# T4037 Capital Gains 2025 - Canada.ca > Reproduced from the Canada Revenue Agency. Authoritative copy: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html > Local copy taken 2026-09-05. Do not take a figure from this page — current rates are at https://rules.backofficestars.ca/rates/ ## Before citing - Provenance injected by scripts/inject_guide_provenance.py, not captured at conversion time. The URL was resolved against the live CRA site and verified 200; the body text was NOT re-fetched, so it is still the original conversion of unknown date. - Tier B: this guide is checked weekly on metadata only (page date and edition string), never by text diff. It is far too large for a diff to produce signal rather than noise. - CRA's page metadata carries dcterms.issued 2017-05-15, which contradicts the document's own masthead (Rev. 25). This is a known CRA metadata defect, already documented on several mirrors. Treat the masthead as the operative edition; cra_dcterms_issued is recorded only so a change in it can be spotted. # Capital Gains 2025 T4037(E) Rev. 25 ## 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 2025. You generally have a capital gain or loss whenever you sell, or are considered to have sold, capital property. The term “Capital property” is defined on page 6. 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” on page 38. 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 “Reporting capital gains or losses and other amounts from tax slips” on page 42 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)” on page 16. ## Ask for an alternate format The CRA’s publications and personalized correspondence are available in braille, large print, e-text, and MP3. For more information, go to call 1 - 800 - 959 - 8281. La version française de ce guide est intitulée Gains en capital 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 2025 that includes your principal residence, see the following guides: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide 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. If you are a non-resident, an emigrant or a newcomer to Canada, go to and refer to the section that applies to your situation. or . ## New for 2025 This section generally includes updates to the Canada Revenue Agency’s (CRA) 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 2026, information will be available at . The forms related to capital gains have been updated to reflect the changes noted in this section, as needed. ## Alternative minimum tax (AMT) Under proposed changes for 2024 and subsequent years the calculation of adjusted taxable income for AMT purposes has changed. For additional information and to calculate your federal tax payable under AMT, see Form T691, Minimum Tax. ## Capital gains deferral Under proposed changes, for qualifying dispositions after December 31, 2024, the definition of eligible small business corporation has been expanded and the period to acquire replacement shares has increased: - The limit to the carrying value of assets of an eligible small business corporation (including related entities) has increased to $100 million. - An eligible small business corporation share of an individual no longer needs to be a common share. - You now have until the end of the calendar year following the year of a qualifying disposition to acquire the replacement share. ## Capital gains deduction for qualifying cooperative conversions Under proposed changes, starting in 2024, a capital gains deduction is available to individuals on the sale of shares under a qualifying cooperative conversions (QCC). This means you may be able to claim a deduction when you sell your business to employees through a worker cooperative corporation, if all the conditions are met. Alternative ## Generated Markdown table of contents - [Capital Gains](#capital-gains) - PDF page 1 - [New for 2025](#new-for-2025) - PDF page 3 - [Alternative minimum tax (AMT)](#alternative-minimum-tax-amt) - PDF page 3 - [Capital gains deferral](#capital-gains-deferral) - PDF page 3 - [Capital gains deduction for qualifying cooperative conversions](#capital-gains-deduction-for-qualifying-cooperative-conversions) - PDF page 3 - [Definitions](#definitions) - PDF page 5 - [Chapter 1 – General information](#chapter-1-general-information) - PDF page 10 - [Determining if you have a capital gain or loss](#determining-if-you-have-a-capital-gain-or-loss) - PDF page 10 - [When to report a capital gain or loss](#when-to-report-a-capital-gain-or-loss) - PDF page 11 - [Calculating your capital gain or loss](#calculating-your-capital-gain-or-loss) - PDF page 11 - [What happens if you have a capital gain](#what-happens-if-you-have-a-capital-gain) - PDF page 12 - [Chapter 2 – Completing Schedule 3](#chapter-2-completing-schedule-3) - PDF page 15 - [If you have a capital loss](#if-you-have-a-capital-loss) - PDF page 15 - [Records you must keep](#records-you-must-keep) - PDF page 15 - [Qualified small business corporation shares (line 1)](#qualified-small-business-corporation-shares-line-1) - PDF page 16 - [Qualified farm or fishing property (line 2)](#qualified-farm-or-fishing-property-line-2) - PDF page 16 - [QFFP: Mortgage foreclosures and conditional sales repossessions (line 3)](#qffp-mortgage-foreclosures-and-conditional-sales-repossessions-line-3) - PDF page 16 - [Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares, and other shares (line 4)](#publicly-traded-shares-mutual-fund-units-deferral-of-eligible-small-business-corporation-shares-and-other-shares-line-4) - PDF page 16 - [Real estate, depreciable property, and other properties (line 5)](#real-estate-depreciable-property-and-other-properties-line-5) - PDF page 19 - [Bonds, debentures, promissory notes, and other similar properties (line 6)](#bonds-debentures-promissory-notes-and-other-similar-properties-line-6) - PDF page 20 - [Crypto-assets (line 7)](#crypto-assets-line-7) - PDF page 21 - [Other mortgage foreclosures and conditional sales repossessions (line 8)](#other-mortgage-foreclosures-and-conditional-sales-repossessions-line-8) - PDF page 22 - [Personal-use property (line 9)](#personal-use-property-line-9) - PDF page 22 - [Listed personal property (line 10)](#listed-personal-property-line-10) - PDF page 23 - [Tax slips – Capital gains or losses](#tax-slips-capital-gains-or-losses) - PDF page 23 - [Chapter 3 – Special rules and other transactions](#chapter-3-special-rules-and-other-transactions) - PDF page 24 - [Adjusted cost base (ACB)](#adjusted-cost-base-acb) - PDF page 24 - [Selling a building](#selling-a-building) - PDF page 26 - [Capital gains deferral for investment in small business](#capital-gains-deferral-for-investment-in-small-business) - PDF page 27 - [Other transactions](#other-transactions) - PDF page 27 - [Selling or donating certified Canadian cultural property](#selling-or-donating-certified-canadian-cultural-property) - PDF page 30 - [Chapter 4 – Flow-through entities](#chapter-4-flow-through-entities) - PDF page 30 - [What is a flow-through entity](#what-is-a-flow-through-entity) - PDF page 30 - [Gifts of ecologically sensitive land](#gifts-of-ecologically-sensitive-land) - PDF page 30 - [Exempt capital gains balance](#exempt-capital-gains-balance) - PDF page 31 - [Chapter 5 – Capital losses](#chapter-5-capital-losses) - PDF page 31 - [Disposing of your shares of, or interest in, a flow-through entity](#disposing-of-your-shares-of-or-interest-in-a-flow-through-entity) - PDF page 31 - [Inclusion rate](#inclusion-rate) - PDF page 32 - [Applying your 2025 net capital loss to previous years](#applying-your-2025-net-capital-loss-to-previous-years) - PDF page 32 - [Applying your net capital losses of other years to 2025](#applying-your-net-capital-losses-of-other-years-to-2025) - PDF page 32 - [Applying listed personal property losses](#applying-listed-personal-property-losses) - PDF page 33 - [Superficial loss](#superficial-loss) - PDF page 33 - [Restricted farm loss](#restricted-farm-loss) - PDF page 34 - [Allowable business investment loss](#allowable-business-investment-loss) - PDF page 34 - [Summary of loss application rules](#summary-of-loss-application-rules) - PDF page 36 - [Chapter 6 – Principal residence](#chapter-6-principal-residence) - PDF page 37 - [What is a principal residence](#what-is-a-principal-residence) - PDF page 37 - [Disposing of your principal residence](#disposing-of-your-principal-residence) - PDF page 38 - [Changes in use](#changes-in-use) - PDF page 40 - [Farm property](#farm-property) - PDF page 41 - [Reporting capital gains or losses and other amounts from tax slips](#reporting-capital-gains-or-losses-and-other-amounts-from-tax-slips) - PDF page 42 - [Reporting capital gains or losses and other amounts from tax slips (continued)](#reporting-capital-gains-or-losses-and-other-amounts-from-tax-slips-continued) - PDF page 43 - [Reporting capital gains or losses and other amounts from tax slips (continued)](#reporting-capital-gains-or-losses-and-other-amounts-from-tax-slips-continued) - PDF page 44 - [Examples](#examples) - PDF page 45 - [Example 1](#example-1) - PDF page 45 - [Example 1 (continued)](#example-1-continued) - PDF page 46 - [Example 2](#example-2) - PDF page 47 - [Example 2 (continued)](#example-2-continued) - PDF page 48 - [Reference documents](#reference-documents) - PDF page 49 - [Forms](#forms) - PDF page 49 - [Income Tax Folios](#income-tax-folios) - PDF page 49 - [Information Circulars](#information-circulars) - PDF page 49 - [Archived Interpretation Bulletins](#archived-interpretation-bulletins) - PDF page 49 - [Digital services for individuals](#digital-services-for-individuals) - PDF page 50 - [My Account](#my-account) - PDF page 50 - [For more information](#for-more-information) - PDF page 51 - [If you need help](#if-you-need-help) - PDF page 51 - [Forms and publications](#forms-and-publications) - PDF page 51 - [Teletypewriter (TTY) and Video Relay Service (VRS) users](#teletypewriter-tty-and-video-relay-service-vrs-users) - PDF page 51 - [Formal disputes (objections and appeals)](#formal-disputes-objections-and-appeals) - PDF page 51 - [CRA service feedback program](#cra-service-feedback-program) - PDF page 51 - [Index](#index) - PDF page 52 ## Table of contents Page Definitions.................................................................. 5 Chapter 1 – General information................................ 10 Determining if you have a capital gain or loss............... 10 Disposing of Canadian securities............................... 10 Disposing of personal-use property (including your principal residence)................................................ 10 When to report a capital gain or loss............................. 11 Business owner.......................................................... 11 Member of a partnership............................................ 11 Calculating your capital gain or loss.............................. 11 What happens if you have a capital gain....................... 12 Claiming a reserve..................................................... 12 Capital gains deduction for qualifying business transfers.................................................................. 13 Capital gains deduction for qualifying cooperative conversions............................................................ 14 Capital gains deduction.............................................. 14 If you have a capital loss............................................... 15 Records you must keep................................................. 15 Chapter 2 – Completing Schedule 3.......................... 15 Qualified small business corporation shares (line 1)..... 16 Qualified farm or fishing property (line 2)...................... 16 QFFP: Mortgage foreclosures and conditional sales repossessions (line 3)................................................ 16 Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares and other shares (line 4)............................................ 16 Employee security options......................................... 17 Stock splits and consolidations.................................. 18 Real estate, depreciable property and other properties (line 5)....................................................... 19 Real estate................................................................. 19 Depreciable property.................................................. 19 Bonds, debentures, promissory notes, and other similar properties (line 6)............................................ 20 Treasury bills (T-bills) and stripped bonds................. 20 Bad debts................................................................... 21 Foreign currencies..................................................... 21 Crypto-assets (line 7).................................................... 21 Other mortgage foreclosures and conditional sales repossessions (line 8)................................................ 22 Personal-use property (line 9)....................................... 22 Listed personal property (line 10).................................. 23 LPP gains are more than LPP losses........................ 23 LPP losses are more than LPP gains........................ 23 Tax slips – Capital gains or losses................................ 23 Chapter 3 – Special rules and other transactions.... 24 Adjusted cost base (ACB)............................................. 24 Identical properties..................................................... 24 Property for which you filed Form T664 or T664 (Seniors).................................................... 26 Property you inherit or receive as a gift..................... 26 Selling a building........................................................... 26 Selling part of a property............................................ 26 Capital gains deferral for investment in small business..................................................................... 27 Page Eligible small business corporation shares................ 27 Calculating the capital gains deferral......................... 27 ACB reduction............................................................ 27 Other transactions......................................................... 27 Property included in capital cost allowance Class 14.1.............................................................. 27 Partnerships............................................................... 28 Purchase of replacement property............................. 28 Transfers of property to your spouse or common-law partner or to a trust for your spouse or common-law partner.......................................... 29 Other transfers of property......................................... 29 Selling or donating certified Canadian cultural property...................................................................... 30 Gifts of ecologically sensitive land................................ 30 Chapter 4 – Flow-through entities............................. 30 What is a flow-through entity......................................... 30 Exempt capital gains balance....................................... 31 Disposing of your shares of, or interest in, a flow-through entity..................................................... 31 Chapter 5 – Capital losses......................................... 31 Inclusion rate................................................................. 32 Applying your 2025 net capital loss to previous years.. 32 Applying your net capital losses of other years to 2025....................................................................... 32 Applying listed personal property losses....................... 33 Superficial loss.............................................................. 33 Restricted farm loss...................................................... 34 Allowable business investment loss.............................. 34 What is a business investment loss........................... 34 What happens when you incur an ABIL..................... 35 Summary of loss application rules................................ 36 Chapter 6 – Principal residence................................. 37 What is a principal residence........................................ 37 Designating a principal residence.............................. 37 Can you have more than one principal residence..... 37 Disposing of your principal residence........................... 38 Flipped property......................................................... 38 Reporting the sale of your principal residence........... 38 Why you have to report the sale................................ 38 Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust).................................................... 39 If you or your spouse or common-law partner file Form T664 or T664 (Seniors)................................. 39 Changes in use............................................................. 40 Special situations....................................................... 40 Farm property................................................................ 41 Reporting capital gains or losses and other amounts from tax slips........................................... 42 Reference documents................................................. 49 Digital services for individuals.................................. 50 For more information.................................................. 51 4 ## 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: ABIL – Allowable business investment loss ACB – Adjusted cost base CCA – Capital cost allowance CNIL – Cumulative net investment loss FMV – Fair market value IBT – Intergenerational business transfer LPP – Listed personal property QCC – Qualifying cooperative conversion QBT – Qualifying business transfer RFL – Restricted farm loss UCC – Undepreciated capital cost 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 by the corporation or a related active business corporation. These assets 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 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 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. 5 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: - whether there is a common mind that directs the bargaining for the parties to a transaction - whether the parties to a transaction act in concert without separate interests (“acting in concert” means, for example, that parties act with considerable interdependence on a transaction of common interest) - whether there is “de facto control” of one party by the other because of, for example, advantage, authority or influence 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” on page 34. Canadian-controlled private corporation – This is a private corporation that is a Canadian corporation other than any of the following: a) 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 b) 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) c) 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: - a share of the capital stock of a corporation resident in Canada - a unit of a mutual fund trust - a bond, debenture, bill, note, mortgage, hypothecary claim, or similar obligation issued by a person resident in Canada Prescribed securities (defined on page 8) 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. The term “outlays and expenses” is defined on page 8. 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. The term “outlays and expenses” is defined on page 8. 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: - cottages - securities, such as stocks, bonds and units of a mutual fund trust - land, buildings, and equipment that you use in a business or rental operation 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: - 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. - This person is the parent of your child by birth or adoption - 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 (see definition on the previous page), if any, received or receivable for the gift. For more information, see Guide P113, Gifts and Income Tax. 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 either used principally in an active business carried on primarily in Canada by the corporation or by a related eligible small business corporation, shares of, or debt issued by, one or more related eligible small business corporations, or a combination of such assets, shares, or debt. The issuing corporation must qualify as 6 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 . 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” on page 38. Flow-through entity – This is explained in “What is a flow-through entity” in Chapter 4 on page 30. 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 2025 is 1/2. For previous year inclusion rates, see page 32. Intergenerational business transfer (IBT) – This is a type of transfer where, provided that certain conditions are met, the transferor disposes of qualified small business corporation or family farm or fishing corporation shares to a corporation controlled by one or more persons, each of whom is an adult child of the transferor. For more information, see Form T2066, Election for Immediate or Gradual Intergenerational Business Transfer. 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 7 any part of any interest in, or any right to, the following properties: - prints, etchings, drawings, paintings, sculptures or other similar works of art - jewellery - rare folios, rare manuscripts, or rare books - stamps - coins 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” on page 5. 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: - a share of a capital stock of a corporation - an interest in a partnership - an interest in a trust - an interest or option in any property described above Non-qualifying securities – These are securities you donated to a qualified donee (defined on the next page). Non-qualifying securities generally include: - a share of a corporation with which you do not deal at arm’s length after the donation was made - your beneficial interest in a trust in certain circumstances - an obligation of yours, or of any person or partnership with whom you do not deal at arm’s length after the donation was made - any other security issued by you or by any person or partnership with whom you do not deal at arm’s length after the donation was made Non-qualifying securities exclude: - shares, obligations and other securities listed on a designated stock exchange - obligations of a financial institution to repay an amount deposited with the institution For more information, go to - 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 share of a corporation (other than a public corporation) whose value at the time you dispose of it comes mainly from real estate, resource properties, or both - a bond, debenture, bill, note, mortgage, or similar obligation of a corporation (other than a public corporation) that you do not deal with at arm’s length at any time before you dispose of the security - a share, bond, debenture, bill, note, mortgage, or similar obligation you acquire from a person with whom you do not deal at arm’s length 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: - it has a class of shares listed on a designated Canadian stock exchange - it is a corporation (other than a prescribed labour-sponsored venture capital corporation) that has elected, or has been designated by the Minister of National Revenue, to be a public corporation. Also, at the time of the election or designation, the corporation complied with prescribed conditions concerning the number of its shareholders, dispersal of ownership of its shares and public trading of its shares Qualifying cooperative conversion (QCC) – Under proposed changes, generally, a type of transaction where, provided certain conditions are met, a taxpayer disposes of shares of a corporation to a corporation that is a worker cooperative at the time of the disposition. For more information on the deduction you can claim for a QCC election, see Form T25QCC, Joint Election for Capital Gains Deduction in Respect of Qualifying Cooperative Conversion. Qualifying business transfer (QBT) – Generally, a type of transaction where, provided certain conditions are met, a taxpayer disposes of shares of a corporation to a trust that is an Employee Ownership Trust at the time of the disposition. For more information on the deduction you can claim for a QBT election, see Form T24EOT, Joint Election for Capital Gains Deduction in Respect of a Qualifying Business Transfer. Note Where shares are disposed of under a QBT or QCC, a taxpayer may also claim a deduction under section 110.6 of the Income Tax Act if the shares also qualify as qualified small business corporation shares or qualified farm or fishing property (if all requirements are met) Qualified donees – These are the following: - registered charities - registered Canadian amateur athletic associations - registered national arts service organizations - registered housing corporations resident in Canada set up only to provide low-cost housing for the aged - registered municipalities in Canada - registered municipal or public bodies performing a function of government in Canada - the United Nations and its agencies - universities outside Canada, that ordinarily includes students from Canada, that are registered with the CRA 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 Schedule VIII of the Income Tax Regulations at the end of February 26, 2018, is also considered to have applied for registration. - The Government of Canada, a province, or a territory - registered foreign charities to which the Government of Canada has made a gift - registered journalism organizations (RJO) 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: - a share of the capital stock of a family farm or fishing corporation that you or your spouse or common-law partner owns - an interest in a family farm or fishing partnership that you or your spouse or common-law partner owns - real property, such as land, buildings, and fishing vessels - property included in capital cost allowance Class 14.1, such as milk and egg quotas, or fishing licenses 8 For more information on what is considered to be qualified farm or fishing property, see the following guides: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide 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: - at the time of sale, it was a share of the capital stock of a small business corporation, and it was owned by you, your spouse or common-law partner, or a partnership of which you were a member - throughout that part of the 24 months immediately before the share was disposed of, while the share was owned by you, a partnership of which you were a member, or a person related to you, it was a share of a Canadian-controlled private corporation and more than 50% of the fair market value of the assets of the corporation were: - used mainly in an active business carried on primarily in Canada by the Canadian-controlled private corporation, or by a related corporation - certain shares or debts of connected corporations - a combination of these two types of assets - throughout the 24 months immediately before the share was disposed of, no one owned the share other than you, a partnership of which you were a member or person related to you 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: - as payment for other shares - for dispositions of shares after June 17, 1987, as payment of a stock dividend - in connection with a property that you, a partnership of which you were a member, or a person related to you disposed of to the corporation that issued the shares. The property disposed of must have consisted of either: - all or most (90% or more) of the assets used in an active business carried on either by you, the members of the partnership of which you were a member, or the person related to you 9 - an interest in a partnership where all or most (90% or more) of the partnership’s assets were used in an active business carried on by the members of the partnership Qualifying disposition – A qualifying disposition of an individual (other than a trust) is a disposition of shares of the capital stock of a corporation where each such share disposed of was: - an eligible small business corporation share of the individual - throughout the period during which the individual owned the share, a share of an active business corporation, where all or substantially all of the 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 - throughout the 185-day period that ended immediately before the disposition of the share, owned by the individual 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. For more information on recapture, see page 19. 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: - are used mainly in an active business carried on primarily in Canada by the corporation or by a related corporation - are shares or debts of connected corporations that were small business corporations - are a combination of these two types of 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 (as defined on the previous page) or make a donation of ecologically sensitive land, special rules will apply. For more information, see pages 12 and 30. 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 page 19. 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 ## 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: - as a capital gain or loss ( capital transaction ) - as an income gain or loss ( income transaction ) 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: - 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-459, Adventure or Concern in the Nature of Trade - IT-479R, Transactions in Securities, and its Special Release 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: - You exchange one property for another - You give property (other than cash) as a gift - Shares or other securities in your name are converted - You settle or cancel a debt owed to you - You transfer certain property to a trust - Your property is expropriated - Your property is stolen - Your property is destroyed - An option that you hold to buy or sell property expires - A corporation redeems or cancels shares or other securities that you hold (you will usually be considered year, you also have to subtract from the UCC one of the following two amounts, whichever is less: - the proceeds of disposition of the property (either actual or deemed) minus the outlays and expenses incurred to sell it - the capital cost of the property to have received a dividend, the amount of which will be shown on a T5 slip) - You change all or part of the property’s use (see “Changes in use” section on page 40) - You leave Canada (go to -property ) - The owner of the capital property dies (go to ) 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 2025 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, IT-479RSR. 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 10 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” section on page 22. Principal residence If you sold or were considered to have sold your home in 2025, you must report the sale on Schedule 3, Capital Gains or Losses. If you want to designate your property as your principal residence for one or more years, complete 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 on page 37. 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: - Your home was your principal residence for all years that you owned it or all years except one year - You report the sale of the property and designate it as your principal residence on Schedule 3 and complete Form T2091(IND) - You or a family member did not designate any other property as a principal residence while you owned your home 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” on page 38. For more information about principal residence, see Chapter 6 on page 37. ## 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 2024. 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, 2025. In August 2025, 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 2025 Income Tax and Benefit 11 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: - the proceeds of disposition - the adjusted cost base (ACB) - the outlays and expenses incurred to sell your property 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, 2025, 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 Fifty percent of the capital gain would be taxable and you would report $1,220 as your taxable capital gain on line 12700 of your 2025 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 on page 31. 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 on page 15. 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: - a share of the capital stock of a mutual fund corporation - a unit of a mutual fund trust - an interest in a related segregated fund trust - a prescribed debt obligation that is not a linked note - ecologically sensitive land including a covenant, an easement, or in the case of land in Quebec, a personal servitude (when certain conditions are met), or a real servitude donated to certain qualified donees other than a private foundation - a share, debt obligation, or right listed on a designated stock exchange 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. 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. Note Before 1972, capital gains were not taxed. Therefore, if you sold capital property in 2025 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: - defer part of the capital gain by claiming a reserve (see the next section) - reduce or offset all or a part of the gain by claiming a capital gains deduction (see “Capital gains deduction” section on the next page) 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 four 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: - You were not a resident of Canada at the end of the tax year or at any time in the following year - You were exempt from paying tax at the end of the tax year or at any time in the following year - You sold the capital property to a corporation that you control in any way 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 12 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 four years, resulting in the total capital gain included in income over five years. However, a nine-year reserve period is provided for in certain circumstances, resulting in the total capital gain included in income over 10 years. These circumstances include: - transfers to your child of family farm or fishing property (which includes shares of a family farm or fishing corporation, an interest in a family farm or fishing partnership, as well as land or depreciable property in Canada that you, your spouse or common-law partner, your parent, or any of your children used in a farming or fishing business carried on in Canada) - transfers to your child of qualified small business corporation shares - a disposition under a qualifying business transfer or, under proposed changes, a disposition under a qualifying cooperative conversion - intergenerational business transfers (IBTs) of shares of the capital stock of a family farm or fishing corporation, or qualified small business corporations shares to a corporation controlled by one or more of your children and under certain conditions 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 - a 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 - Only for purposes of IBTs, a child includes, in addition to the listing above, a niece or nephew of the taxpayer, niece or nephew of the taxpayer’s spouse, a spouse of a niece or nephew of the taxpayer or the taxpayer’s spouse, or a child of a niece or nephew of the taxpayer or the taxpayer’s spouse. 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 2024, you have to include it in your capital gains calculation for 2025. If you still have an amount that is payable to you after 2025, you may be able to calculate and claim a new reserve. However, you will have to include it in your capital gains calculation for 2026. If you are reporting a new capital gains reserve on a disposition related to an IBT, fill out the appropriate area on Form T2017. If you had a qualifying IBT, you are required to file an election on or before the transferor’s filing due date for the tax year that includes the disposition. To file the election complete the Form T2066, 13 Election for Immediate or 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” section on the next page. 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 the definitions of “excepted gift,” “non-qualifying securities” and “qualified donee,” see “Definitions” on page 5. For gifts of non-qualifying securities, the reserve you can claim cannot be greater than the eligible amount of the gift. See the definition of “eligible amount of the gift” in “Definitions” beginning on page 5. 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. Capital gains deduction for qualifying business transfers A qualifying business transfer (QBT) is a type of transaction (see “Definitions” starting on page 5). If you have a capital gain from a QBT, you may be eligible for the capital gains deduction for qualifying business transfers. 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 a trust) under a QBT. To find out if your QBT qualifies for this deduction, see “Additional information” on Form T24EOT, Joint Election for Capital Gains Deduction in Respect of a Qualifying Business Transfer. You may also be eligible for the capital gains deduction for QBT in respect of a reserve brought into income in 2025 from the disposition in a preceding year of shares of the capital stock of a corporation to a trust (or to a purchaser corporation wholly owned by the trust) under a QBT. Claiming the capital gains deduction for qualifying business transfers Form T24EOT 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 or Qualifying Cooperative Conversions, 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 on line 25395 before you claim any capital gains deduction for QCCs on line 25395 or any capital gains deduction on line 25400 for a particular disposition. Capital gains deduction for qualifying cooperative conversions Under proposed changes, if you have a capital gain from a qualifying cooperative conversion (QCC), you may be eligible for the capital gains deduction for QCC. You can claim this deduction, if certain conditions are met, when shares of a corporation are disposed of to a corporation that is a worker cooperative at the time of the disposition, resulting in the business being controlled by the worker cooperative. To find out if your disposition qualifies for this deduction, see “Additional information” on Form T25QCC, Joint Election for Capital Gains Deduction in Respect of Qualifying Cooperative Conversion. You may also be eligible for the capital gains deduction for QCC in respect of a reserve brought into income in 2025 from the disposition in a preceding year of shares of the capital stock of a corporation to a worker’s cooperative under a QCC. Claiming the capital gains deduction for qualifying cooperative conversions Form T25QCC must be submitted to the CRA before you can claim the capital gains deduction for QCC. Use the elected amount and percentage allocated to you on Form T25QCC to complete Form T2048, Capital Gains Deduction for Qualifying Business Transfers or Qualifying Cooperative Conversions, and calculate the maximum amount of capital gains deduction for QCC that you can claim on line 25395 of your return. Under proposed changes, you must claim any capital gains deduction for QCCs on line 25395 before you claim any capital gains deduction on line 25400 for a particular disposition. 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)). For more information, see “What is the capital gains deduction limit” later on this page. Note The limit is indexed to inflation, using the Consumer Price Index data as reported by Statistics Canada. What is the 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 on 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 2025 from any of the following: - dispositions of qualified small business corporation shares (QSBCS) - dispositions of qualified farm or fishing property (QFFP) - a reserve brought into income in 2025 from the disposition of either QSBCS or QFFP - the allocation and designation by a trust of taxable capital gains reported in the trust’s tax year on the disposition of QSBCS or QFFP - the allocation and designation by a trust of taxable capital gains resulting from a reserve brought into income in the trust’s tax year relating to a disposition of QSBCS or QFFP in a prior tax year of the trust 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. You will find the definition of “qualified farm or fishing property” and “qualified small business corporation shares” in “Definitions” beginning on page 5. Who is eligible to claim the capital gains deduction You have to be a resident of Canada throughout 2025 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 2025 if you meet both of the following conditions: - You were a resident of Canada for at least part of 2025 - You were a resident of Canada throughout 2024 or 2026 Residents of Canada include factual and deemed residents. For more information on factual and deemed residents, go to and click on “Before you file” or see Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status. 14 What is the capital gains deduction limit Under proposed changes, for 2025, the LCGE is $1,250,000 for dispositions of qualifying property. This means that the maximum capital gains deduction for qualifying properties is $625,000 (50% of $1,250,000). 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 2025, you must also complete Form T936, Calculation of Cumulative Net Investment Loss (CNIL) to December 31, 2025. 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. After you have completed Form T657, claim the amount, up to the maximum allowable amount, of the total capital gains deduction on 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. Under proposed changes, if you are claiming the capital gains deduction in respect of capital gains reported by a partnership you are a member of, or capital gains reported to you on a T3 slip of a trust (such as a graduated rate estate) and the partnership or trust has a fiscal period or taxation year that begins before June 25, 2024, and ends on or after January 1, 2025, and the partnership or trust disposed of QFFP or QSBCS in 2024 before June 25, 2024, you must use Part 1 of “Chart 2025” on Form T657, Calculation of Capital Gains Deduction. Where the partnership or trust disposed of QFFP or QSBCS in 2024 after June 24, 2024, you must use Part 2 of “Chart 2025” on Form T657. If you are claiming the capital gains deduction in respect of capital gains reported by a partnership or trust that has a fiscal period or taxation year that begins after June 25, 2024, and ends on or after January 1, 2025, and the partnership or trust indicates that the capital gains relate to a capital gains reserve claimed in 2024 in respect of a ## 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. Schedule 3 is a five-part form and is divided into several sections for reporting the disposition of different types of properties. Report each disposition in the appropriate 15 disposition in 2024, before June 25, 2024, of property that was a QFFP or a QSBCS, you must use Period 1 of “Chart 2024” on Form T657, Calculation of Capital Gains Deduction. Where the partnership or trust indicates that the capital gain relates to a capital gains reserve claimed in 2024 in respect of a disposition in 2024, after June 24, 2024, of property that is QFFP or QSBCS, you must use Period 2 of “Chart 2024” on Form T657. For more information, see Chapter 4 beginning on page 30 and “Reporting capital gains or losses and other amounts from tax slips” on page 42. ## If you have a capital loss If you have a capital loss in 2025, 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 three preceding years and to any future years. For more information on capital losses, see Chapter 5 beginning on page 31. ## 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, 2025. In addition, you should keep a record of the fair market value of the property on the date you: - inherit it - receive it as a gift - change its use section and provide the information requested in each part to determine your taxable capital gain or net capital loss. Refer to the instructions on page 1 of Schedule 3 to determine which parts you need to complete. Dispositions are reported in Part 3. Each disposition must be reported based on the type of property disposed of using lines 1 to 10. In Part 4, calculate your total capital gains or losses. 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 beginning on page 31 for information on how you can apply the loss. Note You may need to refer to “Definitions” on page 5 for the definition of 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) or a qualifying cooperative conversion (QCC). Enter your total proceeds on line 10699 and your total gain or loss on line 10700. See the definition of “qualified small business corporation shares” in “Definitions” beginning on page 5. Note Do not report the following transactions: - sale of other shares, such as publicly traded shares or shares of a foreign corporation - losses when you sell QSBCS to a person you do not deal at arm’s length with (for more information, see “Allowable business investment loss” on page 34) - disposition of QSBCS when you elect to defer the capital gains that resulted from it (for more information on capital gains deferral for investment in small business, see page 27) 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 “Capital gains deduction” on page 14. ## 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 or a QCC. Enter your total proceeds on line 10999 and your total gain or loss on line 11000. See the definition of “qualified farm or fishing property” in “Definitions” beginning on page 5. 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 “Capital gains deduction” on page 14. ## QFFP: Mortgage foreclosures and conditional sales repossessions (line 3) If the capital gain or loss is from a mortgage foreclosure or conditional sales repossession of a QFFP, report it on line 3 of Part 3. 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” on page 22. Notes 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” on page 19. 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: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide 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 “Capital gains deduction” on page 14. ## 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: - units in a mutual fund trust - publicly traded shares - shares that qualify as Canadian securities or prescribed securities (if they are not qualified small business corporation shares or qualified family farm or fishing corporation shares) - shares issued by foreign corporations 16 - disposition of shares of a corporation to a trust (or to a corporation fully owned by the trust) under a QBT or QCC, except when the shares are of a family farm or fishing corporation, or a qualified small business corporation share Enter your total proceeds on line 13199 and total gain or loss on line 13200. You should also use line 4 if you donate any of the following properties: - shares listed on a designated stock exchange - shares of the capital stock of a mutual fund corporation - units in a mutual fund trust - interest in a related segregated fund trust 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 2025, 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)” on page 24. 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 on page 30. 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” on page 23. 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 on mutual funds, go to . For information on the deferral of capital gains incurred on the disposition of small business investments, see 17 “Capital gains deferral for investment in small business” on page 27. 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: - You deal at arm’s length with the employer, the entity granting the option and the entity whose eligible securities could be acquired under the option agreement - You are not a specified shareholder of an entity above that is a corporation (a specified shareholder is generally one who owns 10% or more of any class of a corporation’s shares) Eligible security Generally, an eligible security is one of the following: - a share of the capital stock of a corporation - a unit of a mutual fund trust 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 may not have to include the taxable benefit in your income in the year that you acquire the securities. You may be able to 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: - The employee disposes of the eligible security - The employee (or former employee) dies - The employee (or former employee) becomes a non-resident 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 one half of the amount reported as a taxable benefit from the sale of eligible securities in 2025. 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: - You exercise your options by acquiring shares of your employer - Your employer has elected (as indicated by completing box 86, “Security option election”, of your T4 slip) for all security options issued or to be issued after 4 pm ET on March 4, 2010, under the agreement and has filed such election with the Minister of National Revenue, that neither the employer nor any person not dealing at arm’s length with the employer will claim a deduction for the cash payment in respect of your disposition of rights under the agreement 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: - the actual purchase price, plus - any amount included in your income as a taxable employee option benefit for the securities (even if you claimed a security option deduction for them) 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 (see page 16), report the transaction on line 1 of Part 3. In all other cases, report the transaction on line 4 of Part 3. Remittance requirement If you exercise your security options in 2025, 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 2025 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). 18 ## Real estate, depreciable property, and other properties (line 5) If you sold real estate or depreciable property in 2025, you must report your capital gain or loss on line 5 of Part 3. Enter your total proceeds on line 13599 and your total gain or loss on line 13800. For information related to dispositions of housing units that may be considered flipped property, see “Flipped property” on page 38. 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 9 and line 6 of Part 3, respectively. Real estate Real estate includes the following: - vacant land - rental property (both land and buildings) - farm property, including both land and buildings (other than qualified farm or fishing property) - commercial and industrial land and buildings For each real property you sold in 2025 that includes land and a building, you must: - determine how much of the selling price relates to the land and how much is for the building - report the sale of your land and building separately on Schedule 3 To help you understand how to report a disposition of real property that includes land and a building, see the example on page 45. 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” on page 26 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. See “Disposing of your principal residence” on page 38. The CRA may reassess an Income Tax and Benefit Return beyond the normal reassessment period if any of the following situations applies: - You did not report a sale or other disposition of real estate in the year on your return - You did not file an income tax and benefit return for the year that a disposition of real or immovable property occurs in, and the CRA issued an assessment of tax 19 - You owned property directly or indirectly through a partnership and the partnership did not report the sale or other disposition on Form T5013, Statement of Partnership Income, if it was required to file one 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” beginning on page 5. 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: - the proceeds of disposition of the property, minus the related outlays and expenses - the capital cost of the property 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: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide - Guide T4036, Rental Income Example In 2022, 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 2025. The class has a UCC of $6,000. You sold the piece of machinery in 2025 and did not buy any other property in that class. The following chart gives you three different selling prices (proceeds of disposition) to show how you would handle each situation (A, B, and C). Description A($) 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 2022 – 2024 – 4,000 – 4,000 – 4,000 UCC at the beginning of 2025 = 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, 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, and other properties. Other properties include bad debts, foreign currencies and options, as well as discounts, premiums and bonuses on debt obligations. 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 2025, 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 2025, 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 page 11. 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” on page 24. 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 20 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, 2025, for $49,500. The T-bill’s term is 91 days and its maturity value on August 1, 2025, is $50,000. However, you sold it on June 13, 2025, for $49,750. The effective yield rate was 4.05%. You calculate interest on the T-bill as follows: Number of Purchase Effective days T-bill Interest to price × yield rate × held = be included in income Number of days in the year sold $49,500 × 4.05% × 44 = $241.67 365* 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: - to earn income from a business or property - as consideration or payment for the sale of capital property in an arm’s length transaction 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 21 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” on page 34. 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 the rate is: - widely available - verifiable - published by an independent provider on an ongoing basis - recognized by the market - used in accordance with well-accepted business principles - used to prepare financial statements (if any) - used regularly from year to year 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 (line 7) 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: - cryptocurrency - utility tokens - security tokens - non-fungible tokens First, you must determine if the gains or losses from disposing crypto-assets are from conducting a business in the trading of crypto-assets 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 of crypto-assets on line 7 in Part 3 by using the following instructions: - If it is business income or a business loss, see Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - If you disposed of a crypto-asset, you may have a capital gain or loss. The amount of the capital gain or loss is calculated by subtracting the adjusted cost base of the crypto-asset from the proceeds of disposition - If you disposed of a crypto-asset, enter your total proceeds on line 15200 and total gain or loss on line 15301 - 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 and Benefit Return. For more information about crypto-assets, go to . ## Other mortgage foreclosures and conditional sales repossessions (line 8) 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 8 in Part 3. 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: - If, as a mortgagee (person who lends money under a mortgage), you repossess a property because the mortgagor failed to pay you the money owed under the mortgage, you are considered to have purchased the property. At the time of repossession, you do not have a capital gain or loss. Any gain or loss will be postponed until you sell the property - If you are the mortgagor and your property is repossessed because you did not pay the money owed under the mortgage, you are considered to have sold the property. Depending on the amount you owed at the time of repossession, you may have a capital gain, a capital loss, or, in the case of depreciable property, a terminal loss. However, if the property is personal-use property, you cannot deduct the loss 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 9) Report dispositions of personal-use property (other than listed personal property) on line 9 in Part 3. 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 the adjusted cost base (ACB) of the property is less than $1,000, its ACB is considered to be $1,000 - If the proceeds of disposition are less than $1,000, the proceeds of disposition are considered to be $1,000 - If both the ACB and proceeds of disposition are $1,000 or less, you do not have a capital gain or capital loss. Do not report the sale on Schedule 3 when you file your Income Tax and Benefit Return If you are disposing of your principal residence, see Chapter 6 beginning on page 37. Note If you acquire personal-use property for donation to a qualified donee (as defined on page 8 in “Definitions”), 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” on page 11. 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. 22 Loss restrictions do not apply: - if you disposed of personal-use property that is listed personal property (see the next section) - to a bad debt owed to you from the sale of a personal-use property to a person you deal at arm’s length with (for more information, see “Bad debts” on page 21) Example You sold the following personal-use properties in March 2025. Property sold Proceeds of Adjusted Outlays disposition cost base and expenses China cabinet $ 900 $ 500 $ 0 Boat $1,200 $ 850 $50 Personal computer $1,500 $3,200 $30 You calculate the capital gain or loss for each transaction as follows: Calculation of capital China Boat Personal gain or loss cabinet ($) 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 10) Report dispositions of listed personal property on line 10 in Part 3. Enter the net gain only on line 15900. See the definition of “Listed personal property (LPP)” beginning on page 7. To determine the value of many LPP items, you can have them appraised by a dealer. You can also refer to 23 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” on page 30. 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” on page 22. LPP gains are more than LPP losses If your 2025 gains from dispositions of LPP are more than your losses from such dispositions, you can use unapplied LPP losses from 2018 and later years to reduce your 2025 gains. To do so, enter your unapplied LPP losses from other years immediately above line 10 in Part 3 of Schedule 3 where it says “Subtract: unapplied LPP losses from other years”. Apply any LPP losses from other years to reduce your net LPP gains. LPP losses are more than LPP gains If your 2025 losses from dispositions of LPP are more than your 2025 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. For more information on applying LPP losses, see page 33. ## 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 17400 and 17600, 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 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 “Reporting capital gains or losses and other amounts from tax slips” on page 42 for information on how to report these capital gains on Schedule 3 and Form T657, Calculation of Capital Gains Deduction. For more information on how to report the capital gains or losses and other amounts shown on certain tax slips, see the table on page 42. ## 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” beginning on page 5 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 13200 of your Schedule 3. Enter a zero on line 13199, since there is no actual sale of units. For more information and an example of the calculation, go to . 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 same debtor issues both securities - All the attached rights are the same 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. 24 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. Transaction Purchase in 2001: $15 per share Purchase in 2006: $20 per share New average cost Sale in 2008: 200 shares at $18 per share Average cost Purchase in 2025: $21 per share New average cost 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. Transaction Purchase in 2001: $18.00 per unit Reinvested distributions in 2001: $19.55 per unit New average cost Reinvested distributions in 2002: $20.63 per unit New average cost Sale in 2008: 400 units at $18.29 per unit Average cost Reinvested distributions in 2025: $19.89 per unit New average cost 25 A B A divided by B Cost Number of shares ACB ($) ($) 1,500 100 15.00 + 3,000 + 150 = 4,500 = 250 18.00 - 3,600 - 200 = 900 = 50 18.00 + 7,350 + 350 = 8,250 = 400 20.63 A B A divided by B Cost Number of units ACB ($) ($) 15,000.00 833.3333 18.00 + 1,170.00 + 59.8466 = 16,170.00 = 893.1799 18.10 + 1,455.30 + 70.5429 = 17,625.30 = 963.7228 18.29 - 7,316.00 – 400.0000 = 10,309.30 = 563.7228 18.29 + 721.65 + 36.2821 = 11,030.95 = 600.0049 18.38 Property for which you filed Form T664 or T664 (Seniors) Special rules also apply to determine the 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 (see Chapter 4 on page 30), 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, use supporting calculation A or B on page 5 of Form T1436, Capital Gains Worksheet, 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. Go to -taxes-deceased-person, 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: - You, or a person with whom you do not deal at arm’s length, own the land on which the building is located, or the land adjoining the building, if you need the land to use the building - You sold the building for less than its cost amount and its capital cost Calculate the building cost amount as follows: - If the building was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of the class before the sale - If more than one property is in the same class, you have to calculate the cost amount of each building as follows: Capital cost of the building UCC of Cost amount of × = the class the building Capital cost of all properties in the class that have not been previously disposed of 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 For more information, call 1-800-959-8281. 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 - $ 25,000 ($100,000 × 1/4) 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. 26 ## 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 2025. 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. Under proposed changes, eligible small business corporation shares have the following characteristics: - The issuing corporation must be an eligible small business corporation (as defined on page 6 in “Definitions”) at the time the shares were issued - The total carrying value of the assets of the corporation and related corporations cannot exceed $100 million immediately before, and immediately after, the share was issued. “Total carrying value of the assets of the corporation” means the amount at which the assets of the corporation would be valued for the purpose of the corporation’s balance sheet as of that time if it was prepared in accordance with generally accepted accounting principles used in Canada at that time. However, an asset of a corporation that is a share or debt issued by a related corporation is deemed to have a carrying value of nil - While you hold the shares, the issuing corporation is an active business corporation (as defined on page 6 in “Definitions”) 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. Under proposed changes, the replacement shares have to be acquired in the year in which the qualifying disposition is made or in the following calendar year. For example, you acquire eligible small business corporation shares in October 2012 and dispose of them on June 9, 2025. You must acquire the replacement shares no later than December 31, 2026, which is within one calendar year after the end of the tax year of the original disposition. 27 Calculating the capital gains deferral The capital gains deferral is available for the disposition of eligible small business corporation shares made in 2025. 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 2025, report the total capital gain on lines 13199 and 13200 of Schedule 3. Also report the capital gains deferral on line 16100 of Schedule 3. 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 10699 and 10700 of Schedule 3, 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 13199 and 13200 of Schedule 3. 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, as defined on page 6 in “Definitions”) 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: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide 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 the table on page 42 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 2025, 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: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide 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. If you are reporting an amount at 100%, include the full amount at supporting line 19890 of Schedule 3. 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 on page 30. Capital gains deduction You may be eligible for the capital gains deduction for any of the following partnership-related amounts: - a capital gain from disposing of qualified small business corporation shares - a capital gain from disposing of qualified farm or fishing property - farming or fishing income from the disposition of property included in CCA Class 14.1 that is qualified farm or fishing property For more information, see “Capital gains deduction” at the beginning of page 14. 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” at the beginning of page 14. 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. 28 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 in “Definitions” beginning on page 5. 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: - the undepreciated capital cost for depreciable property - the adjusted cost base for other types of capital property 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 the tax return for the tax year in which the property is transferred to the transferor’s 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: - You are a resident of Canada - You are still married to, or living in a common-law relationship with, that person 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 29 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: - You owned capital property (other than depreciable property or a partnership interest) on June 18, 1971 - You gave the property to your spouse or common-law partner after 1971 - Your spouse or common-law partner later sold the property 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: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide Elections You can postpone reporting a capital gain when you transfer property from: - an individual or partnership to a Canadian corporation - an individual to a Canadian partnership 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. ## 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: - an investment corporation - a mortgage investment corporation 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 on page 31. 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. - a mutual fund corporation - a mutual fund trust - a related segregated fund trust - a partnership - a trust governed by an employees’ profit-sharing plan - a trust maintained primarily for the benefit of employees of one corporation or more than one that do not deal at arm’s length with each other, where one of the main purposes of the trust is to hold interests in shares of the capital stock of the corporation or corporations, as the case may be, or any corporation not dealing at arm’s length with the trust - a trust established for the benefit of creditors in order to secure certain debt obligations - a trust established to hold shares of the capital stock of a corporation in order to exercise the voting rights attached to such shares 30 ## 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. $ 2,250 1. ECGB carryforward to 2004 1 2. Capital gains flowed out $ 2 3. Capital gains from dispositions + $ 935 3 4. Line 2 plus line 3 = $ 935 4 - $ 935 5. Capital gains reduction 5 = $ 1,315 6. Unused ECGB at the end of 2004 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. ## 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: - determine your adjustment factor - report your 2025 net capital losses - apply your unused 2025 net capital losses against your taxable capital gains of other years - apply your unused net capital losses of other years against your 2025 taxable capital gains It also explains the special rules that apply to listed personal property losses, superficial losses, restricted farm losses and allowable business investment losses. You will find a summary of the loss application rules on page 36. 31 ## 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 shares of a flow-through entity, use the “Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares and other shares” section - For an interest in a flow-through entity, use the “Bonds, debentures, promissory notes, and other similar properties” section For more information, see Chapter 2 on page 15 and “Disposition of an interest in a partnership to a non-resident or tax-exempt entity” on page 28. 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)” on page 26. 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” on the previous page. This happens if you dispose of your remaining shares of, or interest in, such an entity in the 1994 to 2025 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. 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 three previous years or in any future year. Example In 2025, you sold two different securities resulting in a taxable capital gain of $225 (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 2025. The inclusion rate for 2025 is 50%. While you cannot deduct the $150 from other sources of income in 2025, it becomes part of the computation of your net capital loss for 2025. You can carry this net capital loss back to apply against taxable capital gains in any of the three previous years or carry it forward to any future year. To carry back or carry forward the loss, complete Schedule 3 and attach it to your 2025 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: - depreciable property (for more information, see page 19) - personal-use property (for more information, see page 22) ## Inclusion rate The rate used to determine “taxable capital gains,” “allowable capital losses,” and “allowable business investment losses” (as defined in “Definitions” on page 5), 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 2025” below. 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 (1) From 2001 to 2025 1/2 (50%) (1) This inclusion rate (IR) 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. ## Applying your 2025 net capital loss to previous years You can carry your 2025 net capital loss back to 2022, 2023, and 2024, 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 2025 net capital loss to 2022, 2023 or 2024, 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” on page 51. 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 2025 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 2025 You can apply your net capital losses of other years to your taxable capital gains in 2025. To do this, claim a deduction on line 25300 of your 2025 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. The different inclusion rates are listed above. 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 2025, 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 2025. 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 2025. To do so, you can complete the following charts of Form T1436, Capital Gains Worksheet, depending on your situation: - Line 25300 – Net capital loss of other years (if you do not have pre-1986 capital loss balance), if you do not have a balance of unapplied net capital losses from before May 23, 1985, and your 2024 notice of assessment or notice of reassessment shows that you have unapplied net capital losses of other years, a 2024 net capital loss, or both, to determine your net capital losses of other years that you can apply to 2025 - Line 25300 – Net capital loss of other years (if you have pre-1986 capital loss balance), 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 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. 32 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: - the excess amount - $2,000 - your pre-1986 capital loss balance available for 2025 Your pre-1986 capital loss balance available for 2025 is calculated as follows: - the balance of your total net unapplied capital losses that you had at any time before May 23, 1985; minus - the total adjusted amount of capital gains deductions that you claimed before 2025 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. For more information on how to apply your net capital losses of other years to 2025, see the example on page 47 ## 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: - You can only deduct losses from the disposition of LPP from any gains you had from selling other LPP - The total LPP losses you deduct in the year cannot be more than your total LPP gains from such dispositions for that year - You cannot use this type of loss to reduce any capital gains you had from selling other types of property If you have an LPP loss in 2025, you can use the loss to reduce gains from dispositions of LPP you had in any of the three years before 2025 or the seven years after. For information on how to apply a prior-year LPP loss to 2025 gains from dispositions of LPP, see “Listed personal property (line 10)” on page 23. To carry back your 2025 LPP losses to reduce your LPP net gains from 2022, 2023, and 2024, complete Form T1A, Request for Loss Carryback, and include it with your 2025 Income Tax and Benefit Return (or send one to the CRA separately). You can get Form T1A from the CRA. See “For more information” on page 50. Do not file an amended return for the year to which you want to apply the loss. 33 Example You bought some jewellery in 1997 for $5,800. In 2025, you sold it for $6,000, for a gain of $200. You also sold a coin collection for $2,000 in 2025. 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 2025 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 2025 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 three preceding years or the seven years following 2025. You should add each of the LPP gains and LPP losses on line 10. For more information, see page 23. 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: - You, or a person affiliated with you, buys, or has a right to buy, the same or identical property (called “substituted property”) during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale - You, or a person affiliated with you, still owns, or has a right to buy, the substituted property 30 calendar days after the sale Some examples of affiliated persons are: - you and your spouse or common-law partner - you and a corporation that is controlled by you or your spouse or common-law partner - a partnership and a majority-interest partner of the partnership - a trust and its majority-interest beneficiary (generally, a beneficiary who enjoys a majority of the trust income or capital) or one who is affiliated with such a beneficiary If you have a superficial loss in 2025, 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 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: - You are considered to have sold the capital property because you became or ceased to be a resident of Canada - You are considered to have sold the property because you changed its use - You disposed of the property and within 30 calendar days after the disposition, you became or ceased to be exempt from income tax - The property is considered to have been sold because the owner died - The disposition results from the expiry of an option - The property is appropriated by a shareholder on the winding-up of a corporation - Non-depreciable capital property is disposed of by a corporation, partnership, or trust. In this situation, although the loss is not added to the adjusted cost base of the transferred property, it is not claimed immediately but its recognition is deferred pending the occurrence of certain events. For more information, call 1-800-959-8281. ## 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: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide 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 three years and forward up to 10 years. You can now carry an RFL incurred in tax years ending after 2005, back three 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 2025 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 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 2025, 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 the chart for line 21700 of Form T1436, Capital Gains Worksheet, 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 2025 tax year, enter the gross amount of your business investment loss on line 21699. 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: - a share of a small business corporation - a debt owed to you by a small business corporation 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: 34 - A small business corporation owes you a debt (other than a debt from the sale of personal-use property) that is considered to be a bad debt at the end of the year - At the end of the year, you own a share (other than a share you received as consideration from the sale of personal-use property) of a small business corporation that: - has gone bankrupt in the year - is insolvent and a winding-up order has been made in the year under the Winding-up and Restructuring Act - is insolvent at the end of the year and neither the corporation, nor a corporation it controls, carries on business. Also, at that time, the share in the corporation has a fair market value of nil and it is reasonable to expect that the corporation will be dissolved or wound up and will not start to carry on business 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 35 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 three 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 2022, 2023 or 2024, complete Form T1A, Request for Loss Carryback, and include it with your 2025 Income Tax and Benefit Return (or send one to the CRA separately). You can get Form T1A from the CRA (see “For more information” on page 50). 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 2025 will reduce the capital gains deduction you can claim in 2025 and future years. ## Summary of loss application rules Type of loss Application rules Allowable business Any unapplied portion of an ABIL becomes a non-capital loss that can investment loss (for more be carried back three years and forward 10 years. information, see page 34) 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. (1) Net capital loss (for more Carry back three years. information, see page 31) Carry forward indefinitely. Farm loss (3) Carry back three years. For a loss incurred after 2005, carry forward 20 years. For a loss incurred before 2006, carry forward 10 years. Listed personal property Carry back three years. (LPP) loss (for more Carry forward seven years. information, see page 33) Personal-use property loss No loss allowed (4) Not (for more information, see page 22) Restricted farm loss Carry back three years. (for more information, see For a loss incurred after 2005, carry forward 20 years. For a loss page 34) 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. Superficial loss (for more No loss allowed information, see page 33) You can usually add the amount of the loss to the adjusted cost base of the substituted property. (1) Any unapplied portion of an ABIL incurred in 2003 or previous years became a non-capital loss that could be carried back three years and forward seven years. The unapplied portion of the non-capital loss has become a net capital loss that can be used to reduce taxable capital gains in the eighth year or any year after. (2) For net capital losses incurred before May 23, 1985, you may deduct an additional amount (up to $2,000) from other income. For more information, see “Applying your net capital losses of other years to 2025”on page 32. (3) For the purposes of this chart, farm losses include losses from farming and fishing businesses. For more information, see the following guides: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide (4) For exceptions to this rule, see “Personal-use property” on page 22. Limit to annual deduction No limit Limited to taxable capital gains in the eleventh and subsequent years. Limited to taxable capital gains in the year. (2) No limit Limited to net gains from LPP in the year. applicable 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. Not applicable 36 ## 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 2025 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 house - a cottage - a condominium - an apartment in an apartment building - an apartment in a duplex - a trailer, mobile home, or houseboat A property qualifies as your principal residence for any year if it meets all of the following four conditions: - It is a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation - You own the property alone or jointly with another person - You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year - You designate the property as your principal residence 37 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 in any given year you owned 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) ” on page 44. Can you have more than one principal residence For 1982 and later years, you can only designate one housing unit as your family’s principal residence for each year. For 1993 and later tax years, your family includes: - you - a person who, throughout the year, was your spouse or common-law partner (unless you were separated for the entire year under the terms of a court order or a written agreement) - your children (other than a child who had a spouse or common-law partner during the year or who was 18 or older during the year) If you did not have a spouse or common-law partner and were not 18 or older during the year, your family also includes: - your mother and father - your brothers and sisters (who did not have spouses or common-law partners and were not 18 or older during the year) For 1982 to 1992, the definition above applies except that the reference to “spouse and common-law partner” is replaced by “spouse.” Therefore, common-law partners could designate different housing units as their principal residence for those years. These terms are defined in “Definitions” beginning on page 5. Note Same-sex partners were not considered common-law partners for tax purposes prior to 2001. 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, spouses 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: - the death of the taxpayer or a related person - a related person joining the taxpayer’s household or the taxpayer joining a related person’s household (for example, moving in with a spouse or common-law partner, for the birth of a child, adoption, or care of an elderly parent) - the breakdown of a marriage or common-law partnership where the taxpayer had been living separate and apart from their spouse or common-law partner for at least 90 days before the disposition - a threat to the personal safety of the taxpayer or a related person (for example, domestic violence) - a serious disability or illness of the taxpayer or a related person - the eligible relocation of the taxpayer, or their spouse or common-law partner, where the taxpayer’s new home is at least 40 kilometres closer to the new work location or school (generally, an eligible relocation allows the taxpayer to carry on business, be employed, or attend full-time post-secondary education) - the involuntary termination of employment of the taxpayer or their spouse or common-law partner - the insolvency of the taxpayer - the destruction or expropriation of the taxpayer’s property (for example, when the property is destroyed due to natural or man-made disaster) 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: - a capital gain, complete Schedule 3 - business income, complete Form T2125, Statement of Business or Professional Activities For more information about flipped property, go to or see Schedule 3. For more information about business income, go to or see Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income. Reporting the sale of your principal residence If you sold or if you were considered to have sold your property in 2025 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. 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 You (a resident of Canada) put your principal residence (property 1) up for sale in January 2025. Property 1 has been your only principal residence for all the time you have owned it. You purchased a new house (property 2) in February 2025 and took possession of it as your principal residence in March 2025. 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, you can tick box 1 at line 17900 of Part 1 of Schedule 3 to designate property 1 as your principal residence for all years including 2025 (or for all years except one year). In addition, you 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 you finally sold property 1 before the end of 2025. However, you should keep your decision in writing for future reference, especially for when you sell property 2. 38 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) (see the next section). You are also required to complete the applicable sections of Schedule 3 as indicated in Part 4 of Form T2091(IND). 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 13800 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” on page 19 and Income Tax Folio S1-F3-C2, Principal Residence. You are also required to complete Part 2 of Schedule 3 to report the sale of your principal residence. See the “Example” on page 45 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: - The income producing use is ancillary to the main use of the property as a residence - There is no structural change to the property - No capital cost allowance is claimed on the property 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 15800 of Schedule 3, Capital Gains or Losses. 39 Example In 2025, you disposed of three properties. You acquired Property 1 in 2000 and you designated it as your principal residence from 2000 to 2005. You acquired Property 2 in 2006 and you designated this property as your principal residence from 2006 to 2010. You acquired Property 3 in 2011 and you designated it as your principal residence from 2011 to 2025. You must tick box 3 at line 17900 of Part 1 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: - You sold, or were considered to have sold, your principal residence or any part of it - You granted someone an option to buy your principal residence or any part of it 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: - The property was your principal residence for 1994 - You are designating the property in 2025 as your principal residence for any tax year 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 2025. 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 2025. If the property was not your principal residence for 1994 and you are not designating it in 2025 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)” on page 26. ## 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: - You change all or part of your principal residence to a rental or business operation - You change your rental or business operation to a principal residence 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” on page 38. If you were using the property to earn or produce income before you changed its use, see “Real estate, depreciable property, and other properties” on page 19 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 four 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 do not designate any other property as your principal residence - You are a resident or deemed to be a resident of Canada You can extend the four year limit indefinitely if all of the following conditions are met in addition to the above listed conditions: - You live away from your principal residence because your employer, or your spouse’s or common-law partner’s employer wants you to relocate - You and your spouse or common-law partner are not related to the employer - You return to your original home while you or your spouse or common-law partner are still with the same employer, or before the end of the year following the year in which this employment ends, or you die during the term of employment - Your original home is at least 40 kilometres (by the shortest public route) farther than your temporary residence from your, or your spouse’s or common-law partner’s, new place of employment 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: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide T4036, Rental Income 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. 40 For more information on the recapture of CCA, see the following guides: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide T4036, Rental Income If you make this election, you can designate the property as your principal residence for up to four 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: - 90 days after the date the CRA asks you to make the election - the date you are required to file your income tax and benefit return for the year in which you actually sell the property 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: - Your rental or business use of the property is relatively small in relation to its use as your principal residence - You do not make any structural changes to the property to make it more suitable for rental or business purposes - You do not deduct any CCA on the part you are using for rental or business purposes Generally, if you do not meet all of the above conditions, you will have a deemed disposition of the portion of 41 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 Part 2 of Schedule 3, Capital Gains or Losses, and page 2 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: - Split the selling price between the part you used for your principal residence and the part you used for rental or business purposes. The CRA will accept a split based on square metres or the number of rooms as long as the split is reasonable - Report any capital gain on the part you used for rental or business purposes. You can also make a principal residence designation for the portion of the property for which there was no change in use as your principal residence, by completing Schedule 3 and Form T2091(IND), in order to claim the principal residence exemption for that portion of the gain. For more information, see “Real estate, depreciable property, and other properties” on page 19. You do not have to report any capital gain for the part you used for your principal residence ## Farm property If you are a farmer and sell land in 2025 used 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: - Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income - Guide RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide - Guide RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide ## Reporting capital gains or losses and other amounts from tax slips Use the table below to help you report specific amounts from your tax slips on Schedule 3 and your income tax and benefit return. 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 amount to report T3 Box 21 Capital gains – This is your total capital gain from a trust. Report the difference between this amount and the amount in box 30. For 2025, the amount shown may include amounts from one or more of the following boxes: 30, 55, 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. Box 30 Capital gains eligible for deduction For 2025, the amount shown includes amounts from boxes 55 and 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 (QSBCS) - qualified farm or fishing property (QFFP) 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, Calculation of Capital Gains Deduction. Refer to “Allocation and designation of capital gains from QFFP and QSBCS by a trust” on page 2 of Form T657 to determine whether the capital gain should be reported on Part 1 or Part 2 of Chart 2025 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 2025 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 2021 to 2024 tax years (corresponding to the trust’s year of disposition indicated in the footnotes area of the T3 slip). Example: You received a T3 slip relating to the trust’s 2025 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 for these capital gains. The T3 slip you received may have been issued by a trust (for example, a graduated rate estate) that had a 2025 tax year end but used the 2024 version of the T3 slip and an amount may be reported in box 54 or box 56. If your T3 slip reports an amount in box 54 or 56, enter the amount on line F or G respectively in Part 1 of Chart 2025 of Form T657. If the T3 slip reports an amount in box 55 or 57, enter the amount on the applicable line of Part 2 of Chart 2025. Box 37 Insurance segregated fund net capital losses Box 42 Amount resulting in cost base adjustment For more information, see “Identical properties” on page 24. (1) If this is your only entry on the line, put the amount in brackets. If it is other amounts you must enter on the line. Where to report on Schedule 3 Line 17600 If amounts are reported in the Footnotes of the T3 Slip, include the amounts on lines 10700 or 11000, as applicable. Line 17600 (1) N/A not your only entry, subtract it from the total of all 42 ## Reporting capital gains or losses and other amounts from tax slips (continued) Slip Box Description of amounts to report T3 Box 55 Capital gains eligible for deduction from dispositions of QFFP Include this amount in the total reported on the applicable line. The footnotes will state whether the disposition occurred before June 25, 2024 or after June 24, 2024. See Form T657 for more information on how to calculate the capital gains deduction you may claim. Box 57 Capital gains eligible for deduction from dispositions of QSBCS Include this amount in the total reported on the applicable line. The footnotes will state whether the disposition occurred before June 25, 2024 or after June 24, 2024. See Form T657 for more information on how to calculate the capital gains deduction you may claim. T4PS Box 34 Capital gains or losses If the amount shown is in brackets, it is a capital loss. (2) If you have a capital loss and it is your only entry on that line, put brackets around it. Otherwise, subtract the amount from the total of all other amounts you must enter on that line. T5 Box 18 Capital gains dividends T5013 Box 137 Business investment loss You can use the amount shown in this box to help you complete the chart for line 21700 of Form T1436, Capital Gains Worksheet. Box 151 Capital gains (losses) Box 153 Qualified small business corporation shares (QSBCS) capital gains (losses) amount eligible for the capital gains exemption The amount shown is for dispositions before June 25, 2024. Box 154 Qualified farm or fishing property (QFFP) capital gains (losses) amount eligible for the capital gains exemption The amount shown is for dispositions before June 25, 2024. Box 155 Capital gains (losses) from QFFP mortgage foreclosures and conditional sales repossessions eligible for the capital gains deduction The amount shown is for dispositions before June 25, 2024. Boxes Capital gains reserves 152, 159, These are your capital gains reserves from the partnership. 163, 165, 166, and 222 to 225 (3) Enter any reserve on Form T2017, Summary of Reserves on Dispositions of Capital Property with the slip should indicate where to enter the amounts. 43 Where to report on Schedule 3 Line 11000 Line 10700 Line 17400 ( 2) Line 17400 N/A Line 17400 Line 10700 Line 11000 Line 12400 See note 3 . The instructions provided (3) ## Reporting capital gains or losses and other amounts from tax slips (continued) Slip Box Description of amounts to report T5013 Box 274 Capital gains eligible for the 0% inclusion rate under paragraph 38(a.1) Report this amount on Form T1170, Capital Gains on Gifts of Certain Capital Property Box 276 Qualified small business corporation shares (QSBCS) capital gains (losses) amount eligible for the capital gains exemption The amount shown is for dispositions after June 24, 2024. Box 277 Qualified farm or fishing property (QFFP) capital gains (losses) amount eligible for the capital gains exemption The amount shown is for dispositions after June 24, 2024. Box 278 Capital gains (losses) from QFFP mortgage foreclosures and conditional sales repossessions eligible for the capital gains deduction The amount shown is for dispositions after June 24, 2024. Box 289 Portion of the capital gain subject to a 100% inclusion rate under subsection 100(1) – If you are reporting an amount at 100%, include the full amount at supporting line 19890. Where to report on Schedule 3 N/A . Line 10700 Line 11000 Line 12400 Line 19890 44 ## Examples ## Example 1 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: - treat the sale of property that was used partly as a principal residence and partly for earning income - report a capital gain on the disposition of property that includes land and a building (see “Real estate” on page 19) - calculate a recapture of capital cost allowance (CCA) or a terminal loss on the disposition of depreciable property (see “Recapture of CCA and terminal losses“” on page 19) 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, 2025, 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 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 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: a) Building: 40% × $ 75,000 × $ 125,000 = $ 37,500 $ 100,000 b) Land: 40% × $ 25,000 × $ 125,000 = $ 12,500 $ 100,000 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: a) Building: 40% × $ 120,000 × $ 175,000 = $ 56,000 $ 150,000 b) Land: 40% × $ 30,000 × $ 175,000 = $ 14,000 $ 150,000 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: a) Building: 40% × $ 120,000 × $ 10,500 = $ 3,360 $ 150,000 b) Land: 40% × $ 30,000 × $ 10,500 = $ $ 150,000 (continued on next page) 45 not be taxed because you used that part of the , and by completing Section 1 of . 840 ## Example 1 (continued) Disposing of a principal residence partly used for earning income 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 2025 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 2025 $ 34,728 Minus: Purchase price - 37,500 Recapture of CCA = $ (2,772) To help you complete the above calculations, you use the CCA schedule on the back of Form T776, 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. You report the sale of the rental property in Part 3 as follows: Real estate, depreciable property, and other properties (see page 19) (1) Property type Year acquired Address or legal description Prov./Terr. Street, City (building) 1988 Street, City (land) 1988 Total proceeds of disposition 13599 (continued) Statement of Real Estate Rentals. (2) (3) (4) (5) Proceeds of Adjusted Outlays and Gain or loss disposition cost base expenses (col 2 minus col 3 and 4) 56,000 00 37,500 00 3,360 00 15,140 00 14,000 00 12,500 00 840 00 660 00 70,000 00 Total gain or loss 13800 15,800 00 46 ## Example 2 Applying your net capital losses of other years to 2025 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 on line 12700 of your Benefit Return. You can complete the chart for line 25300 of Form T1436 you can claim for your unapplied net capital losses of other years in 2025 and to determine the loss balance that you can carry forward to a future year 47 2025 Income Tax and , Capital Gains Worksheet, to calculate the maximum deduction ## Example 2 (continued) Applying your net capital losses of other years to 2025 (continued) You have to apply your older losses first. Because the total amount of adjusted losses that you used in 2024 was $12,000, 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 use $3,000 ($12,000 – $6,000 – $3,000) of your adjusted net capital loss incurred in 1990. You have unapplied net capital losses of $2,000 that you can carry forward to a future year. 48 ## Reference documents To get CRA forms and publications, go to ## Forms T1A Request for Loss Carryback T123 Election on Disposition of Canadian Securities T657 Calculation of Capital Gains Deduction T936 Calculation of Cumulative Net Investment Loss (CNIL) to December 31, 2025 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 or Qualifying Cooperative Conversions T2066 Election for Immediate or Gradual Intergenerational 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 T24EOT Joint Election for Capital Gains Deduction in Respect of a Qualifying Business Transfer T25QCC Joint Election for Capital Gains Deduction in Respect of Qualifying Cooperative Conversion ## 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 49 or call 1-800-959-8281. ## Information Circulars IC76-19R3 Transfer of Property to a Corporation Under Section 85 IC78-10R5 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 (Consolidated) 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 access your personal income tax and benefit information, and interact with the CRA online throughout the year. Profile - Change your address, phone numbers, direct deposit information, marital status, information about children in your care, and language preference - Edit your notification preferences and receive email notifications when important changes are made to your account - Manage your authorized representatives and authorization requests - Manage your multi-factor authentication settings, security options, and personal identification number (PIN) Tax returns - View your notice of assessment or reassessment, special elections and returns, carryover amounts, and tax information slips (T4 and more) Accounts and payments - View your account balance and statement of account - Make a payment online to the CRA with the My Payment service, create a pre-authorized debit (PAD) agreement, or create a QR code to pay in person at Canada Post for a fee - Transfer a payment Benefits and credits - View your benefit and credit information, and apply for certain benefits Savings and pension plans - View information about your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), Home Buyers’ Plan (HBP), First Home Savings Account (FHSA), and Lifelong Learning Plan (LLP) Correspondence - View mail from the CRA - Submit documents to the CRA - Submit an audit enquiry - File a formal dispute - Request a CPP/EI ruling Additional digital services - Track the progress of certain files and enquiries you have submitted to the CRA - View and print your proof of income statement 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. You will no longer receive your CRA mail by paper. For more information, go to . Access My Account To access My Account, go to c anada.ca/cra-sign-in -services and sign in to or register for a CRA account. 50 ## For more information ## If you need help For help with common topics, current contact centre wait times, and links to online self-serve options, go to . ## 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 . ## Teletypewriter (TTY) and Video Relay Service (VRS) users If you use a TTY for a hearing or speech impairment, call 1-800-665-0354. Register with Canada VRS to download the app, by going to srvcanadavrs.ca/en/get-the-app, and call the VRS line. If you use another operator-assisted relay service, call the CRA’s regular telephone numbers instead of the TTY or Canada VRS numbers. ## Formal disputes (objections and appeals) You have the right to file an objection or an appeal if you disagree with an assessment, a determination, or a decision. For more information, go to . ## CRA service feedback program Service complaints You can expect to be treated fairly and to receive a high level of service every time you interact with the CRA. 51 You can provide compliments or suggestions; however, if you are not satisfied with the service you received: - You may save time by calling the CRA first depending on your situation. You can call the telephone number provided in your CRA correspondence or discuss your concerns with the employee you have been dealing with. If you do not have a contact number, go to - You can ask to discuss the matter with the employee ’ s supervisor if you have not been able to resolve your service issue - You can submit feedback by filling out Form RC193, Service Feedback, if the issue remains unresolved. For more information, go to - You may contact the Office of the Taxpayers’ Ombudsperson if you are not satisfied with the response you have received. The Ombudsperson will only respond to complaints that the CRA has already tried to address For more information about the Taxpayer Bill of Rights, go to . Reprisal complaints If you received a response about a previously-submitted service complaint or formal review of a CRA decision and felt that you were not treated fairly by a CRA employee, you can submit a reprisal complaint by filling out Form RC459, Reprisal Complaint. For more information, go to ‑ complaints. ## Index In addition to listing topics, this index provides references to any Interpretation Bulletin (IT) and Information Circular (IC) related to each topic mentioned. If after reading the explanations provided in this guide, you still need more information, get a copy of these publications. A complete list of references is provided on page 47. Page Page Adjusted cost base (ACB) (S3-F4-C1, IT-456R)..... 5, 24, 27 Allowable business investment loss (ABIL) (IT-232R3, S4-F8-C1).................................................... 34 Allowable capital loss (IT-232R3)........................................ 5 Amount of advantage.......................................................... 5 Arm’s length transaction (S1-F5-C1)................................... 5 Bad debts (IT-159R3)........................................................ 21 Bonds................................................................................ 20 Canadian-controlled private corporation (IT-458R2)........... 5 Canadian securities (IT-479R)...................................... 6, 10 Capital cost allowance (CCA)........................................ 6, 19 Capital gain....................................................... 6, 10, 11, 19 Capital gains deduction......................................... 14, 16, 28 Capital gains deferral........................................................ 27 Capital gains reduction...................................................... 28 Capital losses.............................................. 6, 10, 11, 15, 31 Capital property (IT-125R4)................................................. 6 Owned before 1972........................................................... 12 Capital transaction (IT-218R, IT-459, IT-479R)................. 10 Common-law partner........................................................... 6 Crypto-assets.................................................................... 21 Cultural property (IT-407R4)............................................. 30 Debentures........................................................................ 20 Debt obligations: discounts, premiums and bonuses........ 20 Deemed acquisition............................................................. 6 Deemed cost....................................................................... 6 Deemed disposition............................................................. 6 Deemed proceeds of disposition......................................... 6 Definitions............................................................................ 5 Depreciable property (S3-F4-C1).................................. 6, 19 Disposition (dispose of)....................................................... 6 Ecologically sensitive land................................................. 30 Eligible amount of gift.......................................................... 6 Employee security options (IT-113R4).............................. 17 Excepted gift........................................................................ 7 Exempt capital gains balance (ECGB).............................. 31 Fair market value (FMV)...................................................... 7 Flipped property.......................................................... 38, 42 Flow-through entity............................................................ 31 Foreign currency (IT-95R)................................................. 21 Gifts (donations).............................................. 11, 20, 26, 30 Identical properties............................................................ 24 Inclusion rate................................................................. 7, 32 Income transaction............................................................ 10 Tax slips............................................................................ 23 Inheriting property............................................................. 26 Listed personal property (LPP).................................... 23, 33 Listed personal property losses (IT-232R3)...................... 33 Losses – summary............................................................ 36 Mortgages......................................................................... 22 Mutual funds...................................................................... 16 Net capital losses (IT-232R3).............................................. 7 How do you apply your 2025 net capital loss to previous years?............................................................................ 32 How do you apply your net capital losses of other years to 2025?............................................................................. 32 Pre-1986 capital loss balance (IT-232R3)......................... 32 Non-arm’s length transaction.............................................. 7 Non-qualifying real property................................................ 7 Non-qualifying security.................................................. 7, 13 Options (IT-96R6, IT-479R).............................................. 20 Outlays and expenses......................................................... 8 Partnerships...................................................................... 28 Personal-use property............................................. 8, 10, 22 Prescribed security.............................................................. 8 Principal residence (S1-F3-C2)................................... 10, 37 Changes in use (S1-F3-C2).............................................. 40 Designating (S1-F3-C2).................................................... 37 Disposition and reporting requirements............................ 38 Proceeds of disposition....................................................... 8 Promissory notes.............................................................. 20 Property included in capital cost allowance Class 14.1 6, 27 Public corporation (IT-391R)............................................... 8 Qualified donees................................................................. 8 Qualified farm or fishing property.................................. 8, 16 Qualified small business corporation shares................. 9, 16 Real estate (S3-F4-C1, IT-264R).................................. 9, 19 Real property (S3-F4-C1, IT-264R)..................................... 9 Recapture of capital cost allowance (CCA)................... 9, 19 Records (IC 78-10)............................................................ 15 Replacement property (S3-F3-C1).................................... 28 Reserves........................................................................... 12 Restricted farm losses (IT-232R3).................................... 34 Selling a building............................................................... 26 Shares............................................................................... 16 Small business corporation................................................. 9 Spouse................................................................................ 9 Stocks............................................................................... 16 Stock splits and consolidations......................................... 18 Stripped bonds.................................................................. 20 Superficial losses.............................................................. 33 Taxable benefits................................................................ 17 Taxable capital gain.............................. 9, 11, 15, 28, 32, 32 Terminal loss................................................................. 9, 19 Transfers of property......................................................... 29 Farm property.................................................................... 29 Others (IC 76-19, IT-413R)............................................... 29 To your spouse or common-law partner or to a trust for your spouse or common-law partner (IT-209R, IT-511)........................................................... 29 Treasury bills (T-bills)........................................................ 20 Undepreciated capital cost (UCC)................... 10, 19, 26, 45 52