deductible. You also cannot use the loss to decrease any other capital gains realized in the year.

Listed personal property (line 9)

Report dispositions of listed personal property on line 9 in Part 3.

For dispositions in Period 1, enter the net gain only on line 10698. For dispositions in Period 2, enter the net gain only on line 15900.

See the definition of Listed personal property (LPP).

To determine the value of many LPP items, you can have them appraised by a dealer. You can also refer to catalogues for the value of the properties.

Note

LPP gains do not include gains from selling or donating certified Canadian cultural property to a designated institution. For more information, see Selling or donating certified Canadian cultural property.

Because LPP is a type of personal-use property, the capital gain or loss on the sale of the LPP item is calculated the same way as for personal-use property. For more information about these rules, see Personal-use property.

LPP gains are more than LPP losses

If your 2024 gains from dispositions of LPP are more than your losses from such dispositions, you can use unapplied LPP losses from 2017 and later years to reduce your 2024 gains. To do so, enter your unapplied LPP losses from other years, as applicable, for Period 1 or Period 2, immediately above line 9 in Part 3 of Schedule 3 where it says "Subtract: unapplied LPP losses of other years".

For 2024, you must report your LPP net gains for Period 1 and Period 2. Apply any LPP losses from other years to reduce your Period 1 and Period 2 net gains.

LPP losses are more than LPP gains

If your 2024 losses from dispositions of LPP are more than your 2024 gains from such dispositions, the difference represents your LPP loss for the year.

Keep a record of your LPP losses that have not expired so that you can apply these losses against LPP gains in other years.

An unapplied LPP loss expires if you do not use it by the end of the seventh year after you incurred it.

A LPP net loss from one period must be used to reduce an LPP net gain from another period, before carrying it forward to a future year.

For more information on applying LPP losses, see Applying listed personal property losses.

Tax slips – Capital gains or losses

Most capital gains and capital losses reported on Schedule 3 come from amounts shown on tax slips.

Although you report most of these amounts on lines 17399 and 17599 (for transactions in Period 1) or lines 17400 and 17600 (for transactions in Period 2), there are exceptions.

For example, capital gains from qualified small business corporation shares (QSBCS) and qualified farm or fishing property (QFFP) are eligible for the lifetime capital gains deduction. Therefore, you must report the gains realized in Period 1 on line 10684 or line 10686, whichever applies. If the gains are realized in Period 2, you report them on line 10700 or line 11000.

An amount reported in box 30 of a T3 slip issued by a trust represents the capital gains from dispositions of QSBCS or QFFP by the trust that are allocated and designated to a beneficiary of the trust. See Chart 1 for information on how to report these capital gains on Schedule 3 and Form T657.

For more information on how to report the capital gains or losses and other amounts shown on certain tax slips, see Chart 1.

Chapter 3 – Special rules and other transactions

This chapter explains some of the special rules that may apply when you calculate your capital gain or loss. It also explains how to report some of the less common capital transactions.

Note

You may need to refer to Definitions for certain terms used in this chapter.

Adjusted cost base (ACB)

In some cases, special rules may apply that will allow you to consider the cost of a property to be an amount other than its actual cost. This section explains these rules.

Identical properties

Properties of a group are considered to be identical if each property in the group is the same as all the others. The most common examples of identical properties are shares of the same class of the capital stock of a corporation or units of a mutual fund trust.

You may buy and sell several identical properties at different prices over a period of time. If you do this, you have to calculate the average cost of each property in the group at the time of each purchase to determine your ACB. Dispositions of identical properties do not affect the ACB.

The average cost is calculated by dividing the total cost of identical properties purchased (this is usually the cost of the property plus any expenses involved in acquiring it) by the total number of identical properties owned.

Any amount reported in box 42, Amount resulting in cost base adjustment, of the T3 slip represents a change in the capital balance of the mutual fund trust identified on the slip. This amount is used when calculating the ACB reported on Schedule 3, Capital Gains (or Losses), for the property in the year of disposition.

If box 42 contains a negative amount, add this amount to the ACB of the units of the trust identified on the T3 slip.

If box 42 contains a positive amount, subtract this amount from the ACB of the units of the trust identified on the T3 slip.

If the ACB of the trust units is reduced below zero during the tax year, the negative amount is deemed to be a capital gain in the year from a disposition of the property at that time. The ACB of the trust units is deemed to be zero. Enter the amount of the capital gain on line 10690 for Period 1 or on line 13200 for Period 2 of your Schedule 3, as appropriate. Enter a zero on lines 10689 or 13199, depending on the period since there is no actual sale of units. For more information and an example of the calculation, see Tax treatment of mutual funds.

Note

Generally, the following properties are not considered identical properties:

  • securities acquired under an employee option agreement that are subject to the benefit deferral or are designated and disposed of within 30 days
  • certain employer shares received by an employee as part of a lump-sum payment upon withdrawal from a deferred profit sharing plan

As a result, the ACB averaging rule described above does not apply to these types of securities. Each of these securities will have its own ACB determined in the usual way.

You also use this method to calculate the average cost of identical bonds or debentures you bought after 1971. However, the average cost is based on the principal amount for each identical property, that is, the amount before any interest or premiums are added.

A bond, debenture, or similar debt obligation that a debtor issues is considered to be identical to another if both of the following conditions are met:

The principal amount of individual debt obligations being the same is not enough for such debts to be considered identical properties. They must still meet the two conditions listed above.

Example 1

Over the years, you have bought and sold common shares of STU Ltd. The following chart shows how, after each purchase, the ACB of your shares changes.

 

Calculation of ACB of identical properties
Transaction A
Cost
($)		 B
Number
of shares		 A divided by B
ACB
($)
Purchase in 2001:
$15 per share		 1,500 100 15.00
Purchase in 2006:

$20 per share

 + 3,000 + 150  
New average cost = 4,500 = 250 18.00
Sale in 2008:

200 shares at $18 per share

 − 3,600 − 200  
Average cost = 900 = 50 18.00
Purchase in 2024:
$21 per share		 + 7,350 + 350  
New average cost = 8,250 = 400 20.63
Example 2

In 2001, You bought units of a mutual fund trust. When you bought them, you chose to reinvest your annual income distributions in more units. The following chart shows how the ACB of your units changes after each purchase.

Calculation of the ACB of identical properties
Transaction A
Cost
($)		 B
Number of
units		 A divided by B
ACB
($)
Purchase in 2001:
$18.00 per unit		 15,000.00 833.3333 18.00
Reinvested distributions in 2001:
$19.55 per unit		 + 1,170.00 + 59.8466  
New average cost = 16,170.00 = 893.1799 18.10
Reinvested distributions in 2002:
$20.63 per unit		 + 1,455.30 + 70.5429  
New average cost = 17,625.30 = 963.7228 18.29
Sale in 2008:

400 units at $18.29 per unit

 − 7,316.00 − 400.0000  
Average cost = 10,309.30 = 563.7228 18.29
Reinvested distributions in 2024:
$19.89 per unit		 + 721.65 + 36.2821  
New average cost = 11,030.95 = 600.0049 18.38

Property for which you filed Form T664 or T664 (Seniors)

Special rules also apply to determine the adjusted cost base (ACB) of a property for which you filed Form T664 or T664 (Seniors), Election to Report a Capital Gain on Property Owned at the End of February 22, 1994.

In most cases, if you filed Form T664 or T664 (Seniors), you are considered to have sold your capital property at the end of February 22, 1994, and to have immediately reacquired it on February 23, 1994. The ACB of your property on February 23, 1994, depends on the type of property for which you filed an election. For example, if you filed an election for your interest in, or your shares of, a flow-through entity, in most cases the ACB of your interest or shares will not change.

If you filed an election for capital property, other than a flow-through entity, your ACB is usually the amount you designated as proceeds of disposition on Form T664 or T664 (Seniors). If the property is a cottage, rental property, or other non-qualifying real property, your ACB is your designated proceeds of disposition, minus the reduction for non-qualifying real property.

Also, if your designated proceeds of disposition were more than the fair market value of the property at the end of February 22, 1994, your ACB on February 23, 1994, may be reduced. In this case, complete Chart 2 or Chart 3 to determine your ACB on February 23, 1994.

Property you inherit or receive as a gift

If you receive property as a gift, you are generally considered to have acquired the property at its fair market value (FMV) on the date you received it. Similarly, if you win property in a lottery, you are considered to have acquired this prize at its FMV at the time you won it.

Generally, when you inherit property, the property's cost to you is equal to the deemed proceeds of disposition for the deceased person. Usually, this amount is the FMV of the property right before the person's death. However, there are exceptions to this rule. For example, property that you inherit because your spouse or common-law partner died, or farm property or a woodlot transferred on death to a child, may be treated differently. See Doing taxes for someone who died, to find out which rules apply to your situation.

Selling a building

If you sold a building of a prescribed class, special rules may make the selling price an amount other than the actual selling price. This happens when you meet both of the following conditions:

Calculate the building cost amount as follows:

Capital cost of the building ÷ Capital cost of all properties in the class that have not been previously disposed of
×
UCC of the class
=

Cost amount of the building

Note

You may have to recalculate the capital cost of a property to determine its cost amount in any of the following situations:

  • You acquired a property directly or indirectly from a person or partnership with whom you did not deal at arm's length
  • You acquired the property for some other purpose and later began to use it, or increased its use, to earn rental or business income

If you sold a building under these conditions, this may restrict the terminal loss on the building and reduce the capital gain on the land. For more information, see Guide T4036, Rental Income, or Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Selling part of a property

When you sell only part of a property, you have to divide the adjusted cost base (ACB) of the property between the part you sell and the part you keep.

Example

You own 100 hectares of vacant land of equal quality. You decide to sell 25 hectares of this land. Since 25 is one quarter of 100, you calculate one quarter of the total ACB as follows:

ACB total

$100,000

Minus: The ACB of the part you sold ($100,000 × 1/4)

− 25,000

The ACB of the part you kept

= $75,000

Therefore, the ACB for the 25 hectares you sold is $25,000.

For more information on selling part of a property, see archived Interpretation Bulletin IT-264R, Part Dispositions, and its Special Release.

Capital gains deferral for investment in small business

Individuals (other than trusts) may defer capital gains incurred on certain small business investments disposed of in 2024. This deferral applies to dispositions where you use the proceeds to acquire another small business investment. The adjusted cost base (ACB) of the new investment is reduced by the capital gain deferred from the initial investment.

You may acquire shares from a spouse, common-law partner, or parent due to circumstances such as a death or the breakdown of a marriage or common-law partnership. For the purposes of the capital gains deferral, the CRA considers you to have acquired such shares at the time and under the same circumstances that the related individual originally acquired them.

The capital gains deferral is also available to individuals involved in pooling their investments with another person or partnership. If you are part of such a qualifying pooling arrangement, call the CRA for more information.

To qualify for the capital gains deferral for investment in small business, the investment must be in an eligible small business corporation.

Eligible small business corporation shares

The capital gains deferral applies only to eligible small business corporation shares. Eligible small business corporation shares have the following characteristics:

To be able to defer the capital gain, you must have held the eligible small business corporation shares for more than 185 days from the date you acquired them.

The replacement shares have to be acquired at any time in the year in which the disposition is made or within 120 days after the end of that year.

For example, you acquire eligible small business corporation shares in October 2012 and dispose of them on June 9, 2024. You may acquire the replacement shares no later than April 30, 2025, which is within 120 days after the end of the tax year of the original disposition.

Calculating the capital gains deferral

The capital gains deferral is available for the disposition of eligible small business corporation shares made in 2024. The investment can be made by an individual in any particular corporation (or related group).

The permitted deferral of the capital gain from the disposition of eligible small business corporation shares is determined by the following formula:

Capital gains deferral = B × (D ÷ E)

where

B = the total capital gain from the original sale

E = the proceeds of disposition

D = E or the total cost of all replacement shares, whichever is less

For dispositions in 2024, report the total capital gain on lines 10689 and 10690 of Schedule 3 for Period 1, and lines 13199 and 13200 for Period 2. Also report the capital gains deferral on line 16099 of Schedule 3 for Period 1 and line 16100 for Period 2. The capital gain you must report in the year of disposition will be determined by subtracting the capital gain deferral from the total capital gain realized from the disposition.

Note

Deferred capital gains do not qualify for the capital gains deduction (line 25400). Therefore, do not report, on lines 10683 and 10684 of Schedule 3 for Period 1 and lines 10699 and 10700 for Period 2, any capital gains from qualified small business corporation shares that have been deferred if you elect to defer the capital gains that resulted from the disposition of those shares. Instead, report such disposition on lines 10689 and 10690 of Schedule 3 for Period 1 and lines 13199 and 13200 for Period 2.

ACB reduction

You must use the capital gains deferral to reduce the ACB of each of the eligible replacement shares by the amount determined by the following formula:

ACB reduction = F × (G ÷ H)

where

F = capital gains deferral

G = the cost of replacement shares

H = the total cost of all the replacement shares

Other transactions

The remaining sections in this chapter have information on less-common transactions.

Property included in capital cost allowance Class 14.1

If you disposed of property included in capital cost allowance (CCA) Class 14.1 (eligible capital property before January 1, 2017) that is qualified farm or fishing property, you may be able to claim the capital gains deduction.

For more information on how to report the disposition of this type of property and what amounts are eligible for the capital gains deduction, see the chapter called "Capital Gains" in the following guides:

Partnerships

A partnership does not pay tax on its capital gains or losses and does not report them on an income tax and benefit return. Instead, members of the partnership report their share of the partnership's capital gains or losses on their own return.

Certain partnerships may have to file a partnership information return (T5013 SUM, Summary of Partnership Income, and T5013-FIN, Partnership Financial Return), and send copies of the T5013, Statement of Partnership Income, to report amounts flowed out to their members.

If you receive a T5013 slip, see Chart 1 to find out how to report your share of the capital gain or loss from the partnership.

However, if you are a member of a partnership that does not have to file a partnership information return for 2024, you have to report your share of any capital gain or loss from each disposition of capital property shown on the partnership financial statements in the appropriate area of Schedule 3. For example, if the capital gain is from disposing of depreciable property, report the gain in the Real estate, depreciable property and other properties section.

If the partnership disposed of property included in CCA Class 14.1 that is qualified farm or fishing property, part of the business income from the transaction may be a taxable capital gain. This amount qualifies for the capital gains deduction.

For more information on the calculation and how to report this amount, see the chapter called "Capital gains" in the following guides: 

Disposition of an interest in a partnership to a non-resident or tax-exempt entity

In general, if you dispose of an interest in a partnership to tax-exempt entities, non-resident persons, or partnerships and trusts that have such members or beneficiaries, a special rule may apply.

Part of the capital gain may be taxable at 50% and another part at 100%. The portion of the capital gain from the disposition that can reasonably be attributed to increases in the value of capital property (other than depreciable property) held directly by the partnership (or held indirectly by the partnership through one or more other partnerships) is taxable at the 50% inclusion rate and the rest is taxable at 100%.

If all the partnership assets are inventory, depreciable property, or resource property, then the capital gain would be taxable at 100% unless an exception applies. If there is also capital property (other than depreciable property), then the gain must be apportioned.

For electronic filers, if you are reporting an amount at 100%, include the full amount at supporting line 50410.

For paper filers, if you are reporting an amount at 100%, include the full amount on line 19900 of Schedule 3 and indicate 100% beside lines 19900 and 12700 of the income tax and benefit return.

Capital gains reduction (flow-through entity)

A partnership is considered a flow-through entity. You cannot claim the capital gains reduction for dispositions of these shares. For more information on flow-through entities, see Chapter 4.

Capital gains deduction

You may be eligible for the capital gains deduction for any of the following partnership-related amounts:

For more information, see Claiming a capital gains deduction.

Capital gains deduction for qualifying business transfer

You may be eligible for the capital gains deduction for a partnership-related capital gain from the disposition of a share of a Canadian-controlled private corporation that is a qualifying business transfer. For more information, see "Claiming a capital gains deduction for qualifying business transfer."

Purchase of replacement property

When you sell a business property or when a property you own is expropriated, destroyed, or stolen, you may be able to elect to postpone or defer reporting the capital gain, recapture of capital cost allowance, or business income from disposing of property. Provided you meet certain conditions, you may want to do this when you use the proceeds of disposition of the property to purchase a replacement property. The election may defer the tax consequences on the above amounts until you sell the replacement property.

For more information, see Income Tax Folio S3-F3-C1, Replacement Property.

Transfers of property to your spouse or common-law partner or to a trust for your spouse or common-law partner

Before reading this section, read the definitions of spouse and common-law partner.

You generally do not have a capital gain or loss if you give capital property to your spouse or common-law partner, a spousal or common-law partner trust, a joint spousal or common-law partner trust, or an alter ego trust. For definitions of these trusts, see Guide T4013, T3 – Trust Guide.

At the time you give the gift, depending on the type of property you give, you are considered to receive an amount equal to one of the following:

Your spouse or common-law partner, or the trust for your spouse or common-law partner or for yourself, is considered to have bought the capital property for the same amount that you are considered to have sold it for.

The transferor may elect in their tax return for the tax year in which the property is transferred to their spouse or common-law partner (resulting in a disposition) not to have the provisions of subsection 73(1) apply. In such a situation, the taxpayer's proceeds of disposition will be deemed to be equal to the fair market value of the property and this will result in tax consequences.

You may have transferred or loaned property to your spouse or common-law partner, a person who has since become your spouse or common-law partner, or a trust for your spouse or common-law partner. If that person or the trust sells the property during your lifetime, you usually have to report any capital gain or loss from the sale. You usually have to do this if, at the time of the sale, you meet both of the following conditions:

If you are living apart because of a breakdown in the relationship, you may not have to report the capital gain or loss when your spouse or common-law partner sells the property. In such a case, you have to file an election with your income tax and benefit return.

For transfers of property made before May 23, 1985, you have to file the election with your income tax and benefit return for the tax year in which the separation occurred. To make this election, attach to your return a letter signed by you and your spouse or common-law partner that states you do not want subsection 74(2) of the Income Tax Act to apply.

For transfers of property made after May 22, 1985, you can file this election with your income tax and benefit return for any tax year ending after the time you separated. However, for the election to be valid, you have to file it no later than the year your spouse or common-law partner disposes of the property. To make this election, attach to your return a letter signed by you and your spouse or common-law partner that states you do not want section 74.2 of the Income Tax Act to apply.

If you sold the property to your spouse or common-law partner, or a trust for your spouse or common-law partner, and you were paid an amount equal to the fair market value (FMV) of the property, there is another way to report the sale. Generally, you can list the sale at the property's FMV and report any capital gain or loss for the year you sold the property. To do this, you have to attach to your return a letter signed by you and your spouse or common-law partner. State that you are reporting the property as being sold to your spouse or common-law partner at its FMV and that you are electing for subsection 73(1) of the Income Tax Act not to apply.

If your spouse or common-law partner or the trust later sells the property, your spouse or common-law partner or the trust has to report any capital gain or loss from the sale.

A special situation exists if all of the following apply to you:

In this case, certain rules apply when calculating your and your spouse's or common-law partner's capital gain or loss to remove any capital gains accrued before 1972. For more information, see archived Interpretation Bulletin IT-209R, Inter-vivos gifts of capital property to individuals directly or through trusts and its Special Release.

                                                                                                               Other transfers of property

If you give capital property as a gift, you are considered to have sold it at its FMV at the time you give the gift. Include any taxable capital gain or allowable capital loss on your income tax and benefit return for the year that you give the gift.

If you sell property to someone with whom you do not deal at arm's length and the selling price is less than its FMV, your selling price is considered to be the FMV. Similarly, if you buy property from someone with whom you do not deal at arm's length and the purchase price is more than the FMV, your purchase price is considered to be the FMV.

Special rules allow you to transfer property at an amount other than the property's FMV. If these rules apply to you, you may be able to postpone paying tax on any capital gains you had from the transfer. Some of the more common transfers are noted below.

Farm or fishing property

When you sell or transfer farm or fishing property, you may have a capital gain. If you transfer farm or fishing property to your child, spouse or common-law partner, or spousal or common-law partner trust, you may be able to postpone any taxable capital gain or recapture of capital cost allowance. For more information on these types of transfers and other rules that apply to farm or fishing property, see the following guides:

Elections

You can postpone reporting a capital gain when you transfer property from:

For more information on transfers to a Canadian corporation, see Information Circular IC76-19R3, Transfer of Property to a Corporation Under Section 85.

For more information on transfers to a Canadian partnership, see Archived Interpretation Bulletin IT-413R, Election by Members of a Partnership Under Subsection 97(2).

Selling or donating certified Canadian cultural property

You do not have to report a capital gain when you sell or donate certified Canadian cultural property (national treasures) to an institution or public authority designated by the Minister of Canadian Heritage. The Canadian Cultural Property Export Review Board certifies this property as cultural property and will give you a certificate for tax purposes. Cultural property can include paintings, sculptures, books, manuscripts, or other objects.

Donations of cultural property made on or after March 19, 2019, no longer require that property be of "national importance" to claim the exemption from income tax for any capital gains arising on the disposition of the property.

If you sell or donate certified cultural property to a designated institution, you may have a capital loss. The tax treatment of the loss will depend on what type of property you sold or donated. For example, the certified cultural property may be listed personal property. If this is the case, the rules for listed personal property losses will apply. For more information on how to apply capital losses, see Chapter 5.

For more information, see consolidated and archived Interpretation Bulletin IT-407R4, Dispositions of Cultural Property to Designated Canadian Institutions or Guide P113, Gifts and Income Tax.

Gifts of ecologically sensitive land

If you made a gift of ecologically sensitive land to certain qualified donees (other than to a private foundation), the inclusion rate of zero may apply to your capital gain. Use Form T1170, Capital Gains on Gifts of Certain Capital Property, to report the amounts.

Note

A gift of ecologically sensitive land cannot be made to a private foundation after March 21, 2017.

To qualify for the capital gains inclusion rate of zero, you must meet certain conditions and other special rules may apply. For more information, see Guide P113, Gifts and Income Tax.

Chapter 4 – Flow-through entities

This chapter provides information on the types of investments that are considered flow-through entities. It also provides information on how to calculate and report the capital gain or loss resulting from the disposition of shares of, or interests in, a flow-through entity. The information in this chapter also applies if, for the 1994 tax year, you filed Form T664, Election to Report a Capital Gain on Property Owned at the End of February 22, 1994, for your shares of, or interest in, a flow-through entity. In addition, if you have any remaining unused exempt capital gains balance (ECGB), this chapter provides detailed information on how it can be used.

What is a flow-through entity

You are a member of, or an investor in, a flow-through entity if you own shares or units of, or an interest in, one of the following:

Exempt capital gains balance

When you filed Form T664 for your shares of, or interest in, a flow-through entity, the elected capital gain you reported created an exempt capital gains balance (ECGB) for that entity.

Note

Generally, your ECGB expired after 2004. If you did not use all of your ECGB by the end of 2004, you can add the unused balance to the adjusted cost base of your shares of, or interest in, the flow-through entity.

Example

You filed Form T664 for your 800 units in a mutual fund trust with your 1994 income tax and benefit return. You designated the fair market value of the units at the end of February 22, 1994, as your proceeds of disposition. You claimed capital gains reductions of $500 in 1997 and $600 in 1998. At the end of 2003, your ECGB was $2,250. In 2004, you had a $935 capital gain from the sale of 300 units. This left you with an unused ECGB of $1,315 at the end of 2004. In future years, you can only add the unused ECGB to the cost of any remaining units.

1. ECGB carryforward to 2004

$2,250
1

2. Capital gains flowed out

$0
2

3. Capital gains from dispositions

+ $935

3

4. Line 2 plus line 3

= $935
4

5. Capital gains reduction

− $935
5

6. Unused ECGB at the end of 2004

= $1,315
6

The unused ECGB expired after 2004 so you can add this amount to the adjusted cost base of your shares of, or interest in, the flow-through entity.

Disposing of your shares of, or interest in, a flow-through entity

When you dispose of your shares of, or interest in, a flow-through entity, calculate the capital gain or loss in the same way as with any other disposition of capital property (proceeds of disposition minus the adjusted cost base (ACB) and outlays and expenses for the sale).

Report these dispositions on Schedule 3 as follows:

For more information, see Chapter 2 and Disposition of an interest in a partnership to a non-resident or tax-exempt entity.

If you filed Form T664 for your shares of, or interest in, a flow-through entity and the proceeds of disposition were more than the fair market value, the ACB of your investments may be affected. For more information, see Property for which you filed Form T664 or T664 (Seniors).

Certain circumstances may create a special situation for a flow-through entity described in items 1 to 6 of What is a flow-through entity. This happens if you dispose of your remaining shares of, or interest in, such an entity in the 1994 to 2024 tax years and have filed Form T664. If this is the case, in the year you dispose of the shares, use the ECGB available for the entity immediately before the disposition to increase the ACB of the shares or interest.

The ACB adjustment will either reduce your capital gain or will create or increase your capital loss from disposing of the shares or interest in the flow-through entity.

Chapter 5 – Capital losses

You have a capital loss when you sell, or are considered to have sold, a capital property for less than its adjusted cost base (ACB) plus the outlays and expenses involved in selling the property. This chapter explains how to:

It also explains the special rules that apply to listed personal property losses, superficial losses, restricted farm losses and allowable business investment losses.

For more information, see summary of the loss application rules.

Generally, if you had an allowable capital loss in a year, you have to apply it against your taxable capital gain for that year. If you still have a loss, it becomes part of the computation of your net capital loss for the year. You can use a net capital loss to reduce your taxable capital gain in any of the 3 previous years or in any future year.

Example

In 2024, you sold two different securities resulting in a taxable capital gain of $250 (50% × $450) and an allowable capital loss of $375 (50% × $750). After applying your allowable capital loss against your taxable capital gain, you are left with $150 ($375 – $225) of unapplied allowable capital losses for 2024.

The inclusion rate for 2024 is 50%. While you cannot deduct the $150 from other sources of income in 2024, it becomes part of the computation of your net capital loss for 2024. You can carry this net capital loss back to apply against taxable capital gains in any of the 3 previous years or carry it forward to any future year.

To carry back or carry forward the loss, complete Schedule 3 for Period 2 and attach it to your 2024 income tax and benefit return. This ensures your net capital loss is updated on the CRA's records and available for future use.

Note

When determining your capital losses, special rules apply if you disposed of any of the following:

Inclusion rate

The rate used to determine taxable capital gains, allowable capital losses, and allowable business investment losses is called an inclusion rate (IR). The IR has changed over the years. As a result, the amount of net capital losses of other years that you can claim against your taxable capital gain depends on the IR that was in effect when the loss and the gain were incurred. Also, the way you apply these losses may differ if you incurred them before May 23, 1985. For more information, see Applying your net capital losses of other years to 2024.

Period net capital loss incurred Inclusion rate
Before May 23, 1985 1/2 (50%)
After May 22, 1985, and before 1988 1/2 (50%)
In 1988 and 1989 2/3 (66.6667%)
From 1990 to 1999 3/4 (75%)
In 2000 IR Footnote 1  
From 2001 to 2024 1/2 (50%)

Applying your 2024 net capital loss to previous years

You can carry your 2024 net capital loss back to 2021, 2022, and 2023 and use it to reduce your taxable capital gains in any of these years. When you carry back your net capital loss, you can choose the year(s) to which you apply the loss.

Note

When you apply a net capital loss back to a previous year's taxable capital gain, it will reduce your taxable income for that previous year. However, your net income, which is used to calculate certain credits and benefits, will not change.

To apply a 2024 net capital loss to 2021, 2022 or 2023, complete "Part 5 – Net capital loss for carryback" on Form T1A, Request for Loss Carryback. This form will also help you determine the amount you have left to carry forward to future years. You can get Form T1A from the CRA. See For more information. Do not file an amended income tax and benefit return for the year to which you want to apply the loss.

Note

If you apply a 2024 net capital loss to a previous year, any capital gains deduction that you claimed in that year or a following year, may be reduced.

Applying your net capital losses of other years to 2024

You can apply your net capital losses of other years to your taxable capital gains in 2024. To do this, claim a deduction on line 25300 of your 2024 income tax and benefit return. However, the amount you claim depends on when you incurred the loss. This is because the inclusion rate used to determine taxable capital gains and allowable capital losses has changed over the years.

Note

When you apply a net capital loss from a previous year to the current year's taxable capital gain, it will reduce your taxable income for the current year. However, your net income, which is used to calculate certain credits and benefits, will not change.

You have to apply net capital losses of earlier years before you apply net capital losses of later years. For example, if you have net capital losses in 1994 and 1996 and want to apply them against your taxable capital gains in 2024, you have to follow a certain order. First, apply your 1994 net capital loss against your taxable capital gain. Then apply your 1996 net capital loss against it. Keep separate balances of unapplied net capital losses for each year. This will help you keep track of your capital losses.

You can use a net capital loss of a previous year to reduce a taxable capital gain in 2024. If the inclusion rates for the two years are different, you must adjust the amount of the net capital loss to match the inclusion rate for 2024. To do so, you can use the following charts depending on your situation:

Special rules apply to losses you incurred before May 23, 1985. This also includes losses you incurred after May 22, 1985, on any disposition of capital property made under an agreement of sale you entered into before May 23, 1985.

Usually, you can apply net capital losses of other years only against taxable capital gains. However, if you incurred the losses before May 23, 1985, you may use them to offset other income. Once you have applied your net capital losses of other years against taxable capital gains, you can use any excess to offset other income. The amount you can use is limited to the least of the following:

Your pre‑1986 capital loss balance available for 2024 is calculated as follows:

minus

If you had a net capital loss during the period from January 1, 1985, to May 22, 1985, and you had taxable capital gains later in 1985, your taxable capital gains will reduce your pre‑1986 capital loss balance.

Applying listed personal property losses

You have a listed personal property (LPP) loss if, in a particular year, your losses from dispositions of LPP are more than your gains from such dispositions. Applying this type of loss is different from applying other capital losses because of the following reasons:

If you have an LPP loss in 2024, you can use the loss to reduce gains from dispositions of LPP you had in any of the 3 years before 2024 or the 7 years after.

For information on how to apply a prior-year LPP loss to 2024 gains from dispositions of LPP, see Listed personal property.

To carry back your 2024 LPP losses to reduce your LPP net gains from 2021, 2022 and 2023, complete Form T1A, Request for Loss Carryback and include it with your 2024 income tax and benefit return (or send one to the CRA separately). Do not file an amended return for the year to which you want to apply the loss.

Example

You bought some jewellery in 1997 for $5,800. In 2024, you sold it for $6,000, for a gain of $200. You also sold a coin collection for $2,000 in 2024. You had originally bought this collection in 1999 for $1,700. You ended up with a gain of $300 when you sold the coin collection. In addition, you sold a painting in 2024 for $8,000. However, you bought the painting in 2000 for $12,000. Therefore, you had a loss of $4,000. You had no outlays and expenses for these three transactions.

Your loss from selling LPP in 2024 was more than your gain: your loss was $4,000; your total gain was $500 ($200 + $300). As a result, your net loss was $3,500 ($4,000 – $500). You cannot use the difference to offset your capital gain on the sale of a property other than on LPP in the year. In addition, you cannot offset any income you had from other sources. However, you can apply your LPP loss against your gains from dispositions of LPP in any of the 3 preceding years or the 7 years following 2024.

You should add each of the LPP gains and LPP losses in the appropriate period on line 9.

You should keep a record of your LPP loss in case you want to apply the LPP loss against LPP gains in another year.

Superficial loss

A superficial loss can occur when you dispose of capital property for a loss and both of the following conditions are met:

Some examples of affiliated persons are:

If you have a superficial loss in 2024, you cannot deduct it when you calculate your income for the year. However, if you are the person who acquires the substituted property, you can usually add the amount of the superficial loss to the adjusted cost base of the substituted property. This will either decrease your capital gain or increase your capital loss when you sell the substituted property.

In certain situations, when you dispose of capital property, the loss may not be considered a superficial loss. Some of the more common situations include the following:

Restricted farm loss

If you run your farm as a business, you may be able to deduct a farm loss in the year. However, if your main source of income is neither from farming nor from a combination of farming and some other source of income, you can only deduct a portion of your farm loss for the year.

For more information, see the following guides:

The portion of the loss that you cannot deduct becomes a restricted farm loss (RFL). You can carry an RFL incurred in tax years ending before 2006 back 3 years and forward up to 10 years.

You can now carry an RFL incurred in tax years ending after 2005, back 3 years and forward up to 20 years.

However, the amount you can deduct in any year cannot be more than your net farming income for that year. For more information on determining your main source of income and how to calculate an RFL, see Guide T4002, RC4060, or RC4408.

You may have RFLs that you incurred in your farming operation that you could not deduct when you calculated your income for previous years. You can apply part of these RFLs against any capital gain you may have when you sell your farmland. The amount of RFLs that you can apply cannot be more than the property taxes and interest on money you borrowed to buy the farmland that were included in the calculation of the RFLs for each year. Reduce your capital gain by adding these amounts to the adjusted cost base (ACB) of your farmland. Also, you have to reduce your RFL balance by these amounts.

You can only use RFLs to reduce any capital gain from selling your farmland to zero. You cannot use an RFL to create or increase a capital loss from selling farmland.

Example

You sold your farmland in 2024 for $200,000. The ACB of the property was $160,000. You have an unapplied RFL of $20,000 from 2000. This amount includes $5,000 for property taxes, $5,000 for interest and $10,000 for other expenses.

You want to reduce your capital gain from selling your farmland by applying your RFL against the capital gain. You calculate your capital gain as follows:

Proceeds of disposition

$200,000
A

ACB

$160,000
B

Plus: Property taxes

+ $5,000
C

plus: Interest

+ $5,000
D

Total

= $170,000
►
– $170,000
E

Capital gain (line A minus line E)

= $30,000
F

You can only apply the portion of your RFL that relates to property taxes and interest on the money you borrowed to buy the farmland.

Allowable business investment loss

If you had a business investment loss in 2024, you may be able to deduct a portion of the loss from income. The amount of the loss you can deduct from your income is called your allowable business investment loss (ABIL). Complete Chart 6 to determine your ABIL and, if applicable, your business investment loss reduction. Claim the deduction for the ABIL on line 21700 of your income tax and benefit return. For the 2024 tax year, enter the gross amount of your business investment loss on line 21698 for losses in Period 1 and on line 21699 for losses in Period 2.

What is a business investment loss

A business investment loss results from the actual or deemed disposition of certain capital properties. It can happen when you dispose of one of the following to a person you deal with at arm's length:

For business investment loss purposes, a small business corporation includes a corporation that was a small business corporation at any time during the 12 months before the disposition.

You may also have such a loss if you are deemed to have disposed of, for nil proceeds of disposition, a debt or share of a small business corporation under any of the following circumstances:

Note

You, or a person that you do not deal with at arm's length, will be deemed to have realized an offsetting capital gain if the corporation, or a corporation it controls, carries on business within 24 months following the end of the year in which the disposition occurred. You or that person will have to report the capital gain in the tax year the corporation starts to carry on business. This applies if you or the person owned the share in the corporation at the time the business started.

You can elect to be deemed to have disposed of the debt or share of the small business corporation at the end of the year for nil proceeds of disposition, and to have immediately reacquired the debt or share after the end of the year at a cost equal to nil. To do this, you have to file an election with your income tax and benefit return. To make this election, attach to your return a letter signed by you. State that you want subsection 50(1) of the Income Tax Act to apply.

What happens when you incur an ABIL

You can deduct your ABIL from your other sources of income for the year. If your ABIL is more than your other sources of income for the year, include the difference as part of your non-capital loss.

Although you can generally carry a non-capital loss back 3 years and forward 20 years, this does not apply to a non-capital loss resulting from an ABIL. Instead, an ABIL that has not been used within 10 tax years will become a net capital loss in the eleventh year.

To carry a non-capital loss back to 2021, 2022 or 2023, complete Form T1A, Request for Loss Carryback, and include it with your 2024 income tax and benefit return (or send one to the CRA separately). Do not file an amended return for the year to which you want to apply the loss.

The unapplied part of your non-capital loss resulting from an ABIL will become a net capital loss in the eleventh year. You can use this loss to reduce your taxable capital gains in any year after.

Note

Any ABIL that you claim for 2024 will reduce the capital gains deduction you can claim in 2024 and future years.

Summary of loss application rules
Type of loss Application rules Limit to annual deduction
Allowable business investment loss Any unapplied portion of an ABIL becomes a non-capital loss that can be carried back 3 years and forward 10 years.

The unapplied portion of the non-capital loss will become a net capital loss that can be used to reduce taxable capital gains in the eleventh year or any year after.Footnote 2     		 No limit




Limited to taxable capital gains in the year.
Net capital loss Carry back 3 years.

Carry forward indefinitely.		 Limited to taxable capital gains in the year.Footnote 3 
Farm loss Footnote 4  Carry back 3 years.

For a loss incurred after 2005, carry forward 20 years. For a loss incurred before 2006, carry forward 10 years.		 No limit
Listed personal property (LPP) loss Carry back 3 years.

Carry forward 7 years.		 Limited to net gains from LPP in the year.
Personal-use property loss No loss allowedFootnote 5  Not applicable
Restricted farm loss Carry back 3 years.

For a loss incurred after 2005, carry forward 20 years. For a loss incurred before 2006, carry forward 10 years.

You can use part of any unapplied loss to reduce your capital gains from the sale of the farmland that was used in a farming business.		 Limited to net farming income in the year.

Cannot be more than the property taxes and the interest on money you borrowed to buy the farmland that you included in the calculation of the restricted farm losses for each year. You cannot use it to create or increase a capital loss.
Superficial loss No loss allowed

You can usually add the amount of the loss to the adjusted cost base of the substituted property.		 Not applicable

Chapter 6 – Principal residence

When you sell your home or when you are considered to have sold it, you may realize a capital gain. If the property was solely your principal residence for every year you owned it, you do not have to pay tax on the gain. If at any time during the period you owned the property, it was not your principal residence, or solely your principal residence, you might not be able to benefit from the principal residence exemption on all or part of the capital gain that you have to report.

If you sold or if you were considered to have sold property in 2024 that was, at any time, your principal residence, you must report the sale on Schedule 3, Capital Gains or Losses, and Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). See Schedule 3 and Form T2091(IND) for more information on reporting requirements.

The calculation of the principal residence exemption is limited to the number of tax years ending after the acquisition of the property during which the taxpayer was resident in Canada and the property is the taxpayer's principal residence. If you sold your principal residence and were not a resident of Canada throughout the year in which you acquired it, different rules apply to this calculation. If you were not a resident of Canada for the entire time you owned the designated property, call 1-800-959-8281.

This chapter explains the meaning of a principal residence, how you designate a property as such, and what happens when you sell it. It also explains what to do in other special tax situations.

If after reading this chapter you need more information, see Income Tax Folio S1-F3-C2, Principal Residence.

What is a principal residence

Your principal residence can be any of the following types of housing units:

A property qualifies as your principal residence for any year if it meets all of the following four conditions:

The land on which your home is located can be part of your principal residence. Usually, the amount of land that you can consider as part of your principal residence is limited to half of a hectare (1.24 acres). However, if you can show that you need more land to use and enjoy your home, you can consider more than this amount as part of your principal residence. For example, this may happen if the minimum lot size imposed by a municipality at the time you bought the property is larger than half of a hectare.

Designating a principal residence

You designate your home as your principal residence when you sell or are considered to have sold all or part of it. You can designate your home as your principal residence for all the years that you own and use it as your principal residence. However, in some situations, you may choose not to designate your home as your principal residence for one or more of those years. For more information, see the section called Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust).

Can you have more than one principal residence

For 1982 and later years, you can only designate one home as your family's principal residence for each year.

For 1982 to 2000, your family included:

If you did not have a spouse and were not 18 or older, your family also included:

For 2001 and later tax years, the definition above applies except that the reference to spouse is replaced by spouse or common-law partner.

For 1993 to 2000, a spouse included a common-law partner. Therefore, common-law spouses could not designate different housing units as their principal residence for any of those years.

Note

If you made an election to have your same-sex partner considered your common-law partner for 1998, 1999, or 2000, then, for those years, your common-law partner also could not designate a different housing unit as their principal residence.

For years before 1982, more than one housing unit per family can be designated as a principal residence. Therefore, a husband and wife can designate different principal residences for these years. However, a special rule applies if members of a family designate more than one home as a principal residence. For more information, see Income Tax Folio S1-F3-C2, Principal Residence.

Disposing of your principal residence

When you sell your home or when you are considered to have sold it, usually you do not have to pay tax on any gain from the sale because of the principal residence exemption. This is the case if the property was solely your principal residence for every year you owned it.

Flipped property

Any gain from the disposition of a housing unit (including a rental property) located in Canada, or a right to acquire a housing unit located in Canada, that you owned or held for less than 365 consecutive days before its disposition is deemed to be business income and not a capital gain, unless the property was already considered inventory or the disposition occurred due to, or in anticipation of one of the following life events:

Note

A loss from a business in respect of a flipped property, if any, is deemed to be nil.

If the property is not considered flipped property, whether the income from selling the property should be treated as business income or as a capital gain depends on the specific details of the situation. If the disposition is considered:

For more information about flipped property, go to Report your real estate income or see Schedule 3.

For more information about business income, go to Business income or see Guide T4002, Self-employed Business, Professional, Commission, Farming Income.

Reporting the sale of your principal residence

If you sold or if you were considered to have sold your property in 2024 and it was your principal residence, you have to report the sale and designate the property on Schedule 3, Capital Gains or Losses. In addition, you also have to complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). Complete only page 1 of Form T2091(IND) if the property you sold was your principal residence for all the years you owned it, or for all years except one year, being the year in which you replaced your principal residence.

Why you have to report the sale

Effective 2016 and later tax years, the CRA will only allow the principal residence exemption if you report the disposition and designation of your principal residence on your income tax and benefit return. If you forget to make this designation in the year of the disposition, it is very important to ask the CRA to amend your income tax and benefit return for that year. The CRA will accept a late designation in certain circumstances, but a penalty may apply.

Example

John (a resident of Canada) put his principal residence (property 1) up for sale in January 2024. Property 1 has been John's only principal residence for all the time he has owned it. He purchased a new house (property 2) in February 2024 and took possession of it as his principal residence in March 2024.

There is a special rule (the "plus 1" rule) that allows a taxpayer to treat both properties as eligible for the principal residence exemption for a year where one residence is sold and another is purchased in the same year, even though only one of them may be designated as such for that year. For this reason, John can tick box 1 at line 17900 on page 2 of Schedule 3 to designate property 1 as his principal residence for all years including 2024 (or for all years except one year).

In addition, John will need to complete the first page of Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust), assuming he finally sold property 1 before the end of 2024. However, John should keep his decision in writing for future reference, especially for when he sells property 2.

Note

For a taxpayer to be eligible for the "plus 1" rule, the taxpayer must be resident in Canada during the year the principal residence is purchased. Therefore, if a taxpayer is non-resident throughout the tax year in which the property was purchased, the taxpayer will not be eligible for the extra year in calculating the principal residence exemption amount.

If your home was not your principal residence for every year that you owned it, you have to report the part of the capital gain on the property that relates to the years for which you did not designate the property as your principal residence. To do this, complete Form T2091(IND). You are also required to complete the applicable sections of Schedule 3 as indicated on page 2 of the schedule.

Note

Because your home is considered personal-use property, if you have a loss at the time you sell or are considered to have sold your home, you are not allowed to claim the loss.

If only a part of your home qualifies as your principal residence and you used the other part to earn or produce income, you have to split the selling price and adjusted cost base between the part you used for your principal residence and the part you used for other purposes (for example, rental or business). You can do this by using square metres or the number of rooms, as long as the split is reasonable.

Report on line 10692 for Period 1 and on line 13800 for Period 2 of Schedule 3 only the gain on the part you used to produce income. For more information, see Real estate, depreciable property, and other properties and Income Tax Folio S1-F3-C2, Principal Residence.

You are also required to complete page 2 of Schedule 3 to report the sale of your principal residence. See the Example that provides information on how to calculate the capital gain and your reporting requirements for the sale.

The CRA will consider the entire property to maintain its nature as a principal residence in spite of the fact that you have used it for income producing purposes when all of the following conditions are met:

This situation could occur, for example, where the property is used as a home day care. For more information, see Income Tax Folio S1-F3-C2, Principal Residence.

If you sold or if you were considered to have sold, more than one property in the same calendar year and each property was, at one time, your principal residence, you must show this by completing a separate Form T2091(IND) for each property to designate what years each was your principal residence and calculate the amount of capital gain, if any, to report on line 10697 for Period 1 and on line 15800 for Period 2 of Schedule 3.

Example

In 2024, Jackie disposed of three properties. Property 1 was acquired by Jackie in 2000 and he designated it as his principal residence from 2000 to 2005. He acquired Property 2 in 2006 and he designated this property as his principal residence from 2006 to 2010. Jackie acquired Property 3 in 2011 and he designated it as his principal residence from 2011 to 2024. Jackie must tick box 3 at line 17900 on page 2 of Schedule 3, complete a separate Form T2091(IND) for each property, and report the capital gains (if any) on Schedule 3.

Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust)

Use Form T2091(IND) to designate a property as a principal residence. This form will help you calculate the number of years that you can designate your home as your principal residence, as well as the part of the capital gain, if any, that you have to report. Complete Form T2091(IND) and include it with your income tax and benefit return in any of the following situations:

A legal representative (executor, administrator, or a liquidator in Quebec) of a deceased person should use Form T1255, Designation of a Property as a Principal Residence by the Legal Representative of a Deceased Individual, to designate a property as a principal residence for the deceased.

If you or your spouse or common-law partner file Form T664 or T664 (Seniors)

Use Form T2091(IND) to calculate the capital gain if you sell, or are considered to have sold, a property for which you or your spouse or common-law partner filed Form T664 or T664 (Seniors), Election to Report a Capital Gain on Property Owned at the End of February 22, 1994, and one of the following situations apply:

Use Form T2091(IND)-WS, Principal Residence Worksheet, to calculate a reduction due to the capital gains election. In this case, if the property was designated as a principal residence for the purpose of the capital gains election, you have to include those previously designated tax years as part of your principal residence designation in 2024.

Note

If, at the time of the election, the property was designated as a principal residence for any tax year other than 1994, you can choose whether or not to designate it again as your principal residence when you sell it or are considered to have sold it. If you choose to designate it again, you have to include those previously designated tax years as part of your principal residence designation in 2024.

If the property was not your principal residence for 1994 and you are not designating it in 2024 as your principal residence for any tax year, do not use Form T2091(IND) and Form T2091(IND)-WS to calculate your capital gain. Instead, calculate your capital gain, if any, in the regular way (proceeds of disposition minus the adjusted cost base and outlays and expenses). For more information on how to calculate your adjusted cost base as a result of the capital gains election, see Property for which you filed Form T664 or T664 (Seniors).

Changes in use

When there is a change in use of a property you have, you may be considered to have sold all or part of your property even though you did not actually sell it. The following are some sample situations:

Every time you change the use of a property, you are considered to have sold the property at its fair market value and have immediately reacquired the property for the same amount. You have to report the resulting capital gain or loss (in certain situations) in the year the change of use occurs.

If the property was your principal residence for any year you owned it before you changed its use, you do not have to pay tax on any gain that relates to those years. You only have to report the gain that relates to the years your home was not your principal residence. For more information on how to calculate and report the gain, if any, see Disposing of your principal residence.

If you were using the property to earn or produce income before you changed its use, see Real estate, depreciable property, and other properties for information on how to report any capital gain or loss.

Special situations

In certain situations, the rules stated above for changes in use do not apply. The following are some of the more common situations.

Changing all your principal residence to a rental or business property

When you change your principal residence to an income producing property, such as a rental or business property, you can make an election not to be considered as having started to use your principal residence as a rental or business property. This means you do not have to report any capital gain when you change its use. If you make this election, you cannot claim capital cost allowance (CCA) on the property. Any income in respect of a property, net of applicable expenses, must be reported for tax purposes.

While your election is in effect, you can designate the property as your principal residence for up to 4 years, even if you do not use your property as your principal residence. However, during those years, you have to meet all of the following conditions:

You can extend the 4-year limit indefinitely if all of the following conditions are met in addition to the above listed conditions:

If you make this election, there is no immediate effect on your income tax situation when you move back into your residence. However, if you change the use of the property again and do not make this election again, any gain you have from selling the property may be subject to tax.

To make this election, attach a letter signed by you to your income tax and benefit return of the year in which the change of use occurs. Describe the property and state that you want subsection 45(2) of the Income Tax Act to apply.

If you started to use your principal residence as a rental or business property in the year, you may want information on how you should report your business or property income. If so, see the following guides:

Changing all your rental or business property to a principal residence

When you change your rental or business property to a principal residence, you can elect to postpone reporting the disposition of your property until you actually sell it. However, you cannot make this election if you, your spouse or common-law partner, or a trust under which you or your spouse or common-law partner is a beneficiary has deducted CCA on the property for any tax year after 1984, and on or before the day you change its use.

This election only applies to a capital gain. If you claimed CCA on the property before 1985, you have to include any recapture of CCA in your business or rental income and the income in the year you changed the use of the property. For more information on the recapture of CCA, see the following guides:

If you make this election, you can designate the property as your principal residence for up to 4 years before you actually occupy it as your principal residence.

To make this election, attach to your income tax and benefit return a letter signed by you. Describe the property and state that you want subsection 45(3) of the Income Tax Act to apply. You have to make this election by the earliest of the following dates:

Changing part of your principal residence to a rental or business property or vice versa

Before March 19, 2019, you could not elect to avoid the deemed disposition that occurs on a partial change in the use of a property. However, starting on March 19, 2019, depending on your situation, you can elect under subsection 45(2) or 45(3) of the Income Tax Act that the deemed disposition that normally arises on a partial change in use of property does not apply.

Even if you do not make the election, if you started to use part of your principal residence for rental or business purposes, the CRA usually considers you to have changed the use of that part of your principal residence unless all of the following conditions apply:

Generally, if you do not meet all of the above conditions, you will have a deemed disposition of the portion of property that had the change of use, and immediately after, you will be deemed to have reacquired that portion of property. The proceeds of disposition and the cost of the reacquisition will be equal to the proportionate share of the fair market value (FMV) of the property, determined at that time. Additionally, in the year the partial change in use occurs, you can make a principal residence designation (for the portion of the property that had the change in use), by completing page 2 of Schedule 3, Capital Gains or Losses, and page 1 of Form T2091 (IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust).

Subsequently, when you actually sell the property you have to take all of the following actions:

Farm property

If you are a farmer and you sell land in 2024 used principally in a farming business that includes your principal residence, you can choose one of two methods to calculate your taxable capital gain. For more information on those methods, see the following guides:

Calculation and reporting charts

This section includes charts to help you calculate and report certain amounts on Schedule 3 and your income tax and benefit return.

Chart 1 – Reporting capital gains or losses and other amounts from tax slips

Read the instructions on the back of your slips to make sure that you claim all deductions and credits that you may be entitled to.
Slip Box Description of amounts to report Where to report on Schedule 3
T3 Box 21

Capital gains – This is your total capital gain from a trust.

For 2024, the amount shown may include amounts from one or more of the following boxes: 30, 52, 53, 54, 55, 56, and 57. If there is an amount in any of these boxes, refer to the corresponding box below.

The footnote area may show that all or part of the amount in box 21 is non‑business income for foreign tax credit purposes. Enter the footnoted amount on line 43300 of Form T2209, Federal Foreign Tax Credits, and use it to calculate your foreign tax credit.

 N/A
T3 Box 30

Capital gains eligible for deduction

For 2024, the amount shown includes amounts from boxes 54, 55, 56, 57, and amounts related to a capital gains reserve claimed by the trust in a previous tax year. If there is an amount in any of these boxes, refer to the corresponding box below.

If the amount in this box relates to a capital gain reserve, the footnote area will show that all or part of your gain is from dispositions of:

  • qualified small business corporation shares
  • qualified farm or fishing property

The footnote area will also indicate the year that the trust disposed of the property.

If the disposition occurred in the current tax year of the trust, the capital gain should be included in your capital gains being reported for the current year on Form T657. Capital gains realized by the trust and allocated to you in 2024 are included, as applicable, on either of the following:

  • line 10684 for Period 1 or line 10700 for Period 2
  • line 10686 for Period 1 or line 11000 for Period 2.

Use Chart 2024 of Form T657.

If the disposition occurred in one of the four previous tax years of the trust, these gains should not be included in Chart 2024 of Form T657. Use the applicable parts of Form T657 (determined on page 5 of Form T657) to calculate the capital gains deduction for gains relating to dispositions that occurred in the 2020 to 2023 tax years (corresponding to the trust's year of disposition indicated in the footnotes area).

Example: You received a T3 slip relating to the trust's 2024 tax year. The footnote area indicates that the capital gain shown in box 30 is related to the disposition of QFFP that occurred in 2021. Based on the questions on page 5 of Form T657, you should use Chart 2021 to calculate the capital gains deduction that you may claim in respect of these capital gains.

 If amounts are
reported in the
Footnotes on the
T3 slip, include the
amounts on
lines 10684, 10700,
10686 or 11000,
as applicable.
T3 Box 37

Insurance segregated fund net capital losses

For 2024, the amount shown includes amounts from box 58 and box 59. If there is an amount in either of these boxes, refer to the corresponding box below.

 N/A
T3 Box 42

Amount resulting in cost base adjustment

For more information, see Identical properties.

 N/A
T3 Box 52 

Capital gains from dispositions before June 25, 2024

This is your amount for Period 1. Report the difference between this amount and the amount in box 54 and 56.

 Line 17599
T3 Box 53

Capital gains from dispositions after June 24, 2024

This is your amount for Period 2. Report the difference between this amount and the amount in box 55 and 57.

 Line 17600
T3 Box 54

Capital gains eligible for deduction from dispositions of QFFP before June 25, 2024

Include this amount in the total reported on the applicable line.

 Line 10686
T3 Box 55

Capital gains eligible for deduction from dispositions of QFFP after June 24, 2024

Include this amount in the total reported on the applicable line.

 Line 11000
T3 Box 56

Capital gains eligible for deduction from dispositions of QSBCS before June 25, 2024

Include this amount in the total reported on the applicable line.

 Line 10684
T3 Box 57

Capital gains eligible for deduction from dispositions of QSBCS after June 24, 2024

Include this amount in the total reported on the applicable line.

 Line 10700
T3 Box 58

Insurance segregated fund loss before June 25, 2024

Include this amount on the applicable line.

 Line 17599  Footnote 6    Footnote
T3 Box 59

Insurance segregated fund loss after June 24, 2024

Include this amount on applicable line.

Line 17600  Footnote 6
T4PS Box 34

Capital gains or losses

If the amount shown is in brackets, it is a capital loss.

The date area at the top of your slip indicates whether the gain or loss relates to a disposition in Period 1 (before June 25, 2024) or in Period 2 (after June 24, 2024).

Line 17399 (Period 1)  Footnote 7       

Line 17400 (Period 2)  Footnote 7
T5 Box 18 Capital gains dividends – Period 2 – after June24, 2024 –This is your capital gains dividends for Period 2. Line 17400
T5 Box 34 Capital gains dividends – Period 1 – before June 25, 2024 – This is your capital gains dividends for Period 1. Line 17399
T5013 Box 151

Capital gains (losses) – For 2024, the amount shown may include amounts from Period 1 or Period 2. Enter this amount on your Schedule 3 as follows:

  • If the fiscal period of the partnership ended in 2024 but before June 25, 2024, enter this amount on line 17399
  • If the fiscal period of the partnership started after June 24, 2024, enter this amount on line 17400

If the fiscal period of the partnership started before June 25, 2024, and ended after June 24, 2024, see boxes 270 and 271

Line 17399
(Period 1)

Line 17400 (Period 2)
T5013 Box 153 Qualified small business corporation shares (QSBCS) capital gains amount eligible for the capital gains exemption – This is your amount for Period 1. Line 10684
T5013 Box 154 Qualified farm or fishing property (QFFP) capital gains amount eligible for the capital gains exemption – This is your amount for Period 1. Line 10686
T5013 Box 155 Capital gains (losses) from QFFP mortgage foreclosures and conditional sales repossessions eligible for the capital gains deduction – This is your amount for Period 1. Line 10688
T5013 Boxes 152, 159, 163, 165, 166, and 222 to 225

Capital gains reserves before June 25, 2024

These are your capital gains reserves from the partnership for Period 1. Enter any reserve on Form T2017, Summary of Reserves on Dispositions of Capital Property. The instructions provided with the slip should indicate where to enter the amounts.

 N/A
T5013 Box 270 Deemed capital gains (losses) for the portion of the fiscal period that is before June 25, 2024 – This is your amount for Period 1. Line 17399
T5013 Box 271 Deemed capital gains (losses) for the portion of the fiscal period that is after June 24, 2024 – This is your amount for Period 2. Line 17400
T5013 Box 272 Business investment losses for the portion of the fiscal period that is before June 25, 2024 – This is your business investment loss for Period 1. You can use the amount shown in this box to help you complete Chart 6. N/A
T5013 Box 273 Business investment losses for the portion of the fiscal period that is after June 24, 2024 – This is your business investment loss for Period 2. You can use the amount shown in this box to help you complete Chart 6. N/A
T5013 Boxes 275, 279 and 280 to 286

Capital gains reserves after June 24, 2024

These are your capital gains reserves from the partnership for Period 2. Enter any reserve on Form T2017. The instructions provided with the slip should indicate where to enter the amounts.

 N/A
T5013 Box 276 Qualified small business corporation shares (QSBCS) capital gains (losses) amount eligible for the capital gains exemption – This is your amount for Period 2. Line 10700
T5013 Box 277 Qualified farm or fishing property (QFFP) capital gains (losses) amount eligible for the capital gains exemption – This is your amount for Period 2. Line 11000
T5013 Box 278 Capital gains (losses) from QFFP mortgage foreclosures and conditional sales repossessions eligible for the capital gains deduction – This is your amount for Period 2. Line 12400
T5013 Box 287 Capital gains eligible to the 0% inclusion rate attributable to the period before June 25, 2024 – This is your amount for Period 1.Report this amount on Form T1170, Capital Gains on Gifts of Certain Capital Property. N/A
T5013 Box 288 Capital gains eligible to the 0% inclusion rate attributable to the period after June 24, 2024 – This is your amount for Period 2. Report this amount on Form T1170. N/A
T5013 Box 290

Portion of the capital gain subject to a 100% inclusion rate under subsection 100(1) attributable to the period before June 25, 2024 – For electronic filers, if you are reporting an amount at 100%, include the full amount at supporting line 50410.

For paper filers, if you are reporting an amount at 100%, include the full amount on line 19900 of Schedule 3 and indicate 100% beside lines 19900 and 12700 of the income tax and benefit return. 

 Line 19900
T5013 Box 291

Portion of the capital gain subject to a 100% inclusion rate under subsection 100(1) attributable to the period after June 24, 2024 – For electronic filers, if you are reporting an amount at 100%, include the full amount at supporting line 50410.

For paper filers, if you are reporting an amount at 100%, include the full amount on line 19900 of Schedule 3 and indicate 100% beside lines 19900 and 12700 of the income tax and benefit return.

 Line 19900

Chart 2 – Calculating the revised adjusted cost base (ACB) of a flow-through entity

Complete this chart to calculate the ACB of your shares of, or interest in, the flow-through entity only if the proceeds of disposition you designated on Form T664 for the property were more than its fair market value (FMV) at the end of February 22, 1994. If the flow-through entity is a trust (other than a mutual fund trust), do not complete this chart as you do not have to reduce the ACB of your interest.

Adjusted cost base (ACB) calculation for flow-through entity

Step 1 – Reduction of the ACB

Designated proceeds of disposition (column 2 of Chart A of Form T664)

Blank space to input proceeds of disposition

  Blank space to input amount

Line 1

FMV at the end of February 22, 1994 (Step 1 of Form T664)

  Blank space to input amount

Chart A

× multiply by 1.1 = Equals

− Minus

Line 2

Line 1 minus line 2 (if negative, enter "0")

= Equals

Line 3

If the amount on line 3 is "0", do not complete the rest of this chart.

Amount A above

Blank space to input Amont A

Blank space to input Amount A above

  Blank space to input amount

Line 4

ACB at the end of February 22, 1994 (column 1 of Chart A of Form T664)

− Minus

Line 5

Line 2 minus line 5

= Equals

Line 6

If you entered an amount in column 4 of Chart A of Form T664, complete lines 7 to 11 and continue at line 12.

Otherwise, enter the amount from line 6 on line 8.

Amount from column 4 of Chart A of Form T664

  Blank space to input amount

Line 7

Amount from column 3 of Chart A of Form T664

÷ Divided by

Line 8

Line 7 divided by line 8

= Equals

Line 9

Amount from line 6

× Multiply by

Line 10

Line 9 multiplied by line 10

= Equals

Transfer the result to the right

− Minus

Line 11

Line 6 minus line 11

= Equals

Transfer the result to the right

− Minus

Line 12

Reduction: Line 3 minus line 12

= Equals

Line 13

If the amount on line 13 is negative, do not complete Step 2.

Step 2 – Revised ACB

ACB at the end of February 22, 1994 from line 5

  Blank space to input amount

Line 14

Reduction from line 13

− Minus

Line 15

Revised ACB on February 23, 1994:
Line 14 minus line 15 (if negative, enter “0”)

= Equals

Line 16

Use the amount from line 16 to calculate the capital gain or loss when you sell your shares of, or interest in, the flow-through entity.

Chart 3 – Calculating the revised adjusted cost base (ACB) of capital property (other than a flow-through entity)

Complete this chart to calculate the ACB of the property only if the proceeds of disposition you designated on Form T664 or T664 (Seniors) for the property that were more than its fair market value (FMV) at the end of February 22, 1994.

Adjusted cost base (ACB) calculation for capital property

FMV of the property at the end of February 22, 1994 from Step 1 of Form T664 or T664 (Seniors)

Blank space to input proceeds of disposition

  Blank space to input amount

Line 1

Designated proceeds of disposition:
Column 2 of Chart B of Form T664, or column 2 in Step 2 of Form T664 (Seniors)

  Blank space to input amount

Line 2

Amount from line 1

  Blank space to input amount

× multiply by 1.1 = Equals

− Minus

Line 3

Line 2 minus line 3 (if negative, enter "0")

= Equals

Transfer the result to the right

− Minus

Line 4

Line 1 minus line 4 (if negative, enter "0")

= Equals

Line 5

If the property is non-qualifying real property, enter the amount from column 4 of Chart B of Form T664, or from column 4 in Step 2 of Form T664 (Seniors). Otherwise, enter "0".

− Minus

Line 6

Revised ACB on February 23, 1994:
Line 5 minus line 6 (if negative, enter "0")

= Equals

Line 7

Use the amount from line 7 to calculate the capital gain or loss when you sell the capital property.

Chart 4 – Determining your net capital losses of other years you can apply to 2024

Complete this chart to determine your net capital losses of other years that you can apply to 2024 if:

  • You do not have a balance of unapplied net capital losses from before May 23, 1985
  • Your 2023 notice of assessment or notice of reassessment shows that you have unapplied net capital losses of other years, a 2023 net capital loss, or both

Otherwise, complete Chart 5.

Line 25300 – Net capital loss of other years

Total unapplied net capital losses available from before 2023
(from your 2023 notice of assessment or reassessment)

Blank space to input proceeds of disposition

  Blank space to input amount

Line 1

Your 2023 net capital loss (from your 2023 notice of assessment or reassessment)

+ Plus

Line 2

Line 1 plus line 2

= Equals

Line 3

Your 2024 taxable capital gains from line 12700 of your 2024 return

Blank space to input Amont A

Blank space to input Amount A above

  Blank space to input amount

Line 4

Enter whichever is less: the amount from line 3 or line 4.

  Blank space to input amount

Line 5

Enter the amount of losses you want to claimFootnote 8 .
Enter this amount on line 25300 of your 2024 return.

− Minus

Line 6

Balance of unapplied net capital losses of other years not used to reduce taxable capital gains and available to carry forward to future years: line 3 minus line 6

= Equals

Line 7

Chart 5 – Applying net capital losses of other years to 2024 if you have pre-1986 capital loss balance

Complete this chart only if you have a balance of unapplied net capital losses from before May 23, 1985, or you want to keep a breakdown of your unapplied net capital losses by year. Otherwise, complete Chart 4.

Step 1 – Pre-1986 capital loss balance available for 2024

Complete this step only if you have a balance of unapplied net capital losses from before May 23, 1985.

Otherwise, enter "0" on line 3 and continue at Step 2.

Balance of unapplied net capital losses you had before May 23, 1985

Blank space to input proceeds of disposition

  Blank space to input amount

Line 1

Capital gains deductions you claimed:

Before 1988

  Blank space to input amount

In 1988 and 1989

  Blank space to input amount

× multiply by 0.75 = Equals

+ Plus

From 1990 to 1999

  Blank space to input amount

× multiply by 0.6667 = Equals

+ Plus

In 2000

  Blank space to input amount

× multiply by 1/(IR×2) = Equals

+ Plus

From 2001 to 2023

+ Plus

Total capital gains deductions after adjustment

= Equals

Transfer the result to the right

− Minus

Line 2

Pre-1986 capital loss balance available for 2024: line 1 minus line 2

Blank space to input proceeds of disposition

  Blank space to input amount

Line 3

Step 2 – Applying net capital losses of other years to 2024

Before you begin, complete columns A to C of Chart A, Adjustment calculation for carry-forward losses.

Total unapplied adjusted net capital losses of other years :
Total of column C from Chart A

Blank space to input proceeds of disposition

  Blank space to input amount

Line 4

Taxable capital gains from line 12700 of your 2024 return

Blank space to input proceeds of disposition

  Blank space to input amount

Line 5

Enter whichever is less:
amount from line 4 or line 5.

Blank space to input proceeds of disposition

  Blank space to input amount

Line 6

Enter the amount of losses you want to claimFootnote 9 .

− Minus

Transfer the result to the right

  Blank space to input amount

Line 7

If you did not complete Step 1, enter the amount from line 7 on line 25300 of your 2024 return. This is your 2024 deduction for net capital losses of other years. Do not complete lines 8 to 12, and enter the amount from line 7 on line 13 in Step 3. However, complete columns D to G of Chart A to calculate the balance of unapplied net capital losses available to carry forward to future years.

If you completed Step 1, complete lines 8 to 13 and columns D to G of Chart A to calculate the net balance of unapplied capital losses available to carry forward to future years.

Balance of unapplied adjusted net capital losses of other years not used to reduce taxable capital gains: line 4 minus line 7

Blank space to input proceeds of disposition

= Equals

Line 8

Enter whichever is less: amount from line 3, line 8, or $2,000.

Blank space to input proceeds of disposition

+ Plus

Line 9

Line 7 plus line 9

Deduction in 2024 for net capital losses of other years

Blank space to input proceeds of disposition

= Equals

Line 10

Enter the amount from line 10 on line 25300 of your 2024 return and complete Step 3 to calculate the balance of unapplied net capital losses available to carry forward to future years.

Step 3 – Calculating your balance of unapplied net capital losses of other years available to carry forward

Amount from line 7

Blank space to input proceeds of disposition

  Blank space to input amount

Line 11

Amount from line 9

Blank space to input proceeds of disposition

+ Plus

Line 12

Line 11 plus line 12

Total adjusted net capital losses of other years applied in 2024

Blank space to input proceeds of disposition

= Equals

Line 13

Chart A – Adjustment calculation for carry-forward losses

When you complete this table, replace “IR” with your inclusion rate for 2000. This rate is from line 16 in Part 4 of Schedule 3 for 2000, or from your notice of assessment or latest notice of reassessment for 2000.

Step 3 Table
Period net capital loss incurred

(A)

Amount of your unapplied net capital losses

(B)

Adjustment factor (for the inclusion rate)

(C)

Adjusted gross capital losses(column A multiplied by columns B)

(D)

Total adjusted net capital losses applied against taxable capital gains in 2024 

Footnote 10

(E)

Remaining adjustment net capital losses (column C minus column D)

Footnote 11

(F)

Adjustment factor (for carry-foward losses)

(G)

Net capital loss balance available to carry forward (column E multiplied by column F)
Before May 23, 1985   1       1  
After May 22, 1985, and before 1988   1       1  
In 1988 and 1989   0.75       1.33  
After 1989 and before 2000   0.667       1.5  
In 2000   1/(IR × 2)       2 × IR  
After 2000 and before 2024   1       1  
Total              
Example

You have unapplied net capital losses of $6,000 you incurred before May 23, 1985. You claimed a capital gains deduction of $500 in 1986 and of $300 in 2000 (your inclusion rate in 2000 was 2/3 or 66.6666%). You also have the following unapplied net capital losses: $4,000 from 1988 and $6,000 from 1990. You reported a taxable capital gain of $10,000 (realized in Period 1) on line 12700 of your 2024 income tax and benefit return. You complete Chart 5 to calculate the maximum deduction you can claim for your unapplied net capital losses of other years in 2024 and to determine the loss balance that you can carry forward to a future year.

Step 1 – Pre-1986 capital loss balance available for 2024
Complete this step only if you have a balance of unapplied net capital losses from before May 23, 1985. Otherwise, enter "0" on line 3 and go to Step 2.

Balance of unapplied net capital losses you had before May 23, 1985

Blank space to input proceeds of disposition

6,000

Line 1

Capital gains deductions you claimed:

Before 1988

500

In 1988 and 1989

  Blank space to input amount

× multiply by 0.75 = Equals

+ Plus

From 1990 to 1999

  Blank space to input amount

× multiply by 0.6667 = Equals

+ Plus

In 2000

300

× multiply by 1/(IR×2) = Equals

+ Plus 225

From 2001 to 2023

+ Plus

Total capital gains deductions after adjustment

= Equals 725

Transfer the result to the right

− Minus 725

Line 2

Pre-1986 capital loss balance available for 2024: line 1 minus line 2

Blank space to input proceeds of disposition

5,275

Line 3

Step 2 – Applying net capital losses of other years to 2024
Before you begin, complete columns A to C of Chart A, Adjustment calculation for carry-forward losses on the next page.

Total unapplied adjusted net capital losses of other years :
Total of column C from Chart A

Blank space to input proceeds of disposition

13,000

Line 4

Taxable capital gains from line 12700 of your 2024 return

Blank space to input proceeds of disposition

10,000

Line 5

Enter whichever is less:
amount from line 4 or line 5.

Blank space to input proceeds of disposition

10,000

Line 6

Enter the amount of losses you want to claimFootnote 9 .

− Minus 10,000

Transfer the result to the right

10,000

Line 7

If you did not complete Step 1, enter the amount from line 7 on line 25300 of your 2024 return. This is your 2024 deduction for net capital losses of other years. Do not complete lines 8 to 12, and enter the amount from line 7 on line 13 in Step 3. However, complete columns D to G of Chart A to calculate the balance of unapplied net capital losses available to carry forward to future years.

If you completed Step 1, complete lines 8 to 13 and columns D to G of Chart A to calculate the net balance of unapplied capital losses available to carry forward to future years.

Balance of unapplied adjusted net capital losses of other years not used to reduce taxable capital gains: line 4 minus line 7

Blank space to input proceeds of disposition

= Equals 3,000

Line 8

Enter whichever is less: amount from line 3, line 8, or $2,000.

Blank space to input proceeds of disposition

+ Plus 2,000

Line 9

Line 7 plus line 9

Deduction in 2024 for net capital losses of other years

Blank space to input proceeds of disposition

= Equals 12,000

Line 10

Enter the amount from line 10 on line 25300 of your 2024 return and complete Step 3 to calculate the balance of unapplied net capital losses available to carry forward to future years.

Step 3 – Calculating your balance of unapplied net capital losses of other years available to carry forward

Amount from line 7

Blank space to input proceeds of disposition

10,000  Blank space to input amount

Line 11

Amount from line 9

Blank space to input proceeds of disposition

+ Plus 2,000

Line 12

Line 11 plus line 12

Total adjusted net capital losses of other years applied in 2024

Blank space to input proceeds of disposition

= Equals 12,000

Line 13

Chart A – Adjustment calculation for carry-forward losses

When you complete this table, replace “IR” with your inclusion rate for 2000. This rate is from line 16 in Part 4 of Schedule 3 for 2000, or from your notice of assessment or latest notice of reassessment for 2000.

Step 3 Table - Example
Period net capital loss incurred

(A)

Amount of your unapplied net capital losses

(B)

Adjustment factor (for the inclusion rate)

(C)

Adjusted gross capital losses(column A multiplied by columns B)

(D)

Total adjusted net capital losses applied against taxable capital gains in 2024 

Footnote 10

(E)

Remaining adjustment net capital losses (column C minus column D)

Footnote 11

(F)

Adjustment factor (for carry-foward losses)

(G)

Net capital loss balance available to carry forward (column E multiplied by column F)
Before May 23, 1985 6,000 1 6,000 6,000 0 1 0
After May 22, 1985, and before 1988 0 1 0 0 0 1 0
In 1988 and 1989 4,000 0.75 3,000 3,000 0 1.33 0
After 1989 and before 2000 5,000 0.667 4,000 3,000 1,000 1.5 1,500
In 2000 0 1/(IR × 2) 0 0 0 2 × IR 0
After 2000 and before 2024 0 1 0 0 0 1 0
Total     13,000 12,000 1,000    

You have to apply your older losses first. Because the total amount of adjusted losses that you used in 2024 was $12,000 (from line 13 above), you apply $6,000 of your adjusted net capital losses incurred before May 23, 1985, and $3,000 of your adjusted net capital loss incurred in 1988. You then uses $3,000 ($12,000 – $6,000 – $3,000) of your adjusted net capital loss incurred in 1990. Yopu have unapplied net capital losses of $1,500 that you can carry forward to a future year.

Chart 6 – Claiming an allowable business investment loss

Use this chart to determine your allowable business investment loss (ABIL) and, if applicable, your business investment loss reduction. Claim the deduction for the ABIL on line 21700 of your income tax and benefit return. Enter the gross business investment loss on line 21698 of your return for Period 1 and line 21699 for Period 2.

Keep this document for your records. Do not attach it to your return.

Line 21700 – Allowable business investment loss

Step 1 – Calculate your business investment loss for 2024

Business investment loss in Period 1 (enter this amount on line 21698 of your return)

Blank space to input proceeds of disposition

  Blank space to input amount

Line A

Business investment loss in Period 2 (enter this amount on line 21699 of your return)

+ Plus

Line B

Line A plus line B

Business investment loss for the year

= Equals

Line C

Step 2 – Reduce your business investment loss, if applicable

If you claimed a capital gains deduction in a previous year, you have to reduce your business investment loss. To determine the reduction, complete the calculation below. If you did not claim a capital gains deduction in prior years, enter the amount from line C on line G and continue at line H.

Enter your business investment loss reduction for period 1 from line 15

− Minus

Line D

Line C minus line D

= Equals

Line E

Enter your business investment loss reduction for period 2 from line 17

− Minus

Line F

Line E minus line F

= Equals

Line G

Step 3 – Calculate your allowable business investment loss

Inclusion rate for 2024

× Multiply by 50 %

Line H

Line G multiplied by the percentage on line H
Enter this amount on line 21700 of your return.

= Equals

Line I

Step 4 – Attach documentation

Attach a note to your income tax and benefit return that states:

  • the name of the small business corporation
  • the number and class of shares, or the type of debt you disposed of
  • the insolvency, bankruptcy, or wind-up date
  • the date you bought the shares, or the date you acquired the debt
  • the amount of the proceeds of disposition
  • the adjusted cost base of the shares or debt
  • the outlays and expenses on the disposition
  • the amount of the loss

Calculating your business investment loss reduction

The reduction calculated below is considered to be a capital loss for the year.

Capital gains deductions claimed from 1985 to 2023

For 1985 to 1987:
Total amounts from line 254 of your income tax and benefit returns for these years

  Blank space to input amount

× Multiply by 2 = Equals

  Blank space to input amount

Line 1

For 1988 and 1989 (other than for eligible capital property gains): Total amounts from line 254 of your returns minus any amounts reported on lines 543 and 544 of Schedule 3 (if negative, enter "0")

  Blank space to input amount

(a) × Multiply by 1.5 = Equals

+ Plus

Line 2

For 1988 and 1989 (for eligible capital property gains): Total amounts from line 254 of your returns minus amount (a) above (cannot be more than the amounts from lines 543 and 544 of Schedule 3)

  Blank space to input amount

× Multiply by 1.3333 = Equals

+ Plus

Line 3

For 1990 to 1999:
Total amounts from line 254 of your returns for these years

  Blank space to input amount

× Multiply by 1.3333 = Equals

+ Plus

Line 4

For 2000:
Amount from line 254 of your return

  Blank space to input amount

× Multiply by 1/IRFootnote 12  = Equals

+ Plus

Line 5

For 2001 to 2023:
Total amounts from line 254 of your returns for 2001 to 2018 and line 25400 of your returns for 2019 to 2023

  Blank space to input amount

× Multiply by 2 = Equals

+ Plus

Line 6

Add lines 1 to 6.

Total of all capital gains deductions claimed from 1985 to 2023

= Equals

Line 7

Other business investment loss reductions for 1986 to 2023

Total amounts from line 535 of Schedule 3 of your 1986 to 1994 returns.

Blank space to input proceeds of disposition

  Blank space to input amount

Line 8

Total amounts from line 034 of Schedule 3 of your 1994 to 1996 returns.

+ Plus

Line 9

Total amounts from line 178 of Schedule 3 of your 1997 to 1999 returns.

+ Plus

Line 10

Total amounts from lines 293, 178 and 5668 of Schedule 3 of your 2000 income tax and benefit return.

+ Plus

Line 11

Total amounts from line 178 of Schedule 3 of your 2001 to 2018 returns and line 17800 of Schedule 3 of your 2019 to 2023 returns.

+ Plus

Line 12

Add lines 8 to 12

= Equals

Transfer the result to the right

− Minus

Line 13

Line 7 minus line 13

Total of all other business investment loss reductions for 1986 to 2023

= Equals

Line 14

Business investment loss reduction

Enter whichever is less: amount from line 14 or line A in Step 1.
Enter this amount on line D in Step 2 and on line 17799 of Schedule 3.

Business investment loss reduction for period 1

− Minus

Line 15

Line 14 minus line 15

= Equals

Line 16

Enter whichever is less: amount from line 16 or line B in Step 1.
Enter this amount on line F in Step 2 and on line 17800 of Schedule 3.

Business investment loss reduction for period 2

  Blank space to input amount

Line 17

Example

Disposing of a principal residence partly used for earning income

This example illustrates some of the topics that are discussed in this guide. This example will show you how to:

In November 1988, you bought a duplex for $125,000. According to a municipal assessment completed just before the purchase, the entire property was valued at $100,000, the land was valued at $25,000, and the building at $75,000. From the date you purchased the duplex, you lived in the lower half and rented out the upper half. Based on the property's total number of square metres, you determined that the portion you used to earn rental income was 40%.

On July 28, 2024, you sold the property for $175,000. You incurred expenses of $10,500 to make the sale. According to a recent municipal assessment, the entire property was now valued at $150,000. The land was worth $30,000 and the building was worth $120,000.

Any gain on the part of the property that you used as your principal residence will not be taxed because you used that part of the property as your principal residence for all the years you owned it. You have to designate the part of the property that was your principal residence by ticking box 1 at line 17900 of Part 1 of Schedule 3, Capital Gains or Losses, and by completing Section 1 of Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust).

You have to calculate the capital gain on the part of the property that you rented out. You also have to determine if you have a recapture of CCA or a terminal loss on the rented portion of the building. For this reason, you will break down the rental portion of the purchase price, the selling price, and the related expenses between the land and the building. Keeping in mind that 40% of the property was used for rental purposes, you complete the following calculations:

1. You divide the rental portion of the purchase price between the land and the building, based on the municipal assessment at the time of the purchase:

  1. Building: (40%)  x ($75,000 ÷ $100,000) x $125,000 = $37,500
  2. Land: (40%) x ($25,000 ÷ $100,000) x $125,000 = $12,500

Because the breakdown between the land and the building was not shown on your purchase agreement, you use the municipal assessment in effect at the time of the purchase. You would have completed this calculation at the time you purchased the property to determine the amount of CCA you could claim on the part of the building you rented out.

2. You divide the rental portion of the selling price between the land and the building, based on the municipal assessment at the time of the sale:

  1. Building: (40%) x ($120,000 ÷ $150,000) x $175,000 = $56,000
  2. Land: (40%) x ($30,000 ÷ $150,000) x $175,000 = $14,000

The breakdown between the land and the building was not shown on your sale agreement. Because no renovations were made to the building since the last municipal assessment, you can use the municipal assessment that was in effect at the time of the sale.

3. You divide the rental portion of the outlays and expenses relating to the sale between the land and the building, based on the municipal assessment at the time of the sale:

  1. Building: (40%) x ($120,000 ÷ $150,000) x $10,500 = $3,360
  2. Land: (40%) x ($30,000 ÷ $150,000) x $10,500 = $840

You can now determine if you have a recapture of CCA or a terminal loss on the rented part of the building. The undepreciated capital cost (UCC) of the portion of the building used for rental purposes at the beginning of 2024 was $34,728. From the UCC, you subtract whichever is less:

  • the selling price of the rented part of the building, minus the related outlays and expenses: $52,640 ($56,000 – $3,360)
  • the purchase price of the rented part of the building: $37,500

UCC at the beginning of 2024

Minus: Purchase price

Recapture of CCA

   $  34,728

–     37,500
= $ (2,772)

To help you complete the above calculations, you use the CCA schedule on the back of Form T776, Statement of Real Estate Rentals.

You can now calculate your capital gain. To do this, you complete "Real estate, depreciable property, and other properties" in Part 3 of Schedule 3, Capital Gains or Losses.

Reference documents

To get CRA forms and publications, go to Forms and publications.

Forms

T1A, Request for Loss Carryback

T123, Election on Disposition of Canadian Securities

T657, Calculation of Capital Gains Deduction for 2022

T936, Calculation of Cumulative Net Investment Loss (CNIL) to December 31, 2024

T1105, Supplementary Schedule for Dispositions of Capital Property Acquired Before 1972

T1170, Capital Gains on Gifts of Certain Capital Property

T1212, Statement of Deferred Security Options Benefits

T1255, Designation of a Property as a Principal Residence by the Legal Representative of a Deceased Individual

T2017, Summary of Reserves on Dispositions of Capital Property

T2048, Capital Gains Deduction for Qualifying Business Transfers

T2066, Election for Immediate and Gradual Intergenerational Business Transfer

T24EOT, Joint Election for Capital Gains Deduction in Respect of a Qualified Business Transfer

T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust)

T2091(IND)-WS, Principal Residence Worksheet

Income Tax Folios

S1-F3-C2, Principal Residence

S1-F5-C1, Related Persons and Dealing at Arm's Length

S3-F3-C1, Replacement Property

S3-F4-C1, General Discussion of Capital Cost Allowance

S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime

S4-F8-C1, Business Investment Losses

S5-F1-C1, Determining an Individual's Residence Status

Information Circulars

IC 76-19R3, Transfer of Property to a Corporation Under Section 85

IC 78-10R5, Books and Records Retention/Destruction

Archived Interpretation Bulletins

IT-95R, Foreign Exchange Gains and Losses

IT-96R6, Options Granted by Corporations to Acquire Shares, Bonds, or Debentures and by Trusts to Acquire Trust Units

IT-113R4, Benefits to Employees – Stock Options

IT-125R4, Dispositions of Resource Properties

IT-159R3, Capital Debts Established to be Bad Debts

IT-209R, Inter-Vivos Gifts of Capital Property to Individuals Directly or Through Trusts, and its Special Release

IT-218R Profit, Capital Gains and Losses From the Sale of Real Estate, Including Farmland and Inherited Land and Conversion of Real Estate From Capital Property to Inventory and Vice Versa

IT-232R3, Losses – Their Deductibility in the Loss Year or in Other Years

IT-264R, Part Dispositions, and its Special Release

IT-391R, Status of Corporations

IT-407R4, Dispositions of Cultural Property to Designated Canadian Institutions

IT-413R, Election by Members of a Partnership Under Subsection 97(2)

IT-456R, Capital Property – Some Adjustments to Cost Base, and its Special Release

IT-458R2, Canadian-Controlled Private Corporation

IT-459, Adventure or Concern in the Nature of Trade

IT-479R,Transactions in Securities, and its Special Release

IT-511R, Interspousal and Certain Other Transfers and Loans of Property

Digital services for individuals

The CRA's digital services are fast, easy, and secure!

My Account

My Account lets you view and manage your personal income tax and benefit information online. Use My Account throughout the year to:

To sign in to or register for the CRA's digital services, go to:

Receive your CRA mail online

Set your correspondence preference to "Electronic mail" to receive email notifications when CRA mail, like your notice of assessment, is available in your account.

For more information, go to Email notifications from the CRA – Individuals.

For more information

If you need help

If you need more information after reading this guide, go to Line 12700 – Taxable capital gains or call 1-800-959-8281.

Forms and publications

The CRA encourages you to file your return electronically. If you need a paper version of the CRA's forms and publications, go to Forms and publications, or call 1-800-959-8281.

Tax Information Phone Service (TIPS)

For tax information by telephone, use the CRA's automated service, TIPS, by calling 1-800-267-6999.

Teletypewriter (TTY) users

If you use a TTY for a hearing or speech impairment, call 1-800-665-0354.

If you use the Canada VRS application, call 1‑800‑561‑6393.

If you use an operator-assisted relay service, call the CRA's regular telephone numbers instead of the TTY number or Canada VRS numbers.

Formal disputes (objections and appeals)

You have the right to file an objection (or an appeal for the Canada Pension Plan or Employment Insurance) if you disagree with an assessment, determination, or decision.

For more information about objections and related deadlines, go to File an objection.

CRA service feedback program

Service complaints

You can expect to be treated fairly under clear and established rules, and get a high level of service each time you deal with the CRA. For more information about the Taxpayer Bill of Rights, see the Taxpayer Bill of Rights.

You may provide compliments or suggestions, and if you are not satisfied with the service you received:

  1. Try to resolve the matter with the employee you have been dealing with or call the telephone number provided in the correspondence you received from the CRA. If you do not have contact information, go to Contact the Canada Revenue Agency
  2. If you have not been able to resolve your service-related issue, you can ask to discuss the matter with the employee’s supervisor
  3. If the problem is still not resolved, you can file a service-related complaint by filling out Form RC193, Service Feedback. For more information and to learn how to file a complaint, go to Submit service feedback

If you are not satisfied with how the CRA has handled your service-related complaint, you can submit a complaint to the Office of the Taxpayers' Ombudsperson.

Reprisal complaints

If you have received a response regarding a previously submitted service complaint or a formal review of a CRA decision and feel you were not treated impartially by a CRA employee, you can submit a reprisal complaint by filling out Form RC459, Reprisal Complaint.

For more information, go to Reprisal Complaints.

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