Our Recommended Broker

Get $50 in free trades.
Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max FAQs
Home
Disclaimer
Learning Topics
Contact Us
FAQ Archive

Do you have to pay tax on the capital gains earned by your stock if you haven't actually sold the stock?

In most cases, you do not pay taxes on a capital gain until you sell that stock.

If you bought a stock in 2000 and sold it in 2003 for more than you paid for it, you would have a capital gain for which you would have to pay tax in 2003. That would be the case even if all or most of the gain was earned in 2000, 2001 or 2002. Generally, the tax becomes payable when you actually realize the capital gain by selling.

If you own a stock held in a mutual fund, you will be liable for your share of the capital gains tax when and if the fund manager sells that stock for more than the purchase price. So even though you might buy mutual fund units in one year and continue owning those fund units for say 10 or more years, you will be taxed on any capital gain the fund earns from selling stocks at a profit in the year they are sold. And if you bought mutual fund units and later sold any of them for more than you paid, you'd owe capital gains tax in what ever year you realized the gain by selling.

You can delay having to pay tax on a capital gain earned by your stock or mutual fund -- if and as long as it's held inside a tax-deferred plan such as an RRSP. You would only pay tax when you start to withdraw money from your RRSP. Money taken out of your RRSP is taxed at your full tax rate -- just like interest income. You get no special tax break on that income. It doesn't matter if some or all of that money was generated from capital gains on stocks, say, or from dividends of Canadian corporations, both of which in most other cases qualify you for a tax break.