How Stocks Are Taxed in Canada: A Plain-English Guide

In Canada, you pay tax on stocks when you sell shares for more than their adjusted cost base (a capital gain, half of which is taxable) and when you receive dividends. Dividends from Canadian companies get a special dividend tax credit, while dividends from US companies are taxed as ordinary income and usually have 15% withheld at source by the US.

In short: for the 2026 tax year, as of November 2026, you include 50% of a capital gain in your income, tax it at your marginal rate, and calculate the gain using the average cost of all your shares of that company. Eligible Canadian dividends are “grossed up” by 38% and then reduced by a federal credit of 15.0198% of the grossed-up amount. Shares held inside a TFSA or RRSP are not taxed this way at all.

This guide uses CRA Guide T4037, Capital Gains, the CRA’s dividend and foreign tax credit pages, and the Canada-US tax treaty. It covers federal rules. Every province and territory adds its own tax and its own dividend credit.

When tax is triggered

Holding shares, even as they rise, creates no tax. Tax arises on:

Dispositions: selling, gifting, or donating shares, or being treated as selling them (for example, on death or when you leave Canada).
Income: dividends, and any interest or distributions paid by funds you own.

The CRA treats most individual investors as holding shares on capital account, so profits are capital gains. A very active trader whose activity looks like a business can instead have profits taxed as business income, which is 100% taxable. Frequency of trades, short holding periods, use of borrowed money, and time spent on trading all push toward business treatment. Canadian residents who are not traders by profession can file Form T123 to elect that all their Canadian securities be treated as capital property, which removes that uncertainty for those shares.

The capital gains inclusion rate: 50%

As of November 2026, the inclusion rate is one half. If you make a $10,000 capital gain, $5,000 is your taxable capital gain and is added to your income.

Many Canadians remember headlines about this changing. The timeline, from Department of Finance and CRA announcements:

April 16, 2024: Budget 2024 proposed raising the inclusion rate to two-thirds for individuals on annual capital gains above $250,000 (and on all gains of corporations and most trusts), starting June 25, 2024.
January 31, 2025: the government deferred the start date to January 1, 2026.
March 21, 2025: the increase was cancelled.
Budget 2025 confirmed the government would not proceed with it.

So for 2024, 2025, and 2026, all capital gains of individuals use the one-half inclusion rate.

Losses work the same way in reverse. Half a capital loss is an allowable capital loss. It can offset only taxable capital gains, not salary or dividends. A net capital loss can be carried back three years or forward indefinitely to use against future taxable capital gains.

2026 federal tax brackets

Your taxable capital gains and dividends are taxed at your marginal rate. These are the federal rates for the 2026 tax year, from the CRA’s current-year tax rates page:

Taxable income	Federal rate
$0 to $58,523	14%
$58,523 to $117,045	20.5%
$117,045 to $181,440	26%
$181,440 to $258,482	29%
over $258,482	33%

The lowest rate dropped from 15% to 14% starting July 1, 2025 (2025 used a blended 14.5%). Provincial or territorial tax is added on top and varies widely.

Adjusted cost base: the averaging rule

In the US you can choose which lot of shares you sell. In Canada you cannot. Shares of the same class of the same company are identical properties, and Guide T4037 requires you to use their average cost.

Your adjusted cost base (ACB) is what you paid for all your shares of that company, including commissions, divided by the number of shares. Each new purchase changes the average. A sale does not change the per-share ACB; it just reduces the number of shares and the total ACB in proportion. Reinvested dividends (through a DRIP) count as new purchases and raise your ACB, because you already paid tax on them. For DRIP mechanics see how dividends work.

Brokers send a T5008 slip showing proceeds of each sale, but the ACB on it may be missing or wrong, especially for shares transferred between brokers. The ACB is your responsibility.

How dividends from Canadian companies are taxed

Canada uses a gross-up and credit system so that a dividend is not fully taxed twice (once as corporate profit, once in your hands).

Most dividends from large Canadian public companies are eligible dividends. According to the CRA’s T5 slip instructions and the instructions for line 40425:

Gross-up: you report 138% of the dividend, so the gross-up is 38%.
Credit: you claim a federal dividend tax credit equal to 15.0198% of the grossed-up amount.

Dividends from small private corporations taxed at the small business rate are usually non-eligible dividends, with a 15% gross-up and a federal credit of 9.0301% of the grossed-up amount.

The gross-up can feel odd: you report more income than you received. It matters for income-tested benefits such as Old Age Security, because the grossed-up figure raises your net income. For more on yield, payout ratios, and how dividend income fits into total return, see dividend investing explained.

US stocks held in a taxable account

Many Canadians own US shares. Three rules matter.

1. US withholding on dividends. The US normally withholds 30% on dividends paid to non-residents. Article X of the Canada-US tax treaty reduces this to 15% for Canadian residents, provided your broker has a Form W-8BEN on file. The US does not withhold on capital gains from selling shares.

2. The full dividend is Canadian income. US dividends do not get the gross-up or the dividend tax credit. You report the full amount (before withholding) in Canadian dollars, and you can usually claim a foreign tax credit on Form T2209 for the US tax withheld, so you are not taxed twice.

3. Currency conversion. Every purchase, sale, and dividend has to be converted to Canadian dollars at the exchange rate on the day of that transaction (the CRA accepts Bank of Canada rates). That means your gain in Canadian dollars can differ from your gain in US dollars, because the exchange rate itself moved.

If the total cost of your foreign property, including US shares held in a non-registered account at a Canadian broker, exceeds $100,000 at any time in the year, you must file Form T1135. Shares held in a TFSA or RRSP do not count.

How US dividends are treated inside a TFSA versus an RRSP is quite different, and is covered in Canadian registered accounts explained.

How the kinds of investment income compare

The same dollar of investment return is taxed very differently depending on what form it takes. For an individual in a non-registered account, federal treatment for the 2026 tax year looks like this:

Type of income	Amount included in income	Federal credit	Taxed when
Capital gain on shares	50% of the gain	None	You sell
Eligible Canadian dividend	138% of the dividend	15.0198% of the grossed-up amount	You receive it
Non-eligible Canadian dividend	115% of the dividend	9.0301% of the grossed-up amount	You receive it
Foreign (for example US) dividend	100%, in Canadian dollars	Foreign tax credit for tax withheld	You receive it
Interest	100%	None	Each year, even if not paid out (for some compound investments)

Two features of the system follow from this table. First, deferral: a capital gain is taxed only when you choose to sell, while dividends and interest are taxed every year. Second, at low and moderate incomes, eligible dividends can carry a very low federal rate, and in some provinces a negative combined rate on the dividend itself at the lowest brackets, because the credit exceeds the tax. At the top bracket, the advantage of dividends over gains narrows or reverses. Your province’s rates decide which way it goes.

Where it goes on your return

Schedule 3: each disposition of shares, with proceeds, ACB, and outlays, then the taxable capital gain flows to line 12700.
Line 12000: total taxable (grossed-up) amount of dividends from Canadian corporations. Line 12010 shows the portion that is non-eligible.
Line 40425: federal dividend tax credit.
Line 12100: foreign dividends and interest, in Canadian dollars.
Form T2209 / line 40500: federal foreign tax credit.

A worked example

A Canadian resident has $80,000 of employment income in 2026, which puts her in the 20.5% federal bracket. Her non-registered account holds a Canadian company (call it Maple Widgets Inc.) and one US company. All figures below are federal tax only.

Capital gain, averaged

Date	Action	Shares	Cost or proceeds	Total shares	Total ACB	ACB per share
2024	Buy	100	$4,000 + $10 fee	100	$4,010	$40.10
2025	Buy	50	$2,600 + $10 fee	150	$6,620	$44.13
2026	Sell	100	$6,000 - $10 fee	50	$2,206.67	$44.13

On the 2026 sale:

ACB of shares sold: 100 × ($6,620 ÷ 150) = $4,413.33
Net proceeds: $6,000 - $10 = $5,990.00
Capital gain: $5,990.00 - $4,413.33 = $1,576.67
Taxable capital gain (50%): $788.33
Federal tax: $788.33 × 20.5% = $161.61

Eligible dividend from a Canadian company

She receives $1,000 of eligible dividends.

Grossed-up amount: $1,000 × 1.38 = $1,380
Federal tax before credit: $1,380 × 20.5% = $282.90
Dividend tax credit: $1,380 × 15.0198% = $207.27
Net federal tax: $75.63, an effective federal rate of about 7.6% on the cash received.

For comparison, $1,000 of interest would cost $205 in federal tax at the same bracket.

Dividend from a US company

She receives a US$500 dividend. Assume, for illustration only, an exchange rate of US$1 = C$1.38 on the payment date.

Canadian-dollar amount: $500 × 1.38 = C$690
US withholding (15%): C$103.50, so C$586.50 lands in her account
Federal tax: $690 × 20.5% = $141.45
Federal foreign tax credit: up to $103.50
Net additional federal tax: $37.95

In total, the US dividend costs her C$103.50 + C$37.95 = C$141.45 in combined US and Canadian federal tax. That is 20.5% of the C$690 dividend, the same rate as interest, compared with about 7.6% on the eligible Canadian dividend above. Provincial tax and provincial dividend credits would change every one of these numbers, so treat this as an illustration of the mechanics, not a calculator.

What can go wrong

Using the wrong ACB. Picking your highest-cost shares, as Americans can, is not allowed. Average all identical shares across all your non-registered accounts.
Forgetting reinvested dividends in ACB. If you leave them out, you pay tax on the same money twice.
Superficial losses. Selling at a loss and buying the same shares back within 30 days (before or after) can deny the loss for now. See wash sale and superficial loss rules.
Missing the W-8BEN. Without it, the US can withhold 30% instead of 15% on US dividends.
Ignoring currency. A US stock that was flat in US dollars can still produce a Canadian-dollar gain or loss if the exchange rate moved.
Missing T1135. Penalties for late filing apply even when no tax is owed.
Believing old headlines. The two-thirds inclusion rate was never enacted. As of November 2026 the rate is 50%.

The short version

For the 2026 tax year, half of a capital gain on shares is taxed at your marginal rate, and half of a capital loss can offset taxable capital gains. The proposed increase to two-thirds was cancelled in March 2025. Calculate gains with the average cost of all identical shares. Eligible Canadian dividends are grossed up by 38% and earn a federal credit of 15.0198% of the grossed-up amount, which makes them lightly taxed. US dividends are fully taxable in Canada, with 15% usually withheld by the US and recovered through the foreign tax credit. The US side of the border works quite differently, as explained in how stocks are taxed in the US.

This is general education, not tax or legal advice. Tax rules depend on your circumstances, including your province of residence, and change over time. For decisions about your own return, consult a qualified tax professional or the CRA directly.