Investment taxes: capital gains, ACB and tax-loss selling

Topic: Investing Deep Dive · Part 5 of 8 · ⚫ Expert

In one sentence

In a non-registered account, you pay tax on half of your capital gains, so you must track your adjusted cost base, watch the superficial loss rule and keep your tax slips.

Words to know

Capital gain or loss: the difference between what you sold an investment for and what it cost you.
Inclusion rate: the part of a capital gain that is added to your income. It is one-half.
Adjusted cost base (ACB): your total cost for an investment, including commissions, after adjustments.
Superficial loss: a loss the CRA does not let you claim because you (or someone affiliated with you) bought the same investment back too soon.
Tax-loss selling: selling an investment at a loss on purpose, to lower tax on your gains.

This post is about non-registered (taxable) accounts. Inside a TFSA, RRSP or FHSA, you do not report each sale.

Step 1: Know the inclusion rate for 2026

Only half of a capital gain is added to your income. In 2024, the government proposed raising this to two-thirds for some gains. The increase was later cancelled, according to the CRA. For 2026, the inclusion rate stays at one-half.

Capital losses work the same way: half of a loss is an “allowable capital loss”. It can reduce taxable capital gains. It cannot reduce your job income. Unused net capital losses can be carried back three years or forward with no time limit.

Step 2: Track your ACB with the average-cost method

When you buy the same investment more than once, the CRA treats all units as “identical properties”. Your ACB per unit is the average cost of all units.

Each time you buy: add the price plus commission to your total cost. Then divide by the number of units you own.
Each time you sell: your ACB per unit does not change. Your total ACB goes down by the units sold × ACB per unit.
Return of capital (box 42 on a T3 slip) reduces your ACB.
Reinvested distributions add to your ACB.
For U.S. dollar purchases, convert to Canadian dollars using the Bank of Canada rate on the day of each trade.

Keep your own spreadsheet. Your broker’s “book value” may be wrong, especially after transfers between brokers.

Step 3: Avoid the superficial loss rule

If you sell at a loss, the CRA may deny the loss when both of these are true:

You, or a person affiliated with you, buys the same or an identical property in the period from 30 calendar days before the sale to 30 calendar days after it.
You, or that person, still owns it 30 calendar days after the sale.

Affiliated persons include your spouse or common-law partner, and a corporation controlled by you or your spouse. The CRA’s list also includes a trust and its majority-interest beneficiary. Many tax professionals warn that this can catch a purchase in your own RRSP or TFSA. In that case, the loss may be lost for good. Ask a tax professional if this applies to you.

A denied loss is usually added to the ACB of the new units, so you get the benefit later when you sell them.

Step 4: Use tax-loss selling carefully

Sell an investment that is below your ACB, to “realize” the loss.
To stay invested, some people buy a similar but not identical ETF, for example one that follows a different index. Whether two funds are “identical” can be unclear, so ask a tax professional if you are unsure.
Or wait more than 30 calendar days before buying the same one back.
The trade must settle in the calendar year to count for that year. Canada uses T+1 settlement (one business day after the trade). Check your broker’s year-end deadline.

Step 5: Collect your tax slips

Slip	What it shows	Watch out for
T5	Interest and dividends, mostly from Canadian companies and banks	Report interest even without a slip (slips may not be issued under $50)
T3	Income from trusts, including most Canadian ETFs and mutual funds: dividends, capital gains, foreign income, return of capital	Box 42 (return of capital) changes your ACB
T5008	Proceeds when you sold or redeemed securities	The cost shown may not be your ACB. You must adjust it yourself.

Checked October 2026 on canada.ca.

Example

In a non-registered account, you buy the same ETF twice:

Buy 1: 100 units × $20 = $2,000, plus $10 commission = $2,010.
Buy 2: 50 units × $26 = $1,300, plus $10 commission = $1,310.
Total: 150 units, ACB $2,010 + $1,310 = $3,320. ACB per unit: $3,320 ÷ 150 ≈ $22.13.

Later, you sell 60 units at $30, with a $10 commission:

Proceeds: 60 × $30 = $1,800.
ACB of units sold: $3,320 × 60 ÷ 150 = $1,328.
Capital gain: $1,800 − $10 commission − $1,328 = $462.
Taxable capital gain: $462 × ½ = $231, added to your income.
You still own 90 units with ACB $3,320 − $1,328 = $1,992 (still about $22.13 per unit).

Superficial loss example: you buy 100 units of another ETF for $5,000 and sell them for $4,000, a $1,000 loss. Ten days later, your spouse buys the same ETF and still owns it 30 days after your sale. Your $1,000 loss is denied. It is usually added to the ACB of your spouse’s units.

Common mistakes

Using the T5008 or broker’s book value as your ACB without checking it.
Forgetting commissions, reinvested distributions or return of capital in your ACB.
Selling for a loss and buying back within 30 days, in any account you or your spouse control.
Waiting until the last trading day of December for tax-loss selling.

✅ My checklist

☐ I know only half of a capital gain is taxed in 2026.
☐ I keep my own ACB record for every non-registered investment.
☐ I check the 30-days-before-and-after window before I sell at a loss.
☐ I collect my T5, T3 and T5008 slips and check them.
☐ I talk to a tax professional before complex tax-loss selling.

Next in this topic → Part 6: Dividend investing: pros, cons and the dividend tax credit

Back to the topic → Investing Deep Dive

There are no affiliate or referral links in this post. This is general information, not financial, tax or legal advice; everyone’s situation is different. Figures were checked in October 2026 and can change.

Sources: CRA: What’s new for corporations (inclusion rate increase cancelled) · CRA: Guide T4037 Capital Gains · CRA: Capital losses and superficial losses · CRA: T5 Statement of Investment Income · CRA: T3 Statement of Trust Income · CRA: T5008 Statement of Securities Transactions · CRA: Line 12100 Interest and other investment income · CSA: Move to T+1 settlement