At a Glance
When you sell a capital asset (shares, real estate, or cars etc.) at a profit, that is a capital gain. A capital gain is what remains after you sell an asset for more than you paid for it.
In Canada, 50% of a capital gain is taxed at a marginal rate. A marginal tax rate of say, 10%, means that for every $10 you earn, $1 is taken as a tax. Consider the example below:
A Simplified Example
This year, a realtor based in Rossland sold a housing unit for $200,000 having constructed it for $130,00. Based on that Capital Gain ($70,000), his tax rate is 7.70%.
The realtor's capital gain will be calculated as follows:
Marginal Tax Rate: 7.70%
Capital Gain: $70,000 ($200,00 - $130,000)
Capital Gain that remains after tax:
Only 50% of Capital Gain is taxed at a Marginal Tax Rate: $35,000 ($70,000 x 50%)
Capital Gain Tax: $2,695 ($35,000 x 7.70%)
Net Capital Gain (or Take-home Capital Gain):
$67,305 ($35,000 - $2,695 + Untaxed 50% Capital Gain [$35,000])
What Capital Gains mean for your business
While it is unavoidable that you will pay tax on the capital gains your business earns in any given year, your accountant should be able to discuss available options to ensure that your capital gains tax doesn't necessarily break the bank.