Capital Gains

Capital Gains

In our previous CH Minute, we looked at volatility and changing investment prices. This week, we look at what happens after your investments have increased in value and it is time to sell: how capital gains arise, how they’re taxed, and why they are taxed the way they are.

How do capital gains arise?

A capital gain is an increase in the value of an investment such as a stock, property, mutual fund, or other asset that you own in a non-registered account (outside of an RRSP, LIRA, or TFSA).

When you still own the asset, any capital gain that you may have is considered “unrealized”. That is, the gain is still hypothetical until you sell the asset and realize the gain. In Canada, capital gains are taxable only when the gain is realized: when the asset is sold and you have either received your proceeds or those proceeds are due to you.

The main thing that differentiates capital gains from other income sources like employment income, dividends, interest, and business sales is that capital gains are only partially taxable. Whereas you need to pay tax on 100% of your income receipts, you only need to pay tax on 50% of your capital gain. For example, if you buy a stock or share for $100 and then sell it five years later for $400, then your capital gain is $300 ($400 – $100) and the taxable portion of that gain is $150 ($300 x 50%).

The history of capital gains taxes

Capital gains have not always been treated the same way by the Canadian government. In fact, it’s only in the last 20 years that gains have been treated as they are now.

Before 1972, capital gains were not taxed; in this year, a tax on 50% of capital gains was introduced to increase fairness in our tax system and help fund social security. In 1988, the inclusion rate (the percentage of the gain that is taxable) was increased to 66.67%. In 1990, this was increased again to 75%.

In early 2000, the inclusion rate was lowered back down to 66.67%, and then it was lowered again to 50% in later 2000. It has remained unchanged at this level ever since.

The future of capital gains taxes and their impact on investors

Many Canadians have unrealized capital gains built up in their investment holdings and part of our long-term planning for our clients involves preparing for the inevitable taxes that will result when these investments are sold. This planning is straightforward when we assume that the current tax treatment and tax rates will persist. However, if our history tells us anything, it’s that we can’t rely on tax policies staying the same forever.

You may have heard talks in the news recently that the capital gain inclusion rate could increase back up to 75%. On the one hand, we can say that rumors of increases have floated around for years without rates changing. But what would happen if the government raises the inclusion rate back up to 75%? That could mean future payment of thousands or tens of thousands of dollars in extra income taxes. That is something we would all like to avoid, or, at the very least, we’d like to be able to plan for this in advance to be ready for the cash needs.

Using our previous capital gains example of a stock bought for $100 and sold later for $400 the gain of $300 would potentially have to pay tax on $225 of income instead of $150. The total tax bill could be up to 50% higher.

Capital Gains and Mutual Funds

Before wrapping up there is one other important point to keep in mind. Mutual funds as a rule are structured in such a way as to maximize capital gains since this remains the most tax efficient way to earn income in Canada. This benefits fund owners in two ways. First, it makes tax planning much simpler. When an investor holds a bunch of individual securities, decisions need to be made on when and where to realize gains and losses, how to offset interest and foreign income (which is very tax inefficient), and otherwise manage tax liabilities as they arise. Mutual funds do this automatically as a part of their mandate.

Secondly, most, if not all of the capital gains earned within the fund stay in the fund and are not triggered until the client elects to do so. This means income can be transferred from high tax years into lower tax years in the future (such as after retirement). The potential tax savings, especially when coupled with the benefits of staying invested for the long term, and maximizing the time value of money make this type of investing even more attractive.

This is why at CH Financial, we don’t just manage your investments. We also consider your tax needs and future planning. In the case of capital gains and the future taxes that may be owed, we consider the use of tax-protected investment vehicles, as well as other strategies to monitor your accounts to look to minimize your tax liabilities.


This edition of the CH Minute we discussed the benefits of investing in mutual funds due to their tax efficiency benefits. Not only do they have the ability to defer capital gains years into the future but they also don’t have the liquidity issues that individual equities typically do. We at CH strongly believe in our ability to offer competitive returns though our mutual fund products as well as efficient tax saving benefits. This puts our clients at an advantage by being in this type of investment. As always, we encourage conversation and if you have further questions, please do not hesitate to reach out to us.

As always, we welcome any questions or comments.



All the best,

Stephanie Murray, Chief Financial Officer

& Your CH Financial Team


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We’re looking for aspirational clients who require the whole spectrum of financial services because managing the whole is how we’re able to deliver unbeatable value – it’s our “secret sauce.”If this describes you, let’s set up a meeting andget to know each other.

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I just want to say we have been with your team since 1993, and we have never had any bad advice. The investments you set up for us during this time has paid for university education for our two granddaughters and provided a significant monthly income for us to augment our pensions.

We are with you for the long run and are not going anywhere. Jeremy has told us that at these times the numbers tend to scare you, but you haven’t really lost anything if you don’t panic and sell.

Ken M, Calgary

With CH Financial since 1993

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When I became a client of CHF it was a real game-changer as I was going through a very difficult time both professionally and personally.

I went through a divorce and the loss of a job and a parent, all within a 12-month period. While it was very tough to deal with at the time, I was reassured by the fact that the team at CHF had my back and really cared about me and what I was going through.

Looking back now, I’m not sure how I would have managed without the support of the CHF family.

Jeremy and his team were there every step of the way to help me navigate my way through the complexities of a divorce and inheritance. They got me back on track both financially, as well as emotionally.

I have now been a client of CHF for over 10 years and thanks to their expertise, I know that my family will be well taken care of for many years to come. I am now in a position where I don’t need to worry about money thanks to a solid financial plan.

I would highly recommend the CHF team to others going through life-changing and difficult situations as your financial partner.

Linda, Victoria

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As an investment industry professional, I am constantly on the go and maximizing my peak career earning years in my 40s. With travel and work commitments I am very limited for time to spend with family and do the things I love to do and chose CH Financial to allow me more freedom and lifestyle balance.

Being in the investment industry my whole career and an extremely busy professional, I know I could probably do a good job at managing my money as I work in the industry after all while I rely on and trust the CH Financial team that they will take care of the details, both growing my assets as well as taking care of every aspect of my financial situation, including my tax, investments and insurance, they simply take away the stress of having to worry about it all and help me to navigate the complexities for me so it all meshes together and importantly saves me valuable time and headaches.

At the end of the day, the reality is I truly value my time and the opportunity cost of my time and would rather hire the best in the industry so ultimately my wife and I can do the things that we love to do, have more leisure time, relax and enjoy spending time in the great outdoors, exploring new countries, hiking in the mountains and volunteer work.

Since engaging CHF more than 5 years ago we have enjoyed significant growth in our investments but more importantly, we have peace of mind and sleep much better at night knowing the team at CHF has our financial back and anything financial they will take care of for us.

I would have absolutely no hesitation in recommending the team at CHF to other career-focused busy professionals who really value their time and lifestyle balance.

Kevin & Sharron, Calgary

Financial industry professionals

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Prior to joining CH Financial as a client, I had been partially managing our investments and using a bank-owned broker for many years, with moderate success. When we became clients of CHF, I quickly realized how little I knew about the complexities of managing investments and the importance of seeking out the best specialists in the industry to assist with my family’s full financial picture.

Brian and the team at CHF encouraged us to take an introspective look at our assets and expenditures and even helped us implement a comprehensive budget. The team really stepped up to take care of all aspects of our financial picture, including portfolio design, CH Financial introduced us to a lawyer who took care of everything for us, estate planning and tax, while helping us simplify our financial affairs.

Being of the sandwich generation my wife and I spend considerable time caring for our surviving parents and our grandkids, so

freeing up valuable time is essential to allow us to do the things we love to do. The team at CHF takes care of the details and today my wife and I enjoy a comfortable, stress-free financial situation.

Over the years as a client of CHF, both our portfolio and wealth has grown exponentially, more than we could have ever imagined. Now that we are both happily retired, having the CHF team in our corner helps us to sleep better at night knowing that our somewhat complex financial puzzle is being looked after by a team of people that really care, as opposed to being treated like a number by a big bank.

I would have no hesitation in recommending the CHF team to others looking for a superior financial home in Calgary and a safe place to invest your hard-earned money.

Ian C, Calgary

Comfortably retired thanks to CH Financial