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What are capital gains? Why do you need to know this definition? The MoneySense Glossary is your resource for learning and understanding financial terms.
A capital gain is the increase in value on any asset or security since the time it was purchased, and it is “realized” when the asset or security is sold. (Similarly, a capital loss is realized when you sell an asset that has decreased in value since the time of purchase.) Capital gains (or losses) can happen on stocks, mutual funds and real estate.
When it comes to paying taxes, 50% of the value of capital gains is taxable. So when you sell your non-registered investments at a higher price than you paid, known as realized capital gains, you have to add 50% of the capital gain to your taxable income. How much tax you pay on capital gains depends on the income tax bracket you fall into with the additional income from capital gains.
There are ways to minimize your capital gains and reduce the taxes owed , including investing within registered accounts, timing when you sell, deferring your earnings or selling investments at a loss to offset capital gains.
Example: “I want to sell some stocks, but I’m waiting for the right time to delay paying capital gains tax.”
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