Capital Gains Inclusion Rate (Canada)

Canada doesn't tax 100% of capital gains. Instead, only a portion — the "inclusion rate" — is added to your taxable income. As of June 25, 2024, the inclusion rate is tiered:

• 50% on the first $250,000 of annual capital gains
• 66.67% (two-thirds) on capital gains above $250,000

Impact on prediction market traders

If you earned $40,000 in prediction market capital gains, only $20,000 (50%) would be included in your taxable income. At a 30% marginal rate, you'd pay approximately $6,000 — an effective rate of 15% on the gains.

Is it capital gains?

The key question for Canadian prediction market traders is whether the CRA classifies your profits as capital gains (favorable inclusion rate) or business/income (100% taxable). Factors include trading frequency, intent, and whether it constitutes a business activity. Occasional traders have a stronger argument for capital gains treatment.

Reporting on Schedule 3

Capital gains from prediction markets are reported on CRA Schedule 3, "Capital Gains (or Losses)." The inclusion amount flows to Line 12700 of your T1 return.

Comparison with the US

Canada's 50% inclusion rate is significantly more favorable than US short-term capital gains rates. A Canadian trader in the 30% bracket pays an effective 15% on prediction market gains (50% inclusion × 30% rate). The same trader in the US would pay 22–32% on identical short-term gains — more than double. However, the US offers Section 1256's 60/40 split for CFTC-regulated contracts, which Canada has no equivalent of.

Frequently asked questions

Does the $250,000 threshold reset each year?

Yes. The $250,000 threshold for the lower 50% inclusion rate applies annually. Even if you exceeded $250,000 in capital gains last year, the first $250,000 this year qualifies for the 50% rate again.

What about provincial taxes?

The inclusion rate is federal. Provincial taxes are calculated on the same taxable capital gain (after applying the inclusion rate). Combined federal + provincial rates range from roughly 20% to 54% depending on province and income level, but the effective rate on capital gains is halved by the 50% inclusion.