Tax on Stocks in Canada: ACB, Dividends, U.S. Shares

The short version

Selling a stock, ETF or fund for more than you paid is a capital gain; half of the gain is added to your income. Selling at a loss is a capital loss that offsets gains.
Your cost (adjusted cost base) is the average cost of all identical shares you own, in Canadian dollars, including commissions. Not the lot you think you sold.
Canadian dividends get the dividend tax credit; U.S. and other foreign dividends are fully taxable, with a credit for the foreign tax withheld.
In a TFSA, none of it is taxed; in an RRSP, nothing is taxed until you withdraw. Your broker's T5 and T5008 slips help, but the cost on a T5008 is often wrong or missing.
Frequent, short-term trading can be business income, fully taxed. Selling and buying back within 30 days for a loss is blocked by the superficial loss rule.

Tax on Stocks and Investments in Canada

Stock taxes in Canada are kinder than people expect and fussier than they'd like. Kinder, because only half of a gain is taxed and Canadian dividends come with a credit. Fussier, because CRA wants your cost calculated by averaging every purchase in Canadian dollars, and your broker's slip doesn't always do it right. Here's how to get the numbers right, with examples.

How Each Kind of Return Is Taxed

Return	Tax treatment	Slip
Capital gain on a sale	Half is taxable income	T5008 (proceeds; cost often missing)
Capital loss	Half offsets taxable capital gains this year, the previous three years, or any future year	T5008
Eligible Canadian dividends	Grossed up 38%, then the dividend tax credit	T5 box 24-26
U.S. and foreign dividends	Fully taxable; foreign tax withheld is a credit	T5 box 15-16
ETF and mutual fund distributions	Mix of income, dividends, gains and return of capital	T3
Interest	Fully taxable	T5 box 13

Slips are explained on the T5 and the T3. Dividends in more detail: dividends.

Calculating Your Cost (Adjusted Cost Base)

Date	Transaction	Shares held	Total cost	Average cost per share
Feb 2024	Buy 100 at $40 + $10 commission	100	$4,010	$40.10
Jun 2025	Buy 100 at $60 + $10 commission	200	$10,020	$50.10
Mar 2026	Sell 150 at $70, $10 commission	50	$2,505	$50.10

Proceeds $10,490 after commission, cost of shares sold 150 x $50.10 = $7,515. Capital gain $2,975; taxable $1,488. At a 29.65% marginal rate in Ontario, about $441 of tax. Selling the "$40 shares first" isn't an option in Canada: identical shares are always averaged, across all your non-registered accounts. The tax at your income is in the capital gains calculator.

Free

Need help with your cost base?

List your purchases and sales, with dates, prices and currency. The assistant works out the average cost, the gain or loss on each sale, and what goes on Schedule 3.

Ask a tax question

U.S. Stocks and Foreign Currency

The full guide is on taxes on U.S. stocks for Canadians.

Convert at the date of each trade: cost in Canadian dollars on the purchase date, proceeds in Canadian dollars on the sale date. A currency move alone can create a gain or loss.
U.S. dividends: usually 15% U.S. withholding in a non-registered account (with a W-8BEN on file), claimed back as a foreign tax credit. In an RRSP, the treaty generally waives it; in a TFSA it isn't recoverable.
Form T1135: foreign shares costing more than $100,000 in total, even held at a Canadian broker, must be reported every year; see form T1135.

Losses and the Superficial Loss Rule

Selling a loser before December 31 to offset gains (tax-loss selling) works, but if you, your spouse, or a company you control buys the same stock within 30 days before or after the sale, the loss is denied for now and added to the cost of the new shares. Buying a similar but not identical ETF usually avoids it. Unused losses carry back three years or forward forever; see capital losses. The adjusted cost base calculator checks your trades for superficial losses.

Investor or Trader?

Most people who buy and hold are investors: half of gains taxed, losses only against gains. Someone who trades very frequently, holds for days, uses margin heavily and spends a lot of time on it may be in business: the full profit is income and losses offset any income. It's decided on the facts, not by choice. The same test applies to crypto; see crypto taxes.

Which Account to Use

TFSA first for growth you expect to be large; see TFSA.
RRSP for U.S. dividend payers and interest-heavy investments; see RRSP.
Non-registered for Canadian dividend stocks once the others are full.

The full map is on investment taxes in Canada and capital gains tax.

Stock Tax Questions

How are stocks taxed in Canada?

Half of a capital gain is taxable when you sell. Canadian dividends are taxed with a gross-up and dividend tax credit, foreign dividends are fully taxable, and nothing is taxed inside a TFSA.

How do I calculate the adjusted cost base of shares?

Add up what you paid for all identical shares, including commissions, in Canadian dollars, and divide by the number of shares. Each new purchase changes the average; each sale uses the current average.

Do I pay tax on stocks if I do not sell?

Not on the growth. You pay tax on dividends and fund distributions each year, and on the gain only when you sell.

Can I deduct stock losses?

Capital losses offset capital gains in the same year, the previous three years, or any future year. They cannot be deducted against other income unless you are trading as a business.

Do I need to report U.S. stocks?

Yes. Gains and dividends are reported on your return in Canadian dollars. If foreign shares cost more than $100,000 in total, you must also file form T1135.

Sources: CRA, Completing Schedule 3; Completing the T5 slip. Checked October 2026. U.S. withholding rates depend on the account and the treaty; the 15% figure assumes a W-8BEN in a non-registered account. The example uses 2026 Ontario rates.

Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.

Stock Investment Taxes