How Are Shares Taxed in Canada?

Stocks or shares—also known as “equities”—are a type of security representing ownership of a fraction of a corporation. They are one of the most popular ways to invest due to their potential for growth and diversity in an investor’s portfolio.

However, just like all aspects of finance, there are certain rules and regulations that apply to stocks, including how they are taxed. Those rules also vary depending on which country you live in and the laws there. So, how are public securities such as shares taxed in Canada?

Canada and Tax on Public Equity Shares (Stocks)

The Canadian tax system classifies equity shares as either Canadian or foreign. Canadian stocks are taxed differently from foreign stocks, so it’s important to understand the difference between the two. Canadian stocks are taxed as capital gains, while foreign stocks are taxed as foreign income.

A “capital gain” refers to how your stocks have increased in value—appreciated—since you bought them. However, you may also have a “capital loss”, which means that your investment lost money during the time you owned it. Depending on your particular situation, you may be able to use this to reduce your taxable capital gain in the future.

Capital gains are taxed at half of your marginal tax rate. This means that only 50% of the capital gain is taxed. For example, if you have a capital gain of $10,000, you will only be taxed on $5,000 of that gain. Capital gains are calculated by subtracting the cost of the stock (known as the adjusted cost base) from the sale price of the stock.

On the other hand, foreign stocks are taxed as foreign income and are subject to your full marginal tax rate. However, a foreign tax credit may be available to offset some or all of the foreign taxes paid on foreign stocks. This credit is calculated based on your marginal tax rate and the foreign taxes paid.

Additionally, when Canadian residents sell foreign stocks, they may also be subject to withholding taxes in the foreign country where the stocks are traded. This withholding tax can vary from country to country, so it is important to research the specific country's withholding tax rate before investing in foreign stocks.

If you are looking for tax-advantaged investment options in Canada, there are also Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). These options allow Canadians to invest in stocks and receive tax benefits. Investments in TFSAs are not taxed, regardless of whether they are Canadian or foreign stocks. On the other hand, RRSPs provide a tax deduction for contributions made and taxes are deferred until the funds are withdrawn.

As with all other finances, taxes can be a confusing part of owning, trading, and selling stocks. But understanding how stocks are taxed can be incredibly beneficial to your personal finances. This can help you make more informed investment decisions and minimize the tax impact of your investments.

One way to avoid having to pay capital gains tax on stocks at all is by donating them to charity. This is beneficial for both you and the charity, as the charity receives the full value of your stock and you receive tax benefits for your gift without having to pay capital gains tax.

Charitable giving is an opportunity to bless others as Christ blessed us. It’s also an important part of a sound financial plan. The Canadian National Christian Foundation provides philanthropic advice and wants to connect God’s money with God’s work. 

Our staff, our leadership, and our board are all believers who want to help you manage your assets and guide you through creative giving solutions that also benefit you. We can handle non-cash gifts efficiently, getting the money into the field as soon as possible with 100% of your principal always available for your charitable grant recommendations. You can get started by opening a donor-advised fund today!

About Canadian National Christian Foundation

CNCF is a community of givers who are seeking to advance the Kingdom of God by connecting the resources God has entrusted to them with His work on earth.

Similar to other public foundations, CNCF’s difference is the commitment of its staff and directors to the Word of God, its non-denominational history and status as a Christian foundation, and its ability to allow donors to donate anonymously, at a time and gift value of their choosing.  Learn more by visiting our website.