What Selling Costs Can You Deduct From a Capital Gain in Canada?

When you sell something that has gone up in value, the tax is not charged on the whole sale price. Costs on both ends of the deal can shrink the gain, but they work in two different ways.

Costs of buying are generally part of the cost base, and costs of selling are subtracted separately. This article explains the difference, what cannot be counted, and how the adjustments show up on your return.

This article covers Canadian federal tax law, which applies in every province.

The basic formula

To calculate a gain, subtract the property's adjusted cost base (ACB) and the outlays and expenses of selling from the proceeds of disposition. The CRA example sells 400 shares for $6,500 with a $60 commission and a $4,000 ACB. The gain is $2,440, and half of it, $1,220, is the taxable capital gain reported on line 12700.

Notice that the commission lowers the gain just as the cost base does. The result is the same arithmetic, but the amounts are reported in different columns.

The taxable portion depends on the inclusion rate. Under the Income Tax Act, the taxable capital gain is one-half of the capital gain. The proposed increase to two-thirds was cancelled, so the one-half rate applies to gains realized in 2024, 2025 and 2026. If taxable capital gains exceed allowable capital losses, the difference is included on line 12700 and taxed at your marginal rates along with your other income.

Costs that belong in the cost base

ACB is usually the cost of a property plus the expenses to acquire it, such as commissions and legal fees. Current expenses such as maintenance and repairs cannot be added to the cost base.

Whether a particular cost is a lasting improvement or a current expense depends on the facts, and an accountant can help you sort the two. Keep invoices either way.

For identical properties, such as shares of the same class or units of a mutual fund trust, the average ACB is recalculated at each purchase, and a disposition does not change the average ACB per unit. If you sell only part of a property, divide the ACB between the part you sell and the part you keep.

Adjustments that move the cost base

• T3 slip box 42: a negative amount is added to the ACB of the units, and a positive amount is subtracted. This is how return of capital and reinvested distributions change the ACB of trust or mutual fund units.
• ACB below zero: if subtracting a positive box 42 amount would take the ACB below zero, the ACB becomes zero and the amount that would have taken it below zero is deemed a capital gain for the year, reported on line 13200 of Schedule 3.
• Foreign currency: convert proceeds at the exchange rate at the time of the sale, the ACB at the rate when the property was acquired, and outlays at the rate when they were incurred, then report in Canadian dollars.
• Lower limit: under the Income Tax Act definition, ACB can never be negative.
• Superficial loss: a loss is superficial if you or a person affiliated with you, such as your spouse or common-law partner or a corporation you or your spouse control, acquires the same or identical property from 30 days before to 30 days after the sale and still owns it, or has a right to acquire it, at the end of that period. It cannot be deducted and is usually added to the cost base of the substituted property, though situations such as the owner becoming a non-resident or the owner's death are not treated as superficial losses.

Where the numbers go on your return

Schedule 3 Part 3 reports dispositions in columns: proceeds of disposition (column 2), ACB (column 3), outlays and expenses (column 4), and gain or loss (column 5). A positive result goes to line 12700, and a negative result does not.

Capital gains or losses shown on T3, T4PS, T5 or T5013 slips are generally reported on line 17400 or 17600 of Schedule 3.

If you sold or are considered to have sold your principal residence or part of it, include Form T2091(IND) and report the sale on Schedule 3. A late designation may attract a penalty.

One exception matters for quick resales. A gain on a Canadian housing unit owned for less than 365 consecutive days is deemed to be business income and is not a capital gain. The rule does not apply where the sale is due to a qualifying life event, such as death, relationship breakdown (at least 90 days of separation), serious illness or involuntary job termination.

What to do next

• Pull together the purchase statement, legal invoices and any commission statements.
• Keep the sale statement showing the selling costs.
• Separate lasting improvements from routine repairs and keep invoices for both.
• Check T3 slips for box 42 amounts if you hold funds or trusts.
• Report the sale in the calendar year it occurs, even if no tax is owing, and ask an accountant to review any unclear items.

Frequently asked questions