March 22, 2026
Should You Sell Investments This Year or Next?
Learn when to trigger capital gains or losses before year-end. Covers tax-loss harvesting, the superficial loss rule, year-end deadlines, and income smoothing strategies.
The timing of when you sell investments can have a meaningful impact on your tax bill. Canada taxes capital gains in the year they are realized, which creates both planning opportunities and traps. Here is how to think through the sell-now-vs-sell-later decision.
How Capital Gains Are Taxed in Canada
When you sell an investment for more than its adjusted cost base (ACB), you realize a capital gain. The inclusion rate determines how much of the gain is added to your taxable income.
As of 2025, the federal capital gains inclusion rate is:
- 50% on gains up to $250,000 per year for individuals
- 66.67% on the portion of gains exceeding $250,000 in a calendar year for individuals
For the majority of Canadians with gains under $250,000 in a year, the 50% inclusion rate applies — meaning only half of your gain is taxable.
Example: You sell shares with a $30,000 capital gain. $15,000 is added to your income and taxed at your marginal rate. At a 43% marginal rate in Ontario, the tax cost is $6,450.
Capital losses can offset capital gains, reducing or eliminating the taxable gain. Net capital losses can be carried back 3 years or carried forward indefinitely.
Reasons to Sell Before Year-End
1. Tax-Loss Harvesting
If you hold investments that are currently below your adjusted cost base (ACB), selling them crystallizes a capital loss. That loss can be used to:
- Offset capital gains you have already realized this year
- Carry back to recover taxes paid on gains in the prior 3 years
- Carry forward to offset future gains
Example:
| Investment | Gain/Loss |
|---|---|
| Sold Stock A (gain) | +$20,000 |
| Sold Stock B (loss) | −$12,000 |
| Net taxable gain | $8,000 |
| Inclusion at 50% | $4,000 added to income |
By harvesting the loss on Stock B, you reduced your taxable capital gain by $12,000 and saved roughly $2,580 in tax (at a 43% marginal rate on $6,000 of income that would have otherwise been taxed).
2. You Anticipate Higher Income Next Year
If you expect your income to be significantly lower this year than next — perhaps due to retirement, parental leave, or a sabbatical — selling appreciated investments now locks in gains at a lower marginal rate.
Example: You plan to retire mid-2026. In 2025, your income is $120,000 (marginal rate ~43%). In 2026, your income drops to $55,000 (marginal rate ~29.65%). Selling a $40,000 gain in 2025 costs $8,600 in tax. Selling the same gain in 2026 costs $5,930. Wait until 2026.
3. Staying Below the $250,000 Threshold
If you have large unrealized gains, spreading the realization across multiple calendar years keeps you below the $250,000 annual threshold (per individual) where the higher 66.67% inclusion rate kicks in.
| Gain in Year | Inclusion Rate | Taxable Amount |
|---|---|---|
| First $250,000 | 50% | $125,000 |
| Above $250,000 | 66.67% | Higher per dollar |
If you have a $400,000 gain, selling half in December and half in January splits the gain across two tax years — potentially keeping all of it at the 50% inclusion rate.
Reasons to Sell After Year-End (Wait Until January)
1. You Anticipate Lower Income Next Year
If you expect your income to drop significantly in the following calendar year (job loss, retirement, reduced hours), deferring the gain to January shifts the income to a lower-tax year.
2. You Want to Preserve Loss Carry-Forwards
If you have capital loss carry-forwards from prior years and expect large gains in future years, deferring current gains may allow those losses to be used against higher gains later.
3. Holding for a Tax-Exempt Event
If you are planning to donate appreciated securities to a registered charity, the capital gain is fully exempt when donated in kind. Do not sell the security first — donate the shares directly to preserve the tax exemption.
The Superficial Loss Rule: A Critical Warning
If you sell an investment for a loss and buy the same or identical investment within 30 days before or after the sale, the CRA disallows the capital loss under the superficial loss rule.
The disallowed loss is added to the ACB of the repurchased security and is recovered only when you eventually sell that security.
Superficial loss scenario:
- December 15: Sell 100 shares of XYZ at a $5,000 loss to harvest the loss.
- January 5: Rebuy 100 shares of XYZ.
- Result: The $5,000 loss is denied — it is a superficial loss.
How to avoid the superficial loss:
- Wait 30 days before rebuying the same security.
- Buy a similar but not identical security immediately (e.g., sell a Canadian bank ETF and replace it with a different but correlated bank ETF).
- Buy the replacement in your RRSP or TFSA (not recommended — the loss is permanently denied if the repurchase is in a registered account).
Note: Buying the same security in your RRSP or TFSA within 30 days also triggers the superficial loss rule — and in this case, the loss is permanently denied rather than added to the ACB.
Settlement Date vs Trade Date
Capital gains and losses are realized on the trade date (the day you execute the sale), not the settlement date. However, to ensure a transaction settles in the current tax year, be aware that:
- Canadian equities typically settle T+1 (next business day).
- US equities also settle T+1.
If you want a gain or loss to count in 2025, ensure the trade is executed by December 31, 2025 — though in practice, executing by December 29 or 30 (the last trading days) is safer given holidays.
Year-End Capital Gains Checklist
- Review all non-registered investment accounts for unrealized gains and losses.
- Identify loss positions that could offset existing realized gains.
- Check if you are close to the $250,000 individual annual threshold.
- Consider whether your income will be higher or lower next year.
- Plan the timing of any charitable donations of appreciated securities.
- Confirm trade dates and avoid triggering the superficial loss rule.
- Review ACB records — inaccurate ACB is the most common capital gains error.
Income Smoothing Over Multiple Years
For investors with significant investment portfolios, a proactive strategy of income smoothing can reduce lifetime taxes materially:
- Realize a consistent annual amount of capital gains to fill the lower tax brackets.
- Use RRSP and TFSA withdrawals strategically to supplement income in low-income years.
- Convert capital gains years to match years with large deductions (RRSP contributions, charitable donations).
Example of income smoothing: An investor has $500,000 in unrealized gains. Rather than realizing them all in one year (triggering the higher inclusion rate and the top marginal rate), they sell approximately $100,000 of gains per year over 5 years — keeping each year’s total income in the 33–40% bracket rather than the 46–53% bracket.
Bottom Line
The best time to sell depends on your current income, expected future income, the size of the gain, and whether you have losses to harvest. Year-end is the critical decision point — trades executed before December 31 count in this tax year; trades after January 1 count next year. Use our Capital Gains Tax Calculator to model the tax cost of selling at different income levels and in different provinces.
Use our calculators to apply these concepts to your own income. Tax information is for general guidance only — consult a CPA for advice specific to your situation.
Tax rates and thresholds sourced from the Canada Revenue Agency (CRA). Last verified for the 2025 tax year.