Gains in Capital in 2025: How Does It Really Work?

Wondering about capital gains, especially how they will be taxed in 2025?
You’re not alone! Recent announcements have raised plenty of questions, particularly for homeowners
thinking of selling a property—whether it’s a house, a cottage, or an income property.

In this blog post, we provide quick answers to your most pressing questions, followed by a detailed analysis.
We’ll cover capital gains exemption, how to calculate your
taxable capital gain, and the tax implications for a principal residence
or a second property.

🚀 Quick Overview

• Capital gains represent the profit you make when you sell an asset (house, cottage, land, etc.) for more than its purchase price.
• In 2025, you might include either 50% or 66.7% of your
  capital gain as taxable income, depending on the final regulations.
• Your principal residence is generally exempt from capital gains tax if certain criteria are met (you occupy it most of the year, etc.).
• For more info, check the2025 Capital Gains Tax Update and  Quebec government Q&A.

1. What Are Capital Gains?

Capital gains refer to the positive difference between the purchase price (or adjusted cost base)
and the selling price of an asset. For instance:

• Purchase price: $300,000
• Selling price: $400,000
• Capital gain: $100,000 (before expenses and adjustments)

Not all gains are taxed the same way. For example, if you sell your
principal residence, you usually benefit from a capital gains exemption,
meaning you won’t be taxed on the profit (provided you declare the sale properly and meet the criteria).

2. How Do Capital Gains Work in 2025?

In 2025, there’s some uncertainty about the percentage of capital gains to be taxed.
Will it remain at 50%, or will it increase to 66.7%?
The government is considering adjusting the inclusion rate, which could have a significant tax impact.

Generally, if you sell an asset that is not your principal residence, you will:

1. Calculate your gross capital gain (selling price – purchase price – expenses).
2. Determine the taxable portion (50% or 66.7%, depending on final regulations).
3. Report this amount as taxable income in your return.

3. Principal Residence Exemption

In Canada, the principal residence usually qualifies for a full exemption of capital gains,
provided you meet certain requirements, such as living in it for most of the year. This is a major perk for homeowners:

• You must still report the sale on your tax return, even if you won’t be taxed on the gain.
• You can designate only one principal residence per year (for you or your immediate family).

If you want to know whether it’s the right time to sell, read our article on the best time to sell.
Planning can help you take advantage of this exemption in a favorable market.

4. Calculating Capital Gains on a Cottage or Second Property

Wondering how to calculate capital gains on a cottage? The principles are similar to any other property,
except that a cottage is not automatically considered a principal residence (unless you specifically designate it as such).

A quick breakdown:

• Gross gain = Selling price – (Purchase price + notary fees + realtor commissions + eligible improvements)
• Taxable gain = Gross gain x (50% or 66.7%)
• Add this amount to your tax return as taxable income.

5. Possible Tax Rates: 50% or 66.7%?

According to recent discussions, starting in 2025, the Canadian government may raise the taxable portion
of capital gains. Currently, if you make a profit of $100,000, you include $50,000 in your taxable income.
At 66.7%, you would include $66,700.

This difference can significantly affect the taxable capital gain.
Make sure to keep an eye on the
2025 reform updates
so you can plan accordingly.

6. How to Calculate Your Taxable Capital Gain

The capital gain calculation generally follows these steps:

1. Calculate your gross gain:
   Gross gain = Selling price – (Acquisition cost + Transaction fees)
   Include any eligible improvements you’ve made, as they increase your cost base.
2. Apply the taxable rate:
   Taxable gain = Gross gain x (50% or 66.7%)
3. Report the result:
   Enter this amount on the appropriate line of your tax return.
4. Apply any exemptions (if eligible):
   For example, the principal residence exemption.

7. Comparison Table – Possible Rule Changes

Here’s a simplified (hypothetical) table illustrating potential changes:

• 📈 Increasing fiscal revenue: The government may seek more funds for social or economic programs.
• 🏠 Limiting real estate speculation: Making quick buy-and-sell operations less profitable could stabilize the market.
• ⚖️ Tax fairness: Some argue the current system overly benefits real estate or stock investments.

Practically, if you plan to sell a property with a significant gain, the switch to a 66.7% inclusion rate
could increase your tax bill. Consider your options: postponing the sale, selling in 2024, or consulting
a professional to minimize the impact.

9. Practical Tips for Lowering or Optimizing Your Capital Gain

• Keep records of all expenses 🧾: renovation costs, notary fees, agent commissions, etc.
  These raise your cost base and reduce your taxable gain.
• Designate your principal residence wisely 🏡:
  if you own multiple properties, decide which one you’ll claim as the principal residence for maximum exemption.
• Consider installment sales ⏳: spreading the gain over multiple years to avoid a large tax hit in a single year.
• Stay informed 📰: rules and rates may still change before 2025. Keep an eye on updates.
• Consult a specialist 💼: a tax accountant or financial planner for a precise, personalized
  capital gains calculation.

10. Helpful Resources and Tools

• 2025 Capital Gains Tax Updates
• Quebec Government Capital Gains Q&A
• Fidelity Tax Calculator (to test different scenarios)
• Tips for selling your property
• The best time to sell your home

11. Conclusion

Capital gains are a key element of the Canadian tax system, especially for those investing in real estate.
In 2025, the potential requirement to include 66.7% of your profits as taxable income (instead of 50%)
could significantly change your tax outcome.

Fortunately, the principal residence is generally exempt, and various strategies exist to reduce your
taxable capital gain—installment sales, precise timing of the transaction, and thorough record-keeping, among others.

Staying informed is vital. Watch for government announcements, consult experts, and be sure to check the
official Revenu Québec website
for the latest information.

Lastly, if you’re looking at a capital gain on the sale of a house, a cottage, or an income property,
talk to a real estate broker to assess your options
and make an informed decision. Understanding the rules about capital gains is crucial for safeguarding
your assets and maximizing your returns. Happy planning!