With tax season right around the corner, I figure this is a good time to start posting some tax related articles. Are you curious about how investing taxes are calculated? Specifically, capital gains tax? If so, you have come to right blog! I am by no means a tax expert but I do have enough knowledge to give general guidelines on how you can figure out your own investment taxation. Note that these tax guidelines described in this post are for Canada only. On top of that, you should consult a tax professional before applying anything you read on my blog and the web in general. :)

Lets start with RRSP’s. As you probably know, RRSP contributions and investment growth are taxable only upon withdrawal. At that point, the withdrawals are taxed as income at your marginal tax rate at the time. That’s the strategy behind RRSP’s: contribute, let it grow tax free, and withdraw when you are in a lower tax bracket (hopefully).

Now on to Non-registered accounts. There are 3 types of taxes that you need to consider.

  1. Capital Gains tax (preferred)
  2. Dividend Tax (preferred)
  3. Interest tax (keep in RRSP)

Capital Gains (CG) Tax

When you profit from selling a stock in a non-registered account, you will be subject to capital gains (CG) tax. What are capital gains? Capital gain is the difference between the selling price and buying price of a stock less the commission. For example, if you sold a stock for $1000 (inc selling fee) and paid $800 (inc buying fee), you would have a capital gains of $200. Capital gains tax are subject to a 50% inclusion rate. This means that 50% of your profit will be included as income. So in our above example, $100 would be added to your income and taxed at your marginal rate. Or another way to look at it is that any profits from a stock sale in a non-reg account are taxed at HALF your marginal rate.

The 50% inclusion rate is a reason why most financial gurus suggest that you keep investments for the purposes of capital appreciation/gain outside of your RRSP. If you keep your capital appreciation/gain assts inside an RRSP, you will be taxed on 100% of the gain because all income withdrawn from an RRSP is taxed at your marginal rate.

Another advantage of keeping your capital appreciating stocks outside of an RRSP is because you can claim your losses against your gains to reduce your taxes payable. Whereas within an RRSP, losses cannot be claimed. For example, if in 2006 you sold stock for a $4000 non-reg portfolio profit and $1000 in losses, your total profit is now $3000. To figure out your taxes payable, it would be: $3000 x 0.50 = $1500. This $1500 would be added to your taxable income for that year and taxed at your marginal rate.

This is why you’ll read some tax strategies to sell your losing stocks at the end of the year. The losing amount will be deducted from your total winning amount and reduce your overall taxes. What if you have a loser for the year, but you believe it’s a long term winner? You’re probably thinking to sell it before the end of the year and purchase it again. Not so fast, you have to make sure you don’t violate the superficial loss rule.

What is the superficial loss rule?

According to: http://www.cabusinessadvisor.com/Tax/TaxTraps/SuperFL.htm

This rule applies where a person or affiliated person acquires or had the right to acquire the same or identical property within 30 days after the disposition or 30 days before the disposition of the property in question. The disposition could have been made to anyone. In these cases, the loss on the disposition is denied and the amount of the loss is added to the cost of the substituted property.

In layman’s terms, it simply means that if you sell a stock at a loss, you can’t repurchase the shares back again within 30 days and claim the loss against your gains. However, if you do repurchase the same shares back within 30 days and you profit from it in the future, you can deduct the initial loss against your gain of THAT stock.

For example:

  • Purchase 10 ABC stock for a total cost of $1000
  • Sell 10 ABC stock for: $800
  • Loss: $200
  • Repurchase 10 ABC stock within 30 days for: $850
  • Sell 10 ABC stock in the future for $1200:
  • Profit: $1200-$850-200(initial loss) = $150
  • Taxable Amount: $75 ($150 *50%)

As a side note, you should consider the superficial loss rule if you are attempting the Smith Manoeuvre (SM). The SM suggests to sell your non-reg stock to pay down your house, then REPURCHASE the stocks. If you sell stock at a loss, you should wait 30 days before repurchasing. Otherwise, the loss will be omitted.

In summary:

  • Capital gains are taxed at 50% of your marginal rate (efficient).
  • Keep your capital appreciating stocks/mutual funds outside of your RRSP.
  • If you trade often, sell your losers at the end of the year to reduce your profits for the year.
  • Take heed of the superficial loss rule.

Taxes can be boring but they are an essential component to financial planning. In the next article (Part 2), we’ll discuss the other 2 types of investment taxes, dividend and interest income tax.

If you have anything to add to this article, please post them in the comments.


  1. Ben on May 7, 2010 at 4:56 pm

    I am close to retirement and I have accumulated stocks in a non registered account during my career through a company stock purchase plan.

    Being close to retirement, I am now more risk averse and would like to move these stocks to a safer place such as Government Bonds. Wouldn’t doing this now push my already high marginal tax rate up and result in capital gains being taxed very highly compared to keeping the stocks and selling them little by little during my retirement years when I have less income?

    Is there any ways to move my non registered portfolio to safer grounds without being punished for doing it in one move during the years with the highest marginal rate of my career?

  2. FrugalTrader on May 8, 2010 at 8:17 am

    Ben, if you sell or transfer the stocks, I believe that you will face a capital gains tax. You might be better off waiting until retirement to sell, that is, if you believe your company will continue to be strong until then. Ofcourse, you may want to consult with an accountant.

  3. Ed Rempel on May 10, 2010 at 1:39 am

    Hi Ben,

    There are a few issues to your question, Ban. Yes, if your shares are up, the capital gain will be taxable. However, it is only 50% of the gain that is added to your income, not the amount you sell.

    If you buy bonds, the interest is all 100% taxable every year, which will also run into more tax.

    You should probably consider the non-tax issues as well. Having all your shares in one company is very risky – far more risky than owning a broad stock market investment. Any one company can go bankrupt.

    Many people somehow think that having shares of the company they work for is safer, because they know the company. However, they already have their job and more tied up in that company.

    The general rule of thumb is that you should have no more than 5-10% of your investments in any one company – even one you work for.

    It probably makes sense to become more conservative when you retire, since you are no longer adding money to your investments, but probably the biggest mistake many seniors make is to become far too conservative. You probably still have 25 years in front of you if you are average health, so it is probably still appropriate to have a significant growth portion of your portfolio.

    The best strategy might be to sell most of the shares and buy a diversified portfolio based on your risk tolerance and retirement income/growth needs, using some far more diversified investment for the equity portion.

    There is also the issue of whether you should sell now or after you retire, or if you should do it all at once or sell over time. Depending on your income, you may be in a lower or higher tax bracket after you retire. Most seniors are also affected by various clawback programs on income from the government. When you add that to normal income tax, many seniors are in 40-70% tax brackets, so don’t just assume you will be in a lower tax bracket after you retire.

    Since your investments are non-registered, your choice of investments will have a significant effect on your tax bracket, so you have lots of planning options.


  4. Tommy on July 16, 2010 at 3:06 pm

    Hi Ed,

    Thanks for explainging the “30-day rule”. Since I have 40K non-registered money, and still have a personal mortgage, I am looking to perform SM by paying down my mortgage first and then reborrow for investments.

    A lot of stocks are still down, if I decide to sell at loss, and repurchase back within 30 days, I technically lose the “capital loss” priviledge. However, if I am purchasing the same stock within 30 days, and I still see the future growth of the stock, the loss portion can be deducted from the profit when I do sell the security in the future right? In words, the loss can reduce the adjusted cost base of the same security?

    ie. Buy Stock A for $1000
    Sell at $800 ($200 loss)
    Repurchase in 3 weeks at $900

    In the future, I sell at $1200
    My adjusted cost base is 1200 – 900 – 200 loss = 100 capital gain

    Is this correct calculation?


  5. Emily on September 8, 2010 at 12:16 pm


    Slightly off topic however, I am looking into the SPP with BNS and can only find info for current shareholders wishing to acquire additional common shares of the Bank. How do you go about becoming a shareholder in the first place. I found this same issue with many Canadian companies offering SPP. I am very new to this so would appreciate some direction. Great article by the way!

  6. FrugalTrader on September 8, 2010 at 1:50 pm

    @Emily, to purchase via SPP, you need to contact the company directly. For example, with Scotia Bank, you can find the info here:

    Best of luck!

  7. Alex on October 10, 2010 at 4:34 pm

    It’s my first year investing in US stock with a Canadian broker( questrade ). I was wondering if I have to fill up special income tax forms for US stock that I sold in my non-reg account? And do I have to file something to the US gov?

  8. FrugalTrader on October 10, 2010 at 5:31 pm

    @Alex, no tax payable to the US govt. However, if you invest in US stocks in the future that have dividends, you can request to have your withholding tax reduced by contacting the discount broker. They will send out a form to complete.

  9. Donna on December 28, 2010 at 6:04 pm

    A Canadian owns a company and manages investments for his clients through the rental of a seat on the NYSE and a subscription to a service which enables trading (ie Interactive Brokers). 82% of the income comes from management fees charged to the client. The company also has some cash which the person uses to trade futures . He does day trading with this account. This is the other 18% income for the company. A T5008 is received at the end of the year. Is the reported income a capital gain or regular income? thanks

  10. Pasan on December 29, 2010 at 11:15 pm


    If I transfer a stock from a non-registered account to TFSA, I was under the impression that, it count as selling the stock from the non- registered account for Tax purposes. If I had a capital loss on that stock, can I claim that loss?

    e.g Bought stock ABC at $1000 in non-reg. account and transfered to TFSA when it is $800. Can I claim a loss of 200?


  11. FrugalTrader on December 30, 2010 at 1:48 pm

    @Pasan, in that case, you’re better off selling the stock, claim the loss, then contribute the cash to the TFSA.

  12. Ed Rempel on January 2, 2011 at 1:25 pm

    Hi Pasan,

    CRA is not allowing capital losses on transfers “in kind” to a TFSA. If you transfer in a stock that has a gain, you have to claim the gain, but if there is a loss it is denied.

    You should follow FT’s advice – sell the stock first and then contribute the cash.


  13. Rob on January 12, 2011 at 3:56 am

    Frugal Trader,
    I am a frequent trader, not a daytrader but a swing trader. I was wondering if I have to declare all capital gains for each transaction regardless the amount, or there is a min to declare. I ask this because there are transaction that I came out flat ( maybe made 5 dollars or so)



    • FrugalTrader on January 12, 2011 at 8:33 am

      @Rob, my understanding is that you need to calculate all your transactions, no matter the amount. Best to confirm with an accountant, but that’s what I’ve had to do in the past.

  14. Ian A Rocks on January 19, 2011 at 6:40 pm

    I am a US citizen and wish to invest in Canadian Stocks in a Canadian and USA stocks and commodities in a Canadian denominated account. I will
    be considered a trader. I will have no Canadian employment income.

    A. If i have $20,000 in capital gains what will my Canadian taxes be?

    B. Will the amount of Canadian taxes be credited against my USA taxes due

  15. Cathryn on January 23, 2011 at 5:08 pm

    Number 73 is correct on the math.
    Also, do the math on TFSA’s vs RRSP’s – and see the interesting
    result there. Since the two vehicles deal with tax at different entry
    points, it is best to do the math right through two examples with
    indentical earnings.
    In Retirement, a RRSP – converted to a RRIF also gets an additional
    $2000 tax exemption ( x 2 if you have done Spousal) plus there
    is the added factor of the additional age tax credit along with the
    already existing personal tax credit.

  16. Nova_Scotian on May 26, 2011 at 2:19 pm

    Wondering how to calculate this.

    Owe 100 shares of a company that is DRIPPed.
    Then buy 150 shares of this company and put in a sell order to sell 150 shares.

    How do you record capital gains and ACB for the 2 scenarios
    (1) The 150 shares are sold before the ex-dividend date, so no DRIP
    (2) The 150 shares are sold after the stock as DRIPPED

    Any help would be appreciated.

  17. Showtime on September 9, 2011 at 8:03 pm

    Good tips. I have been questioning the merits of non-reg acct in general if there is still contrib room in tfsa or rrsp. I was thinking about this even before I came across RM’s post #73. My thinking is that non-reg is actually getting taxed twice: once at marginal rate because non-reg is funded w/ after-tax dollars, and taxed again when it generates gains/divs/interest, etc. Rsp and tfsa are only taxed once, tfsa at funding and rsp at withdrawal. There are some reasons to contrib to non-reg (eg can claim cap losses, no limits, etc) but it could be argued to not even use non-reg while one still has tfsa and rrsp room. That said, it should be noted for certain income levels (varies per province), divs in non-reg acct are exempt from tax…not only that cra will actually pay you, ie negative tax rate on divs.

    Something else to consider is growth of investment eg $100k into an acct and it grows to $200k for withdrawal. Due to this factor (and other factors), non-reg withdrawal tax may actually be lower than rsp over a very long time, maybe 30+ years. Even tho non-reg is being taxed twice (in and out), the lower tax on divs and gains may eventually be more economical vs rsp’s perpetual marginal rate for withdrawals, but probably after many decades.

  18. toasty on November 6, 2011 at 6:32 am

    Little late to this thread, but I believe stating that keeping capital gains outside of RRSP is correct, but for different reasons than stated here. You say:

    “The 50% inclusion rate is a reason why most financial gurus suggest that you keep investments for the purposes of capital appreciation/gain outside of your RRSP. If you keep your capital appreciation/gain assts inside an RRSP, you will be taxed on 100% of the gain because all income withdrawn from an RRSP is taxed at your marginal rate.”

    The problem with this statement is that you are forgetting that the 50% is on profits of after-tax money. So in actuality you are getting taxed twice which comes out to more than the 100% if it were in RRSP, which is pretax money.

    I think what they are trying to say is that is would be better to put in other types of investments which are taxed at a higher rate than capital gains.

    You have $1 to invest. Assumes constant tax rate of 0.33% and 10% growth over whatever period.

    RRSP: principle * (1 + growth) * (1 – tax rate)
    RRSP: $1 * (1 + 0.10) * (1 – 0.33)

    = 0.737

    non-reg: principle * (1 – tax rate) +
    principle * (1 – tax rate) * (growth) * (1 – tax rate / 2)
    $1 * (1 – 0.33) + $1 * (1 – 0.33) * (0.10) * (1 – 0.33 / 2)

    = 0.726

  19. trollmonger on June 6, 2012 at 3:19 pm

    My wife owns a house that is not her primary residence. Accordingly, she will pay capital gains taxes when she sells.

    But what will be her tax rate? Is the capital gain part of her income? For example,

    Purchase price: $200K
    Sale price: $600K
    Capital gain is $400K of which $200K is taxable.
    If her employment income is $40K, is her tax rate based on 40K or 240K for that year?

    • FrugalTrader on June 6, 2012 at 9:17 pm

      @trollmonger, best bet would be to input your tax scenario into a tax calc, like taxtips.ca, and see what kind of tax owning there will be. As well, did you wife life in the home at all? If so, then the adjusted cost base will be different than her purchase price.

  20. trollmonger on June 7, 2012 at 12:52 pm

    Thanks FT,

    Taxtips answered my question. It wasn’t the answer I was hoping for though. That’s a lot of taxes!

    She did live in the house before we married. Her parents live there still. I didn’t think to have the house appraised when she moved out but I’m sure we’ll find a way to estimate the value at the time. We just need CRA to agree.

  21. Dan on September 18, 2012 at 12:14 pm

    Hi FT,
    I just found your blog and it is an awesome blog seems I am pretty much on the same boat as you are.

    A quick question about Capital Gain. I have a decent size investment managed by a private investment firm (a division of a big bank) on a non registered account which currently have about $50K capital gain should I liquidate the account. The investment is invested in money market, stocks and bonds in Canada and US.

    I recently decided to learn more about investing and have a self-directed account for RSP and TFSA on a brokerage account of the same bank. My goal this year is to take over my non registered investment account from the private investment firm and self manage it. Hence, avoid the hefty fee that they charge every month.

    My question is: when I am ready to take over my non registered investment account, should I liquidate it and realized the $50K capital gains? or will I be better off to actually transferred the investment to my discount brokerage without liquidating the assets? i.e. carrying the original costs of the investments to the discount brokerage (I understand from my broker that this is possible since both my discount brokerage account and non registered investment are divisions of the same big bank).

    FYI: this year my marginal tax will be very low since I took some time off and have not earn much income (my expected income outside any capital gain will be in the $20K-$30K neighborhood).

    Thanks FT,

  22. FrugalTrader on September 18, 2012 at 7:37 pm

    @Dan, thanks for the kind feedback. Do you still like the investments that are held in the private account? If so, then you should consider simply transferring in-kind to another non-reg account and managing them from there. I believe brokerages will charge about $150 to transfer stocks/bonds over to a new account.

    Does this help?

  23. Dan on September 18, 2012 at 11:11 pm

    Thanks FT,

    I do like some of the investments but will definitely get rid some of it.

    Consideration to liquidate or not was more for the tax purposes since this year my marginal tax will be at lower rate. I thought it would be a good idea to realize the gain. But I am not sure if that will actually matter.

    Thank you.

  24. FrugalTrader on September 19, 2012 at 9:46 am

    @Dan, it’s never a bad thing to pay less tax! However, you also need to look at the big picture and if you would sell the investment at all if it weren’t for the tax consequences.

  25. Mike on February 10, 2013 at 11:17 am

    Let’s assume that I buy 100 shares of the same stock each month for 25 years, and plan to sell them for retirement income as needed. It’s safe to assume that the price per share will change month by month, or year by year.

    In 25 years from now when I start selling portions of my portfolio for retirement income, how do I know what price I paid for the portion of shares I’m selling?


  26. Danielle on February 23, 2013 at 12:43 am

    Mike, the adjusted cost base of the shares is affected each time you buy more shares. If you continue to buy shares and the price per share goes down, then this will decrease your ACB. And subsequently affect any gains you may have. When you eventually sell, the gains and losses are calculated using the adjusted cost base. Think of all the shares going into a cost “pool” in which the cost is adjusted every time you buy more shares of the same company.

    When you do sell the shares the taxes you pay will be based on your marginal tax rate. Any capital gains will be included in your income for that year (50%). The other 50% of the gain is not taxable.

  27. gogernator on December 10, 2013 at 2:18 pm

    HI Folks, I have a quick question – I have a capital loss that I’m carrying of around 11k, I’m going to sell some stock options I have creating a capital gain, is the loss applied against the gain only, or on total amount of the share options excersied? An example would be:

    I excercise 40K in share options and recieve 30K in net cash (50% of 40K is 20K taxed at 50% = 10K in tax). Would my capital loss of 11K be applied against the 20K in capital gain gross ie my 20K becomes 10K and I now only owe 5K in capital gains tax?

  28. Wayne on March 10, 2015 at 11:38 pm

    I’m in something similar to the Smith Manoeuvre. I have a HeLOC and I pay into Segregated funds every month and the interest only payments. As my funds build up in value, eventually, I can cash out and pay off my home. My question is… How do I know what my Tax Hit will be before I cash out? someone said to cash out $30,000 for the next 5 years to minimize Capital Gains Tax? Can you tell me how I would figure out the Tax Hit? I guess I go back to the holder of my Seg Funds and ask them? Both my fund mgr and the holder of the funds said my taxes would be approx. $6,000 on withdrawal of $30K…. when I got my T-3, the capital gains was like $14K! what gives? How do I find out what my taxes on capital gains will be? I’d like to cash out totally but I’m afraid of the Tax Hit.

  29. ova on March 24, 2016 at 9:09 pm

    My question is regarding the superficial loss rule. Are losses only unclaimable when you buy back the same security within 30 days after sale. Or is it also unclaimable if you sell within 30 days after buying. I’ve heard it’s realy a 60 day rule, 30 days before and 30 after. Can you please comment. Thanks.

  30. Mary on September 2, 2016 at 5:48 pm

    Instead of taking my RRSP payment I opened a regular stock account and transfered all of the payment including cash an stocks into it. I paid tax each year on my RRSP amount. I have now got cash sitting in this regular account that I would like to withdraw. Do I have to pay tax on this money which I already paid tax on before?

    • FrugalTrader on September 2, 2016 at 6:24 pm

      Hi Mary, if you are referring to a non-registered account, then you can withdraw cash from the account without paying tax. However, if you had capital gains in the account, you will owe taxes when you file your tax return.

  31. helen dakin on February 9, 2018 at 4:36 pm

    does CRA use the ‘first in first out’ principle for determining the Cost Base for share purchases? For example, if you purchase 500 shares ABC at $50ea and 500 shares of same stock later on at $80ea, followed by selling 600 shares of ABC at $100 each, would your proceeds be computed as: 600 x $100 and your costs computed as: 500x$50 +100x$80 or $33,000 for a net gain of $27,000.
    My friend uses the average cost principle and I am doubtful of this approach.
    With their calculation, they would report proceeds of 600x$100 (60,000) less the average cost of $65 each (600x$65) or $39,000 resulting in a net gain of $21,000. Of course, my friend would have to remember that the value of remaining 400 shares would be at the ‘average’ price of $65 and any subsequent gain would have to be calculated at that base cost (which would be pretty difficult to track in my opinion).

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