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Understanding Capital Gains Taxes in Canada In Canada, capital gains taxes can quickly erode your wealth, making it one of the most important issues that must be dealt with in a wealth preservation strategy. While avoiding capital gains tax completely isn’t possible, there are still plenty of strategies that can be implemented to minimize the effects it has on your wealth. How is the Capital Gain Tax Applied? In Canada, 50% of any capital gains are taxed. The capital gains tax has a variety of wide-reaching effects; it can reduce the amount you receive through your investments, or reduce the amount of wealth you end up passing on to your heirs. On a positive note, only realized capital gains are actually taxed. That means that the capital gains tax is only applied when you sell an asset; if your asset only increases in value on paper (an “unrealized” capital gain), you do not need to pay taxes on this gain. How Can I Reduce the Capital Gains Tax I Pay? Offset Your Capital Gains When your capital gains are offset with a capital loss, you can reduce the amount of Canadian capital gains tax you pay. This can be done by selling your stocks, assets, or other investments at a loss. This also has the added benefit of allowing you to rid yourself of low-performing investments. However, keep in mind that the asset or investment must be sold at its fair market value; you cannot superficially undervalue the worth of the investment or asset.