How dividends and capital gains are taxed

Dividends from Canadian corporations are “grossed up” when you report them, and then a dividend tax credit reduces the tax on them. With a capital gain, only part of the gain is taxed: for 2025, 50%. In both cases the taxable amount is added to your other income.

This guide is about investments held in a regular, non-registered account. For investments inside a TFSA or RRSP, see Your TFSA: how it works and RRSPs: how contributions save tax.

Canadian dividends: gross-up, then a credit

Dividends from taxable Canadian corporations come in two types: eligible dividends and other than eligible (often called non-eligible) dividends. Your T5 or T3 slip reports each type in its own boxes; if you’re not sure which type you received, ask the payer.

Step 1: the gross-up. You don’t report the cash you received. You report a larger “taxable amount”: the dividend plus 38% for eligible dividends, or plus 15% for other dividends. Your slip normally shows this taxable amount already, and it’s what goes on your return (line 12000).

Step 2: the credit. You then claim the federal dividend tax credit, which is a percentage of that taxable amount:

• 15.0198% for eligible dividends
• 9.0301% for other than eligible dividends.

The credit is shown on your slip too. Your province or territory adds its own dividend tax credit at its own rates; compare them in our dividend tax credits table. If you live in Quebec, the provincial credit is handled by Revenu Québec.

Two things to keep in mind:

• Foreign dividends don’t get the credit. Only dividends from taxable Canadian corporations qualify.
• The gross-up raises your income. Because the grossed-up amount goes into your income, your net income rises by more than the cash you received. That can matter for any credit or benefit that’s based on net income.

Capital gains: only part is taxed

You have a capital gain when you sell, or are considered to have sold, capital property for more than its adjusted cost base (ACB) plus the costs of selling it. Capital property includes things like stocks, bonds, units of a mutual fund trust, and cottages.

• Adjusted cost base: usually what you paid, plus costs of buying it such as commissions and legal fees. Improvements (such as an addition to a building) are added; repairs and maintenance aren’t.
• Outlays and expenses: costs of selling, such as commissions, legal fees and advertising. They reduce the gain, but you can’t deduct them from other income.

Only the taxable part of the gain is added to your income: the gain times the inclusion rate, which is 50% for 2025. You report your gains and losses on Schedule 3, and the net taxable amount on line 12700. The gain is taxed in the year you sell, or are considered to have sold, the property, not while it rises in value.

Selling your home has its own rules; see The principal residence exemption.

Capital losses

A capital loss is the reverse: you sold for less than the ACB plus selling costs. The allowable part of the loss (the loss times the inclusion rate) works like this:

1. It first reduces your taxable capital gains for the same year.
2. Any leftover becomes part of your net capital loss for the year. You can’t deduct it from your other income.
3. You can carry a net capital loss back to reduce taxable capital gains in any of the three previous years (using Form T1A), or forward to any future year. File Schedule 3 so the CRA has the loss on record.

Carrying a loss back lowers your taxable income for the earlier year, but not your net income, so credits and benefits based on net income don’t change.

Watch the superficial loss rule. If you sell at a loss and you, or someone affiliated with you such as your spouse or common-law partner, buy the same or identical property in the period from 30 days before to 30 days after the sale, and still own it 30 days after the sale, the loss is denied. It isn’t lost for good: if you’re the one who bought the replacement, the denied loss is usually added to its ACB.

In short

• Canadian dividends: report the grossed-up taxable amount, then claim the federal and provincial dividend tax credits. Your slip shows both.
• Foreign dividends don’t qualify for the dividend tax credit.
• Capital gains: only 50% of the gain is taxable for 2025, and only when you sell or are considered to have sold.
• Capital losses offset capital gains, not other income. Unused losses carry back three years or forward indefinitely.
• To see the tax on investment income at your income level, try the income tax calculator.