How to report capital gains on your Canadian tax return

The first time I had to report capital gains on my tax return, I stared at my T5008 slip for a solid ten minutes. It had a number I didn’t recognize, a box labelled “proceeds of disposition,” and no mention of what I actually paid for the shares. I thought the brokerage was supposed to handle this. Turns out, they give you part of the picture and expect you to fill in the rest.

If you sold investments in a non-registered (taxable) account last year, you probably need to report those sales to the CRA. The good news is the process isn’t as complicated as it looks. The bad news is that your brokerage slip alone isn’t enough. You need to know your numbers.

None of this is financial or tax advice. Tax rules are specific and change more often than you’d expect, especially around capital gains. If you’re unsure about anything, it’s worth talking to an accountant.

First: does this apply to you?

Capital gains reporting only applies to investments held in non-registered (taxable) accounts. If all your investments are inside a TFSA, RRSP, RESP, FHSA, or other registered account, gains and losses inside those accounts don’t get reported on your tax return. That’s one of the main benefits of registered accounts.

The moment you sell something in a non-registered account for more than your adjusted cost base (ACB), you have a capital gain. Sell for less, and you have a capital loss. Either way, the CRA wants to know about it.

The T5008 slip: what your brokerage sends you

After the tax year ends, your brokerage will send you a T5008 slip (Statement of Securities Transactions) for each sale you made in a non-registered account. This slip reports the proceeds of disposition, which is the amount you received when you sold.

Here’s the important thing about the T5008: it’s an informational slip. It tells the CRA that a sale happened and how much you received. But it often does not include your adjusted cost base, or if it does, the number may be wrong. Brokerages aren’t required to track your ACB accurately, and they frequently get it wrong, especially if you’ve transferred shares between accounts, reinvested dividends, or held the investment across multiple brokerages.

The CRA knows this. They expect you to calculate and report the correct numbers yourself. The T5008 is a starting point, not the final answer.

Where you report: Schedule 3

Capital gains and losses go on Schedule 3 of your T1 tax return. This is the form where you list every disposition (sale, transfer, or deemed disposition) that happened during the tax year.

For each transaction, you’ll need four pieces of information:

Proceeds of disposition. What you sold for. This is the number on your T5008.

Adjusted cost base (ACB). What you paid, adjusted for all purchases of the same security (calculated as a weighted average), reinvested distributions like DRIPs, return of capital, and any other adjustments. If you’re not sure how ACB works, the ACB guide walks through it step by step.

Outlays and expenses. Any costs directly related to the sale, like trading commissions. Many brokerages in Canada are commission-free now, so this may be zero.

Gain or loss. Proceeds minus ACB minus expenses. If the number is positive, it’s a gain. If it’s negative, it’s a loss.

You fill in these fields for each sale, then total everything up at the bottom of Schedule 3.

How the gain gets taxed

Once you’ve calculated your total capital gains for the year, only a portion of that amount gets added to your taxable income. This is the inclusion rate.

Historically, the inclusion rate has been 50%, meaning half of your capital gain is taxable. You then pay tax on that included amount at your marginal tax rate. So a $10,000 gain doesn’t mean $5,000 in tax. It means $5,000 gets added to your income, and you pay your marginal rate on that.

The rules around the inclusion rate have been changing in recent federal budgets, particularly for gains above $250,000 for individuals. If your total capital gains are significant, verify the current inclusion rate with the CRA or an accountant before filing. This is one area where getting it wrong could be costly.

Using losses to offset gains

If you have both capital gains and capital losses in the same year, the losses offset the gains. You report both on Schedule 3, and only the net amount is subject to tax.

If your losses exceed your gains, you have a net capital loss for the year. You can carry that loss back up to three years to offset gains you already paid tax on (and potentially get a refund), or carry it forward indefinitely to use against future gains. Capital losses never expire.

To carry a loss back, you file a request on your tax return (or separately using a T1A form). To carry it forward, the CRA tracks your unused balance automatically.

One important rule to know: the superficial loss rule. If you sell an investment at a loss and buy the same (or identical) security within 30 calendar days before or after the sale, the CRA denies the loss. The 30-day window applies to purchases by you, your spouse, or a corporation you control. If you’re planning to harvest losses, you need to wait out the window or swap into a similar but not identical investment.

A step-by-step example

Let’s say during the year you sold two investments in your non-registered account.

Sale 1: You sold 200 shares of an ETF for $8,000. Your ACB for those shares was $6,000. Commission was $0 (commission-free brokerage). Your gain is $8,000 minus $6,000 = $2,000.

Sale 2: You sold 100 shares of a stock for $3,000. Your ACB was $3,800. Commission was $10. Your loss is $3,000 minus $3,800 minus $10 = negative $810. That’s an $810 capital loss.

On Schedule 3, you’d list both transactions. Your total capital gains are $2,000 and your total capital losses are $810. Your net capital gain is $1,190.

At a 50% inclusion rate, $595 gets added to your taxable income. If your marginal tax rate is 35%, you’d owe about $208 in additional tax. Not nothing, but probably less scary than it sounded before you did the math.

Common mistakes to avoid

Using the wrong ACB. This is the most common error. If you bought the same security multiple times, your ACB is the weighted average of all purchases, not just the most recent one. And if you reinvested dividends through a DRIP, each of those reinvestments counts as a purchase that adjusts your ACB. Miss those, and you’ll overstate your gain and overpay tax.

Trusting the T5008 blindly. Your brokerage’s slip may show an ACB of zero, or a number that doesn’t account for transfers, DRIP purchases, or return of capital adjustments. Always verify.

Forgetting about reinvested distributions. If you’ve been reinvesting dividends for years, you could have dozens of small purchases that each nudged your ACB higher. Ignoring them means reporting a bigger gain than you actually had.

Not reporting at all. Some people assume that if they didn’t receive a tax slip, they don’t need to report the sale. That’s not how it works. You’re responsible for reporting all dispositions in non-registered accounts, whether or not you received a slip. The CRA receives a copy of your T5008, so they know the sale happened.

Forgetting deemed dispositions. Transferring investments from a non-registered account into a TFSA or RRSP is treated as a sale at market value. If the investment had gone up, you owe capital gains tax on the transfer even though you didn’t sell on the open market. Same goes for gifting investments or the deemed disposition that happens on death.

What if you have a lot of transactions?

If you traded frequently during the year, listing every single transaction on Schedule 3 can be tedious. The CRA allows you to attach a summary or spreadsheet showing all your transactions instead of listing each one individually on the form. The totals still go on Schedule 3, but the detail can be on a separate sheet.

If you use tax software, most programs let you enter each transaction and will calculate the totals for you. Some will even import T5008 data directly, though you’ll still need to verify and correct the ACB.

Filing tips

Keep records. The CRA can ask for documentation at any time. Keep records of every purchase, sale, DRIP reinvestment, and return of capital distribution. Trade confirmations, account statements, and T5008 slips should all be saved.

Don’t wait until April. If you have capital gains to report, start gathering your numbers early. Reconstructing your ACB from years of statements at the last minute is stressful and error-prone.

Consider a tax professional. If you had complex transactions (stock options, foreign property, significant gains), an accountant who understands investment taxation is worth the cost. The filing fee is often less than the tax you’d overpay by getting the numbers wrong.

The short version

You sold investments in a non-registered account. Your brokerage sends you a T5008 showing what you sold for. You calculate your ACB, subtract it from your proceeds, and report the gain or loss on Schedule 3 of your tax return. Only a portion of the gain (the inclusion rate) gets added to your taxable income. Losses can offset gains, and unused losses carry forward indefinitely.

The numbers matter, and the brokerage won’t do the work for you. But once you understand the four fields on Schedule 3, it’s just arithmetic.